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ERISA Watch – Court Denies Insurer Equitable Trust over Erroneously Paid Life Insurance Benefits Since It Seeks Unavailable “Legal” Relief

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This weeks’ notable decision is Opheim v. Standard Ins. Co., No. C 16-4145-MWB, __F.Supp.3d__, 2018 WL 396231 (N.D. Iowa Jan. 9, 2018).  In this matter, Plaintiff Opheim seeks payment of life insurance benefits originally paid to him by Standard, then demanded back, because Standard refused to pay him the benefits again when he later discovered a designation naming him as the beneficiary. Standard paid those benefits to third-party defendant Stevens and it asserted that if it is required to pay benefits to Plaintiff, it is entitled to a constructive trust over the benefits it has paid to Stevens.

The court determined that Standard’s decision not to pay the additional term life insurance benefits to Plaintiff was not supported by substantial evidence in the materials considered by the administrator and was an abuse of discretion. The court ordered Standard to pay those benefits to Opheim.  The court declined to reach Plaintiff’s second claim for equitable fraud since he obtained complete relief on his denial of benefits claim.  The court determined that Standard’s claim for an equitable trust over the benefits that it erroneously paid Stevens is denied, because that claim seeks “legal” relief not available under ERISA.  A plan administrator’s claim for a constructive trust is legal rather than equitable if it seeks compensation out of the general assets of the defendant and does not assert the right to particular property in the defendant’s possession.

On another positive note, the court found that both Plaintiff and Stevens are entitled to an award of attorney fees against Standard.  And you can (constructive) trust me on that.

Below is a summary of this past week’s notable ERISA decisions by subject matter and jurisdiction.

Attorneys’ Fees

Seventh Circuit

Laborers’ Pension Fund v. W.R. Weis Co., Inc., No. 16-2079, __F.3d__, 2018 WL 316555 (7th Cir. Jan. 8, 2018) (Before Bauer, Sykes, and Hamilton, Circuit Judges).  In this matter involving withdrawal liability in which the company prevailed, the district court held that the dispositive issue in the case was a question of contract construction and that both sides offered legitimate interpretations such that the Fund’s position was substantially justified and declined to award fees. The Seventh Circuit affirmed, finding that it was not an abuse of discretion.

Breach of Fiduciary Duty

Sixth Circuit

Graham v. Fearon, No. 17-3407, __F.App’x__, 2018 WL 315098 (6th Cir. Jan. 8, 2018) (BEFORE: SILER, WHITE and THAPAR, Circuit Judges).  The Sixth Circuit affirmed the district court’s 12(b)(6) dismissal of this putative class action alleging that plan fiduciaries of the Eaton Corporation employee stock ownership plan (“ESOP”) breached their fiduciary duties by failing to protect the plan from harm caused by the artificial inflation of Eaton’s stock price due to an alleged fraud and misrepresentation by Eaton executives.  “We recognize that the Fifth Third standard is difficult for plaintiffs to meet and that no court since Amgen has found sufficiently pled alternative actions. Nevertheless, under the particular facts of this case, none of Plaintiffs’ proposed alternatives was so clearly beneficial that a prudent fiduciary, under then prevailing circumstances, could not conclude that it would be more likely to harm the fund than to help it.”

Ninth Circuit

Laffen v. Hewlett-Packard Company, et al., No. 15-16360, __F.App’x__, 2018 WL 328117 (9th Cir. Jan. 9, 2018) (Before: McKEOWN and MURGUIA, Circuit Judges, and RUFE, District Judge).  The court affirmed the district court’s dismissal of this putative class action lawsuit alleging that Defendants breached their fiduciary duties under ERISA by permitting the Plan and Plan participants to purchase and hold HP common stock when the stock was artificially inflated and was an imprudent investment for the Plan.  The court determined that Plaintiffs’ concealment theory is inconsistent with the complaint because the information Defendants allegedly concealed is not the same information that forced HP to reduce Autonomy’s valuation and hurt the value of HP stock.  The court concluded that the breach of the duty of prudence claim fails because Laffen has not plausibly alleged an alternative action Defendants could have taken that was consistent with securities laws and that a similarly situated prudent fiduciary would not have viewed as more likely to harm than help the Plan.

