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Your ERISA Watch – District Court Rules State Law Claims Concerning Payment of Life Insurance Benefits Not Preempted by ERISA

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Today’s notable decision is a district court decision in the matter of Flinn v. Minnesota Life Insurance Company, No. CV 18-10868-WGY, 2018 WL 5982021 (D. Mass. Nov. 14, 2018), a case involving the delivery of life insurance benefits to the wrong party.

Plaintiff Flinn alleged that his deceased wife’s sister, an attorney, forged a power of attorney on this behalf to get Minnesota Life to send payment of life insurance benefits to her rather than to him.  The insurance company issued the check payable to him but sent it to the sister’s address.  By the time he discovered it, she had already diverted the funds from the estate for her use.

Flinn sued Minnesota Life and Securian Financial Group (the parent company) and alleged that they violated Massachusetts law by mishandling the ministerial task of transferring to him the funds to which he was undisputedly due under the terms of the life insurance policy.  He alleged that they were liable for negligence; constructive trust/breach of fiduciary duty; and violating Massachusetts General Laws chapter 106, section 4-401, chapter 176D, and chapter 93A.

The Insurers removed the matter to federal court and Flinn sought a remand.  The Insurers also moved to dismiss based on ERISA preemption.  The Insurers contended that ERISA completely preempts Flinn’s causes of action.  The court disagreed.  It explained that the gravamen of Flinn’s complaint is that the Insurer’s violated their state law obligation to ensure that he, or his true legal representative, received his benefit check.  The court determined that his claims do not depend on the terms of the life insurance plan or benefits law generally but on state laws and federal statutes (other than ERISA).  As such, they are not completely preempted by ERISA.  However, the court denied Plaintiff’s motion to remand because it has diversity jurisdiction over the causes of action.

On the issue of express ERISA preemption, the Court also determined that the causes of action do not relate to or have an impermissible connection to an ERISA plan.  Flinn’s relationship with the Insurers is not based directly on the ERISA plan, but rather the process to which they failed to adhere in ensuring he received the benefit payment.  Because there is no express preemption, the court denied the Insurer’s motion to dismiss.

It probably goes without saying that Mr. Flinn will not be spending Thanksgiving with his sister-in-law.  Hope you all have a wonderful Thanksgiving Day celebration.  Stay tuned for more ERISA decision recaps next week.

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

Breach of Fiduciary Duty

Third Circuit

International Union of Painters and Allied Trades District Council No. 21 Health and Welfare Fund, et al. v. Service Painting, Inc., et al., No. CV 18-3480, 2018 WL 5923447 (E.D. Pa. Nov. 13, 2018) (Judge Kearney).  The court previously entered a default judgment against Service Painting and its president Nick Garavelas for breaches of fiduciary duties owed to the Funds under ERISA and conversion under state law.  Afterward, Service Painting filed a Suggestion of Bankruptcy and the court placed the case in suspense.  The Funds moved to reopen the case against Garavelas.  The court determined that “[t]he automatic stay does not reach Mr. Garavelas, a non-debtor. We uphold the stay as to the ERISA claim against debtor Service Painting, but we reopen the action as to the damages hearing against non-debtor Mr. Garavelas.”

Ninth Circuit

White, Jr. v. Chevron Corporation & ESIP Investment Committee, No. 17-16208, __F.App’x__, 2018 WL 5919670 (9th Cir. Nov. 13, 2018) (Before: HAWKINS and HURWITZ, Circuit Judges, and EATON, Judge).  The court affirmed the dismissal of the amended complaint for failure to state a claim.  There is no breach of fiduciary duty because “the allegations showed only that Chevron could have chosen different vehicles for investment that performed better during the relevant period, or sought lower fees for administration of the fund.” The court also found “that the prohibited transaction claim was time-barred because the transaction alleged to have violated the statute—hiring Vanguard—is alleged to have occurred in 2002, and this action was not commenced until 2016.”

Disability Benefit Claims

Sixth Circuit

McConnell v. Nationwide Insurance Company Benefits Administrative Committee, No. 17-12869, 2018 WL 5919367 (E.D. Mich. Nov. 13, 2018) (Judge Robert H. Cleland).  The court overruled Plaintiff’s first objection to the Magistrate Judge’s report because Plaintiff “failed to show that Dr. Trombly individually, or that a neurosurgeon generally, would lack the expertise required to assess a claim based on injuries from a prior automobile collision.”  The Magistrate Judge properly determined that Defendant’s decision to deny long term disability benefits was not arbitrary and capricious where Plaintiff’s medical reports contained mixed opinions and there is no evidence Dr. Trombly refused to credit reliable evidence.  Lastly, there is no basis to find that the conflict of interest should have tipped the case in Plaintiff’s favor.

Tenth Circuit

Smith v. The Standard Insurance Company, No. CIV-16-953-G, 2018 WL 6012372 (W.D. Okla. Nov. 16, 2018) (Judge Charles B. Goodman).  The court determined that Standard’s denial of LTD benefits beyond the 24-month “Own Occupation” period was not arbitrary and capricious.  Plaintiff’s SSDI award does not obligate Standard to continue paying LTD benefits.  Standard did take active steps to reduce potential bias and promote accuracy.  Standard also properly analyzed Plaintiff’s vocational capabilities by relying on the requirements set forth in the Dictionary of Occupational Titles (“DOT”) and Plaintiff’s vocational background.

