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ERISA Litigation Attorney | Lane Powell Law Firm

What Constitutes “Reasonable Efforts” to Inform Plan Participants of Plan Amendments, Which Include a Forum Selection Clause?

Posted in ERISA

You know that many Plans have forum selection clauses.  Are they enforceable?  YES

When a Plan participant claims they “did not know of a plan amendment,” how do you prove the Participant received notice of the amendment? A new case explains.

Here’s the case of Malagoli v. AXA Equitable Life Insurance Company, __ F.Supp. 3d __ (S.D.N.Y. March 24, 2016)( “‘[A] valid forum-selection clause [should be] given controlling weight in all but the most exceptional cases.’” )

FACTS: Malagoli retired from AXA/Equitable in 2004. In 2011, AXA added a forum selection clause requiring all ERISA actions be filed in New Jersey.  In 2015, Malagoli sued AXA Equitable Life Insurance in New York, alleging AXA had breached an agreement to allow him to collect commissions while receiving retirement benefits. AXA move to transfer venue to New Jersey because the ERISA-governed retirement plan required suits be filed in New Jersey.

Malagoli argued:

(1) the forum selection clause contradicted ERISA special venue provisions. ERISA provides that ERISA actions may be brought: “in the district where the plan is administered, where the breach took place, or where a defendant resides or may be found”;

(2) the 2011 forum selection clause should not apply to him, since he “vested” when he retired in 2004.

DISTRICT COURT HELD: AXA’s MOTION FOR TRANSFER TO NEW JERSEY GRANTED.

  1. “‘A contractual choice-of-forum clause should be held unenforceable if enforcement would contravene a strong public policy of the forum in which suit is brought…’”  Op. at 2.
  2. But the vast majority of courts have concluded that forum selection clauses are not per se invalid.  Op. at 2.
  3. “‘[A] valid forum-selection clause [should be] given controlling weight in all but the most exceptional cases.’” Op. at 2.
  4. “‘Congress provided that an [ERISA] action may be brought in several venues. Congress did not provide that private parties cannot narrow the options to one of these venues.’”  Op. at 3. (Italics in original).
  5. “A benefit under an employee benefit plan only “becomes ‘vested’ if the employer has promised not to amend or terminate [the plan].’” Op. at 4.
  6. AXA made no such promise: AXA expressly  “reserve[d] the right in its discretion to make from time to time any amendment or amendments to the Plan.” Op. at 4.
  7. For the 2011 amendment to be enforceable, the ERISA administrator must “make reasonable efforts” to ensure each plan participant receives plan documents.
  8. AXA used “reasonable efforts” to notify Malagoli of the amendment that included a forum selection clause because: (a) they presented the Court with an Excel spreadsheet listing all Participants used to mail notices, and Malagoli’s address was on this list; (b) Malagoli concedes his address in this list was accurate; (c) AXA merged the list of 29,125 Participants with the letter announcing the amendment, and assembled them in printed envelopes; (d) a bulk mailing certificate confirms that 29,125 letters were mailed first class on December 27, 2011.

ERISA (9th Circuit): Denial Letters — Sometimes Forgotten Arguments to Enforce Contractual Limitations Provisions

Posted in ERISA

Must denial letters inform the claimant, seeking ERISA-governed benefits, about the contractual limitations provision?

A recent court trend, like with the First, Third and Sixth Circuits, requires denial letters to inform the claimant of the Plan’s contractual limitations provision. See, e.g.,  Santana- Díaz v. Metropolitan Life Insurance Co., No. 15-1273, 1st Cir. (March 14, 2016) (“Based on the plain language of the regulation, we hold that the correct interpretation of section 2560.503-1(g)(1)(iv) is that a denial of benefits letter must include notice of the plan-imposed time limit.”)

Other courts have rejected arguments that ERISA regulations impose an affirmative duty to include the length of the limitation period for filing suit in claim denial letters. Scharff v. Raytheon Co. Short Term Disability Plan, 581 F.3d 899 (9th Cir. 2009); Wilson v. The Standard Ins. Co., No. 11- 2703, 2014 U.S. Dist. LEXIS 12111 (N.D. Al., Jan. 31, 2014); (holding that a claim-denial letter complied with the regulation despite omitting the civil action limitations period); Koblentz v. UPS Flexible Emp. Benefits Plan, No. 12-CV-0107-LAB, 2013 WL 4525432, at *4 & n.5 (S.D. Cal. Aug. 23, 2013) (same).

The evolving “best practice”: add information regarding the contractual limitations period in the denial letter.

