September 10, 2014

Employment-EEOC Issues Fact Sheet for Small Businesses Discussing Pregnancy Discrimination, Including Effect On Benefits

The Equal Employment Opportunity Commission (the "EEOC") has issued a Fact Sheet discussing pregnancy discrimination. The Fact Sheet is being issued by the EEOC, along with Enforcement Guidance on Pregnancy Discrimination and FAQs on the Enforcement Guidance. The Fact Sheet is here.

This document explains the requirements of the Pregnancy Discrimination Act (the "PDA"), as well as the requirements of Title I of the Americans with Disabilities Act (the "ADA") as it applies to women with pregnancy-related disabilities. The PDA and ADA apply to employers with 15 or more employees.

As to employee benefits and matters, the Fact Sheet says:

In General. The PDA requires that a covered employer treat women affected by pregnancy, childbirth, or related medical conditions in the same manner as other applicants or employees who are similar in their ability or inability to work. The PDA covers all aspects of employment, including firing, hiring, promotions, and fringe benefits (such as leave and health insurance benefits). Pregnant workers are protected from discrimination based on current pregnancy, past pregnancy, and potential pregnancy.

An employer may not discriminate against an employee because of a medical condition related to pregnancy and must treat the employee the same as others who are similar in their ability or inability to work but are not affected by pregnancy, childbirth, or related medical conditions. For example, under the PDA, since lactation is a medical condition related to pregnancy, an employer may not discriminate against an employee because of her breastfeeding schedule. (For information about a provision of the Patient Protection and Affordable Care Act that provides additional protections for breastfeeding employees, see the section on "Other Federal Laws Protecting Pregnant Workers" below.).

Benefits At Work. An employer must provide the same benefits of employment to women affected by pregnancy, childbirth, or related medical conditions that it provides to other persons who are similar in their ability or inability to work. The PDA requires employers who offer health insurance to include coverage of pregnancy, childbirth, and related medical conditions. An employer must provide the same terms and conditions for pregnancy-related benefits as it provides for benefits relating to other medical conditions.

September 9, 2014

Employment-Ninth Circuit Rules That Fed Ex Drivers Are Employees (And Not Independent Contractors)

In Alexander v. Fed Ex Ground Package System, Inc., Nos. 12-17458, 12-17509 (9th Cir. 2014), as a central part of its business, FedEx Ground Package System, Inc. ("FedEx"), contracts with drivers to deliver packages to its customers. The drivers must wear FedEx uniforms, drive FedEx-approved vehicles, and groom themselves according to FedEx's appearance standards. FedEx tells its drivers what packages to deliver, on what days, and at what times. Although drivers may operate multiple delivery routes and hire third parties to help perform their work, they may do so only with FedEx's consent. The question for the Ninth Circuit Court of Appeals (the "Court"): under California Law, are the drivers employees or independent contractors? At stake were unpaid employment expenses and unpaid wages that would be due employees under state law.

In analyzing the case, the Court noted that California law controls this dispute. Further, determinations of employment status under California law are governed by the right-to-control test set forth in S.G. Borello & Sons, Inc. v. Department of Industrial Relations (Cal. 1989). The Court found that Fed Ex policy grants FedEx a broad right to control the manner in which its drivers' perform their work. This is the most important factor of the right-to-control test, and it strongly favors employee status. The other factors of the test, i.e., the right to terminate at will, integration of the work into the business, performing work under the principal's supervision, the required skills, provision of tools and equipment, length of time working for the principal, method of payment, and the parties' beliefs, do not strongly favor either employee status or independent contractor status. Accordingly, the Court held that the drivers are employees as a matter of law under California's right-to-control test.

The Court came to basically the same conclusion as to the Fed Ex drivers under Oregon law in Slayman v. Fed Ex Ground Package System, Inc., Nos. 12-35525, 12-35559 (9th Cir. 2014).

September 4, 2014

Employee Benefits-IRS Changes Group Trust Rules

The Internal Revenue Service (the "IRS") has made some changes to the 81-100 group trust rules. These changes are discussed in Employee Plans News, Issue 2014-13, September 2, 2014. Here is what the IRS says:

New Revenue Ruling

Revenue Ruling 2014-24 modifies the rules regarding 81-100 group trusts by:

• stating that certain retirement plans qualified under the Puerto Rico Code may
invest in 81-100 group trusts even if such a plan is not also qualified under the
Internal Revenue Code.

