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ERISA Watch – California Ban on Discretion Is Not Preempted by ERISA

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We are pleased to report this week’s notable decision, Orzechowski v. The Boeing Company Non-Union Long-Term Disability Plan, No. 14-55919, __F.3d__, 2017 WL 1947883 (9th Cir. May 11, 2017), an excellent decision involving a state ban on discretion and the standard of review.  California is one of many states that now ban the inclusion of “discretionary clause” in disability insurance plans.  (Discretionary clauses generally permit plan administrators to deny claims just because they said so.)  California Insurance Code § 10110.6 provides in relevant part:

(a) If a policy, contract, certificate, or agreement offered, issued, delivered, or renewed, whether or not in California, that provides or funds life insurance or disability insurance coverage for any California resident contains a provision that reserves discretionary authority to the insurer, or an agent of the insurer, to determine eligibility for benefits or coverage, to interpret the terms of the policy, contract, certificate, or agreement, or to provide standards of interpretation or review that are inconsistent with the laws of this state, that provision is void and unenforceable.

(b) For purposes of this section, “renewed” means continued in force on or after the policy’s anniversary date.

Cal. Ins. Code § 10110.6(a), (b). The statute became effective on January 1, 2012 and is “self-executing.”  Id. § 10110.6(g).

The Ninth Circuit Court of Appeals held that § 10110.6 is not preempted by ERISA because it falls within the savings clause set forth in 29 U.S.C. § 1144(b)(2)(A) since § 10110.6 is directed toward entities engaged in insurance, and it substantially affects the risk-pooling arrangement between the insurer and the insured.  Further, § 10110.6 applies to Plaintiff’s long-term disability claim because the relevant insurance policy renewed after the statute’s effective date.  The panel remanded the case back to the district court.

Below is Kantor & Kantor LLP’s summary of this past week’s notable ERISA decisions.  (If you’d like to receive these updates each Monday directly to your inbox, send an email to mroberts@lifeanddisabilitylaw.com to subscribe.  It’s free!).

Attorneys’ Fees

Fourth Circuit

Roark v. Universal Fibers, Inc., No. 1:16CV00040, 2017 WL 1901977 (W.D. Va. May 9, 2017) (Judge James P. Jones).  The court previously held that defendant Universal Fibers, Inc. Associates Savings Plan should have paid the death benefit of the decedent’s retirement account to his widow rather than to his parents.  The court found that the widow is entitled to attorneys’ fees and prejudgment interest at the rate of 6% per year.

Ninth Circuit

Angichiodo v. Honeywell Pension & Sav. Plan, No. CV-15-00097-PHX-NVW, 2017 WL 1833586 (D. Ariz. May 8, 2017) (Judge Neil V. Wake).  In this matter where Plaintiff did not succeed on her breach of fiduciary duty claim against Honeywell for failing to disclose a procedure that did not exist with respect to advising terminally ill participants about their retirement benefits, the court awarded Defendants 10% of the $533,217.46 in fees and non-taxable costs that they incurred, for a total of $25,000 plus interest at the federal rate of 1.11%.  The court explained that this award would “deter groundless litigation without unduly chilling meritorious claims.”

Class Actions

Second Circuit

Meidl v. Aetna, Inc. et al., No. 15-CV-1319 (JCH), 2017 WL 1831916 (D. Conn. May 4, 2017) (Judge Janet C. Hall).  The court granted in part and denied in part the motion for class certification.  The court certified the Transcranial Magnetic Stimulation (TMS) Class under FRCP 23(b)(1) and (b)(2) to seek retrospective injunctive relief. “The TMS class consists of all participants or beneficiaries in Aetna Plans administered by Aetna (or any of its operating divisions) who, from September 3, 2009, to July 29, 2016, were denied health insurance coverage for TMS for the treatment of major depression using one of the codes for Experimental, Investigational, or Unproven Services. The TMS Class includes both persons whose post-service claims for reimbursement were denied and persons whose pre-service requests that Aetna confirm coverage for TMS were denied.”  The court appointed Christopher Meidl as class representative and Zuckerman Spaeder LLP and Psych-Appeal, Inc., as co-lead class counsel.

Disability Benefit Claims

Fifth Circuit

Baker v. Aetna Life Ins. Co., No. 3:15-CV-3679-D, 2017 WL 1881309 (N.D. Tex. May 9, 2017) (Judge Sidney A. Fitzwater).  Aetna denied Plaintiff short-term disability benefits for her post-surgery recovery after Plaintiff underwent breast augmentation surgery as part of her gender transition.  The court found that Aetna did not abuse its discretion for denying benefits on the ground that her surgery was not caused by an illness, injury, or pregnancy-related condition, as required for coverage under the STD plan.

