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Your ERISA Watch – Ninth Circuit Holds That Substantial Contribution Standard Applies to AD&D Policy Exclusion and Reverses Denial of Benefits

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I’m pleased to report this week’s notable decision is a firm victory in the case of Dowdy v. Metro. Life Ins. Co., No. 16-15824, __F.3d__, 2018 WL 2223722 (9th Cir. May 16, 2018), which involved a denial of benefits under an AD&D Plan.  Dowdy was involved in an automobile accident and sustained a serious injury to his left leg, which was eventually amputated below the knee.  Dowdy and his wife sought accidental dismemberment benefits under an insurance policy provided by his employer and insured and administered by Metropolitan Life Insurance Company.  MetLife denied the benefits on the basis that Plaintiff’s diabetes contributed to the decision to amputate Plaintiff’s leg and the AD&D policy has an exclusion for any loss caused or contributed to by an illness or infirmity.  The district court declined to consider evidence outside of the “administrative record.”  On the merits, the district court found that diabetes caused or contributed to the need for amputation and Plaintiff’s loss was excluded under the policy.

On appeal, the Ninth Circuit held that the district court did not abuse its discretion in excluding evidence outside of the “administrative record,” and any error on that issue was harmless.  But, the Ninth Circuit found that Plaintiff’s diabetes did not substantially contribute to the amputation of Dowdy’s leg so it was a covered loss under the policy.  The court explained that the Dowdys are entitled to coverage if the car accident was the “direct and sole cause” of the loss, and if amputation “was a direct result of the accidental injury, independent of other causes.”  The court declined to determine whether the applicable language is conspicuous or inconspicuous as described in McClure v. Life Ins. Co. of N. Am., 84 F.3d 1129 (9th Cir. 1996), because even under the more demanding “substantial contribution standard,” the record does not support a finding that diabetes substantially contributed to Dowdy’s loss.  Here, Plaintiff’s doctor opined that Dowdy’s wound issues were complicated by his diabetes but faulted the comorbidities and the type of injury as the need for amputation.  The district court’s application of the substantial contribution standard was overly strict.

Lastly, the court held that the substantial contribution standard applies in interpreting the concepts of cause and contribution in the exclusion for “any loss caused or contributed to by illness or infirmity.”  Applying this standard, the court found that diabetes did not substantially cause or contribute to the amputation where Dowdy suffered a deep infection related to the original injury and the fracture itself was slow to heal.  For these reasons, the court found that Plaintiff is entitled to benefits.

Plaintiffs-Appellants were represented by Mark L. Mosley (argued) and Douglas A. Applegate, Seiler Epstein Ziegler & Applegate LLP, San Francisco, California; Glenn R. Kantor, Kantor & Kantor LLP, Northridge, California.

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

Breach of Fiduciary Duty

Fifth Circuit

Swenson v. Lincoln National Life Insurance Company, et al, No. CV 17-0417, 2018 WL 2269918 (W.D. La. May 16, 2018) (Judge Elizabeth Erny Foote).  United alleged that Eldorado breached its fiduciary duties to United by failing to inform it that Plaintiff was not actively working and was ineligible for coverage and by submitting premiums on his behalf.  The court found that Eldorado does not have a fiduciary duty to United so United cannot claim indemnity on this basis.  United also alleged that Eldorado breached its fiduciary duty to Plaintiff by accepting an enrollment form from him and paying premiums on his behalf and that if United is held liable to Plaintiff that Eldorado must indemnify United.  The court found that because Eldorado is not liable to Plaintiff for benefits under § 1132(a)(1)(B), United has no right of indemnity or contribution.  But the court did find that United has adequately stated a claim in negligence against Eldorado.

Seventh Circuit

Perez v. Leiter, et al., No. 116CV01116JESJEH, 2018 WL 2244711 (C.D. Ill. May 16, 2018) (Judge James E. Shadid). The court found that as a matter of law, the loans Leiter made to the Main-Flora Trust and Beacon were prohibited by ERISA and by loaning the Plan’s assets to the undisputed parties in interest Leiter per se breached his fiduciary duties to the Plan.  The court also found that the Leiter Group failed to monitor the administration and investment of the Plan’s assets by Leiter, imprudently permitted Leiter to continue loaning the Plan’s assets to parties in interest, and allowed him to retain the Plan’s continued unlawful investment in HDM.  Therefore, the Leiter Group is liable under ERISA § 405(a)(2) for Leiter’s violations of § 404(a)(1)(A).

