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Your ERISA Watch – Fourth Circuit Revives Breach of Fiduciary Duty Claim Against Plan Administrator Related to Life Insurance Coverage

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We are pleased to issue a mid-week report on a notable decision that just issued from one of our firm’s cases, Dawson-Murdock v. National Counseling Group, Inc., et al., _F.3d_, 2019 WL 3308535 (4th Cir. 2019).  Today’s decision from the Fourth Circuit Court of Appeals is a victory for our client, a life insurance plan beneficiary, who sought equitable relief for a breach of fiduciary duty under ERISA Section 502(a)(3).

Last summer, we reported on the district court’s decision in Court Rules No Remedy Available for Aggrieved Life Insurance Beneficiary.  To reiterate the basic facts of this case, Plaintiff Dawson-Murdock’s deceased husband, Wayne Murdock, worked full-time for Defendant National Counseling Group, Inc. (“NCG”).  As a full-time employee, he was covered by a group life insurance policy funded by Unum Life Insurance Company of America.  On March 21, 2016, Wayne switched to part-time work and then died six months later.  After he started part-time work, Wayne continued to pay premiums for his life insurance coverage.  When Ms. Dawson-Murdock submitted a claim for life insurance benefits, Unum denied her claim on the basis that Wayne had not converted to portable coverage.  NCG’s Vice President of Human Resources assured Dawson-Murdock that it would pay the claim and that she no longer had to deal with Unum.  On that assurance, she did not appeal the denial to Unum, and missed the 90-day window to do so.  She continued to communicate with NCG about the payment for several months before NCG just decided it was not going to pay after all.

Dawson-Murdock filed suit against NCG alleging an ERISA breach of fiduciary duty to herself and her husband.  Judge John Gibney, Jr. dismissed the breach of fiduciary duty claims against NCG because the court determined that the employer’s conduct of failing to notify Wayne about his eligibility for life insurance benefits after he switched to part-time work and collecting his premiums did not fall within the scope of fiduciary activity.  Even though the VP of HR misstated information to Dawson-Murdock by telling her NCG would take care of the claim and she did not need to deal with Unum, the court found this did not meet the narrow definition of fiduciary activity.

Kantor & Kantor represented Dawson-Murdock in her appeal to the Fourth Circuit.  On appeal, Dawson-Murdock presented the following questions:

  1. Whether Defendant NCG, the named plan administrator, was acting as a fiduciary when it failed to inform decedent that he was no longer eligible for life insurance benefits under the plan but could instead convert to individual coverage.
  2. Whether NCG was acting as a fiduciary when the company, acting through its Vice President of Human Resources, erroneously informed Plaintiff that she need not appeal the denial of benefits because NCG would pay her claim. Link to brief.

Contrary to the district court’s determination, the Fourth Circuit found that NCG, as the Plan Administrator and named fiduciary for the Plan, is a fiduciary for the purposes of Dawson-Murdock’s ERISA claims.  A participant does not need to allege in every case that the plan administrator and named fiduciary is also a functional fiduciary.  The district court erred by failing to recognize the significance of NCG’s status as the joint plan administrator and named fiduciary and by focusing on Fourth Circuit precedent addressing functional fiduciaries.  The court noted that this error alone supports a vacatur and remand, but the district court also erred in its functional fiduciary analysis.

On the functional fiduciary question, the Fourth Circuit found that Dawson-Murdock’s complaint sufficiently alleges that NCG is a fiduciary with respect to the conduct giving rise to her claims.  The court explained that “when a plan administrator is responsible for verifying employee eligibility for participation in an employee benefit plan, that administrator acts in a fiduciary capacity with regard to that obligation.”  When an administrator knows that an employee wishes to maintain participation in a plan, it acts in a fiduciary capacity when it conveys, or fails to convey, material information to a plan participant about the retention of eligibility for the benefits.  A plan administrator, who by the nature of its position has discretionary authority or responsibility in the administration of a plan, is a functional fiduciary.  See 29 C.F.R. § 2509.75-8(D-3).

Notably, in a footnote, the Court stated that the district court relied primarily on the unpublished opinion in Moon v. BWX Tech., Inc., 577 F.App’x 224 (4th Cir. 2014) for the proposition that an employer was not acting as a fiduciary when it accepted an employee’s life insurance premiums without advising him that he was not eligible for the coverage.  The court explained that Moon failed to mention Griggs v. E.I. DuPont de Nemours & Co., 237 F.3d 371 (4th Cir. 2001), which approved a fiduciary breach claim where the plan administrator failed to correct the plan participant’s material misunderstanding of the relevant plan.  Also, the employer in Moon was neither a plan administrator nor a named fiduciary.

With respect to the VP’s advice to Dawson-Murdock to not appeal her denial of benefits to Unum, the Fourth Circuit found that this action of conveying information about plan benefits to a beneficiary in order to assist plan-related decisions, is a fiduciary activity under ERISA.  For these reasons, the Fourth Circuit Court of Appeals vacated the district court’s decision and remanded for further proceedings.

On appeal, Dawson-Murdock was represented by Kantor & Kantor partners, Elizabeth Hopkins (argued) and Michelle Roberts (on the briefs).

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