Sixth Circuit

Luckett v. Sprint Commc’ns, Inc., No. 3:16-CV-00700-TBR, 2017 WL 1856178 (W.D. Ky. May 8, 2017) (Judge Thomas B. Russell).  Sprint sought a determination that its short-term disability plan is a payroll practice not subject to ERISA, but the court denied dismissal of Plaintiff’s claim because the source of funds is not apparent from the face of Sprint’s plan (a non-ERISA claim would be dismissed per a release agreement Plaintiff signed).  The court did dismiss the long term disability claim against Sprint because Prudential, not Sprint, is the claims administrator.

Eighth Circuit

Jones v. Aetna Life Ins. Co., No. 16-1714, __F.3d__, 2017 WL 1825373 (8th Cir. May 8, 2017) (Before WOLLMAN, SMITH, and BENTON, Circuit Judges).  In this matter where Plaintiff asserted a Section 502(a)(1)(B) claim for denial of long term disability benefits along with a Section 502(a)(3) claim for breach of fiduciary duty related to the claims-handling process, the court reversed the district court’s dismissal of the 502(a)(3) claim.  This is because the claims assert two different theories of liability.  For the breach claim, Plaintiff alleged that Aetna used claims examiners with conflicts of interest and denied short-term benefits solely to disqualify long-term claims. The theory of liability is that Aetna used a claims-handling process that breached its fiduciary duties, not that Aetna denied her benefits due.  The court affirmed the denial of benefits under Section 502(a)(1)(B) because Aetna’s decision was not unreasonable.

Domingues v. Liberty Life Assurance Co. of Boston, No. 5:15-CV-5128, 2017 WL 1906916 (W.D. Ark. May 8, 2017) (Judge Susan O. Hickey).  The court found that Liberty Life abused its discretion in denying the long term disability benefits because it did not tell Plaintiff that he needed to submit additional information—objective medical evidence of hepatic encephalopathy and/or chronic fatigue—to perfect his claim.  It also upheld the denial based on a paper review of the record that it previously determined to be insufficient.  The court remanded the claim back to Liberty Life for determination as to whether he is disabled from “any occupation.”

Tenth Circuit

Blair v. Alcatel-Lucent Long Term Disability Plan, No. 16-7062, __F.App’x__, 2017 WL 1906615 (10th Cir. May 9, 2017) (Before KELLY, HARTZ, and O’BRIEN, Circuit Judges).  The court affirmed the grant of summary judgment in favor of Cigna on Plaintiff’s long-term disability claim.  Cigna is not required to personally examine a claimant, even one alleging mental illness.  Cigna is not judicially estopped from arguing Plaintiff is disabled on the basis that it is inconsistent with the position it took when it required her to apply for SSA representation.  There is substantial evidence in the record as a whole supporting Cigna’s termination of benefits.

Discovery

First Circuit

Kamerer v. Unum Life Ins. Co. of Am., No. 4:15-CV-40146-TSH, 2017 WL 1758095 (D. Mass. May 4, 2017) (Judge Hillman).  In this dispute over long term disability benefits, the court granted in part and denied in part Plaintiff’s motion for discovery and to expand the administrative record.  Unum used a physician, Dr. Steven Hendler, to review Plaintiff’s claim and he has “spoken publicly about how it is his job to assist employers and insurance companies to unmask insurance fraud.”  In light of his comments, the court found that his deposition testimony would aid the court in determining his credibility, and the appropriate weight to be given to his opinions.  The court granted his 2-hour deposition.  The court denied Plaintiff’s motion to take discovery of (1) documents showing Unum’s efforts to mitigate effects of structural conflicts, (2) documents for 3 key employees for 2014–2015 (expectations reports, performance reviews, etc.), and (3) documents explaining requirements of the 10/3/2005 amendment to Unum’s Reassessment Agreement regarding whether or not to grant deference to the determination of the Attending Physician.

Exhaustion of Administrative Remedies

Sixth Circuit

Goines v. Liberty Life Assurance Co. Boston, No. 3:17CV-00103-JHM, 2017 WL 1788669 (W.D. Ky. May 4, 2017) (Judge Joseph H. McKinley, Jr.).  Liberty Life denied Plaintiff’s short term disability (STD) claim, which she appealed, but Liberty Life denied the claim on appeal.  She admittedly did not file a long term disability (LTD) claim.  The court found that Plaintiff failed to establish by a clear and positive indication that the administrative remedies available under the LTD Policy would be inadequate and that filing an LTD benefits claim would have been futile, where the STD and LTD plans have different eligibility requirements and elimination periods.

