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Your ERISA Watch – Third Circuit Finds Supplemental LTD Policy Is an ERISA Plan and Physician’s Occupation Includes Specialty of Interventional Radiology

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This week’s notable decision is McCann v. Unum Provident, No. 16-2014, __F.3d__, (3rd Cir. Oct. 5, 2018), where the Third Circuit addressed two principal issues:  whether a group insurance plan is governed by ERISA and whether the physician-claimant was incorrectly denied long term disability benefits.

On the first issue, the court considered ERISA’s safe harbor provision, which provides that an employee welfare benefit plan is not covered by ERISA when:

(1) No contributions are made by an employer or employee organization;

(2) Participation [in] the program is completely voluntary for employees or members;

(3) The sole functions of the employer or employee organization with respect to the program are, without endorsing the program, to permit the insurer to publicize the program to employees or members, to collect premiums through payroll deductions or dues checkoffs and to remit them to the insurer; and

(4) The employer or employee organization receives no consideration in the form of cash or otherwise in connection with the program, other than reasonable compensation, excluding any profit, for administrative services actually rendered in connection with payroll deductions or dues checkoffs.

McCann contends that the supplemental long term disability insurance he purchased through the Residents’ Supplemental Disability Insurance Plan (“RSDP”) falls under ERISA’s safe harbor’s criteria and is not an ERISA plan.  It is McCann’s burden to show that all four of the safe harbor criteria are satisfied.  It is undisputed that the second and fourth criteria are met because the RSDP was completely voluntary and the employer, Henry Ford Hospital, received no compensation in connection with the program.

The court concluded that the question of endorsement is the dispositive one and left for another day the meaning of contribution.  In analyzing the third criteria, the court concluded the “key inquiry for endorsement is whether an employer has strayed from the equilibrium of neutrality.”  An employer strays from neutrality when there is some showing of material involvement in the creation or administration of a plan.  The court found the question of endorsement to be close, but the following facts are sufficient indicia of endorsement:

  • Residents were not provided with a menu of options or free to select any insurer.
  • The Hospital encouraged enrollment in the RSDP and expressed some judgment about the plan when it explained that Provident is the industry’s leader in individual disability coverage for physicians and was chosen to provide supplemental disability insurance to Ford physicians.
  • The Hospital determined eligibility for the RSDP.
  • The Hospital agreed to provide disability insurance as part of its standard benefits package.

After finding that the RSDP is governed by ERISA, the court turned to the merits of McCann’s claim for total disability.

The court determined that McCann’s occupation in light of the policy’s definition, which takes into consideration one’s “recognized specialty,” is interventional radiology.  Though McCann was performing mostly diagnostic radiology at the time of his disability, diagnostic radiology is a component of McCann’s responsibilities as an interventional radiologist.  In addition, McCann is certified in that specialty and was hired as one of three interventional radiologists based on his ability to perform some interventional work.  He performed as much as 20 hours per week of interventional radiology.  “A purely mechanical comparison of the number of interventional procedures and diagnostic tasks fails to account for the time dedicated to each type of work. Dr. Long explained during Provident’s field visit that in the same amount of time it can take to do an interventional procedure, e.g., an angioplasty, he can probably read more than 10 MRIs.”

Having established that interventional radiology is McCann’s occupation, the next issue is determining his “substantial and material” duties.  The court concluded that based on the record, these duties include both his ability to perform interventional procedures and his ability to do so on nights and weekends.  The court also explained that “to the extent Dr. McCann’s income was predominantly derived from his diagnostic work, dollar value of billings is only one measure of ‘substantial and material”—it does not eclipse all other aspects of Dr. McCann’s occupation, particularly when Dr. McCann’s policy defines his occupation as limited to his specialty.”

On the final question of McCann’s ability to perform his “substantial and material duties,” the court found a dispute of material fact for which it remanded to the district court to consider.

The court also remanded to the district court to consider McCann’s claim for Residual Disability.  The court found that McCann’s failure to exhaust this claim can be excused on the principle of futility.  The denial letters stated that McCann was not totally or residually disabled, which would have given McCann the reasonable impression that Provident was considering both types of disability claims or that raising a Residual Disability claim would be futile.

Plaintiff is represented by friends of ERISA Watch, Tybe A. Brett of Feinstein Doyle Payne & Kravec, and Michael E. Quiat of Uscher, Quiat, Uscher & Russo.

