PENNSYLVANIA RECORD

HARRISBURG - An insurance company's misleading actions regarding changes to its

employees' pension program warranted the denial of coverage under its fiduciary liability policy, according to a ruling filed Friday by a three-judge panel of the Superior Court.

Opinions from a federal district judge and the appeals court gave Cigna Corporation's insurance carriers, Executive Risk Indemnity and Nutmeg Insurance Company, enough support to uphold their rejection of Cigna's claim under the fraudulent acts exclusion in the wrongful acts provision.

According to the opinion, authored by Senior Judge William Platt, Cigna amended its retirement plan in 1998, converting its traditional defined benefit pension plan to a cash balance plan.

Cigna assured plan participants in the notification materials that the conversion would not affect benefits accrued as of Dec. 31, 1997. The conversion was presented as an enhanced benefit; however, undisputed evidence in the federal district and appeals courts during a class action showed some plan participants would have their expected benefits or accruals reduced or frozen through wear away.

In other words, an employee continues to work at a company but does not receive benefits for those additional years of service.

There has also been no dispute that Cigna withheld documentation that would confirm the risk of reduced benefits to avoid an anticipated employee backlash to the changes.

In 2001, plan participants filed in federal district court in Connecticut a class action lawsuit, Amara v. CIGNA Corp., on behalf of more than 27,000 employees, alleging that the plan amendments violated the Employee Retirement Income Security Act by reducing benefits or benefit accruals for some plan participants.

Eventually, Judge Mark R. Kravitz decided that Cigna's changes were permitted, but that the company violated ERISA-required notice provisions by providing misleading summary plan descriptions and summaries of material modifications.

Kravitz ordered the reformation of the contract, which was upheld by the U.S. Court of Appeals for the Second Circuit. The U.S. Supreme Court reversed and remanded the order, saying the decision used the wrong ERISA remedy provision.

Upon review, District Court Judge Janet Bond Arterton decided the contract reformation was appropriate.

"CIGNA engaged in fraud or similarly inequitable conduct," wrote Arterton, who took over the case following the Kravitz's death.

"CIGNA’s deficient notice led to its employees' misunderstanding of the content of the contract, and CIGNA did not take steps to correct their mistake. Instead, CIGNA affirmatively misled and prevented employees from obtaining information that would have aided them in evaluating the distinctions between the old and new plans."

Arterton's ruling was again upheld by the appeals court, which agreed that Cigna misrepresented the terms of the pension plans to obtain an undue advantage. Cigna filed a claim with its supplemental insurance providers for coverage under the fiduciary liability provisions of the policy, which was denied because the company engaged in fraudulent activity.

The Philadelphia Court of Common Pleas issued a summary judgment in favor of the defendants in October 2013, which was appealed by Cigna to the Superior Court.

According to the opinion, Cigna argued that the trial court misapplied the deliberately fraudulent acts exclusion to preclude coverage and says it should be covered under the wrongful acts provision.

As Platt explained, the rejection is justified by a complete reading of the contract, rather than applying sections favorable to the appellant.

"The plain meaning of the policy is that the fraudulent or criminal act exclusion operates as an exception to the more general wrongful acts coverage provision," Platt wrote. "We read the insurance policy in its entirety, not piecemeal, 'giving effect to all of its provisions.'"

The panel also rejected Cigna's argument that its actions have not been clearly ruled as fraudulent. The appellant argued that the findings of fraudulent behavior had been made as a judicial comment made by the district court judge in the course of rendering a larger opinion on the class action and, therefore, it is not precedential.

The Superior Court disagreed and definitively found that Cigna engaged in fraudulently misleading behavior.

"The trial court’s determination of fraud was integral, if not critical, to its finding of the appropriateness of the remedy, as well as to the Second Circuit’s reasoning in affirmance," the opinion says.