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ERISA Watch – Fourth Circuit Holds Life Insurance Misrepresentation Claims Are Preempted by ERISA

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This week’s notable decision is out of the Fourth Circuit Court of Appeals in the matter of Prince v. Sears Holdings Corporation, No. 16-1075, __F.3d__, 2017 WL 383370 (4th Cir. Jan. 27, 2017).  In November 2010, Prince submitted an application to his employer for $150,000 in life insurance coverage for his wife, Judith.  In May 2011, Sears sent an acknowledgment to Prince and began withholding premiums from his pay.  Later that year, Judith was diagnosed with Stage IV liver cancer.  A year following the discovery of the cancer, Prince checked his online benefits to confirm his election to purchase life insurance coverage for Judith.  After another year passed, Sears sent Prince a letter confirming that Judith’s coverage never became effective because no “evidence of insurability questionnaire” had been submitted.  Allegedly, Prudential sent Prince a notice in January 2011 that the questionnaire had to be completed or else coverage would terminate.  Prince disclaims having record of receipt of that notice.

When Judith died in 2014, Prince did not receive the value of the life insurance policy.  He brought a state court action against Sears for one count of “constructive fraud/negligent misrepresentation” and one count of “intentional/reckless infliction of emotional distress,” based on Sears’s alleged misrepresentations regarding the life insurance policy and the harm inflicted on him and Judith.   Upon removal, the district court dismissed the complaint on the basis of complete ERISA preemption.  The Fourth Circuit affirmed.  It held that ERISA completely preempts these state law claims because Prince can enforce his claims against Sears under ERISA Section 502(a)(1)(B).  Even if Prince cannot recover “damages,” his claims are still preempted.  Additionally, resolution of the claims would require interpretation of the ERISA plan to determine whether Sears met its duty as the plan administrator.  The infliction of emotional distress claim also requires assessment of Sears’s conduct in administering the ERISA plan.  The court noted that Prince could recover if the administration of his claim was so inept that it was “outrageous.”  But determining whether Sears acted in an “outrageous” way requires examining and interpreting its duties under the ERISA plan.  Because Prince’s claims meet all three prongs of the test in Sonoco Prods. Co. v. Physicians Health Plan, Inc., 338 F.3d 366 (4th Cir. 2003), ERISA completely preempts them.

Enjoy this week’s case summaries!

Below is Kantor & Kantor LLP’s summary of this past week’s notable ERISA decisions.

Class Actions

Ninth Circuit

Gordon v. New W. Health Servs., No. CV 15-24-GF-BMM, 2017 WL 365484 (D. Mont. Jan. 25, 2017) (Judge Brian Morris).  In this matter alleging unlawful pattern and practice of denying the putative class of Alcohol, Mental Illness, and Drug Addiction benefits, the court denied class certification and reasoned that, even if this Court were to consider surcharges permissive relief under 23(b)(2), Plaintiffs lack standing to certify a Rule 23(b)(2) class since they no longer receive benefits under New West’s health plan.  The court did grant Plaintiffs permission to amend the Complaint to include a claim for class certification under Rule 23(b)(3).

Disability Benefit Claims

First Circuit

Murphy v. Aetna Ins. Co., No. CV 15-545-ML, 2017 WL 347447 (D.R.I. Jan. 24, 2017) (Judge Mary M. Lisi).  In this case challenging a denial of long term disability benefits for Plaintiff claiming disabling fatigue from cirrhosis, renal insufficiency, pancreatitis, and liver disease, the court determined that Aetna’s denial of LTD benefits to Murphy was supported by substantial evidence and that Murphy has not met her burden to establish that such denial was arbitrary and capricious.  The court adopted the R&R in its entirety and granted Aetna’s motion for summary judgment.

Third Circuit

Neal v. Life Ins. Co. of N. Am., No. CV 16-1146, 2017 WL 321497 (W.D. Pa. Jan. 23, 2017) (Judge Cathy Bissoon).  The court held that abuse of discretion review applies because the Plan in this case unambiguously provides that LINA has discretionary authority to determine a claimant’s eligibility for benefits.  The policy itself states that LINA has been “appointed … as the named fiduciary for deciding claims for benefits under the Plan, and for deciding any appeals of denied claims.”  Although this language alone may be insufficient to confer the requisite discretion to LINA, other Plan documents consistently and unambiguously provide for such discretion, including the Group Long-Term Disability Insurance Certificate and Appointment of Claim Fiduciary form.  The court also found that Plaintiff failed to establish a good faith basis or reasonable suspicion of misconduct or bias such that Plaintiff is not entitled to discovery beyond the administrative record.

Sixth Circuit

Rouleau v. Liberty Life Assurance Co. of Boston, No. 1:15-CV-546, 2017 WL 359466 (W.D. Mich. Jan. 25, 2017) (Judge Robert J. Jonker).  Michigan’s ban on discretion, Mich. Admin. Code R. 500.2201, requires the court to conduct a de novo review.  On de novo review, the court determined that the preponderance of the evidence weighs in favor of a disability benefits award to Plaintiff.  The court gives great weight to the Social Security Administration’s determination that Ms. Rouleau is totally disabled from employment.  The court also credits Plaintiff’s treatment records which reveal a clear pattern in which Plaintiff for years experienced severe pain in her back and lower extremities, received treatment, only to have the pain return.  The court also found Plaintiff’s descriptions of her condition on the Activities Questionnaires to be credible.  No provider suggested she exaggerated her pain in any way.

