Below is Kantor & Kantor LLP’s summary of this past week’s notable ERISA decisions.
Payment of Death Benefits Via a Retained Asset Account Is Not a Breach of Fiduciary Duty
In Vander Luitgaren v. Sun Life Assur. Co. of Canada, 13-2090, 2014 WL 4197947 (1st Cir. Aug. 26, 2014), the 1st Circuit Court of Appeals addressed the second case this year involving an administrator’s use of a retained asset account (RAA) to pay death benefits pursuant to the terms of an ERISA plan. In Merrimon v. Unum Life Insurance Co., — F.3d —- 2014 WL 2960024 (1st Cir. 2014), the Court held that an insurer, acting in the place and stead of a plan administrator, properly discharges its duties under ERISA when it pays a death benefit by establishing a RAA as long as that method of payment is called for by the terms of the particular employee welfare benefit plan. The Court found that this case could be decided on the basis of its opinion in Merrimon but it wrote separately to cover points not squarely addressed in Merrimon. The appellant had the right to withdraw all or any part of his RAA funds at any time or times; provided, however, that no withdrawal could be for less than $250. Sun Life retained the right to close the RAA if the balance dipped below $250. In that event, it was obligated to remit the balance to the appellant. Within a matter of days, the appellant withdrew the full $151,000. Sun Life then closed the account and mailed the appellant a check for the interest earned: $74.48. Sun Life challenged the appellant’s statutory standing, which was not raised in Merrimon. Sun Life argued that because the appellant received the full amount of the death benefit when that sum was credited to the RAA, he is no longer entitled to a benefit under the Plan and lacks standing to sue under ERISA. The Court decided to bypass a statutory standing inquiry and resolve the dispute on the merits, taking no view of whether the appellant has statutory standing. This case presented different facts than Merrimon because the Plan does not say that benefits would be paid by means of an RAA. In the circumstances of this case, however, the Court found that this is a distinction without a difference. The Plan at issue here states: “The Death Benefit may be payable by a method other than a lump sum. The available methods of payment will be based on the benefit options offered by Sun Life at the time of election.” The establishment of an RAA was among the payment options offered by Sun Life and plan sponsors have considerable latitude to set the terms of a plan, including terms that spell out how benefits are to be paid. The Court’s decision turned on two important considerations: the language of the Plan and the fact that Sun Life gave the appellant immediate and unfettered access to the promised benefit in its entirety.
Sedgwick Abused Discretion In Terminating Short-Term Disability Benefits. In May v. AT&T Umbrella Ben. Plan No. 1, 12-16448, — Fed.Appx. —-, 2014 WL 4180224 (9th Cir. Aug. 25, 2014), the AT&T Umbrella Benefit Plan No. 1 appealed the district court’s grant of summary judgment in favor of the plaintiff, a short-term disability claimant. Sedgwick, the Plan’s third-party administrator terminated the plaintiff’s disability benefits based on its determination that he failed to carry his burden of proving disability. On appeal AT&T also argued that, even if the termination was improper, the district court abused its discretion in remanding for an award of benefits as opposed to further proceedings. The 9th Circuit Court of Appeals affirmed the district court, finding that based on its own review of the record, it is left with a definite and firm conviction that a mistake was committed when Sedgwick terminated the plaintiff’s short-term disability benefits. His treating physicians reported that he was unable to work at his current job, which required him to be on his feet for eight hours a day. AT&T rejected his request that he be permitted to sit in a chair during part of that time. The reports of the plaintiff’s treating physicians were corroborated by an MRI report that confirmed irregularities that correlated with clinical findings. Sedgwick primarily relied on the opinion of Dr. Andrews, a physician who reviewed the plaintiff’s file but did not evaluate him in person. Dr. Andrews rejected the doctors’ certificates and MRI results without sufficient explanation. The Court found that pain caused by arthritis could very well have prevented the plaintiff from standing eight hours per day, and there is nothing in the benefits plan that excluded the effects of arthritis. The Court further found that the district court did not abuse its discretion in ordering a remand for an award of benefits retroactive to the effective date of denial for the full 22-week period for which benefits would have been available.
