Below is Kantor & Kantor LLP’s summary of this past week’s notable ERISA decisions.
ERISA Claim Barred For Failing to Exhaust Second Level Appeal
In Holmes v. Colorado Coal. for Homeless Long Term Disability Plan, No. 13-1175, 2014 WL 3906853 (10th Cir. Aug. 12, 2014), the plaintiff was a long term disability claimant who was disabled by a number of medical conditions, including breast cancer, cataplexy, apnea, blackouts, diabetes, carpal tunnel syndrome, and neuropathy. When her claim for LTD benefits was denied, she appealed the denial to the claims administrator. When the administrator upheld the LTD claim denial, the plaintiff did not pursue a second-level administrative appeal that was required by the disability policy and which she was informed about with Denial Review Procedures enclosed with the denial letter. The requirement for a second appeal was not set forth in the Summary Plan Description. The administrator also took additional time beyond the time frames set forth in the ERISA Regulations to render a decision on the first appeal, claiming that it needed additional medical information from her treating providers to make a decision. The 10th Circuit Court of Appeals held that the participant was required to pursue second-level administrative review before she could file a civil action; the claims administrator’s period to review a claim for benefits was tolled by the participant’s failure to respond to a request for additional medical records; the plan’s Summary Plan Description did not reasonably apprise participants of the plan’s review procedures; as a matter of first impression, ERISA’s deemed-exhausted provision is limited to actual denials of reasonable review procedures; and the SPD’s failure to adequately describe the plan’s review procedure did not prejudice the participant.
Court Affirms Sedgwick’s Denial of Short-Term Disability Benefits. In May v. AT&T Integrated Disability, 13-14006, 2014 WL 3907091 (11th Cir. Aug. 12, 2014), the plaintiff appealed an entry of summary judgment against her on her claim for short-term disability benefits allegedly due to her under the terms of the BellSouth Short Term Disability Plan (“the Plan”). After plaintiff filed suit, the Social Security Administration (“SSA”) approved her claim for Social Security Disability Insurance (“SSDI”) benefits. On appeal, the plaintiff argued that she is entitled to a remand so that Sedgwick can decide her claim based on a more “complete administrative record” that includes the evidence presented to the SSA, relying on Melech v. Life Ins. Co. of N. Am., 739 F.3d 663, 676 (11th Cir.2014). The 11thCircuit disagreed and distinguished this case from Melech because in that case the terms of the disability insurance policy required participants to apply for Social Security Disability Insurance (“SSDI”), and the administrator was allowed to reduce participants’ benefits under the policy by the amount of any SSDI received. If the administrator decided to pay a claim before the SSA had reached a final decision, the administrator was allowed to assist the claimant in obtaining SSDI, to force the claimant to exhaust her administrative appeals, and to hold the claim open until the SSA had reached a final decision. The administrator inMelech, however, decided not to pay the plaintiff’s claim and ignored the plaintiff’s SSDI application and the evidence generated by the SSA process. In the present case, the terms of the Plan do not require participants to apply for SSDI benefits and do not reduce Plan benefits by any amount received from the SSA. Thus, it was not “internally inconsistent” for Sedgwick to decide her claims without waiting for a final decision from the SSA. The Court also noted that the plaintiff did not explain why any additional evidence that she submitted or obtained as part of the SSA process was not and could not have been submitted to Sedgwick before it decided her claims.
