Insurance Companies Allowed to Keep Profits on Beneficiaries’ Money

Why do district courts ignore compelling Supreme Court precedent in ERISA benefits cases? In a recent case from Texas, Lopez v. Liberty Life, a district court judge did just that. And, unfortunately, it’s not unusual. But, they seem to do it only in ERISA benefits cases. The judicial cards are already stacked against a party claiming an ERISA benefit in federal court, and that litigant cannot go to any other court. So, why do federal judges insist on piling on? There may be many answers to the question, but none of them justify this wholesale disregard of the few Supreme Court opinions that help the disabled worker.

Rebecca Lopez was disabled from work after a fall in which she suffered an aggravation of a serious spinal condition, including a tumor on her spinal cord. She applied for disability benefits and was initially approved. But, those benefits were terminated after 7 months. After an unsuccessful appeal to the insurance company, as she was required to do, she filed suit in federal court.

ERISA provides that a beneficiary may file suit for withheld benefits, and “. . . to obtain other appropriate equitable relief. . .” In a 1996 case, Varity Corp. v. Howe, the United States Supreme Court held that when a beneficiary states a claim for a specific benefit, he or she cannot maintain a claim “other equitable relief”. The Court had held that this provision was a “catchall” or “remedial” phrase and was only for people whose claims did not fall into the one of the specifically named causes of action. In other words, if you claimed withheld benefits, you could not also claim “other equitable relief”.

Then, the Supreme Court, in Cigna Corp. v. Amara, held that a beneficiary could state a cause of action for monetary damages and for equitable relief. The Supreme Court specifically ruled that a court could award a “surcharge” to make a beneficiary whole. In the wake of Amara, Gearlds v. Entergy Services, Inc., was decided by the U.S. 5th Circuit (that has supervisory jurisdiction over courts in Louisiana, Mississippi, and Texas). The Gearlds court ruled that because of the holding in Amara, just because a beneficiary is seeking monetary damages “is not the end of the inquiry into equity”. The court concluded that even though the plaintiff had stated a claim for monetary damages, he had also stated a claim plausible claim for equitable relief, in the form of a “surcharge”.

Mrs. Lopez’s lawyer was aware of the holdings in Amara and Gearlds and sued for reinstatement of her benefits and for equitable relief in the form of a surcharge on the withheld benefits equal to the profit that Liberty Life had made on those benefits during the period they were not paid.

In spite of Amara and Gearlds the district court judge reached the impossible conclusion that Mrs. Lopez “. . . has a potential remedy [for monetary damages] and is not entitled to relief under the catchall provision.”  In other words, it is perfectly OK for Liberty to stop paying benefits to her and invest the amount of those benefits in the market. If it is found that the benefits were wrongfully withheld, Liberty will have to pay them back, BUT CAN KEEP THE PROFITS IT MADE OFF HER MONEY! This is not only insane reasoning, it is also patently unfair, and it violates the very principles of equity.

But, then, this is ERISA!

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