Recently in ERISA Category

November 18, 2015

ERISA-Sixth Circuit Rules That Continued Investment In Employer Stock Did Not Violate ERISA's Prudence Rule

In Pfeil v. State St. Bank & Trust Co., No. 14-1491 (6th Cir. 2015), the Sixth Circuit Court of Appeals (the "Court") was called on to apply recent developments in ERISA. The Court said that ERISA imposes a duty of prudence on plan fiduciaries when investing plan assets. This rule generally requires diversification of the investments. But to solve the dual problems of securing capital funds for necessary capital growth and of bringing about stock ownership by all corporate employees, Congress established a special kind of ERISA plan called an Employee Stock Ownership Plan (an "ESOP"). ESOPs are designed to invest primarily in qualifying employer securities, rather than to diversify across securities of many companies.

In 1995, continued the Court, the Third and Sixth Circuits adopted a presumption (the so called "Moench Presumption") that an ESOP fiduciary's decision to remain invested in employer securities is prudent. However, the Moench Presumption was eliminated by the Supreme Court in 2014 in Fifth Third Bancorp v. Dudenhoeffer ("Dudenhoeffer").

The instant case, said the Court, concerns an ESOP for employees of General Motors (GM). In 2008, GM faced severe business problems that resulted, ultimately, in its bankruptcy. Those events gave rise to this case. Plaintiffs Raymond M. Pfeil and Michael Kammer (together "Pfeil") were GM employees who, prior to GM's most recent financial difficulties, elected to invest in the GM ESOP. Defendant State Street Bank ("State Street") served as fiduciary of certain pension plans, including the Common Stock Plan, an ESOP maintained for employees of GM. The Common Stock Plan-which held GM common stock- lost money in 2008. But State Street declined to stop buying GM stock for the plan until November 8, 2008, and did not divest the fund of (i.e., sell) GM stock from the plan until March 31, 2009. Just over a week later, Pfeil filed this suit against State Street, claiming that its investment decisions to continue to buy and also to decline to sell GM common stock for the plan during certain dates in 2008 were actionably imprudent under ERISA.

The district court granted summary judgment to defendant/State Street. The Court affirmed the district court's grant of summary judgment. Applying the ERISA prudence requirement after Dudenhoeffer, the Court found that, during the time period in question, State Street's managers repeatedly discussed at length whether to continue the investments in GM that are at issue in this case. Given the prudent process in which State Street engaged, Pfeil failed to demonstrate a genuine issue about whether State Street satisfied its statutory duty of prudence.

November 16, 2015

ERISA-Sixth Circuit Rules That Claim Of Impermissible Cutback Is Time Barred

In Durand v. The Hamover Insurance Group, Inc., No. 14-5648 (6th Cir. 2015), the plaintiffs were appealing a magistrate judge's holding that their claims were time-barred. In this case, on March 3, 2007, lead plaintiff Jennifer Durand filed the complaint initiating this ERISA class action against her former employer, The Hanover Insurance Group, Inc. (the "Company"), and the pension plan it sponsors, Allmerica Financial Cash Balance Pension Plan (the "Plan"). The complaint challenged the projection rate used by the Plan to calculate the lump-sum payment Durand elected to receive after ending her employment at the Company in 2003. At the time Durand elected to receive her lump-sum payment, the Plan used a 401(k)-style investment menu to determine the interest earned by members' hypothetical accounts. Durand alleged that defendants impermissibly used the 30-year Treasury bond rate instead of the projected rate of return on her investment selections in the "whipsaw" calculation required under pre-2006 law, in violation of ERISA.

One defense to the complaint raised by the defendants is the assertion that the claims of putative class members, who received lump-sum distributions after December 31, 2003, were time barred due to an amendment to the Plan that took effect after that date (the "2004 Amendment"). The 2004 Amendment changed the interest crediting formula from the 401(k)-style investment menu to a uniform 30-year Treasury bond rate. The plaintiffs argued that the 2004 Amendment was an illegal reduction or "cutback" in benefits. The magistrate judge, presiding over the case with the consent of the parties, held that the plaintiff's "cutback" claims were time-barred and did not relate back to the "whipsaw" claim asserted in the original class complaint in March 2007.