• clarifying that assets held by insurance company separate accounts may be
invested in 81-100 group trusts under some circumstances.

• giving transition relief for certain dual-qualified plans (plans with U.S. trusts qualified
under both the U.S. and Puerto Rico Codes) to allow sponsors of those plans an
additional year to spin off the assets and liabilities of their Puerto Rico employees
into Puerto Rico-only qualified plans satisfying ERISA Section 1022(i)(1).

• providing other miscellaneous guidance.

Group trust investment requirements

Rev. Rul. 81-100 provides that qualified retirement plans and individual retirement accounts (IRAs) may pool their assets for investment purposes in a group trust if certain requirements are met. Subsequent revenue rulings added Internal Revenue Code Section 403(b), 457(b) and 401(a)(24) plans to the list of plans that may invest in 81-100 group trusts and added some additional requirements (Rev. Ruls. 2011-1 and 2004-67).

Puerto Rico plans and transition relief

With respect to Puerto Rico plans, Rev. Rul. 2014-24:

• states that a plan described in ERISA Section 1022(i)(1) is eligible to participate in
an 81-100 group trust if the requirements of Rev. Rul. 2011-1, as modified by Rev.
Rul. 2014-24, are satisfied; and

• extends certain transition relief provided in Rev. Rul. 2008-40 to transfers to ERISA
Section 1022(i)(1) plans from qualified retirement plans that participated in 81-100
group trusts on January 10, 2011, if the transfers occur before January 1, 2016.
The transition relief under Rev. Rul. 2008-40 is not extended for any other plans.

Separate account investment requirements

Rev. Rul. 2014-24 provides that assets held in an insurance company's separate
account may be invested in an 81-100 group trust if the:

• assets of the separate account consist solely of assets from group trust retiree
benefit plans;

• insurance company timely enters into an agreement with the trustee of the group
trust that meets the requirements of Rev. Rul. 2014-24; and

• assets of the separate account are insulated from the claims of insurance
company's creditors.

Written agreement timing requirements

If plan assets are invested through an insurance company's separate account in a 81-
100 group trust as of December 8, 2014, the trustee of the group trust and the
insurance company must enter into a written arrangement meeting the requirements of
Rev. Rul. 2014-24 before January 1, 2016. Otherwise, the group trust trustee and the
insurance company must enter into a written arrangement no later than the time of the
investment.

Other provisions clarified

Rev. Rul. 2014-24 also:

• clarifies that, in the case of a governmental plan, the governing document includes
any statute that sets forth the terms applicable to the plan as well as any
regulations, ordinances, and other state or local rules or policies binding on the plan
under state or local law; and

• modifies condition 6 under Rev. Rul. 2011-1 to make clear that the group trust
instrument must expressly provide for separate accounting (not separate accounts)
to reflect the interest that each adopting group trust retiree benefit plan has in the
group trust.

September 3, 2014

ERISA-Tenth Circuit Holds That Suit For Disability Benefits Is Barred Due To Failure To Exhaust Administrative Remedies

In Holmes v. Colorado Coalition For The Homeless Long Term Disability Plan, No. 13-1175 (10th Cir. 2014), the plaintiff, Lucrecia Carpio Holmes ("Ms. Holmes"), appeals the district court's ruling that her claim for disability benefits under ERISA is barred due to her failure to exhaust administrative remedies.

In this case, Ms. Holmes is a former employee of the Colorado Coalition for the Homeless (the "Coalition") and participated in an employee benefits plan funded, in part, by a disability insurance policy through Union Security Insurance Company ("Union Security). While employed by the Coalition, Ms. Holmes presented with a number of medical conditions, including breast cancer, cataplexy, apnea, blackouts, diabetes, carpal tunnel syndrome, and neuropathy. As a result, she filed a claim for disability benefits with Union Security on March 10, 2005. Union Security sent written notification to Ms. Holmes on May 27, 2005 that it had denied her claim because she failed to prove she was disabled as defined by the Policy. The denial letter included an explanation of Ms. Holmes's right to internal review of the decision and attached a copy of a Group Claim Denial Review Procedure (the "Denial Review Procedure"), which describes a two-level review process.

