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.
You know that patients typically assign rights under a health insurance plan to the provider of medical services. This is accomplished by signing an assignment form upon intake/admission. Then, the healthcare provider sends the claim directly to, and receives reimbursement directly from, the patient’s health insurance company for services rendered to the patient.
But what happens when the ERISA-governed health insurance plan has an anti-assignment provision?
Anti-assignment provisions are enforceable. As a result, health care providers lack standing to bring a claim for reimbursement.
The recent case of University of Wisconsin Hospitals v. Aetna Health & Life Ins. Co., 2015 WL 6736983 (W. D. Wis., November 3, 2015) highlights the point.
FACTS: Chandra Aschenbrener, an insured under an ERISA-governed Aetna health insurance policy, incurred $16,893 in hospital expenses. The plan specified that benefits may not be assigned to another party, including the right to bring legal action. The University of Wisconsin Hospital sued Aetna, seeking reimbursement for medical expenses.
COURT HELD: Anti-Assignment Provisions Enforceable.
- “Courts are to strictly enforce the terms of ERISA plans where possible.” Op. at 5.
- “[I]n order for a beneficiary to collect a plan’s benefits, the assignment by a participant to the beneficiary must comport with the insurance plan.” Op. at 5.
- “[C]ircuits have overwhelmingly held that anti-assignment clauses in ERISA employee welfare benefit plans are enforceable, and therefore medical provider plaintiffs lack standing to pursue payment as ‘beneficiaries.’” Op. at 8.
- “In order for [the hospital] to become a beneficiary, Aschenbrener must designate it as such. The plan, however, specifies unambiguously that the benefit rights may not be assigned….The plan also expressly states that a direction to pay a provider, directly or otherwise, is not an assignment of any right and that a direction to pay does not extend to a provider any legal right to initiate court proceedings.” Op. at 8 (emphasis in original).
KEY TAKE AWAY: Anti-assignment clauses in ERISA employee welfare benefit plans are enforceable. As a result, medical providers lack standing to pursue payment as “beneficiaries.” See, e.g., Physicians Multispecialty Grp. v. Health Care Plan of Horton Homes, Inc., 371 F.3d 1291, 1295 (11th Cir. 2004) (“an assignment is ineffectual if the plan contains an unambiguous anti-assignment”) (citing cases from the First, Ninth and Tenth Circuits); Letourneau Lifelike Orthotics & Prosthetics, Inc. v. Wal–Mart Stores, Inc., 298 F.3d 348, 353 (5th Cir. 2002) (plaintiff lacked standing under ERISA because anti assignment clause was enforceable).
You already know that in March 2015, the 6th Circuit issued an en banc decision rejecting disgorgement of profits claims. Rochow v. Life Ins. Co. of N. Am., 780 F.3d 364, 372 (6th Cir. 2015)(en banc) (rejecting $3.8 million disgorgement claim against Life Insurance Company of North America as “an impermissible duplicative recovery”).
But the reality is that plaintiffs in ERISA cases keep trying to assert breach of fiduciary duty/disgorgement claims. We are seeing an influx of these claims being asserted in the Ninth Circuit.
Here’s a strategic early play in these cases: move to dismiss the breach of fiduciary duty/disgorgement claim early on.
This recent case highlights the point. Gluc v. Prudential Insurance Co., 2015 WL 6394522 (W. D. Ky. October 22, 2015)(PDF).
FACTS: Judith Gluc sought ERISA-governed long term disability benefits. Prudential paid long term disability benefits for two years, and then discontinued benefits. Gluc then brought suit to recover benefits. She also alleged breach of fiduciary duty and sought disgorgement of “earnings Prudential accumulated as a result of its delay in paying her benefits.”
Gluc alleged a laundry list of purported acts which breached fiduciary duty. She claimed that Prudential’s claims process: (a) was designed to “systematically delay claim decisions”; (b) encouraged personnel to “automatically accept the opinions of Prudential’s paid medical reviewers”; (c) placed Prudential’s financial interests “ahead of its participants”; and, (d) improperly offset Social Security benefits.
TRIAL COURT HELD: Rule 12(c) Motion to Dismiss Breach of Fiduciary Duty/Disgorgement Claim GRANTED.
