Happy Labor Day! Hope this finds you not laboring away. Much has happened in land of ERISA over the past few days. The Seventh Circuit joined the Sixth and Ninth Circuits in finding that a state law ban prohibiting discretionary clauses in health and disability insurance policies is not preempted by ERISA. In a separate decision, the Seventh Circuit also held that the ACA’s accommodations for religious organizations do not impose a substantial burden on their free exercise of religion. The Eighth Circuit affirmed a denial of life insurance benefits based on the insured’s failure to notify the insurer of a cancer diagnosis after he submitted the application for benefits but before the policy’s effective date. And, what must be in honor of Labor Day, three of the four disability decisions out of the district courts came out in favor of the claimant. Unsurprisingly, two of those decisions were under the de novo review standard. Disability claimants get a fairer shake under de novo review, which is exactly why discretionary clauses should be banned (this, of course, in addition to the fact that absolute discretion is destructive of freedom). Read more …
Below is Kantor & Kantor LLP summary of this past week’s notable ERISA decisions.
ERISA does not preempt state law banning discretionary clauses from health and disability insurance policies; state ban does not conflict with ERISA’s civil enforcement scheme. In Fontaine v. Metro. Life Ins. Co., No. 14-1984 (7th Cir. Sept. 4, 2015), the Seventh Circuit rejected a federal preemption challenge to an Illinois insurance law, 50 Ill. Admin. Code § 2001.3, that prohibits provisions “purporting to reserve discretion” to insurers to interpret health and disability insurance policies,” affirming the decision of the district court in favor of Plaintiff. To be deemed a law that “regulates insurance” and thus to avoid preemption, a state law must satisfy two requirements: the state law must be specifically directed toward entitles engaged in insurance and the state law must substantially affect the risk pooling arrangement between the insurer and the insured. The court found that Section 2001.3 meets both requirements. The law is grounded in policy concerns specific to the insurance industry regardless of whether it prohibits a plan sponsor from delegating discretionary authority to the insurer of an employee benefit plan. Prohibitions on discretionary clauses may have inevitable effects on entities outside the insurance industry but that does not change their character as insurance regulations. The court also rejected MetLife’s argument that the discretionary clause in this case is not actually in an insurance policy but in an ERISA plan document. MetLife’s argument, if accepted, would virtually read the saving clause out of ERISA. The court also found that Section 2001.3 does substantially affect the risk pooling arrangement between the insurer and the insured by altering the scope of permissible bargains between insurers and insureds and dictates the conditions under which risk is assumed in the insurance market. The court rejected MetLife’s argument that the law must determine whether a class of risks is covered, extend coverage to a class of previously excluded risks, and mandate new claim review procedures. Lastly, the court found that Section 2001.3 is not preempted by ERISA’s civil enforcement scheme. While a deferential standard for reviewing benefit denials is highly prized by benefit plans, it is not required by the text of the statute. This decision follows the Ninth and Sixth Circuit Courts of Appeal. See Standard Ins. Co. v. Morrison, 584 F.3d 837 (9th Cir. 2009); American Council of Life Insurers v. Ross, 558 F.3d 600 (6th Cir. 2009). The court found that nothing in Conkright v. Frommert, 559 U.S. 506 (2010), issued after the Sixth and Ninth circuit decisions, impacts the courts analysis because it was not an ERISA preemption decision. Conkright does not overrule or limit Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355 (2002) and the high threshold that must be met if a state law is to be preempted for conflicting with the purposes of a federal Act. As such, the court further held that Section 2001.3 is not impliedly preempted by ERISA’s civil enforcement scheme.
Accommodations for religious organizations under the ACA do not impose a substantial burden. In Grace Sch. v. Burwell, No. 14-1430, __F.3d___, 2015 WL 5167841 (7th Cir. Sept. 4, 2015), the Seventh Circuit held that the ACA’s accommodations for religious organizations with respect to its “contraceptive mandate” does not impose a substantial burden on their free exercise of religion, in violation of the Religious Freedom Restoration Act of 1993 (“RFRA”). Although Plaintiffs are not required to pay for the objectionable services, they contended in the district court that being forced to contract with insurers or third-party administrators who must then provide those services makes them a facilitator of objectionable conduct, complicit in activity that violates their core religious beliefs. The court held that the accommodation does not serve as a trigger or a conduit for the provision of contraceptive services. Every other circuit court to consider the issue of whether the mandate imposes a substantial burden on religious exercise has come to the same conclusion.
