On July 24, 2019, in Dawson-Murdock v. National Counseling Group, the US Court of Appeals for the Fourth Circuit set aside a district court’s dismissal of a spouse’s fiduciary breach claims against her deceased husband’s employer. The case was remanded back to the lower court for further proceedings.
As background, there are generally two types of fiduciaries under ERISA. The first are those fiduciaries specified in the plan document, such as the “Plan Administrator” and “named fiduciary.” These individuals or entities are fiduciaries by definition. The second type are functional fiduciaries, i.e., those not necessarily named in the plan documents, but who assume fiduciary roles by their actions. Such actions (or omissions) typically involve the exercise of discretionary authority (e.g., interpreting ambiguous plan terms or making final determinations regarding benefits eligibility), as opposed to performing purely ministerial duties. The two fiduciary types are not mutually exclusive, and either can be subject to fiduciary breach claims.
In this case, a widow asserted that her husband’s employer breached fiduciary duties in relation to its group life insurance plan. The insurance company had denied the spouse’s claim for benefits on the basis of ineligibility due to her husband’s transition to part-time employment status. However, the employer, which was responsible for eligibility determinations, had never informed the employee of the effect of his reduction in hours or the options to maintain coverage, and continued to collect premium payments from the employee. Furthermore, the employer’s VP of Human Resources instructed the widow not to file an appeal of the claim denial because the company would pay the claim and work the issue out with the insurer. Notwithstanding, the VP eventually informed the spouse that the employer would not pay the claim. By the time she received such notice, the ninety-day timeframe for filing an appeal had passed. The spouse then sued the employer for breach of fiduciary duties.
The trial court held that the employer had not acted in a fiduciary capacity with respect to its actions regarding the group life insurance coverage and claim. The fiduciary breach claims were dismissed, despite the employer being specified in the plan documents as both the “Plan Administrator” and “named fiduciary.”
The Fourth Circuit clearly disagreed, reinforcing the ERISA principle that the individual(s) or entity identified as “Plan Administrator” and “named fiduciary” in the plan document are “automatic” fiduciaries. In other words, these parties cannot disclaim fiduciary status on the basis of a lack of discretionary actions. Furthermore, the court held that the employer’s actions and omissions were sufficient to support a functional fiduciary claim. Specifically, the VP had acted as a fiduciary in failing to notify the employee of his ineligibility and provide other options for coverage continuation. The VP had also assumed a discretionary role when advising the spouse not to appeal the claim denial. In finding a sufficient basis for the breach of fiduciary claims, the Fourth Circuit rejected the dismissal and sent the case back to the trial level for further proceedings.
This case serves as a reminder that the parties named in the plan document as “Plan Administrator” and “named fiduciary” are automatic ERISA fiduciaries against whom breach claims can be asserted. Accordingly, these individuals or entities should be selected with careful consideration and educated regarding their fiduciary duties and possible liabilities. Additionally, those parties not designated in the document, but who may perform discretionary plan responsibilities, should be aware of their potential functional fiduciary status.
Dawson-Murdock v. National Counseling Group »
Source: NFP BenefitsPartners
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