And…here is some good news: sometimes you can use the contractual limitations defense even if the contractual limitations period was not disclosed in the denial letter.

Here’s the case of Upadhyay v. Aetna Life Insurance Company, __Fed. Appx. __ (9th Cir. March 23, 2016).

FACTS: Upadhyay sought ERISA-governed disability benefits.  The Plan stated: “No legal action can be brought to recover any benefit after 3 years from the deadline for filing claims.” Upadhyay was required to file her claim for benefits by July 1, 2007, making the date by which to file a lawsuit at July 1, 2010.  But she did not file her lawsuit until March 4, 2013.

Aetna denied the claim, but the denial letter failed to inform Upadhyay of the Plan’s contractual limitations period for filing suit.

9th Circuit Court of Appeals HELD: Summary Judgment for Aetna Affirmed.

  1. “[P]arties may ‘agree[] by contract to commence the limitations period at a particular time.’” Op. at 3.
  2. Aetna did not waive its contractual limitations defense despite failing to inform Upadhyay, in its denial letters, of the Plan’s contractual limitations period for filing a lawsuit under ERISA.”  Op. at 2.
  3. “Under California law, an insurance company cannot waive a contractual limitations provision defense when the limitations period has already run.” Op. at 2-3 (Emph. added).
  4. “Even if Aetna could waive the contractual limitations period, Upadhyay [failed to show] ‘an element of detrimental reliance or some misconduct’ on the part of Aetna.”  Op. at 2-3.
  5. Aetna’s contractual limitations defense was not “an impermissible attempt to circumvent California’s notice-prejudice rule.”  Op. at 4.

ERISA: Sixth Circuit — No Conflict of Interest with Multi-Employer Benefit Plan, Saving Abuse of Discretion Standard of Review

Posted in ERISA

You already know that evidence of a “conflict of interest” can change the standard of review the court applies in ERISA claims.

But proper structuring of multi-employer benefit plans can avoid an inherent conflict of interest.

Here’s the case of Foltz v. Barnhart Crane and Rigging, Inc., __ Fed. Appx. __ (6th Cir. February 29, 2016)(This case also shows that the Worker Compensation exclusion can trump ERISA disability benefits.) [PDF]

FACTS.  Foltz worked at an oil refinery and was exposed to toxic vapor, which caused chemical pneumonia. He required three months of hospitalization. Foltz submitted a disability claim under the ERISA plan. The plan excludes disability benefits if “benefits are payable under any Worker’s Compensation Act….”  The Plan concluded his illness was work-related and denied his disability claim.

TRIAL COURT: The Plan properly exercised its discretion in denying Foltz’s ERISA disability claim because of the Worker Compensation exclusion.

SIXTH CIRCUIT HELD: AFFIRMED.

  1. “When an ERISA plan relies on an exclusion to deny benefits,…the plan (not the employee) has the burden of proving the exclusion applies.”  Op. at 5.
  2. “[T]he evidence in the administrative record clearly shows that the Fund carried its burden to establish that Foltz’s illness was, in fact, work-related.”  Op. at 5.
  3. As a multi-employer benefit plan, “individual trustees on the Board receive no personal financial benefit from approving or denying claims.  This structure does not create an inherent conflict of interest….”  Op. at 6.

BIG NEWS: ERISA Preempts Hodgepodge of State Insurance Reporting Regulations

Posted in ERISA

You know there has been a court trend toward narrowing ERISA preemption.

But…that trend was brushed back today by the U.S. Supreme Court.

Here’s today’s case: Gobeille v. Liberty Mutual Insurance Com., __ U.S. __ (March 1, 2016) (State regulations that impinge upon ERISA’s core functions, like reporting, are preempted by ERISA) [PDF].

FACTS:  Vermont subpoenaed claims data from Liberty Mutual’s third-party administrator. Liberty Mutual then sued, seeking a declaration that ERISA preempted Vermont’s law and regulation requiring health insurers, including self-funded plans, to file reports with the state, like claims data and other information for a health care database. Liberty Mutual contended that having to submit data to fifty (50) states would be expensive, especially given the lack of uniformity.  This, Liberty Mutual argued, runs contrary to ERISA. Vermont said the information was already available and the state had the right to use it to ensure the safety and health of its residents.

United States Supreme Court Held: (6-2 decision)

  1. “ERISA’s reporting, disclosure, and recordkeeping requirements for welfare plans are extensive. “ Op. at 7.
  2. “Vermont’s reporting regime, which compels plans to report detailed information about claims and plan members, both intrudes upon ‘a central matter of plan administration’ and ‘interferes with nationally uniform plan administration.’”  Op. at 9-10.
  3. “Vermont orders health insurers, including ERISA plans, to report detailed information….This is a direct regulation of a fundamental ERISA function.” Op. 11.
  4. ERISA’s pre-existing reporting, disclosure, and recordkeeping provisions…maintain their pre-emptive force whether or not the new [Affordable Care Act] reporting obligations also pre-empt state law.” Op. at 13.

