This week’s notable decision is an unpublished ERISA preemption decision in Abernethy v. EmblemHealth, Inc., No. 19-422, __F.App’x__, 2019 WL 5302825 (2d Cir. Oct. 21, 2019), where the Second Circuit revived the state law claims retired officers brought against EmblemHealth after they cancelled the officers’ retiree medical coverage.
The retirees claimed that they were entitled to continued medical coverage based on their employment and separation agreements. The employment agreements provide that the employee “shall be entitled to participate in, and receive benefits under” any retiree health benefit plan provided by EmblemHealth, “subject to the terms of such plans, program or policies.” But, the agreement also disclaims that the employee has any vested interest in any employee benefit plan, which the company may, in its discretion, change or revoke. The separation agreements state that the employee will be able to “commence Retiree Health Benefits at the same level as that provided an active officer.”
EmblemHealth later terminated its group retiree major medical coverage though it continued benefits for active officers. The retirees brought several claims against EmblemHealth including claims based on ERISA, promissory estoppel, New York Labor Law § 193, breach of contract and breach of the implied covenant of good faith and fair dealing.
The Second Circuit affirmed the district court’s dismissal of the ERISA, promissory estoppel, and New York Labor Law § 193 claims because the language in the employment and separation agreements cannot be reasonably interpreted as promising vested benefits for life. The court explained that the employment agreements unambiguously reserve to EmblemHealth the right to amend or terminate the retiree health plan at issue. Additionally, the statement in the separation agreements that “you will be able to commence Retiree Health Benefits …” is not reasonably capable of being interpreted as promising vested benefits.
The Second Circuit vacated the dismissal of the contractual claims because they are not preempted by ERISA as determined by the district court. The Court found that they are based on “an independent legal duty—a contractual right to parity with EmblemHealth’s active officers—as opposed to a particular benefit plan.” In other words, the claims derive from a separate promise to confer a benefit to which the retirees were not otherwise entitled, which is the right to parity with active officers. Because the contractual claims are not grounded upon obligations in the medical plan, they are not preempted by ERISA. The Court returned the matter to the district court to determine whether the contractual language supports the retirees’ breach claims.
Below is a summary of this past week’s notable ERISA decisions by subject matter and jurisdiction.
Masonry Industry Trust Administration, Inc. v. LeProwse Construction, Inc., No. 3:17-CV-01266-SI, 2019 WL 5270197 (D. Or. Oct. 17, 2019) (Judge Michael H. Simon). Pursuant to the Trust Agreements and § 502(g)(2)(D) of ERISA, the court awarded Plaintiff attorneys’ fees in the amount of $2,070 based on 11.5 hours at the requested rate of $180/hour. Though Plaintiff did not provide background on the attorney and rate determinations in other cases, it found the rate to be reasonable based on the 2017 Oregon State Bar Economic Survey which shows that the average hourly rate across all of Oregon is $286/hour and $324/hour in Portland.
Hartford Life and Accident Insurance Company v. Lecou, No. CV-19-17-BLG-SPW, 2019 WL 5213339 (D. Mont. Oct. 16, 2019) (Judge Susan P. Watters). The court granted Hartford’s motion seeking to be dismissed and discharged from this life insurance interpleader action but denied its request for attorneys’ fees and costs. The court explained that “the present action falls within the ordinary course of business for Hartford. Hartford gains a substantial benefit from the interpleader action: no liability for distributing the Plan Benefits. Lastly, the Plan Benefits amount to only $22,739.94, and any award of attorneys’ fees would seriously deplete the amount left available to the rightful beneficiary.”
Breach of Fiduciary Duty
FCE Benefit Administrators, Inc. v. Independence Holding Company, et al., No. 3:17-CV-1321-S, 2019 WL 5268646 (N.D. Tex. Oct. 16, 2019) (Judge Karen Gren Scholer). Plaintiff entered into agreements with Defendants Madison National Life Insurance Company, Inc. (“MNL”) and Standard Security Life Insurance Company of New York (“SSL”) under which Plaintiff offered their insurance benefits programs to its clients. Plaintiff then entered into an amended and restated Administrative Services Agreement (“ASA”) with MNL and SSL. Plaintiff alleges that Defendants engaged in disruptive tactics to force Plaintiff to breach the agreements and the ASA in order to justify not paying Plaintiff under the agreements. Defendants sought to dismiss the breach of contract claim on the basis that the agreements are illegal under ERISA Section 1104. They argue that if the agreements are enforced Plaintiff would violate its fiduciary duty because every claim determination would be colored by the impact on its income. The court denied dismissal of this claim. The court found that the agreements do not facially violate ERISA nor that Plaintiff could not fulfill the agreements’ obligations without violating ERISA. The court also found that it is not clear whether Section 1104 applies to Plaintiff since the Complaint does not admit that Plaintiff is an ERISA fiduciary and breached its fiduciary duties.