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

Attorneys’ Fees

First Circuit

White v. Chase, No. CV 15-40013-TSH, 2018 WL 4829179 (D. Mass. Oct. 4, 2018) (Judge Timothy S. Hillman).  The court previously granted summary judgment to Defendant upon finding that the record evidence established that notice of the Plan freeze was timely mailed to Plan participants.  The court denied Defendant’s request for an award of attorneys’ fees of $252,561.  In addition to not meeting the five-factor test, Defendant did not provide any substantive detail regarding the hours spent.

Second Circuit

Division 1181, Amalgamated Transit Union – New York Employees Pension Fund & Its Board Of Trustees v. New York City Department Of Education, No. 13-CV-9112 (PKC), 2018 WL 4757938 (S.D.N.Y. Oct. 2, 2018) (Judge P. Kevin Castel).  The court previously granted SJ in favor of the Department of Education (DOE) upon finding that no reasonable trier of fact could find that the non-party bus companies were alter egos of the DOE.  The court denied the DOE’s motion for attorneys’ fees.  The DOE’s outside counsel, Morgan, Lewis & Bockius, states that the DOE incurred more than $2.9 million in attorneys’ fees.  “The DOE has satisfied the mandatory factor of obtaining a degree of success on the merits, as required by Hardt and Donachie. However, in light of the DOE’s position as a defendant seeking a fees award and the facts of this case, the five discretionary factors weigh heavily against its fees application.”

Eighth Circuit

Johnson v. Charps Welding & Fabricating, Inc., et al., No. CV 14-2081 (PAM/LIB), 2018 WL 4829185 (D. Minn. Oct. 4, 2018) (Judge Paul A. Magnuson).  In this case, arising from Defendants’ alleged failure to make contributions to three multi-employer, jointly trusteed fringe benefit plans, and where the court granted Defendants’ motion for summary judgment, the court found that ERISA Section 502(g)(1) provides the statutory basis for Defendants’ attorney’s fees.  It rejected Plaintiffs’ claim that Section 502(g)(2) applies.  The court also found that the Westerhaus factors show that Defendants are entitled to fees.  “The Court reduces Defendants’ cumulative hourly fee to $225 per hour and the total number of hours billed (8,779.35) by 50%. This amounts to a total fee award of $987,676.88. The Court believes this amount will effectively deter future plaintiffs from over-litigating weak ERISA claims while preventing a windfall for Defendants.”

Breach of Fiduciary Duty

Third Circuit

Hay v. Gucci Am., Inc., No. 2:17-CV-07148, 2018 WL 4815558 (D.N.J. Oct. 3, 2018) (Judge Claire C. Cecchi).  In this case, “Plaintiff maintains that Defendants violated their fiduciary duties under ERISA by first, unduly relying on and failing to oversee Transamerica, the Plan’s recordkeeper and investment manager, in Transamerica’s selection and retention of Transamerica funds.”  The court determined that Plaintiff has constitutional standing to challenge Plan funds in which she did not invest.  The court determined that “regardless of whether the mix and range of investment options and overall expense ratios for the Plan’s investment options are reasonable, the Court finds that Renfro does not, at this preliminary juncture, sustain the dismissal of this matter, as Plaintiff contests Defendants’ selection and retention of certain funds.”

Eighth Circuit

Larson v. Allina Health System, et al., No. 17CV03835SRNSER, 2018 WL 4700332 (D. Minn. Oct. 1, 2018) (Judge Susan Richard Nelson).  The court granted Defendants’ motion to dismiss in part.  Plaintiffs have constitutional standing under Article III to bring a claim against Defendants. Plaintiffs failed to adequately plead breach of fiduciary duty by presenting Plaintiffs with the ProManage option, a managed account.  Plaintiffs have failed to state a breach of fiduciary duty claim based solely on Defendants failing to offer either a collective trust or a separate account instead of, or in addition to, the mutual funds within either Plan.  Allowing Fidelity’s proprietary funds in the plan, without more, is not a breach of fiduciary duty.  “Plaintiffs’ claim regarding the Fidelity K asset class funds does state a claim because Plaintiffs have provided a meaningful, identical benchmark to compare against the original fund. Therefore, Defendants may have breached their fiduciary duty in allowing Fidelity to select specific Fidelity retail funds to include in the Plan over identical, but lower-cost, K asset class funds.” … “Plaintiffs have sufficiently stated a claim that Defendants breached their fiduciary duty by improperly monitoring recordkeeping fees and failing to solicit bids from other recordkeeping services.” … “Because ERISA ‘encourages sponsors to allow more choice to participants,’ Plaintiffs have failed to state a claim under Rule 12(b)(6) that Defendants breached a fiduciary duty by simply offering three hundred investment options in its mutual fund window.” … “Plaintiffs have sufficiently pled that Defendants’ description of the expenses related to the Plan as ‘Fees,’ was not sufficient to satisfy the explanation requirements of § 2550.404a–5(c)(2)(i)(A).”

