Recently in ERISA Category

February 9, 2015

ERISA-Ninth Circuit Remands Case Back To District Court To Consider Whether Plaintiff Is Entitled To The Remedy of Surcharge

In Gabriel v. Alaska Electrical Pension Fund, No. 12-35458 (9th Cir. 2014), plaintiff Gregory R. Gabriel appeals the district court's dismissal of his claims against the defendant Alaska Electrical Pension Fund (the "Fund") and other defendants under ERISA. In this case, the Ninth Circuit Court of Appeals (the "Court") affirmed the district court's determination that Gabriel failed to raise a genuine issue of material fact as to his entitlement to "appropriate equitable relief" under § 502(a)(3) of ERISA, in the form of equitable estoppel or reformation.

However, Court said that, because the district court made its ruling prior to the Supreme Court's decision in CIGNA Corp. v. Amara, the district court did not consider the availability of the monetary remedy against a trustee, sometimes called a surcharge, which the Court held may be "appropriate equitable relief" for purposes of § 502 (a)(3) of ERISA. Accordingly, the Court vacated the district court's ruling that Gabriel is not entitled to any form of "appropriate equitable relief" and remanded the case for the district court to reconsider the availability of surcharge in this case, and, if available, whether Gabriel has adequately alleged a remediable wrong.

February 5, 2015

ERISA-D.C. Court Of Appeals Holds That State Law Cannot Be Applied To Obtain Undistributed Plan Benefits

In Vanderkam v. Vanderkam, No. 13-5163 (D.C. Columbia 2015), the D.C. Circuit Court of Appeals (the "Court") began the case by noting that ERISA entitles certain spouses of pension plan participants to a survivor annuity unless waived pursuant to clearly defined procedures. In this case, the pension plan participant concedes that ERISA vested an annuity in his ex-wife, but nonetheless argues that Texas law, including his Texas divorce decree, requires entry now of a declaratory judgment that, after his death, she place her annuity payments into a constructive trust for his benefit. The district court rejected this claim, holding that ERISA preempts any state law or state-court decree that would otherwise defeat the spouse's vested annuity. The Court affirmed.

In so affirming, the Court said that it emphasized the narrowness of its opinion. The Court said that this case involves an effort by a plan participant to obtain an interest in undistributed plan benefits, and we hold only that absent a qualified domestic relations order and compliance with ERISA's strict waiver provisions for survivor annuities, he may not use state law for that purpose. This opinion has nothing to say about how ERISA might affect an effort by a plan participant to use state law to obtain an interest in benefits after distribution to the beneficiary. That question is not presented in this case, and the Court expresses no opinion on it.

January 29, 2015

ERISA-Supreme Court Rules That There Is No Presumption That Retiree Health Benefits Are Vested

In M & G Polymers USA, LLC v. Tackett, No. 13-1010 (U.S. Supreme Court 2015), the Supreme Court overturned the long standing "Yard-Man" inference of the Sixth Circuit Court of Appeals that retiree health benefits created under a collective bargaining agreement are vested.

In this case, when petitioner M&G Polymers USA, LLC ("M&G") purchased the Point Pleasant Polyester Plant in 2000, it entered a collective bargaining agreement and related Pension, Insurance, and Service Award Agreement (the "P & I Agreement") with the local union. The P & I Agreement provided that certain retirees, along with their surviving spouses and dependents, would "receive a full Company contribution towards the cost of [health care] benefits"; that such benefits would be provided "for the duration of [the] Agreement"; and that the agreement would be subject to renegotiation in three years. Following the expiration of those agreements, M&G announced that it would require retirees to contribute to the cost of their health care benefits. The retirees then sued M&G and related entities, alleging that the P & I Agreement created a vested right to lifetime contribution free health care benefits. The District Court dismissed the complaint for failure to state a claim, but the Sixth Circuit reversed based on the reasoning of its earlier decision in the Yard-Man case. On remand, the District Court ruled in favor of the retirees, and the Sixth Circuit affirmed.

Upon reviewing the case, the Supreme Court held that the Sixth Circuit's decision rested on principles that are incompatible with ordinary principles of contract law. ERISA governs pension and welfare benefits plans, including those established by collective-bargaining agreements. ERISA establishes minimum funding and vesting standards for pension plans, but welfare benefits plans--which provide the types of benefits at issue here--are exempt from those rules. The Supreme Court said that it interprets collective-bargaining agreements, including those establishing ERISA plans, according to ordinary principles of contract law, at least when those principles are not inconsistent with federal labor policy. When a collective-bargaining agreement is unambiguous, its meaning must be ascertained in accordance with its plainly expressed intent.

