Breach of Fiduciary Duty Suit Arising From Medical Insurance Overcharges Settled

Hospital employees, who were charged higher fees by a group health plan it owned than it charged employees of other client companies, have settled a lawsuit alleging that the overcharges violated the employer’s fiduciary duties under ERISA reports the Winston-Salem Journal, “Baptist Hospital Settles Suit On Health Plan.“

The lawsuit claims that the hospital, North Carolina Baptist Hospital (NCBH) charged its employees higher fees for services rendered at the hospital through a group health plan, MedCost, which was owned by the hospital, than those charged to employees of other corporate clients. The hospital employees also had higher co-pays and lower discounts.  The report is:

“NCBH selected its subsidiary, MedCost, as the network provider for the plan knowing that MedCost would include NCBH in its provider network at substantially inflated reimbursement rates,” according to the lawsuit. “The selection was made not on the basis of quality or cost from a fiduciary standpoint, but rather was based on NCBH’s own economic interests.”

The settlement will allow employees to recover damages for their overpayments going back to 2002 and will limit their charges in the future.  

Robert L. Abell
www.RobertAbellLaw.com

Retirement Plan Stock Losses Are Basis For Employees’ Suit Against The Hartford

Employees, who have seen the value of their retirement accounts plummet as the stock value of their employer, The Hartford, has nosedived, have filed suit alleging mismanagement of their 401(k) retirement plans and failure to fairly and truly disclose the company’s financial condition reports the Hartford Courant, “Employees Sue The Hartford Over Retirement-Plan Stock Losses.”  At the end of 2007, the company’s stock was valued at $87.19 and 21.4% of the employees’ retirement plan holdings were invested in the company stock.  This year the stock has dropped to $10.46 per share amid continuing disclosures of poor investments by the company.  As a consequence, the value of the employees’ retirement accounts has also dropped.

The suit claims that the company failed to prudently manage the plan as required by ERISA, the Employee Retirement Income Security Act, which governs the management of employee retirement accounts. 

Robert L. Abell
www.RobertAbellLaw.com

Failure To Fully Pay Life Insurance Benefits Breached UNUM’s Fiduciary Duty Under ERISA

Beneficiaries of group life insurance policies must be fully paid the policy benefits upon proof of their claim, the First Circuit has ruled in Mogel v. UNUM Life Ins. Co., No. 08-1334 (November 6, 2008).  UNUM issued group insurance policies to employees at a number of companies.  Plaintiffs were beneficiaries of those policies and presented proof substantiating their benefits claims.  However, instead of paying the policy benefits, UNUM sent the beneficiaries a checkbook and a letter advising them that (1) their benefits had been deposited in a “UNUM Security Account”; (2) checks from $250.00 up to the balance of the account could be written; and, (3) interest on the account would be paid at a varying rate.

 

The court ruled that UNUM breached its fiduciary duty by retaining control and use of the beneficiaries’ money in what the court referred to as a “euphemistically named ‘Security Account.’”  Sending the beneficiaries a checkbook “was no more than an IOU which did not transfer the funds to which the beneficiaries were entitled” and constituted a breach of UNUM’s fiduciary duties under ERISA.

 

Robert L. Abell

www.RobertAbellLaw.com

Employee May Recover Under ERISA Value of Wrongfully Withheld 401(k) Contributions Plus The Amount They Would Have Grown

Many individuals have 401(k) accounts through their employment and their employer contributes also to their account.  But what can an employee do if their employer does not make the contributions they have promised?  This question was answered in Leister v. Dovetail, Inc., Nos. 07-2242, 07-3615, 07-3671 (7th Cir. October 23, 2008).  Leister was employed by Dovetail and, after a few years employment, discovered that Dovetail had not made its matching contributions to her 401(k) account.  She brought suit to recover the value of these withheld contributions.  The court ruled that Leister was entitled to recover the unpaid contributions together with a reasonable estimate of how those contributions, had they been made, would have grown.  The court added that this calculation should also consider that the benefits would not have been taxable until withdrawn; therefore, the court directed that the valuation of the account should include this tax benefit minus the cost of the future tax liability discounted to present value. 

Robert L. Abell
www.RobertAbellLaw.com

Retirement Plan Manager Breached Fiduciary Duty By Secretly Increasing Retirees’ Medical Insurance Premiums

A retirement plan manager breached its fiduciary duty under ERISA by increasing without notice to the plan’s participants their medical insurance premiums, the United States Court of Appeals ruled in Orth v. Wisconsin State Employees Union, No. 07-2778 (7th Cir. October 22, 2008).  When the plaintiff, Orth, retired a collective bargaining agreement provision required the plan to apply the monetary value of his accrued and unused sick leave toward his portion (10%) of his medical insurance premium.  However, the plan manager without notifying Orth or other retirees increased his premium portion to 100%, a practice that Orth learned of when the plan manager told him to send more money to pay his medical insurance premium.  This court ruled that this change breached the plan manager’s fiduciary duty because ERISA required the plan manager to notify the retirees of any changes to their plan.  Also, the court noted that ERISA requires that “a plan’s participants and beneficiaries must be notified in writing of all modifications to the plan.”  Therefore, the court concluded that the change was “doubly unlawful — as unwritten and as secret.”  

