The courts are expecting more detail in your denial letters about the limitations period.
Here’s the case of Mirza v. Insurance Administrator of America, Inc.., No. 13-3535 (3rd Cir. August 26, 2015)(“One very simple solution, which imposes a trivial burden on plan administrators, is to require them to inform claimants of deadlines for judicial review in the documents claimants are most likely to actually read—adverse benefit determinations.”)
FACTS: Dr. Neville Mirza performed back surgery and received an assignment to receive ERISA benefits for surgery expenses. Dr. Mirza submitted the $34,000 claim, which was denied because the surgery was “medically investigational.” The denial letter informed Mirza of his “right to bring a civil suit under ERISA” if he was not content with this final decision. The denial letter did not state that he had one year from the date of the final benefit denial to seek judicial review. Dr. Mirza sued 19 months after getting the denial letter.
ISSUE: Was the Claim Time Barred by the Plan’s Limitation Period?
3rd CIRCUIT HELD: NO
- ERISA “does not prescribe any limitations period for filing … an action [and we] borrow the statute of limitations from the most analogous state-law claim.” Op. at 8.
- The plan substantially narrowed [the state law statute of limitations period] of six years to one….[T]his was likely reasonable as a matter of contract law[.]” Op.at 14.
- “Mirza’s suit is facially time-barred [and his claim] is therefore doomed unless he can persuade us of a reason to toll or set aside the plan’s contractual deadline.” Op. at 9.
- The “plain language” of ERISA regulations requires that “the administrator must disclose the plan’s applicable time limits.” Op. at 11-12.
- “In addition to the regulatory text and the relevant decisions… practical considerations also support interpretation of the regulation…[P]lan administrators could easily hide the ball and obstruct access to the courts. The ERISA plan at issue here is ninety-one pages. The one-year time limit is buried on page seventy-three of the plan.” Op. at 12.
- “One very simple solution, which imposes a trivial burden on plan administrators, is to require them to inform claimants of deadlines for judicial review in the documents claimants are most likely to actually read—adverse benefit determinations.” Op. at 14.
- ERISA regulations require “that adverse benefits determinations set forth any plan-imposed time limit for seeking judicial review. Without this time limit, a notification is not in substantial compliance with ERISA.” Op. at 16
- “‘When a letter terminating or denying Plan benefits does not explain the proper steps for pursuing review of the termination or denial, the Plan’s time bar for such a review is not triggered.’” Op. at 18.
- The Third Circuit joins the Sixth Circuit and First Circuit in this approach.
You probably already know that in small, wholly owned “mom and pop” businesses, benefits covering only the owners of the business may be exempt from ERISA.
But the rule has some nuances, and ERISA may apply based on who owns the business.
Here is the case of Silverman v. Unum Group, 2015 WL 460345 (July 30, 2015) (“‘[A] plan covering only corporate shareholders was exempt from ERISA only if the company was wholly owned by one shareholder or by the shareholder and his or her spouse.’”)
FACTS: Silverman was part-owner of a company. He owned 15%, and two others owned 85% of the business. The company obtained Long Term Disability coverage only for the shareholder/owners of the company. Plaintiff sought and received disability benefits, but claimed the calculations of payments were incorrect and sued, asserting state law claims. Unum contended ERISA applied and that the state law claims were preempted.
DISTRICT COURT HELD: Owner deemed employee, and benefits governed by ERISA: state law claims preempted.
- “To qualify as an ERISA plan, the plan ‘must provide benefits to at least one employee.’” Op. at 4.
- To determine whether a plan covers at least one employee, “the Court cannot consider the owner of the corporation an ‘employee’ where the corporation is ‘wholly owned by the individual or by the individual and his or her spouse.’” Op. at 4.
- “‘Congress intended working owners to qualify as [ERISA] plan participants.’” Op. at 5.
- “‘Plans covering working owners and their non owner employees…fall entirely within ERISA’s compass.’” Op. at 5.
- “‘[A] plan covering only corporate shareholders was exempt from ERISA only if the company was wholly owned by one shareholder or by the shareholder and his or her spouse.’” Op. at 6 (Emph. in original).
- Since Silverman owned the company with two others, he “is considered an employee under ERISA and his plan is an ERISA plan. Additionally, [Silverman] also was paid a salary and hired by the corporation, further supporting his treatment as an employee for ERISA purposes.” Op. at 6.
You already know that you do not have to give special deference to the opinions of treating physicians.
But you need to explain why the treating physician’s opinions are being rejected.
Overusing the same independent medical reviewers can adversely affect the weight given to your record reviews.
