Recently in ERISA Category

July 30, 2015

ERISA-Third Circuit Rules That Plaintiff Must Show Individual Harm To Have Standing To Seek Equitable Relief Under Section 502(a)(3) of ERISA

In Perelman v. Perelman, Nos. 14-1663 and 14-2742 (Third Circuit 2015), the Third Circuit Court of Appeals (the "Court") faced a matter arising under section 502(a)(3) of ERISA, which authorizes suits by, among others, a pension plan beneficiary to enjoin any act or practice that violates ERISA, "to obtain other appropriate equitable relief . . . to redress such violations," or to enforce any provision of ERISA or the terms of a pension plan.

In this case, the plaintiff, Jeffrey Perelman, is a participant in the defined employee pension benefit plan (the "Plan") of the defendant, General Refractories Company ("GRC"). Jeffrey alleges that his father, Raymond Perelman, as trustee of the Plan, breached his fiduciary duties by covertly investing Plan assets in the corporate bonds of struggling companies owned and controlled by Jeffrey's brother, defendant Ronald Perelman. Jeffrey contends that these transactions were not properly reported; depleted Plan assets; and increased the risk of default, such that his own defined benefits are in jeopardy. The district court dismissed several of Jeffrey's claims for lack of constitutional standing, later granted summary judgment against him on all remaining claims, and denied his application for attorneys' fees and costs. Jeffrey appealed, but the Court affirmed the district court's rulings.

Jeffrey raised two issues pertaining to section 502(a)(3) on appeal. First, he contends that he has standing to seek monetary equitable relief such as disgorgement or restitution under section 502(a)(3), since he did in fact suffer individual harm, in the form of an increased risk of Plan default with respect to his defined benefits. The Court rejected this contention, saying that Jeffrey has not suffered individual harm, since at this point the Plan-a defined benefit plan- remains adequately funded and able to pay Jeffery's benefit, and any risk of nonpayment is too speculative.

Jeffrey's second issue is whether, insofar as Jeffrey seeks relief on behalf of the Plan under section 502(a)(3), no showing of individual harm is necessary to obtain monetary equitable remedies. As to this issue, the Court said that its own case law provides no support for this theory, and other federal appellate courts have unanimously rejected it. As such, the Court concludes that -since Jeffrey did not show individual harm-he lacks standing to sue under section 502(a)(3) even purely as a Plan representative, insofar as he seeks monetary equitable relief.

July 28, 2015

ERISA-Eleventh Circuit Rules Against Imposition Of Statutory Penalty Under ERISA For Failure To Furnish Documents

In Smiley v. Hartford Life and Accident Insurance Company, No. 15-10056 (11th Cir. 2015) (Unpublished Opinion), the Eleventh Circuit Court of Appeals (the "Court") reviewed the issue of whether a statutory penalty should be imposed under ERISA for the failure to furnish plan documents. The district court decided that the penalty should not be imposed, and the Court must review this decision for abuse of discretion.

The Court noted that ERISA authorizes district courts to impose a daily penalty upon any plan administrator that "fails or refuses to comply with a request for information which such administrator is required . . . to supply to a participant or a beneficiary." 29 U.S.C. § 1332(c)(1). Specifically, ERISA requires a plan administrator to furnish the following upon request: "the latest updated summary, plan description, and the latest annual report, any terminal report, the bargaining agreement, trust agreement, contract, or other instruments under which the plan is established and operated." 29 U.S.C. § 1024(b)(4). A plan administrator is either "the person specifically so designated by the terms of the instrument under which the plan is operated," 29 U.S.C. § 1002(16)(A)(i), or a company acting as a plan administrator.

In this case, the Court continued, the district court correctly concluded that defendant Hartford Life and Accident Insurance Company(" Hartford"), a third-party claims administrator, was not the plan administrator and therefore not subject to statutory penalties under § 1132(c)(1). The applicable plan expressly identified defendant Smile Brands, Inc. ("Smile Brands"), the employer, as the plan administrator. Further, Hartford was not the de facto administrator. The record demonstrates that Smile Brands retained the authority under the plan to make final decisions on appeal from the claims administrator, Hartford. Thus, Hartford was not the plan administrator, either in name or in fact, and was not liable for failing to furnish any plan documents.