Denial of life insurance benefits based on plan participant’s failure to notify insurer of cancer diagnosis is not unreasonable. In Huang v. Life Ins. Co. of N. Am., No. 14-3401, __F.3d___, 2015 WL 5155365 (8th Cir. Sept. 3, 2015), Plaintiff, a life insurance beneficiary, brought suit against Life Insurance Company of North America (LINA), when it denied benefits for her deceased husband based on his failure to notify LINA of the cancer diagnosis he received after applying for benefits but before the policy was issued. The court held that the administrator reasonably determined that the delivery of the plan application to the beneficiary during the claims process satisfied the plan’s delivery requirement. The court further held that reliance on an oral representation made by a LINA representative that the husband would qualify for coverage upon submission of the application was not reasonable, and thus administrator did not breach its fiduciary duty. Lastly, the court held that the application and summary plan description adequately and fairly presented the requirements for supplemental insurance, and thus the application did not amount to breach of LINA’s fiduciary duty. Here, the application was a short, 2½-page document that stated that an applicant “may need to provide more medical info,” “may need to take medical tests and report the results,” and “must report any change in … health that happens before the insurance is effective.” The court noted that this duty was not buried in a lengthy document nor hidden in text smaller than the balance of document.
Select Slip Copy & Not Reported Decisions
Disability Benefit Claims
In Wilkinson v. Sun Life & Health Ins. Co., No. 5:13CV87-RLV, 2015 WL 5124323 (W.D.N.C. Sept. 1, 2015), court found that Sun Life’s Statement of ERISA Rights, and its provision for broad discretionary authority, is a valid mechanism for conferring discretionary authority to Sun Life. The court also considered an FMLA document produced by Plaintiff’s employer, which Sun Life argued was not part of the administrative record. The court determined that whether Sun Life ever had actual possession of the FMLA form, or whether Sun Life acted purposefully or with an improper motive in not ensuring that the FMLA form became a part of the administrative record concerning long term disability is less than transparent, but including the form in the court’s evaluation promotes a reasoned and fair evaluation of the claims. On the merits of Plaintiff’s long-term disability claim, the court found that Sun Life abused its discretion in discontinuing Plaintiff’s LTD benefits. Specifically, Sun Life’s determination that Plaintiff was working less than 30 hours per week in the weeks leading up to the onset of his disability is not supported by substantial evidence. The court also concluded that Sun Life’s decision making process was not reasoned and principled where it did not engage in a “searching or leave no stone unturned investigation.”
In Crox v. Unum Grp. Corp., No. 1:14-CV-254, 2015 WL 5133670 (E.D. Tenn. Sept. 1, 2015), the court overruled Plaintiff’s objections to the Magistrate Judge’s Report and Recommendation denying Plaintiff’s Motion of Judgment on her long-term disability claim. Although the Magistrate Judge did not consider any applicable conflict of interest, the court found that given the particular circumstances of this case, Unum’s decision to deny Plaintiff’s benefits claim was neither arbitrary nor capricious. Unum based its decision upon the opinions of seven physicians who stated that the Plaintiff was capable of working full-time in a sedentary capacity and two physicians who opined that Plaintiff’s disability was caused by a mental illness. No physician opined that Plaintiff cannot work full-time in a sedentary capacity.
In Mayra Rodas v. Standard Ins. Co., et al. Additional Party Names: UnitedHealth Grp., UnitedHealth Grp. Long-Term Disability Plan, No. EDCV132203JGBSPX, 2015 WL 5156455 (C.D. Cal. Sept. 1, 2015), Plaintiff worked as a Broker Agent Service Specialist for ten years before becoming disabled. Following a bench trial on the administrative record (de novo review), the court concluded that Plaintiff presented persuasive evidence that she suffered from post-polio syndrome, and that this affliction made it difficult for her to move around and caused her to become tired easily. Further, Plaintiff demonstrated that she could not sit for longer than approximately 2 hours at a time-which would make performing her job duties exceedingly difficult, if not impossible. Plaintiff’s evidence came from three sources: (1) her treating physicians; (2) close acquaintances; and (3) the SSA’s finding that she was disabled. In contrast, none of Standard Insurance Company’s reviewing doctors conducted a physical examination or adequately addressed Plaintiff’s inability to sit for longer than 2.5 hours a day.
In YVETTE WILLIBY, Plaintiffs, v. AETNA LIFE INSURANCE COMPANY & DOES 1-10, inclusive, Defendants., No. 214CV04203CBMMRWX, 2015 WL 5145499 (C.D. Cal. Aug. 31, 2015), the court conducted a bench trial based on the administrative record on Plaintiff’s short-term disability claim that Aetna denied. The court found that Plaintiff’s claim for STD benefits beyond February28, 2013 is supported by relevant medical records and opinions of four treating doctors. In contrast, Aetna’s termination of STD benefits is based on findings from three reviewing doctors: (1) neurologist Dr. Vaughn Cohan; (2) occupational medicine specialist Dr. Robert Swotinsky; and (3) neuropsychologist Dr. Elana Mendelssohn. On de novo review, the court found that Aetna prematurely terminated Plaintiff’s STD benefits.
