Monday, May 16, 2011

News: Claimants prevail before Supreme Court. Not news: "insurance" industry spins big loss as big win

See update below!

The Supremes issued a very, very nice opinion today in CIGNA Corp. v. Amara. CIGNA had played fast and loose with its workers' pensions, unilaterally changing its pension plan to shortchange the workers without telling them about the negative effects of the change. This all gets pretty arcane, because the claimants had prevailed before the Second Circuit, and the Supremes reversed, which is what CIGNA wanted.

But CIGNA should be careful what it asks for, because the reason they reversed was nothing but bad news for CIGNA and good news for the claimants.

The claimants had based their case on 29 USC section 1132(a)(1)(B), which allows courts to award aggrieved claimants the benefits due under the terms of their benefit plan. The trouble has been that no recovery beyond that has been available, other than -- maybe -- something on account of attorney fees. To get there the lower courts, based on CIGNA's lies about the terms of the replacement pension plan, ordered that the plan be "reformed": that it be amended so that it reads consistently with what CIGNA's promises to its workers had been. And then based on the terms of the plan as the court had amended it, an award of benefits to the claimants followed.

So CIGNA appealed to the Supreme Court. The Supreme Court agreed today with CIGNA that the lower courts had incorrectly used section (a)(1)(B) to reform CIGNA's benefit plan. So CIGNA won that battle.

But CIGNA lost the war, because the Court went on to hold the plan could be reformed under a different subsection of the same statute, subsection (a)(3). AND... under section (a)(3) it said a court could do a lot of other stuff too, most notably imposing a surcharge against CIGNA.

This surcharge concept is very important, because up until now the remedies available under ERISA have been severely limited. A surcharge, though, allows claimants to recover for any actual out-of-pocket losses an ERISA insurer's bad acts cause, not limited to the amount of benefits due. So, after the Amara opinion, if an ERISA insurer denies your disability benefits and causes, for example, damage to your credit rating because you can't pay your bills, and that means your cost of credit is all of a sudden higher than it had been, you can be made whole (what a concept!) for that. If an ERISA health insurer wrongfully denies your claim and you have to foot the medical bill in question, now you can probably recover for that. The precise parameters will be determined through future cases, but at long, long last the absolute bar to any compensation beyond the amount of benefits in question has been significantly weakened.

So that's a big win for claimants no matter how you look at it.

Unless you're a flak for the ERISA "insurance" industry. Let's take a look at how industry rag National Underwriter reports on the decision, in a piece remarkably entitled "Supreme Court Favors CIGNA in Summary Plan Description Case":

WASHINGTON BUREAU -- The U.S. Supreme Court has significantly narrowed the grounds an employee can use to sue for additional pension benefits based on errors in a plan’s summary plan description (SPD).
The court ruled 8-0 in favor of the plan sponsor, CIGNA Corp., Philadelphia (NYSE:CI), in CIGNA Corp. v. Amara, No. 09-804, a 2001 class-action case triggered by CIGNA's move to turn a traditional defined benefit pension plan into a cash balance plan in 1998.

Yeah, they significantly narrowed the grounds all right -- it narrows down to "CIGNA loses."

As you might expect the insurance industry will immediately start misrepresenting the meaning of the Amara case to courts all over the map, and they may well succeed in persuading some judges that Amara doesn't stand for what I say it does. But those on my side will be working equally hard to make sure Amara has the effect it should.

This is a very good day for workers, retirees, and the disabled and sick. It's a bad day for fraud and bad faith. But we need to keep working so we'll have more good days in the future, because Amara is really the first small step on a long, long road back to achieving anything approaching justice in ERISA world.

UPDATE: Roy Harmon III has posted a good discussion at his Health Plan Law blog.

UPDATE 2: My colleague Joe Creitz also weighs in with an informative post.

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