Ninth Circuit

Pension Benefit Guaranty Corporation v. Karp, et al., No. 18CV652-MMA (AGS), 2018 WL 2267208 (S.D. Cal. May 17, 2018) (Judge Michael M. Anello).  In this case where Plaintiff alleges that both Defendants are liable for losses suffered by the Plan as a result of their breaches of fiduciary duties, the court denied Defendant Ilana Karp’s ex parte application for separate adjudication of Defendant’s case.  “Further, the Court is unpersuaded that this case should be severed due to Ilana’s and Samuel’s diverging interests because Ilana delegated her responsibilities to Samuel…”

Disability Benefit Claims

First Circuit

Carter v. Aetna Life Insurance Company, No. 2:17-CV-00398-JAW, 2018 WL 2272337 (D. Me. May 17, 2018) (Magistrate Judge John C. Nivison).  The court denied Plaintiff’s Motion to Amend the Complaint to assert that Plaintiff’s claim is governed by a de novo standard of review because the court will determine the applicable standard of review as part of its analysis of the merits of the claim.  Thus, an amendment to the Complaint is unnecessary.

Seventh Circuit

Lacko v. United of Omaha Life Ins. Co., No. 17 C 2100, 2018 WL 2220290 (N.D. Ill. May 15, 2018) (Judge Jorge L. Alonso).  The court determined that United of Omaha’s decision to deny Plaintiff short-term and long term disability benefits survives deferential review.  With respect to Plaintiff’s SSDI award, the court explained that “the Social Security Administration concluded that plaintiff retained the functional capacity for light duty work, i.e., work more strenuous than sedentary work. Despite its conclusion that plaintiff was functionally capable of light-duty work, the Social Security Administration granted plaintiff disability benefits, because of her age, education and lack of transferable skills, which made an award mandatory. By contrast, the terms of the long term disability plan at issue in this case do not require mandatory benefits, based on age and skill.”

Ninth Circuit

Nagy v. Hartford Life and Accident Insurance Company, et al., No. 16-CV-05309-HSG, 2018 WL 2183269 (N.D. Cal. May 11, 2018) (Judge Haywood S. Gilliam, Jr.).  On the standard of review, the court found that section 10110.6 still governs, and that de novo review applies. In Nagy I, the court ruled in favor of Plaintiff on his claim for “own occupation” LTD benefits.  In this second lawsuit for “any occupation” benefits, the court found that Plaintiff was not disabled under the terms of the plan due to his Chronic Fatigue Syndrome.  The court noted a gap in medical treatment records over a 9-month period, that Plaintiff abruptly changed his treatment rationales and goals following remand of his case (including seeking a referral for CPET testing and a CFS expert), the CPET performed in 2016 does not establish continuous disability since 2013, and the Social Security Administration found that he could perform sedentary work.

ERISA Preemption

First Circuit

Halberg v. McLean Hosp., No. CV 17-11341-FDS, 2018 WL 2209216 (D. Mass. May 14, 2018) (Judge F. Dennis Saylor IV).  The court determined that the claims asserted by Plaintiffs could not have been asserted under § 502, and complete ERISA preemption does not apply. The court remanded the case to state court.  Here, Plaintiffs allege state law claims against the hospital for misrepresenting to them that their child’s 18-month psychiatric treatment was medically necessary and that it was not covered by Plaintiffs’ health insurance company but the hospital did not seek payment from the insurance company in order to charge Plaintiffs an inflated amount.  The court noted that Defendant will assert a preemption defense under ERISA § 514 since the disposition will require examination of the ERISA plan.  “But if one assumes that plaintiffs’ version of events is correct—and at this stage, the Court must—that means that plaintiffs will have suffered a substantial injury, and McLean will have been unjustly enriched, yet the law will have provided no remedy. That may be a legally required outcome, but it is not necessarily a fair one.”

Ninth Circuit

Stolebarger v. The Prudential Insurance Company of America, No. 17-CV-06161-WHO, 2018 WL 2287672 (N.D. Cal. May 18, 2018) (Judge William H. Orrick).  In this case challenging the denial of long term disability benefits where “(i) [Plaintiff’s] premiums were paid entirely by him, with no contribution from Bryan Cave; (ii) participation in the Policy and purchase of the Policy were completely voluntary for all Bryan Cave personnel; (iii) the sole functions of Bryan Cave in connection with the Policy were to permit Prudential to publicize the program to Bryan Cave personnel and to collect premiums through payroll deductions and remit them to Prudential; and (iv) Bryan Cave received no consideration in connection with the Policy, with the possible exception of reasonable compensation for administrative services actually rendered in connection with payroll deductions,” the court found that the Plan is governed by ERISA and do not fall within ERISA’s safe harbor.  The court then found Plaintiff’s Section 17200 UCL claim to be preempted by ERISA.