Disability Benefit Claims

Sixth Circuit

Brock v. AT&T Services, Inc., No. CV 17-1-HRW, 2018 WL 344985 (E.D. Ky. Jan. 9, 2018) (Judge Henry R. Wilhoit, Jr.).  The court concluded that Plaintiff failed to point to anything to establish that the Administrator’s decision to deny short term disability benefits was not a “reasoned” one.  Sedgwick relied on physicians who only reviewed Plaintiff’s medical files and did not examine her in person.  The court determined that the Administrator had evidence from which it rationally concluded that Plaintiff was not disabled under the Plan and its decision was not unreasonable, arbitrary or capricious.

Eleventh Circuit

Johnson v. AT&T Umbrella Benefit Plan No. 3, No. 2:15-CV-01074-HNJ, 2018 WL 333833 (N.D. Ala. Jan. 9, 2018) (Magistrate Judge Herman N. Johnson, Jr.).  The Plan did not err in denying Plaintiff’s short-term disability benefits claim.  Since the record merely provides that the SSA awarded monthly benefits in an enumerated amount and does not contain an Administrative Law Judge’s opinion or other documentation elucidating the SSA’s rationale for finding plaintiff disabled, the evidence that the SSA awarded plaintiff disability benefits merits limited probative value as it relates to Plaintiff’s eligibility for STD benefits under the Plan.  There is no conflict of interest where the Plan pays benefits from a trust funded through the employer’s non-reversionary contributions.  The court rejected Plaintiff’s argument that there is a conflict of interest because AT&T contributes variable sums to the trust if claims exceed the trust’s fund balance.  Plaintiff does not qualify for LTD benefits because she received STD benefits for only 44 of the 52-week STD period.  And, Plaintiff did not exhaust administrative remedies on the LTD claim.


Third Circuit

Libock v. Horizon Healthcare Services, Inc., et al., No. CV162812JLLJAD, 2018 WL 395735 (D.N.J. Jan. 12, 2018) (Magistrate Judge Joseph A. Dickson).  In this ERISA action challenging Defendants’ denial of claims for reimbursement relating to the beneficiary’s treatment for certain mental and substance abuse disorders, the court granted Plaintiff’s motion to compel.  The court concluded that Plaintiff’s alleged failure to exhaust administrative remedies with respect to certain claim denials does not foreclose his right to obtain documents relevant to those claim denials at this early stage of the case.  The court also concluded that documentation relating to the claims for reimbursement and “custodial care” are well within the ambit of the Complaint and discoverable under the rules.

Sixth Circuit

Davis v. Hartford Life & Accident Ins. Co., No. 3:14-CV-507-TBR-LLK, 2018 WL 334517 (W.D. Ky. Jan. 9, 2018) (Magistrate Judge Lanny King).  In this matter seeking long-term disability benefits, the court granted Plaintiff’s motion to compel in part.  It denied a number of requests for production of documents but compelled production of Turnaround Time (“TAT”) reports provided by University Disability Consortium as they relate to Plaintiff.  “However, Hartford is not required to provide documentation with regarding to the TAT reports pertaining to other claimants as those documents are not relevant to Davis’ claims, and they would undoubtedly contain confidential information.”

Duncan v. Minnesota Life Ins. Co., No. 3:17-CV-00025, 2018 WL 306609 (S.D. Ohio Jan. 5, 2018) (Magistrate Judge Sharon L. Ovington).  In this dispute over accidental death benefits, the court found that Plaintiffs are entitled to limited discovery regarding Minnesota Life’s conflict of interest and/or Dr. Gretchen M. Bosacker’s (its medical director) possible conflict of interest.  The court explained that the record contains some indication that Minnesota Life ignored the treating doctor’s opinions and this goes beyond mere allegations of bias, conflict of interest, or procedural defect.

