Call For A FREE Case Evaluation 510.992.6130

Your ERISA Watch – Say What You Mean or Pay What you Say: Federal Insurance Company’s Four-Million-Dollar Lesson

Posted By:

You may remember the case last year involving a group of Maine dairy delivery drivers who received $5 million in a proposed settlement all due to a missing Oxford comma.  (A lack of an Oxford comma cost dairy $5 million.)  In this week’s notable decision, Tyll v. Stanley Black & Decker Life Insurance Program et al., 2019 WL 3081061 (D. Conn. July 12, 2019), it is Federal Insurance Company getting an expensive lesson in policy drafting.

Tyll involves a claim for accidental death and dismemberment insurance benefits.  Ms. Tyll’s late husband was a participant in the Stanley Black & Decker Life Insurance Program which offered, among other benefits, a Business Travel Accident Insurance Program (“the Policy”).  Mr. Tyll died while onboard a commercial flight from Paris to New York.  At the time of his death, he was earning a salary of more than one million per year.  Federal Insurance Company, which insures the benefit, initially denied that Ms. Tyll was entitled to any benefit and denied her claim on December 11, 2014.  By April 17, 2017, it reversed its position on her entitlement to benefits but it claimed that Tyll is entitled to benefits capped at one million.  Ms. Tyll argued that she was entitled to a cap of five million.

The dispute centers on the maximum “Principal Sum” payable under the policy.  The Policy reads in relevant part:

B) PRINCIPAL SUM

1 Five (5) times Salary subject to a Minimum of $100,000 and a Maximum of $1,000,000

2 $100,000

3 $100,000

4 Two (2) times Salary subject to a Minimum of $100,000 and a Maximum of $1,000,000

5 $41,000

6 $250,000

7 $100,000

8 $25,000

9 Five (5) times Salary subject to a Minimum of $100,000 and a Maximum of $1,000,000

Mr. Tyll was a Class 1 insured so he was entitled to benefits equal to 100 percent of a principal sum in the amount of “Five (5) times Salary subject to a Minimum of $100,000 and a Maximum of $1,000,000.” What the court found to be ambiguous is whether the limiting clause “subject to a Minimum of $100,000 and a Maximum of $1,000,000” modifies the noun “Salary” or whether it places a floor and cap on the benefits overall.

The court agreed with Defendants that the words “minimum” and “maximum” must be read to refer to and modify the same term.  But the court disagreed that these words can only reasonably be construed as modifying the word “principal sum.”  Objectively, the language can reasonably have more than one meaning and the text of the Policy does not shed light on the drafters’ intention.  On de novo review, the court construed the ambiguity in Ms. Tyll’s favor since her interpretation of the clause is reasonable.  The court ordered Defendants to pay Ms. Tyll the four-million shortfall.

And if that weren’t bad news enough for Defendants, the court exercised its discretion to award Ms. Tyll equitable prejudgment interest under ERISA in the amount of eight percent per year compounded annually.  On the one million that Defendants paid late, the court found that Ms. Tyll was entitled to $198,308.72 in interest.  On the remaining four million, the court found that she was entitled to $1,693,134.01.  That’s nearly two million on top of the additional four million that Defendants must shell out.  Just wait until Defendants see her attorneys’ fee bill!

Plaintiff Tyll is represented by Friend of ERISA Watch, Jonathan Feigenbaum in Boston, Massachusetts.

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

Attorneys’ Fees

Eleventh Circuit

Alexandra H. v. Oxford Health Ins., Inc., No. 18-14846, __F.App’x__, 2019 WL 3071857 (11th Cir. July 15, 2019) (Before Wilson, Grant, and Hull, Circuit Judges).  Plaintiff sought attorneys’ fees based on her 2016 victory at the Eleventh Circuit where the court held that the external medical review finding that partial hospitalization was not medically necessary did not preclude Plaintiff’s ability to challenge the determination in a civil action under ERISA.  On remand, the district court ruled in favor of Defendant on the merits of the claim and denied Plaintiff attorneys’ fees for her Eleventh Circuit victory.  In the present appeal, the Eleventh Circuit declined to decide whether Plaintiff achieved some degree of success on the merits warranting an award of fees because it found that the district court did not abuse its discretion in its analysis of the five Freeman factors.   Plaintiff’s appellate victory resolved a legal question of first impression, Defendant did not act in bad faith, there would be no useful deterrent effect, Defendant should not be punished for litigating an unresolved point of law, and the relative merits were too close to favor an award of fees.