Further, the Court continued, the district court did not abuse its discretion in refusing to impose statutory penalties on Smile Brands. The disclosure penalty provision of § 1132(c) "is meant to be in the nature of punitive damages, designed more for the purpose of punishing the violator than compensating the participant or beneficiary." As the district court concluded, the facts of this case do not warrant punishing Smile Brands because it did not refuse or fail to provide the plaintiff with any documents. There is no evidence that Smile Brands refused or failed to provide the plaintiff with the relevant documents, which were already in her possession. Given these facts, the Court could not say that the district court abused its discretion in denying disclosure penalties.

July 27, 2015

ERISA-DOL Provides Guidance ON Selection And Monitoring Under The Annuity Selection Safe Harbor Regulation For Defined Contribution Plans

In Field Assistance Bulletin No. 2015-02 (the "FAB"), the U.S. Department of Labor (the "DOL") discusses the application of the Annuity Selection Safe Harbor Regulations for Defined Contribution Plans. Here is what the FAB says.

The Issue. A regulation issued by the Department in 2008 at 29 CFR 2550.404a-4 regarding the selection of annuity providers under defined contribution plans (the "Safe Harbor Rule") provides plan fiduciaries with safe harbor conditions for the selection and monitoring of annuity providers and annuity contracts for benefit distributions. However, questions continue to be raised about how to reconcile the "time of selection" standard in the Safe Harbor Rule -- which embodies the general principle that the prudence of a fiduciary decision is evaluated under ERISA based on the information available at the time the decision was made -- with ERISA's duty to monitor and review certain fiduciary decisions.

Background. The current Safe Harbor Rule describes actions that defined contribution plan fiduciaries can take to satisfy their ERISA fiduciary responsibilities in selecting an annuity provider for benefit distributions. Similar to selecting plan investments, choosing an annuity provider for this purpose is a fiduciary function, subject to ERISA's standards of prudence and loyalty. The Safe Harbor Rule requirements are satisfied if the plan's fiduciary:

• Engages in an objective, thorough and analytical search for the purpose of identifying and selecting providers from which to purchase annuities. This process must avoid self-dealing, conflicts of interest or other improper influence and should, to the extent possible, involve consideration of competing annuity providers;
• Appropriately considers information sufficient to assess the ability of the annuity provider to make all future payments under the annuity contract;
• Appropriately considers the cost (including fees and commissions) of the annuity contract in relation to the benefits and administrative services to be provided under such contract;
• Appropriately concludes that, at the time of the selection [emphasis added], the annuity provider is financially able to make all future payments under the annuity contract and the cost of the annuity contract is reasonable in relation to the benefits and services to be provided under the contract; and
• If necessary, consults with an appropriate expert or experts for purposes of compliance with these provisions.

For this purpose the Safe Harbor Rule provides that "the time of selection" means:
1. the time that the annuity provider and contract are selected for distribution of benefits to a specific participant or beneficiary; or
2. the time that the annuity provider is selected to provide annuities as a distribution option for participants or beneficiaries to choose at future dates.

The Safe Harbor Rule also provides that when an annuity provider is selected to offer annuities that participants may later choose as a distribution option, the fiduciary must periodically review the continuing appropriateness of the conclusion that the annuity provider is financially able to make all future payments under the annuity contract, as well as the reasonableness of the cost of the contract in relation to the benefits and services to be provided. The fiduciary is not, however, required to review the appropriateness of its conclusions with respect to an annuity contract purchased for any specific participant or beneficiary.

The Discussion

ERISA's Prudence Standard Applied to the Selection and Monitoring of Annuities. Section 404(a)(1)(B) of ERISA provides that a fiduciary must discharge his duties with respect to a plan with the care, skill, prudence, and diligence under the circumstances then prevailing [emphasis added] that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.

