ERISA claims administrators sometimes are asked to “reopen” a claim, after appeal denial, to consider additional information.
How does “reopening” a claim affect the statute of limitations defense?
If the statute of limitations has already run, does the claim administrator “waive” the statute of limitations defense by agreeing to reopen a claim? NO.
Here’s last Friday’s Ninth Circuit case Gordon v. Deloitte & Touche, __ F.3d __ (April 11, 2014)(Even when MetLife “reopened” the claim in 2009, five years after claim denial, the 2004 statute of limitations defense applied, barring the 2011 lawsuit.). This also is a good case to review because it discusses how an appeal denial letter should be written, when considering the statute of limitations defense.
FACTS. Gordon was eligible under Deloitte’s long term disability (LTD) ERISA plan. The plan granted discretion to MetLife to make benefit decisions. Gordon sought disability benefits due to depression. Two appeals followed. MetLife denied the claim on November 4, 2003, indicating her benefits ended on March 2, 2003 due to the 24 month mental/nervous limitation. The letter also indicated Gordon had a 180-day appeal deadline, which meant she had to file an appeal by May 4, 2004. Then, four (4) years passed. In 2009 Gordon called to “reopen” her claim. MetLife informed her the appeal deadline had passed.
In April 2009 the California Department of Insurance asked MetLife to reevaluate the issues. MetLife agreed and allowed Gordon to submit additional evidence. On December 8, 2009, MetLife informed Gordon it was upholding the prior denial based on the Plan’s 24 month limitation for mental/nervous benefits. The letter advised Gordon she could appeal within 180 days (by May 4, 2004). The letter also stated that if the appeal was denied, she could then bring suit under Section 502(a) of ERISA. Gordon timely appealed, submitting 480 pages of exhibits. Gordon filed suit on January 31, 2011.
NINTH CIRCUIT HOLDS:
- An ERISA claim “accrues either at the time benefits are actually denied or when the insured has reason to know that the claim has been denied.” A claimant should know that the claim is denied when “there has been a ‘clear and continuing repudiation of a claimant’s rights under a plan such that the claimant could not have reasonably believed but that his benefits had been finally denied.’” Op. at 7.
- “We conclude that Gordon’s right to file an ERISA action accrued no later than May 4, 2004 (applying the California four year statute of limitations). Gordon did not file the pending complaint until January 31, 2011.” The claim is barred by the California four year statute of limitations. Op. at 8.
- “Reopening” Gordon’s claim in 2009 does not in and of itself revive the statute of limitations. Op. at 9.
- MetLife is not estopped from asserting the statute of limitations defense based on MetLife’s statement in its December, 2009 letter that Gordon could bring an ERISA action (after the matter was reopened). By the time MetLife issued this letter, “the statute had already run and so Gordon could not have relied on that statement to her detriment.” Op. at 10.
- MetLife did not waive the statute of limitations defense by stating in the December 8, 2009 letter that Gordon could bring an ERISA action after the matter was reopened. Under California law, an insurance company “cannot waive the statute of limitations after the limitations period has run.” Op. at 11 (Emph. added).
You have seen this one before: The ERISA plan pays hundreds of thousands of dollars in medical bills and secures an equitable lien. Then, the ERISA plan beneficiary settles a tort claim, but refuses to reimburse the ERISA plan.
The beneficiary and her attorney both claim the funds have “dissipated.” Does that argument trump the equitable lien?
NO. The beneficiary and her attorney “better call Saul” (see Breaking Bad TV series) because jail time might be an option.
Here’s the remarkable case of Central States SE and SE Areas Health Welfare Fund and Bunte v. Lewis and Lashgari, __ F.3d __ (7th Cir. March 12, 2014)(PDF).
FACTS: Lewis was injured in an auto accident. Her ERISA-governed health plan paid $180,000 in medical expenses. Lewis later secured a $500,000 settlement from the tort suit brought by her attorney, Lashgari. Lashgari also knew the ERISA plan had a subrogation lien against the proceeds of the settlement. But Lashgari refused to reimburse the plan claiming, among other things, that the settlement funds had dissipated. The Plan sued Lewis and Lashgari under ERISA 29 U.S.C. 1132(a)(3) to enforce the lien.
