Below is Kantor & Kantor LLP summary of this past week’s notable ERISA decisions.
Court Finds Supplemental Insurance Coverage ERISA Pre-empted
In Menkes v. Prudential Ins. Co. of Am., 13-1408, 2014 WL 3843969 (3d Cir. Aug. 6, 2014), the plaintiffs appealed the district court’s dismissal of their complaint against Prudential Insurance Company of North America for failure to state a claim. The issue is whether certain supplemental insurance coverage is governed by the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1001, et seq. The plaintiffs were employed by a defense contractor to work on a military base in Kirkuk, Iraq in 2008. As employees, the plaintiffs were automatically enrolled in the defense contractor’s Basic Long Term Disability, Basic Life, and Accidental Death and Dismemberment insurance policies (the “Basic Policies”). It is undisputed that the employer offered this insurance coverage pursuant to ERISA. These policies were established pursuant to a single group contract with the Prudential. Both plaintiffs also purchased supplemental insurance coverage to augment their basic benefits. The plaintiffs paid additional premiums out of their own funds for this supplemental coverage in return for enhanced benefits should they sustain a covered injury. The supplemental coverage operated pursuant to the exact same benefit terms, rules, exclusions, and claim procedures as the Basic Policies. The insurance booklet certificate informed the plaintiffs of the policies’ respective war exclusion policies. The Long Term Disability Booklet provided that “[y]our plan does not cover a disability due to war, declared or undeclared, or any act of war.” The Accidental Death and Dismemberment Booklet provided that loss is not covered if it results from “[w]ar, or any act of war. One plaintiff filed a claim under his Long Term Disability policy for three injuries he received while in Iraq. Prudential used the war exclusion provision to deny benefits and the plaintiffs brought suit under state law. The Court concluded that in the circumstances presented here, the supplemental insurance coverage cannot be unbundled from the plaintiffs’ broader employer-provided ERISA benefits plan and ERISA preempts the various state law claims that the plaintiffs asserted. The Court affirmed the district court’s dismissal.
Court Affirms Award of Attorneys’ Fees under ERISA. In Temme v. Bemis Co., Inc., 14-1085, 2014 WL 3843789 (7th Cir. Aug. 6, 2014), the 7th Circuit Court of Appeal issued a per curiam opinion affirming an award of attorneys’ fees against the defendant. In 2008, the plaintiff class sued the defendant for eliminating certain health-care benefits that they believed they were owed under a 1985 plant-closing agreement with the defendant’s predecessor in interest. Just before the case went to trial, the parties settled. The plaintiffs then sought, and were awarded, attorneys’ fees in the amount of $403,053.75. ERISA allows a court, in its discretion, to award “a reasonable attorney’s fee and costs of action to either party.” 29 U.S.C. § 1132(g)(1). The magistrate judge applied each of the two tests that, in different decisions, the 7th Circuit has told district judges in ERISA cases to use when deciding whether to award fees. Under the first test, the magistrate judge examined five factors: 1) the degree of the offending parties’ culpability; 2) the degree of the ability of the offending parties to satisfy an award of attorneys’ fees; 3) whether or not an award of attorneys’ fees against the offending parties would deter other persons acting under similar circumstances; 4) the amount of benefit conferred on members of the pension plan as a whole; and 5) the relative merits of the parties’ positions. The magistrate judge found that all five factors weighed in favor of an award of fees. She then turned to the second test, which evaluates whether the defendant’s position was “substantially justified.” Noting that the defendant had eliminated benefits that the plaintiffs were clearly entitled to, the magistrate judge concluded that the defendant’s position was not substantially justified. The magistrate judge then examined the fee petitions to determine the proper size of an award. She struck billing entries that were vague or for time not reasonably expended on the case, concluded that the lawyers’ billing rates were reasonable, and calculated the lodestar amount. Finding no reason to alter the lodestar, that amount became the fee award: $403,053.75, for four years of advocacy, including an appeal and trial preparation.