And, what about independent medical exams: Are they required? “‘[T]here is nothing inherently improper with relying [solely] on a file review, even one that disagrees with the conclusions of a treating physician.’… However, the failure to conduct a physical examination, where the Plan document gave the plan administrator the right to do so, ‘raise[s] questions about the thoroughness and accuracy of the benefits determination.”
These issues are highlighted by the recent case of Shaw v. AT&T Umbrella Benefit Plan No. 1, __F.3d __, 2015 WL 4548232 (6th Cir. July 29, 2015) (PDF).
FACTS: Shaw had chronic neck pain and sought ERISA-governed long term disability benefits. MRIs confirmed a cervical 6-7 disc herniation, and he had a positive EMG. His family doctor concluded he could sit or stand only 30 minutes at a time, and would need to lie down for an hour each time to recuperate. The Plan had two independent physician advisors (neurologist and pain management specialist) perform a records reviews. Both also attempted “doc-to-doc” calls with Shaw’s treating physicians, but were unsuccessful.
They concluded Shaw could work a sedentary job. The claim was denied and Shaw sued.
TRIAL COURT: Granted Summary Judgment for the Plan.
SIXTH CIRCUIT HELD—REVERSED under the arbitrary and capricious standard of review:
- “[T]he Plan stated there were ‘no specific physical measurements of range of motion, …no specific physical examination to indicate functional impairment, …[and] no new neurological testing and motor strength testing.’ However, Shaw’s medical records provide just such information.” Op. at 12.
- “The Plan also ignored [the] residual-functional-capacity questionnaire submitted as part of Shaw’s appeal of the denial of LTD benefits.” Op. at 12.
- “‘[A] plan may not reject summarily the opinions of a treating physician, but must instead give reasons for adopting an alternative opinion.” Op. at 13.
- “Instead of offering evidence to contradict [the] residual-functional-capacity questionnaire’s conclusions, the Plan’s physician advisors simply ignored [it] and concluded Shaw could perform sedentary work.” Op. at 13.
- “An administrator acts arbitrarily and capriciously when it ‘engages in a selective review of the administrative record to justify a decision to terminate coverage.’” The doctors reviewing the medical records “engaged in selective review”. Op. at 14.
- “‘[T]here is nothing inherently improper with relying on a file review, even one that disagrees with the conclusions of a treating physician.’… However, we have held that the failure to conduct a physical examination, where the Plan document gave the plan administrator the right to do so, ‘raise[s] questions about the thoroughness and accuracy of the benefits determination.’” Op. at 15.
- “‘[P]hysicians repeatedly retained by benefits plans may have an incentive to make a finding of ‘not disabled’ in order to save their employers money and to preserve their own consulting arrangements.’” Op. at 16.
We see plaintiffs asserting an ERISA claim for statutory penalties more frequently now.
These claims seek statutory penalties (up to $110 per day), alleging the plan administrator “fail[ed] or refus[ed] to comply with a request for information” by the beneficiary. 29 U.S.C. 1332(c)(1).
How easy is it for plaintiffs to win a statutory penalty claim for failing to provide information? Not all that easy.
Here’s the case of Smiley v. Hartford Life and Accident Insurance Company, Smile Brands, Inc. et al, __ Fed. Appx. __, 2015 WL 4385673 (11th Cir. July 17, 2015) (Kudos for some nice work by my friends Elizabeth Bondurant and Russ Buhite).
FACTS: Smiley requested and received relevant ERISA Plan documents from plan administrator Smile Brands. After Smiley’s ERISA benefits were terminated, she again requested plan documents. This time, however, she made the request to claims administrator Hartford. Hartford provided Smiley with an outdated address (contained in the Plan documents) for the plan administrator. Smiley then sent a second request for plan documents to the outdated address. The letter was returned as “undeliverable.”
11th CIRCUIT HELD: Statutory Penalty Claim Properly Dismissed.
- ERISA authorizes the imposition of a daily penalty upon a plan administrator that “fails or refuses to comply with a request for information which such administrator is required…to supply to a participant or a beneficiary.” 19 U.S.C. 1332(c)(1). Op. at 2.
- A plan administrator is either “the person specifically so designated” in Plan documents, or a company acting as a plan administrator. Op. at 2-3.
- Hartford was not the plan administrator and therefore not subject to statutory penalties. Op. at 3.
- Hartford also was not a “de facto administrator[.]” “We have consistently rejected the use of de facto plan administrator doctrine ‘where a plaintiff has sought to hold a third-party administrative services provider liable, rather than the employer….’” Op. at 3.