Consistent with this statutory language, the prudence of a fiduciary decision is evaluated with respect to the information available at the time the decision was made - and not based on facts that come to light only with the benefit of hindsight. The conditions of the Safe Harbor Rule embody this general principle of fiduciary prudence. A fiduciary's selection and monitoring of an annuity provider is judged based on the information available at the time of the selection, and at each periodic review, and not in light of subsequent events.

The periodic review requirement in the Safe Harbor Rule does not mean that a fiduciary must review the prudence of retaining an annuity provider each time a participant or beneficiary elects an annuity from the provider as a distribution option. The frequency of periodic reviews to comply with the Safe Harbor Rule depends on the facts and circumstances. For example, if a "red flag" about the provider or contract comes to the fiduciary's attention between reviews (e.g., a major insurance rating service downgrades the financial health rating of the provider or several annuitants submit complaints about a pattern of untimely payments under the contract), the fiduciary would need to examine the information to determine whether an immediate review is necessary, or, depending on the facts and circumstances, the fiduciary may need to conduct an immediate review.

The FAB continues with several examples on the above, and a discussion of ERISA
statute of limitations on fiduciary liability for the selection of annuity providers and annuity contracts.

July 23, 2015

ERISA-Second Circuit Holds That Hospital's Severance Policy is A "Plan" For Purposes Of ERISA

In Okun v. Montefiore Medical Center, Docket No. 13-3928-cv (2nd Cir. 2015), one of the issues faced by the Second Circuit Court of Appeals (the "Court") was whether a severance policy maintained by Montefiore Medical Center ("Montefiore") was a "plan" for purposes of ERISA.

In this case, the Montefiore severance policy at issue, number II-17a (the "Policy"), provides that all full-time physicians employed before August 1, 1996 who are terminated for other than cause are entitled to either twelve months' notice or six months' severance pay. Eligible employees with more than fifteen years' service are also entitled to automatic review of the amount of severance pay by the President of the Medical Center. Montefiore has maintained a severance policy since 1987, and the Policy itself has been in place, without revision, since 1996. The Policy explicitly notes that it may be changed, modified or discontinued at any time by the Medical Center's Senior Vice President of Human Resources, or designee, with or without notice.

In analyzing the issue, the Court said that the dispute here is whether the Policy is adequately alleged to constitute the kind of undertaking to pay severance benefits that can be described as a "any plan, fund, or program," as that phrase is used in the definition of "employee welfare benefit plan" found in section 3(3) of ERISA. The Court then noted that the term "employee welfare benefit plan" has been held to apply to most employer undertakings or obligations to pay severance benefits.

However, to constitute a plan, following the Supreme Court's decision in Fort Hallifax and James, the arrangement at issue must involve an "ongoing administrative program." The Court applies three non-exclusive factors to help determine whether the ongoing administrative program requirement is met: (1) whether the employer's undertaking or obligation requires managerial discretion in its administration; (2) whether a reasonable employee would perceive an ongoing commitment by the employer to provide employee benefits; and (3) whether the employer was required to analyze the circumstances of each employee's termination separately in light of certain criteria.

The Court concluded that, based on the facts alleged in the complaint, the Policy is a "plan" for ERISA purposes, as it involves the kind of undertaking that falls within the meaning of the phrase "any plan, fund, or program." The Policy represents a multi-decade commitment (since 1987) to provide severance benefits to a broad class of employees under a wide variety of circumstances and requires an individualized review whenever certain covered employees are terminated. This review requires discretion and individualized evaluation to administer. As a result, Montefiore assumed the responsibility to pay benefits on a regular basis, and thus faces periodic demands on its assets that require long-term coordination and control.

June 29, 2015

ERISA-Eleventh Circuit Holds That Plaintiff Did Not Timely File Her Claim For Long Term Disability Benefits And Is Not Entitled To Toll The Applicable Limitations Period

In Wilson v. The Standard Insurance Company, No. 14-10825 (11th Cir. 2015) (Unpublished Opinion), Harriet Wilson appeals the district court's grant of summary judgment in favor of Standard Insurance Company on her ERISA claim for long term disability benefits.

