Section 405 of the Employee Retirement Security Act of 1974 (ERISA) provides for joint liability for co-fiduciaries of a pension, health or welfare benefit plan. In this case, there was an enrollment error in signing up an employee for life insurance coverage with his employer – Georgio Armani Corp. The surviving spouse, Soohyun Cho sued the insurance carrier – Reliance for the balance of the $500,000 death benefit after Reliance paid her only $50,000 on the claim.
The Federal District Court in the Central District of California dismissed a Third-Party Action impleading the employer Armani for contribution or indemnification as a co-fiduciary administrator for the life insurance plan. The District Court relied on 9th Circuit case law which found that there is no recognized claim for indemnification against another fiduciary. The 8th Circuit (which includes, Minnesota, North Dakota and Missouri) has ruled similarly.
In the District Court, Reliance was found liable for the $500,000 coverage amount under the group life insurance plan. Interestingly, the District Court found that the enrollment was defective as no proof of insurability was given by the employee, but because the plan accepted the higher premiums for “over a year” without proof of insurability, the carrier was ordered to pay the benefit.
Reliance brought an appeal to the 9th Circuit, which was denied on July 9th, 2021. Reliance petitioned the 9th Circuit decision to the U.S. Supreme for certiorari. On February 22, 2022, the Supreme Court denied review of the decision and let the split in the Circuits remain. The Second and Seventh Circuits allow indemnification from co-fiduciaries. This decision is another reason for plan administrators and other fiduciaries to maintain adequate fiduciary insurance coverage in the event of claims for breach of fiduciary duty.