Breach of Fiduciary Duty

Third Circuit

Corman v. The Nationwide Life Insurance Company, No. CV 17-3912, 2019 WL 3066387 (E.D. Pa. July 12, 2019) (Judge Wendy Beetlestone).  In this dispute emanating from the scandal created by John Koresko, “the mastermind behind a large-scale endeavor to convert welfare benefit funds to his own use,” the court denied Nationwide’s motion to dismiss the Amended Complaint alleging, among other things, that Nationwide breached its fiduciary duties in violation of ERISA Sections 502(a)(2) and 502(a)(3).  The court determined that Plaintiffs pleaded facts supporting Nationwide’s fiduciary status.  Specifically, Plaintiffs have alleged facts supporting their assertion that Nationwide exercised “discretionary control” as to its activities of changing to owner or trustee of the Plan to REAL VEBA TRUST DATED 3/20/95 (a request made by Koresko who lacked the authority to make the change) and by issuing a loan to Koresko secured against the cash value of various cash value life insurance policies in the multiple employer welfare arrangement.  The court also found that Plaintiffs’ claim for relief seeking that Nationwide be ordered to treat the insurance policy on Corman’s life as if the loan had never been taken seeks equitable, rather than legal, relief.

Ninth Circuit

United States v. Hutcheson, No. 18-35436, __F.App’x__, 2019 WL 3216614 (9th Cir. July 17, 2019) (Before: Schroeder, Silverman, and Clifton, Circuit Judges).  The court determined that Hutcheson’s trial counsel was not constitutionally ineffective for failing to investigate and present his “ERISA defense” theory and affirmed the denial of his 28 U.S.C. § 2255 motion challenging his conviction and 210-month sentence for wire fraud, in violation of 18 U.S.C. § 1343.

D.C. Circuit

Stanley v. The George Washington University, et al., No. CV 18-878 (JDB), 2019 WL 3083340 (D.D.C. July 15, 2019) (Judge John D. Bates).  The court dismissed this putative class action alleging breach of fiduciary duty against Plaintiff’s former employer because Plaintiff lacks standing due to a general release of claims she signed.  The court found that Plaintiff’s ERISA claims plainly fall within the language releasing “any and all claims” “for violation of any federal … statute.”  By its terms, the release carves out only claims for benefits “under employee benefit plans,” which refers to claims brought pursuant to, or by the authority of, the participant’s employee benefit plan.  In the context of ERISA, such claims refer to contractual claims of the kind that typically are brought pursuant to ERISA § 502(a)(1)(B).  The carve-out cannot be read to preserve all ERISA claims, including fiduciary breach claims under §§ 502(a)(2) and (a)(3), because it would be at odds with the language of the General Release considered as a whole.  The court concluded that Plaintiff’s “claims fall within the general provisions in the release, are not saved by the exclusion for benefits claims brought under employee benefit plans, and are therefore waived.”

Disability Benefit Claims

Ninth Circuit

Renzi v. Aetna Life Ins. Co., et al., No. SACV181041JVSJDEX, 2019 WL 3243619 (C.D. Cal. July 12, 2019) (Judge James V. Selna).  On de novo review, the court reversed Aetna’s decision to terminate Plaintiff’s LTD benefits.  On the issue of the administrative record, the court determined that internet-based videos of Plaintiff referenced in Aetna’s briefing are properly before the Court as part of the record since they were part of Aetna’s investigative report and addendum and claim notes.  The court rejected Plaintiff’s argument that they were not part of the record because they were not downloaded onto a CD-rom or USB-device.  The court also granted judicial notice of documents published by the American Academy of Orthopaedic Surgeons because they are necessary to the Court’s adjudication of this matter.  “Moreover, such educational materials would not have been submitted as part of the administrative record because medical professionals would not need them, unlike the Court. Therefore, the Court is satisfied that Renzi ‘could not have presented [AAOS materials] in the administrative process.’” (citing to Opeta, 484 F.2d at 1217).  The court found that Plaintiff met his burden of proving entitlement to LTD benefits and that Aetna over-relied on surveillance video in determining Plaintiff’s functionality.  Even though Plaintiff traveled by car from Southern California to Nashville for a music conference, the court found it plausible that he broke up his road-trip to accommodate his pain and that his ability to make this trip and engage in “short bursts of activity” does not mean he is not “totally disabled.”

