Below is Kantor & Kantor LLP’s summary of this past week’s notable ERISA decisions.
Court of Appeals Vacates Decision Based on Rejected Moench Presumption
InWhitley v. BP, P.L.C., 12-20670, 2014 WL 3412205 (5th Cir. July 15, 2014), the 5th Circuit Court of Appeals vacated and remanded a case arising from a drop in the stock price of BP p.l.c. (“BP”), which was one of the investment options available under ERISA-governed investment and savings plans sponsored by BP North America, because the district court applied the Moench presumption. The plaintiffs are participants in the plans and they filed suit alleging that defendants are fiduciaries of the Plans under ERISA and that they knew or should have known based on a variety of sources that BP Shares were not a prudent investment. Plaintiffs claim that defendants failed to take appropriate action based on the information available to them and thereby breached their fiduciary duty. Plaintiffs additionally asserted that defendants engaged in misrepresentations and omissions of material information in their capacity as ERISA fiduciaries. Defendants moved to dismiss the complaint for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6), arguing that because the documents governing the Plans list the BP Stock Fund as a “core investment,” the Plans qualify as “eligible individual account plans” or “EIAPs” under 29 U.S.C. § 1107(d)(3). In line with the case law prevailing in the 5th Circuit at the time, defendants asserted that an ERISA fiduciary’s decision to keep an EIAP invested in company stock is entitled to a “presumption of prudence,” sometimes referred to as theMoench presumption. The district court agreed and granted the motion to dismiss on the ground that Plaintiffs had failed to plead facts that, if proven, would overcome the Moenchpresumption. Shortly after oral argument of this appeal, the Supreme Court granted certiorari in Dudenhoeffer v. Fifth Third Bancorp, 692 F.3d 410 (6th Cir.2012), cert. granted,134 S.Ct. 822 (2013). On June 25, 2014, the Supreme Court issued a unanimous opinion dispatching with the Moench presumption and holding that ERISA fiduciaries managing a plan invested in company stock are subject to the same duty of prudence as any other ERISA fiduciary, except that they need not diversify the fund’s assets. In light of this recent decision, the 5th Circuit Court of Appeals vacated the judgment of the district court and remanded for reconsideration of plaintiffs’ motions in light of Dudenhoeffer.
Court Upholds Liberty’s Denial of LTD Benefits. In Tikkanen v. Liberty Life Assur. Co. of Boston, 13-11462, 2014 WL 3418810 (E.D. Mich. July 14, 2014), the district court considered two questions presented in this ERISA denial-of-benefits case: (1) what is the appropriate standard of review; and (2) whether defendant Liberty Life Assurance Company of Boston wrongfully concluded that the plaintiff could perform a limited range of sedentary work and therefore was ineligible for long term disability benefits. The Court determined that the arbitrary-and-capricious review standard applies because there is no evidence in the record that any insurance policy, contract, rider, endorsement, certificate, or similar contract document was delivered to the plaintiff in Michigan so as to trigger Michigan Administrative Code Rule 500.2202(c), which would have voided the discretionary review clause. In addition, Liberty’s determination that the plaintiff is able to perform sedentary work is not arbitrary or capricious because Liberty reasonably relied on the assessments of its consulting pulmonologist and plaintiff’s treating physician. The court denied the plaintiff’s motion to reverse the decision of the plan administrator, granted the defendant’s motion to affirm the decision, and dismissed the complaint.
Court Finds Pensioners Entitled to Enhanced Pension Benefits. In Adams v. Anheuser-Busch Companies, Inc., 13-3149, 2014 WL 3377061 (6th Cir. July 11, 2014), pensioners brought a class-action suit against defendants for a denial of benefits under the terms of an employee-benefits plan governed by ERISA. The district court upheld the plan administrator’s denial of their claims for benefits provided under Section 19.11(f) of the plan, which authorized enhanced pension benefits for plan participants “whose employment with [an Anheuser-Busch company] is involuntarily terminated within three (3) years after [a] Change in Control.” The district court held that the plaintiffs had not been “involuntarily terminated” within the meaning of Section 19.11(f) because they secured employment with a successor corporation.