ERISA Preemption

First Circuit

Flinn v. Minnesota Life Insurance Company, No. CV 18-10868-WGY, 2018 WL 5982021 (D. Mass. Nov. 14, 2018) (Judge William G. Young).  See Notable Decision summary above.

Ninth Circuit

Soto v. Int’l Paper Co., No. CV1803836RSWLGJSX, 2018 WL 5921350 (C.D. Cal. Nov. 13, 2018) (Judge Ronald S.W. Lew).  Plaintiff’s age discrimination claim and failure to prevent discrimination and wrongful termination claim are preempted by ERISA where the allegations support “the strong implication that Defendant’s motive to terminate Plaintiff was to avoid early retirement benefits.”

Plan Status

Fourth Circuit

Davis v. Social Security Administration, No. 18-6721, __F.App’x__, 2018 WL 5977884 (4th Cir. Nov. 14, 2018) (Before MOTZ and RICHARDSON, Circuit Judges, and TRAXLER, Senior Circuit Judge).  In this case brought by a federal inmate against the Social Security Administration in connection with his attempt to obtain a survivor benefit as his father’s heir, the court determined that his breach of fiduciary duty claim brought under ERISA is subject to dismissal because ERISA applies to the regulation of private retirement plans and does not apply to the SSA.

Ninth Circuit

Mostajo v. Nationwide Mutual Insurance Company, No. 2:17-CV-00350-JAM-AC, 2018 WL 5979603 (E.D. Cal. Nov. 14, 2018) (Judge John A. Mendez).  The court determined that Nationwide’s “Your Time Program,” through which Nationwide provides a paid a time-off benefit to its employees, is an ERISA-exempt “payroll practice” because the benefits are ultimately paid from Nationwide’s general assets, rather than a separate trust.  Because the program is exempt from ERISA as a payroll practice, the court did not reach the parties’ arguments regarding whether the program is also exempt under the DOL’s four-factor guidance.

Pleading Issues & Procedure

Second Circuit

Hoke v. Excellus Health Plan, Inc., No. 518CV0503LEKTWD, 2018 WL 5982865 (N.D.N.Y. Nov. 14, 2018) (Judge Therese Wiley Dancks).  Plaintiffs’ claim for benefits under ERISA § 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B), for injunctive relief pursuant to ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3), attorneys’ fees and costs under ERISA § 502(g), 29 U.S.C. § 1132(g), and estoppel under ERISA common law, are “clearly equitable in nature” and Plaintiffs are not entitled to a jury trial.  The court concluded that Plaintiffs’ jury demand must be stricken.

Provider Claims

Third Circuit

Small v. Blue Cross Blue Shield of Michigan, No. 18-11601 (SDW)(CLW), 2018 WL 5891692 (D.N.J. Nov. 9, 2018) (Judge Susan D. Wigenton).  The court adopted the Magistrate Judge’s R&R in part.  It held that Judge Waldor “correctly found that the anti-assignment clause in the health plan at issue deprives Plaintiff of standing to bring a claim under ERISA § 502(a), and, as a result, Plaintiff is not the type of party that can bring a claim under the statute.”  But, because there was no standing, Judge Waldo did not have to address whether Plaintiff’s actual claim was a colorable claim for benefits under ERISA and declined to adopt that portion of the R&R.

Retaliation Claims

Ninth Circuit

Soto v. Int’l Paper Co., No. CV1803836RSWLGJSX, 2018 WL 5921350 (C.D. Cal. Nov. 13, 2018) (Judge Ronald S.W. Lew).  “While Plaintiff does not allege facts showing he attempted to exercise rights under ERISA, he was a month away from turning fifty-five and could not have exercised his rights at the time. Plaintiff’s allegations that he was almost fifty-five when terminated, and that it was Defendant’s practice to terminate employees on the cusp of reaching fifty-age to avoid paying benefits provides a plausible inference that Plaintiff’s imminent ability to exercise his rights under ERISA caused the adverse action of his termination.”


Tenth Circuit

Rains & Sons Transportation, LLC v. The Keiser Group, LLC, No. CIV-18-507-C, 2018 WL 6005421 (W.D. Okla. Nov. 15, 2018) (Judge Robin J. Cauthron).  In this lawsuit by a company and its healthcare benefit plan against the plan’s third-party administrator alleging breach of fiduciary duty under ERISA and other state law claims, the court granted Defendants’ motion to transfer venue to the Central District of California.  This is based on language in the Service Agreement which states:  “To the extent not preempted by ERISA, this Agreement will be interpreted under the laws of the State of California, without regard to conflict of law provisions. Any suit brought hereunder shall be brought in a California court of appropriate jurisdiction and venue.”   The court rejected Plaintiffs’ argument that since the lawsuit invokes an ERISA claim, the forum selection clause does not apply.  The forum selection clause is a mandatory and enforceable forum selection clause.

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


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