In analyzing the case, the Sixth Circuit Court of Appeals (the "Court") said that, because ERISA does not provide a statute of limitations for non-fiduciary claims such as those made here, the plaintiffs' cutback claims are governed by the most analogous state statute of limitations. The district court adopted the five-year limitations period in Kentucky law applicable to statutory claims pursuant to Kentucky Revised Statutes § 413.120(2). On appeal, the plaintiffs concede that their cutback claims accrued on January 1, 2004 and that the limitations period expired in January 2009--more than eleven months before the first amended complaint was filed on December 15, 2009. Plaintiffs argue that the cutback claims are nonetheless timely because they relate back to the whipsaw claims alleged in the original complaint in 2007. The Court rejected this argument, since the cutback claims and whipsaw claims challenge different plan policies, which were adopted at different times, as illegal under distinct provisions of ERISA, and consequently do not arise from or otherwise relate to the same transaction. The earlier claims do not give defendants any notice of the later claims. As such, the Court affirmed the magistrate judge's decision.

November 12, 2015

ERISA-DOL Discusses Whether A Stop-Loss Insurance Policy Is An ERISA "Plan Asset"

In DOL Advisory Opinion 2015-02A, U.S. Department of Labor (the "DOL") responded to the question of whether stop-loss insurance policies purchased by a plan sponsor to manage risk associated with self-insured contributory welfare plans would constitute "plan assets" for purposes of ERISA.

The Facts: The welfare plans in question (the "Plans") provide medical, dental, vision, health care flexible spending accounts, and dependent care flexible spending accounts under Internal Revenue Code section 125. Although the medical portions of the Plans are largely funded from the general assets of the plan sponsors (the "Plan Sponsors"), employees also make contributions to both Plans at specified rates.

The Plan Sponsors wish to purchase one or more stop-loss insurance policies (the "Policies") for the purpose of managing the risk associated with their liabilities under the medical benefit portions of the Plans. Pursuant to the Policies, the insurer will reimburse the Plan Sponsors only if, during the policy year, they pay benefit claims required under the Plans in excess of a pre-determined amount, or attachment point, consistent with applicable state insurance law. The purchase of such insurance will not relieve the Plans of their obligations to pay benefits to Plan participants, and the stop-loss insurer has no obligation to pay claims of Plan participants. The Policies will reimburse the Plan Sponsors only if the Plan Sponsors pay claims under the Plan from their own assets, so that the Plan Sponsors will never receive any reimbursement for claim amounts paid with participant contributions. The Plan Sponsors will use certain accounting procedures to ensure that no monies attributable to employee contributions are used for paying premiums on the Policies.

Other Pertinent Facts: (1) the insurance proceeds from the Policies would be payable only to the Plan Sponsors, who would be the named insured under the Policies; (2) the Plan Sponsors would have all rights of ownership under the Policies, and the Policies would be subject to the claims of the creditors of the Plan Sponsors; (3) neither the Plans nor any participant or beneficiary of the Plans would have any preferential claim against the Policies or any beneficial interest in the Policies; (4) no representations would be made to any participant or beneficiary of the Plans that the Policies would be used to pay benefits under the Plans or that the Policies in any way represent security for the payment of benefits; and (5) the benefits associated with the Plans would not be limited or governed in any way by the amount of stop-loss insurance proceeds received by the Plan Sponsors.

