In an ERISA case, what does it take to assert a claim for equitable relief? If the complaint does not assert an alleged breach of fiduciary duty, the claim for equitable relief should be dismissed…
Here’s the case of Owens v. Liberty Life Assurance Co., 2016 WL4746212 (W.D. KY. September 12, 2016)(In an ERISA case, to bring a claim for equitable relief “the Court would expect allegations in the complaint to refer to an alleged breach of fiduciary duty and subsequent facts presented at the summary judgment to suggest a genuine dispute as to whether Defendant breached its duty.”)
FACTS: Plaintiff, a Walmart employee, sought ERISA-governed disability benefits under a plan funded by Liberty Life. After initially providing benefits, Liberty Life discontinued benefits, concluding Plaintiff was not totally disabled. Plaintiff brought claims for wrongful denial of benefits and at the summary judgment stage asserted for the first time a claim for equitable relief. The plan conferred discretion.
ISSUE: Whether Plaintiff can belatedly assert a claim for equitable relief (at the summary judgment stage) when the complaint does not assert any purported breach of fiduciary duty.
DISTRICT COURT HELD: Liberty Life’s Motion for Summary Judgment GRANTED – Equitable Relief Claim Dismissed.
- “The Supreme Court has recognized the possibility of an equitable remedy, such as a surcharge, under ERISA for breaches of fiduciary obligations by plan administrators.” Op. at 2.
- A claimant can pursue a breach-of-fiduciary-duty claim only “where the Section 1132(a)(3) claim is based on an injury separate and distinct from the denial of benefits or where the remedy afforded by Congress under Section 1132(a)(1)(B) is otherwise shown to be inadequate.” Op. at 2.
- Plaintiff alleges she did not have to specifically “assert a breach of fiduciary claim to be entitled to equitable relief under Section 1132(a)(3)….[but] the Court would expect allegations in the complaint to refer to an alleged breach of fiduciary duty and subsequent facts presented at the summary judgment to suggest a genuine dispute as to whether Defendant breached its duty.” Op. at 2.
- Plaintiff also failed to set forth evidence of “an injury separate and distinct from the denial of benefits.” Op. at 2.
You know that in ERISA cases most courts typically will limit review to the administrative record, absent special circumstances. Courts may also allow limited discovery when assessing whether a “conflict of interest” affected the claim determination. A conflict of interest can arise, for example, when the insurer of the ERISA governed benefit is both the “evaluator and the payor.”
But watch out when Plaintiff asserts a breach of fiduciary duty claim. There is very strong precedent to obtain early dismissal of these claims. See, e.g., Rochow v. LINA, 780 F. 3d 364 (6th Cir. 2015).
AND…if you don’t move early to dismiss these dubious claims, the court may allow very broad discovery.
Here’s the case of Milby v. Liberty Life Assurance Co. of Boston, 2016 WL 4599919 (W. D. Ky. September 2, 2016)(Since the dubious breach of fiduciary duty claim had not been dismissed, the court allowed broad discovery).
FACTS: Plaintiff sought broad discovery in a claim involving ERISA-governed long term disability benefits. Plaintiff alleged Liberty Life was both the evaluator and payor of the claim and therefore sought discovery into Liberty’s conflict of interest. Liberty argued review of the claim denial should be limited to the administrative record, and there should be no discovery, or significantly limited “conflict” discovery.
ISSUE: What discovery is allowed when Plaintiff asserts a breach of fiduciary duty claim?
U.S. DISTRICT COURT HELD:
- “An ERISA plaintiff may pursue a claim under § 1132(a)(3), but only when it “is based on an injury separate and distinct from the denial of benefits or where the remedy afforded by Congress under § (a)(1)(B) is otherwise shown to be inadequate.” Op. at 3.