On November 21, 2005, in accordance with the Denial Review Procedure, Ms. Holmes filed a request for review of the denial (the first-level review). Union Security issued a decision on the first-level review 137 days later on April 7, 2006, when it informed Ms. Holmes in writing that it had affirmed the denial of benefits. Union Security's April 7, 2006, letter contained a second copy of the Denial Review Procedure, which informed Ms. Holmes that she may request another review of Union Security's decision, and that this second-level review is the final level of administrative review available. The Denial Review Procedure further states that if Ms. Holmes's claim is denied as part of the second-level review, she will have a right to bring a civil action. Rather than filing the second-level appeal, on April 28, 2008, she filed this suit.

In analyzing the case, the Tenth Circuit Court of Appeals (the "Court") said, first, that the plan document specifically authorized Union Security to advise Ms. Holmes of further appeal rights, which could include a second-level review. Next, the record shows that Union Security advised Ms. Holmes of her further appeal rights by supplying her with a copy of the Denial Review Procedures. The summary plan description (the "SPD") here did not discuss the second-level appeal, but, under the Supreme Court's decision in Amara, the SPD is not a part of the plan, and Ms. Holmes was not otherwise prejudiced by the failings of the SPD. Finally, based on the plan and the additional terms authorized by it, and the court-created requirement of exhaustion of internal claim procedures under ERISA, the Court concluded that Ms. Holmes was required to seek a second-level review before bringing this suit. Accordingly, the Court affirmed the district court's decision.

August 27, 2014

ERISA-Ninth Circuit Holds That Plan Administrator Abused Its Discretion In Refusing To Pay For More Than Three Weeks Of Inpatient Hospital Treatment

In Pacific Shores Hospital v. United Behavioral Health, No. 12-55210 (9th Cir. 2014), an employee of Wells Fargo, whom the Court called Jane Jones, was covered under the Wells Fargo & Company Health Plan (the "Plan"), governed by ERISA. United Behavioral Health ("UBH") is a third-party claims administrator of the Plan. Jones was admitted to Pacific Shores Hospital ("PSH") for acute inpatient treatment for severe anorexia nervosa. UBH refused to pay for more than three weeks of inpatient hospital treatment. UBH based its refusal in substantial part on mischaracterizations of Jones's medical history and condition. PSH continued to provide inpatient treatment to Jones after UBH refused to pay. Jones assigned to PSH her rights to payment under the Plan. PSH sued the Plan and UBH, seeking payment for the additional days of inpatient treatment.

In analyzing the case, the Ninth Circuit Court of Appeals (the "Court"), concluded that that UBH abused its discretion in refusing to pay for these days of treatment, and the Court therefore overturned its decision to pay for more than the three weeks of treatment. Why did the Court reach this conclusion?

The Court reviewed UBH's denial of benefits for abuse of discretion, since the Plan had unambiguously granted discretion to UBH. However, the Court said that it was "painfully apparent" that UBH did not follow procedures appropriate to Jones's case. No PSH hospital records were ever put into the administrative record. No UBH doctor or other claims administrator ever examined Jones. Rather UBH's decision was based entirely on telephone conversations and voicemail messages, and factual errors by certain evaluating doctors.

The Court said, further, that UBH owed a fiduciary duty to Jones under ERISA. UBH fell far short of fulfilling this duty. Dr. Zucker, UBH's primary decisionmaker, made a number of critical factual errors. Dr. Center, as an ostensibly independent evaluator, made additional critical factual errors. Dr. Barnard, UBH's final decisionmaker, stated that he arrived at his decision to deny benefits "after fully investigating the substance of the appeal." He then rubberstamped Dr. Center's conclusions. There was a striking lack of care by Drs. Zucker, Center, and Barnard, resulting in the obvious errors. What is worse, the errors are not randomly distributed. All of the errors support denial of payment; none supports payment. The unhappy fact is that UBH acted as a fiduciary in name only, abusing the discretion with which it had been entrusted. Therefore, reviewing the case for abuse of discretion, the Court concluded that UBH improperly denied benefits under the Plan in violation of its fiduciary duty under ERISA.