Continuing, the Supreme Court found a number of deficiencies in Yard-Man and subsequent cases expanding it. These deficiencies include that the Sixth Circuit failed to consider traditional contract principles, including the rule that courts should not construe ambiguous writings to create lifetime promises and the rule that contractual obligations will cease, in the ordinary course, upon termination of the bargaining agreement.The Supreme Court concluded by that that, although there is no doubt that Yard-Man and subsequent cases affected the outcome here, the Sixth Circuit should be the first to review the agreements under ordinary principles of contract law. As such, the Supreme Court vacated the Sixth Circuit's affirmation and remanded the case.

January 22, 2015

ERISA-Fifth Circuit Rules That Investment Guidelines Are Not "Other Instruments" Which Participants May Request Under ERISA Section 104(b)

The case of Murphy v. Verizon Communications, Inc., No. 13-11117 (5th Cir. 2014), arose out of the spin-off of Verizon Communication, Inc.'s information services unit into a new corporation called Idearc, Inc., which subsequently evolved into SuperMedia, Inc. Several retirees, whose pension benefits were transferred from Verizon pension plans to Idearc pension plans as part of the spin-off, brought a class action suit against defendants-Verizon and the Verizon, Idearc (and later the SuperMedia) pension plans, asserting a variety of claims under ERISA. One such claim stemmed from the defendants' alleged failure to turn over certain documents and disclose certain information to the plaintiffs.

As to these allegations, the Fifth Circuit Court of Appeals (the "Court") noted that the documents sought were investment guidelines for the plans at issue. It said that, under ERISA Section 104(b)(4), plan administrators must, "upon written request of any participant or beneficiary, furnish a copy of 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 or operated." 29 U.S.C. § 1024(b)(4). If a plan administrator fails to comply with this requirement, the district court has discretion to impose a penalty of up to $110 per day. 29 U.S.C. § 1132(c)(1)(B); 29 C.F.R. § 2575.502c-1.

The Court then said that it agrees with the majority of the circuit courts, which have construed Section 104(b)(4)'s catch-all "other instruments" provision narrowly so as to apply only to formal legal documents that govern a plan. Such a construction is consistent with the plain meaning of the term "instrument," i.e., "[a] written legal document that defines rights, duties, entitlements, or liabilities, such as a statute, contract, will, promissory note, or share certificate." (quoting several dictionaries). In this case, the Court concluded that the investment guidelines do not constitute "other instruments" under Section 104(b)(4), as they are not binding on the plans at issue here, and they do not define any rights, duties, entitlements, or liabilities.

January 20, 2015

ERISA-Eighth Circuit Holds That Plaintiff Was Not Entitled To Statutory Damages For Her Employer's Failure To Provide Her With Notification Of COBRA Entitlement

In Cole v. Trinity Health Corporation, No. 14-1408 (8th Cir. 2014), the following obtained. When plaintiff Bonnie Cole stopped working for defendant Trinity Health Corporation ("Trinity Health"), the company failed to timely notify Cole of their right to COBRA continuing health care coverage, as it was required to do. Cole filed this suit, seeking statutory damages, which may be awarded in the court's discretion after a violation of this notification requirement. However, the district court declined to award damages and granted summary judgment to Trinity Health.

The Eighth Circuit Court of Appeals (the "Court") was asked to decide whether the district court's decision was in error. The Court found no abuse of discretion in the district court's denial of statutory damages and therefore it affirmed the grant of summary judgment. The Court noted that, in this case, there is no dispute that Trinity Health violated the COBRA notification requirement. The question before the Court, then, is whether the district court erred in declining to assess statutory damages. Since the decision to assess these damages is left to the discretion of the district court, the Court will review that decision for abuse of discretion.

The district court had reasoned that Cole was not entitled to actual damages because the amount of her unreimbursed medical bills from May 2012 was less than the COBRA premiums she would have had to pay to maintain medical insurance. The district court also reasoned that Cole was not entitled to statutory penalties because "Trinity Health acted in good faith," "[Cole was] not harmed or prejudiced by Trinity Health's tardy notice of ...COBRA rights," and "[Cole was] provided continued medical coverage for approximately eleven months after [her] termination.". The Court found that the district court's denial of statutory damages on the foregoing grounds did not involve any clearly erroneous findings and was not otherwise an abuse of discretion.

