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An action to recover interest on late disability payments is considered “appropriate equitable relief” under the Employee Retirement Income Security Act of 1974, the 2nd U.S. Circuit Court of Appeals has ruled. Joining two other circuits, the court said the interest on late payments cannot be deemed “extracontractual, compensatory money damages, which are generally not recoverable under ERISA.” The ruling overturned a decision by Southern District Judge Shira Scheindlin, who had dismissed the putative class action, Dunnigan v. Metropolitan Life Insurance, 00-7399. Deloitte & Touche accounting firm employee Helen Dunnigan applied to MetLife for long-term disability benefits in July 1994, four months after being diagnosed with Chronic Fatigue Syndrome. The request was denied by letter on Nov. 15, 1994, 35 days after the expiration of the 90-day period during which a determination on benefits must be made under U.S. Department of Labor regulations. When Dunnigan’s appeal was denied in August 1995, she filed suit in the Southern District. But in 1999, almost five years after she first applied for benefits, MetLife gave her a lump-sum payment for 55 months of long-term disability, without interest. Dunnigan sought recovery of interest under ERISA � 502(a)(1)(B), contending that interest was part of the benefits due her under the plan. She also asserted a claim under � 502(a)(3)(B) for an injunction or “other appropriate equitable relief,” alleging MetLife breached its fiduciary duties and was guilty of unjust enrichment. Her theory was that the amount of interest MetLife was obligated to pay during the period the payments were delayed established a constructive trust. MetLife countered by moving to dismiss on the grounds that the request for interest constituted a claim for “extracontractual, compensatory damages.” Judge Scheindlin granted the motion, rejecting Dunnigan’s argument that interest on delayed payments was an explicit or implied term of the plan. The judge found that there was no fixed date when the payments were due because MetLife needed the time to assess whether her proof of disability was satisfactory. Judge Scheindlin also said that while a duty of good faith and fair dealing applies to ERISA plans, and a claim for interest might be asserted under ERISA’s “equitable relief” provision, Dunnigan did not allege a breach of that duty in her complaint. The judge also said the claim could not be brought as a class action. On the appeal, 2nd Circuit Judge Pierre N. Leval said, “We agree with the district court that an award of interest is contemplated by � 502(a)(3)(B), but disagree that a showing of bad faith is required.” Quoting a 1999 7th Circuit case, Judge Leval said that “the mere fact that money is sought does not necessarily classify the relief as damages, rather than equitable relief.” Judge Leval said further: “Where interest is sought to make the plaintiff whole by eliminating the effect of a defendant’s breach of a fiduciary duty, we see no reason why such interest should not be deemed ‘appropriate equitable relief’ within the scope of � 502(a)(3)(B).” “When benefits are paid only after the date on which the beneficiary was entitled to receive them under the terms of the plan, the beneficiary has not received the full value of what was promised and, to the same degree, the plan has realized an unjust enrichment (assuming the lateness was unjustified),” he said. “An award in such circumstances serves as an equitable make-whole remedy.” Judge Leval then addressed the issue of whether bad faith is required. “We see no reason why a showing of bad faith is required for a court to grant interest as equitable relief under Section 502(a)(3)(B),” he said. “The opinions of the 3rd and 7th Circuits have recognized that interest can be appropriate, equitable, ‘make whole’ relief under” the section. “Dunnigan adequately pleaded that she was entitled to timely payment of the benefits, and that the benefits were unjustly delayed,” he said. “She should not be required to plead anything more.” The court then remanded the case for reconsideration of whether the case should be certified as a class action. Judges Dennis G. Jacobs and Robert Katzmann joined in the opinion. Scott M. Riemer and Michael E. Schoeman of Schoeman, Updike & Kaufman represented Dunnigan. Myron D. Rumeld of Proskauer Rose represented Metropolitan Life Insurance Company. Amicus briefs were submitted by the Health Insurance Association of America, the National Employment Lawyers Association and the American Association of Retired Persons.

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