- Statutory penalties should not be awarded here because the plan administrator, Smile Brands, “did not refuse or fail to provide Smiley with the Plan documents.” Smile Brands “had no knowledge that Smiley was attempting to obtain the same Plan documents until it was served with Smiley’s amended complaint….” Op. at 4.
- Smiley failed to show any prejudice in denying disclosure of the requested documents. “Although a plaintiff need not demonstrate [prejudice] to obtain [statutory penalties], a court may consider those factors, among others, in making its determination.” Op. at 4-5.
KEY TAKE AWAY: The circuits are not consistent in how they approach the statutory penalty claim. Surveys suggest that the $110 per day penalty is rarely if ever given, and awards (if they occur) typically range from ten to fifty dollars per day, with an average of about $33 per day.
You already know that contractual limitations provisions in ERISA plans are generally enforceable and can bar untimely claims.
But when does the court apply “equitable tolling” to extend the time by which a claimant may file suit beyond the contractual limitations provision? Rarely.
And, what happens if the claim denial letter fails to set out the date by which a claimant must file suit? The contractual limitations provision still may be enforceable.
Here’s the case of Wilson v. Standard Insurance Company, 2015 WL 3477864 (11th Cir. June 3, 2015)(Equitable tolling rejected even though claim denial letter failed to state date by which civil claim must be brought.)
The case also provides some guidance on what should go into a claim denial letter.
FACTS: Wilson filed her lawsuit seeking ERISA-governed long term disability benefits 34 months after the three year contractual limitations period expired. Wilson contended the three year period should be “equitably tolled” because the letter denying her claim “did not give her notice” that the policy imposed a three year limitations period, rather than the six year contractual limitations period under state law. The district court dismissed the claim as untimely and Wilson appealed.
ISSUE: When does “equitable tolling” trump a contractual limitations provision?
11th CIRCUIT HELD: AFFIRMED—Plaintiff’s Claim Dismissed: Equitable tolling does not trump the contractual limitations provision.
- “’[W]e must give effect to [an ERISA] Plan’s limitation provision unless we determine either that the period is unreasonably short, or that a ‘controlling statute’ prevents the limitations provision from taking effect.’ Neither of those two exceptions applies in this case.” Op. at 2.
- “Heimeshoff left open the possibility that equitable tolling ‘may apply,’ but only ‘[t]o the extent the participant has diligently pursued both internal review and judicial review but was prevented from filing suit by extraordinary circumstances.’” (Emph. added by court.) Op. at 3.
- ERISA regulations require “that a claims denial letter include notice about the administrative review procedures and the time limits for filing…as well as the fact that the claimant has a right to bring a civil action under 502(a) of ERISA. “ Op. at 5.
- “What is anything but clear, however, is whether the regulation also requires a claims denial letter to include notice about the time limits applicable to filing a civil action.” Op. at 5.
- “[F]or purposes of this opinion only we will construe the regulation in Wilson’s favor and assume the correct interpretation of it is that a claim denial letter must notify the claimant of her time limit for filing a lawsuit under ERISA….” Op. at 5-6.
- “Even with that assumption in Wilson’s favor, however, it does not follow that Standard’s failure to interpret the ambiguous regulation that way renders the contractual limitations period unenforceable.” Op. at 6.
- “Equitable tolling generally does not apply in the absence of diligence.” Op. at 7.
- “’Wilson has not explained why she waited more than four years to request a copy of the LTD policy, and she has not demonstrated that [Standard] discouraged her from seeking a copy of the policy sooner.’” Op. at 8.
- “A plaintiff is not reasonably diligent when she fails to investigate basic issues that are relevant to her claim or to proceed with it in a reasonably prompt fashion…. Her lawsuit easily could have been timely filed if she had exercised even minimal diligence in discovering the terms of the policy.” Op. at 9.
You know that under ERISA regulations a claimant has at least 180 days to appeal a benefit denial. ERISA plans set out contractual timelines for appeals.
But what happens when that 180 day period runs out on a weekend? Is an appeal filed on the following Monday timely?
Here’s the case of LeGras v. Aetna Life Insurance Company, __ F.3d __, 2015 WL 3406182 (9th Cir. May 28, 2015) (180 day appeal period ended on Saturday, and Claimant filed appeal on following Monday: 9th Circuit reverses trial court dismissal and deems appeal timely).
