CIGNA v. Amara: A Dramatic Change in the Legal Landscape for ERISA Claims

The Employee Retirement Income Security Act of 1974, or “ERISA” as it is commonly known, has long been seen by insurance companies as something of a panacea for their legal difficulties. ERISA is a federal statute governing private employee benefit plans, including health insurance and pensions. It has a broad “preemption” provision that frequently overrides state law claims that might otherwise apply to various types of wrongdoing committed by plan providers. For example, if a patient is denied coverage for medical care and files suit in state court invoking state law claims – or even pursues a small claims court action – the insurer typically “removes” the case to federal court and then asks the court to dismiss the state law claims because ERISA supposedly “preempts” them. The case is then limited to ERISA claims, for which the remedies have been limited.

The patient can spend years litigating in an effort to recover the denied benefits (perhaps with interest and attorneys’ fees, if lucky), but under ERISA, no other compensatory or punitive damages can be pursued. If the plaintiff seeks “equitable” relief for ERISA violations, remedies have been similarly restricted, since courts have made clear that monetary – or legal – relief is generally unavailable. That is, until now.

In CIGNA v. Amara, our normally very conservative U.S. Supreme Court issued a landmark decision this May which creates what could be an entire new world of ERISA litigation. For the first time, it opened the door to the possibility of obtaining “make-whole” monetary relief for an insurer’s breach of fiduciary duty. Suddenly, ERISA has been recast as a statute that could help the beneficiary it was designed to serve, not just the insurer. As the Department of Labor stated in an amicus brief filed in a post-CIGNA ERISA case in Wisconsin, CIGNA “has dramatically changed the legal landscape” by “restor[ing] ERISA to its original promise as a statute protecting the participants and beneficiaries of employee benefit plans by affording them a remedy for harms suffered as the result of a fiduciary breach.”

In the CIGNA case, a former employee of CIGNA Corporation, on behalf of herself and some 25,000 beneficiaries of the CIGNA Pension Plan, challenged changes in the pension plan which had significantly reduced benefits. The District Court found that CIGNA had violated ERISA through its action, including by causing the beneficiaries “likely harm” through its failure to provide proper notice of the changes. The court then “reformed” (i.e. changed) the new plan and ordered CIGNA to increase its benefit payments. It did so under the ERISA provision which allows a beneficiary to bring a “civil action” to “recover benefits due to him under the terms of his plan.” After the Second Circuit upheld the decision in a brief summary order, the Supreme Court granted certification.

In its final decision, the Supreme Court first held that the District Court had overstepped its bounds in “reforming” the plan. In a benefits claim, seeking payment of benefits provided in the plan, the Court concluded that the trial court was limited to interpreting and applying the terms of the plan themselves, which did not give it the right to alter those terms. But rather than reversing the decision, the Court went on to conclude that relief might be available instead under another provision of the statute, which allows beneficiaries to obtain “appropriate equitable relief” for ERISA violations.

Prior decisions of the Court held that such equitable relief was limited to remedies “typically available in equity,” and since a claim for monetary damages, “traditionally speaking, was legal, not equitable, in nature,” it could not be awarded. Yet, the Court in CIGNA held that its own previous decisions were limited to claims against a non-fiduciary. On the other hand, when – as here – a fiduciary (defined as any party with discretionary authority over the administration of a plan) is being sued for breaching its fiduciary obligations, the Court held that just because the trial court’s injunction included “a money payment” through increased benefits, this did “not remove it from the category of traditionally equitable relief.” The Court found that courts in equity traditionally “possessed the power to provide relief in the form of monetary ‘compensation’ for a loss resulting from a trustee's breach of duty, or to prevent the trustee's unjust enrichment,” sometimes referred to as a “surcharge.” As the Court explained:

The surcharge remedy extended to a breach of trust committed by a fiduciary encompassing any violation of a duty imposed upon that fiduciary. . . . Thus, insofar as an award of make-whole relief is concerned, the fact that the defendant in this case . . . is analogous to a trustee makes a critical difference. . . . In sum, contrary to the District Court's fears, the types of remedies the court entered here fall within the scope of the term "appropriate equitable relief " in § 502(a)(3).

The Court then vacated the decision and remanded it back to the District Court for determine if an “appropriate remedy” could be imposed based on the new theory of recovery.

The CIGNA decision applies not only to pension claims but to health insurance claims as well, and establishes a framework by which beneficiaries may now seek make-whole relief from an insurer or plan provider for breaches of fiduciary duty under ERISA – a remedy that heretofore was clearly unavailable. The “dramatic change in the legal landscape” recognized by the Department of Labor will, without doubt, have significant repercussions in future ERISA litigations.