Circuit Split Remains on Availability of Equitable Relief from ERISA Co-Fiduciaries
Supreme Court's Denial of Certiorari Leaves Ninth Circuit Decision – and Precedent – Intact
- The U.S. Supreme Court's recent denial of a petition for certiorari in First Reliance Standard Life Insurance Company v. Giorgio Armani Corporation is notable because it continues a circuit split on the key issue of whether the Employee Retirement Income Security Act of 1974 (ERISA) statutory scheme provides for and allows a fiduciary to obtain indemnification and contribution from a co-fiduciary for liabilities arising out of a violation of ERISA.
- Although some circuits have not taken a position on this issue, as it currently stands, the U.S. Courts of Appeal for the Second and Seventh Circuits allow a fiduciary to seek contribution and indemnification from co-fiduciaries under ERISA, while the Eighth and Ninth Circuits do not.
- This Holland & Knight alert examines the First Reliance case and provides key considerations for ERISA fiduciaries in its aftermath.
The U.S. Supreme Court has denied a petition for certiorari in First Reliance Standard Life Insurance Company v. Giorgio Armani Corporation. Although the headlines typically come when the Supreme Court issues an opinion, its denial in this case is notable because it means there will continue to be a circuit split on the key issue of whether ERISA allows a fiduciary to obtain indemnification and contribution from a co-fiduciary for liabilities arising out of an ERISA violation.
The First Reliance case concerns life insurance coverage for the late husband of a Giorgio Armani employee. Armani had established and sponsored an employee welfare benefit plan pursuant to ERISA for the benefit of its employees and their dependents. First Reliance issued a voluntary group term life insurance policy to Armani for the provision of life insurance benefits to Armani's eligible employees and dependents.
One of Armani's employees participated in open enrollment for the policy and elected life insurance coverage for her husband in the amount of $500,000. Although First Reliance had requirements to collect proof of good health and proof of insurability, at no time did Armani request or collect this information from the employee. Approximately a year and a half later, the husband passed away, and the employee submitted a claim under the policy for $500,000. After investigating the claim, First Reliance took the position that the employee was entitled only to a $50,000 benefit.
The employee filed suit against First Reliance, seeking payment of the full $500,000 requested. First Reliance responded by filing a third-party complaint against Armani, asserting claims for equitable indemnity and contribution under ERISA. The U.S. District Court for the Central District of California awarded the employee the full amount of her husband's life insurance policy. Importantly, it also granted Armani's motion to dismiss the third-party complaint, holding that Ninth Circuit precedent precludes a breaching fiduciary from seeking contribution from other allegedly breaching fiduciaries. Notably, in one of those prior Ninth Circuit cases, the U.S. Department of Labor submitted an amicus curiae brief in support of the position that ERISA may be interpreted to authorize a contribution cause of action among co-fiduciaries. However, because that position had previously been rejected by the Ninth Circuit, the district court was bound by controlling precedent, which maintained that the claims were governed by ERISA, and ERISA did not provide a contribution remedy against breaching co-fiduciaries.
First Reliance's appeal to the Ninth Circuit was rejected. In its brief opinion, the Ninth Circuit recited the same Ninth Circuit precedent as the district court and maintained that the plain language of ERISA does not provide an equitable remedy of contribution in favor of a breaching fiduciary, and there is no indication that Congress intended to provide for such relief.
Following the adverse ruling, First Reliance petitioned the Supreme Court for certiorari, arguing that there is an entrenched split among circuits, with one line of cases (i.e., those coming from the Ninth Circuit) allowing a less culpable co-fiduciary to bear the entire loss, even though there is a more culpable co-fiduciary who has been left out of the litigation. First Reliance also made a case for the need for uniformity, particularly with litigation involving large, multistate employers where inconsistent results may arise from factually identical lawsuits – depending solely on where the lawsuits are filed.
Armani opposed the petition and urged the Supreme Court to deny certiorari, emphasizing that ERISA was a comprehensive statute enacted by Congress and did not include a provision allowing fiduciaries to pursue contribution or indemnity from co-fiduciaries. On Feb. 22, 2022, certiorari was officially denied, leaving the Ninth Circuit opinion intact.
Circuit Split Persists
Although a majority of the circuits have not taken a position on this issue, as it currently stands, the Second and Seventh Circuits allow a fiduciary to seek contribution and indemnification from breaching co-fiduciaries under ERISA, while the Eighth and Ninth Circuits do not.
Underlying the allowance of equitable remedies between and among ERISA co-fiduciaries, the Second Circuit has held that Congress intended for federal courts to fashion a federal common law of ERISA, with contribution and indemnification as integral aspects. See e.g., In re Masters Mates & Pilots Pension Plan & IRAP Litig., 957 F.2d 1020, 1029 (2d Cir. 1992). Guided by principles of traditional trust law, federal courts have authorized such remedies to develop under federal common law for ERISA. Chemung Canal Tr. Co. v. Sovran Bank/Md., 939 F.2d 12, 16 (2d Cir. 1991). Similarly, the Seventh Circuit explained that "ERISA grants the courts the power to shape an award so as to make the injured plan whole while at the same time apportioning the damages equitably between the wrongdoers" and equitable remedies are "properly within the court's equitable powers." Free v. Briody, 732 F.2d 1331, 1337 (7th Cir. 1984).
While the Eighth and Ninth Circuits focus on the exact wording of the ERISA legislation (and the absence of particular wording) to evaluate the available remedies, the Second and Seventh Circuits take the position that the wording merely codifies long-standing principles of trust law with the ability to fashion them to fit the needs of the employee benefit plans.
Without involvement by the Supreme Court, the existing split of authority among the courts stays in place. In this case, First Reliance had to pay the full insurance claim amount that could have been otherwise denied, primarily due to the failing of a co-fiduciary, and then was unable to recoup any of those damages from that co-fiduciary. To mitigate the potential damages as a result of a breach of fiduciary duty claim, ERISA fiduciaries should be mindful of their maintenance of fiduciary insurance coverage, the inclusion of contribution and indemnity provisions in contracts between fiduciaries, the inclusion of forum selection clauses in plan documents, and proper oversight of co-fiduciaries to ensure adherence to plan and policy requirements.
For more information or questions regarding the impact of the First Reliance decision or ERISA, please contact the authors or another member of Holland & Knight's ERISA Litigation Team.
Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.