Brown, Paindiris & Scott
The past year was almost a quiet year with ERISA litigation until the Supreme Court issued its decision in CIGNA v. Amara , 2011 U.S. LEXIS 3540, which potentially has broad effects on relief available in ERISA cases. Other than Amara, courts continued to deal with the effects of Metropolitan Life Insurance Co. v. Glenn , 128 S. Ct. 2343, 171 L. Ed. 2d 299 (2008), addressing the question of what standard of review applied and what discovery would be allowed when the same entity decides whether to grant benefits, and is liable for paying the claim. As always, there were a substantial number of ERISA benefit decisions. Plan investments in employer stock gave rise to a number of breach of fiduciary duty cases, where plans that had invested heavily in employer stock, and claims that 401k plans allowed excessive fees to be charged. This article does not address non-litigation ERISA compliance issues, or litigation regarding multi-employer plans. It covers cases decided from April 1, 2010 to April 30, 2011, with reference to some earlier cases to supplement the discussion of these cases.
1. Supreme Court Cases
There were three significant Supreme Court ERISA cases this year.
First, in CIGNA v. Amara , 2011 U.S. LEXIS 3540, the Supreme Court revisited the issue of what remedies can be awarded for a violation of ERISA, and what a plaintiff needs to show to recover for a violation of ERISA’s disclosure obligations. The Court granted certiorari only on the issue of whether a generalized showing of “likely harm” was sufficient for the plaintiff to recover for breach of a disclosure obligation, or was it necessary to establish detrimental reliance, but in its decision, revisited the general issue of what relief was available under ERISA for breach of fiduciary duty.
The case involved a cash balance pension plan conversation by CIGNA, which involves converting from a defined benefit plan (a plan where a participant is entitled to a certain amount monthly on retirement) to a cash balance plan (where on retirement the participant is paid an amount equal to the balance of the participant’s account). Judge Kravitz decided the case at the trial court level on behalf of a certified class, and decided that CIGNA had breached its duty under ERISA by providing summary plan descriptions and summaries of material modifications that were false. Specifically, he said CIGNA told participants that they would accrue greater benefit under the plan, and that cost savings to CIGNA were not a reason for the change, when in fact, CIGNA would save $10 million a year from the plan, and particularly with respect to early retirement benefits, would provide substantially worse benefits for man participants. In addition to the issue of whether CIGNA had violated its duty was what the plaintiffs needed to show to be entitled to relief. CIGNA argued that each plaintiff had to show that he or she detrimentally relied on the erroneous disclosure, requiring an individualized determination of liability that was inconsistent with the class-action status of the case. Judge Kravitz rejected the argument, holding that the plaintiffs only had to show that as a group, they likely harmed by the violation. The liability decision is at 534 F. Supp. 2d 288 (D. Conn. 2008).
Judge Kravitz next addressed the issue of what remedy to offer for CIGNA’s erroneous disclosures. The issue of what remedies are available under ERISA is complex. In Mertens v. Hewitt Associates, , 508 U.S. 248 (1993), the Supreme Court held that only traditional equitable relief was available under ERISA, and defined “traditional equitable relief” quite narrowly to exclude most orders to pay money, even if couched in equitable language, particular under ERISA 502(a)(3), the catch-all breach of fiduciary duty provision of ERISA. The Mertens decision and later decisions such as Great-West Life & Annuity Ins, Co. v. Knudson, 534 U.S. 204(2002) implied that all a court could do to remedy a breach of fiduciary duty was issue an injunction that did not involve payment of money. Stating that he was uncertain where a remedy for the disclosure breach was available under 502(a)(3), Judge Kravitz fashioned a remedy under 502(a)(1(B), the breach of contract provision of ERISA. He first reformed the plan to provide a participant was entitled to the benefit under the original plan, plus the benefit under the cash balance plan, and then ordered the plan to pay benefits under the plan as reformed. The cash balance plan itself provide for the greater of either benefit, rather than the sum of the benefits, but Judge Kravitz believed reforming the plan to provide for the sum of the benefits was an appropriate remedy since CIGNA had, falsely, told the participants that there accrued benefits would not be reduced by the change. The remedy decision is at 559 F. Supp. 2d 192 (D. Conn. 2008).
The Second Circuit affirmed Judge Kravitz decision in a summary decision. 2009 U.S. App. LEXIS 21941, 47 Employee Benefits Cas. (BNA) 2709 (2nd Cir. 2009).
The Supreme Court issued a unanimous decision affirming the Second Circuit’s decision in an opinion by Justice Breyer, Scalia and Thomas concurring. The Court agreed with Judge Kravitz that CIGNA violated ERISA and that the participants were entitled to relief, but under the general breach of fiduciary duty provision of 502(a)(3) rather than under ERISA 502(a)(1)(B). The Court stated that all the relief granted by Judge Kravitz were traditionally available under traditional equitable principles, and remanded the case for a determination of what remedy was available under 502(a)(3). What is significant about this portion of the decision is the broad range of remedies that the Court recognizes as “traditional equitable remedies,” in contrast to the quite limited view of this term in the Mertens decision. Judge Scalia, with Thomas joining him, concurred with the court’s decision that the relief awarded was not available under 502(a(1)(B), but would have simply remanded the case, without the extensive discussion in the majority decision about how the relief awarded would be available under 502(a(3).
