Dawson-Murdock v. Nat’l Counseling Grp., Inc., 2019 WL 3308535 (4th Cir. 2019)
Available at http://www.ca4.uscourts.gov/opinions/181989.P.pdf
The Fourth Circuit has vacated a trial court’s dismissal of a case brought against an employer by a deceased employee’s spouse, alleging breach of fiduciary duty in connection with her husband’s employer-provided group life insurance plan. The insurer had denied the spouse’s claim for benefits, stating that her husband had become ineligible for the plan and was not covered when he died—even though he had continued making premium payments—because he had shifted from full- to part-time employment several months before he died. The employer’s vice president instructed the spouse not to appeal the insurer’s denial because the company would pay the claim amount to her directly. But after the appeals period had passed, the spouse was notified that the claim would not be paid after all, and she sued the employer for breach of fiduciary duty. The trial court dismissed the case (see our Checkpoint article), holding that the employer was not acting as a functional fiduciary for purposes of the alleged actions, despite being identified in plan documents as the plan administrator and named fiduciary.
The Fourth Circuit disagreed, holding that a participant or beneficiary is generally not required to allege that the plan administrator and named fiduciary also satisfies a functional fiduciary test to state a plausible fiduciary breach claim. Nevertheless, the court also concluded that, even if named fiduciary status was not enough to subject the employer to fiduciary responsibilities, the employer’s alleged conduct satisfied the functional definition of a fiduciary. Specifically, the court explained that the employer acted as a fiduciary when it failed to inform the employee of his ineligibility and his right to port or convert his policy. In addition, the employer—through its vice president—acted as a fiduciary when it advised the spouse not to appeal the insurer’s denial. Concluding that the spouse had sufficiently alleged a breach of fiduciary duty, the court sent the case back to the trial court for further proceedings.
EBIA Comment: This case highlights the ramifications of being an “automatic fiduciary,” such as an ERISA plan administrator or named fiduciary. Although a person or entity not designated as a fiduciary may become a fiduciary by performing certain functions in connection with an ERISA plan, such persons are generally not fiduciaries unless they exercise discretion in performing the function in question. In other words, a person performing merely “ministerial” functions is not a fiduciary. However, as the court observed, this analysis does not apply to an automatic fiduciary. A plan administrator or named fiduciary will be a fiduciary without regard to whether its actions make it a functional fiduciary. For further discussion, see EBIA’s ERISA Compliance manual at Section XXVIII.B (“Who Is a Fiduciary?”). You may also be interested in our webinar Learning the Ropes: An Introduction to ERISA Compliance for Group Health Plans (recorded on 3/13/19).
Contributing Editors: EBIA Staff.