- Plaintiff “alleges numerous flaws in Hartford’s claims process, but only one injury: the denial of benefits. He contends that without discovery, it is impossible to determine what remedies are adequate…. But [Plaintiff’s] alleged injury—the denial of benefits—can be remedied by § 1132(a)(1)(B), which allows [Plaintiff] “to recover benefits due to him.” 29 U.S.C. § 1132(a)(1)(B). No discovery is necessary to make this determination. …[Plaintiff]… has failed to allege “an injury separate and distinct from the denial of benefits” or show why “the remedy afforded by Congress under § (a)(1)(B) is … inadequate,” the Court will dismiss his § 1132(a)(3) claim. Op. at 3.
- “Despite Liberty’s strenuous arguments in favor of the eventual dismissal of Milby’s breach of fiduciary duty claim, it has not filed any motion that could potentially dispose of the claim. Even if Liberty might succeed if it filed the long-promised motion for partial judgment on the pleadings, it cannot escape the fact that Milby currently has a pending cause of action pursuant to Section 1132(a)(3).” Op. at 5.
- Since the breach of fiduciary duty claim has not been dismissed yet, the scope of discovery will not be limited to the administrative record. [T]his Court finds that discovery is permissible in this case due to the existence of a breach of fiduciary duty claim pursuant to § 1132(a)(3). Op. at 5.
KEY TAKE AWAY: When Plaintiff asserts a breach of fiduciary duty claim (like the one in Rochow v. LINA), move to dismiss the claim early. This can help foreclose arguments for broad discovery.
Alaska’s prompt pay statute—which requires insurers to pay benefit claims within 30 days of submission—is preempted by federal laws governing employer-provided benefits and benefits for government workers, a federal judge ruled.
The case is Zipperer v. Premera Blue Cross & Blue Shield of Alaska, 2016 BL 265226, D. Alaska, No. 3:15-CV-00208 JWS, 8/16/16. (Kudos to my partner, Gwendolyn Payton, on this big win).
The judge’s Aug. 16 decision is the latest in a string of decisions striking down or scaling back state prompt pay laws as preempted by the Employee Retirement Income Security Act and the Federal Employees Health Benefits Act.
Earlier this year, a federal appeals court partly struck down Texas’s prompt pay law under the FEHBA and found it inapplicable to self-funded ERISA plans. Georgia’s prompt pay law was partly struck down as ERISA-preempted by a different appeals court in 2014. A district judge in Illinois reached a similar conclusion with respect to that state’s law in 2014.
You know that many insurance policies and ERISA-governed plans exclude from coverage disabilities “resulting from, or related to…any accident related to the voluntary influence of any drug, narcotic, intoxicant or chemical….”
The next time you are enjoying a fine beer or wine, a single malt scotch or even a Kamikazi, ponder this question…
Is it sufficient to rely solely on a blood alcohol test to establish the intoxication exclusion? NO.
Here’s the case of Prelutsky v. Greater Georgia Life Insurance Co., 2016 WL 4177469 (N.D. Ga. August 8, 2016) (Relying solely on a .25 blood alcohol test is insufficient to establish Intoxication Exclusion, especially when witnesses could have been interviewed to obtain facts regarding the claimant’s “physical and mental state immediately preceding the fall.”)
FACTS: Maneuvering at Aspen with a .25 alcohol level, Prelustky fell down 20 stairs and sustained a brain injury. He sought ERISA-governed long term disability from his law practice because of short and long term memory deficits. Greater Georgia Life denied the claim under the Intoxication Exclusion based upon medical records showing a .25 blood test, and a doctor’s diagnosis of “intoxication.” Prelustky appealed, claiming Greater Georgia failed to fully investigate, and that a witness confirmed he did not appear intoxicated but that he had actually tripped on his ski pants.
ISSUE: Was there sufficient evidence to sustain the Intoxication Exclusion?
DISTRICT COURT HELD: No. (Applying de novo and abuse of discretion standards)
- For the intoxication exclusion, the issue is whether Plaintiff was under the voluntary influence of an intoxicant when he was injured initially. Op. at 20.