- “[W]here Congress elsewhere provided adequate relief for a beneficiary’s injury, there will likely be no need for further equitable relief, in which case such relief would normally not be ‘appropriate.’” Op. at 4.
- “[I]f Section 1132 provides a remedy for Gluc’s alleged injury, her claims for equitable relief are not viable.” Op. at 5.
- “Gluc alleges numerous flaws in Prudential’s claims process, but ultimately, the only injury she purports to have suffered is loss of benefits—an injury Section 1132(a)(1)(B) is designed to address.” Op. at 5.
- “[T]he ‘accumulated earnings’ Gluc seeks in her disgorgement claim may be recovered through an award of prejudgment interest, which the Court has discretion to make.” Op. at 5.
- As to Gluc’s “systemic flaws” allegations, “this is not a class action…[and] she does not allege facts to support a claim of plan-wide wrongdoing. Rather the facts alleged indicate a problem with Prudential’s processing of a single claim.” Op. at 5-6.
Moving to dismiss these claims early can help posture the claim for early, reasonable resolution.
You already know that under ERISA the court has discretion to award attorney fees to a party that has “some success on the merits.”
But what happens when the ERISA plan and the insurer are defendants, and the plan disagrees with the insurer’s denial of ERISA-governed disability benefits?
Can the ERISA plan, a nominal defendant, recover attorney fees against the insurer? YES.
This new case illustrates the point: Micha v. Sun Life and Group Disability Benefits Plan for Gynecologic Oncology Associates Partners, LLC, 2015 WL 5732124 (S. D. Cal., September 30, 2015).
FACTS. Group Disability Benefits Plan is an ERISA plan and purchased a disability policy from Sun Life. When Sun Life denied a disability claim brought by John Micha, he brought suit against Group Disability and Sun Life. Group Disability filed an answer admitting Micha’s disability allegations, and then sought indemnification from Sun Life.
After the matter was settled, Group Disability brought a motion for $101,000 in attorney fees against Sun Life.
ISSUE: Whether the ERISA plan can recover attorney fees as a “prevailing party” when the insurer settles a claim by a beneficiary?
HELD: Yes for fees incurred during the litigation on the merits; NO for fees incurred on the appeal.
- Under 29 U.S.C. 1132(g), the court in its discretion may allow reasonable attorney fees. “To qualify for an award of attorney’s fees, a party must have “some success on the merits.'” Op. at 4.
- The Ninth Circuit had previously determined that Group Benefits, an ERISA plan and a nominal defendant, can be eligible for an award of attorney’s fees under ERISA. Op. at 4.
- “If a party has met the burden of showing some success on the merits, the court must examine five factors set forth in Hummell…. None of the Hummell factors is ‘necessarily decisive.’” Op. at 4.
- Although Sun Life was required to pay Group Disability’s attorney’s fees for the underlying lawsuit, Sun Life was not required to pay attorney fees arising out of the appeal of that ruling because the appeal presented a novel legal issue. Op. at 6.
KEY TAKE AWAY: This developing line of cases should be considered early on in the case. A proactive approach with the Plan is advised, to avoid the risk of paying for the Plan’s attorney fees.
You already know that when a Summary Plan Description conflicts with ERISA plan language, the ERISA plan language controls.
But what happens when all you have is a Summary Plan Description (SPD), and… no ERISA Plan? Can the SPD become the Plan, and authorize subrogation reimbursement? YES.
Here’s the case of Board of Trustees/National Elevator Health Plan Benefit v. Moore, _ F.3d _ (6th Cir. August 25, 2015) (PDF) (Subrogation: Language in Summary Plan Description authorized required reimbursement of medical expenses paid by Plan).
FACTS: The ERISA plan paid $34,204 in medical expenses for injuries Kyle Moore sustained in an accident. After Moore settled his tort claim for $500,000, the ERISA plan sought reimbursement. Moore claimed, however, that there was no ERISA plan language requiring reimbursement. The only document submitted in the record was the Summary Plan Description (SPD), which did provide require reimbursement.
ISSUE: Is the Summary Plan Description a Controlling Plan Document Requiring Subrogration Reimbursement?