On the issue on which cert had been granted, the Court took an intermediate position between the parties. The Court held that each plaintiff did have to make an individual showing of injury, but only by showing harm from the mis-disclosure, and causation. The Court held the plaintiffs did not have to make the greater showing of detrimental reliance, that they acted in response to the mis-disclosure.
In Amara , Justice Breyer cites the general equitable principle that “equity suffers not a right to be without a remedy.” Prior to Amara , this principle was notably absent from the Supreme Court’s ERISA jurisprudence, in cases such as Mertens . The decision in Amara is likely to have far-reaching effects on subsequent litigation, with the potential to significantly expand the remedies available for violations of ERISA, as the decision should send plaintiffs’ ERISA lawyers back to parsing Pomeroy’s Equity Jurisprudence to fit their case with the confines of Jarndyce v. Jarndyce -era equitable remedies.
- Second, in Conkright v. Frommert , 130 S. Ct. 1640, 1646 (U.S. 2010), the Supreme Court held that even if a court had found that a plan administrator had acted in an arbitrary and capricious manner and remanded the claim for further consideration, the decision made in the reconsideration process would still be entitled to deferential review. The case involved calculation of pensions for employees who were reemployed by Xerox. The plan said the pension would be adjusted for the prior employment, but did not say how. To do this, the plan had used a “phantom account” to make this adjustment that had been in prior plans, but was not in the current plan. The court held that this “single, honest mistake” in plan interpretation did not change the justification for the principal of affording discretion to the plan to interpret the plan. Justices Breyer, Stevens and Ginsberg dissented. As they pointed out, the Second Circuit had found the earlier decision to be arbitrary and capricious, and remanded the case for the district court to “craft a remedy.” The dissent did not find the original error to be as innocent as the majority. at 1648.
- Third, in Hardt v. Reliance Std. Life Ins. Co ., 130 S. Ct. 2149 (2011) the court held that a party need not be a “prevailing party,” in the sense of obtaining an enforceable final judgment, to be entitled to legal fees under ERISA. The plaintiff had sued to overturn a benefit denial. The district court found in her favor, and remanded the claim for reconsideration with the plan, which reversed its decision and granted the claimant benefits. The district court then awarded her fees. The Fourth Circuit overturned the award, holding she was not a “prevailing party” because she had not obtained a judgment in her favor. The Supreme Court held unanimously that the fact that she had obtained a remand that had ultimately resulted in her obtaining benefits sufficient to entitle her to an award of attorneys’ fees.
2. ERISA Fiduciary Cases
Bell v. Pfizer, Inc ., 626 F.3d 66 (2d Cir. 2010).When the plaintiff retired, she was told that she would be able to exercise her stock options for the remaining term of the options. After she retired, she learned that this was not true. Whether the options would expire depended on what type of retirement benefit she would receive under the pension plan, an ERISA plan. Court held that the stock option plan was not an ERISA plan, so there was no breach of fiduciary duty for the erroneous advice that the stock options would not expire, even though the erroneous advice concerned an ERISA pension plan. she was given related to her pension. The plaintiff had made extensive efforts to confirm that she could continue to exercise her options, and received confirming emails that she could. One judge dissented, on grounds that the misrepresentations concerned an ERISA plan, even though the benefits at issue were for a non-ERISA plan: “I do not see how a fiduciary is not discharging its duties ‘with respect to a plan,’ 29 U.S.C. § 1104, when it is interpreting—or misinterpreting—key terms in its provisions. That those misrepresentations and omissions may have non-ERISA consequences does not foreclose liability for breach of fiduciary duty.” The plaintiff had withdrawn her state-law claims prior to decision.
In re Beacon Associates Litigation , 09-cv-777 (LBS) (S.D.N.Y. Oct. 5, 2010) In litigation arising out of the Madoff Ponzi scheme, the district court held that an advisor whose investment advice was limited to recommending an investment manager to the sponsor of investment plan in which ERISA plans invested was not acting as an ERISA fiduciary.
Stock Drop Cases . Many cases have been decided regarding a plan’s investment in its own stock, and whether the investment violates the prudent investment rule, including the following:
- In re Citigroup ERISA Litigation, 2009 U.S. Dist. LEXIS 7805 (S.D.N.Y. 2009). No breach of fiduciary duty when plan offered the employer stock as a permissible investment when the plan itself provided that it was a permissible investment.
