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ERISA Watch – Against the Tide:  Court Rules ERISA Preempts Cal Ins. Code 10110.6 as It Applies to a Self-Funded Disability Plan

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The California ban on discretion makes the headline again.  In Martin v. Aetna Life Ins. Co., No. CV 15-7355-RSWL-FFMX, 2016 WL 6997484 (C.D. Cal. Nov. 30, 2016), Judge Ronald Lew of the Central District of California parted ways with his colleagues on the bench by holding that ERISA preempts California Insurance Code section 10110.6 because section 10110.6 regulates FedEx’s self-funded plan.  Judge Lew noted that two decisions from C.D. Cal. go the other way:  Thomas v. Aetna Life Ins. Co., 2:15-cv-01112-JAM-KJN, 2016 WL 4368110 (E.D. Cal. Aug. 15, 2016 (rejecting argument that the Deemer Clause prevents courts from applying section 10110.6 to self-funded plans) and Williby v. Aetna Life Ins. Co., 2:14-cv-04203 CBM(MRWx), 2015 WL 5145499 (C.D. Cal. Aug. 31, 2015) (finding that section 10110.6 applies to self-funded plans because by its plain language it applies to any insurance policy, contract, certificate or agreement, and an ERISA plan is a contract).  The court noted that the Ninth Circuit has yet to decide this issue, and despite Thomas and Williby, the court declined to deviate from FMC Corp v. Holliday, 498 U.S. 52 (1990), which held that that the Deemer Clause exempts self-funded ERISA plans from state laws that regulate insurance under the Saving Clause.  Relying on Holliday, the court held that because ERISA preempts section 10110.6 under the Deemer Clause, section 10110.6 does not void the discretionary clause in the self-funded ERISA plan.  If you’re on the left side of the v. (except in reimbursement/subrogation lawsuits), the opinion only gets worse from there.  The court goes on to justify Aetna’s decision to discount Plaintiff’s subjective complaints of pain simply because there were no remarkable “objective” findings.  Plaintiff claimed disability based on wrist and thumb pain but the court noted normal nerve conduction tests, no swelling, normal range of motion, normal strength, and normal sensation.  Read it and weep, folks.  Hope to report better news next time!

Below is Kantor & Kantor LLP’s summary of this past week’s notable ERISA decisions.

Attorneys’ Fees

Sixth Circuit

Breach of Fiduciary Duty

Tenth Circuit

Disability Benefit Claims

Sixth Circuit

  • Liberty Life did not act arbitrarily or capriciously in denying Plaintiff’s LTD benefits under its “Any Occupation” disability review, where the record shows that Liberty evaluated the conclusions of six medical experts who supported the claim that Plaintiff could engage in full-time employment. Although Liberty did not mention Plaintiff’s age in any of its denial letters, each of the experts did note his age in conducting their reviews.  The court found that there was no record evidence contradicting Liberty’s vocational assessment that Plaintiff possesses transferable skills that could enable him to obtain light or sedentary work.  Liberty expressly discussed the Social Security Administration’s determination and there are no explicit findings by the SSA that Liberty was required to specifically addressLeppert v. Liberty Life Assurance Co. of Boston, No. 16-3387, __F.App’x__, 2016 WL 6958641 (6th Cir. Nov. 29, 2016) (BEFORE: DAUGHTREY, CLAY, and COOK, Circuit Judges).

Ninth Circuit

  • The Court found that ERISA preempts California Insurance Code section 10110.6 because section 10110.6 regulates FedEx’s self-funded plan. Although two district court decisions go the other way:  Thomas v. Aetna Life Ins. Co., 2:15-cv-01112-JAM-KJN, 2016 WL 4368110 (E.D. Cal. Aug. 15, 2016 and Williby v. Aetna Life Ins. Co., 2:14-cv-04203 CBM(MRWx), 2015 WL 5145499 (C.D. Cal. Aug. 31, 2015), the court noted that the Ninth Circuit has yet to decide this issue.  “[T]he Court declines to deviate from [FMC Corp v. Holliday, 498 U.S. 52 (1990)] and finds that because ERISA preempts section 10110.6 under the Deemer Clause, section 10110.6 does not void the discretionary clause in the self-funded ERISA plan.”  On the merits of the claim, the court found that Aetna did not abuse its discretion in discounting Plaintiff’s subjective complaints of pain where it was not supported by objective findings.  The court entered judgment in favor of DefendantsMartin v. Aetna Life Ins. Co., No. CV 15-7355-RSWL-FFMX, 2016 WL 6997484 (C.D. Cal. Nov. 30, 2016) (Judge Ronald S.W. Lew).

