Recently in ERISA Category

October 27, 2014

ERISA-Fourth Circuit Rules That, Since Defendants Were Not Acting As Fiduciaries When Allegedly Engaging In Wrongful Conduct, The Claim Against Them Under ERISA For Breach Of Fiduciary Duty Fails

In Moon v. BWX Technologies, No. 13-1888 (4th Cir. 2014), Judy L. Moon ("Moon"), individually and as executor of the estate of Leslie W. Moon ("Mr. Moon"), appeals the district court's order dismissing her case against the defendants under ERISA, arising out of defendants' failure to pay life insurance benefits.

In analyzing the case, the Fourth Circuit Court of Appeals (the "court") concluded that, since Moon failed to sufficiently allege that the defendants were acting as fiduciaries under ERISA at the time of their allegedly wrongful conduct, Moon has failed to state a claim for breach of fiduciary duty and equitable estoppel. As such, the Court affirmed the district court's decision.

In this case, the alleged breach of fiduciary duty was the defendants' acceptance of a premium payment from Mr. Moon for life insurance, without notifying Mr. Moon that he was no longer eligible for life insurance benefits under the plan at issue. For this alleged violation of ERISA, Moon was seeking equitable estoppel under 29 U.S.C. § 1132(a)(3) in the form of an order estopping the defendants from denying the existence of a life insurance contract between Mr. Moon and the defendants in the coverage amount of $200,000.00. However, the Court concluded that the defendants were not acting as fiduciaries at the time the premium payment was accepted, so Moon's claim fails.
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October 22, 2014

ERISA-Eleventh Circuit Affirms Judgment Awarding Medical Plan The Benefits It Paid To A Participant, When The Participant Settled Her Case Against The Party Causing Her Injury, Even Though The Benefits Could Not Be Traced To The Settlement Amount.

In Airtran Airways, Inc. v. Elem, Nos. 13-11738 and 13-14912 (11th Cir. 2014), the issue to be decided is whether an employee welfare benefit plan may recover medical costs it spent on behalf of a beneficiary after she and her attorney conspired to hide and disburse settlement funds she received after a car accident.

In this case, Brenda Elem participated, as an employee of AirTran, in a self-funded employee welfare benefit plan. After Elem suffered injuries in a car accident and the plan paid over $100,000 for her medical care, Elem sued the other driver and settled for $500,000. AirTran sought reimbursement from Elem under an equitable lien created under the plan, but Elem's attorney, Mark Link, misrepresented that Elem had settled for only $25,000. The truth was discovered when Link accidentally sent the plan a copy of a settlement check for $475,000. After AirTran sued Elem, Link, and Link & Smith, P.C., for violations of ERISA under section 502(a)(3), seeking equitable relief (that is, to enforce the equitable lien), the district court granted summary judgment for the $100,000 plus in medical benefits to AirTran, and awarded attorney's fees and costs in favor of AirTran. The defendants appeal.

In analyzing the case, the Eleventh Circuit Court of Appeals (the "Court") said that Elem, Link, and the law firm challenge three orders. They contest the summary judgment for the $100,000 plus in medical benefits on the ground that AirTran failed to satisfy the strict tracing rules of equitable restitution, but these rules do not apply to the equitable lien by agreement that the AirTran plan created. See Sereboff v. Mid Atlantic Med. Serv.,Inc., 547 U.S. 356, 364-65, 126 S. Ct. 1869, 1875 (2006). Elem and Link argue that the district court abused its discretion when it awarded AirTran attorney's fees and costs, but the district court had the authority to sanction them for their bad faith. Elem and Link also complain that the district court misapplied Federal Rule of Civil Procedure 70 when the court ordered enforcement of the judgment, but that issue became moot when Link and his law firm complied with the order. Therefore, the Court affirmed the summary judgment and award of fees and costs and dismissed as moot the appeal of the order to enforce the judgment.

October 20, 2014

ERISA-Sixth Circuit Holds That The Plan's Venue Selection Clause Is Valid And Enforeceable Against The Plaintiff

In Smith v. Aegon Companies Pension Plan, No.13-5492 (6th Cir. Oct. 14, 2014), plaintiff Roger Smith ("Smith") appeals the district court's dismissal of his claims without prejudice because of improper venue. The district court held that the venue selection clause in the ERISA governed Aegon Pension Plan, which requires that suit be brought in federal court in Cedar Rapids, Iowa, was enforceable and applied to Smith's claims. Accordingly, the court dismissed his complaint for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6).