- To investigate the exclusion, the insurer should obtain a blood test and a list of physical symptoms expected at a certain blood alcohol level to “determine if the [claimant’s] intoxication resulted in a degradation of his physical and cognitive abilities such that the causal link can reasonably be drawn between the injury and causation.” Op. at 21.
- “The Court concludes that Defendant failed to conduct a sufficient investigation that would allow the administrator to reasonably find a causal link between Plaintiff’s alcohol consumption and his fall.” Op. at 21.
- “‘[U]nder the language of the Policies there must be some evidence of the role of alcohol in the loss, beyond the insured’s intoxicated state, to establish applicability of the exclusion.’” Op. at 24.
- Greater Georgia “failed to meet its burden to show Plaintiff’s injury was caused by, resulted from, or was related to his intoxication” because the record “lacks any clear indication that [Plaintiff] exhibited any of the purportedly typical effects associated with a blood alcohol level of [0.25%].” Op. at 25.
- Merely having an independent reviewing physician consider the blood test and opining that certain physical symptoms are present is insufficient. Op. at 21, fn 6 and 7.
- Witnesses could have been interviewed to obtain facts regarding the claimant’s “physical and mental state immediately preceding the fall.” Op. at 21, fn 6 and 7.
The Department of Labor (“DOL”) just increased civil monetary penalty amounts that may be assessed for violations of Title I of the Employee Retirement Income Security Act of 1974 (ERISA).
The new penalties apply to DOL assessments made on or after August 2, 2016, for violations occurring after November 2, 2015.
Here are some of the revised penalties:
- Failing to file a Form 5500-series return may result in a penalty assessment of up to $2,063 per day. (The prior maximum penalty was $1,100 per day.)
- Failing to provide plan information requested by the DOL (e.g., latest summary plan description) may be subject to a penalty assessment of up to $147 per day not to exceed $1,472 per request. (The prior maximum penalty was $110 per day not to exceed $1,100 per request.)
- Failing to provide a Summary of Benefits Coverage may result in a penalty of up to $1,087 per failure. (The prior maximum penalty was $1,000 per failure.)
You know that claimants have the burden to establish eligibility for ERISA-governed disability benefits.
Sometimes gaps in coverage can occur when, for example, a claimant alleges disability while using accrued vacation. These gaps can result in denial of a disability claim.
Here’s the case of Cheney v. Standard Insurance, __ F.3d __, (7th Cir. July 27, 2016) (Under de novo review, the court “should not resolve doubts or gaps in the evidence in [the claimant’s] favor, because she had the burden to demonstrate policy coverage.”)
FACTS: Cheney, a 20-year attorney at Kirkland & Ellis, had C-5 neck surgery in 2012. She last worked December 9, 2011, and claimed disability starting December 20, 2011 onward. When she went out on disability she first used two weeks of accrued vacation through to January 3, 2012. Then, she was granted six month leave to July 2012.
She submitted a claim for Long Term Disability benefits under the firm’s ERISA plan in 2012. Under the policy, coverage ended when the employee ceased to be a “Member.” To be a “Member” the claimant has to be “Actively at Work.” This definition required the claimant to be capable of Active Work even during vacations. Standard argued she was not eligible for disability benefits because she could not meet the “Actively at Work” definition.
ISSUE: Whether Claimant was ineligible for benefits when she declared she was disabled and took vacation time?
TRIAL COURT HELD: Claimant was eligible for benefits because she continued employment when she took accrued vacation.
SEVENTH CIRCUIT HELD: REVERSED—Claimant NOT Eligible for Benefits.
- Under de novo review, the court “should not resolve doubts or gaps in the evidence in [the claimant’s] favor, because she had the burden to demonstrate policy coverage.” Op. at 10.
- To be covered under this ERISA plan, the claimant must meet the definition of “Member, Active Work”. This definition required the claimant to be capable of Active Work even during vacations. Plaintiff had a two week gap (December 20, 2011-January 3, 2012) when she admits she was not able to perform “Active Work.” Under this policy she lost eligibility because she was disabled while taking vacation, and disability leave did not bridge the eligibility gap. Op. at 10.
