This week’s notable decision is out of the First Circuit Court of Appeals and involves an offset to long-term disability insurance benefits. In Troiano v. Aetna Life Ins. Co., No. 16-1307, __F.3d__, 2016 WL 7321575 (1st Cir. Dec. 16, 2016), the court held that Aetna Life Insurance Company could offset (reduce) Troiano’s long-term disability benefits by the gross (before tax) amount of Social Security income rather than by the net (post tax) amount of Social Security income. In coming to this conclusion, the court held that the plain language of the disability plan allows for offsets by other income that is payable to the beneficiary. The plan language of the plan supports Aetna’s decision to offset the LTD benefits by the full amount of SSDI benefits for which Troiano is eligible, rather than by the amount left over after she has paid income taxes. The gross amount is what is “payable” to the beneficiary, even if she has to pay taxes on that income.
Why is this important? For some disability claimants, the LTD benefits are non-taxable. Thus, if a claimant does not pay taxes on his or her long-term disability benefit, then reducing that benefit by the net amount he or she receives in SSDI benefits (after taxes) results in a lower benefit amount. The First Circuit Court of Appeals held that this result is okay. It is likely that other courts will come to the same conclusion. Insurance companies usually require claimants to apply for SSDI benefits and give themselves the right to stop paying LTD benefits if claimants refuse to pursue a Social Security claim. This is because they also give themselves the right to reduce the amount of benefits they have to pay by what claimants receive in other income. Since private disability insurance benefits are voluntary (meaning employers do not have to provide them), these plans can lawfully include these types of terms, even if they are unfair.
There were many other notable appellate decisions this past week. Read about them below!
Below is Kantor & Kantor LLP’s summary of this past week’s notable ERISA decisions.
Disability Benefit Claims
Arko v. Hartford Life And Accident Insurance Co., No. 14-17287, __F.App’x__, 2016 WL 7422946 (9th Cir. Dec. 23, 2016) (Before: THOMAS, Chief Judge; and GILMAN (U.S. 6th) and FRIEDLAND, Circuit Judges). The court affirmed the district court’s ruling in favor of Hartford on Plaintiff’s long-term disability benefit claim denial. The court found that the record lacks any evidence that Plaintiff was permanently disabled in 2000, and because of large gaps in the medical records (no records for 5 of the 11 years of claimed disability), determining whether Plaintiff was continuously disabled is “impossible.” Further, some of the information that Plaintiff provided to his physicians contradicts his claim that he was disabled during all of this period. Lastly, the court declined to address Plaintiff’s argument that Hartford violated 29 C.F.R. § 2560.503-1(h)(3)(v) by failing to have a medical professional examine the medical records since Plaintiff waived this argument by failing to raise it at any stage of the proceedings in the district court.
Earley v. Liberty Life Assurance Company Of Boston, No. 16-12934, __F.App’x__, 2016 WL 7406314 (11th Cir. Dec. 22, 2016) (Before JORDAN, ROSENBAUM, and EDMONDSON, Circuit Judges). The court affirmed the district court’s denial to reopen under Rule 60(b)(6) the pro se plaintiff’s dismissed ERISA claim for long-term disability benefits. Plaintiff claimed that his medical condition, including suffering from two strokes, constitutes sufficient “extraordinary circumstances.” The court found that Plaintiff’s first stroke occurred more than six months after the court dismissed with prejudice his ERISA claim so his medical condition had no bearing on the failure in his original and amended complaints to state a claim under ERISA or on Plaintiff’s failure to comply otherwise with court orders. On this record, the court cannot conclude that the district court’s ruling constituted an abuse of discretion.
