The Supreme Court found in CIGNA Corp. v. Amara, No. 09‐804, 2011 WL 1832824 that the SPD terms are not an extension of the plan document for ERISA Section 502(a)(1)(B) purposes and cannot be enforced as if it were an extension of the plan document. This is contrary to previous precedent that more favorable SPD language generally trumps the plan document when there is a conflict.
While the Supreme Court found that this case did not meet the requirements of a ERISA Section 502(a)(1)(B) Denial of Benefits Claims, it did find that it potentially qualifies as ERISA Section 502(a)(3) Equitable Relief Claims.
Evolutionary Cignalling: Supreme Court In Cigna Corp. V. Amara Tells Participants That Door To Monetary Awards Against Fiduciaries Is Opening Under ERISA Section 502 (a)(3) discusses two sponsor and fiduciary implications of the case:
- First and foremost, even assuming that the Court's discussion of remedies under Section 502(a)(3) is pure dicta, it represents the first time the Supreme Court has signaled that "compensatory," "make-whole" monetary relief is available under ERISA's catch all provision, Section 502(a)(3). The fact that this signal comes from a large majority of justices (seven if we assume that Justice Sotomayor would agree with the reasoning of the main opinion) is almost certain to lead to a significant increase in Section 502(a)(3) claims. For nearly 20 years, the lower courts overwhelmingly have construed Mertens and later Supreme Court decisions to preclude monetary relief under Section 502(a)(3) against fiduciaries in nearly all circumstances. CIGNA now appears to invite participants to challenge and remake that law.
- Second, the impact of the Supreme Court's holding that the terms of an SPD cannot be enforced as is they were plan terms will have to be sorted out in future litigation. The decision appears to overturn the rule adopted by many circuits, including at least the Second, Fourth, Fifth, Sixth, Seventh, Ninth, Tenth and Eleventh, that an SPD with language more favorable to participants than the plan automatically controls when there is a conflict. This long-established but participant-friendly rule is now supplanted by a "reformation" doctrine that will require plaintiffs to prove the elements of reformation before the more favorable term can be invoked. Courts will have to sort out how such claims will be resolved in the myriad contexts in which they are sure to arise.
Supreme Court Favors CIGNA in Summary Plan Description Case reviews the case and notes that participants must show that an employer committed fraud in an SPD or that an error caused harm:
If the Supreme Court had accepted the arguments of the plan participants, the Labor Department and the 2nd Circuit, that would have posed "a substantial threat to employer plan sponsors by subjecting them to class-wide relief for a miscommunication without requiring any showing of harm," Myron Rumeld, a employee benefits partner in the New York office of Proskauer Rose L.L.P., says in a comment on the case.
If the participants had prevailed, a court could have enforced the terms of an SPD as understood by the participants, rather than terms of the plan itself, Rumeld says.
The Supreme Court now has made it clear that plan participants must show that an employer committed fraud in an SPD, or that an error caused harm, before they can ask a court to impose forms of equitable relief such as equitable estoppel, plan reformation, or surcharge, Rumeld says.
"The Supreme Court rejected the notion that there is a 'one size fits all' approach to claims based on faulty communications, such that all participants automatically recover additional benefits that were never intended under the terms of the plan," Rumeld says. "The court correctly concluded that the SPD is merely meant to be a summary of the plan, and thus the mistaken terms of the SPD should not be enforced as a contractual matter."
However, the Supreme Court Provided Participants with a Potential Remedy for Claims
Employees Win New Benefit Protections discusses how the case provides the courts with a roadmap for future claims:
The justices agreed with Cigna that courts couldn't award a benefit that wasn't in the plan. But in an unexpected move in the closely watched case, the justices provided a way for courts to award a remedy despite this: They said that if an employer had breached its fiduciary duty to the employees, a court could order a trustee to amend the terms of the plan to conform to the terms in the summary.
"It gave the courts a roadmap," says Mary Ellen Signorille, senior attorney at AARP, which, along with the Department of Justice, had filed legal briefs on the employees' behalf.
This is a significant change. Since a 1993 Supreme Court decision written by Justice Antonin Scalia, many courts refused to make monetary awards for benefits lost as a result of violations of disclosure rules and fiduciary duties. This led to dozens of cases in which courts found that employers and plan trustees had behaved unlawfully or deceitfully, resulting in financial loss or death of the participants, yet faced no consequences.
"The Supreme Court has ruled that the era of rights with no remedy is over, and that employees should be made whole for inaccurate or misleading information about the benefits that they earn," says Stephen Bruce, who represented the Cigna employees.
What Does Amara CIGNA-fy? discusses the significance of the ruling:
I think it is, and indeed think that Amara is a game-changer. In an area in which ERISA has been viewed by some as a perversely pro-employer statute in some respects, in part because of the apparent inability in some cases to provide for remedies for what seem like evident wrongs, the statute may have shifted in one fell swoop towards being a quite flexible mechanism for the crafting of fair results by the courts... I'm not saying that I think that Amara will result in a wave of new litigation. I think that people have tended to sue for evident wrongs like the ones allegedly at issue in Amara, even where the courts and their development of the law have made the claims of participants into uphill fights. (Around the edges, a potential plaintiff or class-action lawyer may have been discouraged where a similar claim or supporting rationale had been squarely rejected, and, in those cases, Amara may lead to some increase in the number of cases brought.)
I think that Amara's primary impact will be in leading to more flexible and intuitive remedies and recoveries, as opposed to triggering a palpable increase in the amount of litigation. Courts now would seem to have the broad discretion to fashion appropriate equitable relief to redress an ERISA violation - not a wholly surprising result given that ERISA provides for . . . um . . . "appropriate equitable relief." The courts' perceived inability up until now to confer adequate remedies for actionable wrongs has resulted in the vilification of what is fundamentally a right-minded statute. To the extent that we are moving beyond that state of affairs, Amara may CIGNA-fy a real and valuable step forward.