January 14, 2015

ERISA-Fourth Circuit Overturns District Court's Denial Of Claim For Short Term Disability Benefits, And Sends The Case Back To Plan Administrator For Further Review

In Harrison v. Wells Fargo Bank, N.A., No. 13-2379 (4th Cir. 2014), plaintiff Nancy Harrison brought suit against her employer Wells Fargo, arguing that the company improperly terminated her short-term disability benefits while she was undergoing a series of treatments for thyroid disease. The district court upheld Wells Fargo's decision, finding that it, as the plan administrator, did not abuse its discretion in denying Harrison's claim.

However, the Eleventh Circuit Court of Appeals (the "Court") analyzed the case and said that Wells Fargo failed to consider readily available material evidence of which it was put on notice (i.e., evidence that Harrision was seeking treatment for mental health conditions and certain properly signed release forms from Harrison evidencing the disability), and to inform Harrison in clear terms that her own doctor's records could establish her claim. Therefore, the Wells Fargo review process failed to conform to the directives of ERISA (requiring, among other things, a full and fair review and a deliberate, principled reasoning process which supports its decision with substantial evidence) and the Plan's own terms. As such, the Court reversed the district court's decision, and remanded the case back to the district court, with directions to return the case to Wells Fargo, as plan administrator, for a full and fair review of Harrison's claims.

January 13, 2015

Employee Benefits-Seventh Circuit Finds That The Plan Did Not Have A Partial Termination

In Matz v. Household International Tax Reduction Investment Plan, Nos. 14‐1683, 14‐2507 (7th Cir. 2014), the Seventh Circuit Court of Appeals (the "Court") reviewed a claim that a defined‐contribution ERISA pension plan, in which the employer matched contributions that its employees made, was partially terminated.

In analyzing the case, the Court said that, when a pension plan is terminated, the rights of the participants in the plan vest in full, and so none of the money contributed by the employer to the individual employees' retirement accounts is returned to the employer. Full vesting is required in the case of partial as well as total terminations. 26 U.S.C. § 411(d)(3)(A); 26 C.F.R. § 1.401‐6(b)(2). But did a partial termination occur here? The Court had previously adopted a rebuttable presumption that a 20 percent or greater reduction in plan participants is a partial termination, and that a smaller reduction is not. The Court assumes that there is a band around 20 percent. A generous band would run from 10 percent to 40 percent. Below 10 percent, the reduction in coverage should be conclusively presumed not to be a partial termination; above 40 percent, it should be conclusively presumed to be a partial termination.

The Court concluded that there was no partial termination in this case. The Court said that, even if all the participant plan terminations were deemed to constitute a single event and therefore needed to be aggregated, the percentage of participants terminated would be only 17 percent, still below the 20 percent cutoff and with no justification shown for waiving this threshold and finding that a partial termination had occurred.

January 6, 2015

ERISA-Eighth Circuit Upholds Administrator's Denial Of Claim For Long-Term Disability Benefits.

In Johnson v. United of Omaha Life Insurance Company, No. 13-2645 (8th Cir. 2014), United of Omaha Life Insurance Company ("United") is appealing the district court's grant of summary judgment to Vicki Johnson ("Johnson") in her action filed under ERISA seeking reversal of United's denial of her claim long-term disability benefits.

In this case, from May 1995 until February 2009, Johnson worked for Colorado Real Estate and Investment Company, where she was covered under the employer's disability insurance policy (the "Plan"). United was the benefits administrator for the Plan. On February 26, 2009, the day she resigned, Johnson visited Dr. Cheryl MacDonald, her primary care physician. Dr. MacDonald took Johnson's blood pressure and diagnosed Johnson with: (1) anxiety and depression and (2) fibromyalgia and chronic pain. In October 2009, Johnson filed a claim for long-term disability benefits based on the foregoing medical conditions. United denied the claim, and Johnson filed this suit.

