On March 13, the Second Circuit issued a significant opinion interpreting key provisions of the Employee Retirement Income Security Act (“ERISA”). In Thurber v. Aetna Life Ins. Co., Case No. 12-370-cv, 2013 WL 950704 (2d Cir. Mar. 13, 2013), the court affirmed the order of the District Court for the Western District of New York to the extent it dismissed the plaintiff’s ERISA § 502(a)(1)(B) claim, but reversed the District Court’s denial of Aetna’s counterclaim pursuant to ERISA § 502(a)(3) to recover overpayment of short-term disability (“STD”) benefits. In reaching its decision, the court held that ERISA plan administrators are not required to provide actual notice to participants and beneficiaries of a plan’s grant of discretionary authority to an insurer or other claim fiduciary, and that Aetna’s counterclaim to recover its overpayment of STD benefits constituted equitable – not legal – relief, and was permissible under ERISA § 502(a)(3).
On appeal, the Second Circuit disagreed with the Seventh Circuit to the extent that its holding in Herzberger v. Standard Ins. Co. interpreted ERISA as requiring actual notice to plan participants of a reservation of discretionary authority, reasoning that “unless ERISA requires the SPD [summary plan description] to contain language setting the standard of review, we see no reason why a plan administrator must actually notify a participant of its reservation of discretion. ERISA contains no such edict.” Affirming the district court’s summary judgment in favor of Aetna on its denial of Thurber’s long-term disability benefit claim, the court agreed that Aetna did not act arbitrarily and capriciously and its determination was supported by substantial evidence.
Notably, the Second Circuit reversed the District Court’s dismissal of Aetna’s counterclaim to recover its overpayment of STD benefits based on Thurber’s receipt of other income benefits in the form of no-fault insurance payments. Discussing Supreme Court decisions analyzing the issue, the Second Circuit held that Aetna’s counterclaim was equitable in nature because the insurer sought specific funds (overpayments resulting from Thurber’s simultaneous receipt of no-fault insurance benefits and STD benefits) in a specific amount (the total overpayment) as authorized by the plan, that had been entrusted to Thurber. Acknowledging a Circuit split on the issue, the court determined that a different result was not warranted because either (1) Aetna sought to recover a specific portion of benefits rendered overpayments rather than the actual third-party income Thurber received, or (2) the overpayments made had since been dissipated. The plan clearly provides Aetna the right to recover benefits rendered overpayments, giving Thurber adequate notice that she was holding the money in a constructive trust, and the funds were under her control but belonged to the insurer.
In issuing this precedential opinion, the Second Circuit specifically rejected the Ninth Circuit’s recent decision in Bilyeu v. Morgan Stanley Long Term Disability Plan, 683 F.3d 1083 (9th Cir. 2012), which denied insurers the right to pursue recovery of overpayment under ERISA. It seems likely that there will be significant court activity regarding this issue as courts continue to struggle with interpreting what claims constitute “equitable” relief permissibly sought under ERISA § 502(a)(3).