United Healthcare Acted Arbitrarily in Denying Substance-Abuse Treatment Benefits But Cannot Be Fined Statutory Document Penalties. In Butler v. United Healthcare of Tennessee, Inc., 13-6446, — F.3d —-, 2014 WL 4116478 (6th Cir. Aug. 22, 2014), the 6thCircuit Court of Appeals affirmed the district court’s grant of health insurance benefits under an ERISA plan run by United Healthcare but reversed a penalty award against United. More than nine years ago, the plaintiff’s wife checked into a substance-abuse treatment facility to obtain inpatient rehabilitation for her alcohol addiction. United denied payment for the treatment on the grounds that it was not medically necessary. The plaintiff filed suit and the district court held that United’s review of the claim was procedurally unreasonable. It remanded the claim to United to conduct a “full and fair” review, instructing United to add the letters from the wife’s treating physicians to the administrative record and to explain why it disagreed with their opinions. However, rather than sending the information to a new physician for a new review, United merely got a letter from its initial reviewing physician stating that to the best of his knowledge he had reviewed the letters in his initial review and on re-review of the letters his third opinion to deny treatment remained unchanged. Based on this, United moved for summary judgment and the district court admonished United for attempting to relitigate whether its procedures for review had been defective rather than following the order to conduct a full and fair review afresh. The district court ordered United to allow plaintiff to submit additional information to United before a decision is made; it should have a different doctor conduct the independent external review; and it should explain why it disagreed with the medical opinions of the wife’s treating physician and psychiatrist. United failed to take the directive and the reviewers denied the claim. In doing so, they failed to explain their disagreement with (or even mention) the letters from the wife’s treating physicians and failed to explain why her prior unsuccessful outpatient treatment did not qualify her for residential rehabilitation under United’s guideline. Treating this third try as a third strike, the district court found that United still had not provided a full and fair review, that another remand would be futile, that the plaintiff was entitled to the cost of the denied benefits plus prejudgment interest, and that the plaintiff was entitled to $99,000 in penalties (29 U.S.C. § 1132(c)(1)(B)) because United did not provide him with its residential-rehabilitation guideline until two years after he requested it. The Court affirmed the district court’s award of benefits but disallowed the penalties because United was the claims administrator, not the plan administrator, and these penalties can only be awarded against the plan administrator. The Court also found that the penalties claim failed because the plaintiff did not allege that United violated § 1132. Rather, the plaintiff claimed that United violated 29 C.F.R. § 2560.503-1(g), a regulation that implements § 1133, not § 1132. The district court had no authority to award § 1132(c) damages for violations of the regulations implementing § 1133.
Court Denies Relief to Breaching Fiduciary, Determining that Intervening Ninth Circuit Law Is Unsettled and Distinguishable. In Echague v. Metro. Life Ins. Co., 12-CV-00640-WHO, 2014 WL 4180608 (N.D. Cal. Aug. 22, 2014) (Plaintiff’s attorney: Rebecca Grey), Defendant TriNet Group, Inc. sought relief from the Court’s June 2, 2014 Judgment determining that TriNet breached its fiduciary duty to plaintiff, is liable under ERISA based on the doctrine of equitable surcharge, and owes the plaintiff the face value of his deceased wife’s life insurance policies. TriNet argued that the judgment must be altered in light of the Ninth Circuit’s June 6, 2014 decision in Gabriel v. Alaska Elec. Pension Fund, 755 F.3d 647 (9th Cir. June 6, 2014). The Court determined that Gabriel is not settled law in the Ninth Circuit since petition for rehearing or rehearing en banc has been requested and the panel opinion was issued over a strong dissent. The Department of Labor and other amici contend, among other arguments, that the panel’s decision is in conflict with other Courts of Appeals. Those factors caution against relying on Gabriel as settled law. Further, the Court found that Gabriel is sufficiently distinguishable that this Court need not amend its judgment. The Ninth Circuit found that a recovery by Gabriel would “wrongfully deplete” the trust (pension plan) and reduce the amount available for other eligible beneficiaries. Here, however, Carol Echague was a beneficiary under the Plan and entitled to benefits but for the breach of fiduciary duty by TriNet. Moreover, payment to plaintiff here would not deplete the trust or harm any other participants in MetLife life insurance policies.