Eleventh Circuit

Bowman v. Reliance Standard Life Insurance Co., No. 2:11-CV-1046-ALB, 2019 WL 3072589 (M.D. Ala. July 12, 2019) (Judge Andrew L. Brasher).  In this case where the court acknowledged that Plaintiff “has worked hard all his life,” before becoming disabled from his job as a Maintenance Mechanic after multiple surgeries and chronic back and neck pain, sleep disorder, and pain medication effects, the court found that Reliance Standard’s decision to deny him Any Occupation benefits was not arbitrary and capricious.  Though his treating doctors supported limitations and endorsed that he had severe and limiting side effects, two of Reliance’s reviewing physicians found otherwise.  “Bowman needed to show that the evidence so clearly showed he could not do any job that Reliance’s contrary decision was irrational.”  Under this standard of review, it was not enough for Plaintiff to submit “significant evidence.”  The court found that Reliance’s interpretation of the medical evidence was reasonable.

Discovery

Ninth Circuit

Zavala v. Kruse-Western, Inc., et al., No. 119CV00239DADSKO, 2019 WL 3219254 (E.D. Cal. July 17, 2019) (Magistrate Judge Sheila K. Oberto).  In this putative class action involving losses to an ESOP, Plaintiff moved to compel Defendants to participate in a Rule 26(f) conference, which Defendants had declined to do considering its pending motion to dismiss.  “In his motion, Plaintiff is not seeking expedited discovery pursuant to Rule 26(d). Instead, in an interesting departure, Plaintiff seeks to compel Defendants to participate in a Rule 26(f) conference. Once the Rule 26(f) conference is completed, Plaintiff would then proceed to commence discovery. In this way, Plaintiff presumably would be able to obtain discovery in advance of the pleadings being settled without showing ‘good cause’ under Rule 26(d).” The court denied the motion, finding that Plaintiff has not shown good cause to hold the Rule 26(f) conference prior to the Court’s ruling on Defendants’ motion to dismiss.

ERISA Preemption

Third Circuit

East Coast Advanced Plastic Surgery v. Blue Cross Blue Shield of Texas, No. CV196175SDWLDW, 2019 WL 3208838 (D.N.J. July 16, 2019) (Judge Susan D. Wigenton).  The court adopted the Magistrate Judge’s R&R recommending that the provider’s motion to remand be granted.  A claim is completely preempted and removable under ERISA Section 502(a) if the plaintiff could have brought the claim under Section 502(a) and no other independent legal duty supports the claim.  Because the health plan contains a valid anti-assignment provision, the provider did not have derivative standing to bring the claim under ERISA.  Further, the provider asserts state law claims based on reliance on alleged promises to pay via pre-authorization telephone calls.

Life Insurance & AD&D Benefit Claims

Second Circuit

Tyll v. Stanley Black & Decker Life Insurance Program et al., No. 3:17-CV-1574(JCH), 2019 WL 3081061 (D. Conn. July 12, 2019) (Judge Janet C. Hall).  See Notable Decision summary above.

Ninth Circuit

Pegues v. Raytheon Company, No. CV175420DSFGJSX, 2019 WL 3186251 (C.D. Cal. July 16, 2019) (Judge Dale S. Fischer).  In its findings of fact and conclusions of law, the court found that the decedent did not substantially comply with the steps necessary to change his life insurance beneficiary from his mother to his wife, and therefore, Defendant was correct in sending the payment to decedent’s mother.  Decedent had two ways of changing his life insurance beneficiary:  through the Raytheon company website and completing all the online steps or submitting a hard copy change of beneficiary form.  Decedent tried to change the beneficiary to his wife online, but he did not complete the process by sending the screenshot of the change to the company as he was instructed to do.