In analyzing this case, the Sixth Circuit Court of Appeals (the "Court") agreed with the district court, that the plan's venue selection clause is enforceable and applies to Smith's claims. It said that ERISA's statutory scheme is built around reliance on the face of written plan documents. Plan administrators and employers are generally free under ERISA, for any reason at any time, to adopt, modify, or terminate a plan. The Court felt that there is no reason-such as a conflict with other ERISA provisions- why the plan's written document cannot contain a venue selection clause.

Further, the Court felt that the venue selection clause in the Aegon Pension Plan is enforceable against Smith, since Smith did not complain that the clause: (1) resulted from fraud, duress, or other unconscionable means or (2) designated a forum that would ineffectively or unfairly handle the suit, or would be so seriously inconvenient such that requiring the plaintiff to bring suit there would be unjust. Accordingly, the Court affirmed the district court's decision.

October 17, 2014

ERISA-Third Circuit Holds That Issuer of Group Annuity Contracts Is Not A Fiduciary

In Santomenno v. John Hancock Life Insurance Company, No. 13-3467 (3rd Cir. 2014), the plaintiffs had invested money in 401(k) benefit plans. They brought suit against John Hancock Life Insurance Company and its affiliates ("John Hancock"), alleging that John Hancock had charged excessive fees in violation of its fiduciary duty under ERISA on certain group annuity contracts held by their accounts under the plans. The district court granted John Hancock's motion to dismiss, ruling that John Hancock was not a fiduciary with respect to the alleged breaches.

In analyzing the case, the Third Circuit Court of Appeals (the "Court") said that ERISA makes a person a fiduciary to a plan if the plan identifies them as such. See 29 U.S.C. § 1102(a). This was not the case here. It also provides, in 29 U.S.C. § 1002(21)(A), that a person can be a fiduciary by being a "functional" fiduciary, that is, the person acts in the capacity of manager, administrator or financial advisor to a plan. Further, a person will be a "functional" fiduciary to the extent the person so acts. To be liable for a breach of fiduciary duty, the person must have committed the breach with respect to the action complained of. The question in this case is whether John Hancock acted as a fiduciary to the plans in question with respect to the fees that it set. The Court concluded that John Hancock did not so act, and it affirmed the district court's decision.
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October 14, 2014

ERISA-Ninth Circuit Discusses Standard For Arbitrary and Capricious Review Of A Fiduciary's Decision

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

In analyzing the case, the Ninth Circuit Court of Appeals (the "Court") concluded that UBH abused its discretion in deciding to pay for these days of treatment, and therefore reversed the district court's holding. Why this conclusion?

The Court determined that UBH's decision to deny the payment is entitled to review under the arbitrary and capricious standard, and therefore should be overturned by a court only upon a finding of abuse of discretion. Further, it said that, in reviewing for abuse of discretion, we consider all of the relevant circumstances in evaluating the decision of the claims administrator. The claims administrator abuses its discretion if it renders a decision without any explanation, construes provisions of the plan in a way that conflicts with the plain language of the plan, or fails to develop facts necessary to its determination. The court must be left with a definite and firm conviction that a mistake has been committed.

The Court continued by saying that, as claims administrator, UBH owed a fiduciary duty to Jones under ERISA, to act in Jones' best interest and for the purpose of providing benefits to her, and to act as a prudent man. Here, UBH fell far short of fulfilling its fiduciary duty to Jones. Dr. Zucker, UBH's primary decisionmaker, made a number of critical factual errors. Dr. Center, as an ostensibly independent evaluator, made additional critical factual errors. Dr. Barnard, UBH's final decisionmaker, stated that he arrived at his decision to deny benefits "after fully investigating the substance of the appeal." He then rubberstamped Dr. Center's conclusions. There was a striking lack of care by Drs. Zucker, Center, and Barnard, resulting in the obvious errors we have described. What is worse, the errors are not randomly distributed. All of the errors support denial of payment; none supports payment. The unhappy fact is that UBH acted as a fiduciary in name only, abusing the discretion with which it had been entrusted.