The DOL's Answer: The DOL concluded that the Policies would not constitute assets of the Plans. Why? The DOL said the following. First, except for the use of participant contributions to partly fund the medical benefit portions of the Plans, the facts surrounding the purchase of the Policies will be identical in all material respects to the facts surrounding the purchase of the stop-loss insurance policy described in Advisory Opinion 92- 02A, in which the DOL found that the policy was not a plan asset. Second, with respect to the use of participant contributions to fund in part the benefits under the Plans, the Plan Sponsors use an accounting system that ensures that the payment of premiums for the Policies includes no employee contributions. Third, the purchase of such insurance will not relieve the Plans of their obligation to pay benefits to Plan participants, and the stop-loss insurer has no obligation to pay claims of Plan participants. Fourth, the Policies will reimburse the Plan Sponsors only if the Plan Sponsors pay claims under the Plans from their own assets so that the Plan Sponsors will never receive any reimbursement from the insurer for claim amounts paid with participant contributions.

November 2, 2015

ERISA-DOL Revives Guidance On Economically Targeted Investments

According to FAQs issued on October 22, the Employee Benefits Security Administration (the "EBSA") has released Interpretive Bulletin 2015-01 (IB 2015-01) to provide guidance on the investment duties of plan fiduciaries under ERISA when considering economically targeted investments ("ETIs") and investment strategies that take into account environmental, social and governance ("ESG") factors. IB 2015-01 is available on EBSA's website at

Here is what the FAQs say:


The Department has been asked periodically over the last 30 years to consider the application of ERISA's fiduciary rules to pension plan investments selected because of the collateral economic or social benefits they may further in addition to their investment returns. Various terms have been used to describe this and related investment behaviors, such as socially responsible investing, sustainable and responsible investing, environmental, social and governance (ESG) investing, impact investing, and economically targeted investing (ETI).

The Labor Department previously addressed issues relating to ETIs in 1994 in Interpretive Bulletin 94-1 (IB 94-1) and in 2008 in Interpretive Bulletin 2008-1 (IB 2008-1). The Department's stated objective in issuing IB 94-1 was to correct a popular misperception at the time that investments in ETIs are incompatible with ERISA's fiduciary obligations. The preamble to the IB explained that the requirements of sections 403 and 404 of ERISA do not prevent plan fiduciaries from investing plan assets in ETIs if the ETI has an expected rate of return that is commensurate to rates of return of alternative investments with similar risk characteristics that are available to the plan, and if the ETI is otherwise an appropriate investment for the plan in terms of such factors as diversification and the investment policy of the plan. Some commenters have referred to this standard as the "all things being equal" test.

The Department has also consistently stated, including in IB 94-1, that ERISA plan trustees or other investing fiduciaries may not use plan assets to promote social, environmental, or other public policy causes at the expense of the financial interests of the plan's participants and beneficiaries in receiving their promised benefits. A fiduciary may not accept lower expected returns or take on greater risks in order to secure collateral benefits.

On October 17, 2008, the Department replaced IB 94-1 with IB 2008-01, codified at 29 CFR § 2509.08-01. IB 2008-01 purported not to alter the basic legal principles set forth in IB 94-1. Its stated purpose was to clarify that fiduciary consideration of collateral, non-economic factors in selecting plan investments should be rare and, when considered, should be documented in a manner that demonstrates compliance with ERISA's rigorous fiduciary standards.

The Department believes that in the seven years since its publication, IB 2008-01 has unduly discouraged fiduciaries from considering ETIs and ESG factors. In particular, the Department is concerned that the 2008 guidance may be dissuading fiduciaries from (1) pursuing investment strategies that consider environmental, social, and governance factors, even where they are used solely to evaluate the economic benefits of investments and identify economically superior investments, and (2) investing in ETIs even where economically equivalent.

Overview of Interpretive Bulletin 2015-01

In an effort to correct the misperceptions that have followed publication of IB 2008-01, the Department is withdrawing IB 2008-01 and is replacing it with IB 2015-01 which reinstates the language of IB 94-1. The new interpretative bulletin does not supersede the "investment duties" regulatory standard at 29 CFR § 2550.404a-1, nor does it address any issues that may arise in connection with the prohibited transaction provisions of ERISA.