FACTS: LeGras received long term disability benefits under the Fed-Ex ERISA plan for 24 months. On April 18, 2011, Aetna, a plan administrator, then terminated benefits effective May 24, 2011 and informed LeGras that he could “file a request to appeal this decision within 180 days of receipt of this notice.” The 180 day appeal period ended Saturday, October 15, 2011. LeGras mailed his appeal on Monday, October 17, 2011.
ISSUE: Whether an appeal, filed after the appeal period expired on Saturday, was timely.
DISTRICT COURT HELD: Appeal was not timely and granted motion for judgment on the pleadings for failure to exhaust administrative remedies.
NINTH CIRCUIT HELD: REVERSED (with dissenting opinion).
- Under ERISA regulations, a “reasonable opportunity for a full and fair review” is “at least 180 days following receipt of a notification of an adverse benefit determination within which to appeal.” Op. at 6.
- An ERISA deadline that “falls on a weekend…extends to the following business day.” Op. at 7.
- “Although the stricter time computation method may be convenient for Aetna’s purposes, it would be contrary to the purposes of ERISA to adopt a method that is decidedly protective of plan administrators, not plan participants.” Op. at 8.
- “An ERISA plan is a contract…and the terms of this contract are not ambiguous. By the Plan’s terms, LeGras had 180 days to file his appeal with Aetna by mail.” Op. at 14-15.
- “LeGras messed up; he failed to abide by his contract and now seeks an excuse to set aside his failure….He could have mailed that appeal on any one of the 180 days after April 18, 2011. Dissent at 15.
- “To get around the plain terms of the contract, the majority is forced to create federal common law….” Dissent at 16.
You know that a court has discretion to award attorney fees under ERISA if a party shows “some degree of success on the merits.”
But how do you define “success”? A new third circuit case reminds one of that old Milton Berle line: “If opportunity doesn’t knock, build a door.”
Here’s the case of Templin et al v. Independence Blue Cross et al., __ F.3d __ (3rd Cir. May 8, 2015)(Even voluntary settlements, where no judgment was entered, can result in an award of attorney fees under the “catalyst” theory.)
FACTS: Plaintiffs sought payment for blood-clotting products under an ERISA plan. Defendants moved to dismiss for failure to exhaust administrative remedies. The Court denied the motion and Defendants eventually paid the claims, and settled the claims. Plaintiffs then sought $349,385 in attorney fees.
DISTRICT COURT HELD: Attorney fees denied because the court had never made a substantive determination on whether Plaintiffs were entitled to the recovery, and the parties settled the claim “without a judgment from the Court.”
THIRD CIRCUIT HELD: Reversed and attorney fees awarded.
- “[T]he ERISA statute does not limit fee awards to the prevailing party.” Op. at 7.
- “[T]he Supreme Court has specifically acknowledged that attorney fees are available even ‘without a formal court order.’” Op. at 8.
- At least four other circuits have adopted the “catalyst” theory to statutes that lack prevailing-party requirements. Op. at 8.
- “[U]nder the catalyst theory, a party is eligible for attorney’s fees where his or her litigation efforts resulted in a voluntary, non-trivial, and more than procedural victory….” Op. at 10.
- Plaintiffs sued for interest on unpaid amounts. The Court held plaintiffs were entitled to recovery of attorney’s fees because the parties settled for “100% of the interest sought.” [W]e find that the pressure of the lawsuit caused [Defendants] to change their position….” Op. at 11.
When you see a claim for disability or life insurance benefits by a public school teacher, you might assume the claim is not governed by ERISA because of the governmental plan exception.
But don’t stop there. You need to see how the benefit was set up. If the benefit was funded through a union plan, ERISA might apply.
Here’s the case of Wilson v. Provident Life and Accident, __ F. Supp. 3d __, (W.D. Washington April 29, 2015) (“Where unions of public employees enter insurance agreements that are not a result of collective bargaining, the plans may be found to be nongovernmental [and therefore governed by ERISA].”).
FACTS: Public school teachers were eligible for life insurance benefits through a Plan independently created by a union, for the benefit of its employees, and government employees. The benefit was funded through a contract between the union and Unum/Provident. After a teacher’s claim for insurance benefits was denied, suit followed with assertion of state law bad faith claims. Unum removed the case, contending the claim was governed by ERISA. Plaintiff claimed, however, that ERISA did not apply because of the “governmental plan” exception to ERISA.
ISSUE: Whether a public school teacher’s life insurance benefit claim was governed by ERISA?
DISTRICT COURT HELD: YES
- One exception to application of ERISA is a governmental plan, defined as “a plan established or maintained for its employees…by the government of any State or political subdivision thereof.” Op. at 4.