7th CIRCUIT HELD:
- The plan was not required to trace settlement proceeds. The equitable lien automatically gave rise to a constructive trust of the defendants’ assets. Op. at 3.
- The district court issued an injunction against Lewis from disposing settlement proceeds until the plan received $180,000.
- Lewis claimed she couldn’t pay $180,000 because she spent the entire share of the settlement proceeds on a new house and a car. This argument is not a complete defense unless Lewis could not pay “any part of the $180,000.” Op. at 3.
- The attorney for Lewis received 60% of the settlement–$298,000. He claimed the money he received had been spent, too.
- Lewis and her attorney willfully ignored the plan’s lien. “Even if [Lewis] spent every last cent of the settlement proceeds that she received, it does not follow that she is assetless—presumably she has the vehicle and the house.” Op. at 6.
- Lewis and her attorney “may think that a mere assertion of inability to pay…precludes a finding of contempt. Not so.” Op. at 7. (Emph. added).
- The court “direct[s] the district court to determine whether the defendants should be jailed (a standard remedy for civil contempt…) until they comply with the order to deposit the settlement proceeds in a trust account.” Op. at 9.
Can a court deny a successful ERISA claimant’s attorney fees solely because there is no evidence of bad faith? NO.
Here’s the case of Donachie v. Liberty Life Assurance Company of Boston, __ F.3d __ (2nd Cir. March 11, 2014) [PDF].
FACTS: Donachie had a peculiar heart condition: Everyone “sitting in the same room” with Donachie could literally hear his heart beating. This caused him anxiety and he sought ERISA-governed Long Term Disability (LTD) benefits. After Donachie’s claim appeal was denied, he filed a lawsuit for ERISA benefits.
The trial court eventually granted Donachie disability benefits. The court then DENIED Donachie’s request for attorney fees because he had “failed to show any bad faith by [the Plan] administrator in making its LTD determination.”
ISSUE: Can a Court deny Claimant’s attorney fee request because there is no evidence of a “bad faith” claim denial?
SECOND CIRCUIT HELD:
- “’Congress intended the fee provisions of ERISA to encourage beneficiaries to enforce their statutory rights.’” Op. at 8.
- Attorney fees may be awarded to a beneficiary only if he has obtained “some degree of success on the merits.” Op. at 8.
- Hardt v. Reliance Standard Life Ins. Co., 560 U.S. 242 (2010) permits courts to use the five factor test to channel discretion in awarding fees. Those factors are: (a) degree of bad faith; (b) ability to pay an award of fees; (c) whether an award would deter other persons in similar circumstances; (d) whether the decision benefits all participants or resolves a significant ERISA legal issue; (e) the merits of the parties’ positions. Op. at 9.
- “[T]here is no question that Donachie…was eligible for an award of attorneys’ fees.” Op. at 11.
- The trial court abused its discretion by failing to consider all five factors, and denying fees on the sole basis that the plan “had not acted in bad faith [because the court has] explained that ‘a party need not prove that the offending party acted in bad faith’ in order to be entitled to attorney fees.” Op. at 11.
Happy St. Patrick’s Day…
A new lawsuit hits your desk asserting that for the past seven (7) years the ERISA plan has been incorrectly underpaying the beneficiary.
Plaintiff alleges that because the most recent incorrect underpayment occurred just last month, then the statute of limitations does not bar the claim…
BUT isn’t that claim barred by the statute of limitations? YES.
Here’s the case of Riley v. Met Life, __ F.3d __ (1st Cir. March 4, 2014) (incorrect payment claim barred by statute of limitations even when most recent incorrect payment was made within statute of limitations period).
FACTS: Riley, a manager, became disabled in 2000. He received short term disability benefits, but eventually returned to work in a non-managerial role with a substantially lower salary in 2001. He became disabled again and eventually sought and obtained ERISA- governed long term disability benefits (LTD) starting in 2005. Met Life calculated benefits using his lower, non-managerial salary, instead of his managerial salary which resulted in a $1350 per month difference in LTD benefits. In March 2012, Riley sued for unpaid benefits.