Fitzwater, et al. v. Consol Energy, Inc., et al., No. 1:17-CV-03861, 2019 WL 5191245 (S.D.W. Va. Oct. 15, 2019) (Senior Judge John T. Copenhaver). Plaintiffs alleged wrongful and discriminatory termination of retiree health benefits pursuant to ERISA, and seek class certification. In Counts I-II and VI-VII, Plaintiffs claimed that Defendants violated 29 U.S.C. § 1104(a)(1) by misrepresenting the benefits to the plan beneficiaries and fraudulently inducing Plaintiffs into accepting the Lifetime Plan. Because all of those claims hinged on the existence of the Lifetime Plan, the court reviewed the documents relied upon by Plaintiffs, including several Benefits Information Sheets and PowerPoint slides, and held that they did not contain a promise of lifetime benefits, and Plaintiffs themselves admit that they have heard different things regarding their benefits, and none of the Plaintiffs could confirm that the orientation materials contained a written offer of “lifetime” benefits. Insofar as Plaintiffs’ claims were based on oral representations, the court held that ERISA fiduciary claims based on such representations were not suitable for class certification because they required individualized proof of detrimental reliance, and thus failed the commonality and typicality requirements. Plaintiffs asserted that Defendants discriminated against the participants within the alleged Lifetime Plan (Count III). But this claim, again, required evidence of a Lifetime Plan, and was not suitable for class certification like the other claims. The mere fact that retirees and active employees were treated differently did not support the assertion that they were discriminated against based on their health status under § 1182.
Disability Benefit Claims
Smith v. Hartford Life and Accident Insurance Company, No. CV 5:19-061-DCR, 2019 WL 5105321 (E.D. Ky. Oct. 11, 2019) (Judge Danny C. Reeves). Plaintiff sought a de novo review of her long-term disability claim denial based on Hartford’s violation of 29 C.F.R. § 2560.503-1(i)(1)(i) (2018) when it did not properly seek an extension of time to render a decision on Plaintiff’s appeal within 45 days. The court found that the 1999 version of the regulations apply to Plaintiff’s claim because she initiated her claim in 2001. Even though Hartford did not approve the claim until 2007 (after Plaintiff’s successful Sixth Circuit appeal) and paid her until 2018, Plaintiff did not at any time make a new “claim for benefits” for purposes of the regulations. The court found that Daniel v. Eaton Corp., 839 F.2d 263 (6th Cir. 1988), where the court held that a “deemed denied” claim has no effect on the standard of review, is still precedent that governs claims filed before the 2002 effective date of subsection (l). Thus, because the Plan gives Hartford discretionary authority, the court found that an arbitrary and capricious standard is the appropriate standard of review. The court rejected Plaintiff’s argument that de novo review is warranted due to Hartford’s conflict of interest.
Demko v. Unum Life Insurance Company of America, No. 18-55428, __F.App’x__, 2019 WL 5295395 (9th Cir. Oct. 18, 2019) (Before: Hurwitz, Owens, and Lee, Circuit Judges). “[Judge Manuel L. Real] did not clearly err in finding that Demko, who was the head of human resources at Dreamworks, was able to perform her job normally until she was terminated for non-medical reasons. Demko’s employer presented evidence that she did not significantly change her hours, job duties, or performance during the period of claimed disability. Treatment records from Demko’s doctor showed that her fibromyalgia condition was improving during that period, and her doctor first opined that she was disabled months after the coverage period ended.”
Abernethy v. EmblemHealth, Inc., No. 19-422, __F.App’x__, 2019 WL 5302825 (2d Cir. Oct. 21, 2019) (Present: Dennis Jacobs, Robert D. Sack, Peter W. Hall). See Notable Decision summary above.
Ahn, M.D., v. Cigna Health and Life Insurance Company, No. CV1907141KMJBC, 2019 WL 5304628 (D.N.J. Oct. 21, 2019) (Judge Kevin McNulty). Plaintiff alleges three causes of action against Cigna: defamation per se, defamation, and tortious interference based on statements Cigna made in Explanation of Benefits forms that he is not a licensed medical doctor. The court determined that it has not yet been established whether those claims relate to EOBs under ERISA-covered health plans. The court deferred consideration of the ERISA preemption issue until the summary judgment stage, noting that preemption will not come to play at all for EOBs that relate to non-ERISA plans.
Breaux v. Reliance Standard Life Insurance Company, No. CV 19-11537, 2019 WL 5102237 (E.D. La. Oct. 11, 2019) (Judge Jay C. Zainey). In this lawsuit alleging the wrongful denial of AD&D benefits following an amputation, the court held that Plaintiff’s state law claims for penalties and attorneys’ fees under La. R.S. § 22:1821 and for breach of contract were preempted by ERISA. “Breaux’s [La. R.S. § 22:1821] claim clearly ‘relates to’ an ERISA plan because this claim is specifically based on Reliance denying him Accidental Death and Dismemberment benefits. Further, courts have consistently held that § 22:1821 is remedial in nature such that it is not saved from preemption by the savings clause of 29 U.S.C. § 1144(b)(2)(A).” The court rejected Plaintiff’s argument that the breach of contract claim is not preempted because he can show that Reliance failed to pay benefits for some reason other than interpretation of the Plan language. The court found that any trier of fact must interpret the Plan in order to determine whether benefits are payable.