The issue for the Eighth Circuit Court of Appeals (the "Court") is whether United's decision to deny Johnson's claim for long-term disability should be upheld. The first question is what level of review-de novo or deference-is appropriate here. Here, the official Plan document was silent on the plan administrator's discretion to determine benefit eligibility, warranting a de novo review, but the summary plan description (the "SPD") provided the plan administrator with this discretion, supporting a deferential review. The Court felt that these two documents had to be reconciled, based on what a reasonable employee would conclude is the administrator's authority. The face of the Plan in this case states, "[t]he Certificate of Insurance . . . is made a part of the Policy." The SPD was included in the Certificate of Insurance as the final part of the consecutively-paginated booklet. Also, the SPD states on its face that "[t]his Certificate is Your ERISA Summary Plan Description for the insurance benefits described herein." Thus, a reasonable participant would understand that the policy had integrated the Certificate of Insurance along with the included SPD into the policy itself. The SPD contains a clause granting to United "the discretion and the final authority to construe and interpret the Policy," including "the authority to decide all questions of eligibility." Accordingly, the Court concluded that, under the needed reconciliation of the Plan document and the SPD, discretion was granted to United to determine eligibility for benefits, thereby resulting in United having the requisite authority to receive a deferential review.

Under a deferential review, United's decision to deny the claim for long-term disability benefits will be overturned only United has committed an abuse of discretion. The Court found that this decision was based on substantial evidence, so that there was no such abuse. The substantial evidence included an absence of objective evidence of any medical condition resulting in disability. As such, the Court concluded that United's decision to deny the claim for long-term disability benefits must be upheld.

January 5, 2015

ERISA-Second Circuit Offers Next Decision On Amara, And Says That Reformation Of The Plan Is An Appropriate Remedy

In Amara v. Cigna Corporation, Nos. 13-447-cv (Lead), 13-526 (XAP) (2nd Cir. 2014), the Second Circuit Court of Appeals (the "Court") took up the long-running dispute arising out of certain misleading communications made by CIGNA Corporation ("CIGNA") and CIGNA Pension Plan (together with CIGNA, "defendants") to CIGNA's employees regarding the terms of the CIGNA Pension Plan and, in particular, the effects of the 1998 conversion of CIGNA's defined benefit plan ("Part A") to a cash balance plan ("Part B"). The case had reached the U.S. Supreme Court.

The Supreme Court instructed the district court to consider on remand whether plaintiffs are entitled to relief under ERISA § 502(a)(3), which provides for "appropriate equitable relief" to redress specified violations of ERISA or of plan terms. On remand, the district court ordered CIGNA to provide plaintiffs with A+B benefits (that is, the plaintiffs receive their accrued benefits under Part A, in the form in which those benefits were available under Part A, and in addition their accrued benefits under Part B, in whatever form those benefits are available under Part B) and new or corrected notices, ordering such relief under §502(a)(3). Thus, the district court ordered a reformation of the plan, as the equitable relief under §502(a)(3). The defendants appealed. They argue that the district court erred in ordering equitable relief pursuant to § 502(a)(3). The plaintiffs argue that the court erred in limiting relief to A+B benefits, as opposed to affording them the benefits they would have received pursuant to Part A (a more favorable result to them).

In analyzing the case, the Court concluded that the district court did not abuse its discretion in determining that the elements of reformation have been satisfied and that the plan should be reformed to adhere to representations made by the plan administrator. Further, based on the particular facts of this case, the Court held that the district court did not abuse its discretion in limiting relief to A+B benefits

December 19, 2014

ERISA-DOL Provides Guidance on Use Of Plan Assets By Apprenticeship and Training Programs

Introduction. In Field Assistance Bulletin ("FAB") 2012-01, the U.S. Department of Labor (the "DOL") provided guidance, intended for EBSA enforcement personnel, on the use of plan assets by apprenticeship and training plans to pay for graduation ceremonies and advertising. As a supplement, the DOL has now issued FAB 2012-02, which provides guidance on the expenditure of plan assets on apprenticeship skills contests or competitions. Here is what the new FAB says:

Background. Apprenticeship and training plans established by employers or labor organizations are "employee benefit plans" under ERISA, and are subject to the fiduciary standards in Part 4 of ERISA. ERISA section 404(a)(1) provides that a plan fiduciary shall discharge his duties: (1) solely in the interest of the participants; (2) prudently; and (3) for the exclusive purpose of (a) providing benefits to participants and their beneficiaries, and (b) defraying reasonable expenses of administrating the plan.