6th CIRCUIT HELD: YES.
- “[I]f the language in a SPD conflicts with the language in an ERISA plan, a district court is required to enforce ‘the terms of the plan.’” Op. at 6.
- “Nothing in Amara prevents a document from functioning both as the ERISA plan and an SPD, if the terms of the plan so provide.” Op. at 7 (Emphasis in original).
- “[A]n SPD describing employee benefits that anticipate the existence of a Plan, but is issued long in advance of the Plan, constitutes the actual plan, as well as a summary of a plan ‘that is nowhere else in writing.’” Op. at 8.
- The 3rd Circuit and the 11th Circuit (in unpublished decisions) have also recognized that a SPD can function as the controlling ERISA plan “in the absence of a separate plan document.” Op. at 7-8.
You already know about the big trend in states to ban discretionary clauses in insurance policies that fund ERISA benefits.
Chalk up another circuit deciding to enforce the ban.
Here’s the case of Fontaine v. Met Life, __ F.3d __ (7th Circuit, September 4, 2015) (PDF).
FACTS: Fontaine, a lawyer at Mayer Brown, sought ERISA governed long-term disability benefits for a vision impairment. The “disability plan provides that MetLife’s benefit determination ‘shall be given full force and effect’ unless they are shown to be ‘arbitrary and capricious,’ thus calling for discretionary review.” Met Life denied the claim and Fontaine brought suit claiming the de novo standard of review should apply because an Illinois state regulation bans discretionary clauses.
ISSUE: Does ERISA preempt a state law banning discretionary clauses?
7th Circuit HELD: No.
- Met Life argued that the ban on discretionary clauses is preempted by ERISA because the discretionary clause here was contained in the ERISA plan, not an insurance policy. The court concluded, however: “Whether a provision for discretionary interpretation is placed in an insurance policy or in a different document…should make no legal difference.” Op. at 7.
- “We join the Ninth and Sixth Circuits in concluding that a state law prohibiting discretionary clauses squarely satisfies [the requirement of proof that the state law substantially affect risk pooling].” Op. at 9-10.
- The state law here “does not duplicate, supplement, or supplant the ERISA civil enforcement remedy. All it does is restore in Illinois ERISA’s own default rule of de novo review in court cases challenging denials of health and disability benefits.” Op. at 10.
You already know that judicial review of ERISA claims generally will be limited to the administrative record considered by the claim administrator.
But the courts will allow claimants to augment the record if ERISA claims procedure was not followed.
…And courts might conclude that failing to make an IME report (obtained and relied on during the appeal process) available to claimant for review and comment violates ERISA claims procedure.
Here’s the case of Yancy v. United of Omaha Life Insurance Co., _ F.Supp. 3d _, 2015 WL 5132086 (C.D. California August 25, 2015)(“Because the record reflects that United considered and even relied on [the IME] report in making its appellate determination to uphold the claim denial, United violated ERISA’s procedural requirement when it failed to make the report available to plaintiff for review and comment during the appeals process.”)(PDF)
FACTS: Yancy made a disability claim which was denied after medical reviews. When Yancy appealed, United obtained an independent medical exam (IME) and affirmed the claim denial. Yancy sued and moved to augment the record, seeking to add a rebuttal to the IME report.
ISSUE: When can a claimant “augment” the administrative record?
HELD: Claimant allowed to augment record.
- “‘In most cases’ only evidence that was before the plan administrator should be considered. ‘[A] district court should not take additional evidence merely because someone at a later time comes up with new evidence that was not presented to the plan administrator.’” Op. at 3 (Citations omitted).
- “‘When a plan administrator has failed to follow a procedural requirement of ERISA, the court may have to consider evidence outside the administrative record.’” Op. at 4.
- “Even when procedural irregularities are smaller…and abuse of discretion review applies, the court may take additional evidence when the irregularities have prevented full development of the administration record.” Op. at 4.
- “Because the record reflects that United considered and even relied on [the IME] report in making its appellate determination to uphold the claim denial, United violated ERISA’s procedural requirement when it failed to make the report available to plaintiff for review and comment during the appeals process.” Op. at 7.
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.