Below is Kantor & Kantor LLP’s summary of this past week’s notable ERISA decisions.
Ninth Circuit Redefines “Any Reasonable Basis” In Reviewing ERISA Plan Denial of Benefits
In Pac. Shores Hosp. v. United Behavioral Health, 12-55210, 2014 WL 4086784 (9th Cir. Aug. 20, 2014) (Plaintiff’s attorneys: Kantor & Kantor LLP), the plaintiff was covered under the Wells Fargo & Company Health Plan (the “Plan”), governed by the Employee Retirement Income Security Act of 1974 (“ERISA“). United Behavioral Health (“UBH”) is a third-party claims administrator of the Plan. The plaintiff 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 plaintiff’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. The Court found that UBH abused its discretion in denying payment for the treatment. The Court noted that it wrote twenty-three years ago in Horan v. Kaiser Steel Retirement Plan, 947 F.2d 1412 (9th Cir.1991), that the Court will uphold a plan administrator’s decision if it is grounded in “any reasonable basis” and that this language in Horan could be read to mean that it should make an “any reasonable basis” determination without looking at all the circumstances of the case. However, the Court explained that facts should not be considered in isolation and that in the wake of MetLife v. Glenn, this unrealistic reading of the any-reasonable-basis test is not good law when an administrator operates under a structural conflict of interest. It is also not “good law” even when an administrator is not operating under a conflict of interest and the Court is performing a “straightforward abuse of discretion analysis.” In all abuse-of-discretion review, whether or not an administrator’s conflict of interest is a factor, a reviewing court should consider all the circumstances before it, in assessing a denial of benefits under an ERISA plan.
Liberty Life Abused Its Discretion In Denying a Mental Disability Claim. In Hayden v. Martin Marietta Materials, Inc. Flexible Benefits Program, 13-6319, 2014 WL 4056884 (6th Cir. Aug. 18, 2014), the plaintiff suffered from a litany of physical ailments, including, among others: chronic hepatitis C; pancreatitis; fibrocystic breast disease with breast implants; degenerative arthritis; breast carcinoma; hypothyroidism; hypotension; hypertension; and crepitation1 and decreased range of motion around her shoulders, cervical spine, hips, and knees. She was also diagnosed with general anxiety disorder, major depression, and insomnia. The plaintiff is a participant in a long-term disability plan administered and insured by Liberty Life Assurance Company of Boston (“Liberty Life”). Her claim for benefits based on her physical-disability claim was denied by Liberty Life and affirmed by the district court. The 6th Circuit Court of Appeals affirmed this decision. However, the Court reversed the district court with respect to its decision that she was not disabled by her mental-disability claim. The majority disagreed with the dissent that, in this particular case, Liberty Life should have taken a cumulative approach to the mental and physical health claims because the Plan at issue here contemplates that mental and physical disabilities will be considered separately. The Plan caps mental-disability payments at 24 months, while physical-disability payments are uncapped. The Court reasoned that to combine mental and physical disability in this case would contravene this express plan requirement, which the Court is required to follow. The Court found that Liberty Life erred in assessing the plaintiff’s mental-disability claim because it relied on the opinion of a reviewing physician who applied a standard of disability that conflicted with the terms of the ERISA plan and applied a significantly heightened standard for a disabling mental illness that contravenes the definition provided in the Plan. The Court determined that it would not give Liberty Life “two bites at the proverbial apple” where the plaintiff is clearly entitled to benefits and remanded the plaintiff’s claim of mental disability for entry of an order requiring Liberty Life to award benefits consistent with the terms of the Plan.
Disability from Degenerative Disc Disease Results in Limited Benefits. In Moberg v. Phillips Electronics N. Am. Corp. Grp. Welfare Ben. Plan, 13-3721, 2014 WL 3973359 (8th Cir. Aug. 15, 2014), the plaintiff appealed the district court’s order affirming the denial of continued long term disability benefits (LTD). In a per curiam opinion, the 8th Circuit Court of Appeals found that the district court used the correct standard of review and that the court properly applied that standard in determining whether to uphold the decision to discontinue the plaintiff’s LTD benefit based on a 24-month limitation covering disabilities from neuromusculoskeletal and soft tissue disorders. The plaintiff was considered disabled due to degeneration, lumbar intervertebral disc. The Court agreed with the district court that there was no merit to the plaintiff’s contention that the limitation did not apply to her, or to her contentions concerning certain exceptions to the limitation, including seropositive arthritis; spinal tumors, malignancy, or vascular malformations; radiculopathies; traumatic spinal cord necrosis; or musculopathies.
