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The U.S. Department of Labor (the “DOL”) has revised the ERISA claims procedures which apply to claims for disability benefits, in a Final Rule which changes the ERISA claims procedures regulations and which was published on December 16, 2016.  The revisions generally become effective after 2017.  Plans which provide disability benefits (both pension and welfare plans) will have to revise their summary plan descriptions, and change internal procedures for handling disability claims, prior to the end of 2017 to comply with the Final Rule.  The DOL has issued a Fact Sheet which describes the Final Rule.  Here is what the Fact Sheet says.

Background.  Section 503 of ERISA generally requires employee benefit plans to provide written notice to any participant or beneficiary whose claim for benefits has been denied, and to provide the claimant a full and fair process for review of the claims denial.  The Fact Sheet notes that proposed regulations-now finalized under the Final Rule- was published on November 18, 2015.

Overview of Final Regulation.  The Final Rule amends the DOL’s current claims procedure regulation at 29 C.F.R. §2560.503-1 for disability benefits to require that plans, plan fiduciaries, and insurance providers comply with additional procedural protections when dealing with disability benefit claimants.  Specifically, the Final Rule includes the following improvements in the requirements for the processing of claims and appeals for disability benefits:

DB Healthcare, LLC v. Blue Cross Blue Shield of Ariz., Inc., No. 14-16518, No. 14-16612 (9th Cir. 2017) is actually two cases, which involve reimbursement disputes between health care providers and employee health benefit plan administrators.  The Ninth Circuit Court of Appeals (the “Court”) decided the cases together, because they raise a common central issue: whether a health care provider designated to receive direct payment from a health plan administrator for medical services is authorized to bring suit in federal court under ERISA.  The Court considered two separate potential bases for such authority under ERISA’s civil enforcement provisions: direct statutory authority and derivative authority through assignment.  Although the contractual relationships between the health care providers and the plan administrators, and between the providers and the patients, under these two bases differ in relevant ways, the Court concluded that the providers cannot-under either base- enforce ERISA’s protections in federal court on either basis.

Why this conclusion?

Agreeing with other circuits, the Court reaffirmed that health care providers are not health plan beneficiaries who have direct statutory authority to sue for declaratory relief and money damages under ERISA section 502(a)(1)(B) or injunctive relief under ERISA section 502(a)(3).  Rather, a health care provider must bring claims derivatively, relying on its patients’ assignments of their benefit claims.  The Court held that the health care providers here, however, lacked derivative authority to sue, given the nature of the governing agreements and of the purported assignments.  In one case, the governing employee benefit plans contained non-assignment clauses that overrode any purported assignments.  In the other case, although the provider agreement permitted assignment, and payment authorization forms could be construed as assigning the provider limited rights, the provider’s claims fell outside the scope of the assigned rights.

The case of Pharmaceutical Care Management Association v. Gerhart, No.15-3292 (8th Cir. Jan. 11, 2017) involves the question of whether ERISA expressly preempts section 510B.8 of the Iowa Code.  The district court determined that it did not and dismissed Pharmaceutical Care Management Association’s (“PCMA’s”) complaint seeking a declaration of preemption.  Upon review, the Eighth Circuit Court of Appeals (the “Court”) reversed the district court’s decision and remanded the case with direction that judgment be entered for PCMA.

Why did the Court rule that ERISA preempts the part of the Iowa Code in question?

Section 510B.8 of the Iowa Code regulates how pharmacy benefits managers (“PBMs”) establish generic drug pricing, and requires that certain disclosures on their drug pricing methodology be made to their network pharmacies as well as to Iowa’s insurance commissioner.  Shortly after the statute went into effect, PCMA brought this action against Iowa’s insurance commissioner and its attorney general (collectively, “the State”), seeking a declaration that the statute places restrictions and requirements on PBMs that impermissibly reference or are connected with ERISA plans, thus making the statute expressly preempted by ERISA.

Employee Benefits-IRS Provides Guidance On Extension Of Time To Provide Information Forms To Individuals Receiving Health Coverage

In IRS Health Care Tax Tip 2016-78, November 30, 2016, the Internal Revenue Service (the “IRS”) reminds employers and others that it has extended the 2017 due date for employers and coverage providers to furnish information statements to individuals.  However, the due dates to file those returns with the IRS are not extended. A chart is provided to help interested persons understand the upcoming deadlines.

The Tax Tip makes reference to IRS Notice 2016-70, in which the IRS formally announced the extension.

In Armani v. Northwestern Mutual Life Insurance Company, No. 14-56866 (9th Cir. 2016), the Court’s panel vacated in part the district court’s judgment in favor of the defendant in part in plaintiff’s action under ERISA, challenging a denial of benefits under a long term disability insurance policy.

In this case, the administrative record showed that the plaintiff could not sit for more than four hours a day. The district court, reviewing de novo, nonetheless upheld the insurer’s determination that the plaintiff could perform sedentary work. The Court’s panel held that the district court erred by rejecting the plaintiff’s proposed definition of “sedentary” work on the basis that it was drawn from the Social Security context. Agreeing with other circuits, the panel held that an employee who cannot sit for more than four hours in an eight-hour workday cannot perform “sedentary” work that requires “sitting most of the time.”

The Court’s panel vacated the part of the district court’s judgment denying the plaintiff his long term disability benefits and remanded for further proceedings.

Here is the IRS advice:

Employers that sponsor one-participant plans should take necessary steps to prevent a qualified retirement plan from becoming an orphan plan – a plan that no longer has a plan sponsor.