IB 2015-01 confirms the Department's longstanding view that plan fiduciaries may invest in ETIs based, in part, on their collateral benefits so long as the investment is appropriate for the plan and economically and financially equivalent with respect to the plan's investment objectives, return, risk, and other financial attributes as competing investment choices.

The IB also acknowledges that in some cases ESG factors may have a direct relationship to the economic and financial value of the plan's investment. In such instances, the ESG issues are not merely collateral considerations or tie-breakers, but rather are proper components of the fiduciary's primary analysis of the economic merits of competing investment choices. When a fiduciary prudently concludes that such an investment is justified based solely on the economic merits of the investment, there is no need to evaluate collateral goals as tie-breakers.

In addition, consistent with the obligation of ERISA fiduciaries to choose economically and financially superior investments, the IB makes it clear that the Department does not believe ERISA prohibits a fiduciary from addressing ETIs or incorporating ESG factors in investment policy statements or integrating ESG-related tools, metrics and analyses to evaluate an investment's risk or return or choose among otherwise equivalent investments. Nor do sections 403 or 404 prevent fiduciaries from considering whether and how potential investment managers consider ETIs or use ESG criteria in their investment practices. As in selecting investments, the plan fiduciaries must reasonably conclude that the investment manager's practices in selecting investments are consistent with ERISA and the principles articulated in IB 2015-01.

Fiduciaries also do not need to treat commercially reasonable investments as inherently suspect or in need of special scrutiny merely because they take into consideration environmental, social, or other such factors. IB 2015-01 explains that the Department concluded that no special documentation is presumptively required for such investments. As a general matter, the Department believes that fiduciaries responsible for investing plan assets should maintain records sufficient to demonstrate compliance with ERISA's fiduciary provisions. As with any other investments, the appropriate level of documentation would depend on the facts and circumstances.

October 28, 2015

ERISA-Tenth Circuit Rules That Retiree Cannot Convert His Pension Benefit To Disability Benefit

In Martinez v. Plumbers & Pipefitters Nat'l Pension Plan, No. 14-1315 (10th Cir. 2015), Joseph Martinez was a long-term participant in the Plumbers and Pipefitters National Pension Plan, a multiemployer defined benefit pension plan governed by ERISA (the "Plan"). Following some health problems, Martinez retired from plumbing in 2004 at age 56 and took advantage of the Plan's early retirement pension. After a few years in retirement, he felt well enough to resume working, and his pension was suspended during that time according to rules that prohibit retirement benefits during disqualifying employment. When he retired again in 2009, he asked the National Pension Fund to allow him to convert the pension benefits he previously elected from an early retirement pension to a disability pension--a change that would entitle him to higher monthly payments.

The Plan denied the conversion and the district court upheld the denial. In analyzing the case, the Tenth Circuit Court of Appeals (the "Court") agreed that the Plan language is unambiguous and allows Plan participants to apply for and receive only one type of pension benefit for life absent several clearly delineated exceptions, none of which apply to Martinez. Accordingly, the Court affirmed the Plan's denial of Martinez's claim for disability benefits and the district court's decision on the matter.

October 21, 2015

ERISA-Third Circuit Rules That Annual Installment Payments of Withdrawal Liability Are Computed At The Single Highest Contribution Rate Under The Governing CBAs, But Does Not Include The ERISA 10% Surcharge

In Board of Trustees of the IBT Local 863 Pension Fund v. C & S Wholesale Grocers, Inc. /Woodbridge Logistics LLC, Nos. 14-1956 and 14-1957 (3rd Cir. 2015), a disagreement arose between C&S Wholesale Grocers, Inc./Woodbridge Logistics LLC ("Woodbridge") and the Board of Trustees of the IBT Local 863 Pension Fund ("the Board") about the amount that Woodbridge should pay annually after withdrawing from the IBT Local 363 Pension Fund (the "Fund") in 2011. At the time of its withdrawal from the Fund, Woodbridge was the largest wholesale grocery distributor by revenue in the United States. The Board administers the Fund, which is a multiemployer pension plan subject to the provisions of ERISA. Before withdrawing from the Fund, Woodbridge had been contributing to it pursuant to three collective bargaining agreements ("CBAs").