The court also ruled that Orth was properly awarded restoration of his accrued sick leave benefits.  In addition, the court upheld an award of attorneys’ fees to Orth, asserting that the “use of deceptive conduct toward the retired employees as a basis for trying to duck liability was shabby.”  And the court added that “one purpose of allowing an award of attorneys’ fees to a prevailing plaintiff is to disable defendants from inflicting with impunity small losses on the people whom they wrong.” 

Robert L. Abell
www.RobertAbellLaw.com

Former Employees Who Have Received Their Retirement Benefits May Sue For The Reduced Value Of The Benefits

Employees who have received their lump-sum retirement benefits may sue for breaches of fiduciary duty that reduced value of those benefits, the First Circuit ruled recently in Evans v Akers (No. 07-1140).   The key issue, the court explained, was whether a former employee, despite having already received pay-out of their benefits, was a “participant” of the retirement plan within the federal ERISA law.  A “participant” in an ERISA plan includes a former employee that has colorable claim that she will prevail in a suit for benefits under Supreme Court precedent.  A right to benefits, the court continued, includes an entitlement to prudent management.  Because the plaintiffs were participants in the plan when its value was reduced by imprudent management, they could sue to recover the reduced amount of their benefits. 
Robert L. Abell
www.RobertAbellLaw.com

Retirement Funds In Defined Contribution 401(k) ERISA Plan Lost Due to Investment Manager’s Failure to Follow Directions or Failure to Notify May Be Recovered

Two recent court decisions, one by the United States Supreme Court and the other by the United States Court of Appeals for the Sixth Circuit, which covers Kentucky, offer and allow badly-needed avenues for relief to employees whose retirement accounts have suffered losses or diminution in value due to the negligence or wrongdoing to those responsible for managing the accounts.

First, the Supreme Court ruled in LaRue v. DeWolff, Boberg and Associates, Inc., (decided by the Supreme Court on February 20, 2008), that an employee who claimed that the value of his retirement account had been diminished by approximately $150,000 because of a failure to follow his investment directions could sue to recover this diminution in value. The employee participated in an ERISA-covered defined contribution 401(k) retirement savings plan, which allowed him to direct the investments of his contributions. In accordance plan-specified procedures and requirements, he directed certain changes to the investment in his individual account be made but his directions were never followed and, as a result, the value of his account was diminished by approximately $150,000. In an attempt to recover this loss, he filed suit under ERISA claiming that the failure to follow his directions constituted a breach of fiduciary duty.

The employee’s lawsuit was thrown out first by the district court and that ruling was affirmed by the United States Court of Appeals for the Fourth Circuit. Both relied on an earlier Supreme Court decision, Massachusetts Mutual Life Ins. Co. v. Russell, claiming it established that individuals could not sue under ERISA to recover money for themselves and that only the entire ERISA plan itself could bring a suit to recover its lost assets. 

The Supreme Court distinguished Russell by reasoning that an individual bringing suit to recover losses to his account in the ERISA plan was still bringing suit to recover losses for the plan. The court, therefore, concluded that ERISA does “authorize recovery for fiduciary breaches that impair the value of plan assets in a participant’s individual account.”

Some weeks prior to the Supreme Court’s decision in LaRue, the United States Court of Appeals for the Sixth Circuit, in commendable anticipation of the Supreme Court’s subsequent decision on LaRue, ruled in Tullis v. UMB Bank that two physicians could sue to recover losses from a bank that allegedly failed to notify them of fraudulent activities affecting their ERISA-governed pension plans. The doctors were participants in a defined contribution pension plan, more specifically a 401(k) profit sharing plan available to them through the clinic where they were employed. They claimed that the defendant bank, which served as the trustee for the plan, knew of fraudulent activities engaged in by the plan’s investment advisor and failed to inform them. Consequently, the doctors alleged, their investment accounts had suffered losses exceeding $500,000 and $1 million, respectively. They alleged that the bank had breached its fiduciary duty to them by failing to inform them of the investment advisor’s fraudulent activities.

The Sixth Circuit used the same reasoning later in LaRue, observing that “although the number of affected participants differs, the nature of the relief – the payment of money to the plan – is the same regardless of the number of participants to whom the recovered assets are allocated.” Therefore, the court reinstated the lawsuit.

LaRue and Tullis represent a substantial evolution in ERISA law by granting employees a means to obtain redress when persons charged with managing their retirement accounts breach their duties. These decisions serve the overriding purpose of ERISA: the preservation of retirement account funds. Employees who suffer losses from breaches of fiduciary duties, whether because of a failure to follow their directions or a failure to notify them of wrongdoing, may now seek and hopefully obtain full recovery of their vital retirement accounts.

—Robert L. Abell
—www.RobertAbellLaw.com