Eleventh Circuit

  • This court remanded to Defendant the long term disability claim for Plaintiff, a registered nurse, who allegedly became disabled from her occupation following a total abdominal hysterectomy. The court found that the Dictionary of Occupational Titles requires Plaintiff to be able to perform medium duties, but Defendant’s denial letter supports that the lesser “sedentary” duty standard was applied.  On remand, Defendant must evaluate the evidence provided and apply the medium duty standard that the parties agree must be applied here, and if necessary, the “any occupation” disability standard in the PlanGraham v. Life Ins. Co. of N. Am., No. 1:15-CV-3240-WSD, 2016 WL 6958151 (N.D. Ga. Nov. 28, 2016) (Judge William S. Duffey, Jr.).

D.C. Circuit

  • In dispute alleging improper denial of short-term and long term disability plan benefits, affirming the district court’s grant of summary of judgment in favor of Defendants and holding that: (1) the Court of Appeals had jurisdiction to consider on appeal Appellant’s challenge to the order denying her motion for reconsideration even though she designated only the summary judgment order and failed to specifically designate the order denying the motion for reconsideration in her notice of appeal, because she gave notice in five contemporaneous appellate filings that her appeal included a challenge to the denial of her motion for reconsideration; (2) short-term disability plan was “payroll practices plan,” and thus was exempt from ERISA, because the employer dispensed benefits pursuant to that plan from its general assets and the plan was entirely separate from the employer’s ERISA-covered employee benefits plan; (3) deferential arbitrary and capricious standard of review applied in assessing administrator’s denial of the claim for long term disability benefits where the plan unambiguously gave the administrator sole authority to construe the terms of the plan; and (4) short-term disability benefits plan did not relate to ERISA-covered long term disability plan in such way as to preempt any state-law relief because there was nothing in the LTD plan that had any bearing on the merits of the state-law breach of contract claimFoster v. Sedgwick Claims Mgmt. Servs., Inc., __F.3d__, No. 15-7150, 2016 WL 6956669 (D.C. Cir. Nov. 29, 2016) (Before: Rogers and Tatel, Circuit Judges, and Edwards, Senior Circuit Judge).

ERISA Preemption

Third Circuit

  • The court found that neither 29 U.S.C. § 185 nor 29 U.S.C. § 1132 supply the subject matter jurisdiction necessary to confirm the Committee’s arbitration award so the court denied Plaintiffs’ request for the entry of a default judgment against Hiester. The court explained that whether ERISA may ultimately preempt the Committee’s attempt to enforce its arbitration award in state court is an issue for that court to addressApprentice v. Hiester, No. 5:16-CV-04306, 2016 WL 6948162 (E.D. Pa. Nov. 28, 2016) (Judge Joseph F. Leeson, Jr.).

Eighth Circuit

  • The court granted Plaintiffs’ motion to remand its lawsuit alleging underpayment by ERISA-governed benefit plans for medical services provided to plan beneficiaries. The court explained that where medical providers sue payers and/or network operators for payments at the rates set out in network agreements, courts routinely find that neither prong of the Davila test is satisfied, and remand the case. Additionally, the medical providers could not bring their rate-of-payment claims under ERISA’s civil enforcement provision, and that there is a duty of payer network participants to honor their network agreements, independent of ERISAKDCO, Inc. v. Healthlink, Inc., No. 1:16CV00212 AGF, 2016 WL 6995873 (E.D. Mo. Nov. 30, 2016) (Judge Audrey G. Fleissig).

Medical Benefit Claims

Second Circuit

  • IBM’s Benefits Plan for Retirement Employees requires participants to be enrolled in both Medicare Part A and Part B (unless certain exceptions apply) in order to be eligible to receive retiree health care premium reimbursements. Plaintiff was not enrolled in Medicare Part B and none of the exceptions applies.  Therefore, the Plan Administrator’s decision denying Plaintiff’s claim for reimbursement was based on a correct interpretation of the Plan.  Plaintiff further alleged that IBM discriminated against him because it gives people who are enrolled in Medicare Part A and Part B and receive TRICARE or VA coverage a benefit that it does not give to Plaintiff.  The court found that the fact that certain retirees may benefit and others may not under the Plan does not state a claim for discrimination under ERISA or any other statuteCaunitz v. IBM Corp., No. 15 CV 9281 (VB), 2016 WL 6956631 (S.D.N.Y. Nov. 28, 2016) (Judge Vincent L. Briccetti).