In this case, the grant of judgment against Wilson was based on her failure to file her lawsuit within the three-year period prescribed in the governing disability policy. She filed thirty-four months after that period expired. She contends that the running of the three-year contractual limitations period should be equitably tolled for the thirty-four months that her lawsuit was late, because Standard's letter denying her claim did not give her notice that the policy imposed a three-year limitations period instead of the six-year period for contract actions that would otherwise have been borrowed from state law. She argues that the contractual limitations period should be equitably tolled until the date she filed her lawsuit because Standard violated an ERISA regulation that required it to provide in the claim denial letter notice of the time limit for filing a lawsuit.

In analyzing this case, the Eleventh Circuit Court of Appeals (the "Court") noted that ERISA does not provide a statute of limitations for suits, such as this one, brought under § 502(a)(1)(B) of ERISA to recover benefits. Thus, a court borrows the most closely analogous state limitations period, unless the parties have contractually agreed to a different one in the ERISA plan. In case of such agreement, the court will follow the plan's limitations provision, unless it determines either that the period is unreasonably short, or that a controlling statute prevents he limitations provision from taking effect. The Court ruled that neither of the two exceptions apply here.

As to Wilson's equitable tolling argument, the Court said that, in this case, the policy's contractual limitations period is enforceable, unless Wilson can establish that she is entitled to equitable tolling, by showing both extraordinary circumstances and diligence in pursuing her rights. In this case, Wilson did not show the required diligence, since she failed to either investigate basic issues that are relevant to her claim or proceed with the claim in a reasonably prompt fashion. Wilson could have requested a copy of the policy, which was central to her claim, and one of whose terms was the contractual limitations period. Her lawsuit easily could have been timely filed if she had exercised even minimal diligence in discovering the terms of the policy. As such, the Court affirmed the district court's summary judgment.

June 25, 2015

ERISA-Sixth Circuit Rules That Equitable Relief Is Available When Plan And SPD Conflict

In Pearce v. Chrysler Group, L.L.C. Pension Plan, No. 13-2374 (6th Cir. 2015) (Unpublished Opinion), the plaintiff, Randy Pearce ("Pearce"), was appealing, among other matters, the district court's finding that the applicable summary plan description (the "SPD") did not materially conflict with the applicable retirement pension plan (the "Pension Plan"), and therefore any motion to amend the complaint to seek equitable relief under ERISA § 502(a)(3) would be futile. Upon review, the Sixth Circuit Court of Appeals (the "Court") reversed the district court's finding.

The Court said that, under ERISA § 502(a)(3), a material conflict between the SPD and the Pension Plan can give rise to a claim for equitable relief. In this case, the Plan requires a participant to be employed at retirement to be eligible for the type of pension benefit Pearce is claiming. The SPD does not contain this requirement. As such, the Pension Plan and SPD are in material conflict, and the district court abused its discretion when it denied Pearce's motion to add equitable claims under ERISA § 502(a)(3). The Court did not express an opinion on the merits of Pearce's ERISA § 502(a)(3) claims, other than to state that they are not futile.

June 24, 2015

ERISA-Eighth Circuit Holds That Plaintiff's Law Suit Was Not Timely Filed

In Munro-Kienstra v. Carpenters' Health and Welfare Trust Fund of St. Louis, No. 14-1655 (8th Cir. 2015), Debra Munro-Kienstra had alleged, under ERISA, wrongful denial of health care benefits by the Carpenters' Health and Welfare Trust Fund of St. Louis' Employee Welfare Benefit Plan (the "Plan"). The Plan stated that any ERISA action for denial of benefits must be brought within two years of the date of denial. Munro-Kienstra learned that she had been denied coverage in July 2009, and she filed this action over two years later in January 2012. The district court concluded that Munro-Kienstra's claim was time barred and granted summary judgment for Carpenters. Munro-Kienstra appeals.