One of the most common reasons why a retirement plan becomes an orphan plan is because the plan sponsor no longer exists. For example, the individual employer/plan sponsor:

In Huang v. Life Insurance Company of North America, No. 14-3401 (8th Cir. 2015), plaintiff Yafei Huang (“Huang”) was appealing the district court’s grant of summary judgment on claims related to a denial of life insurance benefits by Life Insurance Company of North America (“LINA”), the ERISA plan administrator for her deceased husband’s former employer. LINA denied benefits, determining that Huang’s deceased husband, Ping Liu, breached a requirement in the application by failing to notify LINA of a cancer diagnosis he received after applying for insurance but before a policy issued. In granting summary judgment, the district court held LINA’s determination and the underlying interpretation of the plan were not unreasonable. The Eighth Circuit Court of Appeal affirmed the judgment of the district court.

In George v. Reliance Standard Life Insurance Company, No. 14-50368 (5th Cir. 2015), plaintiff Robert George (“George”) appeals from the district court’s final judgment affirming the decision of the ERISA plan administrator in relevant part. After reviewing the case, the Fifth Circuit Court of Appeals (the “Court”) reversed and rendered judgment for George. Further, the Court remanded the case to the district court to determine the amount of benefits to award to George.

In this case, George served as a helicopter pilot in the United States Army. In 1985 George was injured in a helicopter crash, and doctors were forced to amputate one of his legs at the knee. George retired from military service in 1987. After retiring, George began flying helicopters for PHI, Inc. (“PHI”). PHI purchased a long-term disability insurance policy (the “Policy”) for George from the defendant, Reliance Standard Life Insurance Co. (“RSL”). George flew for PHI for more than twenty years. But in 2008 he began experiencing severe pain at the site of his amputation, which prevented him from safely wearing his prosthetic limb. As a result, he was no longer able to operate the foot controls of a helicopter, and he was forced to retire from flying. At that time, he was earning $75,495 per year. George filed a claim for long-term disability benefits under the Policy with RSL.

The Policy contains a definition of “Total Disability”, which a claimant must satisfy to be entitled to long-term disability benefits. The Policy also contains a relevant limitation provision (the “Exclusion Clause”). The Exclusion Clause limits benefits to 24 months when mental conditions contribute to the disability. RSL determined that George did not meet the definition of Total Disability, and therefore is not entitled to the benefits claimed. RSL further determined that, even if George was Totally Disabled, the Exclusion Clause would apply to limit George’s long-term disability benefits to 24 months of payment. George brought this suit, challenging RSL’s determinations, under section 502(a)(1)(B) of ERISA.

In Halpern v. Blue Cross/Blue Shield of Western New York, No. 12-CV-407S (W.D. New York 2014), the plaintiff, Burce J. Halpern (“Halpern”), brought this suit, under ERISA section 502 against defendant, Blue Cross/Blue Shield of Western New York (“Blue Cross”), following the denial by Blue Cross of reimbursement claims under an insured group health benefits plan (the “Plan”).

One issue which the district court faced was whether Halpern’s suit is timely. Blue Cross argues that Halpern ‘s suit is time-barred under the Plan’s contractual limitations period because this period is one year, and Halpern filed his ERISA suit over one year from the last date for which he claimed benefits. The district court said that, since ERISA contains no statute of limitations for actions brought under section 502, such claims are subject to the most analogous state statute of limitations. In New York, courts typically apply the six-year limitations period for contract actions set forth in N.Y. Civil Practice Law and Rules. This limitations period may be shortened, where the parties memorialize such agreement in writing.

However, New York Insurance Law states that the limitations period in an insured arrangement cannot be less than two years following the time proof of loss is required by the arrangement. Since the Plan is insured, it is subject to this requirement, and ERISA preemption does not apply. Here, Halpern brought this suit on April 23, 2012, so that medical services from August 2010 to April 2011 for which he now seeks reimbursement fall within the applicable limitations period.

In Riley v. Metropolitan Life Insurance Company, 13-2166 (1st Cir. 2014), the plaintiff, Robert Riley (“Riley”), had filed suit under ERISA against the defendant, Metropolitan Life Insurance Co. (“MetLife”). Riley’s claim is that MetLife had been underpaying his long-term disability (“LTD”) monthly benefits since its 2005 denial of his assertion that he was entitled to a larger payment calculation under his long-term disability insurance plan (the “LTD Plan”). MetLife is the employer sponsoring, and the entity administering, the LTD Plan The district court granted MetLife’s motion for summary judgment, on the grounds that Riley’s suit was barred by ERISA’s six-year statute of limitations. Riley appeals.

In this case, Riley’s claim for LTD benefits was approved by MetLife in March 2005. However, MetLife issued Riley his first LTD benefits check for $50, which was less than the amount he felt he was owed, on April 15, 2005. Riley refused to cash it. He likewise refused to cash any of the subsequent checks he received, returning them all to MetLife in December 2005. He also asked MetLife to stop sending him checks. Riley filed this suit against MetLife- for unpaid LTD benefits- on March 22, 2012. But was this suit timely filed?

In analyzing the case, the First Circuit Court of Appeals (the “Court”) said that ERISA does not provide a statute of limitations with respect to actions to recover unpaid benefits from non-fiduciaries under its civil enforcement provision, 29 U.S.C. § 1132(a). Rather, with respect to these actions, Federal courts borrow the most closely analogous statute of limitations in the forum state. The most closely analogous statute of limitations here is the six-year period Massachusetts applies to breach of contract claims. Also, while state law governs the length of the limitations period, federal common law determines when an ERISA claim accrues. Ordinarily, a cause of action for ERISA benefits accrues when a fiduciary denies a participant benefits.