This decision presents very good news to ERISA plans administrators, including self-funded plans. State regulatory frameworks that impinge upon core ERISA functions are preempted.

ERISA — 10th Circuit: What Happens When a “Procedural Irregularity” Occurs in an Appeal Denial?

Posted in ERISA

You know that procedural irregularities in an appeal denial of a claim for ERISA-governed benefits can change the standard of review from arbitrary and capricious to de novo review.

But not all the time. The claimant should also “provide meaningful new evidence or raise significant new issues on administrative appeal.”

Here’s the case of  Messick v. McKesson Corporation, __ F.3d__, 2016 WL 624861  (10th Cir. February 17, 2016) [PDF].

FACTS: Messick sought ERISA-governed disability benefits. The ERISA Plan provided for discretionary review.   The Plan terms provided that the employee could appeal a claim denial through a “two-level administrative appeals process.”  Messick made a first-level appeal of the claim denial, but the appeal denial letter was misaddressed, and Messick never received it. He then filed suit.

DISTRICT COURT HELD: Applying an abuse of discretion standard, the appeal denial was affirmed.

10th CIRCUIT HELD: REVERSED AND REMANDED.

  1. A misaddressed appeal denial letter can be a procedural irregularity requiring remand when the plan establishes a two-level administrative appeals process. Op. at 4.
  2. “Not all procedural irregularities require de novo review.  Op. at 5.
  3. “[A] late ruling on an administrative appeal [will still be reviewed under an abuse of discretion standard] ‘if a claimant fails to provide meaningful new evidence or raise significant new issues on administrative appeal and the delay does not undermine the court’s confidence in the integrity of the administrator’s decision-making process.’” Op. at 5.
  4. ERISA does not require a second-level appeal. But “[b]ecause the STD Plan required a second-level appeal as a condition to filing suit, the administrative record is not complete until that second appeal is final.” Op. at 6, fn. 2.

ERISA (5th Circuit): Are There Exceptions to the Exhaustion of Administrative Remedies Requirement

Posted in ERISA

You already know that claimants with a denied claim must submit an appeal and exhaust administrative remedies before filing suit.

But are phone calls sufficient to trigger the appeal process?

And, can a claimant trump the exhaustion requirement by alleging the denial was in “bad faith” and, therefore was a “special circumstance?”

Here’s the case of Moss v. Unum Group et al., __ F.3d __ (5th Cir. February 3, 2016) (phone calls are not formal appeals; alleging bad faith is insufficient to constitute a “special circumstance” exception to the exhaustion of remedies requirement).

FACTS: Moss sought ERISA-governed disability benefits due to osteoarthritis. Unum denied the claim on June 5, 2009 and informed Moss he was required to submit a written appeal within 180 days. Moss called Unum June 30, 2009 and said he disagreed with the decision, and then mailed copies of paychecks to Unum. Unum issued a second letter, December 10, 2009, again denying the claim and informing Moss that “[u]nless there are special circumstances, the administrative appeal must be completed before you begin any legal action…”

Instead of filing an appeal, Moss filed suit. The  suit was dismissed due to failure to exhaust administrative remedies. Moss filed a second lawsuit on October 21, 2013, which was dismissed, too. On appeal he claims a “special circumstance” existed: Unum denied the claim in bad faith.

COURT OF APPEALS HELD: AFFIRMED.

  1. Claim denial letters are not contracts. “We doubt a denial letter is analogous to an insurance contract that must be construed in Moss’s favor.” Op. at 4.
  2. Alleging bad faith by the insurer fails to constitute a “special circumstance” sufficient to waive the exhaustion of administrative remedies requirement. “[I]f a claimant could avoid the exhaustion requirement simply by alleging in his complaint that the plan administrator denied his claim in bad faith, then no claimant would ever be required to exhaust administrative remedies before filing suit.” Op. at 4.
  3. Phone calls are insufficient to constitute an “appeal.”  “’[A]lowing informal attempts to substitute for the formal claims procedure would frustrate the primary purposes of the exhaustion requirement.’”  Op. at 5.

Bad News for ERISA Plan Reimbursements: Chase The Money Before Settlement Funds Dissipate, Supreme Court Rules

Posted in ERISA

This just in….