August 26, 2014

ERISA-Sixth Circuit Holds That Michigan State Law Which Taxes Claims Paid By, And Imposes Reporting And Other Requirements On, Self-Insured Health Plans Is Not Preempted By ERISA

In Self-Insurance Institute of America, Inc. v. Snyder, No. 12-2264 (6th Cir. 2014), the plaintiff, Self-Insurance Institute of America, Inc. ("SIIA"), represents various sponsors and administrators of self-funded ERISA benefit plans, which it claims are affected by Michigan's Health Insurance Claims Assessment Act (the "Act"). SIIA argues, among other things, that ERISA's express-preemption provision, 29 U.S.C. § 1144(a), prohibits the application of the Act to ERISA-covered entities.

In analyzing the case, the Sixth Circuit Court of Appeals (the "Court") held that the Act escapes ERISA preemption. The Court said, first, that the Act functions by imposing a one-percent tax on all "paid claims" by "carriers" or "third party administrators" to healthcare providers for services rendered in Michigan for Michigan residents."Carriers" include sponsors of "group health plans" subject to ERISA. On top of the tax, every carrier and third-party administrator paying the tax must submit quarterly returns with the Michigan Department of the Treasury and keep accurate and complete records and pertinent documents as required by the Department. Every carrier and third-party administrator must also develop and implement a methodology by which it will collect the tax subject to several conditions.

The Court said, next, that ERISA supersedes any and all State laws insofar as they relate to any employee benefit plan subject to ERISA. 29 U.S.C. § 1144(a). However, the Court found that the Act does not "relate to" any such plan, because the Act does not: (1) interfere with plan administration (the Act does not require a plan administrator to change how it administers the plan at all), (2) create inappropriate administrative burdens (despite requiring the returns and records, since those are not the plan's core functions) or (3) through its residency requirement, interfere with the relationship between the plan and its participants (even though the plan may be required to collect some additional information from participants). As such, ERISA does not preempt the Act.

August 25, 2014

Employee Benefits-Eighth Circuit Rules That The Taxpayer Made A Rollover Contribution To An IRA, Thereby Offsetting Income From An Earlier IRA Withdrawal

In Haury v. Commissioner of Internal Revenue, No. 13-1780 (8th Cir. 2014), the issue arose as to whether the taxpayer ("Haury") had made a $120,000 rollover contribution an IRA, which would offset the income attributable to earlier IRA withdrawals.

In this case, Haury had made certain loans to two companies, which he funded with withdrawals from his IRA account, taken from February 15, 2007 through October 25, 2007 totalling about $425,000, including a withdrawal of $168,000 on April 9, 2007. Haury was less than 59 ½ years old, so his IRA withdrawals were taxable as ordinary income subject to a 10% additional tax. Haury also made a $120,000 contribution to his IRA account on April 30, 2007. The issue is whether that contribution was a qualifying "rollover" that reduced Haury's 2007 taxable IRA-distribution income by $120,000.

The Eighth Circuit Court of Appeals (the "Court") noted that, under Code section 408(d)(3)(A)(i), an individual may exclude an IRA withdrawal from taxable income if it is "rolled over" into an IRA account, by not later than the 60th day after the day on which he receives the withdrawal. An amount less than the entire withdrawal is likewise excluded if it is paid into an IRA, under Code section 408(d)(3)(D). The rollover contribution exclusion does not apply if the distributee used it to exclude another withdrawal from tax in the year prior to the date of the withdrawal in question, under Code section 408(d)(3)(B).

The Court concluded that Haury's April 30, 2007 IRA contribution of $120,000 was made well within 60 days of the April 9 withdrawal of $168,000. There was no previous rollover contribution during the year preceding April 30, 2007. Therefore, the April 30 contribution was a qualifying partial rollover contribution under § 408(d)(3)(D), and Haury is entitled to reduce his taxable 2007 IRA withdrawals by $120,000.

August 21, 2014

ERISA-Fourth Circuit Expresses Its View On Assessing Liability For Breach Of Duty Of Prudence When Liquidating A Plan Investment

Tatum v. RJR Pension Investment Committee, No. 13-1360 (4th Cir. 2014) involved an appeal from a judgment in favor of R.J. Reynolds Tobacco Company and R.J. Reynolds Tobacco Holdings, Inc. (collectively "RJR"). Richard Tatum brought this suit on behalf of himself and other participants in RJR's 401(k) retirement savings plan (collectively "the participants"). He alleges that RJR breached its fiduciary duties under ERISA, when it liquidated two funds held by the plan on an arbitrary timeline without conducting a thorough investigation, thereby causing a substantial loss to the plan.