In the context of apprenticeship and training plans, the exclusive purpose rule and the duty to manage plan assets prudently require plan fiduciaries to ensure the reasonableness of plan expenses in light of the educational objectives of the training program. In every instance, a plan must be able to justify expenses as appropriate means of carrying out their mission as benefit plans. When fiduciaries expend plan assets without reasonably determining that the expenditures are likely to promote legitimate plan objectives, they breach their core fiduciary obligations under ERISA and are personally liable for the resulting loss of plan assets. Moreover, expenses should be permitted under the terms of the plan, and approved by a responsible plan fiduciary in accordance with internal accounting, recordkeeping, and administrative controls designed to prevent inappropriate, excessive, or abusive expenditures of plan assets.

Paying For Participation In A Skills Competition Or Contest. Apprenticeship plans provide training and apprenticeship opportunities to plan participants. Competitions can promote the plan's legitimate goals both by directly providing training benefits to plan participants and by helping plan fiduciaries assess the effectiveness of their plan's training programs. Where this is the case, plans may treat the necessary costs of a plan's engagement in competitions as costs of administering the plan. In accordance with ERISA section 404(a)(1)(A), the plan may defray such costs where they are permitted under the terms of the plan, in the plan's interests, and are reasonable. Such expenses also should be approved by a responsible plan fiduciary in accordance with internal accounting, recordkeeping, and administrative controls designed to prevent inappropriate, excessive, or abusive expenditures of plan assets.

Thus, for example, a plan may pay reasonable expenses properly and actually incurred on behalf of apprentices participating as contestants in the skills contest, such as transportation to and from the competition, registration fees, along with accommodations and meals, if necessitated by out-of-town travel. A plan may also pay lost wages of the apprentices due to their absence from employment while participating in a competition.

Prizes for apprentices competing in the skills contest would be a permissible plan expense. The prizes should be consistent with the training purposes of the plan, which may include, for example, credits to cover plan-related tuition expenses or tools and equipment used in the trade. The amounts spent on such prizes would not be subject to the modest amount limitation applicable to gifts to recognize people who assist in organizing or conducting competitions (see discussion below), but should be reasonable in light of the financial situation of the plan and other relevant circumstances (such as the size and level (e.g., local, regional, national, international) of the competition), or could be donated in whole or in part by industry employers or trade associations.

A plan also may pay reasonable travel expenses of individuals other than apprentices (e.g., instructors) if they play a necessary role in the conduct of a competition (e.g., setting up the contest site or serving as judges). It may also be permissible in certain circumstances to pay for plan trustees or other plan officials to attend and observe the competition in order to assess possible improvements in the plan's training program. The approving plan fiduciary should ensure that any such observers have adequate experience to make an informed evaluation.

Use of plan assets to pay travel expenses for others, or to pay for hotel accommodations and meals for days outside of the competition itself, would not be permissible.

Payment For Expenses Of Organizing And Conducting The Competition. Expenses for organizing or conducting competitions are payable from plan assets where: (1) they are reasonable in light of the role played by the competition in supporting the training program; (2) they are approved in accordance with the terms of the plan and internal accounting, recordkeeping, and administrative controls designed to prevent inappropriate, excessive, or abusive expenditures of plan assets; and (3) the amount of the expense is reasonable in proportion to the amount of funds expended on the delivery of the primary apprenticeship and training benefits and is for costs of the competition.

Conducting and organizing a competition may require the expenditure of plan assets on the venue for the competition, travel, transport of necessary equipment, and communications to plan participants about the event. Gifts to those who assist in organizing or conducting competitions of modest value (e.g., $25 gift cards) would be permissible.

Similarly, modest expenses for T-shirts and similar apparel that bear the logo of the plan could serve a legitimate plan purpose of promoting and marketing the apprenticeship program. Further, promotional advertisement of a competition in order to encourage the participation of apprentices and the support of employers also would be consistent with this purpose.

The prohibited transaction provisions of ERISA section 406(b) prohibit a fiduciary of a plan from dealing with the assets of a plan in his own interest or own account. Thus, fiduciaries involved in the decision for the plan to conduct or participate in a contest may not benefit themselves through the expenditure of plan assets related to that contest beyond the reimbursement of direct expenses related to organizing or participating in the conduct of the contest.

