Family Dollar, Hartford Beat Lawsuit Over Life Insurance Plan

Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...

By Carmen Castro-Pagan

Family Dollar Stores Inc. and Hartford Financial Services Inc. escaped a proposed class action accusing them of profiting from the life insurance plan offered to the discount retailer’s employees ( Hannan v. Hartford Fin. Servs., Inc. , 2017 BL 135317, 2d Cir., No. 16-1316-CV, unpublished 4/25/17 ).

A district court correctly dismissed the Family Dollar employees’ lawsuit because they failed to sufficiently allege that Hartford was a fiduciary under the Employee Retirement Income Security Act, the U.S. Court of Appeals for the Second Circuit held April 25. By identifying only Hartford’s negotiating conduct—and no pre-existing relationship with the plan or post-contract exercise of discretionary control—the employees fell short in their allegations that Hartford was a fiduciary under ERISA, a three-judge panel said.

The unpublished decision is a second victory for Family Dollar and Hartford over accusations that they violated federal law by negotiating a system in which Family Dollar employees were charged higher rates for supplemental life insurance coverage to lower the premiums the retailer paid to Hartford for its basic life insurance plan.

The decision is the latest in a stream of cases in which federal courts decline to hold providers liable under ERISA over the compensation fees negotiated with plan sponsors. Federal courts in cases involving John Hancock Life Ins., Fidelity Management Trust Co., Principal Life Insurance Co., Deere & Co. and Caremark Inc. have held that service providers aren’t ERISA fiduciaries with respect to fees charged if those fees are set by a contract negotiated at arm’s length.

The appeals court also held that the participants didn’t allege any material misrepresentations made by Family Dollar sufficient to state a claim of fiduciary breach under ERISA.

The statement that basic life insurance was noncontributory and the retailer would bear the costs wasn’t misleading or false because in the end, the participants didn’t incur any costs for receiving basic life insurance, the appeals court said. The participants’ argument that Family Dollar didn’t clarify how it would allocate the premiums wasn’t misleading either, the court said.

The per curiam opinion was joined by Judges Guido Calabresi, Denny Chin and Raymond J. Lohier Jr.

Klafter Olsen & Lesser LLP and Fay Law Group represented the participants. Sidley Austin LLP and Robinson & Cole LLP represented Hartford. Morgan Lewis & Bockius LLP represented Family Dollar.

To contact the reporter on this story: Carmen Castro-Pagan in Washington at ccastro-pagan@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

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