- Peabody v. Davis , 636 F.3d 368 (7th Cir. Ill. 2011). Finding breach of fiduciary duty in investing 98% of plan assets in the employer’s stock, which was privately held. The employer paid the plaintiff a bonus in order to convince him to deposit $167,000 of his unrelated retirement funds in to the employer’s plan. This was the first employer stock drop case where the plaintiff prevailed at trial. The court imposed a quite high standard of liability, however, basically requiring that drop in value of the stock would be almost certain.
- Howell v. Motorola, Inc ., 633 F.3d 552 (7th Cir. Ill. 2011). Offering employer’s stock as one option was not a breach of fiduciary duty when the participants had other investment choices.
- Brown v. Owens Corning Inv. Review Comm., 622 F.3d 564 (6th Cir. Ohio 2010) (claims based on excessive investment in employer’s stock were time barred when the participants knew of the investment in the stock and the resulting losses more than three years before filing suit
- Brown v. Medtronic, Inc ., 628 F.3d 451, 453 (8th Cir. Minn. 2010). To survive a motion to dismiss in a case where the plaintiff claims an ESOP impudently invested in the sponsor’s stock after learning of facts that would harm its stock value, the plaintiff has to show ownership of stock after the adverse information came out to show that the plaintiff suffered a “net loss” from the sponsor’s actions, which the plaintiff could not show in this case. Also, the court held that a sponsor’s investment in its own stock after learning adverse information was not itself imprudent. While not adopting the presumption of prudence regarding a sponsor’s purchase of its own stock set forth in the Third Circuit’s decision in Moench v. Robertson , 62 F.3d 553, 571 (3d Cir. 1995), the court held the plaintiff had not factually shown that in this instance the information was sufficiently adverse to make the investment imprudent. Other circuits have adopted the Moench presumptions: Quan v. Computer Sciences Corp ., 623 F. 3d 870 (9th Cir. 2010); Kirschbaum v. Reliant Energy, Inc., 526 F.3d 243, 253 (5th Cir. 2008); Kuper v. Iovenko, 66 F.3d 1447, 1459 (6th Cir. 1995).2010).
Investing in mortgage-backed securities prior to the crash did not violate the prudent investor rule. Saint Vincent Catholic Medical Centers, et al. v. Morgan Stanley Investment Management, Inc., No. 09-9730 (S.D.N.Y. Oct. 4, 2010); Southern California IBEW-NECA Defined Contribution Plan Board of Trustees v. Bank of New York Mellon Corp ., No. 09 Civ. 6273 (S.D.N.Y. April 14, 2010); In re Lehman Bros. Sec. and ERISA Litig ., 683 F. Supp. 2d 294 (S.D.N.Y. 2010); and In re Citigroup ERISA Litig ., No. 07 Civ. 9790, 2009 WL 2762708 (S.D.N.Y. Aug. 31, 2009).
401k Fee Cases: There has been substantial litigation in the last year involving claims that plan administrators of 401k plans violated their fiduciary duties by allowing excessive fees to be charged by administrators and investment advisors, or otherwise made poor decisions in managing the plan. The cases are based on the Supreme Court decision of LaRue v. DeWolff, Boberg & Associates, Inc ., 128 S.Ct. 1020, 169 L. Ed. 2d 847 (2008), which held that participants in a defined contribution plan could sue for breach of fiduciary duty whose misconduct impaired plan assets.
- George v. Kraft Foods Global, Inc., 2011 U.S. App. LEXIS 7404 (7th Cir. Ill. Apr. 11, 2011). Reversing the trial court’s grant of summary judgment to the plan. The plaintiffs claimed that the plan violated its fiduciary duties in how it handled redemptions and investments in cash. A unique factor in the case was that a corporate affiliate, Altria, had instituted different policies that were arguably beneficial to the participants, and the administrators of each plan had communicated regarding these policies. Yet the Kraft plan was not changed, and there was no evidence that the plan had made a conscious decision to continue the existing policies, which the court found necessary for the plan fiduciaries to discharge their fiduciary duties. The Circuit Court held that it was possibly a violation of their fiduciary duties to not at least make a positive decision one way or another to adopt the policies of the affiliate.
- Hecker v. Deere & Co., 556 F.3d 575, 585 (7th Cir. Wis. 2009) Affirming the district court’s dismissal of an excessive fees case. The fact that the plan offered a variety of mutual funds that had different fee levels allowed the participants to choose the amount of fees they were willing to pay.
- Spano v. Boeing Co . 633 F.3d 574 (7th Cir. 2011). Class certification in an excessive fee 401k case overturned, but remanded to determine whether a more-narrowly drawn class would be proper.
3. ERISA Benefits Litigation Cases
a. Second Circuit
O'Hara v. Nat'l Union Fire Ins. Co ., 2011 U.S. App. LEXIS 7675 (2d Cir. N.Y. Apr. 14, 2011). Fact that claimant was at work on the day she was fired for “unprofessional behavior” did not preclude her from claiming that she was disabled on that day, even though she had worked for fifteen months following the head injury that caused her disability. The court reversed the trial court’s grant of summary judgment. The claimant’s medical records during the time she was working discussed her disability and found that she was disabled, even though she had continued to work: “An employee's continued presence at her place of employment does not preclude a finding of disability when there is evidence that the employee is incapable of performing her job.”
