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Your ERISA Watch – Court Rules that Payment and Acceptance of Long-Term Disability Insurance Premiums Does Not Guarantee Coverage

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This week’s notable decision is a cautionary tale to employees about promptly enrolling in group benefit plans.  It’s also an example of a situation that may be prevented by the DOL’s recent announcement that employer’s may automatically enroll employees in group disability income insurance plans.

In Ward v. Aetna Life Insurance Company, No. 1:17CV331-LG-RHW, 2018 WL 6706690 (S.D. Miss. Dec. 20, 2018), Plaintiff Ward began working for Pacific Architects and Engineers Incorporated on December 15, 2014.  Pacific Architects contracted with Aetna to provide its employees long-term disability coverage effective January 1, 2015.  Ward did not immediately enroll in the company’s long-term disability insurance plan when he became eligible.  If an employee chooses to enroll after 31 days then Aetna requires evidence of good health.  Ward had a history of renal cell carcinoma prior to working for Pacific Architects.  In August 2015, a CT-scan showed that he had a nodule on his right lung. Ward asked to enroll in the LTD Plan effective with the plan period beginning January 1, 2016, which was more than 31 days after his eligibility date.  Ward did not attempt to provide evidence of good health.  The employer did deduct premiums for this coverage from his paycheck and gave them to Aetna.  In or around February 2016, Ward was diagnosed with metastatic renal cell carcinoma and filed a disability claim the following month.

Aetna denied Ward’s LTD claim because he did not submit evidence of insurability form demonstrating good health at the time he enrolled.  Ward challenged the denial on the basis that he was told in writing he had coverage and that he had paid the premiums for the coverage.  Aetna upheld its decision and Ward filed suit.

In his motion for summary judgment, Ward argued that the Enrollment and Evidence of Good Health provisions in the insurance booklet-certificate are ambiguous and contra proferentum applies.  The court disagreed.  Where the administrator has discretion, it has the power to resolve ambiguities.  The terms plainly and unambiguously provide that employees who enroll in the LTD plan are required to provide evidence of good health and Aetna’s interpretation is legally correct.

Ward then argued that he is entitled to coverage because Aetna misrepresented to him that he had coverage in a May 18, 2017 Benefit Summary and that he paid the premiums.  The court found that Aetna did not waive its right to deny coverage by accepting premiums and failing to notify him that coverage was not in effect.  As Aetna’s employee testified, the employer paid premiums under an aggregate billing method and did not provide Aetna with data at the individual employee level.  Thus, Aetna did not know what amount in premiums was being paid for which employee.  Aetna does not independently validate eligibility or enrollment for individual employees.  The employer is responsible for enrollment and collecting premiums.  The court found that Aetna did not intentionally and voluntarily waive its right to deny coverage since it was unaware he attempted to enroll in the plan, the employer was deducting premiums, and Ward had not submitted evidence of good health.

Similarly, the court found that Aetna is not estopped from denying coverage on the basis that it misrepresented to him that he had LTD coverage.  Even if the benefit summaries could be considered misrepresentations, the summary was not prepared by Aetna.  There was also a disclaimer in the benefit summary stating that the “information is not intended to be an all[-]inclusive or exhaustive list of benefit information.”  The court found that this disclaimer made Ward’s reliance on it unreasonable.  His reliance was also unreasonable because it was not consistent with the plain, unambiguous language of the Plan.

Lastly, the court found that Ward’s breach of fiduciary duty claim under 29 U.S.C. § 1132(a)(3) is duplicative of his benefit claim under § 1132(a)(1)(B) because both causes of action are claims for monetary benefits under the Plan.  The court found that the breach of fiduciary duty claim must be dismissed on this basis, but nevertheless, Aetna clearly informed Ward through plan language that evidence of good health was required.  And, it was the employer’s responsibility for gathering the information Aetna needed to enroll employees.  The court granted Aetna’s motion for summary judgment and dismissed the claims with prejudice.

This result is a bit of a downer for the holidays.  To read a case with similar facts but a happier outcome, check out the 8th Circuit’s 2014 decision in Silva v. Metro. Life Ins. Co., 762 F.3d 711 (8th Cir. 2014).