Suit for Denial of LTD Benefits Is Contractually Time-Barred. In Russell v. Catholic Healthcare Partners Employee Long Term Disability Plan, 13-4084, 2014 WL 3953722 (6th Cir. Aug. 14, 2014), the 6th Circuit Court of Appeals affirmed the dismissal of plaintiff’s lawsuit because it was untimely based on the disability policy’s contractual statute of limitations. The plaintiff’s disability began on May 12, 2007 and she satisfied the policy’s six-month elimination period by remaining continuously disabled until November 12, 2007. Unum required proof of disability no later than ninety days after the six-month elimination period. According to the contract then, Unum required proof of claim by February 8, 2008 and the contractual limitations period to bring legal action expired three years later, on February 8, 2011. Unum found the plaintiff to be disabled and paid her benefits for 24 months before terminating those benefits after the policy’s definition of disability changed from disability from one’s “own occupation” to “any occupation.” As required, the plaintiff appealed the denial to Unum, which it upheld on appeal. Exhausting the internal appeals process took less than one year. The plaintiff filed this action on March 30, 2011, missing the deadline by fifty days. Unum’s internal appellate review of the plaintiff’s claim concluded on July 20, 2010, leaving the plaintiff over six months to file a legal action before the February 8, 2011 contractual limitations deadline. The Court found that the plaintiff had a reasonable amount of time to file suit. Further, the Court rejected the plaintiff’s argument that because Unum used a different standard of disability in denying her benefits after twenty-four months she is entitled to the one-year extension where it is not possible to give proof within 90 days. The Court also rejected the argument that each of Unum’s written requests for proof of continuing disability reset the three-year contractual limitations period.
Remand for Application of Proper Standard of Review Warrants Attorneys’ Fees. InGross v. Sun Life Assur. Co. of Canada, 12-1175, 2014 WL 3954030 (1st Cir. Aug. 14, 2014), the 1st Circuit Court of Appeals determined that its previous decision on the merits in this case – where it agreed with the plaintiff that this circuit should no longer apply the highly deferential “arbitrary and capricious” standard of review to certain benefits decisions and remanded to the district court for further proceedings – constituted “some degree of success on the merits” entitling the plaintiff to an award of attorney fees. Appellee Sun Life Assurance Company of Canada argued that the plaintiff is not entitled to attorney’s fees and that, in any event, her request is premature because the district court had not yet decided the merits of the case or awarded plaintiff any benefits. The Court disagreed and found that such an award is both appropriate and properly ordered at this time. “Indeed, a remand for a second look at the merits of her benefits application is often the best outcome that a claimant can reasonably hope to achieve from the courts. To classify such success as a minimal or “purely procedural victory” mistakes its importance.” The Court remitted the request to the district court for a determination in the first instance of the proper amount of the award.
LTD Claim Dismissed for Failure to Exhaust Administrative Remedies. In Gallo v. Prudential Ins. Co. of Am., 6:14-CV-556-ORL-37DA, 2014 WL 4059902 (M.D. Fla. Aug. 14, 2014), the plaintiff was disabled by pain disorder that Prudential classified as a somatoform disorder, which is a mental illness. Because the long-term disability policy limits payments for mental illnesses to a 24-month period, Prudential determined that Plaintiff is entitled to benefits until the end of the 24-month period, or April 17, 2015, so long as he continues to meet the definition of disability. The plaintiff appealed Prudential’s decision but Prudential stated that “at this time an adverse claim decision denying benefits beyond [April 17, 2015] has not been rendered.” Prudential noted that it would pay the plaintiff until that date and would decide in the months closer to that date about continuing benefits. Plaintiff then filed a Complaint seeking clarification of his rights to future LTD benefits after April 17, 2015. Prudential partially moved to dismiss the Complaint to the extent that it seeks benefits beyond April 17, 2015, contending that because it has made no determination with regard to any claim for benefits beyond that date, such a claim is not ripe. The Court agreed with Prudential and noted that circumstances may change such that the plaintiff is entitled to receive benefits beyond the 24-month period, making the Court’s decision on this issue premature – precisely the reason for requiring the exhaustion of administrative remedies. The Court found that the plaintiff’s claim was not ripe and dismissed without prejudice for failure to exhaust administrative remedies under ERISA.