After reviewing the case, the Eighth Circuit Court of Appeals (the "Court"), affirmed the district court's decision. The Court noted that ERISA contains no statute of limitations for actions to recover plan benefits. It said that parties may fill this gap by agreeing to a reasonable limitations period in their contract, i.e., a plan covered by ERISA. In the absence of a contractual limitations period, or if the parties have expressly agreed to incorporate a state law limitations period into a plan, a Court will apply the most analogous state statute of limitations. Here, the Plan provided a two year filing period, and it is undisputed that Munro-Kienstra failed to file her claim within this two year period.

The Court further said that where, as here, the Plan contains its own limitations period, the analogous state statute of limitations-here the 10 year filing period allowed by Missouri- will not apply, unless either (1) the Plan's period is unreasonably short, or (2) a controlling state statute prevents the limitations provision from taking effect. The Court found that neither (1) or (2) applies in this case. As to (2), the Court noted that State law does not apply of its own force to a suit based on federal law, especially a suit under ERISA, with its comprehensive preemption provision. Applying the Missouri statute here would negate an ERISA plan provision, negatively impact the administration of ERISA plans, and create inconsistencies with other ERISA provisions. As such, the Court concluded that the 10 year filing period under Missouri law could not apply, as it would violate ERISA's comprehensive preemption provision. The Court also noted that the ERISA "savings clause", under which ERISA does not preempt state insurance law or laws that apply to multiple employer arrangements, did not apply here, since the Plan is self-insured and a collectively bargained plan.

June 17, 2015

ERISA-Fourth Circuit Holds That Plaintiffs Have Standing To Pursue Claim For Disgorgement Of Profits

In Pender v. Bank of America Corp., No. 14-1011 (4th Cir. June 8, 2015), an employer was deemed to have wrongly transferred assets from a pension plan that enjoyed a separate account feature (i.e., a 401(k) plan) to a pension plan that lacked one (i.e., a defined benefit plan). Although the transfers were voluntary and the employer guaranteed that the value of the transferred assets would not fall below the pre-transfer amount, an Internal Revenue Service audit resulted in a determination that the transfers nonetheless violated the law (specifically, the anti-cutback rule of Code section 411(d)(6) and ERISA section 204(g)(1)) which protects the separate account feature). The plaintiffs, who held such separate accounts and agreed to the transfers, brought suit under ERISA and sought disgorgement of, i.e., an accounting for profits as to, any gains the employer retained from the transaction. The district court dismissed their case, holding that they lacked statutory and Article III standing. The plaintiffs appeal.

In analyzing the case, the Fourth Circuit Court of Appeals (the "Court"), reversed the district court's decision, finding that the plaintiffs have both statutory and Article III standing to pursue their claim for disgorgement. The Court said that, to show statutory standing, the plaintiffs must identify the provision of ERISA that entitles them to bring the claim for the relief they seek. In this case, the Court found that the plaintiffs may bring this suit under section 502(a)(3) of ERISA, since the suit is for "appropriate equitable relief" for the violation of the ERISA anti-cutback rule. Consequently, the plaintiffs have statutory standing.

As to the Article III standing, the Court said that there exist three "irreducible minimum requirements" for Article III: (1) an injury in fact (i.e., a concrete and particularized invasion of a legally protected interest); (2) causation (i.e., a fairly traceable connection between the alleged injury in fact and the alleged conduct of the defendant); and (3) redressability (i.e., it is likely and not merely speculative that the plaintiff's injury will be remedied by the relief plaintiff seeks in bringing suit). The Court found that the plaintiffs met these minimum requirements, due to the employer's retention of profits at the plaintiff's expense (satisfying the injury and cause requirements) and since the court could grant effective relief (satisfying the redressability requirement).

