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Your ERISA Watch – Sixth Circuit Holds No Breach of Fiduciary Duty for Failing to Inform Participant of Life Insurance Conversion Right

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This week’s notable decision is Vest v. Resolute FP US Inc., No. 18-5046, __F.3d__, 2018 WL 4905751 (6th Cir. Oct. 10, 2018).  The court affirmed the district court’s ruling that Plaintiff did not adequately plead a breach-of-fiduciary-duty cause of action where she alleged that Defendant failed to notify her late husband of his right to convert a group life insurance policy to an individual life insurance policy after he ceased employment and began drawing long term disability benefits.

The facts:  Arthur Vest worked for Defendant, Resolute, for nearly 40 years.  Arthur was a participant in Resolute’s life insurance plan.  The basic life insurance coverage equaled one year of an employee’s salary and Arthur purchased an additional $300,000 in optional coverage.  Due to complications from diabetes, Arthur ceased working and began receiving short-term and then long term disability benefits.  He was able to maintain his base life insurance coverage as a result of receiving long term disability but he lost his optional coverage.  Though he had a right to port or convert the optional coverage within 31 days of ending active employment, he did not.  Resolute also did not provide him with information concerning his right to port or convert after his employment ended.  He died approximately one year after he stopped working.

Arthur’s wife brought suit against Resolute under ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3), alleging that Resolute breached its fiduciary duty by failing to inform Arthur of his right to port and convert the optional life insurance coverage.  The district court held that Resolute did not have a fiduciary duty to inform Arthur of this right and dismissed the complaint for failure to state a claim.

On appeal, the Sixth Circuit agreed with the district court.  It explained that its decision in Krohn v. Huron Memorial Hospital, 173 F.3d 542 (6th Cir. 1999) is distinguishable from the present case.  Krohn found fiduciary liability for providing misleading or inaccurate information in response to a participants’ questions.  Here, the complaint contained no factual allegations indicating that Resolute knew that Arthur’s ability to convert would be important to him.  Nothing required Resolute to expressly disclose the information at issue.  Neither ERISA nor the DOL’s regulations require SPDs to include conversion information.  In addition, the SPD explains that insurance will cease upon termination of active employment, that an employee may convert the coverage, and that total disability may entitle an employee to continued coverage subject to premium payment.

Judge Stranch dissented.  She found it material that Resolute sent Vests a summary of employee benefits following his termination of employment which included information about the life insurance plan but omitted information about Arthur’s need to act within 31 days to convert his optional group life insurance policy to an individual life insurance policy.  Judge Stranch concluded that Ms. Vest stated a plausible claim for breach of fiduciary duty under the “own-initiative condition” laid out in Sprague v. Gen. Motors Corp., 133 F.3d 388, 405, 406 (6th Cir. 1998) (en banc).

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

Breach of Fiduciary Duty

Third Circuit

Communications Workers of America, et al. v. Alcatel-Lucent USA, Inc., et al., No. 2:15-CV-08143, 2018 WL 4908281 (D.N.J. Oct. 10, 2018) (Judge Claire C. Cecchi).  Plaintiff’s second amended complaint alleges that Alcatel’s transfer of $1.2 billion in excess funding to the Lucent Technologies, Inc. Retirement Plan (“the Excess Funding Transfers”) violated the LMRA and ERISA.  The court again found that Plaintiffs lack standing to bring their ERISA claims because there is no Article III direct or certainly impending injury based on the allegation of a right of reversion in the event of a plan termination.  Even if there was standing, Plaintiffs fail to state a claim upon which relief may be granted.  The amendments transferring retirees and assets from a pension plan to two other plans are not fiduciary in nature as considered under Section 403(c)(1) or 404(a).  Even if the actions were considered fiduciary in nature, Plaintiffs still do not state a claim because the Excess Funding Transfers did not inure to the benefit of Alcatel.  Even if Alcatel saved money as a result of the transfers that does not give rise to an ERISA violation.  Neither does the fact that surplus assets were used to fund plans with participants who were never part of the Lucent Technologies Pension Plan.

Sixth Circuit

Vest v. Resolute FP US Inc., No. 18-5046, __F.3d__, 2018 WL 4905751 (6th Cir. Oct. 10, 2018) (Before: SILER, GRIFFIN, and STRANCH, Circuit Judges).  See Notable Decision summary above.