ERISA Plan’s Decision to Actuarially Reduce Disability Retirement Benefits Is Not Arbitrary and Capricious. In Radell v. Michelin Ret. Plan, 13-6401, — Fed.Appx. —-, 2014 WL 4160074 (6th Cir. Aug. 21, 2014), the plaintiff, an ERISA retirement plan participant, appealed the district court’s order dismissing his class-action complaint seeking judicial review of a decision of the Michelin Retirement Plan (“Michelin”). Michelin reduced the amount of the plaintiff’s disability-retirement benefit under the applicable plan documents because of the plaintiff’s choice to begin receiving that benefit immediately upon his retirement and prior to age sixty-five. The Court determined that the plan language was ambiguous because it supported two reasonable interpretations: the plaintiff’s proffered interpretation that the plan confers upon him a right to receive his disability-retirement benefit without an actuarial reduction and Michelin’s interpretation that when a participant eligible for disability-retirement benefits retires prior to age sixty-five, then Michelin must look to the early-retirement provision and actuarially reduce the participant’s benefit. Under the deferential arbitrary-and-capricious standard, the Court determined that holding that the Plan language is ambiguous resolves the appeal in favor of Michelin because its decision was rational. The Court affirmed the judgment of the district court.
Workers’ Compensation Medicare Set-Aside Cannot Reduce Disability Pension Benefits. In Rood v. New York State Teamsters Conference Pension & Ret. Fund, 5:13-CV-0435 LEK/ATB, — F. Supp. 2d —-, 2014 WL 4114330 (N.D.N.Y. Aug. 20, 2014) (Plaintiff’s attorney: Carla McKain), the Court ruled in favor of the plaintiff, a participant in the Teamsters pension fund, on the issue of whether the fund trustees could offset his Workers’ Compensation (“WC”) Medicare Set-Aside (“WCMSA” or “MSA”) against his disability pension. The monthly Fund Disability Benefit amount is equal to the normal pension benefit the participant would be entitled to if he had attained the age requirement for a normal pension. However, the Plan further provides that, if a participant is also receiving WC benefits due to an occupational disability, the monthly amount of the Fund Disability Benefit will be reduced by the amount of monthly WC benefits received. But, if a portion of the participant’s WC benefit is used to offset other payment sources (i.e., Social Security disability awards, long term disability, etc.) to which the participant may be entitled, that portion of the WC benefit is not included in the reduction of the participant’s monthly Fund Disability Benefit. When settling a WC claim, the parties may designate and identify the portion of the settlement amount that is intended to pay for future work-injury-related medical expenses that are covered and otherwise reimbursable by Medicare. The goal of establishing a WCMSA is to estimate, as accurately as possible, the total cost that will be incurred for all medical expenses otherwise reimbursable by Medicare for work-related conditions during the course of the claimant’s life, and to set aside sufficient funds from the settlement, judgment, or award to cover that cost. The Court found that the MSA funds constitute an amount of the plaintiff’s WC award used to offset another payment source, Medicare. The Court held that although the plan trustees had discretion to interpret the plan, their decision to offset the Medicare funds was arbitrary and capricious. The Court also granted the plaintiff attorneys’ fees to be paid by defendants, and 9% interest on his back benefits.