June 9, 2015

ERISA-Second Circuit Upholds Plan Administrator's Denial Of A Disability Pension, Based On The Plan Administrator's Discretion Granted By The Plan To Make Decisions

In Ocampo v. Building Service 32B-J Pension Fund, No. 14-0877 (2nd Cir. 2015), the plaintiff was appealing the district court's summary judgment against her, on the plaintiff's claim under an ERISA plan (the "Plan") for a pension based on her permanent disability. The plaintiff had alleged in district court that the denial of her claim by the plan administrator-here the Board of Trustees of the Plan- was arbitrary and capricious, because the plan administrator determined that her disability was not permanent on the sole basis that the Social Security Administration ("SSA"), in awarding her Social Security disability benefits, had stated that her eligibility for such benefits must be reviewed at least once every three years, rather than once every five years. The district court based its summary judgment against the plaintiff on the ground that the plan at issue conferred on plan administrator discretion to determine an applicant's eligibility for benefits and that defendants' reliance on SSA determinations, policies, and procedures in this matter was not arbitrary or capricious.

The Second Circuit Court of Appeals (the "Court") affirmed the summary judgment. It noted the plaintiff's argument on appeal that the plan administrator exercised no discretion of it's own, but instead essentially delegated to the SSA the determination of whether her disability was permanent, so that its decision should be reviewed de novo. However, the Court rejected this argument. It said that the Plan provides that the plan administrator with discretionary authority to make decisions. Consequently, the denial of benefits by the plan administrator in the exercise of its discretion is reviewable only under the arbitrary-and-capricious standard. Under the facts of the case, reviewed by the Court, the decision that the plaintiff is not eligible for a disability pension under the Plan was made by the plan administrator, rather than the SSA. Further, at least two factors considered by the plan administrator-the plaintiff's failure to demonstrate the permanence of her disability and her failure to show that she suffered a permanence of disability while working in covered employment-prove that the plan administrator's denial of the pension benefit was not arbitrary or capricious.

June 8, 2015

ERISA-Second Circuit Rules That Nunc Pro Tunc Orders Constitute QDROs, Even Though Issued After The Plan Participant's Death

In Yale-New Haven Hospital v. Nicholls, No. 13-4725 (2nd Cir. 2015), Yale‐New Haven Hospital brought this suit-an interpleader action under ERISA- to resolve competing claims by Barbara Nicholls and Claire Nicholls to certain funds of the late Harold Nicholls held in four retirement plans. In this case, Barbara Nicholls, the surviving spouse of Mr. Nicholls, argues that the funds are payable to her because she is the named beneficiary in the plan documents. Claire Nicholls, the former spouse of Mr. Nicholls, contends that a portion of those funds are instead payable to her. She argues that three state court orders--her divorce settlement agreement and two nunc pro tunc orders entered after Mr. Nicholls's death--constitute qualified domestic relations orders ("QDROs") within the meaning of ERISA and thus validly assign those funds to her. The district court granted summary judgment in favor of Claire Nicholls, on the ground that the divorce settlement constitutes a QDRO applicable to all four retirement plans, so that she is entitled to the portion of the funds she is claiming.

Upon reviewing the case, the Second Circuit Court of Appeals (the "Court") held that that the divorce settlement agreement does not constitute a QDRO, because the agreement fails to comply with the five requirements of 29 U.S.C. § 1056(d)(3)(C). The Court noted that three of the retirement plans were named in the nunc pro tunc orders, while the fourth retirement plan was not. The Court held, as to the three named retirement plans, that the nunc pro tunc orders-which comply with the requirements of § 1056(d), even though the orders were issued after Mr. Nicholl's death-constitute valid QDROs that assign funds to Claire Nicholls. As to the fourth, unnamed retirement plan, the Court held that the nunc pro tunc orders do not constitute valid QDROs, since the orders failed to name that plan. As such, the Court upheld the district court's summary judgment as to the three named retirement plans, granting Claire the funds claimed under those plans, but reversed the summary judgment as to the fourth, unnamed retirement plan, thereby denying Claire's claim.