Fortune v. Group Long Term Disability Plan for Emples. of Keyspan Corp ., 391 Fed. Appx. 74, 77 (2d Cir. N.Y. 2010). Summary judgment for the insurer even though the claimant submitted a neuropsych exam that showed she had an IQ below 100, and that she held a position with demanding intellectual requirements. The insurer’s retained doctor had questioned the scope of the exam, and the court found it was not arbitrary and capricious to reject the results of the neuropsych on this basis.
Durakovic v. Bldg. Serv. 32 BJ Pension Fund , 609 F.3d 133 (2d Cir. 2010). Arbitrary and capricious for insurer to rely on a vocational report finding that the claimant, a 60 year-old office cleaner who had only done office cleaning for 35 years and had little English, could be trained to do a semi-skilled position like jewelry assembly or food checker, particularly when the claimant submitted a detailed vocational report showing that she was unable to do any other job. The court also held that the MetLife v. Glenn conflict of interest analysis applied to joint employer/employee administered Taft/Hartley plans.
b. Other Circuits
Anderson v. Cytec Indus. 619 F.3d 505, 514 (5th Cir. La. 2010). Not arbitrary and capricious to deny benefits when no objective evidence of impairments resulting from the claimant’s PTSD was presented, which he claimed had been exacerbated when he evacuated his house due to Katrina. The court also repeatedly noted that the claimant had told his employer that he could not move back to Louisiana because he could not find suitable housing for his wife, which the court interpreted as implying that this, and not his psychological condition, was the real reason he didn’t return to his job.
Holmstrom v. Metro. Life Ins. Co., 615 F.3d 758 (7th Cir. Ill. 2010): Benefit denial was arbitrary and capricious when insurer focused too much on the lack of objective evidence of disability, and ignored the ample evidence that pain was disabling. The court found MetLife cherry-picked the medical evidence, and constantly changed what was required to establish disability. It ignored the results of two FCEs, and cited medical articles that actually supported the claimant’s position. The court also noted that the insurer did not address or attempt to distinguish the social security determination of disability.
Rote v. Titan Tire Corp., 611 F.3d 960, 963 (8th Cir. Iowa 2010): The issue in the case was whether the claimant’s disability was permanent. A doctor’s letter in support of the application used the term “indefinitely” in describing the duration of the disability. From the way it was used in the letter, the court stated it was clear the word was used in the sense of “permanent.” The insurer, however, insisted on interpreting the word, based on an alternative definition in Black’s Law Dictionary, as meaning temporary. The insurer refused to change its opinion when the doctor clarified his meaning in using the term. Attorneys’ fees were awarded for the first proceeding that resulted in a remand of the case to the insurer for further consideration, and for the resulting administrative process.
Mitchell v. CB Richard Ellis Long Term Disability Plan, 611 F.3d 1192, 1199 (9th Cir. Cal. 2010): Abuse of discretion to deny benefits on the basis that the disability started when a prior insurer had insured the plan. The claimant was disabled under the language of the plan, and the plan had no exception for coverage of disabilities arising prior to the date coverage began. The court found that the insurer had also imposed an “objective evidence” requirement that was not in the plan.
Gent v. Cuna Mut. Ins. Soc'y, 611 F.3d 79, 80 (1st Cir. Mass. 2010) Not abuse of discretion to find that disability was caused by mental illness subject to a twenty-four month payment limitation, and not Lyme disease, when medical evidence supporting Lyme disease was ambiguous.
Williams v. Metro. Life Ins. Co., 609 F.3d 622 (4th Cir. N.C. 2010): Denial of LTD benefits an abuse of when evidence of disability was overwhelming and the insurer relied on a “scintilla” of evidence in denying benefit: a single report that the claimant reporting having good days and bad days, and had pain of 3 on a ten-point scale. The court so held, even though it found that no increased scrutiny of the decision was justified under Glenn, stating that the following were sufficient to show that the conflict of interest did not play a role in the decision: “MetLife's initial finding of disability, its payment of long-term disability benefits for almost two years, and its referral of its termination decision to two independent doctors, suggests that MetLife was not inherently biased in making its decision.” The court found, nonetheless, that the denial was arbitrary and capricious even under a high standard of deference.
Kenseth v. Dean Health Plan, Inc., 610 F.3d 452 (7th Cir. Wis. 2010): Insurer violated its fiduciary duty when it instructed the insured to call a customer service representative to determine whether certain surgery was covered, but did not tell her that the customer service representative’s approval was not binding on the insurer, and did not tell the claimant how to obtain a binding coverage decision prior to having the surgery.