Retirement Account Contributions Do Not Reduce Disability Benefits. In Rosenthal-Zuckerman v. Epstein, Becker & Green Long Term Disability Plan, CV 13-4249-CBM-CW, 2014 WL 3893385 (C.D. Cal. Aug. 8, 2014), the disputed issue was whether contributions to the plaintiff’s pension plan as part of her part-time employment constitute “Actual Monthly Residual Earnings” (“AMRE”) for purposes of calculating her disability benefit. The plaintiff worked as a trial attorneys until she became disabled in 1995. She became eligible for long term disability benefits under her employer’s disability plan which is insured and administered by Unum Insurance Company (“Unum”). During her period of disability under the plan, the plaintiff worked part-time as a teacher at a high school. In connection with her work at the school, Plaintiff participated in a 26 U.S.C. § 403(b) pension plan (the “§ 403(b) Pension Plan”), which allows her to defer a part of her income into a tax-sheltered retirement account that she cannot access until retirement without incurring penalties. As part of this § 403(b) Pension Plan, the plaintiff’s employer deposits a portion of her bi-monthly compensation directly into a § 403(b) Pension Plan account. Under the terms of the disability plan policy, if the plaintiff works part-time, she can still receive her full disability benefit as long as she does not earn 20% or more of her pre-disability income. If she earns 20% or more, then there is a pro-rata reduction in her disability plan benefit. Unum decided that money deposited by the plaintiff’s employer into the § 403(b) Pension Plan constitutes part of her AMRE although it had not previously treated these payments as part of the AMRE. Once the payments were included into AMRE, the plaintiff’s AMRE exceeded the 20% threshold so Unum imposed a pro-rata reduction in the plaintiff’s disability plan benefit. The court determined that the definition of AMRE was ambiguous and that the principle of expressio unius est exclusion alterius (“to express or include one thing implies the exclusion of the other”) resolved the matter in plaintiff’s favor because Unum did not mention pension plan contributions in the definition of employee AMRE.
Unum Abused Its Discretion in Denying LTD Benefits. In Doe v. Unum Life Ins. Co. of Am., CIV.A. 12-11413-RWZ, 2014 WL 3893096 (D. Mass. Aug. 8, 2014) (Plaintiff’s attorney: Mala Rafik), the court found that Unum’s decision to deny the plaintiff’s long term disability benefits was an abuse of discretion because Unum did not fairly assess the medical and vocational evidence. Specifically, Unum (1) failed to consider, despite consistent documentation from Doe’s treating physicians, the effect of Doe’s fatigue and fecal incontinence on his ability to work; (2) failed to analyze Doe’s ability to do the specific tasks his job requires; (3) did not acknowledge the extent to which the surveillance footage supported Doe’s self-reported symptoms; and (4) conflated Doe’s occasional travel with his ability to work a demanding job. The court found that Unum ignored or minimized facts favorable to Doe while emphasizing facts unfavorable to his case and its decision to terminate Doe’s benefits was not the product of reasonable decisionmaking and substantial evidence. Although the court found that Unum was wrong in determining that Doe could work at his previous job, it remanded the matter back to Unum to decide whether Doe can work “any gainful occupation.”
Equitable Remedies Available in Denied Benefits Claim. In Silva v. Metro. Life Ins. Co., 13-2233, 2014 WL 3896156 (8th Cir. Aug. 7, 2014), when 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 insurer, Metropolitan Life Insurance Company (“MetLife”) denied Silva’s claim, asserting that Abel did not actually have a policy because he had not provided required paperwork. Silva brought suit against MetLife and Abel’s employer, Savvis Communications Corporation (“Savvis”). The district court denied relief and the 8thCircuit Court of Appeals reversed and remanded.
Abel began working for Savvis in 2004 and was eligible to purchase Supplemental Life Insurance, which he declined. He was informed at that time that if he chose to later enroll, he would have to provide evidence of good health and that his request for coverage could be denied. In 2010, Abel decided he wanted Supplemental Life Insurance and enrolled for a policy through Savvis’s online enrollment system. He requested a coverage level of five times his salary, which amounted to $429,000. His benefits were apparently scheduled to take effect on January 1, 2010, and the policy appeared on Abel’s “Benefits Election Package” page on the Savvis intranet. Savvis withheld approximately $10 from Abel’s bi-weekly paychecks for the policy until Abel died on June 27, 2010. He had paid roughly $128 in premiums for the life insurance policy. When Silva sought payment of Abel’s Supplemental Life Insurance benefits, MetLife denied the claim because it said that Abel had to provide “evidence of insurability” before MetLife would approve his request for insurance, which he did not.
The District Court dismissed Silva’s claims seeking equitable relief under ERISA Section 502(a)(3) for Savvis’s and MetLife’s breach of fiduciary duties. Relying on the U.S. Supreme Court’s decision in CIGNA Corp. v. Amara, the 8th Circuit found that the plaintiff did articulate viable breach of fiduciary duty claims under ERISA Section 502(a)(3) against Savvis and MetLife, which supported equitable surcharge and reformation remedies that would result in payment of the amount of the lost supplemental life insurance benefit. The Court also determined that Silva was not precluded from alleging claims under ERISA Section 502(a)(1)(B) and ERISA Section 502(a)(3) since U.S. Supreme Court precedent only foreclosed double recoveries, not the ability to plead alternative causes of action.