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

Attorneys’ Fees

Third Circuit

Shah, MD v. Horizon Blue Cross Blue Shield of New Jersey, No. 117CV00632NLHAMD, 2018 WL 6617830 (D.N.J. Dec. 18, 2018) (Judge Noel L. Hillman). In this one of seventeen cases filed by Plaintiff for reimbursement for medical services, he provided to Defendant’s insured, the court denied Defendant’s motion for attorneys’ fees.  The court cautioned that “[n]onetheless, Plaintiff and his attorney should take no comfort from this ruling. Despite Plaintiff’s protestations to the contrary, nothing precludes him from obtaining plan documents from his patient at the same time he receives a valid assignment and examining the terms of such plans. And there is every good reason to examine them before he asserts a legal claim based on them not the least of which is Federal Rule of Civil Procedure 11. Such failures in the future may very well justify not only fee-shifting under the statute but sanctions as well.”

Breach of Fiduciary Duty

Third Circuit

Cook Technologies, Inc. Employee Stock Ownership Plan v. Panzarella, No. 15-CV-1028, 2018 WL 6616932 (E.D. Pa. Dec. 18, 2018) (Judge Joyner). Following a bench trial, the court determined that Panzarella’s sales of 3,000 shares of his “outside-the-plan” stock in Cook Technologies at the per-share price of $104.08 to the Cook ESOP were prohibited transactions under ERISA Section 406.  He is ordered to repay the Cook ESOP $312,240, the amount he received for the sale of his shares.  There are not sufficient grounds to withhold payment of his retirement and pension benefits as an offset for the prohibited transactions.

Ninth Circuit

Armijo et al. v. ILWU-PMA Coastwise Indemnity Plan, et al., No. 15-1403-MWF (MRWx) (C.D. Cal. Nov. 14, 2018) (Judge Michael W. Fitzgerald).  Plaintiffs alleged that Defendants violated their duty of candor by routinely and systematically issuing misleading Preauthorization Letters and EOBs for which Plaintiffs primarily seek injunctive relief in the form of removal of the PMA Trustees and Zenith pursuant to ERISA § 502(a)(2).  The court denied Plaintiffs’ motion because they fail to establish statutory standing.  Specifically, they do not argue that any fiduciary breach caused them individual harm.  It is not enough to simply show that a statutory right has been violated.  The court granted the Plan Defendants’ motion because preauthorization letters are not guarantees of payment and Plaintiffs have not argued that their claims were improperly denied.  The Plan Defendants are not equitably estopped based on representations in these letters.

Disability Benefit Claims

Second Circuit

Christmas v. Sun Life Assurance Company of Canada, No. 3:17-CV-1568 (KAD), 2018 WL 6592090 (D. Conn. Dec. 13, 2018) (Judge Kari A. Dooley).  Following a trial “on the papers,” the court found that Sun Life did not act arbitrarily or capriciously when it terminated Plaintiff’s claim for LTD benefits in reliance upon three independent reviewing physicians (Drs. Channick, Hoenig, Payne).  Sun Life is entitled to require objective medical evidence to support disability absent an explicit requirement in the Plan.  In the absence of objective medical evidence, an administrator’s failure to request an IME is not arbitrary and capricious.

Fifth Circuit

Ward v. Aetna Life Insurance Company, No. 1:17CV331-LG-RHW, 2018 WL 6706690 (S.D. Miss. Dec. 20, 2018) (Judge Louis Guirola, Jr.).  See Notable Decision summary above.

Sixth Circuit

Hines v. Unum Life Insurance Company of America, No. 1:18-CV-786, 2018 WL 6599404 (N.D. Ohio Dec. 17, 2018) (Judge James S. Gwin).  Plaintiff had right-eye cataract surgery in the Plan’s pre-existing “look-back period” and then became disabled by anisometropia within six months of the effective date of coverage.  Unum claimed the cataract surgery caused or contributed to the anisometropia.  The court found that Unum abused its discretion in denying Plaintiff’s long-term disability benefits on the basis of a pre-existing condition.  The court determined that: (1) the evidence does not show that Plaintiff’s left-eye cataract was a disabling condition; (2) the evidence does not support Unum’s decision that anisometropia was a pre-existing condition; and (3) the evidence does not show that Plaintiff’s anisometropia (disabling condition) resulted from her right-eye cataract (pre-existing condition).  Plaintiff is entitled to an award of attorneys’ fees.

