Sixth Circuit Holds That Employers Can Commit a Breach of Fiduciary Duty Under ERISA By Mishandling Insurance Premiums

In Chelf v. Prudential Insurance Company of America, No. 20-6097, 2022 U.S. App. LEXIS 9745 (6th Cir. Apr. 12, 2022), the Sixth Circuit revived an ERISA breach of fiduciary duty claim against Wal-Mart, remanding the case to the Western District of Kentucky. Reversing the district court, the panel unanimously held that the plaintiff raised a viable claim for breach of fiduciary duty by alleging that Wal-Mart failed to follow plan requirements and mishandled the insured’s insurance premiums.

The insured, Elmer Chelf, was a former Wal-Mart employee on long-term disability leave at the time of his death. His widow applied for benefits under Mr. Chelf’s work-based optional term life insurance policy, but her application was denied. Ms. Chelf filed suit against Wal-Mart, and in a count of breach of fiduciary duty under ERISA, 29 U.S.C. § 1132(a)(3), she raised several allegations, including that Wal-Mart failed to timely remit and apply Mr. Chelf’s life insurance premium payments, leading to the lapse of his policy, and failed to apply his paid time off (“PTO”) to any past due life insurance premiums. The district court granted Wal-Mart’s Rule 12(b)(6) motion to dismiss, determining that Ms. Chelf’s allegations fell “outside the scope of ERISA’s fiduciary requirements or administrative functions.”

In reversing that decision, the Sixth Circuit first pointed out that, contrary to the district court’s conclusion, Wal-Mart constituted a fiduciary for purposes of ERISA. Specifically, the Court pointed out that Wal-Mart “indisputably exercised control over the Plan’s assets when it handled Mr. Chelf’s premiums, exercised control over the disposition of the Plan assets, and had discretionary authority over the administration of the Plan.” Second, the Court noted that Ms. Chelf’s lawsuit alleged that Wal-Mart violated the plan’s requirements by collecting premiums in error and failing to remit those premiums, as well as failing to apply Mr. Chelf’s accrued PTO to his insurance premiums. At the motion to dismiss stage, the Court concluded, those allegations sufficed to state a claim for breach of fiduciary duty.

Given the Court’s analysis in Chelf, the Sixth Circuit can consider an employer a fiduciary for ERISA purposes even where the alleged discretion is limited to controlling plan-related premiums, and a breach of fiduciary duty can occur where an employer mishandles those premiums.