After a bench trial, the district court found that RJR did indeed breach its fiduciary duty of procedural prudence and so bore the burden of proving that this breach did not cause loss to the plan participants. But the court concluded that RJR met this burden by establishing that a reasonable and prudent fiduciary could have made the same decision after performing a proper investigation. In analyzing the case, the Fourth Circuit Court of Appeals (the "Court") affirmed the district court's holdings that RJR breached its duty of procedural prudence, in that RJR failed to engage in a prudent decision-making process, and therefore bore the burden of proof as to causation. But, because the Court concluded the district court then failed to apply the correct legal standard in assessing RJR's liability, the Court reversed its judgment and remanded the case back to the district court.

What did the Court say about the correct legal standard for assessing liability? The Court said that, to carry its burden and avoid liability for loss, RJR had to prove that despite its imprudent decision-making process, its ultimate investment decision was "objectively prudent," that is, a hypothetical prudent fiduciary would have made the same decision anyway. In making this determination, a court must consider all relevant evidence, including-in this case- the timing of the divestment.

August 20, 2014

ERISA-Sixth Circuit Rules That An Employer Cannot Bring Suit Against Trustees Of A Multiemployer Plan For Negligent Management

In DiGeronimo Aggregates, LLC v. Zemla, No. 12-2095 (6th Cir. Aug. 14, 2014), the plaintiff, an employer who contributes to a multiemployer pension plan governed by ERISA, filed a complaint against defendants, the trustees of that plan, alleging that they negligently managed the plan, causing plaintiff to suffer an increased withdrawal liability when a majority of contributing employers withdrew from the plan. The district court granted defendants' Rule 12(b)(6) motion to dismiss, holding that there was no substantive basis for plaintiff's negligence claim in any section of ERISA or under the federal common law.

After reviewing the case, the Sixth Circuit Court of Appeals (the "Court") said that it agreed with the district court. The plaintiff brings a claim of negligence. The Court said that, acknowledging that a negligence claim is not authorized by any section of ERISA, the plaintiff urges us to utilize our lawmaking powers under the federal common law to create a new negligence claim in favor of contributing employers.

The Court said, further, that is has previously held that the Court's authority to create federal common law in this area is restricted to instances in which: (1) ERISA is silent or ambiguous; (2) there is an awkward gap in the statutory scheme; or (3) federal common law is essential to the promotion of fundamental ERISA policies. Here, none of these conditions are met. Rather, because Congress has established an extensive statutory framework and expressly announced its intention to occupy the field of private-sector pensions, and because the Court does not lightly create additional rights under the federal common law given these circumstances, the Court concluded that a contributing employer to a multiemployer pension plan has no cause of action against plan trustees for negligent management under the federal common law of ERISA pension plans. As such, the Court affirmed the district court's judgment.

August 19, 2014

Employment-Third Circuit Rules That Mailbox Rule Presumption, Of Receipt By Employee Of A Letter Designating Her Absence As FMLA Leave, Is Not Sufficient To Support Summary Judgment Against Employee's FMLA Claims

In Lupyan v. Corinthian Colleges Inc., No. 13-1843 (Third Circuit 2014), Lisa Lupyan ("Lupyan") was appealing the summary judgment rendered by the district court in favor of her former employer, Corinthian Colleges, Inc. ("CCI") on her claims of interference with the exercise of her rights under the Family and Medical Leave Act (the "FMLA" ) and retaliation for her exercise of those rights.

In this case, Lupyan was hired as an instructor in CCI's Applied Science Management program in 2004. In December 2007, in response to the suggestion by her supervisor that she take leave from work since she looked depressed, Lupyan filed a Request for Leave Form. CCI's human resources department determined that Lupyan was eligible for leave under the FMLA.

On December 19, 2007, Sherri Hixson, CCI's Supervisor of Administration, met with Lupyan and instructed her to initial the box marked "Family Medical Leave" on her Request for Leave Form. Hixson also changed Lupyan's projected date of return to April 1, 2008, based upon the Certification of Health Provider provided by Lupyan. Lupyan contends--and CCI does not dispute --that her rights under the FMLA were never discussed during this meeting. However, later that afternoon CCI allegedly mailed Lupyan a letter advising her that her leave was designated as FMLA leave, and further explaining her rights under that act (the Letter"). Lupyan denies ever having received the Letter, and denies having any knowledge that she was on FMLA leave until she attempted to return to work.

