Johnson v. Ballad Health, 2022 WL 214488 (E.D. Tenn. 2022)
Johnson’s employer automatically enrolled her in an employer-paid long-term disability plan as a benefit of her employment. Johnson also opted to enroll in the plan’s employee-paid “buy-up” benefit feature. The employer’s summary plan description (SPD) described the employee-paid “buy-up” benefit as “additional coverage” of 60%, while the employee’s benefit confirmation statement described the coverage as “100% of salary.” The plan, however, described the benefit as “60% of earnings.”
Johnson became disabled and qualified for long-term disability benefits under the plan. She expected to receive 100% of her salary under the plan but only received 60% of her salary. Johnson then sued her employer and the plan, claiming that she was entitled to 100% of her earnings since she had purchased the “buy-up” benefit.
The court ruled for the insurer, finding that the insurer’s interpretation of the plan was “reasonable” and did not meet the “arbitrary and capricious” standard under ERISA. The court also noted that the SPD was not very clear and should have at least defined the term “buy-up” as used in the SPD.
As a result, the court ruled that the employer breached its fiduciary duty under ERISA to communicate with its employees clearly and accurately about the plan benefits and its specific provisions. The court noted that the plan was unclear about the percentage of earnings covered when the employee chose the “buy-up” option, based on the SPD language. In fact, in contrast to the language used in the plan, the SPD was misleading, so Johnson was entitled to receive a long-term disability benefit equal to 100% of her earnings, as she had expected.
The ruling, in this case, reiterates various court decisions showing a tendency of federal courts to protect the rights of plan beneficiaries and beneficiaries to receive clear and adequate SPDs. Although it is clear that SPD terms are not enforceable as plan terms, as per the U.S. Supreme Court’s decision in CIGNA Corp. v. Amara, 131 S. Ct. 1866, 563 U.S. 421 (2011), SPDs are still important documents. If employers do not ensure that their SPDs are clear and accurate, they risk violating their fiduciary duties under ERISA.
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