ISSUE. Can a new ERISA cause of action accrue upon each underpayment of benefits owed under the ERISA Plan?
FIRST CIRCUIT HELD: NO.
- “[A]n ERISA cause of action accrues when, after a claim for benefits is made and a specific sum is sought, the ERISA plan repudiates the claim or the sum sought, and that rejection is clear and made known to the beneficiary.” Op. at 6-7.
- Riley argued back in 2005 that Met Life should have used his managerial salary to calculate benefits. Met Life used the non-managerial lower salary to calculate benefits and paid benefits from 2005 onward. Op. at 8.
- “There is no dispute that Riley’s suit is untimely….[because Riley was aware of his claim for] approximately six years and eleven months before he filed this suit….” Op. at 8.
- Issuing an incorrect payment is not a “continuing violation” that can trump the statute of limitations. The court rejects a theory “‘whereby a new cause of action would accrue upon each underpayment of benefits under the plan.’“ Op. at 11 (quoting 3rd circuit).
KEY TAKE AWAY: The First Circuit is in good company with the Second, Third, and Ninth Circuits which also have rejected a “continuing violation” accrual theory in erroneous ERISA benefit payment claims.
How do you defeat two arguments frequently used to challenge an ERISA-governed disability claim denial?
Argument (1) the rationale for the claim denial changed, or
Argument (2) the denial letter failed to tell claimant what additional information is needed for the claim.
Here’s a nice new case that highlights how to defeat those arguments. Fite v. Bayer Corporation, __ Fed. Appx. __, 2014 WL 407339 (10th Cir. February 4, 2014) (claim denial affirmed).
FACTS: Fite, a pharmaceutical representative, was denied ERISA-governed short term disability benefits, and decided to fight on in court. The plan contained discretionary language, but there was an inherent conflict of interest because Bayer was both the “decider and the payor of the benefits.”
Fite claimed, among other things, that Bayer abused its discretion because Bayer (1) “changed the rationale for it denial” and (2) the appeal denial letter failed to tell her what additional information she could submit to address the Committee’s adverse decision.
10th Circuit HELD:
- Conflict of Interest Standard of Review. The conflict of interest factor was given only limited weight on whether Bayer abused discretion because “Bayer took active steps to reduce any potential bias and to promote accuracy” by seeking an independent review of medical records by four different psychiatrists. Op. at 8-9.
- Changing Rationale for Denial Decision Was Not Abuse of Discretion. Bayer changed the rationale for denial of benefits between the initial and final decisions. That was ok. “The change is readily explained by the new evidence that came to light only during Ms. Fite’s appeal….” This is not like the case where a plan administrator “asserts an entirely new rationale…during the litigation that it did not rely on in the administrative process.” Op. at 9-10.
- Appeal Denial Letters Do Not Need to Tell Claimant What Additional Information is Needed. That is because different regulations govern what needs to be in an appeal denial letter versus the initial denial letter. “Ms. Fite’s complaint that the Committee’s letter…did not tell her what additional information she could submit to address the Committee’s adverse decision relies on a regulation that does not apply to a final decision following an administrative appeal. Compare 29 CFR 2560.503-1(g)(iii) (requiring that initial adverse determination include ‘[a] description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary’), with id. 2560.503-1(h)(2) (setting forth requirements for full and fair review of adverse benefit determination).” Op. at 10.
What happens when a long term disability claimant declares bankruptcy, and fails to list the long term disability claim in the bankruptcy estate?
Is he judicially estopped from bringing the lawsuit alleging wrongful denial of disability benefits? Probably not.
Here’s the case of Javery v Lucent Tech, Inc. Long Term Disability Plan, __ F.3d __ (6th Cir. February 3, 2014).