Court Holds Michigan State Law Is Not ERISA Pre-empted. In Self-Ins. Inst. of Am., Inc. v. Snyder, 12-2264, 2014 WL 3804355 (6th Cir. Aug. 4, 2014), the 6th Circuit Court of Appeals found that a Michigan Law was not preempted by ERISA. In 2011, Michigan passed the Health Insurance Claims Assessment Act (“the Act”), 2011 Mich. Pub. Acts 142, codified at Mich. Comp. Laws §§ 550.1731-1741, to generate the revenue necessary to fund Michigan’s obligations under Medicaid. The Act functions by imposing a one-percent tax on all paid claims by “carriers” or third party administrators to healthcare providers for services rendered in Michigan for Michigan residents. “Carriers” include sponsors of group health plans set up under the strictures of ERISA. On top of the tax, every carrier and third-party administrator paying the tax must submit quarterly returns with the Michigan Department of the Treasury and keep accurate and complete records and pertinent documents as required by the department. Every carrier and third-party administrator must also develop and implement a methodology by which it will collect the tax subject to several conditions. The Court found that the Act was not preempted by ERISA because it did not relate to or have a connection with an ERISA-governed benefit plan. The court found that the Act does not interfere with ERISA plan administration, does not create inappropriate administrative burdens, and does not interfere with the relationships between ERISA-covered entities.
Court Finds No Violation of ERISA’s Notice Requirements. In Legassie v. Raytheon Co. Employee Benefits Admin. Comm., 11-56108, 2014 WL 3766669 (9th Cir. Aug. 1, 2014), the 9th Circuit Court of Appeals affirmed the district court’s entry of judgment against the plaintiff on his claims that Raytheon violated various ERISA notice and disclosure provisions. The Court found Raytheon did not violate 29 U.S.C. § 1024(b)(1), which requires the plan administrator to distribute a summary plan description every ten years, or every five years if there is an amendment to the plan. But, even assuming that Raytheon violated 29 U.S.C. § 1024(b)(1) by failing to provide the required summary plan descriptions, there was no allegation or evidence of any intentional misleading or trickery, or of any active concealment warranting equitable relief.
Court Holds N.Y. Anti-Subrogation Law Is Not ERISA Pre-empted. In Wurtz v. Rawlings Co., LLC, 13-1695-CV, 2014 WL 3746801 (2d Cir. July 31, 2014), the 2nd Circuit Court of Appeals held that New York’s anti-subrogation law, N.Y. Gen. Oblig. Law § 5-335, is saved from express preemption under ERISA § 514, 29 U.S.C. § 1144, as a law that “regulates insurance” and is applicable to health insurers providing coverage through ERISA-governed benefit plans. The plaintiffs initially filed the complaint in this case in New York state court, seeking, among other things, to enjoin defendant insurers under New York law from obtaining reimbursement of medical benefits from plaintiffs’ tort settlements. The defendants removed this action to the Eastern District of New York, where the district court granted defendants’ motion to dismiss under Rule 12(b)(6) for failure to state a claim on the basis that plaintiffs’ claims were subject to both “complete” and “express” preemption under ERISA. The 2nd Circuit held that the plaintiffs’ claims do not satisfy the Supreme Court’s test, articulated in Aetna Health Inc. v. Davila, 542 U.S. 200 (2004), for being subject to complete ERISA preemption, which would have conferred federal subject-matter jurisdiction. The court found that jurisdiction exists, however, under the Class Action Fairness Act (“CAFA”), 28 U.S.C. § 1332(d). Reaching the merits of the express preemption defense, the court concluded that the law is saved from express preemption under ERISA, vacated the district court’s judgment, and remanded for further proceedings on the plaintiffs’ claims.
Court Orders Discovery of LINA’s Conflict of Interest. In Smith v. Life Ins. Co. of N. Am., 1:13-CV-2047-VEH, 2014 WL 3747263 (N.D. Ala. July 30, 2014), the plaintiff, a long term disability claimant, filed a motion to compel the Life Insurance Company of North America (also known as Cigna) to produce documents related to its conflict of interest in administering disability claims. The court granted the plaintiff’s discovery requests for employee performance evaluations for persons involved in administering plaintiff’s LTD claim and LINA’s claims procedure manual in its entirety. The court also required the parties to confer to resolve any areas of dispute regarding LINA’s production of emails on LINA’s Outlook system that contain the plaintiff’s name and/or claim number as search terms pertaining to the issuance of insurance coverage to the plaintiff or the administration of any claims for the plaintiff. The court ordered LINA to allow the plaintiff’s counsel to review the documents between LINA’s subsidiaries and the State of Alabama or its agencies and employees regarding disability income policies the company marketed or sold in the State of Alabama in the last five years, including all complaints registered with the Insurance Department of the State of Alabama by policyholders of the Honda Plan for the same time period. Finally, the court granted plaintiff’s request for reports referring to LINA’s liability acceptance rates in Alabama for the past three years for ERISA and non-ERISA claims because LINA’s liability acceptance rates might reflect the absence of safeguards in place to protect against conflict of interest.