The parties here agree that the total amount that Woodbridge owes, as withdrawal liability under ERISA, is $189,606,875. Because Woodbridge has elected to satisfy this liability through annual payments instead of a lump sum, the amount of those payments is at the heart of this dispute. One of the provisions of ERISA, 29 U.S.C. § 1399(c)(1)(C)(i), provides that the annual payments must be based on the "the highest contribution rate at which the employer had an obligation to contribute under the plan. . . ." In applying this provision, the Board seeks to select the single highest rate from the multiple contribution rates established in the three CBAs under which Woodbridge was contributing to the Fund. Woodbridge contends that it is responsible only for a weighted average of all of the contribution rates it is obligated to pay under the CBAs. The second point of disagreement is whether Woodbridge's annual payment should include a 10 percent surcharge that Woodbridge had been paying pursuant to ERISA under 29 U.S.C. § 1085(e)(7)(A) before withdrawing from the Fund. The Board claims this surcharge should be included in the annual payment that Woodbridge owes. Woodbridge disagrees.

After reviewing the case, the Third Circuit Court of Appeals held that: (1) the "highest contribution" rate means the single highest contribution rate established under any of the three CBAs, and (2) the annual payment does not include the 10 percent surcharge.

October 19, 2015

ERISA-Seventh Circuit Rules That Plaintiffs Are Not Beneficiaries Under ERISA, And Thus Cannot Enforce ERISA Claims Procedure

In Pennsylvania Chiropractic Association v. Independence Hospital Indemnity Plan, Inc., Nos.14-2322, 14-3174 and 15-1274 (7th Cir. 2015), two chiropractors and an association of chiropractors filed suit against an insurance company. They contend that, when determining how much to pay for services rendered to patients, the insurer failed to use the procedures required by the ERISA claims procedure, found at 29 U.S.C. § 1133. However, the plaintiffs' ability to invoke ERISA depends on their being "beneficiaries" of a plan established under that law. See 29 U.S.C. § 1132(a)(1)(B). The district court concluded that plaintiffs are in fact beneficiaries, and awarded damages plus injunctions requiring the insurer to follow § 1133 and the Department of Labor's regulation, 29 C.F.R. § 2560.503-1, when making decisions about coverage and level of payment under insurance policies. The insurance company appeals.

Upon reviewing the case, the Seventh Circuit Court of Appeals (the "Court") noted that the term "beneficiary" is defined in 29 U.S.C. § 1002(8) as "a person designated by a participant, or by the terms of an employee benefit plan, who is or may become entitled to a benefit thereunder." Here, the plaintiffs are not designated as beneficiaries by any participant or plan. Plaintiffs do not rely on a valid assignment from any patient. Nor do they rely on a designation in a plan. Instead they rely on their contracts with an insurer, and the insurer is not a plan. That does not meet the definition in § 1002(8). Since the plaintiffs are not beneficiaries, they cannot enforce the ERISA claims procedure, or receive damages for violations of the procedure. As such, the Court reversed the decision of the district court.

October 15, 2015

ERISA-Ninth Circuit Rules That A Succesor Employer Can Be Responsible For Predecessor's Withdrawal Liability Under ERISA

In Resilient Floor Covering Pension Trust Fund Board of Trustees v. Michael's Floor Covering, Inc., No. 12-17675 (9th Cir. 2015), the Ninth Circuit Court of Appeals (the "Court") was asked to decide two issues: (1) whether a successor employer, both generally and in the construction industry in particular, can be subject to withdrawal liability owed to a multiemployer pension plan under ERISA, and if so (2) what factors are most relevant to determining whether a construction industry employer is a successor for purposes of imposing such liability.