Lupyan did not return to work by April 1, 2008. She was advised, on April 9, 2008, that she was being terminated from her position at CCI due to low student enrollment, and because she had not returned to work within the twelve weeks allotted for FMLA leave. Lupyan claims this was the first time she had any knowledge that she was on FMLA leave. This suit ensued, with Lupyan claiming that CCI interfered with her rights under the FMLA by failing to give notice that her leave fell under that act, and that she was fired in retaliation for taking FMLA leave.

In analyzing the case, the Third Circuit Court of Appeals (the "Court") noted that the FMLA regulations require an employer give to employees individual written notice that an absence falls under the FMLA, and is therefore governed by it. 29 CFR § 825.208. Failure to provide the required notice can constitute an interference claim. Here, Lupyan claims that CCI interfered with her FMLA rights by not informing her that her leave was under the FMLA. According to her, she therefore was unaware of the requirement that she had to return to work within twelve weeks or be subject to termination.
The issue in this case is whether Lupyan received the Letter. The law contains a presumption of receipt under the "mailbox rule". Under this rule, if a letter properly directed is proved to have been either put into the post-office or delivered to the postman, it is presumed that it reached its destination at the regular time, and was received by the person to whom it was addressed. However, this is only a rebuttable presumption. Given Lupyan's denial that the Letter was received, and the ease with which a letter can be certified, tracked, or proof of receipt obtained in order to prove delivery, that rebuttable presumption is not sufficient to establish receipt as a matter of law and thereby entitle CCI to summary judgment. Accordingly, given certain consideration about the interference and retaliation claim, the Court reversed the district court's summary judgment, and remanded the case back to the district court.

August 18, 2014

Employee Benefits-A Reminder: Revised Business Associate Agreements Must Be Executed By September 22

Introduction. Generally, under HIPAA, a health plan-including a multiemployer health plan-may disclose protected health information ("PHI") to a business associate only if the plan and the business associate meet several requirements, including the entering of a "business associate agreement" between them. This agreement must reflect the requirements of the HIPAA regulations.

The U.S. Health and Human Services Department (the "HHS") issued, on January 25, 2013, final regulations modifying a number of requirements under HIPAA. These modifications changed some of the requirements for the business associate agreement, so that the plan and business associate are required modify their agreement.

Changes to the Business Associate Agreements. The changes to the requirements for business associate agreements in the final regulations cause the agreements to reflect the following:

1) If the health plan delegates any of its obligations under the HIPAA Privacy Rule to the business associate, then the business associate must comply with the Privacy Rule when carrying out the obligations.

2) The business associate must comply with the HIPAA Security Standards for electronic PHI.

3) The business associate is required to report to the plan any breaches of unsecured PHI, in addition to any security incidents.

4) The business associate is required to enter into an agreement with each of its subcontractors that create or receive PHI for or from the business associate, and this agreement must be substantially similar to the business associate agreement with the plan (a "subcontractor agreement").

Due Date for Revised Business Associate and Subcontractor Agreements. The plan and the business associate were generally required to revise their business associate agreement to reflect the above changes by September 23, 2013. However, a transitional deadline has been available if the plan and business associate had a business associate agreement which:

-- was in place prior to January 25, 2013,

--complied-prior to January 25, 2013- with the HIPAA regulations in effect as of such date, and

--is not renewed or modified from March 26, 2013, until September 23, 2013.

If the transitional deadline applied to a business associate agreement, then such agreement need not be revised to reflect the changes in the regulations until the earlier of: (1) the date on which such agreement is renewed or modified on or after September 23, 2013 or (2) September 22, 2014.

The same regular and transitional deadline apply to subcontractor agreements.
Bottom Line: The revisions to all business associate agreements must be completed and executed by this coming September 22.

August 14, 2014

ERISA-Third Circuit Rules That Plaintiffs' Supplemental Coverage Is Part Of An ERISA Plan, So That State Law Claims Including Fraud Are Preempted By ERISA

In Menkes v. Prudential Insurance Company of America, No. 13-1408 (3rd Cir. 2014), the two plaintiffs were appealing the district court's dismissal of their complaint for failure to state a claim.