FACTS: Javery, a software engineer, sought long term disability benefits under an ERISA-governed plan. His claim was denied, after two administrative appeals. In October 2007 Javery declared Chapter 13 bankruptcy. In 2009 Javery brought suit in federal court alleging wrongful denial of long term disability benefits. The court remanded to the plan administrator for further review. The claim was later denied again in 2011. In 2012 Javery then moved to reactivate his case alleging wrongful denial of benefits.
The Plan alleged Javery should be judicially estopped from pursuing his long term disability suit because he failed to list his disability claim in his bankruptcy proceedings.
SIXTH CIRCUIT HOLDS:
- The Court applied de novo review in reviewing the trial court’s application of the doctrine of judicial estoppel. Op. at 13.
- “‘[J]udicial estoppel does not apply where the prior inconsistent position occurred because of ‘mistake or inadvertence.’” Failure to disclose a claim in a bankruptcy proceeding also may be excused where the debtor lacks a motive to conceal the claim or where the debtor does not act in bad faith.” (Citations omitted.) (Emphasis in original.) Op. at 15.
- Plaintiff’s wife prepared the bankruptcy information and any non-disclosure was “at best inadvertent and will be remedied.” Op. at 15.
- Defendant failed to produce any evidence that the Plaintiff’s factual assertions were incorrect. “There is simply no basis to infer intentional concealment.” Op. at 15.
- Under Ohio law, proceeds from a disability insurance policy are completely exempt from a debtor’s estate. “Accordingly, Plaintiff had no motive for intentionally concealing the claim.” Op. at 16.
BY THE WAY, how ‘bout those Seattle Seahawks?
You already know that a Social Security disability (SSDI) decision should be considered in the context of deciding whether the claimant is disabled under the terms of the disability policy.
But what happens when the SSDI decision occurs after you denied the claim, but during the ERISA-governed administrative appeal?
BETTER YET: What happens when the claimant refuses to send you the SSDI determination during the appeal process?
Read this new decision. It seems to lower the claimant’s burden of proving entitlement to disability benefits, and creates more burdens for claim administrators.
Here is the case of Melech v Life Insurance Company of North America, 739 F.3d 663 (11th Cir. 2014)(“LINA had an obligation to consider the evidence presented to the SSA [even though LINA asked the claimant to submit additional information during appeal and claimant refused and] LINA did not have this evidence when it denied her last appeal—and in fact could not have had that evidence when it initially denied her claim….”)
FACTS: Melech, a Hertz station manager, experienced back problems and sought disability benefits under the Hertz ERISA-governed plan, administered by LINA. She concurrently applied for Social Security disability benefits (SSDI). In November 2007 the plan denied her disability claim. Melech’s application for SSDI benefits was still pending at the time of denial. Melech timely filed two administrative appeals.
During the administrative appeals, Melech informed LINA that the Social Security Administration (SSA) had Melech examined by two new physicians, and had granted her SSDI benefits in February 2008. LINA denied her first in appeal in April 2008. LINA invited Melech to submit additional evidence in a second appeal. Melech refused to submit any SSDI information. LINA then denied the second appeal in October 2008, without considering the SSA decision.
Whether an SSA disability determination, issued after initial claim denial, must be considered during an appeal?
Whether the claimant has a duty to send the claim administrator SSDI information?
DISTRICT COURT: LINA’s decision is affirmed. Review was limited to the administrative record before LINA at the time of its final decision. The SSDI determination was not part of the administrative record and the District Court did not consider it.
11th CIRCUIT: REVERSES and REMANDS
- “LINA had an obligation to consider the evidence presented to the SSA [even though LINA asked the claimant to submit additional information during the appeal and claimant refused and] LINA did not have this evidence when it denied her last appeal—and in fact could not have had that evidence when it initially denied her claim….” Op. at 3.
- “LINA made general requests for more evidence, but never asked Melech or SSA—as it was authorized to do by the disclosure authorization form—for any documentation of her SSDI award or any of the evidence that the SSA considered in approving her application.” Op. at 16.
- “We conclude that LINA should have considered the evidence generated by the SSA process….” Op. at 17.
- “LINA refused to wait for the SSA evidence….” Op. at 24.