Medical Benefit Claims

Ninth Circuit

Smith v. United Healthcare Insurance Company, et al., No. 18-CV-06336-HSG, 2019 WL 3238918 (N.D. Cal. July 18, 2019) (Judge Haywood S. Gilliam, Jr.).  In this putative class action alleging violations of ERISA and the ACA for United Healthcare’s reimbursement rate for mental health and substance use disorder services provided by psychologists or counselors, the court granted in part and denied in part Defendant’s motion to dismiss.  First, the court found that with respect to the Parity Act claim, Plaintiff may pursue all three propose theories of liability, including that the challenged policy is an impermissible nonquantitative treatment limitation (“NQTL”), quantitative treatment limitation (“QTL”), and financial requirement.  The court also found that Plaintiff adequately alleged a Parity Act violation even without identifying a medical or surgical analogue.  Because Plaintiff properly pled a Parity Act claim, the court denied dismissal of Plaintiff’s claim for equitable relief under Section 502(a)(3).  The court dismissed Plaintiff’s ACA Section 2706 claim because it does not provide a private right of action.  The court permitted Plaintiff to proceed under a pseudonym to protect her privacy with respect to her mental health diagnosis and treatment but noted that this is subject to reconsideration in the event that Plaintiff moves for class certification.

Howard v. Blue Cross Blue Shield of Arizona, et al., No. CV-16-03769-PHX-JJT, 2019 WL 3068202 (D. Ariz. July 12, 2019) (Judge John J. Tuchi).  The court determined that Blue Cross did not abuse its discretion in denying coverage of proton beam radiation therapy (“PBRT”) for Plaintiff’s prostate cancer on the basis that it was not medically necessary.  Plaintiff submitted medical articles supporting the use of PBRT, but the court found that Blue Cross’s reliance on older Medical Coverage Guidelines was not clearly erroneous.  The court also found that Blue Cross’s reliance on internal medicine doctors, rather than oncologists, does not lead to a clearly erroneous finding of fact.  The court also declined to label as a conflict of interest the fact that Defendant controls the content of the Medical Coverage Guidelines which it uses to determine medical necessity.  “That would mean that no Plan can adopt guidelines that declare certain treatments not medically necessary.  Plaintiff points to no authority that permits such a finding.”

Tenth Circuit

Mary D. v. Anthem Blue Cross Blue Shield, No. 17-4195, __F.App’x__, 2019 WL 3072468 (10th Cir. July 15, 2019) (Before Lucero, McHugh, and Moritz, Circuit Judges).  The court found that the district court did not err in applying the arbitrary-and-capricious standard of review.  The procedural irregularities Plaintiff identified do not trigger de novo review.  Under either standard of review, the court found that the denial of residential treatment was proper under the terms of the Plan because the patient did not meet the three criteria the court described as injury-risk, social-environment, and reasonable-expectation.

Pension Benefit Claims

Fifth Circuit

Theriot v. Building Trades United Pension Trust Fund, No. CV 18-10250, 2019 WL 3220106 (E.D. La. July 17, 2019) (Judge Lance M. Africk).  Plaintiff is the administrator of her mother’s estate.  Her mother, prior to her death, was the recipient of a Joint and Survivor benefit.  The pension plan enabled the mother to convert the annuity payments to a lump sum payment, informing her that if it received her change form by April 5, 2017, she would receive the lump sum on May 1, 2017.  The mother sent the change form, which the Plan received on April 4, 2017, and then she died on April 5th.  The Plan refused to pay the lump sum to the mother’s estate since she was not alive on May 1, 2017.  The court determined that Plaintiff has standing because she has a colorable claim for benefits on behalf of her mother’s estate.  The court explained that “nothing in the Plan, the benefit illustration sheet, or the Pension Fund’s correspondence with Mrs. Hamann suggests that her election would become invalid or that she would no longer be entitled to the lump sum payment if she died before May 1, 2017.”  The court dismissed the breach of fiduciary duty claim in connection with alleged deficiencies in the SPD because it is a disguised claim for benefits and there was no administrative exhaustion.