- The inability to perform a single material job task does not demonstrate disability within the meaning of the policy. Op. at 13.
- Under ERISA, a claimant’s “reasonable expectation” of coverage requires “actual reliance by the employee.” Op. at 15.
Who can challenge an ERISA benefit denial? Does a physician have standing to challenge the denial of a patient’s coverage? It depends.
Here’s the case of American Psychiatric Association v. Anthem Health Plans, 821 F. 3d 352 (2nd Cir. 2016)(Physicians and physician associations lacked standing to sue health plans under ERISA.)
FACTS: The Mental Health Parity and Addiction Equity Act (MHP) requires health plans to provide the same coverage for mental health conditions as covered for physical conditions. Treatment limitations for mental health and substance cannot be more restrictive than restrictions covering medical and surgical benefits. Psychiatrists brought ERISA claims contending that four insurers imposed unnecessary administrative burdens on the psychiatrists, and reimbursed them at a lower rate than non-psychiatric physicians who provided comparable medical services.
TRIAL COURT HELD: Physicians and associations lacked legal standing to sue under ERISA, and MHP did not create a statutory cause of action.
SECOND CIRCUIT HELD: AFFIRMED. Psychiatrists lacked standing to sue under ERISA.
NOTE: The result regarding standing to assert an ERISA claim may have been different if the physicians had obtained an assignment of claims made in exchange for consideration (healthcare services provided). The physicians here did not do that.
Is it wrong to take an offset for Social Security benefits received by the children of a long term disability claimant? No, says a new decision.
And… just because you reinstate benefits does not mean you have to provide Pannebecker payments…
Here’s the case of Jones v. Life Insurance of North America, 2016 WL 3257781 (N.D. Cal. June 14, 2016)(PDF).
FACTS: Jones worked for Merck and sought ERISA-governed long term disability benefits in 2001. The benefits were terminated in 2007 and Jones sued. Reinstatement was offered, but an offset was taken for dependent Social Security benefits (SSDI) received for her children.
DISTRICT COURT HELD:
- Under the plan terms, “any benefit payable under the Plan” is reduced by “Social Security benefits, effective at the time the Participant becomes entitled to benefits.” Op. at 3.
- Plaintiff argued that no offset should occur for SSDI benefits her children received because they were not yet born when Jones started getting benefits in 2001. “Plaintiff’s interpretation is nonsensical….’[A]s a practical matter, a participant continues to be eligible and entitled to benefits for each subsequent monthly or partial monthly period for which s/he is Totally Disabled.” Op. at 13.
- Plaintiff also argued that her children are “entitled” to their dependent SSDI benefits. But the court noted: “[t]he plan defines Social Security benefits as including family benefits” and the dependent benefits are awarded here because of plaintiff’s disability. Also, the SSDI “family award notices” expressly designate Jones as the payee and authorize her to use the funds. Op. at 14.
- Mere reinstatement, without more evidence of erroneous claims handling, does not trigger Pannebecker. (The Ninth Circuit decision in Pannebecker requires payment of claims from the improper termination of benefits.) “While MetLife’s subsequent reinstatement of plaintiff’s LTD benefits implies the initial termination was a mistake, the court has no basis for a finding that MetLife was arbitrary or capricious in terminating plaintiff’s LTD benefits.” Op. at 16. (Emph. added).
These Section 502(c) penalty claims seem to be added to most every ERISA lawsuit…
Does a claimant have to prove “actual injury” to win ERISA Section 502(c) penalty claims? MAYBE. Here’s why:
As you know, if a plan administrator fails to provide plan-related documents within 30 days of a written request, then ERISA section 502(c) gives the district court discretion to impose up to $110 per day per failure.