DuPerry v. Life Ins. Co. of N. Am ., 632 F.3d 860 (4th Cir. 2011) Arbitrary and capricious to deny long term disability benefits based on comments in the medical record that the claimant could perform some sedentary job functions for limited times. The insurer focused on the disabilities in isolation rather than as a whole, which conditions included arthritis, fibromyalgia and other fatigue conditions.
Schwalm v. Guardian Life Ins. Co. of Am ., 626 F.3d 299 (6th Cir. Ohio 2010). Fact that claimant was working, even though without pay, as a CEO for a start-up company meant that denial of disability benefits was not arbitrary and capricious.
c. Connecticut District Court
Soucy v. First Unum Life Ins. Co. , 2011 U.S. Dist. LEXIS 27938 (D. Conn. 2011) Judgment for plaintiff on a soft-tissue back injury disability benefit. The court found in favor of the plaintiff because the insurer only determined whether the plaintiff could perform the physical demands of the position without considering the material non-physical duties of the position. Unum denied the claim primarily based on the physical capacity reflected in an FCE, but ignored the FCE’s conclusion that she was in fact disabled. UNUM tried to argue that the FCE’s conclusion was based on a faulty occupational analysis in that the FCE examiner believed the position required greater physical demands than it actually required. The court applied a less deferential standard of review, finding that the administrative record was permeated with the financial conflict of interest resulting from UNUM’s dual role as the funder and the decider regarding the benefit decision.
Gaud-Figueroa v. Metro. Life Ins. Co., 2011 U.S. Dist. LEXIS 14177 (D. Conn. Feb. 14, 2011) Court stated that even though disability benefits were properly denied in April due to failure to submit objective evidence of the illness, it remanded case for determination of whether the claimant was eligible for benefits when she was clearly disabled in the following September and October. She had not returned to work between April and September, but the employer hadn’t definitively terminated the employee after the denial of benefits. So, the employee was potentially eligible for benefits.
St. Onge v. UNUM Life Ins. Co. of Am. , 2010 U.S. Dist. LEXIS 98101 (D. Conn. Sept. 20, 2010) (Martinez). Holding that failure to complete review within the time provided by ERISA’s regulations meant the claim denial would be reviewed de novo rather than under the arbitrary and capacious standard. The insurer had argued that the regulations issued in 2001 setting forth timeframes for deciding claims, established a good faith defense that failure to comply with the deadlines did not result in de novo review, and effectively overruled Nichols v. Prudential Ins. Co., 406 F.3d 98 (2d Cir. 2005), the case establishing the rule in the Second Circuit that failure to make a timely decision converted the standard of review from arbitrary and capricious to de novo. Other cases holding Nichols is still good law include the following: Fershtadt v. Verizon Communications Inc., 2010 U.S. Dist. LEXIS 13937 (S.D.N.Y. Feb. 9, 2010); Towner v. CIGNA Life Ins. Co., 419 F. Supp. 2d 172, 179 (D. Conn. 2006) .
Fairbaugh v. Life Ins. Co. of N. Am ., 737 F. Supp. 2d 68, 86 (D. Conn. 2010) (Haight) Arbitrary and capricious to deny benefits since the claimant’s medical condition had not materially changed since benefits were initially approved. The court noted that when the plan administrator originally approved benefits for the claimant’s multiple sclerosis, the benefits were paid by the employer directly, but when it denied benefits under the same disability standard, it was required to pay the benefits, creating an implication that it denied benefits because it was now obligated to pay them. The court noted this in discussing the degree of deference to the plan administrator’s decision under the MetLife v. Glenn standard. The court state, however, that the decision was arbitrary and capricious under any standard, so it was not necessary to determine the precise degree of arbitrary and capricious review to be applied. The court cited Connors v. Conn. Gen. Life Ins. Co. , 272 F.3d 127, 136 (2d Cir. 2001), which overturned a benefit denial on the de novo standard when the insurer overturned its previous decisions to pay benefits even though there was no substantial change in the claimant’s condition. The Court found that the same principles applied even though the review in this case was arbitrary and capricious. The court noted the following in finding the denial arbitrary and capricious:
- No doctors, but only a nurse case manager, had reviewed the decision to terminate benefits, and that on appeal, only one doctor reviewed the records, and generated a factually incorrect report, stating that the claimant was not taking any pain medications when she was in fact taking substantial medications.
- The insurer analyzed the job, a corporate event planner, as a sedentary job, without considering that the job was stressful, required multi-tasking and adherence to deadlines, and involved more than occasional travel. The court stated that in essence, the insurer was applying an “any occupation” standard when the applicable standard was “own occupation.”
