Eleventh Circuit Highlights Importance of Unambiguous Disclaimers in SPDs
The Eleventh Circuit recently affirmed an Alabama district court’s decision granting summary judgment in favor of Allstate Insurance Company in a consolidated ERISA class action challenging Allstate’s decision to stop paying premiums on retired employees’ life insurance policies. Klaas v. Allstate Ins. Co., 2021 U.S. App. LEXIS 38473 (11th Cir. Dec. 28, 2021).
For many years, as part of its employee welfare benefit plan, Allstate offered employees who met certain qualifications life insurance that continued into retirement. Beginning in 1990, Allstate distributed summary plan descriptions (SPDs) to its employees, describing the retiree life insurance benefits as “provided at no further cost” to the retiree. At times, Allstate also made representations to employees, both orally and in writing, that their retirement life insurance benefits were “paid up” or “for life.” However, the SPDs also contained (1) reservations of rights, which reserved to Allstate the right to change, amend, or terminate the plan at any time; and (2) “no vesting” provisions stating that neither participants nor beneficiaries had any vested rights in the plan’s benefits.
In 2013, as a cost reduction measure, Allstate informed former employees who retired after 1990 that it would stop paying the premiums on their life insurance policies at the end of 2015. One putative class of retired employees filed suit in September 2013 and the other filed suit in March 2015. Both proposed classes alleged that Allstate violated ERISA § 502(a)(1)(B) by cancelling the insurance benefits, and that it violated its fiduciary duty under ERISA § 502(a)(3) by making written and oral misrepresentations about the benefits. After extensive discovery, the district court granted summary judgment in Allstate’s favor on both claims. Plaintiffs appealed and the Eleventh Circuit affirmed.
Beginning with plaintiffs’ claims under ERISA § 502(a)(1)(B), which allows a participant or beneficiary to bring suit “to recover benefits due to him under the terms of his plan,” the Eleventh Circuit focused exclusively on the SPDs’ reservations of rights and “no vesting” provisions. SPDs, the opinion noted, are “the statutorily established means of informing participants of the terms of the plan and its benefits,” and are construed according to general rules of contract interpretation. Because the SPDs unambiguously gave Allstate the right to change, amend, or terminate the plan at any time, and expressly clarified that employees had no vested rights under the plan, the appellate court agreed with the district court that plaintiffs failed to establish that benefits were actually “due” under “the terms of the plan” for purposes of ERISA § 502(a)(1)(B).
As for plaintiffs’ breach of fiduciary duty claims, the Eleventh Circuit found them time barred by ERISA § 413, a statute of repose (not limitations) which generally bars claims for breach of fiduciary duty after the earlier of (1) six years of the breach or (2) three years after the earliest date on which the plaintiff had actual knowledge of the breach. ERISA § 413 provides an exception, however, for breach of fiduciary duty claims based on “fraud or concealment,” in which case the repose period is six years and runs from “the date of discovery of such breach or violation.”
The Eleventh Circuit applied the six-year period running from the breach and concluded that any action by Allstate that could give rise to a breach of fiduciary duty claim took place outside of the repose period. Regardless of whether the plaintiffs were misled, the record confirmed that Allstate last made representations about benefits being either “paid up” or “paid for life” in 2006. The first class of plaintiffs did not file suit until 2013, and the second class of plaintiffs did not file suit until 2015. Hence, both suits were untimely.
The breach of fiduciary duty claims drew a separate opinion from Judge Brasher, who concurred only in the judgment that the claims were time barred. Judge Brasher reasoned that plaintiffs’ breach of fiduciary duty claims sounded in fraud, and hence the repose period did not begin to run until plaintiffs became aware of the fraud. Judge Brasher concurred with the judgment, however, because the district court found no evidence of fraud, plaintiffs did not argue fraud on appeal, and it was doubtful that the suits could have been deemed timely even if the “fraud exception” to ERISA § 413 applied. He opined, however, that if, on summary judgment, plaintiffs had shown that Allstate fraudulently promised “paid up” insurance and concealed its failure to provide that insurance within six years of their lawsuit, the breach of fiduciary duty claims would have been timely.
The Eighth Circuit’s opinion reinforces the importance of placing clear, unambiguous reservations of rights and “no vesting” provisions in SPDs. It also strikes a cautionary note that employers should be mindful of how they describe their benefits to their employees. Written or oral descriptions of benefits should always be accompanied by a disclaimer, consistent with the SPD, that benefits are subject to change, modification, or cancellation.