Biweekly, Bimonthly. It’s the Little Things.
Ninth Circuit revives “fiduciary duties” claims against Aetna over 9-year-long benefits calculation error and “aggressive” recoupment of overpayment.
$56,000 is All in the Details: In 2009 Irina Morris was a software implementation consultant. She was diagnosed with cancer and the effects of the disease and treatments left her totally disabled. She receives disability benefits administered by Aetna.
One of These Things is Not Like the Other: Unbeknownst to Morris, when Aetna calculated Morris’s “monthly pay” for benefits purposes it did so on an assumption of biweekly paychecks (26 annually) when in fact she was paid bimonthly (24 checks annually).
For 9 years Aetna paid about 7.5% more in benefits than it should have each month. Aetna repeatedly confirmed Morris’s monthly benefit by phone and letters over the years, knowing her mortgage lenders would rely on the figures for financing. The benefit amount was material to divorce proceedings.
In 2018 Aetna discovered its error, demanded Morris repay $56,478.17 in “overpayment,” and ultimately reduced her monthly benefit to zero until the balance was recouped.
Yes, Minister: Morris appealed administratively, then filed suit asserting a §1132(a)(1)(B) claim for benefits owed and a §1132(a)(3) claim for “breach of fiduciary duties.” She argued she and her lenders relied on the benefit calculation and Aetna is estopped from changing it.
In 2021 the district court dismissed both claims after finding facts under Rule 52. It held:
“[U]nder the clear terms of this plan” Morris wasn’t entitled the receive the inaccurately calculated amount.
The Ninth Circuit’s 2021 decision in Bafford v. Northrup Grummon foreclosed the fiduciary claim because a third-party administrator’s calculation of benefits is a “ministerial act” rather than a “discretionary function.”
I Was Dead & Now I’m Alive? Isn’t That Something!: In June 2023 the Ninth Circuit revived the fiduciary duty claims and remanded by unpublished disposition.
In contrast to the systemic errors at issue in Bafford, the court held Aetna engaged in fiduciary acts when “Aetna ability specialists, team leaders, and customer service representatives consulted with Morris by phone about her benefit amount numerous times; Aetna's Long Term Disability Benefit Manager sent letters Aetna knew Morris would share with lenders as proof of her benefits; and Aetna communicated with Morris's financial institutions to verify her benefit amount.”
Aetna “exercised discretion” in gathering Morris’s payroll information, interpreting the Plan to calculate a benefit amount, and in “immediately and aggressively collect[ing] the overpayment amount after nine years had passed, going as far as to entirely suspend Morris's benefits.” It noted the Plan allowed but did not require recoupment of overpayments.
Well, When You Put It Like That: “Had any Aetna representative taken any step to actually verify the validity of the benefits amount it repeatedly communicated, Aetna could have avoided any overpayment, much less the catastrophic amount that resulted. Instead, Aetna repeatedly affirmed the erroneous benefit amount directly to Morris and her lenders for almost a decade, permitting Morris to take out mortgages, obtain mortgage refinancing, negotiate a divorce settlement, and pay taxes, all on the basis that she was entitled to a higher income.”
A nice win for McKennon Law Group in Newport Beach, California.