June 4, 2015

ERISA-First Circuit Rules That Termination Of Long-Term Benefits Is Arbitrary and Capricious, And Upholds A Statutory Penalty For The Failure To Produce Documents

In McDonough v. Aetna Life Insurance Company, No. 14-1293 (1st Cir. 2015), the case was brought under ERISA and presented two issues. The first concerned the operation of an "own occupation" test within the definition of disability contained in a long-term disability ("LTD") plan (the "Plan"). The second concerned the operation of ERISA's penalty provision for late disclosure or non-disclosure of relevant plan documents. See 29 U.S.C. § 1132(c)(1)(B). Upon review, the First Circuit Court of Appeals (the "Court") vacated the district court's entry of summary judgment against the plaintiff, with respect to the termination of disability benefits, and remanded that issue for further consideration by the claims administrator, which was Aetna. At the same time, the Court affirmed the district court's imposition of a $5,000 penalty for the belated production of a plan document.

As to the "own occupation" test, to be considered disabled under the Plan, the individual must (among other things) be unable to perform the material duties of his own occupation solely because of disease or injury. The Court determined that the administrator, although entitled to a deferential review, was arbitrary and capricious in terminating the LTD benefits based on its determination that the plaintiff failed to meet this test. The Court found that the administrator's termination decision was not a reasoned one. The own occupation test depends on how the occupation is normally performed in the national economy, a fact which the administrator ignored. Since this is a close case-based on both voluminous and conflicting medical evidence-the remand to the administrator is warranted.

As to the $5,000 penalty, the district court imposed the penalty on Aetna for the late production of the applicable insurance policy. The policy was provided 1,157 days late, and amounted to about $4 per day. The Court upheld the amount of the penalty, finding that the district court had not abused its discretion in determining this amount. The district court had found that the lateness was attributable to inattentiveness, and not bad faith, and the plaintiff was not prejudiced by the late receipt of the policy.

June 2, 2015

ERISA-Ninth Circuit Rules That An Appeal Of A Benefit Denial Is Timely When Filed On The Monday Following The Saturday On Which The 180-Day Period For Appealing Had Ended

In Legras v. Aetna Life Insurance Company, No. 12-56541 (9th Cir. 2015), a panel of judges in the Ninth Circuit Court of Appeal (the "Panel") reversed the district court's dismissal of an action challenging the denial of an application for continued long-term disability benefits under ERISA. The Panel held that the district court erred in dismissing the action for failure to exhaust administrative remedies. The plaintiff's internal appeal from the denial of his benefits application was denied as untimely under a 180-day appeal period. The Panel held that the plaintiffs' notice of internal appeal was timely because it was filed on the Monday after the Saturday on which the 180-day period ended. The Panel adopted this method of counting time as part of ERISA's federal common law.

May 26, 2015

ERISA-Seventh Circuit Dismisses Case Since Plaintiffs Failed To Exhaust Administrative Remedies

In Orr v. Assurant Employee Benefits, No. 14-2370 (7th Cir. 2015), the plaintiffs, Danielle and Hailey Orr, are the daughters of Daniel Orr, who died in a motorcycle accident on August 7, 2012. As Daniel Orr's beneficiaries, Danielle and Hailey filed claims seeking benefits payable under a Group Life Insurance Policy, which is governed by ERISA, and which Union Security Insurance Company ("USIC") issued to Daniel Orr's former employer, Modern 1 Group of Companies, LLC. USIC denied the claim, and the Orrs brought this suit. The district court granted summary judgment against the Orrs, on the grounds that they had failed to exhaust their administrative remedies prior to bringing the suit. The Orrs appeal.

Upon reviewing the case, the Seventh Circuit Court of Appeals (the "Court") agreed with the district court that the Orrs failed to exhaust their administrative remedies prior to filing suit. USIC's "Life Claims Denial Review Procedure" requires that a claimant seeking review of a claim denial complete two levels of internal review prior to filing a lawsuit. The Procedure unmistakably requires the claimant to submit a request for review in writing, which the Orrs failed to do. Also, the Orrs failed to show why the failure to exhaust administrative remedies should be excused. As such, the Court upheld the district court's summary judgment.