Here is an excellent post by James Baker at Baker & McKenzie explaining the recent case law that roundly supports instituting arbitration as the mechanism to resolve employee benefit disputes.
Given the current case law which is enforcing class action waivers, arbitration is an excellent way of knocking out ERISA class actions.
You already know that a “church plan” is exempt from ERISA, unless the Plan specifically elects to be governed by ERISA under Internal Revenue Code Section 410(d).
But what does it take to become a “church plan”?
Does ERISA require that the Plan be established by a CHURCH before the “church plan” exemption applies? YES.
Here’s the case of Rollins v. Dignity Health, et al., __ F.Supp. 2d __, 2013 WL 6512682 (N.D. Cal. December 12, 2013)(Court gives no deference to “three decades” of IRS private letter rulings and concludes only a church can establish a church plan).
FACTS: Plaintiff Rollins was employed with Dignity Health, a non-profit healthcare provider associated with the Roman Catholic Church. Rollins sought pension benefits, and contended Dignity Health had failed to comply with ERISA administrative requirements.
Dignity Health contended the Plan was not governed by ERISA because it is a “church plan,” explicitly exempt from ERISA.
ISSUE: Whether ERISA requires a church plan to have been established by a church?
HELD: Dignity’s Pension Plan was governed by ERISA. Dignity did not qualify for the “Church Plan” exemption because it is not a “Church.”
- “Text (of the ERISA statute) and the history confirm that a church plan must still be established by a church. Because Dignity is not a church or an association of churches, and does not argue that it is, the Court concludes that Dignity does not have the statutory authority to establish its own church plan….” Op. at 12.
- “[T]he Court declines to defer to the IRS’s (‘three decades’ of) interpretation of the ERISA statute here.” Op. at 5.
- “The IRS’s private letter rulings apply only to the persons or entities who request them and are not entitled to judicial deference.” Op. at 5.
- “[W]e must presume that Congress acted intentionally in using the words ‘establish and maintain’…as something only a church can do.” Op. at 8.
- “The Court acknowledges that the position it takes here runs contrary to several cases outside this circuit….” Op. at 9
KEY TAKE AWAY: Watch out for this case in ERISA pension litigation. The decision may also play an important role in Long Term Disability litigation, as it supports a substantial narrowing of the Church Plan exemption.
Are those three year suit limitations provisions in ERISA-governed long term disability plans enforceable? YES!
Here’s today’s case, Heimeshoff v Hartford Life & Accident Insurance Co., __ U.S. __ (December 16, 2013) (“3 year from time proof of loss must be submitted” suit limitation provision enforced as reasonable).
FACTS. Heimeshoff made an ERISA-governed long term disability claim on August 22, 2005. The claim, administered by the Hartford, was denied. Then Heimeshoff received extensions to file an appeal by September 30, 2007. The appeal was denied on November 26, 2007.
The plan had a suit limitations provision which reads: “Legal action cannot be taken against The Hartford…[more than] 3 years after the time written proof of loss is required to be furnished according to the terms of the policy.”
Heimeshoff filed suit on November 18, 2010.
ISSUE. Was Plaintiff’s claim barred by the Plan’s limitations provision? YES
United States Supreme Court Rationale:
- “ERISA Section 502(a)(1)(B) does not specify a statute of limitations. Instead, the parties in this case have agreed by contract to a 3 year limitations period.” Op. at 5.
- “‘[I]n the absence of a controlling statute to the contrary, a provision in a contract may validly limit, between the parties, the time for bringing an action on such contract to a period less than that prescribed in the general statute of limitations, provided that the shorter period itself is a reasonable period.’” Op at 6.
- “We must give effect to the Plan’s limitations provision, unless we determine either the period is unreasonably short, or that a ‘controlling statute’ prevents the limitations provision from taking effect.” Op. at 9.
- “We hold that the Plan’s limitations provision is enforceable.” Op. at 16.
Key Take Aways: The opinion addresses a number of legal and theoretical objections to suit limitations provisions, and rejects them. The decision also provides excellent language emphasizing that ERISA plan language should be enforced. This is a very helpful decision from the Supreme Court.