In Connecticut Gen. Life Ins. Co. v. True View Surgery Ctr. One, LP, No. 3:14-CV-1859(AVC), 2015 WL 5122269 (D. Conn. Aug. 31, 2015), an action for declaratory and injunctive relief and damages pursuant to ERISA and various state laws in which Cigna alleges that the surgical center defendants defrauded Cigna by using fee-forgiving billing practices, the court granted in part and denied in part Defendants’ motion to dismiss. The court concluded that: 1) Cigna has constitutional and statutory standing; 2) Cigna’s amended complaint provides fair notice under Fed.R.Civ.P. Rule 8; 3) Cigna seeks appropriate relief under ERISA § 502(a)(3); 4) Cigna failed to state a claim under Connecticut Unfair Trade Practices Act (“CUTPA”); 5) Cigna’s state law claim of fraud is not preempted by ERISA; 6) Cigna’s state law claim of tortious interference with contract is preempted by ERISA; and 7) Cigna’s amended complaint sufficiently pleads fraud with particularity under Fed.R.Civ.P. Rule 9(b).
Life Insurance & AD&D Benefit Claims
In Guthrie v. Prudential Ins. Co. of Am., No. 14-3282, __Fed.Appx.___, 2015 WL 5138091 (3d Cir. Sept. 2, 2015), the Third Circuit affirmed the district court’s order granting summary judgment in favor of Prudential on its determination to deny accidental death and dismemberment benefits to Plaintiff based on a legal intoxication exclusion in the policy. Here, the police report stated that the insured ran off the road towards an embankment on a dry road with no adverse weather conditions and was last seen alive drinking alcohol at a local bar. According to the toxicology report, the insured’s blood alcohol level was 0.14% and his vitreous humour alcohol level was 0.13%. Prudential’s reviewing expert, Dr. Albert Kowalski, opined that the insured’s blood alcohol level at the time of the accident could be determined within a reasonable degree of medical certainty through retrograde extrapolation and that it was between 0.10 and 0.12% at the time of the accident.
In Lanpher v. Unum Life Ins. Co. of Am., No. CIV. 14-2560 JRT/HB, 2015 WL 5157519 (D. Minn. Sept. 2, 2015), the court determined that the long-term disability policy at issue was not an ERISA plan, where the employer, Merrill Lynch, did not maintain a separate administrative scheme or exercised discretion over eligibility or benefits levels for the Unum Policy. Merrill Lynch did not invite Unum to offer a policy to employees or even conduct a presentation about the Unum Policy; it simply acquiesced to Unum’s request to make a presentation to its employees. Merrill Lynch did not play any role in the Policy application process, as the employees submitted their applications directly to Unum. Merrill Lynch merely received the bills from Unum, to which Unum had already applied a 15% discount, and then passed the premium bills on directly to the employees without taking any other administrative actions. Nothing in the record indicated that Merrill Lynch undertook any financial obligations with respect to the Policy, received any material benefit from Unum for facilitating premium bills, or engaged in any practices beyond automatic forwarding of bills immediately to employees. For these reasons the court concluded that Merrill Lynch’s activities did not reach the threshold of establishing or maintaining an ERISA employee welfare benefit plan.
Pleading Issues & Procedure
In PAUL AND LINDA PRACHUN, Plaintiffs, v. CBIZ BENEFITS & INSURANCE SERVICES, INC., et al., Defendant., No. 2:14-CV-2251, 2015 WL 5162522 (S.D. Ohio Sept. 3, 2015), the court found that an arbitration provision in an employment agreement that Plaintiff signed during the course of his employment required arbitration of his ERISA preempted claim that Defendant breached its duty to properly advice Plaintiff with respect to medical coverage. The court determined that Plaintiffs did not meet their burden to show that the ERISA claims are non-arbitrable. As such, the court concluded that Plaintiffs’ claims are arbitrable because (1) the asserted claim is within the scope of the employment agreement; (2) ERISA is silent on whether claims under the Act can proceed in an arbitrable forum; and (3) the authority of this Circuit and the Supreme Court suggests ERISA does not preempt the Federal Arbitration Act.