ERISA Preemption

First Circuit

Farias v. Massachusetts Laborers’ Health And Welfare Fund & Express Scripts, No. CV 17-11097-MBB, 2018 WL 340031 (D. Mass. Jan. 9, 2018) (Magistrate Judge Marianne B. Bowler).  In this case, Plaintiff seeks to recover for harm resulting from the Defendants’ refusal to prescribe medications.  Express Scripts moved to dismiss the complaint on the basis that ERISA preempts the state negligence and contract claims.  Additionally, Express Scripts argues that even if the court allowed Plaintiff to amend the complaint to include an ERISA claim, it is not a proper party and compensatory damages are not recoverable.  The court granted the motion to dismiss to the extent that the negligence and contract claims against Express Scripts are preempted by ERISA.  The court afforded Plaintiff 45 days to file a motion for leave to file an amended complaint to include an ERISA claims against Express Scripts.  Express Scripts is a proper defendant if it controls the administration of the plan.

Ninth Circuit

Amlani v. Baker’s Burgers, Inc., No. CV1702278SJOSHKX, 2018 WL 354617 (C.D. Cal. Jan. 10, 2018) (Judge S. James Otero).  The court determined that Plaintiff’s lawsuit for severance benefits is not preempted by ERISA and granted his motion to remand to state court.   The court found that the agreement in this case is similar to that in Delaye v. Agripac, Inc., 39 F.3d 235 (9th Cir. 1994).  “It is individualized and does not apply to a larger group of employees, nor does it require Defendant to make anything but a single, up-front calculation followed by regular, standard payments over a period of time. In his complaint, Plaintiff essentially seeks two items: (1) an up-front, lump sum payment of the Longevity Severance Payment and (2) continued payment of his existing salary and benefits for one year following his termination.”

Exhaustion of Administrative Remedies

Third Circuit

Stampone v. Walker, et al., No. 17-2660, __F.App’x__, 2018 WL 317038 (3d Cir. Jan. 8, 2018) (Before: JORDAN, RESTREPO, and SCIRICA, Circuit Judges).  Here, the district court dismissed Plaintiff’s ERISA claim for pension benefits on the sole ground that he failed to plead exhaustion. On appeal, the Third Circuit noted that it has not addressed whether an ERISA plaintiff must plead exhaustion in the complaint.  It declined to decide that issue in this case because it determined that dismissal for lack of exhaustion appears otherwise premature under the circumstances presented here.  The court vacated and remanded for further proceedings and advised the district court to conduct proceedings limited to the questions of whether Plaintiff has exhausted this claim and, if not, whether exhaustion would be futile.

Ninth Circuit

Burque v. United of Omaha Life Insurance Company, No. 17-CV-02725 NC, 2018 WL 369053 (N.D. Cal. Jan. 10, 2018) (Magistrate Judge Nathanael Cousins).  The court found that there is a genuine issue of material fact regarding the pro se Plaintiff’s receipt of the denial of his LTD application, such that it is unclear whether Plaintiff would have known the timeline to exhaust his administrative remedies.  The court did not find the “mailbox rule” dispositive of this issue.  For that reason, the court denied United of Omaha’s motion for summary judgment.

Life Insurance & AD&D Benefit Claims

Eighth Circuit

Opheim v. Standard Ins. Co., No. C 16-4145-MWB, __F.Supp.3d__, 2018 WL 396231 (N.D. Iowa Jan. 9, 2018) (Judge Mark W. Bennett).  See “notable decision” summary above.

Medical Benefit Claims

Seventh Circuit

Sendik v. Cigna Health & Life Ins. Co., No. 16-CV-1329, 2018 WL 324892 (E.D. Wis. Jan. 8, 2018) (Magistrate Judge William E. Duffin).  In this case, the insured incurred significant medical expenses for surgery to treat his congenital abnormality of odontodyslplasia/odontogenesis imperfecta and Defendants denied payment of his claims.  The court agreed with Defendants’ argument that the plan does not cover reconstructive surgery for abnormalities of the jaw, dental treatment, and dental implants.  The court held that Defendants have established they are entitled to judgment as a matter of law due to the specific exclusion of coverage for dental benefits and implants for any reason.