Tom Cristina at Ogletree makes a good point that the recent Supreme Court decision in Spokeo, Inc. v. Robins, No. 13–1339 (May 16, 2016) may create a basis to assert that Plaintiffs have to prove “actual injury” to recover Section 502(c) penalty claims. Spokeo was a Fair Credit Reporting Act (FCRA) case. But the FCRA has a statutory penalties provision much like ERISA section 502(c). http://www.jdsupra.com/legalnews/spokeo-new-hope-for-defending-against-77037/
Cristina writes: “[I]n a passage that has implications for the defense of certain ERISA actions, the Court held that there is a constitutional limitation on Congress’s ability to identify actionable intangible injuries:
Congress’ role in identifying and elevating intangible harms does not mean that a plaintiff automatically satisfies the injury-in-fact requirement whenever a statute grants a person a statutory right and purports to authorize that person to sue to vindicate that right. Article III standing requires a concrete injury even in the context of a statutory violation. For that reason, Robins could not, for example, allege a bare procedural violation, divorced from any concrete harm, and satisfy the injury-in-fact requirement of Article III.
(Emphasis added.) …
“Thus, the Spokeo opinion at least raises the question whether, despite the language of ERISA section 502(a)(1)(A) authorizing such a lawsuit, a plaintiff might lack standing to seek the penalty under ERISA section 502(c) if the plaintiff fails to allege and prove a “concrete” injury-in-fact other than and in addition to nonreceipt of the requested documents.”
Key Take Away: Preserve the argument, citing Spokeo, that Plaintiff lacks standing to assert the 502(c) penalty claim when Plaintiff has failed to show “actual injury.”
Attorney fees in ERISA cases continue to be a challenge.
What happens when both sides can claim wins during a case?
What is a reasonable hourly rate for Plaintiff’s attorneys?
Here’s the case of Barboza v. California Association of Professional Firefighters, 2016 WL 3125996, (E.D. Ca. June 3, 2016).(This case involved years of litigation and two prior appeals to the Ninth Circuit.)
The case also highlights additional considerations when addressing the attorney fee issue.
FACTS: The Plan granted Barboza ERISA-governed disability benefits. However, Barboza failed to disclose he operated an alpaca ranch and also settled a worker comp claim for $18,000. The Plan brought an amended counterclaim for offset and an equitable lien on undisclosed earnings. The Ninth Circuit concluded, among other things, that the Plan had not abused its discretion in offsetting undisclosed worker comp settlement amounts. Barboza did overturn a trial court summary judgment and a ruling regarding prejudgment interest.
Both sides sought attorney fees.
ISSUE: Who should be awarded attorney fees, and how much?
DISTRICT COURT HELD: Plaintiff was the “partially prevailing” party, entitled to fees, but fees and hourly rates were reduced.
- Although parties achieving “trivial” successes and “purely procedural” victories may not be awarded fees, “partially prevailing parties—parties achieving some success, even if not a major success” may be enough. Op. at 3 (emphasis in original).
- Barboza argued he had some success when the Ninth Circuit held he had exhausted administrative remedies. BUT the parties already negotiated a fee award, so that could not be used as a basis for the current attorney fee motion. Op. at 3.
- Barboza did overturn a trial court summary judgment and prejudgment interest and therefore had “some degree of success.” Op. at 4.
- “The fee applicant bears the burden to document these hours and …the requested hourly rate are reasonable.” Op. at 7.
- Plaintiff sought hourly rates of $650, $625 and $600 per hour. Defendant argued the local Sacramento rates are much lower—$300-$400 per hour. The Court concluded that an ERISA practice is more a state-wide practice, and reduced the rates to $500-$550 per hour. Op. at 8.
- The Court eliminated hours claimed for the administrative appeal and early stages of the litigation. Op. at 9.
- Plaintiff was not entitled to hours for the appeal because he failed to file a timely request for fees with the circuit court. The district court is not authorized to rule on a post-remand request for attorney fees incurred on appeal. Op. at 9.
- Plaintiff failed to detail how 21 hours was spent drafting a declaration, and reduced it by 15 hours. Op. at 10.