As outlined here, I believe the Supreme Court botched it in analyzing whether the fiduciary breach in LaRue v. DeWolff, Boberg & Assoc. constitutes a "loss to the plan" for purposes of providing relief to the plan participant. There’s a bigger picture when thinking about ERISA’s remedies that the Court failed to take into account.
The fiduciary’s failure to follow James LaRue’s investment instructions that led to him losing $150,000 in the value of his defined contribution account wasn’t a violation of the terms of the plan for which he sought relief under 29 U.S.C. §1132(a)(1)(B). At least, James LaRue didn’t allege that it was. He alleged it was a violation of ERISA’s fiduciary duty standards and that he was entitled to "appropriate equitable relief" in the form of money damages under 29 U.S.C. §1132(a)(3). The Court ignored that argument and ruled that any available remedy would have to come through 29 U.S.C. §1132(a)(2) which makes ERISA fiduciaries personally liable for any "loss to the plan."
My concern is that little in the language or analysis of LaRue carries over well into non-pension ERISA cases. If ERISA dealt solely with pension plans, the Supreme Court’s LaRue analysis might be acceptable, perhaps even the best, approach to remedying the claimant’s loss. But what the Supreme Court did not do in LaRue is the same thing it has repeatedly failed to do in previous ERISA cases: provide legal reasoning that accommodates the extraordinarily broad scope of the statute. Specifically, the Court makes statements in the context of pension benefit plans that do not carry over well in analysis or application to welfare benefit plans.
There is a huge difference between pension benefits and other employee benefits: insurance law has very little to do with pension plans and very much to do with just about every other "fringe" benefit provided by employers. When you are talking about health, disability or life benefits, the employer usually goes out and purchases a group policy of health, disability or life insurance for its employees. There are exceptions to the rule. Large employers will sometimes self fund these benefits. Union members will often have these benefits provided through trust funds that receive their revenue from employer and union contributions. But generally, insurers have a tremendous role in providing these "welfare" as opposed to pension benefits.
The analysis of LaRue really doesn’t fit well into the reality of these insurer provided benefits. The problems begin with the gulf that exists between the ERISA pension plan at issue in LaRue and what exists when an employer buys an insurance policy for health, disability or life benefits for its employees. The "plan’ in place for the great majority employers who provide health, disability or life insurance for their employees is nothing more than a decision to purchase a group insurance policy. There is rarely any document establishing this "plan." There is generally no consciously chosen plan administrator. There is usually only one "plan asset:" the insurance policy through which the benefits are provided. Practically speaking, the only loss that anyone ever suffers is that a particular employee or dependent who should receive insurance funds doesn’t because the insurer wrongfully denies a claim. In what meaningful sense does that wrongful denial of an insurance claim constitute a "loss to the plan" under 29 U.S.C. §1132(a)(2) as the Court found existed in LaRue?
There is a much cleaner, more straightforward, way of treating the issue. That is, as I stated here, to rule that 29 U.S.C. §1132(a)(3) is the proper section of ERISA to use in providing a remedy to employees and their dependents if they can prove that an ERISA fiduciary’s breach of its duties under the statute causes them to lose benefits. The section of ERISA that LaRue relied on, 29 U.S.C. §1132(a)(2), should be reserved for situations where there has been an actual loss of plan assets that are held for the benefit of all participants and beneficiaries. Of course, 29 U.S.C. §1132(a)(1)(B), the section of ERISA that allows claimants to bring suit for recovery of benefits due under the terms of the plan, would continue to be the workhorse for the great majority of ERISA claims.
The Supreme Court has an opportunity in the upcoming MetLife v. Glenn case to make clear the distinction between pension plans and insured plans providing life, medical and disability insurance benefits. The Court needs to reiterate that when dealing with insured benefits, the federal judiciary is obligated to adopt and follow more faithfully state law principles that regulate insurers. That is what ERISA’s savings clause, 29 U.S.C. §1144(b)(2)(A) requires. In so doing, the Supreme Court can and should make clear that ERISA benefits provided through insurance policies are subject to state laws regulating insurance to the same degree as before Congress passed ERISA. Anything short of that leaves participants and beneficiaries with less protection than they had before ERISA was passed. That’s a situation Congress surely didn’t intend for them.