Permissible Travel Expenses. Assuming compliance with the above general principles, permissible plan expenses would include the reasonable costs of meals, travel (e.g., airfare), and accommodations. Costs attendant to such travel, such as reasonable expenses for transportation from the airport to the hotel or competition site and return, baggage fees, airport parking or shuttle fees, and shipping costs for tools, equipment, and supplies necessary to conduct or compete in the contest generally would be permissible plan expenses. Alternatively, a plan could reimburse some travel expenses by using a reasonable "per diem" amount.

Competitions may sometime include a celebratory meal to recognize participants, judges, volunteers, and organizers, and to present awards to the contest winners. In general, if a plan was paying authorized attendees per diem expense in connection with their travel to participate in the competition, a plan could use those funds to cover the costs for those individuals to attend such dinners. Plans would have to deduct that amount from the meal or per diem reimbursement that they would otherwise pay to the apprentice or other authorized attendee. In other cases, for example, where the skills competition is local and attendees, therefore, are not receiving per diem expense, the standards articulated in FAB 2012-01 for use of plan assets to pay for graduation ceremony expenses would apply to the use of plan assets to pay for such an awards dinner.

Permissible plan expenses would not include, for example, the costs associated with the personal itinerary of such participants such as hotel, meals or travel accommodations for days not associated with necessary travel to or from the competition or during the competition itself, or costs to upgrade travel tickets or hotel rooms (e.g., from coach to business class).

Reimbursements For Wages Lost. In some cases, rather than paying the apprentice directly for lost wages due to participation in a skills contest, the plan may instead reimburse employers who agree to pay plan participants their wages and make related benefit plan contributions for time away from work to take part in a contest. See the FAB for details.

December 10, 2014

ERISA-Eighth Circuit Holds That Insurer Did Not Abuse Its Discretion In Denying Claim For Disability Benefits

In Hampton v. Reliance Standard Life Insurance Company, No. 13-2782 (8th Cir. 2014), after being diagnosed with insulin-dependent diabetes mellitus, Christopher Hampton ceased work as an over-the-road truck driver for Ozark Motor Lines, Inc. Pursuant to the company's employee benefit plan--Ozark Motor Lines Inc. Benefit Plan (the "Plan")--which is governed by ERISA, Hampton submitted a claim for long-term disability benefits to Reliance Standard Life Insurance Company, the Plan's insurer and claims-review fiduciary. Reliance Standard concluded that Hampton was not disabled under the terms of the Plan and denied the claim on that basis. Hampton sued Reliance Standard and the Plan, arguing that Reliance Standard abused its discretion. The district court granted judgment on the record for Hampton. Reliance Standard and the Plan appeal.

In analyzing the case, the Eighth Circuit Court of Appeals (the "Court") said that where, as here, an ERISA-governed employee benefit plan grants discretion to the plan administrator or another fiduciary, such as the claims-review fiduciary, to interpret the plan and to determine eligibility for benefits, we review the fiduciary's decision for abuse of discretion. Under this standard of review, we must uphold Reliance Standard's decision so long as it is based on a reasonable interpretation of the Plan and is supported by substantial evidence. Where a fiduciary both evaluates claims for benefits and pays benefits claims, the court still applies the deferential abuse-of-discretion standard, but the fiduciary's conflict of interest is one factor to be considered in the review.

The Court concluded that Reliance Standard's interpretation and application of the Plan is reasonable. Reliance Standard interpreted the Plan to require, when claiming long-term disability benefits, "evidence that one is physically or mentally incapable of performing the material duties of his occupation," independent of his loss of a license. Mere loss of license due to a medical condition-as happened to Hampton -does not mean that Hampton is disabled for purposes of the Plan. The Court further concluded that Reliance Standard's determination that Hampton was not totally disabled, within the meaning of the Plan, was supported by substantial evidence. As such, the Court held that Reliance Standard did not abuse its discretion in denying the long-term disability benefits, and the Court reversed the district court's judgment.

December 4, 2014

ERISA-Eleventh Circuit Rules That Action By The Defendant To Stop Benefit Payments Causes The Statute Of Limitations On Filing Suit To Start Running

In Witt v. Metropolitan Life Insurance Co., No. 14-11349 (11th Cir. 2014), the Eleventh Circuit Court of Appeals (the "Court") was asked to determine whether the plaintiff Don Witt's lawsuit, seeking to recover disability benefits allegedly due from May 1997 to the present, is barred by the applicable statute of limitations and, if so, whether the defendants waived that statute-of-limitations defense.

