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Your ERISA Watch – Eighth Circuit Reverses Judgment in Favor of Plan Participant, Demonstrating Why Discretionary Clauses in Disability Plans Hurt Claimants

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Today’s notable decision is a stunning upset by the Eighth Circuit in Zaeske v. Liberty Life Assurance Co. of Boston, No. 17-2496, __F.3d__, 2018 WL 4008944 (8th Cir. Aug. 23, 2018), a case involving a termination of long term disability benefits.  This is another one of those cases to add to the big piling heap of cases where the standard of review makes all the difference.  Even though abuse of discretion review is not supposed to be a “rubber-stamp” of an administrator’s benefit determination, the outcome in this case sure seems like it.

By way of background, on Judge 5, 2017, Judge Timothy Brooks, in a thorough and well-reasoned decision, determined that substantial evidence did not support Liberty Life’s determination that Zaeske’s back condition improved so that he was no longer disabled.  See Zaeske v. Liberty Life Assurance Co. of Boston, 261 F. Supp. 3d 928 (W.D. Ark. 2017), rev’d, No. 17-2496, 2018 WL 4008944 (8th Cir. Aug. 23, 2018).  The district court found that Liberty Life’s reviewing physicians, Dr. Stuart Glassman and Dr. Mark Reecer, either ignored objective medical data in the file, failed to appreciate that Zaeske’s condition had not improved over time, or did not consider whether he could perform the duties of his occupation given his limitations.  In addition, the doctors did not address how uncontrolled pain would affect his ability to walk, sit, lift heavy things, or travel.  The court reversed the claim decision and remanded to Liberty Life for the correct calculation of past-due benefits.

Unhappy with the district court’s refusal to rubber-stamp its decision, Liberty Life appealed to the Eighth Circuit.  On de novo review of the district court’s decision, the Eighth Circuit found that Liberty Life’s denial was based on substantial evidence because it was permitted to rely on the opinions of Drs. Glassman and Reecer.  The court determined that Dr. Glassman’s opinion was based on a reasonable interpretation of Zaeske’s “medical records which did not dictate a conclusion that he was suffering uncontrolled back pain at the time of Dr. Glassman’s assessment.”  This is because his doctors did not always note during visits that he was suffering from “uncontrolled pain.”

One of Zaeske’s treating doctors had earlier certified his disability and noted that he expected Zaeske to return to work within three months.  The court found that this was not inconsistent with Dr. Reecer’s opinion, a year later, that Zaeske had the capacity to work.  “Although the underlying diagnosis did not change for the better, Zaeske’s symptoms may have improved during that time, either naturally or as a result of medication. And as already explained, Zaeske’s medical records permit that conclusion.”  But, even if Dr. Reecer’s opinion was inconsistent with Zaeske’s doctor’s opinion, the court explained that Liberty Life has the discretion to choose between two reliable but conflicting medical opinions.

Though the court did not state explicitly that this case was a “close call,” it’s apparent from the district court’s analysis of the evidence that it would have found Liberty Life’s doctors’ reviews to not be credible or reliable evidence.  If the disability plan document did not confer discretionary authority to Liberty Life, on de novo review, the district court would have likely made findings of fact and conclusions of law in favor of Zaeske.  Then, the Eighth Circuit would have been reviewing the district court’s decision for abuse of discretion rather than de novo.  But alas, the substantial evidence standard again carries the day for the insurance company.  Its decision doesn’t have to be the most reasonable decision, it just has to be reasonable enough (sort of like the 5-day old leftovers that smell a bit off but likely won’t make you sick).  And where is the fiduciary duty worthy of deference in that?  The Eighth Circuit appeared to be grasping for any basis to justify the doctors’ conclusions.  It’s as if the court was expecting Zaeske’s doctors to report that he was writhing in pain on the floor at each visit.  Last I checked, this is not a requirement to get disability benefits.

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

Breach of Fiduciary Duty

Sixth Circuit

Schmitt, et al. v. Nationwide Life Insurance Company, et al., No. 2:17-CV-558, 2018 WL 4051835 (S.D. Ohio Aug. 24, 2018) (Judge Algenon L. Marbley).  Plaintiff, on behalf of a putative class, brought suit under ERISA Section 502(a)(3) against Defendant for providing services such as record-keeping and customer service at excessive fees of one percent of the value of each participant’s 401(k) account, per year.  The court denied Defendant’s motion to dismiss because Plaintiff adequately pled that the Defendant had constructive knowledge of the unreasonableness of the fee charged and Plaintiff may seek disgorgement, accounting, and surcharge remedies in equity.  The court also granted Plaintiff’s motion for leave to amend the complaint to name a Plan fiduciary who it determined is an indispensable party under Rule 19.

