Employee Must Prove 'Detrimental Reliance' on an Faulty SPD

February 23, 2007 (PLANSPONSOR.com) - The 8th U.S. Circuit Court of Appeals ruled that plan participants are not required to prove they could have been harmed as a result of a faulty summary plan description, but that they relied on the terms of the description to their detriment.

Fairview Health Services mailed a letter in February 1998 to its pathologists saying that those who become disabled would be entitled to disability benefits until they were 67. But the benefit plan summary plan description (SPD), which was never mailed to employees, said eligibility stopped at age 65.

Daniel Greeley, a pathologist, quit practicing in 1999 when he became disabled and was awarded benefits.By 1999, Greeley had realized that the plan documents conflicted with the February 1998 letter on the age in which benefits would stop, but assumed the memo controlled because it described “enhanced” benefits, according to the opinion.

However, in 2004 the company informed him that those benefits would stop, because the plan limited disability payments to age 65. He filed suit in the U.S. District Court for the District of Minnesota,   asserting improper denial of benefits and fraud on the basisthat the letter he received in 1998 said he would receive benefits until age 67.

The district court ruled in favor of Greeley, saying that he was influenced by the “faulty” February 1998 letter. The appeals court agreedthat in order to recover under a faulty SPD, Greeley must show that he was prejudiced by it, but disagreed with the standard the court used to show that.

According to the appeals court opinion by Senior Judge Myron Bright, the district court erred by “adopting a ‘likely harm’ prejudice standard,” going further to say that in order for an employee to recover from his employer for a faulty SPD, the court requires the employee to show he relied on its terms to his detriment, which Greeley did not prove.

Greeley testified that he had no choice but to go on disability because of the condition of his lungs and the district court said that he offered evidence that he changed his course of action or otherwise relied on the SPD. Instead, the appeals court focused on the financial harm to Greeley that resulted from the nonpayment of benefits for two years – an insufficient basis for recovery without the proof of “detrimental reliance.”

Greeley v. Fairview Health Services,   8th Cir., No. 06-2854, 2/22/07 is  here .