District Court Denies Employer’s Motion to Dismiss ERISA Breach of Fiduciary Duty Claim for Misrepresentation About Life Insurance Coverage

In Foughty v. Cleaver-Brooks, Inc., 2023 WL 7287220 (N.D. Ga. Nov. 3, 2023), Georgia Northern District Judge Thomas W. Thrash, Jr. denied Defendant’s motion to dismiss Plaintiff’s lawsuit for breach of fiduciary duty against the employer stemming from the denial of Plaintiff’s claim for life insurance proceeds, finding that Plaintiff had adequately pleaded a claim for relief under ERISA § 502(a)(3).

Plaintiff’s husband was an employee of Defendant Cleaver-Brooks, Inc. when he was diagnosed with brain cancer in May 2020. Plaintiff alleged that although she worked diligently to ensure her husband’s life insurance policy would remain active through the time of his death, Defendant provided false and misleading information that ultimately resulted in the life insurer, Reliance Standard, denying her claim. Plaintiff sued Reliance Standard and ultimately settled the case for the full benefit amount plus interest. The settlement carved out and preserved the Plaintiff’s claims against Cleaver-Brooks for breach of fiduciary duty. In the instant action, Plaintiff alleged that Defendant breached its fiduciary duties under ERISA § 502(a)(3), by providing inadequate advice on how to effectuate the extension of her husband’s life insurance policy and that she was therefore entitled to “make whole” compensation under the equitable theory of surcharge as she incurred considerable attorneys’ fees in challenging the denial of the life insurance benefit. Defendant moved to dismiss for failure to state a claim, arguing (1) that it did not breach any duties owed to the Plaintiff, (2) that the Plaintiff improperly seeks compensatory damages, and (3) that res judicata bars the claim.

The Court found that Defendant’s argument against equitable surcharge was not supported. First, Defendant’s reliance on the Supreme Court decision in Mertens v. Hewitt Associates, 508 U.S. 248, 256 (1993), was misplaced. In Mertens, the Supreme Court held that equitable relief under § 502(a)(3) precluded an award of compensatory damages against a nonfiduciary who knowingly participated in a fiduciary’s breach of fiduciary duty. The Court found that Mertens did not govern the issue because, unlike here, the plaintiff in that case sought money damages from a nonfiduciary. Second, since Plaintiff brought only a single § 502(a)(3) claim and no claim under § 502(a)(1)(B), there was no question of whether she had properly pleaded alternative theories of relief. Finally, Defendant also argued that Plaintiff had an adequate remedy at law against Reliance Standard, and therefore had no basis for further equitable relief. Defendant did not offer, and the Court was not aware of any legal authority prohibiting an equitable surcharge claim against the employer, even after having first proceeded against the insurer under § 502(a)(1)(B).

The Court also rejected Defendant’s res judicata argument finding that it did not bar Plaintiff’s § 502(a)(3) claim. Contrary to Defendant’s assertion, the Court found that the relationship between Defendant and Reliance Standard was not one of traditional privity. Applying the Eleventh Circuit’s test as outlined in Hart v. Yamaha-Parts Distribs., Inc., 787 F.2d 1468, 1472 (11th Cir. 1986), the Court found that none of the scenarios applied. The relationship between Defendant and Reliance Standard was not one (a) where the nonparty has succeeded to the party’s interest in property, (b) where the nonparty controlled the original suit, (c) where the nonparty’s interests were represented adequately by the party in the original suit, or (d) where the party and nonparty have concurrent interests in the same property right. See id. The Court further found the added fact that Reliance Standard agreed to carve out the claims against Defendant in its settlement was, in itself, evidence of the fact that it lacked privity with Defendant.

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