Pension Benefit Claims

Second Circuit

Testa v. Becker, No. 10-CV-6229L, 2017 WL 1857384 (W.D.N.Y. May 9, 2017) (Judge David G. Larimer).  Plaintiff alleged his pension benefits were reduced in violation of ERISA.  Three of four causes of action were previously dismissed due to being time-barred.  The court did not dismiss the ERISA Section 502(a)(3) claim based on his allegation that Defendants have refused to comply with controlling court precedent, in violation of their fiduciary duties.  Here, the court granted Plaintiff’s motion for summary judgment and ordered Defendants to take immediate steps to recalculate and pay Plaintiff benefits, both prospectively and retroactively, according to the “new hire” formula set forth in Frommert v. Becker, 153 F. Supp. 3d 599 (W.D.N.Y. 2016).

Levy v. Young Adult Inst., Inc., No. 13-CV-2861 (JPO), 2017 WL 1929505 (S.D.N.Y. May 9, 2017) (Judge J. Paul Oetken).  The court denied Defendant’s motion for reconsideration of its bench ruling that Plaintiff is entitled to recover benefits due under YAI’s supplemental executive retirement plan (“SERP”).  Crediting Defendants’ argument that the court should have applied different factors to evaluate materiality under New York law to determine whether Defendants had materially breached the Acknowledgment and Release (“A&R”), it does not alter the court’s conclusion that Defendants materially breached the A&R.

Seventh Circuit

Goins v. Goins, No. 16-CV-01281-JPG-RJD, 2017 WL 1908411 (S.D. Ill. May 10, 2017) (Judge J. Phil Gilbert).  The court granted Defendants’ motion to dismiss Plaintiffs’ claim to their father’s pension benefits.  There was a dispute between them and their father’s surviving spouse with respect to payment of funeral expenses so the spouse signed a “release” from any claim from his estate.  The court agreed with Defendants that the funds vested in the surviving spouse upon the death of her husband and must be distributed to her according to the requirements of the Plan.

Pleading Issues & Procedure

Sixth Circuit

Shy v. Navistar Int’l Corp., No. 3:92-CV-333-WHR, 2017 WL 1957523 (S.D. Ohio May 10, 2017) (Judge Walter H. Rice).  Intervenor-Plaintiff Supplemental Benefit Committee of the Navistar, Inc., Retiree Supplemental Benefit Program lacks standing to enforce the terms of the “Base Plan,” which was established by a settlement agreement governed by ERISA and which provides prescription drug benefits to participants.

Cecil v. Haynie, No. 3:17-CV-00107-JHM, 2017 WL 1788668 (W.D. Ky. May 4, 2017) (Judge Joseph H. McKinley, Jr.).  The court dismissed a lawsuit under Rule 12(b)(6) against the judge who presided over Plaintiff’s divorce proceedings.  Plaintiff alleged that Defendant did not apply the rules of ERISA appropriately as they pertained to Plaintiff’s state court divorce proceedings.  The court found that Plaintiff’s complaint should be dismissed for a lack of subject matter jurisdiction under the Rooker-Feldman doctrine and the Eleventh Amendment, and for failure to state a claim as barred by absolute judicial immunity.

Provider Claims

Third Circuit

IGEA Brain and Spine, P.A., On Assignment Of Marcos V v. Blue Cross And Blue Shield Of Minnesota, No. CV165844SDWSCM, 2017 WL 1968387 (D.N.J. May 12, 2017) (Judge Susan D. Wigenton).  The assignment of benefits under which Plaintiff brings this action cannot confer derivative standing because the Plan at issue contains anti-assignment clauses that prohibit it. The clauses are valid and enforceable.  The Plan did not waive the clauses by simply engaging in a claim review process with Plaintiff.

Professional Orthopedic Associates, P.A., et al. v. Horizon Blue Cross Blue Shield of New Jersey, No. CV 15-8048 (JLL), 2017 WL 1838875 (D.N.J. May 8, 2017) (Judge Jose L. Linares).  The court granted summary judgment in favor of Defendant because it found that Plaintiffs failed to set forth any specific facts from the record to support their argument that the determination to pay only a portion of a submitted invoice for surgery performed on an insured was arbitrary and capricious.  The court found that the determination was based on the plain language of the plan.

Fifth Circuit

Connecticut General Life Insurance Company v. Elite Center For Minimally Invasive Surgery LLC, et al, No. 4:16-CV-00571, 2017 WL 1807681 (S.D. Tex. May 5, 2017) (Judge Keith P. Ellison).  The court modified its previous order finding that Cigna’s § 502(a)(3) claim survives the motion to dismiss although it continued to hold the same. “The primary difference in this new order is that the court makes no final determination about whether Cigna’s interpretation of the plan language was legally correct, for purposes of Cigna’s § 502(a)(3) claim.”