Davis, et al v. Washington University in St. Louis & Washington University in St. Louis Board of Trustees, No. 4:17-CV-1641 RLW, 2018 WL 4684244 (E.D. Mo. Sept. 28, 2018) (Judge Ronnie L. White).  The court granted Defendants’ motion to dismiss for failure to state a claim that they breached their duties to act prudently and loyally with respect to Plaintiffs’ 403(b) plan.  The court held that Plaintiffs fail to allege a breach of fiduciary duties based upon Plan participants’ payment of purportedly excessive fees and recordkeeping fees and that the diverse selection of funds available to Plan participants negates any claim that Defendants breached their duties of prudence simply because cheaper funds were available.  Even if these funds underperformed, Plaintiffs have failed to state a cause of action under ERISA for their purported lack of performance.  Lastly, the court held that ERISA specifically exempts participant loans from the prohibited-transaction rules.

Disability Benefit Claims

First Circuit

Faberlle-Hernandez v. Triple-S Vida, Inc., No. CV 16-2127 (PAD), 2018 WL 4719060 (D.P.R. Sept. 28, 2018) (Judge Pedro A. Delgado Hernandez).  In this dispute over long term disability benefits, the court granted summary judgment to Defendant.  “Defendant’s experts reviewed plaintiff’s medical records and concluded that: (1) the records were not sufficient to show that plaintiff was disabled due to physical or mental conditions or otherwise unable to work as a secretary; and (2) plaintiff could perform such work with minimal restrictions. Plaintiff has not placed the court in a position –and it, therefore, sees no reason– to depart from those findings, which relied on substantial evidence and thus supported the decision that defendant reached.”

Third Circuit

Daly v. Metro. Life Ins. Co., No. CV 17-95-LPS, 2018 WL 4700224 (D. Del. Sept. 30, 2018) (Judge Stark).  The court determined that sufficient evidence supports the conclusion that Plaintiff could work part-time, thus, MetLife’s conclusion that Plaintiff was no longer unable to perform “any job” according to the Plan’s definition of totally disabled is not arbitrary and capricious.

Fourth Circuit

Smith v. Reliance Standard Life Ins. Co., No. 5:17-CV-00056-BR, 2018 WL 4760490 (E.D.N.C. Oct. 2, 2018) (Judge W. Earl Britt).  The court determined that Reliance Standard abused its discretion when determining that Plaintiff did not meet the definition of total disability.  “Reviewing the Administrative Record as a whole, defendant ignored a vast number of Fredrick Smith’s records when performing its analysis. Further, the court cannot find an example where a court upheld an administrator’s decision to deny benefits based upon an inaccurate independent physician report and its own opinion as a non-medical provider with a conflict of interest, while all treating physicians of the insured recommended a different course of action.”

Seventh Circuit

Ferrin v. Aetna Life Insurance Company, No. 16-cv-00469 (N.D. Ill. Sept. 28, 2018) (Judge Thomas M. Durkin).  The court overturned Aetna’s denial of Plaintiff’s long term disability benefits from August 1, 2014, to the date when the claim record was closed.  The court made the following significant determinations:  (1) de novo review applies because Texas law voids the discretionary clause in the policy; (2) the treating doctor opinions are the most significant because these doctors are more familiar with Plaintiff’s conditions and circumstances; (3) the FCE findings of “frequent” sitting and standing ability encompasses a wide range, between 2.5 to 5.5 hours in a day, and Plaintiff’s sitting capacity for sitting falls in the lower half of the range based on other medical records; (4) Plaintiff cannot perform any gainful activity on a part-time basis in order to earn 50% of her predisability earnings because the evidence indicates that she can sit and stand only for several hours at a time; (5) the medical review of Aetna’s doctor is entitled to less weight because he did not examine Plaintiff in person; (6) the fact that Plaintiff’s doctors did not return Aetna’s reviewing doctor’s phone calls does not discredit their opinions because there are many reasons doctors may not return an independent medical examiner’s calls; (7) Plaintiff’s long history of treatment indicates that her pain complaints are credible; (8) Plaintiff’s SSDI award itself supports the Court’s disability finding; and (9) “Aetna’s initial approval of benefits and then later denial without any significant change in her condition provides additional supporting evidence of her disability.”