Fraudulent-Inducement Claim Is Not Preempted by ERISA. In McCarthy v. Ameritech Pub., Inc., 12-4510, 2014 WL 3930572 (6th Cir. Aug. 13, 2014), the plaintiff brought several claims against her employer for fraudulently inducing her to continue working for nine months after she sought to retire by informing her she was not eligible to receive post-retirement healthcare benefits on which her ailing husband depended, although she was entitled to the benefits. The employer contended that the plaintiff’s fraudulent-inducement claim is preempted by ERISA, which preempts state-law claims that “relate to” an employee benefit plan as ERISA defines that term. The 6th Circuit Court of Appeals found that the fraudulent-inducement claim is not preempted by ERISA because the plaintiff does not seek to recover an ERISA plan benefit; rather, she seeks damages for injuries allegedly incurred when the employer induced her to work. Arguably, had she known she was entitled to post-retirement medical benefits as of the date she sought to retire; she would have retired that same day, taking with her the lump-sum severance payment guaranteed to her by the CBA. Instead she worked for another nine months while receiving periodic payments equal to the lump-sum termination payment she allegedly should have received earlier. The damages she now seeks are not a plan benefit but rather fair compensation for the work she performed in the nine months she was induced to continue working.
Court Affirms Denial of Long-Term Disability Benefits. In Oates v. Walgreen Co., 13-12184, 2014 WL 3934014 (11th Cir. Aug. 13, 2014), the 11th Circuit Court of Appeals, in a per curiam opinion, affirmed the district court’s entry of final judgment against the plaintiff in a suit to recover benefits allegedly due to him under the terms of the Walgreen Income Protection Plan for Pharmacists and Registered Nurses (“the Plan”). The Plan’s Claims Administrator who handles initial claims and determination and appeals is Sedgwick CMS. Sedgwick determined that the plaintiff is not disabled, contrary to the opinions of his treating physician and chiropractor and the Social Security Administration’s Independent Medical Evaluator. The plaintiff had also provided Sedgwick with a Transferable Skills Analysis which concluded that he does not have the ability to perform any occupation for which he may be qualified by education, training or experience within his physical capabilities. Sedgwick retained seven “Independent” Physician Advisers, none of whom observed him directly, but all who determined that the plaintiff was not disabled. The Court rejected the plaintiff’s argument that the Plan operated under a conflict of interest, that Sedgwick ignored relevant and reliable evidence, and that Sedgwick failed to give proper consideration to the Social Security Administration’s disability determination.
Court Awards Successful Plaintiff Attorneys’ Fees and Costs. In Meguerditchian v. Aetna Life Ins. Co., 2:12-CV-10999-ODW, 2014 WL 3926805 (C.D. Cal. Aug. 12, 2014), the plaintiff injured his back on the job and had to stop working. He submitted a claim for short-term disability benefits to Defendant Aetna Life Insurance Company, FedEx”s claims paying administrator. Aetna denied the claim as untimely and the plaintiff filed suit. The Court found that the plan’s timing language was inherently confusing and that Aetna’s denial was an abuse of discretion. The court reversed Aetna’s decision and remanded for consideration on the claim’s merits and the plaintiff moved for attorneys’ fees and costs. The court found that $600 per hour is the reasonable hourly rate for this case where the plaintiff’s attorney has been in practice for 17 years and has handled hundreds of ERISA claim. The court awarded $19,807.50 in reasonable attorney fees and deferred to the Clerk of Court for the taxing of costs.
* 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.