Retaliation Claims

First Circuit

Ramos v. Vizcarrondo, No. CV 14-1722 (GAG), __F.Supp.3d__, 2017 WL 1843069 (D.P.R. May 8, 2017) (Judge Gustavo A. Gelpi).  Because Plaintiff has not set forth any evidence that would raise a genuine issue of fact as to Desarrollos Metropolitanos’ financial, nondiscriminatory, reasons behind terminating and liquidating the pension plan, the court dismissed Plaintiff’s retaliation claim.

Fourth Circuit

Trujillo v. Landmark Media Enterprises, LLC, et al., No. 16-1264, __F.App’x__, 2017 WL 1959007 (4th Cir. May 11, 2017) (Before MOTZ, TRAXLER, and AGEE, Circuit Judges).  The court reversed the district court’s dismissal of Plaintiff’s ERISA Section 510 claim.  Here, Plaintiff and the Secretary of Labor, in an amicus brief, argue that his complaint sufficiently alleged that he was terminated for giving information in an “inquiry” because he alleged that he was fired for giving information in legally required audits and in the preparation of the Form 5500.  “Given the novel nature of the legal questions presented in this case regarding the scope of the term ‘inquiry or proceeding,’ we conclude that allowing for greater factual development before delving into these critical questions of statutory interpretation is the most prudent course.”

Retiree Medical

Fourth Circuit

Barton v. Constellium Rolled Products-Ravenswood, Llc; Constellium Rolled Products-Ravenswood, LLC Employees Group Benefits Plan, No. 16-1103, __F.3d__, 2017 WL 1948918 (4th Cir. May 11, 2017) (Before MOTZ, DUNCAN, and HARRIS, Circuit Judges).  The court affirmed the district court’s grant of summary judgment to the employer because the governing collective bargaining agreement does not provide for vested retiree health benefits.

Standard of Review

Ninth Circuit

Orzechowski v. The Boeing Company Non-Union Long-Term Disability Plan, No. 14-55919, __F.3d__, 2017 WL 1947883 (9th Cir. May 11, 2017) (Before: Alex Kozinski and Jay S. Bybee, Circuit Judges, and Donald E. Walter,* District Judge).  The court held that California Insurance Code § 10110.6 is not preempted by ERISA because it falls within the savings clause set forth in 29 U.S.C. § 1144(b)(2)(A) since § 10110.6 is directed toward entities engaged in insurance, and it substantially affects the risk-pooling arrangement between the insurer and the insured.  § 10110.6 applies to Plaintiff’s long-term disability claim because the relevant insurance policy renewed after the statute’s effective date. The case is remanded to the district court.

Statute of Limitations

Third Circuit

Kriley v. IBM Corp., No. CV 16-1860, 2017 WL 1927740 (W.D. Pa. May 10, 2017) (Magistrate Judge Maureen P. Kelly).  Plaintiff’s claim for severance benefits accrued when he was laid off and offered an allegedly incorrect severance payment.  Since the lawsuit was filed more than four years later, it is time-barred.  The court rejected Plaintiff’s arguments that Defendants waived the statute of limitations defense by not raising it during the administrative process and Defendants are estopped from asserting the limitations defense because IBM did not give him a copy of the SPD or a description of the claims procedure, as required by 29 U.S.C. § 1024(b)(1).

Perez v. Belanger, No. 16-CV-4427, 2017 WL 1910137 (E.D. Pa. May 10, 2017) (Judge J. Curtis Joyner).  Where Plaintiff alleges that in 2011 the Defendants transferred assets of the Edward P. Shamy, Jr. 401(k) Plan to the Company’s corporate bank account for the Defendants’ use or benefit, this stand-alone claim under ERISA § 406(a)(1)(D) is not time-barred by the six-year statute of limitations.  The same applies with respect to the Bleach and Associates Plan where the remaining assets were moved to the Company’s corporate bank account within the six-year period.  Lastly, Plaintiff’s claims regarding misrepresentations on annual reports filed in August 2010 or later are not barred by ERISA’s statute of limitations.

Subrogation/Reimbursement Claims

Fifth Circuit

Northrop Grumman Corporation Administrative Committee v. Nelson, No. 4:16-CV-765, 2017 WL 1881990 (S.D. Tex. May 9, 2017) (Judge Kenneth M. Hoyt).  In this matter where Plaintiff alleged that it mistakenly paid Defendant more money for her ex-spouse’s pension than it should have and sought return of the money, the court determined that the parties have raised genuine issues of material fact in regards to, inter alia, whether Defendant’s defense of laches is applicable here and/or whether the overpaid funds are associated with a specifically identifiable res separate and apart from Defendant’s general assets.  The court denied summary judgment to both parties.

 

 

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