Ninth Circuit

Morgan v. Hartford Life & Accident Ins. Co., No. C16-5183 BHS, 2017 WL 373016 (W.D. Wash. Jan. 26, 2017) (Judge Benjamin H. Settle).  On de novo review, the court denied Hartford’s motion for summary judgment since it must weigh the reports of doctors who found “no disability” against those doctors who do find Plaintiff disabled.  Citing to Kearney v. Standard Ins. Co., 175 F.3d 1084 (9th Cir. 1999), the court explained that such weighing of the evidence is inappropriate on a motion for summary judgment under de novo review.

Fowkes v. Metro. Life Ins. Co., No. 215CV00546KJMCKD, 2017 WL 363155 (E.D. Cal. Jan. 25, 2017) (Judge Kimberly Mueller).  Cal. Ins. Code Section 10110.6 applies where the certificate date of MetLife’s insurance Plan is January 1, 2011, but it is the same policy that was continued in force and in effect in October 2014, when MetLife denied Plaintiff’s long-term disability benefits.  The court found that a Social Security award made after MetLife’s final decision is not necessary or relevant to the court’s de novo review and would not be considered.  The court found that Plaintiff did not meet her burden in establishing disability due to (1) osteoarthritis; (2) epilepsy; (3) a “heart condition”; (4) fibromyalgia; (5) migraine headaches and neck pain; (6) right hand tremors; (7) memory loss; and (8) depression.


Ninth Circuit

ILWU-PMA Welfare Plan Bd. of Trustees & ILWU-PMA Welfare Plan v. Connecticut Gen. Life Ins. Co., No. C 15-02965 WHA, 2017 WL 345988 (N.D. Cal. Jan. 24, 2017) (Judge William Alsup).  The court granted Plaintiff’s motion for sanctions for spoliation of evidence against one defendant in this matter challenging “auto-discount” agreements with medical providers.  The court determined that the parties’ tolling agreement should have put Carewise on notice that it possessed information relevant to reasonably foreseeable litigation.  The court concluded that Carewise did not take reasonable steps to preserve relevant information for this reasonably foreseeable litigation, where it did not retain copies of its own electronically stored information prior to its sale of Human Resources Solutions, Inc. (“HRS”) to ADP, and where relevant documents were stored on HRS servers acquired by ADP, but ADP could not locate the requested records.

ERISA Preemption

Fourth Circuit

Prince v. Sears Holdings Corporation, No. 16-1075, __F.3d__, 2017 WL 383370 (4th Cir. Jan. 27, 2017) (Before MOTZ, KEENAN, and THACKER, Circuit Judges).  The court affirmed the judgment of the district court dismissing the complaint an employee brought for misrepresentation, constructive fraud, and infliction of emotional distress in connection with a life insurance benefit claim.  ERISA completely preempts these state law claims because he can enforce his claims under ERISA Section 502(a) and resolution of the claims would require interpretation of the ERISA plan.

Fifth Circuit

Thorson v. Aviall Servs., Inc., No. 3:15-CV-0571-D, 2017 WL 361895 (N.D. Tex. Jan. 24, 2017) (Judge Sidney A. Fitzwater).  In this action alleging breach of a severance agreement, the court held that the Severance Plan is an ERISA employee welfare plan but that a written Agreement under which the former employee was to continue to receive his base salary as severance pay and also receive medical, dental, and vision benefits, is merely an employment contract governed by state law and not an ERISA plan.  This is because the Agreement (1) requires the payment of a set amount triggered by a single specific event, (2) gives the employee the option of continuing his health care program benefits under an already-established administrative scheme, and (3) does not otherwise include any administrative requirements that would require the exercise of discretion.  Since Plaintiff is seeking relief under the Agreement, the court denied Defendant’s motion to dismiss on the basis of completely ERISA preemption.

Statute of Limitations

Gillette v. Wilson Sonsini Group Welfare Benefit Plan, No. 14-36020, __F.App’x__, 2017 WL 371352 (9th Cir. Jan. 26, 2017) (Before: TROTT, TASHIMA, and CALLAHAN, Circuit Judges).  The court affirmed the district court’s dismissal of the pro se Plaintiff’s claims for breach of fiduciary duty for charging Plaintiff’s son excessive COBRA premiums because the claims were time-barred by ERISA’s applicable three-year statute of limitations.

Statutory Penalties

Ninth Circuit

Amy’s Kitchen, Inc. v. Campbell, No. 16-CV-03664-JCS, 2017 WL 264062 (N.D. Cal. Jan. 20, 2017) (Magistrate Judge Joseph C. Spero).  The court dismissed, with leave to amend, Defendant’s counterclaim for Section 1132(c)(1) penalties for failure to produce documents required by Section 1024(b)(4), where Plaintiff only alleged that certain requests “were made to Plan representatives and/or directly to Carme Lewis, who is represented to be the Plan Administrator,” but did not plausibly allege that Plaintiff delegated its document provision responsibilities to the Phia Group, or that the Phia Group otherwise acted as Plaintiff’s agent in that regard.

Subrogation/Reimbursement Claims

Sixth Circuit

Biegajski v. Priority Health, et al., No. 1:15-CV-1037, 2017 WL 366211 (W.D. Mich. Jan. 25, 2017).  The court determined that Priority Health properly paid Biegajski’s medical bills following his accident but that it is not entitled to reimbursement from an out-of-state tort action settlement pursuant to the Subrogation and Reimbursement provision in its health plan.  Mich. Comp. Laws Section 500.3116 precludes the reimbursement claim because Priority Health has not established that the amounts recovered by Biegajski’s estate in the out-of-state action represented compensation for damages for which medical benefits were paid.  Section 3116 is not preempted by ERISA since it is a law that regulates insurance.

* Please note that these are only case summaries of decisions 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 a knowledgeable ERISA attorney.  Case summaries authored by Michelle Roberts, Partner, Kantor & Kantor LLP, 1050 Marina Village Pkwy., Ste. 105, Alameda, CA 94501; Tel:  510-992-6130. 


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