Disability Benefit Claims

Sixth Circuit

Clark v. Unum Life Insurance Company of America, No. 3:17-CV-01119, 2018 WL 4931935 (M.D. Tenn. Oct. 10, 2018) (Judge Aleta A. Trauger).  Plaintiff challenged Unum’s termination of her long term disability benefits based upon her disability resulting from systemic lupus erythematosus, fibromyalgia, and neuropathy.  The court granted Plaintiff’s motion for judgment on the administrative record because:  (1) Unum failed to address evidence favorable to Plaintiff, including evidence that her neuropathy had worsened; (2) Unum undertook a selective review of the evidence and did not reconcile discrepancies between its stated reason for denial and Plaintiff’s actual treatment history; (3) Unum failed to conduct its own physical evaluation given Plaintiff’s chronic pain, rejecting Unum’s argument that Plaintiff could have ordered a personal review herself; (4) Unum relied heavily on its own physician consultants.  All of these factors support that Unum’s decision was arbitrary and capricious.  Plaintiff is not clearly entitled to benefits so the court remanded her case back to Unum.

Eighth Circuit

Rogers v. Eaton Corp., No. CV 17-4391 (DSD/KMM), 2018 WL 4905601 (D. Minn. Oct. 9, 2018) (Judge David S. Doty).  Eaton did not abuse its discretion in terminating Plaintiff’s long term disability benefits, where the “record shows that Eaton accepted all of Rogers’ medical records and tests, but was more persuaded by Dr. Knoll’s and Dr. Tontz’s findings, as well as the independent medical examination, transferable skills analysis, and functional capabilities evaluation.”  In addition, Eaton did not abuse its discretion in explaining why it did not follow the SSA’s disability finding, where “there is no evidence that the Social Security Administration’s disability finding applied the same criteria as the Plan or took into consideration the same independent medical examination, functional capacity evaluation, transferable skills analysis, and labor market survey. In addition, it is unlikely that the Social Security Administration and Eaton examined the same medical records given that the former awarded benefits in October 2014, and the latter’s final benefit termination was issued in June 2017.”

Tenth Circuit

Sadler v. United of Omaha Life Insurance Co., No. 2:17-CV-00979-DBP, 2018 WL 4899099 (D. Utah Oct. 9, 2018) (Magistrate Judge Dustin B. Pead).  In this dispute over long term disability benefits, the court concluded that United of Omaha did not abuse its discretion in denying long term disability benefits.  The court considered United of Omaha’s inherent conflict as both evaluator and payor of claims but determined that its decision was not tainted by conflict.  In addition, substantial evidence in the record supports the decision to deny LTD benefits.  United of Omaha properly determined that Plaintiff’s regular occupation was sedentary, it properly considered his doctor’s attending physician statements and medical records, and its decision was supported by an independent medical review by Dr. Crossley.  There was no evidence that Dr. Crossley was tainted by conflict.

Life Insurance & AD&D Benefit Claims

Eighth Circuit

Boyer v. Schneider Electric Holdings, Inc. Life and Accident Plan, No. 3:17-CV-05053-SRB, 2018 WL 4936545 (W.D. Mo. Oct. 10, 2018) (Judge Stephen R. Bough).  Unum denied accidental death benefits on the basis of a crime exclusion because the decedent was speeding at the time of his car accident and engaging in improper passing.  The court found that Unum abused its discretion in denying accidental death benefits based on the Plan’s crime exclusion in that its determination was unreasonable under the Finley factors and not supported by substantial evidence.  The court remanded the case to Unum for reconsideration of whether the death was an accident under the plan. The appropriate inquiry is whether “a reasonable person, with background and characteristics similar to the insured, would have viewed the injury as highly likely to occur as a result of the insured’s intentional conduct.”

Medical Benefit Claims

Second Circuit

Meidl v. Aetna, Inc., et al., No. 3:15-CV-01319 (JCH), 2018 WL 4936000 (D. Conn. Oct. 11, 2018) (Judge Janet C. Hall).  In this certified class action alleging ERISA violations based on Aetna denying insurance coverage of Transcranial Magnetic Stimulation (TMS) as a treatment for depression, the court denied Aetna’s motion for summary judgment.  The court declined to consider Plaintiff’s expert testimony about TMS since it is outside of the administrative record.  The court concluded that there are several issues of material fact as to whether Aetna’s denial of TMS benefits was based on an arbitrary and capricious interpretation of the plans.  The court also denied Aetna’s motion as to certain class members who received “off-label” TMS since there is no basis in the administrative record for concluding that Aetna denied benefits to some members because their particular use of TMS was not approved by the FDA.