Life Insurance & AD&D Benefit Claims
Parsons v. Unum Life Insurance Company of America, No. 3:18-CV-223-MPM-RP, 2019 WL 5213871 (N.D. Miss. Oct. 16, 2019) (Judge Michael P. Mills). The insured was “killed after he lost consciousness at the wheel of his tractor, fell off, and was then run over by it.” Unum denied benefits on the basis that he was already non-responsive at the wheel due to a medical condition before he fell off of it. The policy excludes payment for deaths caused by, contributed to by, or resulting from disease of the body. The court found that the insured’s medical event causing his loss of consciousness was the “but for” cause of his death. Because the medical event contributed to or related to his ultimate death, accidental death benefits are not available under the policy. The court granted summary judgment to Unum.
Smith v. Standard Insurance Company, et al., No. CIV-15-1126-D, 2019 WL 5295195 (W.D. Okla. Oct. 18, 2019) (Judge Timothy D. DeGiusti). Plaintiff claimed entitlement to additional life insurance benefits under optional coverage that his wife elected to receive and had paid additional premiums for, but which Standard denied because she had not completed evidence of insurability (“EOI”). Standard then paid the additional life insurance benefit based upon an endorsement to the Plan three years later which made the benefits payable. It also paid interest at a rate of 10% per annum from the effective date of the endorsement to the date of payment. The remaining dispute was over the prejudgment interest Plaintiff pursued as within the court’s discretion, which Plaintiff disavowed as “legal” prejudgment interest under Section 502(a)(1)(B). The court found that if Plaintiff were to prevail on his original claim under the policy, he would receive an additional amount of interest in the amount of $9,345.04 (using a 2% interest rate). The court found that the amount Standard already paid him exceeds the principal amount he was entitled to receive by an amount that exceeds the prejudgment interest he would receive if he prevailed. Thus, the action is moot, and the court lacks constitutional authority to proceed further. The court dismissed the case for lack of jurisdiction.
Pleading Issues & Procedure
Experience Infusion Centers, LLC v. Flowers Specialty, Foodservice Sales, Inc., No. CV H-19-1721, 2019 WL 5293508 (S.D. Tex. Oct. 18, 2019) (Judge Gray H. Miller). Defendant filed a motion for judgment on the pleadings contending that the provider lacks standing to bring an ERISA claim due to the plan’s anti-assignment provision, the provider did not comply with ERISA, payments were made consistent with the plan, and the provider did not exhaust administrative remedies. The court found that consideration of evidence outside of the pleadings is necessary and converted the motion to one for summary judgment. The court gave the parties an opportunity for supplemental briefing and granted the provider’s motion to file a late response.
Grant v. JP Morgan Chase & Co., No. 8:19-CV-1808-T-02SPF, 2019 WL 5215711 (M.D. Fla. Oct. 16, 2019) (Judge William F. Jung). The court found that Plaintiff’s Amended Complaint, which alleges that Defendant violated its notice obligations under COBRA, is covered by the arbitration agreement between the parties. The court found that Defendant did not waive its right to arbitrate and granted Defendant’s motion to compel arbitration.
Breaux v. Reliance Standard Life Insurance Company, No. CV 19-11537, 2019 WL 5102237 (E.D. La. Oct. 11, 2019) (Judge Jay C. Zainey). In this lawsuit alleging the wrongful denial of AD&D benefits following an amputation, the court denied Defendant’s motion to dismiss Plaintiff’s claim for penalties under ERISA § 502(c)(1). The court held that dismissal of the § 502(c)(1) claim would be premature because, while a litigant can only bring a claim under § 502(c)(1) against a plan’s administrator, which is deemed to be the employer when there is no document specifying some other entity, it is not clear that Defendant is not the plan administrator in this case.
Witcher v. TeamCARE, No. 2:18-CV-00022-KGB, 2019 WL 5268623 (E.D. Ark. Oct. 17, 2019) (Judge Kristine G. Baker). Central States collected premiums from Plaintiff and declined to make any payments for any benefits on his dependent’s behalf because Plaintiff did not reimburse the self-funded plan for medical expenses it paid for Plaintiff’s spouse when she recovered money against a third-party tortfeasor. The court determined that Central States had the right to collect premiums and designate those funds to be applied to the subrogation lien. The court found that the language of Central States’ Plans controls the outcome of this dispute and ERISA preempts any state law, including the make-whole doctrine, that would otherwise override the subrogation provision in a self-insured plan.
Withdrawal Liability & Unpaid Contributions
IBEW Local 269 Health & Welfare Fund, et al. v. Oliver Communications Group, Inc., No. CV 18-12494 (RBK/JS), 2019 WL 5304154 (D.N.J. Oct. 18, 2019) (Judge Robert B. Kugler). The court denied Plaintiffs’ motion for default judgment and granted Defendant’s cross-motion to vacate the entry of default.