Life Insurance & AD&D Benefit Claims

Fourth Circuit

Gordon v. CIGNA Corp., No. 17-1188, __F.3d__, 2018 WL 2209305 (4th Cir. May 15, 2018) (Before AGEE, WYNN, and THACKER, Circuit Judges).  The court affirmed the district court’s decision in favor of LINA on Plaintiff’s claim seeking additional life insurance benefits on the theory that LINA breached its fiduciary duties to the insured.  Here, the insured paid premiums on life insurance policies that totaled $300,000 but he had only been approved for $150,000 in coverage due to mistakes made by the employer.  The Fourth Circuit held that the insurance plan constituted a “guaranteed benefit policy,” which was excluded from ERISA’s definition of plan assets over which insurer was a fiduciary; the excess premiums paid by the insured to his employer did not create a fiduciary duty on the part of LINA where there was none before; the insurer was not a fiduciary under ERISA with respect to the life insurance policy issued to the insured through his employer; and the denial of Plaintiff’s motion to conduct discovery prior to ruling on LINA’s summary judgment motion was appropriate.

Ninth Circuit

Dowdy v. Metro. Life Ins. Co., No. 16-15824, __F.3d__, 2018 WL 2223722 (9th Cir. May 16, 2018) (Before: Marsha S. Berzon and Michelle T. Friedland, Circuit Judges, and William K. Sessions, District Judge).  See Notable decision summary above.

Eleventh Circuit

Vaughn v. Aetna Life Insurance Company, No. 1:16-CV-1107-WSD, 2018 WL 2266909 (N.D. Ga. May 17, 2018) (Judge William S. Duffey, Jr.).  In this dispute regarding Aetna’s denial of benefits to Plaintiff for supplemental life insurance coverage under the Plan, the court determined that Aetna’s March 29, 2012, decision that Mr. Sheffield (Plaintiff’s father) did not meet the “permanent and total disability” requirements to trigger the Waiver of Premium provision, is not timely or properly before the Court because there are no grounds to excuse Mr. Sheffield’s failure to exhaust his administrative remedies or to find that exhaustion would be futile.  Plaintiff cannot end run the 2012 decision by challenging Aetna’s January 12, 2015 decision finding that Mr. Sheffeld’s life insurance coverage lapsed and denying payment of benefits on that basis.

Medical Benefit Claims

Third Circuit

Guariglia v. Local 464A United Food & Commercial Workers Union Welfare Serv. Benefit Fund, No. CV 18-2 (SDW)(SCM), 2018 WL 2230917 (D.N.J. May 16, 2018) (Judge Susan D. Wigenton).  In this case second case filed by Plaintiff seeking to have Defendant pay medical expenses associated with her injury after tripping over a pothole in a public roadway, the court found that Plaintiff’s claims are barred by the claim preclusion doctrine and granted Defendant’s motion to dismiss.

Pension Benefit Claims

Fourth Circuit

Golden v. Barnett, et al., No. 5:17-CV-118, 2018 WL 2209524 (N.D.W. Va. May 14, 2018) (Judge John Preston Bailey).  The court concluded that the termination of Plaintiff’s pension and health care benefits on the basis that he was directly “connected with ownership” based on his ownership of 15-22% of the Employer’s outstanding stock was unreasonable and an abuse of discretion.  The court determined that “[w]hile, on-paper, plaintiff may have been a shareholder in Allegheny, in reality he was no different than any other UMWA construction worker.”  The court reversed Defendants’ decision but denied Plaintiff attorneys’ fees under ERISA Section 502(g).

Plan Status

Ninth Circuit

Doe v. United Behavioral Health, No. 17-CV-06456-YGR, 2018 WL 2197532 (N.D. Cal. May 14, 2018) (Judge Yvonne Gonzalez Rogers).  The parties agree and the court found that the Southern California Schools Voluntary Employee Benefit Association (CS VEBA) is not an ERISA plan.  “Plaintiffs’ employer, a public school district and a governmental organization, established CS VEBA and the Plan in concert with other public school districts in order to provide benefits to their employees.  Plaintiffs’ employer and other school districts managed and maintained CS VEBA and the plan through their appointment of half of CS VEBA’s board members and through their contribution of funds and identification of eligible employees. However, even though the Plan was established and/or maintained by CS VEBA rather than plaintiffs’ employer, the Plan could not be subject to ERISA because CS VEBA is not an employee organization as defined by ERISA.”  (internal citations omitted).  The court denied Plaintiff’s motion for attorneys’ fees related to Defendants’ initial removal of the matter since they did not act unreasonably.