Pension Benefit Claims

Third Circuit

  • Under the 2004 National Memorandum of Understanding (the “MOU”), which requires Alcatel to provide certain benefits to former occupational employees through 2019, Alcatel must fund the 401(h) account in accordance with Section 6.E, but need not use excess pension assets to do so. Thus, the court found that Plaintiffs have not adequately pleaded that the transfers of these excess assets out of the Lucent Technologies Pension Plan breached the MOU.  Individual Plaintiffs do not have Article III standing because they have not shown individualized injury and the Union Plaintiffs lack associational standing under ERISA to bring the ERISA claim. Commc’ns Workers of Am. v. Alcatel-Lucent USA Inc., No. 15-CV-8143, 2016 WL 7013463 (D.N.J. Nov. 30, 2016) (Judge Claire C. Cecchi).

Seventh Circuit

  • In dispute over pension death benefits, the court found that the Appeals Committee’s decision to deny Plaintiff’s appeal is arbitrary and capricious because the Committee failed to respond to Plaintiff’s arguments that the decedent substantially complied, as defined by federal law, with the Iron Workers’ Union 63 change of beneficiary requirements, and that sufficient evidence has been presented to invoke a presumption of receipt. The court remanded the claim to the plan administrator for reconsiderationMuff v. Iron Workers’ Mid-Am., Pension & Supplemental Monthly Annuity Fund, No. 16 C 655, 2016 WL 6948383 (N.D. Ill. Nov. 28, 2016) (Judge Charles P. Kocoras).

Pleading Issues & Procedure

Fifth Circuit

  • The court denied Plaintiff’s motion to file her first amended complaint to assert her proposed § 1132(c) claim against Central Bank for untimely production of the SPD. The court rejected Plaintiff’s claim that Central Bank led her into believing that MetLife, the claim administrator, was responsible for the drafting and publication of the SPD.  The court found that Plaintiff knew, before filing her Original Complaint, that Central Bank—not MetLife—was the Plan Administrator; knew that she had submitted a written request for plan documents to Central Bank; and knew that the documents she received in response to that request did not include a document titled “SPD.”  The court also found that Plaintiff failed to demonstrate that the proposed claim would not be futile, or that allowing the proposed amendment at this late date would not unduly prejudice DefendantsKeith v. Metro. Life Ins. Co., No. CV H-15-1030, 2016 WL 7017421 (S.D. Tex. Nov. 30, 2016) (Judge Sim Lake).
  • In this matter, Plaintiff originally filed her petition against Cigna and L–3 Communication, Inc. in Nueces County, Texas regarding a dispute over employee disability benefits provided to Plaintiff as a result of her prior employment with L–3 Communications Vertex Aerospace, LLC, pursuant to a disability insurance policy underwritten and offered by Cigna. In Nueces County Court, Plaintiff requested and received a default judgment against L–3 Communication.  The court granted Plaintiff’s Agreed Motion to Set Aside Default Judgment, finding that setting aside the state court default judgment against L-3 Communication is justified under Rule 60(b)(1)Garza v. Cigna Life Ins. Co. of N.Y., No. 2:16-CV-182, 2016 WL 6947992 (S.D. Tex. Nov. 28, 2016) (Judge Hilda Tagle).

Subrogation/Reimbursement Claims

Third Circuit

  • In suit claiming that Defendants violated New Jersey’s Collateral Source Statute by seeking and accepting reimbursement from him after he successfully recovered compensation for a car accident in which he was involved, the court denied Defendants’ motion to dismiss the fiduciary duty claims because the court will look to New Jersey law, rather than the plan language, in adjudicating Plaintiff’s fiduciary duty claims, such that Harrow v. Prudential Ins. Co. of America, 279 F.3d 244 (3d Cir. 2002) does not support dismissal of the fiduciary duty claims. The court also denied Defendants’ motion to strike the class action allegations as prematureMinerley v. Aetna, Inc., No. CV 13-1377 (NLH/KMW), 2016 WL 7013456 (D.N.J. Nov. 30, 2016) (Judge Noel L. Hillman).

Withdrawal Liability & Unpaid Contributions

Second Circuit

Fourth Circuit


Seventh Circuit

Eighth Circuit

* Please note that these are only case summaries of decisions as they are reported and do not constitute legal advice.  These summaries are not updated to note any subsequent change in status, including whether a decision is reconsidered or vacated.  If you have questions about how the developing law impacts your ERISA benefit claim, contact an experienced ERISA attorney.  Case summaries authored by Michelle L. Roberts, Partner, Kantor & Kantor LLP, 1050 Marina Village Pkwy., Ste. 105, Alameda, CA 94501; Tel:  510-992-6130. 


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