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Your ERISA Watch – Court Examines Two Decades of Reliance Standard Life Insurance Company’s Abuse of Discretion in Disability Benefit Claims

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This week’s notable long-term disability decision is Nichols v. Reliance Standard Life Ins. Co., No. 3:17-CV-42-CWR-FKB, 2018 WL 3213618 (S.D. Miss. June 29, 2018).

In Nichols, Judge Carlton Reeves found that Reliance Standard Insurance Company abused its discretion in denying Nichols’ claim for long-term disability benefits.  Though it’s a tale as old as time, what makes this decision stand out is the Court’s analysis of Reliance Standard’s “decades-long pattern of arbitrary claim denials and other misdeeds.”

This is a case where good facts make good law.  Nichols, at the age of 62, became unable to work as a Hazard Analysis and Critical Control Points Coordinator at a chicken processing factory, a career she has spent her entire life doing, because circulatory system disorders including Raynaud’s disease, prevented her from being able to work in cold temperatures.  Through Reliance acknowledged that Nichols could not work in cold temperatures, one of its vocational experts determined that Nichols’ occupation as it was performed in the national economy was “sanitarian,” which does not require that she be exposed to cold temperatures.

The court queried whether Reliance based its denial on substantial evidence.  It’s answer:  No.  In House v. Am. United Life Ins. Co., the Fifth Circuit stated that insurers must review the specific duties of the employee’s job because these duties are relevant and illustrate occupational duties.  When looking at Nichols’ specific job duties, no matter where she performs her job, she would be required to perform sanitary-training duties, meat inspection duties, and meat packaging duties.  “Common sense says that an occupation involving inspection and packaging of meat products would require exposure to refrigeration and low temperatures.”  The court excoriated Reliance Standard’s vocational consultant, Jody Barach, for doing an inadequate analysis of Nichols’ core job duties and relying on a DOT that does not refer to those duties.  The court concluded that Reliance Standard’s decision was “unsupported by any evidence, let alone substantial evidence.”

The court then queried whether Reliance has a conflict of interest.  It’s answer:  Yes.  The court found over 100 decisions in the last 21 years criticizing Reliance’s disability decisions.  Of those, 60 opinions were very critical of Reliance’s underlying claims administration.  Footnote 79 includes citations to all of those cases (copy and paste folks!).  The court also remarked that Ms. Barach’s vocational assessments have been criticized by other courts.  Significantly, the court noted that Reliance submitted no evidence showing that it has taken steps to mitigate its conflict of interest.  It should come as no surprise that based on the above analysis the court found that Reliance abused its discretion by denying Nichols’ benefits.

But here’s where it gets even better.  The Remedy.  “Nichols is entitled to an award for past benefits and an order requiring Reliance to pay her benefits in the future.”  (emphasis added).  In addition, Reliance Standard must pay her attorneys’ fees.  The court explained,

“Many courts have, after recounting Reliance’s abuses, ordered the insurer to pay benefits and attorney’s fees. Apparently these costs have not caused Reliance to change course, as it has spent decades ignoring them with impunity—perhaps treating them as the price of doing business. In future cases, courts may be asked to order further relief to curb Reliance’s perceived abuses. That relief can be quite broad.”

Although remedies in ERISA cases are generally limited, it will be interesting to see how courts in the future may order relief to impact widespread abuses by insurance companies administering long-term disability benefit claims.

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

Attorneys’ Fees

Second Circuit

Tedesco v. I.B.E.W. Local 1249 Insurance Fund, et al, No. 17-3404-CV, __F.App’x__, 2018 WL 3323640 (2d Cir. July 6, 2018) (POOLER, RAGGI, HALL, Circuit Judges).  The district court erred by determining that Plaintiff did not achieve the Hardt “some success” on the merits where Plaintiff achieved a settlement of his denial-of-benefits claim following the Second Circuit’s remand of the case and the district court’s subsequent denial of summary judgment to Defendants.  The Second Circuit remanded the matter to the district court to consider the Chambless factors and noted that once one removes the district court’s overreliance on lack of bad faith, there appears no justification for denying Plaintiff’s fee request.

Breach of Fiduciary Duty

Fifth Circuit

Kopp v. Klein, No. 16-11590, __F.3d__, 2018 WL 3149151 (5th Cir. June 27, 2018) (Before HIGGINBOTHAM, JONES, and GRAVES, Circuit Judges).  On the case’s third trip to the Fifth Circuit, the court affirmed the district court’s dismissal of this action alleging breach of fiduciary duty in connection with the loss of millions of dollars of retirement savings.  The court held that the plan managers did not breach the fiduciary duty of prudence in relying on the market price of company’s stock as the fair assessment of the stock’s value; the allegation that plan managers failed to discuss a possible course of action regarding a plan’s investment in the employer’s stock was insufficient to state claim for breach of the duty of prudence; and the fact that the plan managers’ personal wealth was directly tied to the company’s financial performance was insufficient to establish a breach of the duty of loyalty for ERISA fiduciaries.

Disability Benefit Claims

Ninth Circuit

Lockner v. Swift Tech. Servs., LLC, No. 3:18-CV-00032-TMB, __F.Supp.3d__, 2018 WL 3239306 (D. Alaska July 2, 2018) (Judge Timothy M. Burgess).  The court dismissed Cigna from the case after concluding that it was not involved in reviewing Plaintiff’s long term disability claim.  The Cigna name and logo are registered service marks and Cigna Corporation itself does not provide products and services, which are instead provided through Cigna’s operating subsidiaries, including Life Insurance Company of North America, the entity that made the decision on Plaintiff’s claim.  The court concluded that there is nothing to suggest that Cigna Corporation is connected to this lawsuit or that additional discovery will lead to additional jurisdictionally relevant facts.

ERISA Preemption

Eighth Circuit

Moore v. Apple Cent., LLC, No. 17-1815, __F.3d__, 2018 WL 3096689 (8th Cir. June 25, 2018) (Before LOKEN, BENTON, and ERICKSON, Circuit Judges).  The court found Plaintiff’s state law claims against the employer for failing to forward life insurance premiums to the insurer, which resulted in a denial of voluntary life insurance benefits, to be preempted by ERISA.  The state law claims against the employer implicate its legal duties as plan administrator under ERISA.

Medical Benefit Claims

Ninth Circuit

Sammons v. Regence Bluecross Blueshield of Oregon, No. 16-35288, __F.App’x__, 2018 WL 3090791 (9th Cir. June 22, 2018) (Before: TASHIMA, McKEOWN, and PAEZ, Circuit Judges).  The court affirmed the district court’s de novo determination that coverage for artificial disc replacement surgery falls under the plan’s investigational exclusion.  Though the plan contains no explicit time frame for when certain metrics must be shown regarding the overall impact of the surgery, the district court’s finding that 5 years is the relevant benchmark for this surgery was not clearly erroneous.  Judge Paez dissented on the basis that Defendant’s interpretation of the plan language was not the only reasonable interpretation and because it could reasonably be interpreted to cover the procedure, summary judgment should be in favor of Plaintiff.

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