Court Upholds Standard’s Denial of LTD Benefits. In Hawkins v. Cmty. Legal Aid Servs., Inc., 4:13-CV-00729-JRA, 2014 WL 3749412 (N.D. Ohio July 30, 2014), the plaintiff was impaired by fibromyalgia and cervicalgia. She sought long term disability benefits under an employee welfare benefit plan issued by Defendant Standard Insurance Company (“Standard”) to her former employer. In ruling in favor of Standard, the court granted its motion to strike Social Security documents that the plaintiff believed supported her claim because they were created more than six months after Standard rendered its final decision denying her LTD claim. The court found that Standard thoroughly evaluated the plaintiff’s claim and properly exercised its discretionary authority to decline to pay benefits based on the plaintiff’s failure to provide evidence of medical treatment after a certain date, her doctor’s assessment and the assessment of Standard’s paper reviewers, the irregularities in testing and the lack of clinical correlation with MRI results, and the plaintiff’s failure to be under the ongoing care of a physician.
Court Upholds Denial of Life Insurance Benefits. In McFarland v. UPS Ground Freight, Inc., 12-2135-JPO, 2014 WL 3740086 (D. Kan. July 30, 2014), the plaintiff filed suit under ERISA challenging the denial of life insurance benefits for her deceased spouse. The result in this case largely hinged on application of the so-called “mailbox rule” to certain delinquency notices sent by the insurer to the insured. The plaintiff’s husband was employed by Overnite and had enrolled in an optional supplemental life insurance plan through Aetna Insurance Company for “basic plus 2 times pay” (i.e., equal to one year’s pay, plus twice one year’s pay). In 2005, Overnite was acquired by UPS and the decedent’s life insurance coverage transferred from the Aetna policy to UPS’s Flexible Benefits Plan (“the Plan”), under a Prudential policy. Under the Plan, participants are required to pay for their premiums after a leave of absence extends beyond twenty days. During his employment, the deceased spouse was mailed plan information setting forth this requirement. After the spouse had been on leave from work for more than twenty days, Aon Hewitt (the third-party billing administrator), sent the decedent three direct bills for premium payments, followed by “confirmation-of-coverage” letter stating that his life insurance and other benefits were terminated due to the failure to make the premium payments. These mailings were not returned as undeliverable. The court found that the defendants presented detailed and very persuasive evidence to raise the presumption that the mailings were received her spouse and that the life insurance coverage was properly canceled according to the terms of the ERISA plan.
Court Grants Retiree’s Claim for Retirement Benefits. In Reilly v. Cont’l Cas. Co., 13 C 2885, 2014 WL 3734548 (N.D. Ill. July 29, 2014), the plaintiff brought suit against Continental Casualty Company (“CNA”) alleging that CNA violated ERISA Section 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B), by denying his claim for additional benefits. The plaintiff sought the full amount of retirement benefits as previously quoted to him by CNA for thirteen years before he reached eligibility, challenging the downward adjustment of those benefits just before his eligibility began as without rational basis. The issue revolved around the definition of “Compensation.” CNA argued that his benefit calculation had incorrectly included his “benefits salary” instead of just the plaintiff’s W-2 earnings. However, “benefits salary” is not defined or referenced in the Plan. The court agreed with the plaintiff that the administrative record provides no reasonable basis for CNA’s denial of benefits and granted the plaintiff’s motion for summary judgment.
Court Upholds Hartford’s Termination of LTD Benefits. In Beach v. Hartford Life & Acc. Ins. Co., CIV.A. 13-362-SDD, 2014 WL 3724846 (M.D. La. July 28, 2014), the plaintiff brought suit against Hartford for terminating his long term disability benefits after the policy’s definition changed from disability from one’s “Own Occupation” to “Any Occupation.” The plaintiff claimed that he has been continuously disabled based on a condition of osteoarthritic changes in his left knee following a surgery. The court found from the totality of the administrative record that Hartford’s determination was not an abuse of discretion. The court found that the plaintiff’s treating doctor’s medical records and notes were clearly considered and evaluated in conjunction with those of the other physicians retained by Hartford and did not undermine Hartford’s ultimate decision. Although an Employability Analysis Hartford obtained may have contained an error, it still identified two specific occupations that met or exceeded sixty percent of the plaintiff’s pre-disability earnings which satisfied the requisite threshold. The court found that Hartford adequately distinguished its claim decision in light of the plaintiff’s award of Social Security Disability Insurance benefits. As such, the court found that there was substantial evidence in the administrative record to support Hartford’s decision in this case.
* 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.