ERISA Preemption

Third Circuit

Wingo v. Trover Solutions, Inc., No. 3:18-CV-01930, 2018 WL 6602205 (M.D. Pa. Dec. 17, 2018) (Judge A. Richard Caputo).  Plaintiff brought state law claims against Defendant, who provides recovery services for MetLife, for attempting to recoup short-term disability benefits paid to her by MetLife after she received a settlement from her auto accident.  The court granted Plaintiff’s motion to remand.  “Because the Plan is fully insured rather than self-funded, [Pennsylvania’s Motor Vehicle Financial Responsibility Law] § 1720 is not preempted by ERISA and therefore imposes an independent legal duty concerning subrogation on Trover. Accordingly, Wingo’s claims are not completely preempted under § 502(a), so the Action does not involve an issue of federal law.”

Fifth Circuit

United States v. Berry, No. CR H-17-385, 2018 WL 6602184 (S.D. Tex. Dec. 17, 2018) (Judge Gray H. Miller).  The court denied the motions to quash the writ of garnishment.  The disputed retirement accounts contain funds that were once regulated by ERISA and are now regulated by Section 408 of the Tax Code.  Rollover IRA accounts are not entitled to ERISA protection and ERISA does not pre-empt state community property laws.  The court rejected the argument that Tax Code Section 408(a)(4)’s anti-alienation requirement preempts state community property laws.

Life Insurance & AD&D Benefit Claims

Sixth Circuit

Metropolitan Life Insurance Company v. Robinson, et al., No. 2:18-CV-11493, 2018 WL 6649968 (E.D. Mich. Dec. 19, 2018) (Judge Stephen J. Murphy, III).  In this interpleader action, the court determined that the Daugherty Defendants’ breach of contract, tortious breach of contract, breaches of implied covenant, bad faith, and unfair trade practices counterclaims are preempted by ERISA.  Decedent’s sister lacks standing for her “arbitrary and capricious” counterclaim since she was not a beneficiary, and was at most, only a contingent beneficiary.  The other Defendants’ failure to exhaust is excusable because there is no evidence they were notified of the procedure available to appeal and exhaustion would be futile.  But, their counterclaim fails because MetLife’s decisions to change the beneficiary designations and to interplead only 20% of decedent’s basic life insurance benefits survive scrutiny.

Bailey, et al. v. Verso Corporation, No. 3:17-CV-332, 2018 WL 6605391 (S.D. Ohio Dec. 17, 2018) (Magistrate Judge Michael J. Newman).  Plaintiffs allege that they are entitled to life insurance coverage under the CBA for the remainder of their lifetimes.  Defendant filed a motion for judgment on the pleadings on the basis that the plan terms of the CBA limits its obligation to provide life insurance upon termination of the CBA.  The court found the CBA to be patently ambiguous and could reasonably be read to provide Plaintiffs with lifetime life insurance coverage.  The court denied the motion and declined to make a finding until summary judgment as to whether extrinsic evidence cited by Plaintiffs demonstrates the parties’ intent to vest life insurance coverage to Plaintiffs for their lifetimes.

Seventh Circuit

American United Life Insurance Company v. Woodward, Jr., et al., No. 2:18-CV-198, 2018 WL 6697074 (N.D. Ind. Dec. 19, 2018) (Judge Andrew P. Rodovich).  The court granted American United’s motion for interpleader under FRCP 22 since it “has indicated that it cannot determine whether the court would find that the dependent beneficiary information, incorrectly submitted by the decedent naming her spouse as George Sr. although he was not her spouse at the time of her death, controls distribution of the Plan Benefits or if the decedent’s children should receive the distribution.”  American United is to pay the Clerk of Court the Plan benefits minus any applicable interest and attorneys’ fees and costs.  The defendants are required to litigate, settle, or adjust the benefit between themselves.

