In Martorello v. Sun Life Assurance Co. of Canada, 2009 U.S. Dist. LEXIS 41465, No. C 09-0912 PJH (May1, 2009), the court held the Sun Life failed to state a claim for equitable relief under 502(a)(3) of ERISA(29 U.S.C. 1132(a)(3)) sufficient to compel reimbursement of amounts previously paid. Charles Martorellowas a Senior Vice President of Sales for Hilti, Inc. As a benefit of his employment, Mr. Martorello was a participant under the Hilti Long Term Disability Plan. Unfortunately, on December 22, 2005, Mr. Martorellosuffered a Type A aortic dissection which required multiple surgeries.

At the time of his disability, Mr. Martorello base salary was $172,636 prior to bonuses received. In 2006, Mr. Martorello returned to work in a different capacity, receiving roughly $100,000 prior to any bonuses received. Mr. Martello invoked the residual disability provisions contained in his insurance policy and sought payment for his loss in income. Sun Life agreed to pay such amounts until June18, 2008. In a letter of the same date, Sun Life informed Mr.Martorello that it would not pay any benefits retroactive to September 1, 2007, as Mr. Martorello’s loss income did not meet the 20% reduction required under the terms of the Plan. In reaching this conclusion, Sun Life determined that while Mr. Martorello’s pre-disability earnings were determined without consideration of his bonus, for purposes determining his loss of income, his bonuses would be used. Mr. Martorello filed suit seeking, amongst other claims, a right to receive benefits. Sun Life filed a counterclaim alleging a right to reimbursement for the amounts it “mistakenly” overpaid.

The district court dismissed Sun Life’s claim for reimbursement under 502(a)(3). In doing so, the court relied on the Supreme Court’s ruling in Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002). Great-West mandates that suit brought under that section must be of the type traditionally found inequity-namely a constructive trust or equitable lien. As Sun Life plead an entitlement to specific funds, the court held that its claim was insufficient for purposes of 502(a)(3) and dismissed the claim.

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The Sixth Circuit in American Council of Life Insurers, et al. v. Ken Ross, No. 08-1406, 6th Cir.; 2009 U.S. App. LEXIS 5748 (March 18, 2009) upheld. Michigan’s prohibition against discretionary clauses in insurer issued Welfare Benefit Plans. The Court held that administrative rules prohibiting insurance companies from issuing policies containing discretionary language were intended to regulate the insurance industry as outlined in the savings clause and thus not preempted by ERISA.

COMMENTARY:

The Ross decision is a victory for plan participants. Participants now may be permitted to conduct discovery outside of the administrative record and submit new evidence when pursuing their claim in federal court. It will be interesting to see whether the Ross decision is followed by circuits in which the director of insurance has issued similar prohibitions.

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