Ninth Circuit

Baird, et al. v. Blackrock Institutional Trust Company, N.A., et al., No. 17-CV-01892-HSG, 2018 WL 4028224 (N.D. Cal. Aug. 23, 2018) (Judge Haywood S. Gilliam, Jr.).  In this action alleging that “Defendants violated their fiduciary duties and engaged in prohibited transactions by choosing high-cost and poor-performing investments options for the BlackRock retirement plan,” the court granted Plaintiffs’ motion for leave to file a second amended complaint adding several defendants because they satisfied the “good cause” standard of Rule 16(b) by acting diligently to file the motion after becoming aware of new information during discovery.

Disability Benefit Claims

Third Circuit

Keller-Smith v. Reliance Standard Life Insurance Company, No. CV 17-1549, 2018 WL 4046511 (E.D. Pa. Aug. 23, 2018) (Judge Joel Slomsky).  In this dispute over whether long term disability benefits were payable beyond the Plan’s mental illness limitation, the court granted Reliance Standard’s motion for summary judgment because “Plaintiff has failed to provide sufficient evidence showing that she is unable to perform the material tasks of any occupation and thus she has not met her burden to prove that she is unqualified to work in some capacity.”  Reliance properly rejected her doctor’s medical opinion that she was disabled as a result of RSD when other evidence indicates that she is disabled due to her bipolar disorder.

Fifth Circuit

Chadbourne v. Marathon Petroleum Company LP, et al., No. 3:17-CV-00284, 2018 WL 4033776 (S.D. Tex. Aug. 23, 2018) (Judge Andrew M. Edison).  The court denied Plaintiff’s motion to supplement her long term disability claim file (“Administrative Record”) with a document that she submitted to the claims administrator almost a year after her LTD claim was denied on appeal, and only 15 days before this suit was filed.  The timing of the submission and the filing of the lawsuit did not give the administrator a fair opportunity to consider it.  In addition, the information would not assist the Court in understanding fibromyalgia.

Eighth Circuit

Zaeske v. Liberty Life Assurance Co. of Boston, No. 17-2496, __F.3d__, 2018 WL 4008944 (8th Cir. Aug. 23, 2018) (Before Colloton, Bowman, and Benton, Circuit Judges).  See Notable Decision summary above.

Tenth Circuit

Mark v. Aetna Life Insurance Company, No. 17-CV-0441-WJM-NRN, 2018 WL 4042727 (D. Colo. Aug. 24, 2018) (Judge William J. Martinez).  In reviewing the Report and Recommendation on Aetna’s objection, “[t]he Court expresses no opinion on Judge Watanabe’s reasoning that Aetna had a duty, under the circumstances of this case, to further develop the medical record before deciding whether to discontinue Mark’s short-term disability benefits. Upon de novo review and having reviewed all of the briefings both predating and postdating the Recommendation the Court is convinced by a separate argument, namely, that Aetna’s decision to discontinue benefits was arbitrary and capricious under its stated rationale.” (internal citations omitted).  The court rejected Aetna’s position that there was a lack of significant objective findings, explaining that “conditions such as swelling and muscle tightness cannot be faked. Moreover, the Plan does not define ‘significant objective findings’ with respect to whether a claimant can fake a condition. The Plan says only that there must be evidence of abnormalities which can be observed apart from the claimant’s symptoms. So even a condition that might be faked, such as a limp, may not be disregarded solely on that basis.”


Eighth Circuit

Wildman v. American Century Services, LLC, et al., No. 4:16-CV-00737-DGK, 2018 WL 4008990 (W.D. Mo. Aug. 22, 2018) (Judge Greg Kays).  In this case involving claims for breach of fiduciary duty and prohibited transactions, the court granted Plaintiffs’ motion to compel Defendants to supplement “its production of three categories of materials: (1) Retirement Committee meeting minutes; (2) quarterly plan data; and (3) 408b-2 disclosures” and to exclude testimony of Defendants’ fact witness Patrick Bannigan because his name was untimely disclosed, causing prejudice.  The court denied Plaintiffs’ motion to exclude two emails that were disclosed after the close of discovery since they appear to corroborate expected witness testimony and do not alter the facts in this case.  The court also determined that Plaintiffs’ experts’ charts, images, and documents are admissible for purposes of demonstrating the underlying basis for the experts’ opinions and Plaintiffs’ exhibits for impeachment and to introduce prior inconsistent statements are admissible.