Provider Claims

Second Circuit

Aerocare Med. Transp. Sys., Inc. v. Int’l Bhd. of Elec. Workers Local 1249 Ins. Fund, No. 518CV0090GTSATB, 2018 WL 6622192 (N.D.N.Y. Dec. 18, 2018) (Judge Glenn T. Suddaby).  The court determined that the trust agreement contains an unambiguous anti-assignment provision, the Summary Plan Description does not conflict with that provision, and Plaintiff has not plausibly alleged that the assignment was valid.  There is no basis for finding estoppel or waiver of the anti-assignment clause.

Third Circuit

North Jersey Brain & Spine Center v. Multiplan, Inc., et al., No. CV1705967MASLHG, 2018 WL 6592956 (D.N.J. Dec. 14, 2018) (Judge Michael A. Shipp).  The court granted Plaintiff’s renewed motion to remand the lawsuit to state court.  “Prong Two of the Pascack Valley test requires the Court to determine if any independent legal duty supports Plaintiff’s claim. On this prong, Plaintiff asserts that the presence of the MultiPlan logo on the insurance cards presented to Plaintiff and Plaintiff’s reliance on this logo, pursuant to the Provider Agreement, establishes an independent duty. The Court agrees with Plaintiff.”

Advanced Orthopedics and Sports Medicine Institute v. Anthem Blue Cross Life and Health Insurance Company, et al., No. CV178848MASLHG, 2018 WL 6603650 (D.N.J. Dec. 14, 2018) (Judge Michael A. Shipp).  Plaintiff does not have standing to asset claims under the Plan because the Plan contains a valid and enforceable anti-assignment provision and the patient’s assignment of benefits to Plaintiff was invalid. The quantum meruit claim is subject to dismissal because the benefit at issue was conferred upon the patient, not Defendants.  The court denied Defendants’ request for attorneys’ fees.

Statute of Limitations

First Circuit

IN RE: G.E. ERISA LITIGATION, No. 17-CV-12123-IT, 2018 WL 6592091 (D. Mass. Dec. 14, 2018) (Judge Indira Talwani).  The court determined that Count III of the Second Amended Complaint, where Plaintiffs allege that the offering of the GE Funds as the sole actively managed investment options constitutes a prohibited transaction in violation of ERISA §§ 406(a)(1)(A), (C), and (D), is time-barred under the statute of limitations since Plaintiffs had actual knowledge that Defendants only offered proprietary funds the day they elected their Plan options beginning in September 2011. The court determined that Count IV of the Second Amended Complaint, where Plaintiffs allege that GE, the Benefit Plan Investment Committee Defendants, and the Asset Management Defendants offered GE Funds as the sole actively managed investment options of the Plan despite high costs and poor performance in order to generate management fees and maintain GE Asset Management’s performance, is not time-barred assuming that they did not have actual knowledge of the poorer performance and higher costs until the date of the sale of GE Asset Management to State Street Corporation, within the three-year SOL.

Subrogation/Reimbursement Claims

Second Circuit

PricewaterhouseCoopers LLP Health & Welfare Benefits Plan v. Mayer, No. 3:18-CV-526 (VAB), 2018 WL 6589871 (D. Conn. Dec. 13, 2018) (Judge Victor A. Bolden).  In this reimbursement action, the court denied a personal injury attorney’s motion to dismiss a self-funded health plan’s claim against him under Section 502(a)(3) based on his possession of settlement funds.  The court determined that he “is a proper party to this action because a third-party holding funds that are subject to an equitable lien by an ERISA plan is a proper defendant in an action to recover the lien amount under ERISA.”  Plaintiff plausibly pleads that the attorney exercised sufficient control over the settlement funds to be a proper defendant where the attorney holds or has disbursed some of the proceeds to himself.

 Your ERISA Watch authored by Michelle L. Roberts, Esq., Partner

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