As to issue (1), the Court concluded that a bona fide successor employer, and in particular a bona fide construction industry successor employer, can be subject to withdrawal liability, so long as the successor took over the predecessor's business with notice of the liability.

As to issue (2), the Court held that the most important factor in assessing whether an employer is a successor, for purposes of imposing withdrawal liability, is whether there is substantial continuity in the business operations between the predecessor and the successor, as determined in large part by whether the new employer has taken over the economically critical bulk of the prior employer's customer base (and not the continuity of workforce).

October 8, 2015

ERISA-Sixth Circuit Holds That Claimant Could Be Entitled To Long-Term Disability Benefits, Despite Her Failure To File A Claim For the Benefits By The time Required By The Plan

In Waskiewicz v. UniCare Life and Accident Health Insurance Company, No. 14-1479 (6th Cir. 2015), plaintiff Laura Waskiewicz had worked for Ford Motor Company as a product design engineer from 1990 until October 26, 2010. She subsequently sought long-term disability ("LTD") benefits under the Ford Motor Company Salaried Disability Plan (the "Plan"). Defendant UniCare Life and Health Insurance Company ("UniCare") serves as the claims processor for the Plan, which is governed by ERISA. The district court granted summary judgment to UniCare based upon its conclusion that plaintiff did not qualify for benefits under the Plan because she had already been terminated by Ford before she sought those benefits.

The Sixth Circuit Court of Appeals (the "Court") reversed, ruled that the plaintiff could be entitled to the LTD benefits, and remanded the case back to the district court. The Court said that here, at the onset of her disability (stemming from type-1 diabetes, major depression, and gender identity disorder), plaintiff was a "covered employee" as defined by the Plan and thus to coverage for benefits. While she did not comply with the notification deadlines outlined in the Plan, in that she did not file her claim for LTD benefits prior to termination, that failure is not surprising given that she was suffering from severe mental illness and was unable to comply due to the very disability for which she sought coverage. Provisions in the Plan contemplate the awarding of LTD benefits to employees who become disabled as long as they are working for Ford at the time of onset, which occurred here.

The Court said that, on remand, plaintiff shall be given the opportunity to show that her alleged failure to comply with the notification and other of the requirements for LTD benefits found in the Plan was due to the very disability for which she seeks benefits.

October 7, 2015

ERISA-Ninth Circuit Rules That Some of Plaintiff's Claims Are Preempted By ERISA, Others May Not Be Pursued Because They Seek Legal Relief, Not Equitable Relief

In Oregon Teamster Employers Trust v. Hillsboro Garbage Disposal, Inc., No. 13-35555 (9th Cir. 2015), the Ninth Circuit Court of Appeals (the "Court") faced, among others, two issues: (1) whether Oregon Teamster Employers Trust ("OTET"), an Employer Health and Benefit Plan governed by ERISA, can recover damages, on a breach of contract claim, against a business which received health care benefits for two ineligible employees, and (2) whether OTET's claims for restitution and specific performance are permitted.

As to issue (1), the Court ruled that the breach of contract claim is preempted by ERISA, since the claim is a common law claim which relates to an ERISA plan.

As to issue (2), the Court said that the claims for restitution and specific performance, brought under section 502(a)(3)(B) of ERISA, are legal, not equitable, claims for relief. Specific performance is typically a legal remedy except-unlike here- when it is sought to prevent future losses that either were incalculable or would be greater than the sum awarded. As to restitution, although the plan in question contained a promise by the beneficiary to reimburse OTET, it did not specifically identify a particular fund, distinct from the beneficiary's general assets, from which the fiduciary will be reimbursed (that is, there is no res from which OTET seeks recovery)-a prerequisite for finding that a claim is equitable. As such, these claims are not permitted under section 502(a)(3)(B) of ERISA, which requires that the claim be equitable.