In this case, from May 18, 1972, until December 29, 1994, Witt worked as a senior operations specialist with Shell Oil Company. In connection with his employment, Witt gained access to short-term and long-term disability insurance through the Shell Oil Long Term Disability Plan (the "Plan"), whose long-term disability claims are administered by Metropolitan Life ("MetLife"). In January, 1997, Witt filed a claim for disability benefits based on a number of medical problems. MetLife approved this claim. However, on May 22, 1997, MetLife terminated Witt's claim, effective May 1, 1997, for failure to provide adequate supporting medical records. After filing an unsuccessful appeal with MetLife in 2011, which MetLife entertained as a "courtesy review" but denied, Witt brought this suit for reinstatement of the benefits in 2012.

In analyzing the case, the Court said that, because Congress did not specify a limitations period for a claim-of-benefits ERISA action, district courts must apply the forum state's statute of limitations for the most closely analogous action. The applicable statute here is Alabama's six-year statute of limitations. Federal law determines when the statute begins to run. Witt contends the limitations period did not begin to run until May 4, 2012, when MetLife issued a final, conclusive, and written decision denying him benefits following the courtesy review. In response, MetLife contends that the limitations period began to run when MetLife stopped making monthly payments to Witt because, at that point, Witt knew or should have known that his claim had been denied.

The Court said that, as in this case, in the absence of a final or formal denial, an ERISA cause of action accrues--and the limitations period begins to run--when the claimant has reason to know that the claim administrator has clearly repudiated the claim or amount sought. MetLife's conduct-failing to provide benefits on or after May 1, 1997- demonstrated a clear and continuing repudiation of Witt's rights, and therefore caused the six year statute of limitations to start running (and expire well before 2012). Witt's claim is thus time-barred. Further, MetLife's subsequent courtesy review in 2011 did not restart the statutory clock. Additionally, MetLife did not waive any defense based on the statute of limitations by failing to specify untimeliness as a basis for denying the claim after its courtesy review.

November 24, 2014

ERISA-Second Circuit Rules That Plaintiffs' Claims Are For Legal Relief, Which Is Not Available Under ERISA Section 502(a)(3)

In Central States, Southeast and Southwest Areas Health and Welfare Fund v. Gerber Life Insurance Company, No. 13-4834-cv (2nd Cir. 2014), the Second Circuit Court of Appeals (the "Court") considered whether the plaintiff's claims are ones for "appropriate equitable relief" under § 502(a)(3) of ERISA, or whether the claims are for legal relief which is not available under that section. The Court concluded that the claims are ones for legal relief.

In this case, Central States, Southeast and Southwest Areas Health and Welfare Fund ("Central States") is an ERISA employee welfare benefit plan that provides health insurance to participating Teamsters and their dependents. Gerber Life Insurance Company ("Gerber") issued accident insurance policies that covered, among other things, scholastic sports-related injuries. The claims at issue arose from injuries suffered by several students during scholastic athletic activities. The students were insured by Central States as dependents of plan participants, and were also directly insured by separate accident policies written by Gerber. The central controversy in this litigation is which of the two policies afforded primary and which afforded secondary coverage for the injuries. Although Central States considered its coverage to be secondary, it nevertheless paid the injured students' claims as an accommodation to them and their families. After it paid the claims, Central States sought reimbursement from Gerber, whom it considered the primary insurance provider. Gerber refused to pay, taking the position that under its coordination of benefits provision, its policies provided only excess, secondary coverage. Central States then brought this lawsuit to recover the amounts it had paid on the claims.

Central States' complaint alleged various claims for declaratory judgment and injunctive relief pursuant to federal common law and ERISA § 502(a)(3). The district court dismissed the case, finding that Central States' claims were not equitable in nature so that the relief sought was unavailable under ERISA. Central States appeals. In analyzing the case, the Court determined that Central States sought legal relief, since it seeks to obtain a judgment imposing a merely personal liability upon the defendant to pay a sum of money, as opposed to seeking restitution in equity by identifying (i.e., tracing) particular property held by the defendant but belonging to the plaintiff in good conscience. This result obtains, the Court said, even though it may leave a plaintiff such as Central States without a remedy.