Milby v. MCMC LLC, No. 16-5483, __F.3d__, 2016 WL 7404753 (6th Cir. Dec. 22, 2016) (Before: BATCHELDER, STRANCH, and DONALD, Circuit Judges). Following denial of her ERISA-governed long-term disability benefit claim, Plaintiff filed this lawsuit in state court alleging a state-law claim of negligence per se against MCMC (the third-party vendor that provided a medical review for the disability plan administrator) for practicing medicine in Kentucky without the appropriate licenses. The court affirmed the district court’s denial of Plaintiff’s motion to remand the case to state court on the basis of complete preemption. The court found that the first prong of Davila is satisfied since Plaintiff’s claim arises from the denial of ERISA benefits, even though MCMC is not a proper defendant for an ERISA action. Under the second prong, the medical reviewers did not owe Plaintiff an independent duty under Ky. Rev. Stat. Section 311.560, which prohibits the practice of medicine without a license, since medical professionals reviewing documents without making determinations regarding medical necessity are not practicing medicine within the meaning of the Kentucky licensing law.
Life Insurance & AD&D Benefit Claims
Briscoe v. Metro. Life Ins. Co., No. 16-30354, __F.App’x__, 2016 WL 7367821 (5th Cir. Dec. 19, 2016) (Before WIENER, CLEMENT, and HIGGINSON, Circuit Judges). The court affirmed the district court’s determination that MetLife did not abuse its discretion in denying life insurance benefits for an insured who died 34 days after his termination date and the policy provides that benefits would be paid if the insured dies within 31 days after his insurance ends. Plaintiff argued unsuccessfully that the employer’s payment of 30.67 hours of accrued but unused vacation time extended the date that his insurance ended by approximately four days.
Medical Benefit Claims
Soehnlen v. Fleet Owners Insurance Fund, et al., No. 16-3124, __F.3d__, 2016 WL 7383993 (6th Cir. Dec. 21, 2016) (Before: KEITH, BATCHELDER, and CLAY, Circuit Judges). In putative class action alleging that Defendants failed to comply with the ACA provisions enjoining annual and life-time limitations on benefits, the court affirmed the district court’s decision to dismiss the ERISA claims for lack of standing. For the Section 502(a)(1)(B) claim, Plaintiffs did not establish individualized harm by simply claiming that certain members of their class suffer from conditions that have previously required medical expenses in excess of the benefit caps imposed by the Plan and that some of their employees will choose to delay important medical procedures in order to avoid exceeding the cap. Further, Plaintiffs do not state a claim by asserting that they personally suffer a constitutional injury by remitting money towards a non-compliant plan. With respect to Plaintiffs’ ERISA Section 502(a)(1)(B) and 502(a)(3) claims for monetary and injunctive relief, the court found that Plaintiffs must still show a constitutional injury in order to proceed. With respect to Plaintiffs’ breach of fiduciary duty claims, Plaintiffs claim that the actions of the fiduciaries expose the Plan to prospective liability in the amount of $15,000,000, but there is no evidence that penalties have been levied, paid, or even contemplated. Thus, Plaintiffs make no showing of actual or imminent injury.
Automotive Industries Pension Trust Fund; et al. v. Tractor Equipment Sales, Inc., et al., No. 14-17371, __F.App’x__, 2016 WL 7422710 (9th Cir. Dec. 23, 2016) Before: HAWKINS, BERZON, and MURGUIA, Circuit Judges). The court affirmed the district court’s decision to not enforce withdrawal liability under ERISA against three rental properties owned by the Van Tuyls because they did not constitute a commonly-controlled “trade or business” under 29 U.S.C. § 1301(b)(1). The Van Tuyls devoted little time to the real estate beyond depositing the income and performing minimal maintenance as required. The court found that the nature of the real estate activity in this case is thus more akin to holding a long-term income-producing investment.
* 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. If you have questions about how the developing law impacts your ERISA benefit claim, contact an experienced ERISA attorney. Case summaries authored by Michelle L. Roberts, Partner, Kantor & Kantor LLP, 1050 Marina Village Pkwy., Ste. 105, Alameda, CA 94501; Tel: 510-992-6130.