Opinion ID: 64744
Heading Depth: 3
Heading Rank: 2

Heading: Mary Kay Plan Claims

Text: Turning to the second ground for Mary Kay’s alleged entitlement to FIC coverage—i.e., direct claims against Mary Kay under COBRA—we agree with the district court. In asserting its entitlement to coverage, Mary Kay cites the following language from the MSC Suit’s complaint: “Mary Kay was a member of a controlled group of corporations . . . which included [MSC] . . . [and] Mary Kay has failed to provide continuation coverage to the terminated [MSC] employees and to otherwise satisfy any of the other obligations imposed upon [it] by COBRA.” The relevant COBRA obligations—at least as alleged—concern the provision of access to Mary Kay plan benefits under the relevant plan(s). See 29 U.S.C. § 1161. The problem for Mary Kay, however, is not its status as a covered entity—indeed, whether as a control group member or not, the MSC Suit has Mary Kay (which is an “insured”) and its plans (which are “sponsored”) clearly in its sights—but whether the relevant COBRA claims are “wrongful acts” under the Policy. We conclude that they are not. The relevant Policy provisions, which are expressly described as providing “fiduciary liability coverage,” only insure against claims of “wrongful acts.” The 10 No. 07-10951 Policy defines “wrongful acts” as “any breach of the responsibilities, obligations or duties imposed upon fiduciaries of the Sponsored Plan by [ERISA], as amended, . . . or any negligent act, error or omission in the Administration of any Sponsored Plan.” The district court properly found that the COBRA allegations were not covered “wrongful acts” because any alleged failure to offer continuing benefits under its plans rests on Mary Kay as a plan sponsor, and sponsorship acts or omissions are not fiduciary in nature. See 29 U.S.C. § 1161(a); Lockheed Corp. v. Spink, 517 U.S. 882, 890–91 (1996). One is a “fiduciary” under ERISA only “to the extent . . . he exercises any discretionary authority or discretionary control respecting management . . . or disposition of [plan] assets . . . .” 29 U.S.C. § 1002(21)(A). Though some circuits have allowed fiduciary-based relief for failure to advise participants of COBRA rights, e.g., Bixler v. Cent. Pa. Teamsters Health & Welfare Fund, 12 F.3d 1292, 1301 (3d Cir. 1993), this court has taken care to distinguish between fiduciary and statutory ERISA duties. Cf. Lopez v. Premium Auto Acceptance Corp., 389 F.3d 504, 509 & n.9 (5th Cir. 2004) (holding that the COBRA notice rule, 29 U.S.C. § 1166, is a statutory rule, not a contractual duty). More importantly, the offer of such benefits in themselves—i.e., the core of the relevant claim in the complaint—would require inclusion of new participants in Mary Kay’s plans, and, as such, would be a settlor, not a fiduciary, function in any event. See Spink, 517 U.S. at 890 (“sponsors who alter the terms of a plan [are not] fiduciaries”); see also Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 444 (1999) (“ERISA’s fiduciary duty requirement simply is not implicated . . . [in] a decision regarding the form or structure of the Plan such as who is entitled to receive Plan benefits . . . .”). COBRA relief may have been available in the MSC Suit, 11 No. 07-10951 but not as a fiduciary breach, as required for coverage under the Policy. Mary Kay argues that even if the provision (or not) of COBRA benefits was a settlor function, the MSC Suit “allege[s] negligent administration by Mary Kay of its own benefits plan.” Mary Kay cites complaint allegations that it “failed to otherwise satisfy any of the other obligations imposed on [it] by COBRA,” and that MSC “sues” various agents of Mary Kay “for failing to disclose material information, and making knowing and intentional misrepresentations to participants in the Benefit Plans regarding . . . their rights to continuation coverage under COBRA . . . .” The complaint defined “Benefit Plans” as “various employee Benefit Plans that covered [MSC] employees, including without limitation the [MSC] Employee Group Benefit Plan.” Mary Kay’s claim of non-sponsor duties fails for two reasons. First, the allegations that Mary Kay generally failed to comply with obligations of COBRA cannot support a duty to defend, because the MSC Suit’s complaint only states them in a conclusory fashion. See Cornhill Ins. PLC v. Valsamis, Inc., 106 F.3d 80, 85 (5th Cir. 1997) (“Texas courts do not look to conclusory assertions of a cause of action in determining a duty to defend . . . [but to] the facts giving rise to the alleged actionable conduct . . . .” ). Second, Mary Kay’s only other basis for COBRA rights vis-a-vis Mary Kay plans—i.e., its alleged “fail[ure] to disclose material information, and making knowing and intentional misrepresentations to participants in the Benefit Plans”—excludes such plans because “Benefit Plans” includes only those that “covered [MSC] employees.” The MSC Suit’s complaint allegations regarding workers “los[ing] health coverage when their employment was terminated shortly after [MSC] filed [for] bankruptcy” and Mary Kay “fail[ing] to provide continuation coverage” defeat any claim that the 12 No. 07-10951 complaint thought of Mary Kay’s plans as having “covered [MSC] employees,” absent any theory of new enrollment via COBRA. MSC employees were never so covered.5 Therefore, we affirm the district court on the Mary Kay plan claims.