A big debate was resolved today by the United States Supreme Court:

Can an ERISA plan sue to recover medical expenses paid on the participant’s behalf after the settlement funds have dissipated? Generally…NO.  The rule applies to “equitable liens by agreement,” too.

Here’s the case of Robert Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan, case number 14-723 (U.S. Supreme Court January 20, 2016) PDF.

FACTS: The National Elevator Industry Health Benefit Plan [Plan] had paid ERISA plan participant Robert Montanile about $122,000 to cover medical expenses stemming from a car accident in which Montanile was injured by a drunken driver. Montanile later sued the driver and recovered a $500,000 settlement. The Plan brought suit against Montanile seeking reimbursement, but Montanile had spent the money before the plan could recover the medical expenses.

ISSUE: Can an ERISA plan sue to recover medical expenses paid on the participant’s behalf after the settlement funds have dissipated?

SUPREME COURT HELD (8-1 ruling): NO. If an Employee Retirement Income Security Act plan participant spends all of a third-party settlement on non-traceable items, the plan fiduciary may not sue to get at the participant’s additional assets.

  1. Section 502(a)(3) under ERISA authorizes plan fiduciaries to obtain “appropriate equitable relief…to enforce the terms of the plan.” Op. at 5.
  2. The Plan “had an equitable lien by agreement that attached to Montanile’s settlement fund when he obtained title to that fund.” Op. at 7.
  3. “In sum, at equity, a plaintiff ordinarily cannot enforce any type of equitable lien if the defendant once possessed a separate, identifiable fund to which the lien attached, but then dissipated it all…. This rule applied to equitable liens by agreement as well as other types of equitable liens.” Op. at 9 (Emphasis added).
  4. The Plan “protests that tracking and participating in legal proceedings is hard and costly, and that settlements are often shrouded in secrecy. The facts of this case undercut that argument. The [Plan] had sufficient notice of Montanile’s settlement to have taken various steps to preserve the funds. Most notably, when negotiations broke down and Montanile’s lawyer expressed his intent to disburse the remaining settlement funds to Montanile unless the plan objected within 14 days, the [Plan] could have but did not object.”  Op. at 14.
  5. “Moreover, the [Plan] could have filed suit immediately, rather than waiting half a year.”  Op. at 14.

Avoiding ERISA Medical Treatment Class Actions with Arbitration Provisions?

Posted in ERISA

Insurers are getting hit with more class actions regarding the denial of medical treatments, like behavioral therapy treatments for autism spectrum disorders. These can be expensive: In May 2015 ConAgra Foods Inc. and Blue Cross Blue Shield were sued in a proposed class action in California, accused of denying behavioral therapy treatments for autism spectrum disorders in violation of the Employment Retirement Income Security Act (ERISA) and state and federal mental health laws.  One insurer completed a $2.4 million settlement involving an estimated 350 to 400 class members.

The enforceability of arbitration agreements and the class action waiver. Just two weeks ago the United States Supreme Court once again held that class action waivers contained in arbitration agreements are enforceable under the Federal Arbitration Act (FAA) and cannot be invalidated on state law grounds inapplicable to any other contract. DIRECTV, Inc. v. Imburgia, No. 14-462, 577 U.S. ___, 2015 WL 8546242 (2015).

So, what does this all mean for ERISA plans?  Can ERISA plans include arbitration provisions?  YES!

Consider adding an arbitration provision with a class action waiver.

Here’s a case from last week that highlights the point: Sanzone-Ortiz v Aetna Health of California, Inc., 2015 WL 9303993 (N. D. Cal. December 22, 2015) (PDF).

FACTS:  This is a class action involving arbitration of ERISA health benefits. Ortiz, a plan participant under an ERISA-governed health benefit plan insured by Aetna, has a son diagnosed with autism.  Aetna authorized 20 hours per week of Applied Behavior Analysis treatment for her son, but the treating physician prescribed 36 hours per week of the treatment. Aetna moved to compel arbitration based upon an arbitration agreement contained in the enrollment form for the health plan membership. The arbitration agreement incorporated the Federal Arbitration Act.

ISSUES:

  1. Does the arbitration provision violate ERISA? NO.
  2. Can Aetna enforce an arbitration agreement if it is not a party to the arbitration agreement? YES.

DISTRICT COURT HELD:

  1. “A plain reading of 29 C.F.R. § 2560.503-1(c)(4) indicates that the limitations on arbitrability apply only to ‘claims procedures’….” Op. at 4.
  2. “The Department of Labor explains that ‘a plan may require arbitration as one or both of the permitted levels of review of a denied claim.’” Op. at 4.
  3. “The Ninth Circuit recognized that ‘in the past, [the U.S. Supreme Court] expressed skepticism about the arbitrability of ERISA claims, but those doubts seem to have been put to rest by the Supreme Court’s decisions[…]” Op. at 6 (citations omitted).
  4. Aetna could move to enforce arbitration because it met the definition of “Interested Party” provided in the “Evidence of Coverage” documents. Op. at 10.