Pleading Issues & Procedure

Third Circuit

Complete Foot & Ankle v. Cigna Health & Life Ins. Co., No. CV1713742SDWLDW, 2018 WL 2234653 (D.N.J. May 16, 2018) (Judge Susan D. Wigenton).  “Plaintiff’s Complaint fails to satisfy the requirements of Rule 8. As to the factual basis for its claims, Plaintiff’s pleading does not identify the dates upon which services were rendered, the nature of the services provided, which patient received which services, the amounts charged for each patient, the terms of the assignments of benefits executed by the patients, or the terms of the Plans under which Plaintiff seeks payment.”

Ninth Circuit

Lindsey v. United Airlines, Inc., No. C 17-00753 WHA, 2018 WL 2183267 (N.D. Cal. May 11, 2018) (Judge William Alsup).  The court granted United’s motion to strike Plaintiff’s jury demand as to his Section 510 claims since those claims are equitable in nature.

Provider Claims

Third Circuit

Am. Orthopedic & Sports Med. v. Indep. Blue Cross Blue Shield, No. 17-1663, __F.3d__, 2018 WL 2224394 (3d Cir. May 16, 2018) (Before: AMBRO, KRAUSE, and RENDELL, Circuit Judges).  In a challenge by a healthcare provider against an insurance company concerning its anti-assignment clauses in ERISA-governed health insurance plans, the court held that anti-assignment clauses in ERISA-governed health insurance plans were generally enforceable; the insurers did not waive their right to enforce the anti-assignment clause by accepting and processing the claim and failing to raise the anti-assignment clause as a defense during the administrative appeals process; the anti-assignment clause did not prevent the insured from conferring authority on the healthcare provider, as his agent through power of attorney, to assert claim against plan on his behalf; and the provider waived its arguments concerning the power of attorney by failing to raise them in its opening or reply brief.

Retaliation Claims

Sixth Circuit

Trinkle v. Hammer Trucking, Inc., No. 16-14361, 2018 WL 2220276 (E.D. Mich. May 15, 2018).  In this case where Plaintiff alleged that his employer denied his request to withdraw funds from his 401(k) Profit Sharing Plan account and terminated his employment for his attempt to exercise his rights under ERISA, the court denied Defendant’s motion for summary judgment based on Plaintiff’s testimony.  The court found that Plaintiff’s testimony, if taken as true, is evidence that Defendants had the intent to interfere with Plaintiff’s ERISA rights and retaliated against him.

Seventh Circuit

Blalock v. Fifth Third Bank, No. 317CV00170RLYMPB, 2018 WL 2266419 (S.D. Ind. May 17, 2018) (Judge Richard L. Young).  Plaintiff alleges Fifth Third retaliated against him for submitting an internal complaint regarding whether Defendant improperly took tax deductions for non-vested ESOP dividends by failing to promote him and by failing to pay him incentive compensation for 2016.  The court found that his claim is timely under the two-year statute of limitations because his cause of action accrued when he was denied payment in April 2017.  The court also found that he sufficiently alleged that he engaged in protected activity and his retaliation claim based on the internal complaint survives.  However, the retaliation claim based on filing this lawsuit cannot survive since he fails to raise a reasonable inference that he was denied the position because he engaged in the protected activity of filing a lawsuit.  The court granted Defendant’s motion to dismiss Plaintiff’s FAC in part and granted Plaintiff’s motion for leave to file a SAC.

Ninth Circuit

Lindsey v. United Airlines, Inc., No. C 17-00753 WHA, 2018 WL 2183267 (N.D. Cal. May 11, 2018) (Judge William Alsup).  The court found that Plaintiff’s Section 510 claim based on not getting the check airman position are time-barred because he knew by August 2015 that he was not selected for the job and he did not raise his Section 510 claims until February 2018 (and they do not relate back to his prior complaints).  However, his claim as it relates to the assistant-chief-pilot position is not time-barred because he learned around January 2016 that he would not receive that position.  The court denied United’s motion for summary judgment on this claim because Plaintiff has sufficiently shown pretext.

Subrogation/Reimbursement Claims

Fourth Circuit

National Carriers’ Conference Committee And The United Transportation Union Health And Welfare Committee Jointly As Plan Administrator For The National Railway Carriers And United Transportation Union Health And Welfare Plan v. Georgiana, No. 1:17-CV-1052, 2018 WL 2220647 (E.D. Va. May 15, 2018) (Judge.  Plaintiff attempts to enforce an ERISA plan’s reimbursement provisions against Defendant’s one-million-dollar settlement in his Federal Employers Liability Act case against his railroad employer.  Because Plaintiff recovered from his employer and not a third party tortfeasor, the court granted summary judgment in favor of the plan participant.



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