Denial of Therapy for Autism Prohibited by ERISA. In A.F. ex rel. Legaard v. Providence Health Plan, 3:13-CV-00776-SI, 2014 WL 3893027 (D. Or. Aug. 8, 2014), the plaintiffs brought a class action lawsuit alleging that Providence’s denial of ABA therapy on the basis of its Developmental Disability Exclusion violates ERISA, the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act (“Federal Parity Act”), and two Oregon state laws. Autism Spectrum Disorder is a pervasive developmental disorder that begins to appear during early childhood and is characterized by impairments in communication and social skills, severely restricted interests, and repetitive behavior. Applied Behavior Analysis (“ABA”) is an early intensive behavioral interaction health service that helps people with autism to perform social, motor, verbal, behavior, and reasoning functions that they would not otherwise be able to do. The plaintiffs are both covered as dependent-beneficiaries under group health insurance plans issued by Providence and both were denied coverage of ABA therapy by Providence-both initially and on appeal-based on Providence’s “Developmental Disability Exclusion.” The plaintiffs moved for class certification, which the Court granted. The court found that Providence’s Developmental Disability Exclusion violates both the Federal Parity Act and Oregon law and is therefore prohibited under ERISA.
Plan Administrators Must Inform Claimants of Time Limits for Judicial Review. InMoyer v. Metro. Life Ins. Co., 13-1396, 2014 WL 3866073 (6th Cir. Aug. 7, 2014), the 6thCircuit Court of Appeals reversed a district court’s dismissal for untimeliness of the plaintiff’s ERISA Section 502(a)(1)(B) action for denial of long term disability benefits against Metropolitan Life Insurance Company (MetLife) because MetLife failed to include notice of the time limits for judicial review in its adverse benefit determination letter. ERISA § 1133 governs adverse benefit determination letters and explicitly authorizes the Secretary of Labor to establish regulations explaining the meaning of the statute and requires that the statute be applied in accordance with regulations of the Secretary. The regulations require that benefit denial letters provide a description of the plan’s review procedures and the time limits applicable to such procedures, including a statement of the claimant’s right to bring a civil action following an adverse benefit determination on review. The claimant’s right to bring a civil action is expressly included as a part of those procedures for which applicable time limits must be provided. The Court found that MetLife was subject to the regulatory obligation when it revoked the plaintiff’s benefits and its failure to include the judicial review time limits in the adverse benefit determination letter renders the letter not in substantial compliance with § 1133. The exclusion of the judicial review time limits from the adverse benefit determination letter was inconsistent with ensuring a fair opportunity for review and a notice that fails to substantially comply with the requirements does not trigger a time bar contained within the plan.
Court Finds In Favor of Long Term Disability Claimant. In Barbu v. Life Ins. Co. of N. Am., 12-CV-1629 JFB WDW, 2014 WL 3882341 (E.D.N.Y. Aug. 7, 2014), the plaintiff challenged LINA’s termination of his LTD benefits. The Court found that when LINA terminated the plaintiff’s disability benefits he continued to suffer from various musculoskeletal conditions and ulcerative colitis, and none of plaintiff’s treating physicians had noted any improvement in his condition. The administrative record included findings by six treating providers showing that plaintiff is unable to work at all, as well as other evidence which supported those findings. LINA (Cigna) concluded that the plaintiff’s records did not prove a continuing disability because they did not contain updated test results measuring plaintiff’s ability to perform specific functional tasks, even though defendant’s previous determinations that plaintiff was disabled were based on records which included functional measurements, as well as the results of MRIs, x-rays, an EEG, and strength and range of motion tests. The Court concluded that the plaintiff met his burden to show that he was disabled under the Policy. The unified opinions of his treating providers are based on their first-hand impression of his condition and corroborated by the objective findings, which include a functional capacity evaluation (“FCE”) showing that the plaintiff cannot stand continuously for more than 9 minutes, or sit for more than 7 minutes, due to multiple degenerative changes in his spine, among other disorders. The plaintiff’s gastroenterologist concluded that plaintiff could not return to work solely because of his ulcerative colitis, which could become worse with the stress of work. The Court observed that LINA did not rebut these findings and based its decision on an absence of “time concurrent” evidence of plaintiff’s functional limitations, rather than on any affirmative finding that plaintiff’s condition improved. However, the Policy contains no requirement that records be “time concurrent,” nor does it require that particular tests be performed. The Court afforded less weight to the opinions of defendant’s reviewing physicians (Dr. Clarence Fossier, an independent medical examiner who does not work directly for LINA, and Dr. John Mendez, who does), which were based on these non-Policy standards. However, in its discretion, the Court concluded that, for any benefits beyond the 24-month “Regular Occupation” period, remand is appropriate. The disability standard changes after 24 months of benefits to an “any occupation” standard, and LINA did not have the opportunity to apply this standard before the lawsuit began. The Court also granted summary judgment to LINA in part, based only on its counter-claim for Social Security benefits plaintiff received in 2010.