2. Discovery In ERISA Cases
One of the significant effects of the MetLife v. Glenn decision was to expand the otherwise limited scope of discovery in ERISA benefits cases. Generally, discovery in ERISA benefit denial cases is limited to the record developed in the course of the administrative appeal. Muller v. First Unum Life Ins. Co. , 341 F.3d 119, 125 (2d Cir. 2003). Even prior to Glenn , discovery relating to potential conflicts of interest could be discoverable if there was evidence of bias. Lochner v. UNUM Life Ins. Co. of Am ., 389 F.3d 288, 294 (2d Cir. 2004); DeFelice v. Am. Int’l Life Ins. Co , 112 F3d 61, 67 (2d Cir. 1997). Courts have generally held that Metlife v. Glenn confirmed that discovery regarding conflicts of interest should be permitted. Hogan-Cross v. Metro. Life Ins. Co ., 568 F. Supp. 2d 410, 415 (S.D.N.Y. 2008) (“Were there any doubt about [allowing non-record discovery], Glenn removed it.”).
The Second Circuit has held that this analysis applies to Taft-Hartley plans, even though they have both employer and employee representatives. Durakovic v. Bldg. Serv. 32 BJ Pension Fund , 609 F.3d 133 (2d Cir. 2010). The Fourth and Ninth Circuits disagree. Parsons v. Power Mountain Coal Co ., 604 F.3d 177 (4th Cir. 2010); Anderson v. Suburban Teamsters of Northern Illinois Pension Fund Board of Trustees , 588 F.3d 641 (9th Cir. 2009).
Citing Metlife v. Glenn , courts have made the following decisions regarding allowing non-record discovery in ERISA benefit denial cases. The areas of discovery fall in the following three areas:
- Claims Administration Policies and Manuals.
- Kruk v. Metro. Life Ins. Co. , 267 F.R.D. 435, 441 (D. Conn. 2010) (Haight). Rejecting insurer’s argument that for plan claims review procedures to be discoverable, they had to refer to both the claimant’s type of medical condition and the plan at issue, and ordered production of MetLife’s Claims Management Guidelines:
- The clear intent of the regulation was to provide a claimant with access to all the procedures that did apply, should have applied, or could have applied in her case -- whether or not those procedures explicitly mention her plan or condition or not. In short, any such policy would provide "guidance" to the plan as to how the claim should be administered, regardless of whether the plan followed that guidance.
- Kruk v. Metro. Life Ins. Co. , 267 F.R.D. 435, 441 (D. Conn. 2010) (Haight). Rejecting insurer’s argument that for plan claims review procedures to be discoverable, they had to refer to both the claimant’s type of medical condition and the plan at issue, and ordered production of MetLife’s Claims Management Guidelines:
- Rauthe v. Metropolitan Life Insurance , 49 Employee Benefits Cas. (BNA) 2366 (D. Mont. 2010) the court allowed discovery of policies and procedures, but denied discovery on the information was conveyed about her specific claim, such as the basis for the insurer’s finding that the participant was intoxicated at the time of the accident, since this would merely duplicate the information available in the claim file.
- Emery v. Am. Airlines, Inc ., 2010 U.S. Dist. LEXIS 17617 (S.D. Fla., 2010). Rejected insurer’s argument that only documents involving the appeal of the denial, rather than documents from the initial denial itself, were discoverable. The court also allowed depositions limited to the following topics: “(1) the exact nature of the information considered by the fiduciary in making the decision; (2) whether the fiduciary was competent to evaluate the information in the administrative record; (3) how the fiduciary reached its decision; (4) whether, given the nature of the information in the record, it was incumbent upon the fiduciary to seek outside technical assistance in reaching a ‘fair and full review’ of the claim; and (5) to determine whether a conflict of interest existed.”
- Prado v. Allied Domecq Spirits & Wine Group Disability Income Policy, 2010 U.S. Dist. LEXIS 78837 (N.D. Cal. Aug. 2, 2010). Allowing discovery of insurance policies providing for plan benefits and generally “[a]ny writing by which the Plan has delegated discretion to determine eligibility for benefits.” The court rejected the insurer’s argument that only the plan and SPD needed to be released.
- Zewdu v. Citigroup Long Term Disability Plan , 264 F.R.D. 622, 628 (N.D. Cal. 2010). Allowing discovery on procedures for training medical staff to review claims in general and claims involving the same medical condition, and the five-year claim denial history for the medical professionals who reviewed the claim.
- Murphy v. Deloitte & Touche Group Ins. Plan, 619 F.3d 1151 (10th Cir. N.M. 2010) Magistrate had denied the claimant discovery to show a conflict of interest resulting from the insurer’s dual role as payer and decider on grounds that the insurer admitted to the dual role, so no discovery was necessary to establish the conflict. The Circuit Court overturned the decision, holding that discovery regarding the nature and extent of the conflict was necessary even if the conflict was admitted.
- Similar Types of Claims: Past Treatment of Claims involving Similar Medical Conditions
- Crosby v. La. Health Serv ., 629 F.3d 457 (5th Cir. La. 2010). Compelling discovery that would indicate whether the administrative record was complete, whether the administrator complied with ERISA procedural requirements, and whether the administrator had previously afforded the same coverage.