- “It is undisputed that the WEA (union) is an ‘employee organization’ for ERISA purposes, and [the school district] is a political subdivision…” Op. at 4.
- The school district employees “enrolled in a Group Plan that covered employees from multiple school districts and from the WEA, and was governed by [the WEA’s contract with Provident.]”
- “Other courts have held that a private plan does not become a public plan merely through a public employer’s participation.” Op. 7, fn 4.
- The Court finds that “the Group Plan is not a governmental plan…. The Group plan was not the result of collective bargaining, but the result of a separate negotiation between the WEA and Provident; the District merely ‘elected’ to participate in the Plan.” Op. at 8.
- “Where unions of public employees enter insurance agreements that are not a result of collective bargaining, the plans may be found to be nongovernmental (and governed by ERISA).” Op. at 8.
- The plan is governed by ERISA because “the Plan was independently created by the WEA for the benefit of its employees along with government employees [and the school districts played no direct role in the Plan’s creation.]” Op. at 10.
When it comes to recovery of overpayments from ERISA beneficiaries…
money is a fungible commodity in the Eleventh Circuit, but is not a fungible commodity in the Ninth Circuit.
This week the U.S. Supreme Court agreed to address recovery of overpayments to ERISA beneficiaries.
- The Problem: Many times an ERISA plan may overpay a beneficiary. Under ERISA, beneficiaries are promised prompt payment of benefits if they are injured or disabled on the job, but they also agree to repay whatever they get later from the Social Security Administration or from a settlement in a lawsuit.
- The Issue: Currently, getting that overpayment back from the beneficiary can be lots more challenging if the overpayment occurs in the Ninth Circuit…
In the Ninth Circuit money, apparently, is not a fungible unit of exchange. ERISA plans cannot recover funds from the beneficiary unless specific funds from a settlement or the Social Security Administration can be tracked. If the beneficiary spends that money before the plan can get a court order forcing repayment, the insurer is out of luck. Bilyeu v. Morgan Stanley Long Term Disability Plan, 683 F. 3d 1083 (2012)(Plaintiff received $30,000 in overpayments. Court refused to order repayment because the funds could not be tracked.) The Eighth Circuit follows this line of reasoning, too.
But money in the Eleventh Circuit is a fungible unit of exchange, making recovery of ERISA plan overpayments lots easier. Last November 2014 the Eleventh Circuit determined that when a plan unambiguously gives itself a first-priority claim to third party payments, then an equitable lien attaches immediately upon the receipt of specifically identifiable funds. This makes it irrelevant that the funds were subsequently spent or dissipated. Board of Trustees of the National Elevator Industry Health Benefit Plan v. Montanile, 593 F. App’x 903 (11th Cir. 2014)(The Plan spent $124,000 in medical expenses. When Montanile obtained $500,000 from a lawsuit… he spent it quickly. The Court rejected Montanile’s argument that no repayment was required because the funds had dissipated). Most circuits follow this analysis.
- The US. Supreme Court Accepts Review. By accepting review of Montanile this week, the Supreme Court may endeavor to resolve this interesting split, which has complicated recovery of overpayments.
The U.S. Department of Labor (DOL) and the Employee Benefits Security Administration (EBSA) just issued a “Fact Sheet” describing Fiscal Year 2014 civil and criminal enforcement activity under ERISA.
Here is a copy of the fact sheet.
Key Take Aways on DOL’s Enforcement Efforts:
- EBSA oversees about 684,000 retirement plans, 2.4 million health plans and a similar number of welfare plans. These plans cover about 141 million workers, plus their dependents.
- More criminal investigations, but fewer guilty pleas. In 2014, DOL closed 365 criminal investigations: that is about 30% more than 4 years earlier. It represents a continuing trend of more criminal investigations that started around 2000. They indicted 106 individuals and obtained 85 “guilty pleas or convictions”. This is lower.
- More civil investigations, focused on protection of plan assets and participants’ benefits. The DOL closed about 4000 civil investigations in 2014. This is up in more recent years, but in 2002 there were 25% more civil investigations. The DOL’s strategic plan through 2018 calls for increased civil enforcement.
- Monetary results lower. The Fact Sheet claims $599.7 million was restored through enforcement. This is low compared to more recent years.
- Compliance Assistance. EBSA provides incentives to fiduciaries who voluntarily report and self-correct ERISA violations. About 1643 applications were filed last year to disclose and self-correct violations.
- Late Filings. About 25,000 applications for the Delinquent Filer Voluntary Compliance Program were filed last year.