November 18, 2014

ERISA- Ninth Circuit Rules That Plaintiff's Claim Is NotTime-Barred

In Spinedex Physical Therapy USA Inc. v. United Healthcare of Arizona, Inc., No. 12-17604 (9th Cir. 2014), one issue faced by the Ninth Circuit Court of Appeals (the "Court") was whether a claim for benefits is time-barred. The Court ruled that it was not. Why?

In this case, Spinedex was a physical therapy clinic whose patients included beneficiaries of various health plans (the "Plans"). Spinedex's patients signed several documents in connection with their treatment, including an assignment of benefits form (the "Assignment"). The Assignment assigned to Spinedex its patients' "rights and benefits" under their respective Plans. After treating patients covered by the Plans, pursuant to the Assignements, Spinedex submitted claims to United Healthcare ("United"). United paid some claims, but denied others in whole or in part. Spindex brought suit under ERISA against United and the Plans for the unpaid claims But is the suit time-barred?

The summary plan descriptions ("SPDs") for the Plans contain two-year limitations periods for claims of benefits. There is no question that Spinedex's action was filed after the expiration of the two-year period. However, the Court held that because the limitation periods were not properly disclosed in the SPDs, these provisions are unenforceable.

In an SPD, under ERISA, circumstances which may result in disqualification, ineligibility, or denial or loss of benefits must be clearly disclosed. A limitation of the time for bringing suit qualifies as such a circumstance. Under the regulations, at 29 C.F.R. § 2520.102-2(b), either: (1) the description or summary of the restrictive provision-such as a time limit on bringing suit- must be placed in close conjunction with the description or summary of benefits, or (2) the page on which the restrictive provision is described must be noted adjacent to the benefit description. The SPDs in question comply with neither requirement, as the restrictive provision is buried in a section that is not close to the discussion of benefits, and there is no reference, adjacent to the benefits description, to the page number on which the restrictive provision appears. Applying a reasonable plan participant test to 29 C.F.R. § 2520.102-2(b), a reasonable participant would not be expected to find the restrictive provision in this case. As a result, the restriction cannot be enforced, and Spinedex's suit is not time-barred.

November 12, 2014

ERISA-District Court Finds That The Company's Sole Owner Is Not Jointly and Severally Liable With The Company For Its Withdrawal Liability

In Board of Trustees of the Automobile Mechanics' Local No. 701 Union and Industry Welfare Fund v. Beland & Wiegers Enterprises, Inc., Case No. 13 CV 1611 (N.D. Illinois 2014), one of the claims was for withdrawal liability owed to a multiemployer pension plan (the "Plan") under ERISA.

In this case, an employer, Beland & Wiegers Enterprises, Inc. ("B&W"), ceased its operations and incurred withdrawal liability to the Plan in the amount of $261,052. Daniel Beland ("Beland") is the sole owner of B&W. At the time of B&W's withdrawal from the Plan, Beland owned the property located at 11625 South Ridgeland, Alsip, Illinois. Before cessation of covered operations, B&W operated out of that property. The Plan asked the court to hold B&W and Beland jointly and severally liable for the withdrawal liability, and its associated liquidated damages, interest, and attorney's fees.

In analyzing the case, the court said that it must determine whether withdrawal liability may properly be imputed to Beland under 29 U.S.C. § 1301(b)(1). Under that section "all employees of trades or business which are under common control shall be treated as employed by a single employer and all such trades and business as a single employer" for purposes of withdrawal liability. Thus, for the court to hold Beland liable for B&W's withdrawal liability, the Plan must establish that: (1) Beland and B&W are each a "trade or business," and (2) Beland and B&W are under common control.

As to prong (1), the court must consider whether the organization engaged in an activity: (a) with continuity and regularity and (b) for the primary purpose of income or profit. B& W is clearly a trade or business. But what about Beland? Beland owned the property out of which B&W operated when B&W withdrew from the pension. But ownership of a property does not necessarily rise to the level of a "trade or business." Here, the Plan has not alleged facts showing that Beland leased his property to B&W with any continuity and regularity. The undisputed facts do not indicate how long Beland leased out his property, whether the lease was continuous or whether the lease was for the purpose of income and profit. Further, the alleged facts do not show that Beland generated revenue from B&W's operations out of the property or that Beland and B&W had a lease agreement. Thus, court concluded that the alleged facts are insufficient to show that Beland's ownership of the property constitutes a "trade or business", and as such the court could not hold him jointly and severally liable for B&W's withdrawal liability.