- Hall v. Life Ins. Co. of N. Am ., 265 F.R.D. 356 (N.D. Ind. 2010). Allowing discovery of five-year history of compensation to all independent vocational and medical personnel who reviewed the claim, their five-year history of claims reviewed and claims were denied, and any contracts between them and the insurer. The court also enforced a subpoena against the company that had arranged for the independent medical reviews.
- Price v. Hartford Life & Accident Ins. Co ., 746 F. Supp. 2d 860, 869 (E.D. Mich. 2010). Discovery related to the claim allowed, but discovery of the ten-year history of all the plan’s denials of benefits was denied.
- Heim v. Life Ins. Co. of N. Am ., 2010 U.S. Dist. LEXIS 135370 (E.D. Pa. Dec. 22, 2010). Allowing deposition of claims manager who denied the second appeal, but denying discovery of the underwriting file for the employer.
- Decision Making Entities Relationships
- Zewdu , supra. Discovery allowed on compensation arrangements for independent physicians.
- Price , supra. Discovery allowed on contractual terms, fees paid and frequency of employment on all independent entities, such as surveillance companies and physicians, who were involved in the claim.
- Hackett v. Std. Ins. Co ., 2010 U.S. Dist. LEXIS 37136 (D.S.D. Apr. 14, 2010). Allowing discovery on any procedures for monitoring and determine inaccurate determinations, such as monetary penalties or warnings issued.
- Benson v. Hartford Life & Accident Ins. Co ., 724 F. Supp. 2d 1187, 1191 (D. Utah 2010). Allowing discovery regarding relationship between insurer and independent medical review company.
- Sullivan v. Deutsche Bank Ams. Holding Corp ., 2010 U.S. Dist. LEXIS 8414 (S.D. Cal. Feb. 2, 2010). Discovery allowed for three years of performance evaluations for the eleven employees involved in review of the claim.
Morien v. Munich Reinsurance Am., Inc ., 270 F.R.D. 65 (D. Conn. 2010) Magistrate Smith permitted deposition of a corporate defendant when the insurer had attached two letters to a motion to dismiss, which the court found converted the motion to a motion for summary judgment, to address issues of exhaustion of administrative remedies and accrual of the cause of action that had been raised by the motion to dismiss.
4. Retiree Health Benefits
Peterson v. Windham Cmty. Mem. Hosp., Inc ., 2011 U.S. Dist. LEXIS 30548 (D. Conn. Mar. 24, 2011) (Arterton) Granting summary judgment to the defendant on a claim that it had deprived the plaintiff of promised retiree health benefits on grounds that non-plan documents promises retiree health benefits were not sufficiently formal to overcome the clear language in the plan documents allowing the employer to modify or terminate benefits. It appears that the plaintiff had not yet retired at the time of the claim.
Alday v. Raytheon Co., 620 F.3d 1219 (9th Cir. Ariz. 2010). Finding that promise of retiree health benefits survived the expiration of the three-year term of the collective bargaining agreement, so the employer could not start charging premiums or changing coverage.
5. Plan Interpretation – Effect of Errors
Claimants are usually hurt by the courts reluctance to vary plan documents based on any intrinsic statements, or intent. See Weber above. If the sponsor makes an error in a plan that provides better benefits than the sponsor really intended, this rule can work to the claimant’s advantage. Recent cases from other circuits discussing this issue include the following:
- Cross v. Bragg , 2009 WL 2196887, 329 Fed. Appx. 443 (4th Cir. 2009). In 2002, the plan decided that a 1996 had mistakenly adopted a benefit formula that was more generous then intended. The plan received permission from the IRS to disregard the 1996 amendment for tax purposes. The beneficiaries could enforce the provision, however. Since the plan could not show that the parties had agreed on some provision other than what was reflected in the document, claims of scrivener’s error or mutual mistake failed.
- Young v. Verizon’s Bell Atlantic Cash Balance Plan 615 F.3d 808 (7th Cir. 2010). Allowing correction of an error that would have doubled a “transition factor” in calculating the pension even though the sponsor could not show mutual mistake under the standard set forth in Cross above. The court did require that the plan show by clear and convincing evidence that the provision was an error, and did not reflect the beneficiaries’ reasonable expectation of benefits.
Weber v. AVX Pension Plan for Bargaining Unit Emples. , 397 Fed. Appx. 721 (2d Cir. 2010) Fact that a literal reading of the plan would make the timing of payments under a disability retirement the same as for regular retirement did not allow the court to add a provision to the plan.
Kitterman v. Coventry Health Care of Iowa, Inc., 632 F.3d 445, 447 (8th Cir. Iowa 2011). The plan provided for an $8,000 “out-of-pocket maximum,” but certain out-of-network expenses were not subject to the “out-of-pocket maximum.” The district court had held that the term “$8,000 out-of-pocket maximum” meant that the most the participant would come out-of-pocket was $8,000, and did not allow the plan to recover any amounts in excess of the out-of-pocket maximum. The Circuit Court reversed, and held the plan could enforce the explicit plan terms, even if as used the plan, the term “out-of-pocket maximum” really did mean what it appeared to mean.