Sixth Circuit

Winn v. McLaren Employees’ Pension Plan, No. 18-10398, 2019 WL 3220001 (E.D. Mich. July 17, 2019) (Judge Laurie J. Michelson).  Plaintiff challenged the amount of her joint and survivor annuity.  Prior to his death, Plaintiff and her husband chose an optional annuity that involved payment of a fixed sum of money while they are both alive and 50% of that amount when one of them dies.  Shortly after his retirement, Plaintiff’s husband died, and the Plan began paying her half of the annuity amount.  The court had to decide whether the Plan’s interpretation and application of the “Annuity Starting Date” was reasonable.  The Plan took the position that the Annuity Starting Date was the date that he retired and became entitled to payment.  Since he died after this date, his election controls.  Plaintiff took the position that the Annuity Starting Date did not control; instead, what mattered was the date that “distribution commenced,” which was after her husband’s death.  The court found that the Plan’s position was reasonable and not arbitrary and capricious.  It is supported by the federal regulations which say that “annuity starting date” is not “the actual date of payment.” 26 C.F.R. § 1.401(a)-20 Q&A-10(b)(2). Rather it is “the first date for which an amount is paid.”  Id.

Pleading Issues & Procedure

Sixth Circuit

Hollister v. Liberty Life Assurance Company of Boston, No. 1:18-CV-00005, 2019 WL 3066655 (M.D. Tenn. July 12, 2019) (Judge Eli Richardson).  In this dispute over disability benefits, the Magistrate Judge previously recommended that Defendant’s motion for summary judgment be denied, in part, because Liberty Life failed to file a Statement of Undisputed Facts as required by Local Rule 56.01(b). (R&R).  The district court concluded that Liberty Life failed to meet its burden to show the absence of a genuine issue of material fact based solely on its failure to comply with Local Rule 56.01(b).  “The Local Rules of Court are not merely suggestions. As a motion for summary judgment (and not, for example, a motion for judgment on the record in an ERISA administrative case), Defendant’s motion is subject to Local Rule 56.01, which must be followed.”

Ninth Circuit

Moreland v. Raytheon Company, No. 219CV00906MCEACPS, 2019 WL 3080795 (E.D. Cal. July 15, 2019) (Magistrate Judge Allison Claire).  The pro se plaintiff seeks additional pension benefits.  The court determined that the complaint does not establish this court’s jurisdiction over defendant because Raytheon is a Massachusetts-based company and Plaintiff does not allege that it has had the minimum contacts required, including any allegations about where the alleged deprivation of benefits occurred or whether Raytheon directed any conduct toward California.  The court also found that Plaintiff’s complaint does not show that the action is brought in the proper venue.  Lastly, the court found that Plaintiff does not sufficiently state a claim for relief under ERISA because she does not identify the plan or the provisions which entitle her to benefits.

Provider Claims

Ninth Circuit

County of Monterey dba Natividad Medical Center v. Blue Cross of California dba Anthem Blue Cross, et al., No. 17-CV-04260-LHK, 2019 WL 3238941 (N.D. Cal. July 18, 2019) (Judge Lucy H. Koh).  The court denied Defendant’s motion to dismiss.  It determined that:  (1) “Natividad’s FAC sufficiently alleges that Anthem is a de facto administrator because Natividad alleges that Anthem effectively controlled or managed the decision of how much to reimburse Natividad;” (2) “Natividad has sufficiently alleged an assignment of benefits and thus has sufficiently plead that Natividad has standing to pursue its ERISA claim;” and (3) Navividad sufficiently alleged exhaustion where it alleges that Anthem failed to comply with mandatory ERISA regulations in issuing the adverse benefit determinations that would render any applicable administrative remedies exhausted.

Star Dialysis, LLC v. WinCo Foods Employee Benefit Plan, No. 1:18-CV-00482-CWD, 2019 WL 3069849 (D. Idaho July 12, 2019) (Magistrate Judge Candy W. Dale).  The court dismissed the provider’s ERISA claims asserted on its own behalf because “[h]ealth care providers are not beneficiaries for ERISA purposes, even if providers are contractually authorized to receive direct payment for medical services rendered to plan beneficiaries.”  The court also found that the scope of Assignment is limited to the right to assert claims for payment of benefits under Section 502(a)(1)(B) and not for injunctive or equitable relief under Section 502(a)(3).  On the benefit claim, the court found that the complaint plausibly alleges that WinCo waived or estopped to assert its right to rely on the anti-assignment provision.  But, Plaintiff fails to state a claim for benefits because it has not alleged a distinct injury to confer derivative standing, it has not received an adverse benefit determination, and it has not alleged sufficient facts to show that a plan term was violated.