Eleventh Circuit

O’Leary v. Aetna Life Ins. Co., No. 17-15162, __F.App’x__, 2018 WL 4697141 (11th Cir. Oct. 1, 2018) (Before JORDAN, JILL PRYOR and HULL).  It was not arbitrary and capricious for Aetna to terminate Plaintiff’s long term disability benefits given surveillance showing Plaintiff was able to drive, tote a garbage can to his garage, and dance at a nightclub.  This, in addition to physician’s assessments in the record opining that the medical records showed that Plaintiff was no longer functionally impaired.


Eighth Circuit

McKennan v. Meadowvale Dairy Employee Benefit Plan, No. 18-CV-4010-LTS, 2018 WL 4701793 (N.D. Iowa Oct. 1, 2018) (Judge Mark A. Roberts).  Plaintiff alleges standing to bring this lawsuit as an assignee of its deceased former patient.  The court denied Defendants’ motion to compel discovery responses to requests for information regarding collateral source payments, which is relevant to show whether Plaintiff has standing to pursue this case.  Though the discovery sought is narrow enough to be proper for this ERISA action, Defendants requests were served untimely, in this case, ten days before Plaintiff’s opening brief was due.

ERISA Preemption

Second Circuit

Rojas v. Cigna Health & Life Ins. Co., No. 14-CV-6368 (KMK), 2018 WL 4759775 (S.D.N.Y. Sept. 29, 2018) (Judge Kenneth M. Karas).  Defendants brought counterclaims against the plaintiff providers alleging fraud, unjust enrichment, money had and received, and breach of contract.  The court granted Plaintiffs’ motion for summary judgment on the fraud, unjust enrichment, and money had and received claims.  The court rejected Defendants’ argument that all of the claims are preempted by ERISA.  The court found no express preemption:  “While the Court is mindful that the definition of ‘medically necessary’ is relevant in deciding the legitimacy of [Defendants’] claims, the essence of the claim is fraud, and mere involvement of the definitions of the terms does not implicate [ERISA] so as to warrant preemption.” The court also found that the counterclaims survive second prong of Davila (no other independent legal duty) and are not completely preempted.

Exhaustion of Administrative Remedies

Third Circuit

Minerley v. Aetna, Inc., et al., No. CV 13-1377 (NLH/KMW), 2018 WL 4693963 (D.N.J. Sept. 29, 2018) (Judge Noel L. Hillman).  “This case concerns the interpretation of an insurance policy and whether the insurer may require the insured to reimburse medical costs paid by the insurer when the insured receives an award from a third-party tortfeasor.”  The court determined that insurance policies may serve as both ERISA plan documents and as plan assets.  The insurance policy requires that a participant exhaust administrative remedies.  The court granted Defendants’ motion for summary judgment on the basis that Plaintiff did not exhaust administrative remedies.  Instead, Plaintiff reimbursed Aetna and then brought suit immediately thereafter.  Plaintiff failed to show that filing an administrative appeal would have been futile.

Medical Benefit Claims

First Circuit

Roibas v. EBPA, LLC, No. 1:17-CV-020-NT, 2018 WL 4690354 (D. Me. Sept. 28, 2018) (Judge Nancy Torresen).  Plaintiff was a gestational carrier and submitted claims for all of her pregnancy-related medical expenses to Defendant for payment.  The health plan excludes “expenses for surrogacy” though it covers charges for maternity care.  Because Plaintiff was a surrogate mother, the Plan denied her claims.  Surrogacy is not defined in the plan but Defendant took the position that based on the plain meaning of surrogacy, the exclusion can only be read to include the expenses of the surrogate mother’s pregnancy and childbirth.  The court determined that the “expenses for surrogacy” exclusion in the context of the Plan is ambiguous, both sides’ interpretations are plausible, and the administrator’s construction of the Plan is reasonable.  The court granted Defendant’s motion for judgment on the administrative record.  The court denied Defendant’s request for attorneys’ fees.

Pension Benefit Claims

Ninth Circuit

Knudson v. Oregon Sheet Metal Workers Master Retirement Fund Trust, No. 3:17-CV-00647-AA, 2018 WL 4690358 (D. Or. Sept. 28, 2018) (Judge Ann Aiken).  The court granted Defendants’ motion for summary judgment upon finding that neither the Pension Trust Board of Trustees nor the Master Trust Board of Trustees abused their discretion when they denied Plaintiff his early retirement benefits.  The plans require early retirement beneficiaries to refrain from sheet metal work and Plaintiff’s employment as a welder at Bonneville Power Administration made him ineligible for benefits.  “The Board gave several justifications to support this determination including the ‘substantial similarities’ between sheet metal and welding certifications, and the similarity in skill sets and tasks performed between plaintiff and workers represented by the Local Sheet Metal Workers union.”

