Second Circuit Clarifies Standards For Liability Based on Flawed Summary Plan Descriptions

By Susan P. Serota, Frederick A. Brodie, David R.Lagasse and Mary K. Tomback

No company's benefits department is perfect - and some fall far short of the ideal. As a result, oversights and errors in the compilation and distribution of summary plan descriptions (SPDs) required under the Employee Retirement Income Security Act of 1974 as amended (ERISA) crop up with fair frequency. These mistakes may result in employees foregoing available benefits or making other ill-advised choices, which ultimately give rise to litigation.

When faced with plan sponsors' errors in creating or distributing SPDs, courts have at times proven unforgiving. Last year, resolving confusion among the Circuit's lower courts, the U.S. Court of Appeals for the Second Circuit "squarely decided" that, to recover plan benefits based on a deficient SPD, a plaintiff must demonstrate that she was "prejudiced." Burke v. Kodak Retirement Income Plan, 336 F.3d 103 (2d Cir. Jul. 17, 2003). With that decision, the Second Circuit joined the group of other federal courts that have rejected any requirement that a beneficiary show "detrimental reliance" on the deficient SPD to recover benefits.

Plaintiff Challenged Benefits Decision in Court

After denial of survivor income benefits, Plaintiff Sally Burke sued the Retirement Income Plan (the "Plan") funded and administered by her deceased husband's employer, Eastman Kodak Company ("Kodak"). The committee that administered the Plan found that Mrs. Burke was not eligible for benefits because she and her husband had been married for less than six months at the time of his death, and one year of marriage or domestic partnership status was a requirement for eligibility under the Plan. Although the Burkes had been living together as domestic partners for the nine years before they married, they had not completed the affidavit that was a prerequisite for domestic partnership status to be recognized under the Plan.

Kodak's SPD described all the employee benefit plans that the company sponsored. The Plan provided, and Kodak believed, that the affidavit requirement applied to the Plan. Although the affidavit requirement was set forth in 16 different places in the SPD, the requirement did not appear in the section of the SPD pertaining to the survivor income benefit that Mrs. Burke sought.

After the Plan administrator denied Mrs. Burke's application for benefits, she unsuccessfully pursued an administrative appeal. Mrs. Burke then sued...