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Your ERISA Watch – Ninth Circuit Holds Insurer’s Failure to Issue a Final Decision on Disability Benefit Appeal Results in De Novo Review

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This is the first ERISA Watch of 2019.  There weren’t a lot of decisions this past week due to the holiday.  I want to highlight a couple of unpublished Ninth Circuit decisions, both of which reversed the district courts’ grants of summary judgment to the defendant plans in long-term disability matters.

The first is Gordon v. Metropolitan Life Insurance Company, No. 17-16821, __F.App’x__, 2019 WL 102403 (9th Cir. Jan. 4, 2019).  The court reversed and remanded the district court’s (Judge Davila) grant of summary judgment to MetLife after erroneously applying abuse of discretion review.  The Ninth Circuit found that MetLife’s decision to deny benefits is subject to de novo review because it failed to issue a final decision on Gordon’s appeal, even years after its deadline to do so.  The court found that this was a “wholesale and flagrant” violation of both ERISA and the benefit plan and “utterly disregards” MetLife’s duties as a plan administrator.  See 29 C.F.R. § 2560.503–1(h)-(j); Abatie v. Alta Health & Life Ins. Co., 458 F.3d 955, 971 (9th Cir. 2006).  *Advice to administrators:  get those rubber stamps moving faster!

The second decision is Hoffman v. Screen Actors Guild Producers Pension Plan, No. 16-56663, __F.App’x__, 2019 WL 103895 (9th Cir. Jan. 4, 2019).  In this matter’s second trip to the Ninth Circuit, the court reversed and remanded the district court’s (Judge Real) grant of summary judgment to the Plan.  In reviewing Hoffman’s application for occupational disability benefits on remand, the Plan reviewed Plaintiff’s initial application for disability benefits, retroactively denied her disability pension benefits, and sought recoupment of an alleged overpayment of more than $123k.  The court determined that the district court did not consider all the alleged procedural defects.  “The findings of fact entered by the district court, which were adopted verbatim from the Plans’ proposed findings and conclusions, similarly do not include findings about any of the alleged procedural defects.”  On remand, the court is to address the outstanding factual questions which bear upon the degree of skepticism that the court is to apply to its review of the Plan’s decision.  Judge Bea filed a dissenting opinion.

*This blog is for informational purposes and not for purposes of providing legal advice.  The blog’s author generally encourages plan administrators to pay benefits.

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

Breach of Fiduciary Duty

Eighth Circuit

Lechner v. Mutual of Omaha Insurance Company, No. 8:18CV22, 2018 WL 6920749 (D. Neb. Dec. 31, 2018) (Judge Joseph F. Bataillon).  Plaintiff alleges that Mutual engaged in self-dealing by choosing investment options that were terribly overpriced, more expensive than 90% of the plans in the U.S. and made millions of dollars at the expense of the plan.  Specifically, Plaintiffs allege that the cost per participant in the plan is $195 and market data show that $64 is the average, that Mutual allowed United to control the spread which resulted in United keeping more of the investment returns for itself than it paid to plan participants, and that the fees paid by Mutual to United far exceed the market rates.  The court denied Defendant’s motion to dismiss because Plaintiffs state a plausible claim for misconduct in the form of a breach of fiduciary duty and loyalty.

Disability Benefit Claims

First Circuit

Carter v. Aetna Life Insurance Company, No. 2:17-CV-00398-JAW, 2019 WL 80434 (D. Me. Jan. 2, 2019) (Judge John A. Woodcock, Jr.).  In following the First Circuit’s instruction to consider the steps a plan administrator has taken to insulate the decisionmaking process against the effects of a conflict of interest, the court noted that “Aetna offered evidence of its efforts to reduce any potential bias by instituting policies designed to isolate claim and appeal assessments from financial considerations and retaining Dr. Grattan to provide an independent physician review.”  The court considered the structural conflict as a factor in determining whether there is an abuse of discretion.  The court found no abuse of discretion where Aetna’s decision to deny long-term disability benefits was based on reasonable and substantial evidence.

Ninth Circuit

Gordon v. Metropolitan Life Insurance Company, No. 17-16821, __F.App’x__, 2019 WL 102403 (9th Cir. Jan. 4, 2019) (Before: CALLAHAN, N.R. SMITH, and MURGUIA, Circuit Judges).  See Notable Decision summary above.

