The Trouble With Estoppel in ERISA Cases

Hard cases really do make bad law. 

Every now and then an estoppel case pops up under ERISA, and the law is twisted and mangled to make it fit.   See, e.g., Livick v. The Gillette Co., U.S. App. Lexis 8261, 43 E.B.C. 2025 (1st Cir. 2008) (dictum), citing Hooven v. Exxon Mobil Corp., 465 F.3d 566, 578 (3d Cir. 2006); Mello v. Sara Lee Corp., 431 F.3d 440, 444 (5th Cir. 2005); Devlin v. Empire Blue Cross & Blue Shield, 274 F.3d 76, 85-86 (2d Cir.2001); Sprague v. General Motors Corp., 133 F.3d 388, 403 & n.13 (6th Cir. 1998) (en banc); Greany v. W. Farm Bureau Life Ins. Co., 973 F.2d 812, 821 (9th Cir. 1992); Kane v. Aetna Life Ins., 893 F.2d 1283, 1285 (11th Cir. 1990). 

Behold: the good old fashioned set of estoppel requirements is hauled out, and plaintiffs are told that, to prevail, they must show (at least) a misrepresentation of fact made expecting the other person to rely, and then  reasonable and detrimental reliance.  It is a state law doctrine and should be routinely preempted by ERISA unless it is somehow incorporated into ERISA under § 502.

Why not incorporate it into federal employee benefits law?  How shall I reject thee? – let me count the ways.  First, it is basically a contract doctrine, and a benefit plan is not inherently a contract in the first place.  You don’t need offer, acceptance, consideration, mutuality and so forth.  All you need is a plan. You don’t need reliance.  You don’t need to show that the participant even knew the plan existed, much less relied upon it.   Why not?  Because you would end up with people similarly situatated bu getting different benefits depending solely upon their awareness and understanding of the plan, which is exactly the wrong result under an employee benefits law.  Instead, one looks to the plan, the whole plan, and nothing but the plan.  And the plan that must be in writing.  (Described in an SPD that must be in writing). 

What about ambiguity?  Can’t you use estoppel to resolve an ambiguity in the plan?  Well, not estoppel, but parole evidence.  Note the difference: Parole evidence doesn’t require adverse reliance.  And if the parole evidence resolves the ambiguity, then the ambiguity is resolved for all beneficiaries, not just those who relied (or even knew about) the parole.

Are you persuaded?  Well, there are judges in almost every circuit who have heard these arguments, acknowledge them, and then wring their hands and think they are doing justice by knocking holes in the structure of ERISA.  Hard cases.  (Sigh).

Comments

[FRANK CUMMINGS]

A REJOINDER FROM FRANK CUMMINGS -

I never suggested that the no-estoppel result is "fair" or nice to the person claiming estoppel. My point is simply that the structure of ERISA is distorted and damaged by sustaining estoppel-based claims. That structure is not just something to be tossed aside whenever an appealing exception is found.

[Les Baker]

I see no reason why the doctrine of equitable estoppel, properly understood, should not be applied in cases arising under ERISA section 502(a). Recalling the admonition that ERISA was enacted to ensure that "if a participant has been promised a contractually defined benefit, and satisfied the conditions to receive it, the participant will actually receive the benefit," the doctrine can apply when the factual determination, whether the participant has satisfied the conditions to obtain a benefit, is at issue. I agree the doctrine of equitable estoppel properly applies to misrepresentations of fact, and the question of whether a participant has satisfied a condition is purely a question of fact, since a condition is an event that may or may not have occurred. So the doctrine can properly apply when a participant asks for a determination concerrning whether the conditons to obtain a benefit have been satisfied, the plan administrator takes the position that they have; the participant changes position after having that assurance, and then, when the participant later applies for the benefit, the plan administrator changes its position on the facts and asserts that the conditions have not been satisfied after all. If the courts actually followed the Federal Rules of Civil Procedure in ERISA cases, the participant could allege generally that all conditions to obtain the benefit have been satsified and then raise the bar of estoppel to preculde the plan administrator from unjustly offering evidence that the conditions were not satisfied. I do not agree that the doctrine of estoppel is "basically a contract doctrine"; legal obligations may be just as conditional as contractual obligations, and the bar of estoppel may be raised just was well when a defendant changes position concerning whether a the conditions of a legal obligation or right have been satisfied, as when it changes its position concerninig conditions of a contractual obligation. In my state, California, the doctrine is codified in the Evidence Code, not in the Civil Code provisions dealing with obligations arising under contract or under law.

[Ron Dean]

I agree where the issue is the meaning of certain ambiguous langauge -- that parol evidence rather than estoppel is the better choice. Except that it doesn't do the same job of undercutting the abuse of discretion standard of review.

But what of the non-ambiguous plan language cases? I understand that the law is more consistent if we assume that participants can read and understand an unambiguous plan document, and should do so even if the face of clear written statements alleging the plan says something else, but is that really where we want to go as a society?

I think the law does a better job if it's willing to get down and dirty.