Absent an Initial Showing That It Is a Fiduciary, Employer Is Immune from Breach of Fiduciary Liability Claim under ERISA in the Fourth Circuit

October 21, 2014

Author: Heather Austin

In Moon v. BWXT Technologies, Inc., 2014 U.S. App. LEXIS 12525 (4th Cir. July 2, 2014), the Fourth Circuit rejected fiduciary breach and equitable estoppel claims, determining that an employer’s failure to alert an employee that he was no longer covered under a life insurance plan and the continued acceptance of premium payments constituted administrative, not fiduciary, functions, and that the plan was administered by a third party.

When Leslie Moon was no longer able to work for BWX Technologies, Inc. (BWXT) as a result of a heart condition, he applied for and received short-term and later long-term disability benefits. While employed by the company, Mr. Moon also applied for life insurance coverage that was offered to BWXT employees as part of the company’s employee benefit plan. MetLife was the designated Claims Administrator, and it insured the life plan.

On November 29, 2005, BWXT confirmed Mr. Moon’s selection of $200,000 in life insurance coverage, effective January 1, 2006. Mr. Moon’s application for long-term disability benefits was approved on December 1, 2005. As a result, he was no longer an employee of BWXT. On January 13, 2006, BWXT again confirmed that Mr. Moon elected $200,000 in life insurance coverage for 2006. Thereafter, BWXT received and accepted premium payments for the life coverage without objection.

Mr. Moon died on November 18, 2006. His account was then in arrears; however, his wife paid the balance due within two weeks of his death and then submitted a claim for life benefits. BWXT denied Mrs. Moon’s claim, stating that because her husband was permanently disabled, was not an active employee in 2006 and failed to convert his group coverage to an individual policy, he was not covered under the MetLife Plan at the time of his death. Mrs. Moon filed a lawsuit seeking life insurance benefits.

The Fourth Circuit Decision
In Moon, the Fourth Circuit rejected Mrs. Moon’s argument that the District Court erroneously dismissed her claims for equitable estoppel and breach of fiduciary duty and further erred when it denied as futile her request to further amend her complaint to state a claim for reformation of contract and surcharge for breach of fiduciary duty, two claims that the Fourth Circuit noted were recently recognized in the context of ERISA in CIGNA Corp. v. Amara, 131 S.Ct. 1866 (2011).

As a matter of law, the Fourth Circuit decided that Mrs. Moon’s breach of fiduciary duty claim against BWXT could not survive and that she was not entitled to a remedy in the form of an order estopping BWXT from acknowledging that coverage existed. For the Court, the question of whether BWXT violated ERISA by breaching a fiduciary duty was dependent on the plaintiff’s ability to prove that BWXT was a fiduciary.

Relying on the plan documents, which identified MetLife as the Claims Administrator and a non-party entity, McDermott, Inc., as the Plan Sponsor and Administrator, the Court denied Mrs. Moon’s argument that BWXT was the Plan Administrator and therefore an ERISA fiduciary. The Court also did not consider BWXT an ERISA fiduciary merely because it was Mr. Moon’s employer. Rather, noting that status as an ERISA fiduciary “is couched in terms of functional control and authority over the plan” the Fourth Circuit examined “the conduct at issue when determining whether an individual is an ERISA fiduciary,” including whether BWXT lacked formal power to control and manage the plan yet nonetheless acted as a de facto fiduciary.

Noting that it rejected Mrs. Moon’s contention that a post-employment contract was created through the 2006 confirmation letter, the Fourth Circuit considered her claims relative only to the MetLife Plan. In doing so, the Fourth Circuit rejected Mrs. Moon’s claim that BWXT had “discretionary authority under ERISA to create and manage the benefit plan offered to Mr. Moon” and that it was therefore an ERISA fiduciary as to the plan. The Court also rejected her claim that BWXT was a de facto ERISA fiduciary, as allegedly evidenced by BWXT’s acceptance of the premium payments for 2006 and its failure to advise Mr. Moon that he was no longer eligible for coverage under the Plan.

These acts, the Court determined, were not “discretionary functions with respect to the management, assets, or administration of a plan.” The Court relied on the Department of Labor regulations set forth at 29 C.F.R. § 2509.75-8, which “explains [that] ‘a person who performs purely ministerial functions … within a framework of policies, interpretations, rules, practices and procedures made by other persons is not a fiduciary.’” The Court concluded that BWXT’s actions were “more akin to ‘collection of contributions’ and ‘advising participants of their rights and options under the plan,’ which are purely administrative functions.”

The Fourth Circuit also rejected Mrs. Moon’s claim that BWXT is a fiduciary because it alone reviewed, investigated and exercised final authority by declining her claim. Instead, the Court decided that BWXT did not, by accepting premium payments or failing to advise Mr. Moon that he was not eligible for coverage, engage in “discretionary handling and unilateral denial” of the claim. Further, relative to its notice to Mrs. Moon advising that her husband was not eligible for coverage, the Court determined that BWXT simply performed an administrative function by advising Mrs. Moon of her rights and options under the Plan and did not exercise discretionary authority to allow or disallow benefits.

While the Court acknowledged that Amara recognizes estoppel and surcharge as viable ERISA claims under section 502(a)(3), ERISA “authorizes appropriate equitable relief only to redress violations of ERISA or an ERISA plan.” Because Mrs. Moon could not prove that BWXT was an ERISA fiduciary, she could not show any ERISA violations and therefore failed to prove her claims of breach of fiduciary duty and equitable estoppel. Similarly, the Fourth Circuit concluded that the District Court did not err when it refused her request for leave to amend her pleading to include claims for reformation of contract and surcharge for breach of fiduciary duty. The proposed claims were futile because Mrs. Moon was unable to show an underlying ERISA violation.

In sum, ERISA not only limits the relief available to participants, beneficiaries and even fiduciaries but also narrowly defines those persons and/or entities that may be liable under ERISA. A defendant faced with a breach of fiduciary duty claim under ERISA is well advised to consider not only whether it may have given inaccurate information to a plan participant or beneficiary but also whether it is a fiduciary that can be held liable for its acts regardless.

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