Retaliation Claims

Fifth Circuit

Theriot v. Building Trades United Pension Trust Fund, No. CV 18-10250, 2019 WL 3220106 (E.D. La. July 17, 2019) (Judge Lance M. Africk).  The court determined that Plaintiff’s allegation that the Pension Fund interfered with her right to be reasonably apprised of her rights, obligations and review procedures under the Plan, in violation of ERISA, 29 U.S.C. § 1140, fails to state a plausible claim for relief.  There is no allegation that the Pension Fund took certain actions with the purpose of interfering with her rights under the plan.

Statute of Limitations

Third Circuit

Corman v. The Nationwide Life Insurance Company, No. CV 17-3912, 2019 WL 3066387 (E.D. Pa. July 12, 2019) (Judge Wendy Beetlestone).  In 2009, three months after Nationwide made an allegedly improper loan to Koresko (who masterminded the conversion of welfare benefit funds to his own use), Plaintiffs requested information from Nationwide about the status of the life policy at issue, but Nationwide did not respond.  The court found that “the allegations in the Amended Complaint are that Nationwide ‘excluded suspicion’ by refusing to provide requested information that the beneficiary needed to know ‘for its own protection.’ This allegation is sufficient, at the motion to dismiss stage, to invoke the fraudulent concealment exception to the statute of limitations.”

Venue

Fifth Circuit

Theriot v. Building Trades United Pension Trust Fund, No. CV 18-10250, 2019 WL 3220106 (E.D. La. July 17, 2019) (Judge Lance M. Africk).  Where the parties agree that the breach at issue was the denial of a lump sum payment for an annuity that the decedent was receiving before her death in the Eastern District of Louisiana (where she resided), the court found that venue is proper in this district.  The court rejected the Fund’s argument that since the lump sum payment was never made in this district that the proper venue is E.D. Wisconsin where the Fund resides, is administered, and maintained.

Withdrawal Liability & Unpaid Contributions

Second Circuit

Trustees of The New York City District Council of Carpenters Pension Fund, Welfare Fund, Annuity Fund, and Apprenticeship, Journeyman Retraining, Educational and Industry Fund v. Platinum Wood Floors Inc., No. 19 CIV. 1166 (PAE), 2019 WL 3229074 (S.D.N.Y. July 18, 2019) (Judge Paul A. Engelmayer).  The court confirmed the arbitration award in favor of petitioners and issued judgment in the amount of $4,012,668.84 plus post-judgment interest pursuant to 28 U.S.C. § 1961(a).

Eighth Circuit

Mackey et al. v. J & J Holdings, LLC, No. 18-CV-2591 (WMW/SER), 2019 WL 3219159 (D. Minn. July 17, 2019) (Judge Wilhelmina M. Wright).  The court granted Plaintiffs’ motions for entry of default judgment in part and ordered the entry of judgment in the amount of $31,102.41 against Defendant.

Ninth Circuit

Trustees of The Operating Engineers Pension Trust et al. v. Smith-Emery Company, No. 209CV01476CASAJWX, 2019 WL 3205792 (C.D. Cal. July 15, 2019) (Judge Christina A. Snyder).  The court granted the Trustees’ motions to enforce the audit provision of the MOU settling two cases and reserved ruling on the Trustees’ request for sanctions until the conclusion of the audit.

Tenth Circuit

BAC Local Union 15 Welfare Fund, et al., v. Williams Restoration Company, et al., No. CV 16-2242-KHV, 2019 WL 3066409 (D. Kan. July 12, 2019) (Judge Kathryn H. Vratil).  “Viewing the record in the light most favorable to the non-moving party, Fox Holdings has demonstrated genuine issues of material fact whether it is liable as successor to Williams Restoration. Plaintiffs are not entitled to partial summary judgment on this issue.”

Get The Help You Need Today

Call Now Button