Court Upholds Standard’s Denial of Additional Life Insurance Benefits on behalf of LTD Claimant. In Olsen v. Standard Ins. Co., 13-CV-576 SRN/TNL, 2014 WL 4113092 (D. Minn. Aug. 20, 2014), the Court upheld Standard Insurance Company’s denial of life insurance benefits under an ERISA plan which covered a principal and shareholder of a law firm who had become disabled by cancer but continued to perform work for the firm before she passed away. The decedent submitted a claim for long term disability benefits and listed August 21, 2010 as the date she became unable to work at her occupation as a result of disability. The Employer’s Statement noted that the decedent’s last full day of work was August 20, 2010 but that she worked two full days on October 25, 2010 and January 10, 2011. Because she was the firm’s managing partner, she utilized remote access and other alternatives when she was able. Standard approved her LTD claim and she remained the managing officer at the firm until April 14, 2011. She supervised the development and implementation of the firm’s new strategic plan and attended meetings of the firm’s Strategic Planning Committee on January 10, 2011, and April 12, 2011 (for at least eight hours on each of those days). In addition, she continued in her role as Chair of the Board of Directors and maintained an office at the firm’s Minneapolis location until her death on July 4, 2011. The firm submitted a claim for life insurance benefits on the plaintiff’s behalf, asserting that the decedent was covered by the basic Policy in the amount of $500,000 and enclosed copies of her time records to demonstrate that she had been “actively at work” several times between January 1, 2011, and June 30, 2011. Standard explained that while the decedent was at work after January 1, 2011, the Group Policy states that one must “complete one full day of Active Work as an eligible Member.” According to Standard, the decedent ceased to be a Member on August 21, 2010, given that she no longer regularly worked 20 hours each week. In addition, Standard asserted that the decedent continued to meet the definition of Totally Disabled from August 21, 2010, until she died, because she was unable to perform the material duties of her job with reasonable continuity. Therefore, Standard reasoned that because the decedent ceased to be a Member and was Totally Disabled from August 21, 2010, from which time, until the date of her death, she was covered under Waiver Of Premium, she did not meet the Active Work Requirement when she completed one full day of work on January 10, 2011, or on any date thereafter. Consequently, she did not become eligible for the new coverage amount of $500,000 for Principals/ Shareholders. Rather her coverage continued under Waiver Of Premium was $100,000: her Plan 1 Life Insurance on the day before she became Totally Disabled in August, 2010. Standard found that Plaintiff was entitled to $100,000 in basic life insurance, but not to the additional $400,000. While the Court did not agree that Standard’s interpretation of the Policy language at issue is the best, or even preferable, interpretation, the Court found that it comports with the Policy’s plain language, was consistent with the plan’s goals, and did not conflict with ERISA.
Interpretation of Top Hat Plan Did Not Effect a Cutback of an ERISA Pension Plan. InZebrowski v. Evonik Degussa Corp. Admin. Comm., 13-1026, — Fed.Appx. —-, 2014 WL 4069160 (3d Cir. Aug. 19, 2014), the 3rd Circuit Court of Appeals reversed the decision of the district court, which found that the defendant Committee’s interpretation of a supplemental top hat plan (not governed by ERISA’s anti-cutback and fiduciary provisions) did not effect a cutback of a pension plan. Benefits under the Supplemental Plan are calculated according to the following formula: A-B, where A is the result of a specific formula for calculating benefits owed to an employee without Code contribution limits and B equals the pension benefit to which a Participant is entitled at his Early Retirement Date plus any statutory benefits. Under both the Pension Plan and the Supplemental Plan, participants may select from two payment options: monthly annuities or a lump sum payment. The Appellees chose to receive their benefits as lump sum payments. Before 2008, participants who chose monthly annuity payments under the plans received an annual cost of living adjustment (“COLA”), but those who selected lump sum payments did not. The Committee amended the Pension Plan in 2008 to include COLAs for lump sum payments. It did not, however, amend the Supplemental Plan to include COLAs for lump sum payments. The COLA amendment raised the abstruse question of whether to include the COLAs for Pension Plan lump sum payments in Factor B (which reflects Pension Plan benefits) of the Supplemental Plan benefits formula (A-B) when there is no corresponding COLA included in Factor A and when a recipient chooses a lump sum payment. The Committee answered “yes” to that question and interpreted the Supplemental Plan to require the inclusion of COLAs in Factor B. In its review of the plan, the Committee determined that the total amount of retirement benefits promised to retirees would remain the same if the COLA were included in Factor B. According to the Committee, although benefits paid under the Supplemental Plan would decrease (under the A-B formula), Pension Plan benefits would increase by the same amount pursuant to the COLA. The Committee explained that, although the Supplemental Plan benefits were reduced by the amount of the COLA in Factor B, the total Pension Plan benefits were increased by the same amount, such that Appellees’ total retirement benefits (Pension Plan benefits + Supplemental Plan benefits) remained constant. The Court noted that a party making an anti-cutback claim is required to show (1) that a plan was amended, and (2) that the amendment decreased an accrued benefit. It found that the Appellees cannot establish either of those elements. There was no “amendment,” either constructive or otherwise, when the Committee interpreted the plan, and the Appellees’ benefits were not decreased because they received the COLA owed to them under the Pension Plan. The Court determined that there was no cutback.
* 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 attorneys 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.