Eighth Circuit

Buchanan v. Magellan Health, Inc., No. 4:18-CV-00130-NCC, 2018 WL 4932533 (E.D. Mo. Oct. 11, 2018) (Magistrate Judge Noelle C. Collins).  Plaintiff brought suit for Defendants’ failure to pay plan benefits for his son’s treatment at Aspiro Wilderness Therapy, an outdoor behavioral health program.  The court dismissed Monsanto from this action because the complaint “does not set forth allegations establishing that Monsanto administered the plan, either in fact or ‘de facto.’”  The court denied dismissal of the § 1132(a)(3) claim as duplicative of a § 1132(a)(1)(B) claim since Plaintiff has attempted to assert different theories for relief.

Pension Benefit Claims

Fourth Circuit

Riley v. Barringer, et al., No. 1:18CV00007, 2018 WL 4870595 (W.D. Va. Oct. 9, 2018) (Judge James P. Jones). Plaintiffs allege that Defendant engaged in a fraudulent scheme to embezzle money from the company and the retirement accounts of other plan beneficiaries.  Defendant brought several counterclaims, which Plaintiffs moved to dismiss.  The court dismissed Defendant’s counterclaim alleging conversion, breach of express or implied contract, and unjust enrichment against both the company and Riley regarding her personal property at the workplace; the counterclaim against defendant Riley since there are not sufficient facts to support any claims against him personally; the counterclaim against the company alleging breach of express contract and fraud regarding the $581,880.85 Defendant deposited in the company’s bank account; the counterclaim against the company alleging breach of contract and unjust enrichment regarding the company’s alleged failure to contribute to Defendant’s employee retirement plan; and Defendant’s demands for punitive damages and attorneys’ fees.  The court denied dismissal of the counterclaim against the company alleging breach of implied contract and unjust enrichment regarding the $581,880.85 she deposited in the company’s bank account.

Pleading Issues & Procedure

Sixth Circuit

Boden, et al. v. St. Elizabeth Medical Center, Inc., et al., No. CV 16-49-DLB-CJS, 2018 WL 4855210 (E.D. Ky. Oct. 5, 2018) (Judge David L. Bunning).  The court denied Defendants’ motion for reconsideration of the Court’s finding that Plaintiffs have standing because their reasons are not proper grounds for reconsideration.  “[T]he Sixth Circuit suggests that plaintiffs bringing a breach-of-fiduciary-duty claim for injunctive relief on behalf of a plan under ERISA need not show injury particularized to each plaintiff, but rather must show a specific injury to the plan.” The court declined to reconsider the applicability of Duncan v. Muzyn until a determination has been made regarding ERISA’s application to the Plan. The court denied the motion as premature since the Court has yet to decide whether ERISA governs the Plan.

Provider Claims

Fifth Circuit

Gilmour III v. Aetna Health, Inc., No. SA-17-CV-00510-FB, 2018 WL 4937072 (W.D. Tex. Oct. 11, 2018) (Magistrate Judge Elizabeth S. Chestney).  The Trustee for the Grantor Trusts of seven former orthopedic hospitals moved to dismiss Aetna’s counterclaims pursuant to Rule 12(b)(1), arguing that Aetna lacks standing to bring any of its counterclaims because all of the claims were discharged in prior bankruptcy proceedings.  The court denied the motion, finding that Aetna has the right to assert its counterclaims as a defensive setoff against Victory’s claims.  The court also denied dismissal of Aetna’s claims for exemplary damages, unjust enrichment, quantum meruit, and “money had and received” claims.


Ninth Circuit

K.H.B. by & through his father, K.D.B. v. Unitedhealthcare Insurance Company, No. C 18-04175 WHA, 2018 WL 4913666 (N.D. Cal. Oct. 10, 2018) (Judge William Alsup).  “In this second-filed putative nationwide class action to recover health benefits under an ERISA plan, defendant insurer moves to transfer venue to the District of Utah under either the first-to-file rule or pursuant to 28 U.S.C. § 1404(a). Alternatively, defendant moves to stay this action. The motions present a battle between competing putative nationwide class actions that should be coordinated by a single judge.”  The court granted the motion to transfer and denied the motion to stay.   The court determined that venue would have been proper in Utah and the convenience and the interest of justice favor transfer.

Your ERISA Watch authored by Michelle L. Roberts, Esq., Partner


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