A U.S. District Court judge in Connecticut ruled that the CIGNA SPD was incomplete and inaccurate, that the participants were "likely harmed" by the inaccuracies, and that all 27,000 plan participants should share in a recovery.

A panel at the 2nd U.S. Circuit Court of Appeals upheld the lower court ruling. The U.S. Labor Department; and the Obama administration's solicitor general supported the plan participants when CIGNA appealed the 2nd Circuit ruling to the Supreme Court.

Lawyers for CIGNA estimated that, if the Supreme Court had sided with the plaintiffs, CIGNA might have had to pay out as much $70 million.

When analyzing the case, the Supreme Court considered provisions of the Employee Retirement Income Security Act of 1974 (ERISA) such as Sections 102(a), 104(b) and 204(h), which set plan disclosure requirements, and ERISA Section 502(a)(1)(B), which authorizes a plan participant or beneficiary to sue to recover benefits due under the terms of a plan.

Members of the Supreme Court held that ERISA Section 502(a)(1)(B) did not give the district court authority to reform CIGNA’s plan, but that ERISA Section 502(a)(3) does give a participant, beneficiary, or fiduciary an opportunity to seek “'other appropriate equitable relief” to redress violations of ERISA ' or the [plan’s] terms.'”

The Supreme Court ordered that the terms of the plan be reformed, and it ordered CIGNA to enforce the plan as reformed. The court also remanded the case to the 2nd Circuit, and it asked the 2nd Circuit to consider providing the plan participants with equitable relief.

But the court prevented lower courts from imposing "equitable relief," such as a surcharge, without getting proof either that SPD errors were the result of fraud or that the errors had led to serious harm.

"To make the language of a plan summary legally binding could well lead plan administrators to sacrifice simplicity and comprehensibility in order to describe plan terms in the language of lawyers," Justice Stephen Breyer writes in the opinion for the court. "Consider the difference between a will and the summary of a will or between a property deed and its summary. ... None of this is to say that plan administrators can avoid providing complete and accurate summaries of plan terms in the manner required by ERISA and its implementing regulations."

But, if the court had agreed with the Obama administration's solicitor general and treated an SPD as a legally binding document, that "might bring about complexity that would defeat the fundamental purpose of the summaries," Breyer says. "For these reasons taken together we conclude that the summary documents, important as they are, provide communication with beneficiaries about the plan, but that their statements do not themselves constitute the terms of the plan for purposes of [Section] 502(a)(1)(B)."

Chief Justice John Roberts and Justices Anthony Kennedy, Ruth Bader Ginsburg, Samuel Alito Jr. and Elena Kagan joined in the Breyer opinion.

Justice Antonin Scalia filed a separate opinion concurring in the judgment, and Justice Clarence Thomas joined in the Scalia concurrence.

Justice Sonia Sotomayor took no part in the consideration or decision of the case.

"CIGNA is pleased that the U.S. Supreme Court has ordered the lower court to reconsider its initial decision and undertake further proceedings in the case," CIGNA says in a statement about the ruling.

Ellen Doyle, a Pittsburgh lawyer who helped represent the plan participants in the class-action lawsuit, called the ruling a "significant loss for employees."

"SPDs are usually the only documents provided to them as to their rights and obligations under pension, health, and other employee benefits plans," Doyle says in a statement. "The Supreme Court’s decision effectively overrules the opinions of other courts finding that SPDs are plan documents which may be enforced by plan participants."

In the future, employees may not be able to determine what a plan promises without going through litigation, Doyle says.

RUMELD: THREAT AVERTED

If the Supreme Court had accepted the arguments of the plan participants, the Labor Department and the 2nd Circuit, that would have posed “a substantial threat to employer plan sponsors by subjecting them to class-wide relief for a miscommunication without requiring any showing of harm,” Myron Rumeld, a employee benefits partner in the New York office of Proskauer Rose L.L.P., says in a comment on the case.

If the participants had prevailed, a court could have enforced the terms of an SPD as understood by the participants, rather than terms of the plan itself, Rumeld says.

The Supreme Court now has made it clear that plan participants must show that an employer committed fraud in an SPD, or that an error caused harm, before they can ask a court to impose forms of equitable relief such as equitable estoppel, plan reformation, or surcharge, Rumeld says.

“The Supreme Court rejected the notion that there is a ‘one size fits all’ approach to claims based on faulty communications, such that all participants automatically recover additional benefits that were never intended under the terms of the plan,” Rumeld says. “The court correctly concluded that the SPD is merely meant to be a summary of the plan, and thus the mistaken terms of the SPD should not be enforced as a contractual matter."