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ERISA Litigation Attorney | Lane Powell Law Firm

ERISA: Reviewing What Needs to Be Proved to Establish the Suicide Exclusion

Posted in ERISA

For many reasons, some of the toughest cases to litigate involve the application of the suicide exclusion.

There is a growing body of evidence challenging suicide exclusion determinations.

Here is the recent case of Collins v. Unum Life Insurance Co., 2016 WL 2753862, __ F.Supp.3d __ (May 6, 2016). This case walks you through arguments to win the validity of suicide exclusions under state law, and summarizes the facts needed to establish “sanity” at the time of death. (Kudos to my friend David Constine and his law firm for some scholarly work in this area.)

FACTS: Collins, a former Navy Seal for 17 years, took his own life.  At the time of his death Collins had ERISA-governed life benefits, which included a suicide exclusion. Plaintiff argued the suicide exclusion was invalid under Virginia law. That law states that a suicide exclusion shall be valid if liability is limited to an insured “who, whether sane or insane, dies by his own act.” Plaintiff contended the suicide exclusion was invalid because it failed to include the “sane or insane” language.

HELD: Unum’s Motion for Summary judgment GRANTED.

  1. “ERISA has no bearing on this question of validity as suicide exclusions fall under the so-called ‘insurance exception’ to ERISA preemption…and state law applies.”  Op. at 19.
  2. “Because the ERISA policy at issue gives the insurer discretionary authority, …it is the duty of the insurer in the first instance to construe the policy language. This Court merely determines if the insurer’s interpretation was reasonable.”  Op. at 23.
  3. The Fourth Circuit “[does] not require suicide exclusions to contain any ‘magic’ words in order to be valid.”  Op. at 19-20.
  4. “‘[Generally] as long as the policy provided sufficient notice of exclusion—and the exclusion was limited to two years—it was valid under the statute.” Op. at 21.
  5. The punctuation in the Virginia statute “suggests that the phrase ‘whether sane or insane’ is non-essential to the meaning of the term suicide and need not be ‘express’ within the exclusion.”  Op. at 21-22.
  6. Recent decisions “in ERISA cases…have upheld as reasonable plan administrators’ determinations that the term ‘suicide’ meant any non-accidental, self-inflicted death even though the suicide exclusions at issue did not include some variant of the phrase “whether sane or insane.”  Op. at 26.
  7. What is evidence of “sane at death”?  Collins “knew the consequences of his actions: He knew that he was taking his own life. Additionally, in both the text to his wife and email to Mr. Mansfield, Mr. Collins expressed regret for his actions.”  Op. at 31.

ERISA (6th Circuit): Mental Nervous Limitations and Dealing with Arguments of “Organic Cause”

Posted in ERISA

You know that most ERISA disability plans contain a 24-month limitation related to mental/nervous disabilities.

But what happens when the claimant alleges the mental illness is “organically caused”?  Is that enough to justify benefits beyond the 24-month period?

Not in this case…

Here’s the case of McAlister v. Liberty Life Assur. Co. of Boston, __ Fed. Appx. __ (6th Cir. May 4, 2016)(Applying abuse of discretion standard of review: “[W]hile it is clear that plan administrators owe fiduciary duties to beneficiaries,…whether that duty encompasses a duty to reasonably investigate remains unclear.”)

FACTS: McAlister was suicidal and depressed, and applied for ERISA-governed long term disability benefits in August 2010. Liberty Life granted the benefit and later informed McAlister that her long term disability benefits would end when the 24 month maximum benefit for mental nervous disabilities had been paid. McAlister then sought benefits beyond 24 months, claiming she had “cognitive problems” related to diabetes, hypertension and other physical problems.

DISTRICT COURT HELD:  Liberty properly exercised discretion in determining McAlister suffered from mental illness that had a psychiatric (not organic) cause.

SIXTH CIRCUIT HELD: AFFIRMED– Dismissal of Claim based on 24 month mental/nervous limitation.

  1. Even if the court took out of the analysis the independent medical assessment, notes from three of Plaintiff’s medical providers constitute “‘relevant evidence… a reasonable mind might accept as adequate to support [the] conclusion that McAlister suffers from a Mental Illness.’”  Op. at 13.
  2. The Court rejected the “duty to investigate” argument. McAlister alleged she had put Liberty on notice that her mental condition had an organic cause, and that Liberty had failed to investigate it. Op. at 17.
  3. “[W]hile it is clear that plan administrators owe fiduciary duties to beneficiaries,…whether that duty encompasses a duty to reasonably investigate remains unclear.”  Op. at17.
  4. If there is a duty to investigate, “the parameters of such a duty are altogether undetermined.”  Op. at 18.
  5. “‘There is no justifiable basis for placing the burden solely on the administrator to generate evidence relevant to deciding the claim, which may or may not be available to it, or which may be more readily available to claimant.’”  Op. at 18.
  6. It was unnecessary for the plan administrator in this case to conduct its own neuropsychological evaluation. Op. at 19.

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

Posted in ERISA

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

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

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

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

Malagoli argued:

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

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

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

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

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

Posted in ERISA

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

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

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

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

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

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

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

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

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

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

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

Posted in ERISA

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

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

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

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

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

SIXTH CIRCUIT HELD: AFFIRMED.

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

BIG NEWS: ERISA Preempts Hodgepodge of State Insurance Reporting Regulations

Posted in ERISA

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

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

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

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

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

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

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

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

Posted in ERISA

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

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

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

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

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

10th CIRCUIT HELD: REVERSED AND REMANDED.

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

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

Posted in ERISA

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

But are phone calls sufficient to trigger the appeal process?

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

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

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

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

COURT OF APPEALS HELD: AFFIRMED.

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

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

Posted in ERISA

This just in….

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

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

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

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

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

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

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

Avoiding ERISA Medical Treatment Class Actions with Arbitration Provisions?

Posted in ERISA

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

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

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

Consider adding an arbitration provision with a class action waiver.

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

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

ISSUES:

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

DISTRICT COURT HELD:

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

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