The dispute centered on the meaning of the phrase “involuntarily terminated.” The defendants argued that the common understanding of the phrase “involuntarily terminated” requires an actual job loss, and that the plaintiffs’ jobs were not involuntarily terminated because the plaintiffs continued to work uninterrupted in the same positions with the purchaser of their employer. In contrast, the plaintiffs argued that “involuntarily terminated” must be read in the context of the broader phrase, “whose employment with the Controlled Group is involuntarily terminated,” and that, when read in that context, its meaning is unambiguous. Specifically, the plaintiffs contended that their employment with Anheuser-Busch’s Controlled Group was involuntarily terminated on October 1, 2009, because, although still employed by someone, their employment with the Controlled Group was terminated, and the termination was “involuntary” because they did not choose it. They argue that the defendants’ interpretation of the plan improperly ignores terms, adds an eligibility requirement (job loss), and fails to recognize that the plan is a retirement plan, not a severance or unemployment policy. The court found that when each of the terms in Section 19.11(f) is given its ordinary meaning, the phrase “whose employment with the Controlled Group is involuntarily terminated” is unambiguous and has only one plausible interpretation. It requires only that the individual’s employment with the Controlled Group be involuntarily terminated, not that the individual experience a job loss or some otherwise undefined period of unemployment. The 6th Circuit Court of Appeals concluded that the plaintiffs’ employment with the Controlled Group was involuntarily terminated and reversed the decision of the district court.
Reliance Standard’s Denial of LTD Benefits Affirmed. In Eastin v. Reliance Standard Life Ins. Co., 13-6247, 2014 WL 3397141 (6th Cir. July 10, 2014), the 6th Circuit Court of Appeals affirmed a district court decision in favor of Reliance Standard and against an ERISA disability plan participant disabled by fibromyalgia, trigeminal neuralgia, depression, and anxiety. Reliance Standard initially found the plaintiff disabled and paid long term disability benefits to her for 36 months. The disability plan included a limitation on benefits if a mental or nervous disorder contributed to the insured’s total disability: “Monthly Benefits for Total Disability caused by or contributed to by mental or nervous disorders will not be payable beyond an aggregate lifetime maximum duration of twenty-four (24) months unless the Insured is in a Hospital or Institution at the end of the twenty-four (24) month period.” The definition of mental or nervous disorder included among other things, depression, anxiety, and somatoform disorders. Reliance determined that the medical records did not demonstrate that the plaintiff was totally disabled as the result of a purely physical condition. In upholding Reliance’s decision, the court found that Reliance did not act arbitrarily by penalizing her for failing to submit objective proof that she suffers from fibromyalgia. According to the court, the administrative record establishes that Reliance has not disputed-and does not dispute-that the plaintiff suffers from fibromyalgia. Reliance terminated her benefits because it alleged that from a physical standpoint, in the absence of a psychiatric contribution, the plaintiff was capable of sedentary work. Therefore, any finding that she was totally disabled was the result of a contributing mental or nervous disorder, and the plaintiff could not collect any further benefits under the plan. The plaintiff did not contend that she was totally disabled as the result of a purely physical condition, and the medical records supported a finding that her depression and anxiety contributed to her condition. Further, Reliance upheld its decision to terminate the plaintiff’s benefits after two IMEs examined the plaintiff and determined that she was not totally disabled as the result of a purely physical condition. The court found that Reliance’s decision was the result of a deliberate, principled reasoning process.
Court Denies Hartford’s Motion to Dismiss LTD Claim. In Lamuth v. Hartford Life & Acc. Ins. Co., C13-1832-JCC, 2014 WL 3360322 (W.D. Wash. July 9, 2014), the court ruled in favor of a former radiologist who sought a declaratory ruling regarding the date that she first became disabled under a long term disability plan established and maintained by her former employer (“the Plan”). The employee welfare benefit plan is underwritten and insured by Defendant Harford Life and Accident Insurance Company (“Hartford”), which has authority to grant or deny claims under the Plan. Hartford denied, then granted, then reversed itself and again denied the doctor’s claim for benefits. After she brought this lawsuit, Hartford again changed course, re-reviewed the claim, and awarded her benefits. While the doctor is currently receiving long term disability benefits under the Plan, the parties disputed whether she may continue this lawsuit and obtain a declaratory ruling as to when she first became disabled under the Policy.
In the course of administering her LTD claim, Hartford attempted to change the doctor’s date of disability to an earlier date (when she started working 35 hours a week, rather than 40 hours, due to her medical condition of multiple sclerosis), which would subject her to a pre-existing condition exclusion under the Plan. Although Hartford decided to accept the doctor’s claimed date of disability, which fell outside the pre-existing condition period, the plaintiff sought a judicial ruling preventing Hartford from re-visiting the issue in the future. Hartford opposed plaintiff’s motion, arguing that the claim was not moot or ripe and would deprive Hartford of its right to determine whether she has provided ongoing proof of her disability for the payment of future benefits. The court disagreed with Hartford, finding that the doctor’s LTD claim for payment of benefits is moot, but her claim for a clarification of rights regarding the pre-existing condition limitation and her date of disability is not. Given Hartford’s admissions as to the doctor’s date of disability, the court granted partial summary judgment in favor of the disabled LTD plan participant and ordered that her right to benefits may not be precluded on the basis that the policy’s pre-existing conditions limitation applies based on an earlier date of disability.
