In Higgins vs. Lincoln Electric Company, Inc., the U.S. Court of Appeals for the Sixth Circuit placed a high burden on a plan participant who claimed that his employer was “estopped” (i.e., prevented) from relying on the terms of an unambiguous plan document that had misrepresented the plan’s benefit.
Facts. An employee was provided with a Benefit Election Form (“BEF”) that stated his annual long-term disability (“LTD”) benefit would be $92,260.80 per year. However, when the employee later became disabled, he was told that, under plan provisions, his annual benefit was capped at $60,000.
The employee then sued in federal court, claiming he relied on the BEF and therefore did not purchase any additional disability insurance coverage. He asserted, among other claims, that the employer should be estopped from denying him the higher benefit shown in the erroneous BEF.
Estoppel would have prevented the employer from reneging on non-contractual promises to the employee if he had acted in reliance on those promises. The district court granted the employer’s request to dismiss the case, holding that because the plan terms were unambiguous, the employee was required to meet a heightened eight-element standard for ERISA-estoppel claims and that he failed to satisfy several of these required elements.
Appeals Court. On appeal, the Sixth Circuit noted that the employer’s LTD group policy specified that it, along with its exhibits, formed the “entire contract.” This ensured that “only these unambiguous plan documents could define the participants’ benefits.” Since the plan document and contracts were unambiguous, the Sixth Circuit explained that the employee had to satisfy the more rigorous eight-element test in order for estoppel to apply.
The eight elements require a showing of: (1) conduct or language amounting to a representation of material fact; (2) awareness of the true facts on the part of the defendant; (3) intent by the defendant that the representation be acted upon; (4) unawareness of the true facts by the plaintiff; (5) detrimental and justifiable reliance by the plaintiff; (6) a written representation; (7) plan provisions that, although unambiguous, did not allow for individual calculation of benefits; and (8) extraordinary circumstances.
The Sixth Circuit determined that the employee did not satisfy all eight elements. For example, the employee did not show that the employer knew the true facts and intended to deceive him or acted with gross negligence akin to constructive fraud. Nor did the employee plausibly allege that the employer intended for him to rely on the misstatement or that it stood to gain from such reliance. In addition, the employee failed to show that he was unaware of the true facts in a manner that justifies reliance on the employer’s misstatement, because he had access to the plan documents, which clearly established a $60,000 yearly cap on LTD benefits. For the same reason, the Sixth Circuit stated the employee could not demonstrate detrimental and justifiable reliance on the BEF.
The Sixth Circuit ultimately concluded that, “[a]lthough the misrepresentation was in writing, [the employee does] not show that the unambiguous plan terms prevented him from calculating his benefits. Nor does he allege extraordinary circumstances—such as affirmative misconduct or repeated assurances—that would override the unambiguous plan language.”
The Sixth Circuit consequently upheld the lower court’s decision and dismissed the case.