May 21, 2015

ERISA-Second Circuit Rules That Plan Administrator's Denial Of Benefits Claim Was Not Arbitrary Or Capricious

In Roganti v. Metropolitan Life Insurance Company, Nos. 13-4532-cv (L), 13-4684-cv (XAP) (2nd Cir. 2015), the plaintiff, Ronald Roganti ("Roganti"), was a successful executive with defendant Metropolitan Life Insurance Company ("MetLife") until 2005, when he resigned in the face of pay reductions that he claims were levied in retaliation for his opposition to unethical business practices. Roganti brought arbitration proceedings against MetLife before the Financial Industry Regulatory Authority ("FINRA"), seeking, among other things, wages that he would have been paid but for the retaliatory pay reductions, as well as compensation for the decreased value of his pension, which was tied to his wages. The FINRA panel awarded Roganti approximately $2.49 million in "compensatory damages," but its award did not clarify what that sum was compensation for. Roganti then filed a benefits claim with MetLife, arguing that the award represented back pay and that his pension benefits should be adjusted upward as if he had earned the money while he was still employed. MetLife denied the claim because the FINRA award did not say that it was, in fact, back pay. Roganti brought this lawsuit.

In analyzing the case, the Second Circuit Court of Appeals (the "Court") noted that ERISA creates a private right of action to enforce the terms of a benefit plan. ERISA section 502(a)(1)(B). The pension plans covering Roganti plans vest interpretive discretion in the plan administrator, which means that the plan administrator's benefits decision is conclusive unless it is arbitrary and capricious. MetLife is the plan administrator. After a summary bench trial on stipulated facts, the district court determined that MetLife's denial of Roganti's claim was arbitrary and capricious because it was clear from the arbitral record that the award did represent back pay. The Court said that it did not agree. Instead, the Court concluded that MetLife's denial of Roganti's claim was not arbitrary and capricious, and that MetLife is therefore entitled to judgment in its favor as to his benefits claim.

Why this conclusion? The Court found that MetLife's rationale for denying Roganti's claim--i.e., that it was impossible to determine whether, or the extent to which, the FINRA award represented back pay--was not, in fact, unreasonable, and therefore met the arbitrary and capricious standard.


May 20, 2015

ERISA-Fifth Circuit Rules That Administrator Is Not An ERISA Fiduciary

In Humana Health Plan, Incorporated v. Nguyen, No. 14-20358 (5th Cir. 2015), the defendant, Patrick Nguyen ("Nguyen"), was appealing from the district court's order granting summary judgment in favor of the plaintiff, Humana Health Plan, Inc. ("Humana").

In this case, Nguyen was a participant in the API Enterprises Employee Benefits Plan (the "Plan"), an ERISA-governed employee welfare plan established by API Enterprises, Inc. ("API"). API had entered into a Plan Management Agreement ("PMA") with Humana, through which Humana had agreed to serve as "Plan Manager" and to provide various administrative services to the Plan. Two of Humana's tasks for the Plan were subrogation and recovery services. One issue arising in the case: is Humana an ERISA fiduciary with respect to the Plan under section 3(21) of ERISA(if not, it can't sue Nguyen under ERISA section 502(a)(3))? The Fifth Circuit Court of Appeals (the "Court") determined that Humana is not an ERISA fiduciary. Why?

In analyzing the case, the Court focused on the specific role that Humana undertook regarding subrogation and recovery services for the Plan, and whether API provided a framework of policies and procedures to guide Humana, and supervised Humana as it executed its task. First, the relevant language of the PMA pertaining to these services merely defines the range of potential disputes covered by the contract; it says nothing about who has the right to finally decide whether to investigate or pursue a claim. This language does not show that Humana had discretion over the Plan or its assets. As such, the subrogation and recovery language in the PMA does not show that Humana is an ERISA fiduciary of the Plan. Second, even if the Court interpreted the PMA to give Humana broad power, there is no explanation as to why Humana is not a ministerial agent, and thus not a fiduciary, or why it how Humana exercised discretion as described in section 3(21)(A)(i) and (iii).