In Int’l Air Med. Servs. Inc., et al., Plaintiffs, v. Triple-S Salud Inc., Defendant. Additional Party Names: Francisco Ortiz-Maldonado, No. CV-15-00149-PHX-DGC, 2015 WL 5158832 (D. Ariz. Sept. 3, 2015), Plaintiffs Francisco Ortiz-Maldonado and International Air Medical Services, Inc. (“IAMS”) brought suit under ERISA against Defendant for failure to pay for Maldonado’s air-ambulance service from a hospital in Florida to a hospital in Puerto Rico. Maldonado assigned to IAMS his rights under the Triple-S health insurance plan. Defendant moved to dismiss, arguing that (1) IAMS lacks standing to sue under ERISA; (2) Maldonado has died and is no longer a proper party; and (3) the District of Arizona is an improper venue and the case should be transferred to the District of Puerto Rico if the Court finds dismissal to be improper. The court granted the motion to dismiss, finding that (1) the health plan’s provision prohibiting the “transfer” of any of the rights and benefits under the contract is an anti-assignment clause so IAMS lacks standing to sue as either a participant, beneficiary, or fiduciary; (2) Maldonado’s death requires dismissal (without prejudice); and (3) although IAMS is an Arizona-based company, Triple S is a Puerto Rican entity over which the court does not have personal jurisdiction, so venue is not proper in Arizona.
In Univ. of Wisconsin Hospitals & Clinics Auth. v. Aetna Health & Life Ins. Co., No. 15-CV-280-BBC, 2015 WL 5123712 (W.D. Wis. Sept. 1, 2015), Plaintiff filed its lawsuit in state court asserting claims for breach of contract and other claims under state law, alleging that it was a third party beneficiary of a health insurance contract between one of its patients and Aetna. Defendants removed the case to this court under 28 U.S.C. §§ 1441 and 1446 on the ground that Plaintiff’s claims are preempted by ERISA, which Plaintiff now concedes. Defendants sought dismissal of the complaint with prejudice as a sanction for repeatedly filing state law claims that should have been brought under ERISA. Although the court declined to dismiss the case, I am directing plaintiff to show cause why it should not be required to reimburse defendants for their costs and fees related to removing the case and briefing their motion to dismiss.
In Univ. of Wisconsin Hospitals & Clinics Auth. v. Aetna Health & Life Ins., No. 15-CV-283-BBC, 2015 WL 5123734 (W.D. Wis. Sept. 1, 2015), Plaintiff brought suit against Aetna as a third-party beneficiary to the insurance contract between one of its patients and Aetna. Upon removal, Plaintiff conceded that its claim is governed by ERISA because its patient is a participant in an ERISA benefits plan. Defendants sought dismissal of the complaint with prejudice on three grounds: (1) Plaintiff does not have the right to enforce the patient’s rights under ERISA; (2) Plaintiff did not exhaust its administrative remedies; and (3) Plaintiff should be sanctioned for its repeated filings of state law claims that should have been filed as ERISA claims. Because the court agreed with defendant that Plaintiff failed to exhaust its administrative remedies, it granted Defendant’s motion to dismiss without discussing the other arguments.
In Merrick v. UnitedHealth Grp. Inc., No. 14 CIV. 8071 ER, 2015 WL 5122545 (S.D.N.Y. Aug. 31, 2015), four chiropractors brought a putative class action on behalf of themselves and others similarly situated, against United, asserting violations of ERISA. United moved to compel arbitration and dismiss only of one of the chiropractor’s claims. The court granted United’s motion to compel arbitration and denied the motion to dismiss. In so doing, the court found that based on the facts as alleged, it is the Provider Agreements, not the healthcare plans, which require interpretation to determine whether United properly recouped payments or violated the ERISA’s claim regulations. Accordingly, the claims arise under the Provider Agreements and may be subject to the agreements’ arbitration provisions. The court stayed the action with respect to the one chiropractor’s claims. Lastly, the court found that United’s position in the instant action is not inconsistent with positions taken in previous litigation and United is not judicially estopped from asserting its current position.
Withdrawal Liability & Unpaid Benefit Contributions
In Trustees of the New York City Dist. Council of Carpenters Pension Fund v. Onyx Glass & Metal Corp., No. 14 CIV. 7333 PAE, 2015 WL 5144120 (S.D.N.Y. Sept. 1, 2015), the court granted Plaintiffs’ motion to confirm an arbitration award against Defendants for delinquent contributions. The court also granted the requested fees and costs but with a slight reduction for the rate requested for an attorney one year removed from law school.
* 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 Pkwy., Ste. 105, Alameda, CA 94501; Tel: 510-992-6130.