Hoffman v. Screen Actors Guild Producers Pension Plan, No. 16-56663, __F.App’x__, 2019 WL 103895 (9th Cir. Jan. 4, 2019) (Before: BEA and MURGUIA, Circuit Judges, and BASTIAN, District Judge).  See Notable Decision summary above.

ERISA Preemption

Sixth Circuit

Kasle v. BCBSM Found., No. 18-11888, 2019 WL 78897 (E.D. Mich. Jan. 2, 2019) (Judge David M. Lawson).  In this dispute over the failure to pay for substance abuse and mental health treatment under an ERISA-governed plan, the court dismissed as preempted by ERISA the breach of contract claim as well as the penalty interest claim under the Michigan’s Uniform Trade Practices Act.

Vasu v. Combi Packaging Sys. LLC, No. 5:18CV1889, 2018 WL 6831175 (N.D. Ohio Dec. 28, 2018) (Judge Sara Lioi).  The court denied Plaintiff’s motion to remand his state law claims seeking basic and voluntary life insurance benefits provided under his deceased father’s employer-provided life insurance plan because the Plan is governed by ERISA.  An email from Defendant’s counsel stating that the Plan is not an ERISA plan does not control the court’s interpretation of the Plan.  In addition, the court already determined, and the parties did not dispute, that this Plan was an ERISA plan in the matter of Vasu v. American United Life Insurance Company, 247 F.Supp.3d 867 (N.D. Ohio 2017).

Exhaustion of Administrative Remedies

Third Circuit

Ra v. Gerhard’s, Inc., et al., No. CV 17-5211, 2019 WL 95473 (E.D. Pa. Jan. 3, 2019) (Judge Goldberg).  The court denied Defendant’s dismissal of Plaintiff’s ERISA claims based on his alleged misclassification as an independent contractor.  The court found that Plaintiff has adequately alleged that he was a common law employee for purposes of “participant” status and he has standing to pursue his claims.  Plaintiff alleged futility in exhausting administrative remedies under Defendant’s employee benefit plans because he has no insurance cards or membership numbers for any of the plans. The court found that such allegations give rise to a plausible inference that it would be futile for him to exhaust administrative remedies for purposes of a motion to dismiss.

Statute of Limitations

Eighth Circuit

Lechner v. Mutual of Omaha Insurance Company, No. 8:18CV22, 2018 WL 6920749 (D. Neb. Dec. 31, 2018) (Judge Joseph F. Bataillon).  Defendants argued that Plaintiff’s transaction claims are untimely under ERISA’s 6-year limitations period because the contract between Mutual and United in dispute originated prior to the 6-year time limitation.  Plaintiffs contended that the ongoing services provided by United are prohibited by Section 406(a)(1)(C) and the ongoing transfers of Plan assets to United in the form of periodic contributions are prohibited by Section 406(a)(1)(D).  In addition, Mutual renewed its agreement with United during the limitation period and conducted at least five reviews during that time period.  The court found that Plaintiffs have alleged sufficient facts to establish a plausible claim for relief that occurred inside the statute of limitations.

Withdrawal Liability & Unpaid Contributions

Second Circuit

Mason Tenders Dist. Council of Greater New York v. Phase Constr. Servs., Inc., No. 14 CIV. 06016 (ER), 2019 WL 95562 (S.D.N.Y. Jan. 3, 2019) (Judge Edgardo Ramos).  “Plaintiffs’ motion for summary judgment is GRANTED in part, Plaintiffs’ motion for preclusion is DENIED as moot, and Defendants’ cross-motion for summary judgment is DENIED.”

Sixth Circuit

Wisconsin Sheet Metal Workers Health and Benefit Fund, Milwaukee Area Sheet Metal Journeyman and Apprenticeship v. Zien Service Inc., No. 18-CV-272-JPS, 2019 WL 96385 (E.D. Wis. Jan. 3, 2019) (Judge J.P. Stadtmueller).  The court granted in part and denied in part Plaintiffs’ motion for partial summary judgment as to various liability issues.  Plaintiffs have “shown entitlement to findings that Defendant is bound by the 2015-2018 CBA, that the CBA’s ‘covered work’ provision is not ambiguous or vague, that the Subject Employees’ performed ‘covered work,’ and that those employees are appropriately classified as journeymen or warehousemen, respectively, pursuant to the CBA. All other issues remaining, in this case, must be presented to the jury at trial.”

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