In this case, the plaintiffs were employed by defense contractor defendant Qinetiq to work on a military base in Kirkuk, Iraq in 2008. As employees, the plaintiffs were automatically enrolled in Qinetiq's ERISA-covered Basic Long Term Disability, Basic Life, and Accidental Death and Dismemberment insurance policies (the "Basic Policies"). These policies were established pursuant to a single group contract with the Prudential Insurance Company of North America ("Prudential") and Qinetiq paid the premiums for each of these policies on behalf of its employees. Both plaintiffs also purchased, from Prudential, supplemental long term disability insurance coverage, and one plaintiff (Menkes) purchased supplemental accidental death and dismemberment insurance coverage, to augment their benefits under the Basic Policies, paying the premiums for this coverage out of their own funds (collectively, the "Supplemental Coverage"). The Basic Policies and Supplemental Coverage were explained in a single booklet (a "Booklet") and summary plan description ("SPD") for each type of insurance The Booklets and SPDs contained an exclusion for injuries occurring during war.

After Menkes filed a claim for disability benefits which Prudential rejected, and this suit ensued. One of the claims made by the plaintiffs was that Prudential fraudulently induced them to buy the Supplemental Coverage, knowing that any claim they filed would likely be subject to the war exclusion clauses because their place of employment was in a war zone in Iraq. Other state law claims were asserted. They wanted a return of premium for this coverage and punitive damages.

The District Court dismissed the suit in its entirety. It held that the Supplemental Coverage was governed by ERISA and could not be unbundled from the Basic Policies. Viewing the Basic Policies and Supplemental Coverage as closely related component parts of a single plan, it held that all of the plaintiffs' claim of fraud, and the other state law claims they made, were expressly preempted by ERISA's broad preemption clause, § 514(a). In the alternative, it held that the plaintiffs' claims were preempted by § 502(a) of ERISA because the causes of action that the plaintiffs asserted conflicted with ERISA's exclusive civil enforcement scheme. - The Third Circuit Court of Appeals agreed with this analysis, and therefore affirmed the district court's decision.

August 13, 2014

ERISA-Sixth Circuit Holds That A Letter From The Plan Administrator Denying A Benefit Must Include Information On The Time Frame For Filing Suit To Challenge The Denial

In Moyer v. Metropolitan Life Insurance Company, No. 13-1396 (6th Cir. 2014), Joseph Moyer ("Moyer"), a participant in a plan governed by ERISA, appeals the district court's dismissal for untimeliness of his action against the plan's claim administrator, Metropolitan Life Insurance Company ("MetLife"), seeking recovery of unpaid plan benefits.

In this case, as an employee of Solvay America, Inc., Moyer participated in Solvay's ERISA-governed Long Term Disability Plan (the "Plan"). When Moyer applied for disability benefits in 2005, MetLife initially approved his claim, but reversed its decision in 2007 after determining that Moyer retained the physical capacity to perform work other than his former job. Moyer filed an administrative appeal, and MetLife affirmed the revocation of benefits on June 20, 2008. Moyer's adverse benefit determination letter included notice of the right to judicial review but failed to include notice that a three-year contractual time limit applied to judicial review. The Plan's summary plan description (the "SPD") failed to provide notice of either Moyer's right to judicial review or the applicable time limit for initiating judicial review.

On February 20, 2012, Moyer sued MetLife, seeking recovery of unpaid plan benefits under 29 U.S.C. § 1132(a)(1)(B). MetLife moved to dismiss, arguing that the Plan's three-year limitations period barred Moyer's claim. The district court agreed, noting that the plan documents--which were not sent to plan participants unless requested--stated in the Claims Procedure section of the plan that there was a three-year limitations period for filing suit. It concluded that MetLife provided Moyer with constructive notice of the contractual time limit for judicial review. Moyer now appeals, requesting equitable tolling.