Ninth Circuit

Krysten C. v. Blue Shield of California, No. 16-16958, __F.App’x__, 2018 WL 328132 (9th Cir. Jan. 9, 2018) (Before: THOMAS, Chief Judge, and LUCERO and OWENS, Circuit Judges).  The court affirmed summary judgment in favor of Blue Shield on Plaintiff’s denied claim for medical benefits.  The court rejected Blue Shield’s argument that Plaintiff does not have standing to bring her claim under ERISA because she has not paid and is not obligated to pay the provider for the medical services she received.  The court noted that she contractually agreed with the provider that “treatment is ultimately the responsibility of the client, including treatment provided after an insurance denial.”  The court affirmed that Blue Shield did not abuse its discretion when it determined that partial hospitalization, and not ongoing residential treatment, was the most appropriate level of care under the Plan.

Plan Status

Second Circuit

Majied v. New York City Dept. of Education et al., No. 16-CV-5731 (JMF), 2018 WL 333519 (S.D.N.Y. Jan. 8, 2018) (Judge Jesse M. Furman).  The Teachers Retirement System (“TRS”) is not a covered plan or administrator or trustee of a covered plan that could be liable under ERISA § 502(a)(1)(B).  The TRS plan is not covered by ERISA because it qualifies as a government pension plan.  Thus, it is exempt from the requirements of ERISA’s Title I, including those pertaining to employee benefit plans.

Pleading Issues & Procedure

First Circuit

Hamilton v. Partners Healthcare System, Inc.; et al., No. 12-2313, __F.3d__, 2018 WL 387774 (1st Cir. Jan. 12, 2018) (Before Lynch, Thompson, and Kayatta, Circuit Judges).  In one of many lawsuits involving RICO, FLSA, and ERISA claims against healthcare facilities, the First Circuit found that the district court was not required to allow Plaintiffs leave to amend.  The district court — after explaining why it would not allow amendment — expressly offered Plaintiffs an opportunity to file a formal motion with an amended pleading.  Plaintiffs decided not to file a formal motion with an amended pleading so the First Circuit had no proposed pleading to consider.

Seventh Circuit

Laborers’ Pension Fund v. W.R. Weis Co., Inc., No. 16-2079, __F.3d__, 2018 WL 316555 (7th Cir. Jan. 8, 2018) (Before Bauer, Sykes, and Hamilton, Circuit Judges).  In arbitration, Defendant challenged its obligation to pay more than $600,000 in withdrawal liability for ceasing to contribute to the Fund.  The arbitrator found in the company’s favor based on an exemption for building and construction industry under 29 U.S.C. § 1383(b).  On appeal, the Fund raised a legal argument about the language and purpose of the exemption.  The court held that the Fund waived its statutory-interpretation argument by failing to raise it in the arbitration. The Fund has not meaningfully challenged the arbitrator’s factual determinations, which the court found to easily survive clear-error review in any event.  The court affirmed the judgment in favor of the company.


Seventh Circuit

Central States, Southeast and Southwest Areas Pension Fund v. B&M Marine Construction, Inc., et al., No. 16-CV-2743, 2018 WL 318483 (N.D. Ill. Jan. 8, 2018) (Judge John Robert Blakey).  In this matter alleging withdrawal liability, the court denied Defendants’ motion to transfer venue to the Southern District of Florida under 28 USC § 1404(a).  The court found that venue is proper in this district under ERISA, and Defendants have not established that the transferee forum is so clearly preferable as to disturb Plaintiff’s choice. Although transferring the case to the Southern District of Florida might be convenient for Defendants and their witnesses, it would inconvenience Plaintiffs to the equal and opposite extent.

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