In Morris v. Aetna Life Insurance Company, No. 21-56169, 2023 WL 3773656 (9th Cir. June 2, 2023), a dispute involving a miscalculation of long-term disability (“LTD”) benefits, the Ninth Circuit reversed the district court’s dismissal of the plaintiff’s breach of fiduciary duty claim under ERISA § 502(a)(3).
Plaintiff-Appellant Irina Morris became disabled in 2009. Aetna Life Insurance Company approved and paid Morris’s LTD claim. In calculating Morris’s benefit, Aetna assumed Morris was paid bi-weekly, rather than semi-monthly, which resulted in its determination that she was entitled to a gross monthly benefit of $6,229.17. See Morris v. Aetna Life Ins. Co., No. 820CV00821SBGJSX, 2021 WL 3509553, at *2 (C.D. Cal. Aug. 9, 2021). The correct amount was $5,750, but Aetna did not catch this error until 2018, over 9 years after it initially determined her benefit amount. In this 9-year period, “Aetna repeatedly affirmed the erroneous benefit amount directly to Morris and her lenders for almost a decade, permitting Morris to take out mortgages, obtain mortgage refinancing, negotiate a divorce settlement, and pay taxes, all on the basis that she was entitled to a higher income.” Morris, 2023 WL 3773656, at *2. Despite its mistake, Aetna demanded that Morris repay the overpaid benefits. Aetna then engaged in self-help and recouped over $56,000 from Morris by withholding her ongoing LTD benefits.
Morris filed suit for payment of benefits under ERISA § 502(a)(1)(B) and for breach of fiduciary duty under ERISA § 502(a)(3). The district court found that under the clear terms of the LTD policy, Morris is not entitled to the higher incorrect benefit amount, thus, she is not entitled to relief under ERISA § 502(a)(1)(B) claim. The district court also determined that Morris was not entitled to relief under ERISA § 502(a)(3), in reliance on “Bafford v. Northrop Grumman Corp., 994 F.3d 1020, 1028 (9th Cir. 2021), which held that the calculation of benefits according to a pre-set formula was not a fiduciary function under ERISA.”
The Ninth Circuit found that the “district court erred in concluding that Bafford forecloses Morris’s claim for fiduciary breach.” The court distinguished the facts in this case from those in Bafford. In Bafford, the third-party administrator calculated benefits within a framework of a policy set by another entity and did not exercise the requisite discretion or control to constitute a fiduciary function. Here, Aetna provided Morris with individualized consultations with benefit counselors, consulted with her by phone about her benefit amount numerous times, and communicated with Morris’s financial institutions to verify her benefit amount. The court found that these actions amounted to a fiduciary act. Further, Aetna exercised discretion when it gathered Morris’s earnings information and applied the plan terms to determine her benefit amount. The court explained: “Had any Aetna representative taken any step to actually verify the validity of the benefits amount it repeatedly communicated, Aetna could have avoided any overpayment, much less the catastrophic amount that resulted. Instead, Aetna repeatedly affirmed the erroneous benefit amount directly to Morris and her lenders for almost a decade, permitting Morris to take out mortgages, obtain mortgage refinancing, negotiate a divorce settlement, and pay taxes, all on the basis that she was entitled to a higher income.” For these reasons, the court reversed and remanded the case for further proceedings on the ERISA § 502(a)(3) claim.
*Please note that this blog is a summary of a reported legal decision and does not constitute legal advice. This blog has not been updated to note any subsequent change in status, including whether a decision is reconsidered or vacated. The case above was handled by other law firms, but if you have questions about how the developing law impacts your ERISA benefit claim, the attorneys at Roberts Disability Law, P.C. may be able to advise you so please contact us.
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