Plan Status

Seventh Circuit

Smith, et al. v. OSF Healthcare System, et al., No. 16-CV-467-SMY-RJD, 2018 WL 4680671 (S.D. Ill. Sept. 28, 2018) (Judge Staci M. Yandle).  In determining whether the plan is a church plan, the court explained that the term “employee of a church” includes employees of nonprofit organizations controlled by or associated with a church.  The court determined that OSF is a nonprofit organization associated with a church and the Plan Committees are principal-purpose organizations associated with a church.  For these reasons, the Plans properly qualify for the church plan exemption and the court granted summary judgment to Defendants.

Pleading Issues & Procedure

Third Circuit

University Spine Center v. Cigna Health and Life Insurance Company, No. 2:17-CV-13620, 2018 WL 4771905 (D.N.J. Oct. 2, 2018) (Judge Claire C. Cecchi).  The court dismissed the provider’s complaint without prejudice for failing to state the basis for the alleged underpayment for services performed.  The amended complaint must specifically identify why Plaintiff believes it is due further compensation for its services provided to its patient under the patient’s health plan or policy.

Statute of Limitations

Third Circuit

Corman v. The Nationwide Life Insurance Company, No. CV 17-3912, 2018 WL 4680266 (E.D. Pa. Sept. 28, 2018) (Judge Wendy Beetlestone).  The court determined that ERISA’s fraudulent concealment exception does not apply to this case because Nationwide did not take “affirmative steps” to hide a breach.  Though Plaintiffs claim that Nationwide refused to provide information when they asked for it, Nationwide was not a fiduciary with respect to the decision to furnish information about the account to Plaintiffs.

Seventh Circuit

Owens v. St. Anthony Medical Center, Inc., et al., No. 14-CV-4068, 2018 WL 4682337 (N.D. Ill. Sept. 29, 2018) (Judge Sharon Johnson Coleman).  Defendants asserted that the statute of limitations on the alleged breaches of fiduciary duty began to run when Plaintiffs received the 2005 SDP, which disclosed that the Plan was an employer-contribution funded church plan.  The court found that Plaintiffs plausibly argue that the statute of limitations began to run when the plan was terminated in 2012 because it was at that time that Plaintiffs were deprived of their guaranteed benefits.  The allegations in the complaint do not clearly establish when Plaintiff had actual knowledge of the alleged breaches.  The court concluded that Defendants’ arguments for dismissal of the ERISA claims based on a statute of limitations, statute of repose or laches are unavailing.

Statutory Penalties

First Circuit

Principe v. M 2 M Glob. Corp., No. CV 17-2262 (ADC), 2018 WL 4735720 (D.P.R. Sept. 28, 2018) (Judge Aida M. Delgado-Colon).  The court concluded that the “third-party plaintiffs have filed a complaint that survives Olympic’s motion for judgment on the pleadings. The complaint clearly alleges that Insight contracted with Olympic; that Olympic was responsible for notifying Príncipe of his COBRA benefits upon his termination; and that Olympic did not fulfill this obligation. Furthermore, the SPD incorporated into the complaint does not release Olympic from the responsibilities alleged in the complaint. Olympic must wait until discovery produces the insurance contract or other evidence that shows its responsibility, or lack thereof, to notify Príncipe of his COBRA benefits upon his termination.”

Subrogation/Reimbursement Claims

Seventh Circuit

Connecticut Gen. Life Ins. Co. & Cigna Health & Life Ins. Co. v. Sw. Surgery Ctr., LLC, d/b/a Ctr. for Minimally Invasive Surgery, No. 14 CV 08777, 2018 WL 4777563 (N.D. Ill. Oct. 3, 2018) (Judge John Robert Blakey).  On the issue of whether Cigna may recoup payments it made for ERISA-governed plans where it seeks recovery under state-law claims, not ERISA Section 502(a), the Court determined that Cigna may pursue recoupment relating to those ERISA-based plans under its state-law tort claims.  The court granted summary judgment to CMIS on Count II of Cigna’s complaint only to the extent it seeks equitable recoupment under Section 502(a)(3) for payments Cigna made under ERISA-governed plans.


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