KEY TAKE AWAY:  Empirical studies indicate arbitrations can result in “faster, fewer, cheaper” resolution of claims.  See, e.g., Colvin Study (link).  The key is to incorporate the FAA into the arbitration agreement, and a very mainstream arbitration agreement which contains a class action waiver is recommended.

ERISA (6th Circuit): So How Many Hours Is Working “Full-time,” Anyway?

Posted in ERISA

What happens when the ERISA long term disability benefit plan does not define “full-time”?

The Department of Labor says “full-time” is defined by the employer. http://webapps.dol.gov/elaws/faq/esa/flsa/014.htm

The Affordable Care Act defines  “full-time” as working 30 hours a week. https://www.healthcare.gov/glossary/full-time-employee/

When interpreting undefined ERISA plan provisions, courts apply general principles of contract law.

So, applying general principles of contract, what is the definition of “full-time”? It’s the “amount of time considered customary or standard”—and that could be a lot more than 40 hours per week.

The recent case of Safdi v. Covered Employer’s Long Term Disability Plan, et al., [PDF] __Fed. Appx. __ (6th Cir. November 24, 2015) highlights the point.

FACTS: Safdi, a physician, typically worked 70-80 hours per week, until he began cancer treatments.  Then, his weekly hours dropped to 30-40 hours per week. He received ERISA-governed long term disability benefits for 7 years. Then, the benefits were terminated.  To satisfy the applicable Recurrent Disability requirement, Dr. Safdi had to prove that there was a gap period in which he was no longer disabled… and was working “full-time”.  The term “full-time” was not defined in the Plan. Dr. Safdi could not prove he returned to “full-time” work.

ISSUE:  For physician Safdi, was 40 hours per week working “full-time”NO.

6th CIRCUIT HELD:

  1. When interpreting ERISA plan provisions, “general principles of contract law apply[.]”  Op. at 9.
  2. The Court “may also consider ‘the intent underlying the provision.’”  Op. at 9.
  3. To satisfy the Recurrent Disability requirement, Dr. Safdi had to prove he had been “Residually Disabled at some point, then no longer disabled, and then Residually Disabled again…. The Policy’s definition recognizes this gap only if a participant returns to work full-time.”  Op. at 10.
  4. “[T]he Policy does not define the term “full-time basis[.]”  Op. at 11.
  5. “[T]he ordinary meaning of ‘full time’ is … ‘employed for or working the amount of time considered customary or standard.’” Op. at 11.
  6. If a participant works at each of his material duties for the customary amount of time, he is performing on a full-time basis.”  Op. at 11.
  7. Dr. Safdi had to resume working at pre-disability levels, which for him was 70-80 hours per week. Op. at 10.
  8. Dr. Safdi did not satisfy the Recurrent Disability provision because he could not show two distinct periods of Residual Disability, separated by a return to work on a full-time basis. Op. at 9.

Be On The Lookout: New Proposed Claims Procedures For ERISA-Governed Disability Benefits Are Coming

Posted in Uncategorized

The Employee Benefits Security Administration (EBSA) announced plans to publish, on November 18, 2015, new proposed claims procedures for handling ERISA-governed disability benefits.  The pdf can be accessed HERE.

Comments are encouraged and must be submitted within 60 days of publication of the proposed new claims procedures.

The proposed new claims procedures apparently will address the following:

(1) claims and appeals procedure;

(2) benefit denial notices, requiring a “full discussion” why the plan denied the claim and the standards behind the decision;

(3) claimants access to their “entire claim file” and how claimants can present evidence and testimony during the review process;

(4) how claimants should be notified of an appeal decision, detailing an opportunity to respond to any new evidence reasonably in advance of an appeal decision;

(5) details related to final denials at the appeals stage. The rules will prohibit decisions be based on new or additional rationales, unless claimants first are given notice and a fair opportunity to respond;

(6) what happens when plans fail to follow claims processing rules: the claimant will be deemed to have exhausted administrative remedies available under the plan, unless the violation was the result of a “minor error” and other specified conditions are met;

(7) certain rescissions of coverage are treated as adverse benefit determinations, thereby triggering the plan’s appeals procedures; and

(8) how notices should be written in a “culturally and linguistically appropriate” manner.