Court Preliminarily Approves Class Settlement For Mental Health Benefits. In R.H. v. Premera Blue Cross, C13-97RAJ, 2014 WL 3867617 (W.D. Wash. Aug. 6, 2014), the court granted preliminary approval of a settlement agreement that appears to fundamentally change the insurance landscape for all of defendants’ Washington insureds with developmental disabilities and autism, and provides the class with broad and immediate relief. The plaintiff, by and through his parents and guardians, filed this case alleging that Premera Blue Cross and LifeWise Health Plan of Washington (“Premera”) failed to comply with Washington’s Mental Health Parity Act (“Parity Act”). The Parity Act generally requires Washington health plans to cover medically necessary outpatient and inpatient services to treat mental disorders covered by the diagnostic categories listed in the most current version of the Diagnostic and Statistical Manual of Mental Disorders (“DSM” or “DSM-IV”) under the same terms and conditions as medical and surgical services. ERISA governs the health care plans at issue here. Plaintiff contends that Premera has adopted a uniform policy excluding coverage for neurodevelopmental therapy (“NDT”) therapy to treat DSM conditions for individuals over the age of six and imposing visit limits on such therapies when covered under its “rehabilitation” benefit. Plaintiff alleges that to the extent that Premera provides any coverage of NDT or ABA therapies, it generally imposes treatment limitations that were not at parity with coverage for medical and surgical services. With respect to the ABA therapy, plaintiff contends that Premera’s internal policies and procedures created a de facto exclusion of ABA therapy to treat plaintiff’s autism syndrome disorder. With respect to the NDT therapy, the proposed settlement agreement eliminates Premera’s alleged NDT age exclusion and treatment limits when those therapies are provided to treat DSM-IV mental health conditions. The proposed settlement agreement also provides a $3.5 million settlement fund to address NDT class members’ claims for reimbursement for uncovered NDT services to treat mental health conditions during the class period. With respect to the ABA therapy, the parties agreed to resolve, on a class-wide basis, the criteria for coverage on a prospective basis. The past damage claims held by class members were not settled. The proposed settlement agreement does not waive the claims of class members who were unable to receive coverage for ABA therapy in the past, and allows individual class members to pursue individual damage claims on a case-by-case basis.
Court Upholds Denial of Disability Retirement Benefits. In Des Armo v. Kohler Co. Pension Plan, 13-C-436, 2014 WL 3860049 (E.D. Wis. Aug. 6, 2014), the plaintiff was employed by Kohler Co. (Kohler) for approximately 34 years until his employment was terminated. Over the course of his career, he worked as a factory “drain and plug” worker in the engine division, a general maintenance worker, a forklift operator, and a fired ware processor inspector. The plaintiff has a history of degenerative disc disease, kyphosis (curved spine), recurrent disc herniation, multiple bulging discs, foraminal stenosis and spondylosis, and chronic pain. Kohler terminated his employment when it was unable to find any position he could fill given his medical limitations. The plaintiff subsequently applied for disability from the Social Security Administration (SSA), who issued a fully favorable decision finding the plaintiff to be disabled. Kohler maintained and administered an employee benefit plan subject to ERISA (“the Plan”). The Plan grants discretionary authority to the Plan Administrator to decide claims for benefits. The plaintiff applied for disability retirement benefits through the Plan, which the Plan denied. The Court found in favor of Kohler and found that although Kohler is the Plan Administrator and benefits are paid from a trust maintained by Kohler, there is no evidence of actual bias, and the financial conflict of interest would only affect the outcome in a borderline case. The court concluded this was not so close a case given the Attending Physician’s Statements by the plaintiff’s own doctor who opined that plaintiff was not a suitable candidate for trial employment at his job but was a suitable candidate for other full-time trial employment, provided that it was sedentary work only (clerical) with scheduled breaks.
