The U.S. Supreme Court recently issued a decision that will be important for situations where SPDs or other communication materials are alleged to be misleading. The Court decided that the terms of an SPD were meant to be a summary, and therefore could not be enforced in a claim for benefits as terms of the plan itself. However, the Court also made it clear that "equitable remedies" are available for misleading SPDs. Since the Court also mentioned "surcharge" as an equitable remedy, this holding could be most troubling to ERISA-covered plans, and serves to emphasize the need for accurate SPDs and other communication materials. CIGNA Corp. v. Amara, 2011 WL 1832824 (S.Ct. 2011).

The Good News

The decision stated that SPDs cannot be enforced in a claim for benefits as if they are the plan itself. The formal legal documents for the plan will control. The Court noted that SPDs are intended to give clear and understandable summaries of plan terms to participants. This purpose would not be advanced by making the language of SPDs legally binding. The enforcement of SPDs would tend to sacrifice the simplicity in describing plan terms, as a plan would likely produce detailed and legalistic descriptions of plan terms to protect itself.

The Bad News

The Court confirmed that ERISA permits “other appropriate equitable relief” to address SPD inaccuracies. Three equitable theories mentioned by the Court were reformation, surcharge and estoppel. Surcharge is the most disturbing to plans, as it closely resembles damages or the actual benefits. Before CIGNA, these remedies were not widely considered to be available in ERISA cases under the rubric of other equitable relief.

The Court also discussed what plan participants had to show in the way of harm to be entitled to other equitable relief. If a participant proceeds under an estoppel theory, then “detrimental reliance” must be shown. For other equitable remedies, the Court required actual harm. Actual harm is less than detrimental reliance, but more than just "likely harm." The inaccuracy must have also caused the harm.

While it will take years for lower courts to define the exact scope of the CIGNA case, there is at least one important point that plans and plan fiduciaries should take from the decision. That point is that the remedy of surcharge could be akin to damages, and with this apparent expansion of remedies, it is more important than ever to have accurate SPDs and other communication materials.