Court Affirms Employer’s Deferral of Pension Benefit Payments. In Canada v. Am. Airlines, Inc. Pilot Ret. Ben. Program, 10-6131, 2014 WL 3320892 (6th Cir. July 9, 2014), the 6th Circuit Court of Appeals determined that American Airlines properly deferred a pilot’s pension-benefit payments (after he elected to keep flying past the normal retirement age) without compensating him for the deferral with an actuarial increase in the benefits ultimately paid. The court found that because federal law does not require an actuarial adjustment under these circumstances, and because American did not interpret the Plan’s provisions in an arbitrary or capricious manner, it affirmed the entry of judgment in favor of American and the Plan on all claims.
Court Allows Breach of Fiduciary Duty Claim to Go Forward. In Braun v. USAA Grp. Disability Income, CV-13-01923-PHX-DGC, 2014 WL 3339795 (D. Ariz. July 8, 2014), the plaintiff was a participant in the USAA Group Disability Income Plan, insured by Liberty Life Assurance Company (“Liberty”). The plaintiff suffers from Lyme disease and Liberty initially found that she was disabled and entitled to short-term and long-term benefits, but denied benefits after a change in the applicable definition of disability. The plaintiff brought suit for her denied benefits under ERISA Section 502(a)(1)(B) but also alleged a breach of fiduciary duty claim under ERISA Section 502(a)(3). The defendant moved to dismiss the breach of fiduciary duty claim, arguing that the plaintiff’s breach of fiduciary duty claim under Section 1132(a)(3) is precluded by virtue of the availability to plaintiff of her claim for recovery of benefits pursuant to Section 1132(a)(1)(B). The question the court considered is whether the plaintiff has pled a claim under (a)(3) that seeks either non-equitable money damages or duplicative relief.
After analyzing the relevant caselaw, including the U.S. Supreme Court case of CIGNA Corporation v. Amara, the court found that the plaintiff’s allegation that defendants are providing incorrect information and are not following regulations, and request that this conduct be enjoined, the defendants neither argue nor demonstrate that such relief is available under another provision of Section 1132, and the court cannot conclude that such an injunction would be duplicative of relief under Section 1132(a)(1)(B). Thus, the court found that there is no reason why the plaintiff’s claim for injunctive relief under Section 1132(a)(3) cannot go forward. The court also found as unclear at this stage of the litigation that any claim for monetary relief under Section 1132(a)(3) is entirely foreclosed or that the relief sought by Plaintiff under Section 1132(a)(3) is duplicative of the relief she seeks under Section 1132(a)(1)(B) since it is conceivable that the plaintiff could prove that she is entitled to an award of past and future benefits under Section 1132(a)(1)(B) and additional monetary damages under Section 1132(a)(3) for breach of fiduciary duty.
Court Approves Attorneys’ Fee Motion in ERISA Class Action. In In re Colgate-Palmolive Co. Erisa Litig., 07-CV-9515, 2014 WL 3292415 (S.D.N.Y. July 8, 2014), the court approved the plaintiff’s motion for attorneys’ fees, costs, and incentive payment awards to the named plaintiffs. The court previously approved a $45.9 million class action settlement in this ERISA case, which began in 2007 as three separate suits, filed in three jurisdictions, alleging that Defendant Colgate-Palmolive Company Employees’ Retirement Income Plan, sponsored by Colgate-Palmolive Company miscalculated the pension benefits of several thousand participants from July 1, 1989 to the present. Following approval of the settlement, the plaintiffs moved for fees and costs to be paid out of the settlement fund pursuant to Federal Rule of Civil Procedure 23(h). The court awarded the requested attorneys’ fee of 25% of the fund or $11,475,000, costs of $591,011.17, and the incentive fee awards of $5,000 for each of the plaintiffs for their participation in the litigation.
Prudential’s Denial of AD&D Benefits Upheld. In Guthrie v. Prudential Ins. Co. of Am., CIV.A. 12-7358 JLL, 2014 WL 3339549 (D.N.J. July 8, 2014), the plaintiff is a beneficiary of the Accidental Death Insurance Policy issued to a plan participant, who died in a single vehicle motorcycle accident. He was intoxicated at the time of his death. At issue in this dispute is $270,000 in accidental death benefits provided by the Prudential Insurance Company of America to the decedent through an employee benefit plan governed by ERISA. The plaintiff brought a claim for wrongful denial of benefits under ERISA Section 502(a)(1)(B). The issue the court considered is whether an exclusion contained in the relevant policy-generally precluding recovery where the death results from operating a vehicle while being legally intoxicated-applied to bar the plaintiff’s claim for benefits. The court granted Prudential’s motion for summary judgment, finding that the evidence contained in the administrative record provided a reasonable basis for and substantial evidence supporting Prudential’s decision to deny the plaintiff’s claim for accidental death benefits. In particular, the evidence substantially supported Prudential’s finding that the participant was legally intoxicated at the time of the accident and death.
* 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.