October 6, 2015

ERISA-Seventh Circuit Discusses When Obligations To Contribute To A Multiemployer Pension Plan End

In Michels Corporation v. Central States, Southeast, and Southwest Areas Pension Fund, No. 14-3726 and 3737 (7th Cir. 2015), the Seventh Circuit Court of Appeals (the "Court") faced a familiar problem for multiemployer pension plans, namely: when does an employer's obligation to contribute to the plan end? The Court said that the answer turns on when the governing collective bargaining agreement ("CBA") between a multi-employer group and a union terminated, and how one should characterize a series of temporary "extensions" of the CBA.

The Court concluded that, in this case, the CBA in question terminated it in accordance with its terms effective January 31, 2011. Thereafter, the union and the employer group entered into a series of short-term agreements that had the effect of extending the CBA's terms for the designated periods while the parties negotiated. The interim agreement that took effect on November 15, 2011, however, was different: it eliminated the employers' duty to contribute to the plan and extended all other terms of the CBA. The district court held that this was not sufficient to end the employers' duty to contribute and thus granted summary judgment for the plan. The Court reversed, and held that the CBA imposing the duty to contribute had long since expired by November of 2011, and the interim agreement effective November 15, 2011 was sufficient to end employer's obligations to contribute.

October 1, 2015

ERISA-Third Circuit Holds That Health Care Service Provider, To Whom Benefit Claim Was Assigned, Has Standing To Sue The Insurer For Health Benefits

In North Jersey Brain & Spine Center v. Aetna, No. 14-2101 (3rd Cir. 2015), the plaintiff, North Jersey Brain & Spine Center ("NJBSC"), was appealing an order entered by the district court dismissing its complaint for lack of standing under ERISA. The question presented on appeal was whether a patient's explicit assignment of payment of insurance benefits to her healthcare provider, without direct reference to the right to file suit, is sufficient to give the provider standing to sue for those benefits under ERISA § 502(a), 29 U.S.C. § 1132(a).

Upon analyzing the case, the Third Circuit Court of Appeals (the "Court") found that such an assignment does confer standing. It held, as a matter of federal common law and in accordance with the other Circuits, when a patient assigns payment of insurance benefits to a healthcare provider, that provider gains standing to sue for that payment under ERISA § 502(a). An assignment of the right to payment logically entails the right to sue for non-payment. Therefore, the Court reversed the order of the District Court and remanded the case for further proceedings.

September 30, 2015

ERISA-Fifth Circuit Rules That Plan Administrator's Denial Of Severance Pay Cannot Be Upheld

In Napoli v. Johnson & Johnson, Inc., No. 14-31000 (5th Cir. 2015), plaintiff Dean Napoli ("Napoli") appeals from a grant of summary judgment by the district court for defendant, Johnson & Johnson, Inc. ("Johnson & Johnson"), on his ERISA claim for the denial by the plan administrator of post-termination severance benefits. In this case, Napoli, during his employment with Johnson & Johnson, participated in the company's Severance Pay Plan ("SPP"). Under the SPP, a participant could be denied a severance benefit if he is fired for one of several specified reasons, namely misconduct, violation of company policy or any conduct detrimental to the company. In September 2010, Johnson & Johnson fired Napoli, prompting him to apply for severance pay. The plan administrator denied the benefit claim.

The Fifth Circuit Court of Appeals (the "Court") reviewed the plan administrator's decision to deny the claim for abuse of discretion. The Court noted that the only documents before the plan administrator at the time of its initial review were Johnson & Johnson's Performance and Conduct Standards Policy and a September 2010 letter from Johnson & Johnson's general counsel to Napoli. The Performance and Conduct Standards Policy is not specific to Napoli or to his alleged violation of company policy; rather, it merely is the policy itself. Needless to say, a citation to a policy is not evidence that Johnson & Johnson fired Napoli for violating that policy, or any of the reasons for which the SPP denies a severance benefit. The September 2010 letter asserts that Napoli is ineligible for severance benefits because he "was terminated for a Group I violation." The letter then states: "Furthermore, since [Napoli] wrongfully expensed over $3,000 on his American Express account, the company hereby demands repayment." The Court felt that this letter, like the policy, does not demonstrate that Napoli was fired for any of the reasons for which the SPP denies a severance benefit.