ERISA Preemption

Sixth Circuit

Stokes, MD. v. North Coast Obstetrics & Gynecology, Inc., et al., No. 1:18CV368, 2018 WL 4042350 (N.D. Ohio Aug. 24, 2018) (Judge Christopher A. Boyko).  The court granted Plaintiff’s motion to remand to state court and his motion for attorneys’ fees.  Plaintiff’s state-law claims related to the alleged violation of an Employment Agreement, which included the promise to contribute to the 401(k) plan on his behalf, was not expressly or completely preempted by ERISA.

Life Insurance & AD&D Benefit Claims

Third Circuit

Verba v. Metropolitan Life Insurance Company, No. 2:17CV769, 2018 WL 4005873 (W.D. Pa. Aug. 22, 2018) (Judge ).  Plaintiffs sought accidental death benefits for their son who “died as a result of a combined drug poisoning (Cocaine and Ethanol) along with hypothermia.”  MetLife denied the claim on the basis of a policy exclusion for loss caused or contributed to by the voluntary intake of any drug medication or sedative unless it is taken or used as prescribed by a doctor or an “over the counter” drug taken as directed.  The court found that MetLife’s denial was not arbitrary and capricious and that “it is more likely than not, under a review of all the evidence, that an independent expert would not be able to conclude that hypothermia was the direct and sole cause of Andrew’s death and that cocaine and alcohol use played no role.”

Medical Benefit Claims

Second Circuit

Doe v. United Health Group Inc., et al., No. 17CV4160AMDRL, 2018 WL 3998022 (E.D.N.Y. Aug. 20, 2018) (Judge Ann M. Donnelly).  This lawsuit alleges ERISA, Federal Parity Act, Timothy’s Law, and ACA violations against Defendants for discriminating against Plaintiffs and a putative class by imposing arbitrary reimbursement policies on psychotherapy by psychologists and masters’ level counselors.  The court dismissed UnitedHealth Group, Inc., UnitedHealthcare Insurance, Co., Oxford Health Plans, LLC, and Oxford Health Plans (NY), Inc. because they are not proper defendants for ERISA claims.  The allegation that they “took part in administering her plan by creating and imposing the discriminatory policy” is insufficient to show that they exercised control over the benefits denial process.  They also cannot be held liable for breach of fiduciary duty because the reimbursement processes for out-of-network psychotherapy was a business decision rather than a fiduciary function for the plan.  The court did find that for the proper defendants, Plaintiff has plausibly stated a claim under the Federal Parity Act that the reimbursement policy is a discriminatory nonquantitative treatment limitation but there is no implied private right of action under Timothy’s Law or the ACA.  Lastly, the court denied dismissal of Section 502(a)(1)(B) and (a)(3) claims.

Plan Status

Fifth Circuit

Le v. Unum Insurance Company of America, No. CV 17-833, 2018 WL 3999730 (W.D. La. Aug. 21, 2018) (Judge Nannette Jolivette Brown).  In this dispute over the denial of long term disability benefits, the court granted Plaintiff’s motion and held that the employee benefit plan established and maintained by Opelousas General Health System is a “governmental plan,” which is exempt from ERISA coverage pursuant to 29 U.S.C. § 1003(b)(1).  The court found that OGHS is a political subdivision of the State of Louisiana based on the fact that “neither OGHS’s bylaws nor its Trust Indenture may be changed without the consent of the Commission of HSD, which is appointed by the Parish Council. Furthermore, five of the members of the Board of Trustees for OGHS are also Commissioners of HSD, the four additional Trustees are appointed by the Commission, and officers of the Commission of HSD and the Board of Directors of OGHS are identical.”  In the alternative, five of the six factors weigh in favor of finding that OGHS is an agent or instrumentality of Hospital District No. 2, which is undisputedly a political subdivision of the State of Louisiana.

Pleading Issues & Procedure

Sixth Circuit

Young v. WH Administrators, Inc., No. 117CV02829STAEGB, 2018 WL 4016451 (W.D. Tenn. Aug. 22, 2018) (Judge S. Thomas Anderson).  In this lawsuit by an employee of a company against a third-party provider of ERISA plan administration and claims services, the court denied Defendant’s motion to dismiss the case under Rule 12(b)(7) on the basis that Plaintiff’s employer and its insurance broker are necessary and indispensable parties to this action under Rule 19.  Defendant did not meet its burden of showing that these parties are indispensable to this litigation.


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