Shook v. Avaya, Inc ., 625 F.3d 69, 70 (3d Cir. Pa. 2010). In an explanation of benefits, the employer informed the participant that he was entitled to a certain pension, which later turned out to be incorrect. When the plan reduced his benefit, he sued claiming estoppel, stating that his wife retired from her job based on the level of income shown on the statement, and that she would not have retired if he had known that he would only be receiving the lesser amount. The husband stayed in his job and had not retired. The court held that since the reliance was not in any way related to the plan, since the participant did not retire or make any benefit elections in reliance on the misstatement, estoppel could not be found based on the wife’s decision to retire from another employer.
Bloemker v. Laborers' Local 265 Pension Fund, 605 F.3d 436, 440 (6th Cir. Ohio 2010): Under a theory of equitable estoppel, reversed the district court’s grant of a motion to dismiss, holding that claimant had stated a valid claim to keep receiving an early retirement benefit when he had confirmed them in writing and had been receiving for two years, even though the benefits were calculated erroneously. The court found that the case satisfied the “extraordinary circumstances” requirement that the Second Circuit and other circuits had imposed for finding estoppel in a pension case. Bonovich v. Knights of Columbus, 146 F.3d 57, 62-63 (2d Cir. 1998).
Ringwald v. Prudential Ins. Co. of Am., 609 F.3d 946 (8th Cir. Mo. 2010): Improper for court to rely on reservation of discretion contained in the SPD but not in the plan document. Plan did not have any procedure for amendment to the plan, so the district court erred in holding that the addition of the discretion language acted as an amendment of the plan itself. The court should have applied de novo review rather than arbitrary and capricious review.
Scovin v. Great-West Life & Annuity Ins. Co., 2011 U.S. Dist. LEXIS 34890 (D. Conn. Mar. 31, 2011) (Thompson) Executive left the company, signed up for COBRA, paid premiums, and confirmed that coverage was available prior to having hip replacement surgery. After having the surgery, he learned that the claim was denied because the employer had switched to a self-funded plan and had not sent the third-party administrator either the COBRA premiums or the money to pay the claims. The claimant brought suit was against the executives of the employer who were responsible for making corporate decisions, but were not named as the plan administrator. The named plan administrator had resigned prior to problems occurring, and no new plan administrator was named. The court found that liability under 502(a)(1)(B) (ERISA’s breach of contract provision) could not be imposed on the basis that the person who handled benefits issues after the named plan administrator left was a de facto plan administrator. Crocco v. Xerox Corp ., 137 F.3d 105, 107 (2d Cir. 1998). Since 29 U.S.C. § 1002(16) (B) (I) provides that the plan sponsor is the plan administrator if no individual is named, the now-defunct employer was the plan administrator. Nor could a Section 502(a)(2) claim for breach of fiduciary duty be brought against the individuals who had acted as a plan administrator since this section only authorized relief on behalf of the plan rather than a plan participant. The court found that the plaintiff could bring a claim under 502(a)(3), the catch-all relief section, but found that the individual who had been involved in decisions concerning funding benefits had no duty to tell the plaintiff that the plan was not adequately funded, which would have allowed him to delay the medical procedure until he had coverage.
Stevenson v. Bank of N.Y. Co ., 609 F.3d 56, 61 (2d Cir. 2010) Claim based on the employer’s promise that the employee’s benefits would be continued for the time that he accepted an overseas assignment was not preempted by ERISA:
Because Stevenson's state law claims derive from this promise rather than from an ERISA benefits plan, their resolution does not require a court to review the propriety of an administrator's or employer's determination of benefits under such a plan. The BNY benefits plans may provide a benchmark for determining claimed damages, but such damages would be payable from BNY's own assets, not from the plans themselves.
8. Regulatory Changes:
New Regulations Governing Processing of Health Benefit Claims . The Departments of Labor, Health and Human Services and the Treasury have issued interim final regulations to implement the provisions of the recent health care law with regard to claiming processing by ERISA health plans. The regulations are intended to provide for fuller and fairer processing of claims, the right to appeal claims that are denied, and affording the right to have an external review of claim decision. Most significantly, if a plan fails to comply with the regulations, the review of the decision may be under the de novo rather than the arbitrary and capricious standard. The interim regulations are published at 75 FR 43330. In Technical Releases 2010-02 and 2011-01, the effective date of many of the provisions of the regulations was delayed into 2012 because revised regulations are to be issued. If you have a denied medical benefit claim in the next year, you should determine the particular regulations that are in effect at the time the claim is denied since failure of the plan to comply with the regulations could mean that the claim will be reviewed de novo. DOL’s Technical Release No. 2011-01 has good summary of the regulations. Here is the link: http://www.dol.gov/ebsa/newsroom/tr11-01.html