Based on the foregoing, the Court found that the plan administrator's denial of severance benefits was not supported by substantial evidence and could not be upheld even under a deferential review. Accordingly, the Court reversed the district court's decision, and remanded the case back to the district court.

September 22, 2015

ERISA-Seventh Circuit Rejects Preemption Challenge Of State Law Prohibiting Reservation Of Discretion To Insurers

In Fontaine v. Metropolitan Life Insurance Company, No. 14-1984 (7th Cir. 2015), the Seventh Circuit Court of Appeals (the "Court") addressed a federal preemption challenge to an Illinois insurance law, which prohibits provisions "purporting to reserve discretion" to insurers to interpret health and disability insurance policies. These provisions are intended to prevent the insurer from having the discretion which, under ERISA, when the insurer denies a benefit under a plan covered by ERISA, would entitle the insurer to a deferential review of that denial by a court.

Upon reviewing the case, the Court said that, like our colleagues in the Ninth and Sixth Circuits, as well as the district court in this case, we reject the preemption challenge and apply the state law. Why?

The Court had noted that ERISA deals expressly with the issue of preemption of state law. It first preempts state laws that "relate to any employee benefit plan," 29 U.S.C. § 1144(a), but then saves from preemption any state law "which regulates insurance," 29 U.S.C. § 1144(b)(2)(A). Further, to be deemed a law that "regulates insurance" and thus avoid preemption, according to the Supreme Court decision in Miller, a state law must satisfy two requirements. First, it must be specifically directed toward entities engaged in insurance. Second, it must substantially affect the risk pooling arrangement between the insurer and the insured. The Court concluded that the provision in question does both, and thus is not preempted.

Further, the Court found that the provision is not preempted on the grounds that it conflicts with ERISA's civil enforcement scheme. All the provision does is restore the state's own default rule of de novo review in court cases challenging denials of health and disability benefits.

September 10, 2015

ERISA-Mississippi Supreme Court Affirms Ruling That State Law Which Requires Chancery Court Approval Of A Minor's Settlement Claims Is Not Preempted By ERISA

In the case of In the Matter of the Guardianship of O. D., No. 2014-CA-00322-SCT (Miss. Supreme Court 2015), O.D., a minor child, filed a petition in Pontotoc County Chancery Court for approval of a settlement her parents had negotiated with car insurance companies for injuries she had suffered in a car accident. On the day of the hearing, Ashley Healthcare Plan, O.D.'s health insurance coverage provider, which had a subrogation lien against the proceeds of O.D.'s claim, removed the case to federal court, arguing that the Mississippi law which required the Chancery Court's approval of O.D.'s settlement claims, Mississippi Code Section 93-13-59, was preempted by ERISA.

The United States District Court for the Northern District of Mississippi held that ERISA did not preempt the state law and remanded the case to the Chancery Court without awarding attorney's fees to O.D. On motion from O.D.'s parents, the Pontotoc County Chancery Court awarded O.D. attorney's fees, holding that Ashley Healthcare Plan's removal to federal court was contrary to clearly established law and that it was done for the purpose of delaying litigation. Although O.D. could have sought recovery of attorney's fees under Rule 54 of the Federal Rules of Civil Procedure, frivolous removals to federal court also are subject to the Mississippi Litigation Accountability Act. Miss. Code Ann. §§ 11-55-1 to 11-51-15 (Rev. 2012). Furthermore, according to the Chancery Court, Ashley Healthcare Plan's removal to federal court was contrary to two decades of case law which uniformly held that Mississippi's law requiring Chancery Court approval of minors' settlements is not preempted by ERISA and that Ashley Healthcare Plan was seeking a remedy in federal court that was unavailable to it under the ERISA Civil Enforcement Clause.

The Mississippi Supreme Court affirmed the judgment of the Chancery