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Cigna Corp. v. Executive Risk Indemnity, Inc.

Superior Court of Pennsylvania

February 27, 2015

CIGNA CORPORATION, Appellant
v.
EXECUTIVE RISK INDEMNITY, INC. AND NUTMEG INSURANCE COMPANY, Appellees

Argued September 10, 2014.

Page 205

Appeal from the Order of the Court of Common Pleas, Philadelphia County, Civil Division, No.: February, Term, 2012 No. 003993.

Francis J. Deasey and Ward A. Rivers, Philadelphia, for appellant.

Daniel J. Layden and Ronald P. Schiller, Philadelphia, for appellees.

Before DONOHUE, J., WECHT, J., and PLATT, J.[*] OPINION BY PLATT, J.

OPINION

Page 206

PLATT, J.:

Appellant, Cigna Corporation, appeals from the order granting summary judgment in favor of Appellees, Executive Risk Indemnity, Inc. and Nutmeg Insurance Company, and dismissing Appellant's complaint

Page 207

with prejudice.[1] Appellant sought a declaration of coverage under a fiduciary liability policy for ERISA[2] violations found in an underlying federal class action. Appellees denied coverage under a policy exclusion for deliberately fraudulent or criminal acts or omissions. Appellant challenges the trial court's application of the fraudulent acts exclusion. We affirm.

The material facts of the underlying litigation are not in substantial dispute, although the parties disagree markedly on the legal consequences. (See Appellant's Brief, at 5-18; Appellees' Brief, at 4-14). However, this protracted course of litigation has extended longer than a decade. We summarize only the facts most relevant to this appeal.[3]

On December 21, 1998 Cigna amended its retirement plan, retroactive to January 1, 1998. In simplified terms, Cigna converted 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 December 31, 1997. In fact, the conversion was presented as an enhanced benefit. Nevertheless, there is no dispute on appeal that under certain circumstances some plan participants would have their expected benefits or accruals reduced or frozen, in a process designated " wear away." [4] Furthermore, there is no dispute that to avoid an anticipated employee backlash at the wear away phenomenon (and the possible reduction in retirement benefits), Appellant withheld or declined to provide documentation which would have confirmed the risk of reduced benefits.

In 2001, plan participants brought a class action lawsuit on behalf of some 27,000 employees, alleging in essence that the plan amendments had the net effect of reducing benefits or benefit accruals for some plan participants in violation of ERISA. Eventually, Judge Mark R. Kravitz, of the federal district court in Connecticut, decided that Appellant's changes were permitted under ERISA, but that Appellant or its affiliate pension plan had violated ERISA-required notice provisions by providing misleading summary plan descriptions (SPD's) and Summaries

Page 208

of Material Modifications (SMM's) in an apparent effort to forestall objections from plan participants. See Amara v. Cigna Corp., 534 F.Supp.2d 288, 296 (D. Conn. 2008) (referred to by the parties as Amara I).[5] In pertinent part, the district court summarized its findings of fact and conclusions of law as follows:

[I]n effectuating the conversion to the cash balance plan, CIGNA did not give a key notice to employees that is required by ERISA; and CIGNA's summary plan descriptions and other materials were inadequate under ERISA and in some instances, downright misleading. ERISA gives employers substantial leeway in designing a pension plan, and the Court believes that CIGNA's Plan complies with the relevant statutory provisions. However, ERISA also emphasizes the importance of disclosure by employers to employees regarding the details of the company's pension plan, to enable employees to plan for their retirement and to make decisions of profound importance for their lives. This is where CIGNA failed to fulfill its obligations; the company did not provide its employees with the information they needed to understand the conversion from a traditional defined benefit plan to a cash balance plan and its effect on their retirement benefits.

Id. (emphasis added).

In a subsequent opinion, Judge Kravitz ordered the reformation of the contract (the pension plan) as a remedy for Appellant's violations. See Amara v. CIGNA Corp., 559 F.Supp.2d 192, 222 (D. Conn. 2008). The parties cross-appealed. The Second Circuit affirmed in an unpublished opinion. See Amara v. CIGNA Corp., 348 F.App'x 627, 2009 WL 3199061 (C.A.2 (Conn.) 2009).

However, the United States Supreme Court vacated and remanded. See CIGNA Corp. v. Amara, 131 S.Ct. 1866, 179 L.Ed.2d 843 (U.S. 2011). In reviewing whether the district court applied the correct legal standard for relief, the High Court reasoned, in part, that the district court relied on the wrong ERISA remedy provision. See id. at 1871.

On remand, because Judge Kravitz had died in the meantime, the case was reassigned to District Court Judge Janet Bond Arterton. Judge Arterton decided in pertinent part that the remedy of contract reformation was appropriate. Specifically, she decided that:

CIGNA engaged in fraud or similarly inequitable conduct. See 3 John N. Pomeroy, A Treatise on Equity Jurisprudence § 873 at 421 (5th ed. 1941) (stating that while " fraud" has no precise definition in equity, it generally consisted of " obtaining an undue advantage by means of some intentional act or omission that was unconscientious or a violation of good faith" ); see also Tokio Marine & Fire Ins. Co. v. Nat'l Union Fire Ins. Co., 91 F.2d 964, 966 (2d Cir. 1937) (reformation was appropriate based on one party's unilateral mistake combined with the fact that the court could infer that the other party knew of the mistake, knowledge which alone qualified as the " inequitable conduct" necessary to reform the contract). CIGNA's deficient notice led to its employees' misunderstanding of the content of the ...

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