Court Finds Employer Did Not Establish a Severance Benefit Plan. In Dauska v. Green Bay Packaging Inc., 12-C-925, 2014 WL 3843547 (E.D. Wis. Aug. 5, 2014), the plaintiff contended that through its course of conduct, the employer established an ERISA plan which entitles him to severance pay. He asserted that the employer had an informal policy of paying employees who had been involuntarily terminated without cause two weeks of severance for each year of service, up to one year of severance pay, and that he was wrongfully denied such a benefit when he was terminated without cause. ERISA imposes fiduciary duties on employers that establish or maintain an employee benefit plan such as a severance plan. Although employee benefit plans must be in writing, the courts have held that there need not be a writing in order for a plan to exist. The 11th Circuit’s prevailing test (joined by a host of other Circuits) for determining whether a “plan” has been established within the meaning of ERISA is whether from the surrounding circumstances a reasonable person could ascertain the intended benefits, beneficiaries, source of financing, and procedures for receiving benefits. However, the court observed that several courts have recently questioned whether this approach is compatible with two subsequent decisions of the Supreme Court that emphasize different considerations when determining whether an informal policy is a “plan,” including Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 5 (1987) (finding that a statute did not create plans subject to ERISA because the requirement of a one-time, lump-sum payment triggered by a single event requires no administrative scheme whatsoever to meet the employer’s obligation.).
Here, the plaintiff’s claim was not based upon a direct promise of severance. The company paid severance to many employees but asserted that severance decisions were made “on a case-by-case basis” by the outgoing employee’s immediate ranking supervisor. The Court found that the plaintiff’s claim failed to satisfy the requirement that a reasonable person could ascertain the intended benefits and beneficiaries of the alleged plan. The court also found that there was no evidence that the employer ever intended to communicate the existence of a plan to a class of beneficiaries. For these reasons, the Court determined that it need not consider whether the employer’s severance agreements created an “ongoing administrative scheme” under Fort Halifax. Although the employer had a general policy of paying severance and had paid it to other employees, the Court found that this did not create an implied contract between the parties and the plaintiff’s ERISA claim fails as a matter of law.
Court Upholds Denial of Short-Term Disability Benefits. In Smith v. Mut. of Omaha Ins. Co., CV-13-00405-TUC-RCC, 2014 WL 3818513 (D. Ariz. Aug. 4, 2014), the district court adopted the magistrate judge’s report and recommendations finding that the plaintiff was not disabled under the terms of the relevant short-term disability policy insured and administered by the Mutual of Omaha Insurance Company. The plaintiff alleged disability from work resulting from muscle spasticity/myopathy. After Mutual of Omaha denied her appeal for benefits, she filed suit and requested that the Court review Mutual of Omaha’s decision for abuse of discretion. However, the Court determined to review the plaintiff’s claim under a de novo standard of review. The Court observed notations in a consulting doctor’s notes: “Ms. Smith is comfortably dressed. She was well groomed. All her toenails were painted pink. Her legs were freshly shaved. She moved about with ease, and did not have any difficulty walking, standing up from the chair, climbing or moving around on the exam table. She did not seem to be in any kind of distress.” The Court found that this paragraph as a whole paints a picture of someone who is capable of activities that are inconsistent with the levels of pain alleged and describes a person who is able to take care of hygienic needs beyond the basics and is able to move without discomfort. The Court rejected the plaintiff’s argument that Mutual of Omaha’s failure to send her to an Independent Medical Evaluation was an abuse of discretion since she did not identify anything an IME would have established that would have tipped the scale in her favor. The Court concluded that the plaintiff was not disabled under the terms of the disability policy after the date on which her benefits were terminated.
* 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. The cases reported above were handled by other law firms but if you have questions about how the developing law impacts your ERISA benefit claim, the attorney at Kantor & Kantor LLP may be able to advise you so please contact us.
Case summaries authored by Michelle L. Roberts, Partner, Kantor & Kantor LLP, 1050 Marina Village Parkway, Ste. 105 Alameda, CA 94501; Tel: 510-992-6130.