In analyzing the case, the Eighth Circuit Court of Appeals (the "Court") said that courts uphold contractual limitations periods embodied in ERISA plans as long as the period qualifies as "reasonable." However,the three year time limit, found in the Plan document, for seeking judicial review was not provided to Moyer in the letter revoking his benefits or in the SPD. The Court concluded that, under ERISA's claim procedure (29 U.S.C. § 1133) and the underlying DOL regulations, this time limit should have been included in this letter. The failure to include the time limit violates ERISA, and Moyer is entitled to a judicial review of the benefit denial. Having so concluded, the Court did not need to reach the issue of whether the time limit should have been included in the SPD. Accordingly, the Court reversed the district court's holding, and remanded the case back to the district court to consider Moyer's judicial appeal of his adverse benefit determinatio

August 12, 2014

ERISA-Eighth Circuit Holds That Surcharge, Reformation And Equitable Estoppel Could Be Available To Remedy The Fiduciary's Failure To Provide An SPD

In Silva v. Metropolitan Life Insurance Company, No. 13-2233 (8th Cir. 2014), Abel Silva ("Abel") died on June 27, 2010. His father, Salvador Silva ("Silva"), sought to recover the benefits of Abel's life insurance policy (the policy being the "Plan"). The insurer denied Silva's claim, asserting that Abel did not actually have a policy because he had not provided required paperwork. Silva brought suit against Abel's employer, Savvis Communications Corporation ("Savvis"), and the insurer and plan fiduciary, Metropolitan Life Insurance Company ("MetLife"), under ERISA. The district court denied relief, and Silva appeals.

In analyzing the case, the Eighth Circuit Court of Appeals (the "Court") noted that the district court granted summary judgment to the defendants because it found that Silva was not entitled to benefits under the Plan. Section 1132(a)(1)(B) of ERISA allows Silva to bring a civil action "to recover benefits due to him under the terms of his plan." The defendants argue that Silva is not entitled to "recover benefits under the terms of his plan" because the terms of the Plan required Abel to submit evidence of insurability as a late enrollee. Silva argues that § 1132(a)(1)(B) entitles him to benefits owed under the Plan. To succeed, Silva must show that MetLife's determination that he had not provided "evidence of insurability" was an abuse of discretion (due to its discretion as plan administrator, with somewhat less deference because of conflict as plan administrator and payor). Since it is not clear as to whether there has been an abuse of discretion, the Court reversed the case and remanded Silva's § 1132(a)(1)(B) claim to the district court for further proceedings.

The Court also faced the question as to whether Silva could add a claim for equitable relief under section 1132(a)(3) of ERISA, based on fiduciary failure to provide a summary plan description (the "SPD")that explained the Plan's enrollment procedures. The district court did not allow this addition, finding that the § 1132(a)(3) claim was futile because Silva sought money damages ($429,000 in policy benefits), rather than equitable relief, which the district court concluded was unavailable under that section of the statute. The Court ruled that the failure to provide the SPD was a breach of fiduciary duty. But does this wrong have a remedy? Under the Supreme Court's decision in Amara, the remedy of surcharge could be available, to provide relief in the form of monetary "compensation" for a loss resulting from a trustee's breach of duty, or to prevent the trustee's unjust enrichment. The remedy is available if the plan participant shows harm resulting from the plan administrator's breach of a fiduciary duty. Since, under the facts alleged, Silva could make such a showing, the Court reversed the district court's determination that a claim under § 1132(a)(3) against the defendants would be futile. The Court also stated, in remanding the case back to the district court, that the remedies of reformation and equitable estoppel could be available under Amara.

August 11, 2014

ERISA-Second Circuit Rules that Claims By A Medical Fund Against Another Fund For Unpaid Contributions Are State Law Breach-Of-Contract Claims, Rather Than Claims Under ERISA

In Silverman, Trustee of the Union Mutual Medical Fund v. Crowley, Docket Nos. 13‐392‐cv(L), 13‐1175‐cv(XAP) (2nd Cir. 2014), the Teamsters Local 210 Affiliated Health and Insurance Fund (the "210 Fund") and its trustees appeal from a judgment of the district court, which awarded approximately $2.5 million to the Union Mutual Medical Fund ("UMM Fund") for unpaid ERISA plan contributions.

In analyzing the case, the Second Circuit Court of Appeals (the "Court") said that, since the 210 Fund was not obligated to contribute funds to the UMM Fund under the terms of an ERISA plan (such contributions were required under a collective bargaining agreement, which is not an ERISA plan), the district court lacked subject matter jurisdiction under ERISA over the claims on which the UMM Fund prevailed. However, because these claims can be construed as state law breach‐of‐contract claims, the Court vacated and remanded the case back to the district court to decide, in the first instance, whether to exercise supplemental jurisdiction and decide the claims under this alternative theory.