September 29, 2014

ERISA-Ninth Circuit Holds That Decision To Prohibit Transfer Of Account Balances From One Plan To Another Did Not Violate Anti-Cutback Rule

In Andersen v. DHL Retirement Pension Plan, No. 12-36051 (9th Cir. 2014), the Ninth Circuit Court of Appeals (the "Court") dealt with the question of whether the Defendants' ("DHL") decision to eliminate Plaintiffs' right to transfer their account balances from DHL's defined contribution plan to its defined benefit plan violated the ERISA "anti-cutback" rule. This rule, found at 29 U.S.C. § 1054(g), prohibits any amendment of an employee benefits plan that would reduce a participant's "accrued benefit."

In this case, prior to the amendment challenged in this case, the Plaintiff's, who were participants in an individual account profit sharing plan at DHL (the "Profit Sharing Plan"), could transfer the funds from their Profit Sharing Plan accounts to the defined benefit retirement plan in which they also participated at DHL (the "Retirement Plan"). The Retirement Plan would offset a participant's benefit under that plan by his or her Profit Sharing Plan account balance. As a result, the transfer option, if exercised, provided increased funds for the participant under the Retirement Plan, but also reduced the Profit Sharing Account balance to zero, so that there was no offset. As such, the transfer could work to the participant's advantage. However, DHL amended the Retirement Plan to prohibit the transfers, and this suit ensued.

In analyzing the case, the Court concluded that the amendment to the Retirement Plan eliminating the transfer option did not violate the anti-cutback rule. There is no reduction is a participant's accrued benefit. The amount of the accrued benefit is determined by formula in Section 4.01 of the Retirement Plan. The amendment did not affect this formula. Under that formula, a participant's accrued benefit is, and always has been, calculated on the basis of a participant's final average compensation and years of service, with an offset for an attributed annuity amount based on the participant's account balance, if any, in the Profit Sharing Plan. The transfer option eliminated was in Section 7.11, and that Section was not part of a participant's accrued benefit. The Court noted that the anti-cutback rule prohibits the elimination of an optional form of benefit (29 U.S.C. § 1054(g)(2)). But the Court reasoned that the only plan feature eliminated was the Retirement Plan provision under which transfers were accepted, and IRS regulations under the anti-cutback rule permit elimination of this type of feature.

September 17, 2014

ERISA-Sixth Circuit Upholds Grant Of Benefits, But Not Imposition Of Penalties, For Failure To Provide Benefits For Treatment For Alcohol Addiction

In Butler v. United Healthcare of Tennessee, Inc., No. 13-6446 (6th Cir. 2014), the following obtained. More than nine years ago, the plaintiff, Janie Butler ("Janie"), checked into a substance-abuse treatment facility to obtain inpatient rehabilitation for her alcohol addiction. She sought coverage for the treatment through her husband's employer-issued ERISA plan run by the defendant, United Healthcare of Tennessee, Inc. ("United"). United denied treatment, deeming it medically unnecessary. After seven years' worth of internal reviews, trips to the district court and remands to the plan for reconsideration, the district court decided that enough was enough. It held that United had acted arbitrarily and capriciously in continuing to deny the requested coverage. And it awarded John Butler (her then-husband and the assignee of Janie's plan benefits) the cost of the requested benefits plus prejudgment interest and statutory penalties. United objects to the decision to grant benefits and to the order to pay penalties.

Upon reviewing the case, the Court affirmed the grant of benefits, but reversed the penalty award. Why? As to the benefits, the Court said that Janie obviously qualified for rehabilitation benefits under United's residential-rehabilitation guideline, which grants residential-rehabilitation benefits to insured individuals with a "[h]istory of continued and severe substance abuse despite appropriate motivation and recent treatment in an intensive outpatient . . . program." The Court concluded that United's denial of these benefits is a clear abuse of discretion.

As to the penalties, the Court noted that the district court had awarded statutory penalties to John Butler, reasoning that ERISA allows penalties of "up to $100 a day" if the plan "administrator" "fails or refuses to comply with a request for any information" that the statute requires the administrator to provide. See 29 U.S.C. § 1132(c)(1)(B). However, since United is not the "administrator" of the plan, that was a mistake. The plan did not name an administrator, so under ERISA the employer is treated as being the "administrator". Further, John Butler did not allege a violation of section 1132 (the alleged violation being of section 1133), so that the $100/day penalty cannot apply.

September 3, 2014

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

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

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

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

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

August 27, 2014

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

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

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

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

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

August 26, 2014

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

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

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

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

August 21, 2014

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

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

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

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

August 20, 2014

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

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

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

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

August 14, 2014

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

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

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

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

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

August 13, 2014

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

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

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

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

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

August 12, 2014

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

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

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

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