You already know that the Elimination Period in long term disability cases is a key focus in assessing eligibility for benefits.

This new Sixth Circuit case explains:

  1. the very high burden of proof a Plaintiff must meet to establish “continuous” disability during the Elimination Period; and
  2. when medical evidence obtained after the Elimination Period cannot satisfy the Plaintiff’s burden to prove disability during the Elimination Period.

Tranbarger v. Lincoln Life & Annuity Co. of New York, ___ F.4th __, 2023 WL 3527418 (6th Cir. May 18, 2023) (Affirming denial of benefits the Court held:  “[T]he bar set by the plan’s requirement of ‘continuous’ disability…is a high one. Even one day of partial work ability during the Elimination Period is enough to defeat Tranbarger’s claim.…‘[W]e only consider [evidence from outside the Elimination Period] to the extent that it speaks to plaintiff’s condition during the relevant time period.’”)

FACTS: Plaintiff Tranbarger, an avid 10-mile-a-day cyclist, had surgery to remove her gallbladder and later experienced fibromyalgia and chronic fatigue syndrome. Fourteen months after she resigned from her sedentary account receivable manager role, she sought ERISA-governed long term disability benefits. The Lincoln disability insurance plan required that she prove she was continuously unable to perform each of the main duties of her own occupation during a six month Elimination Period. Lincoln denied her claim and Tranberger brought suit.

ISSUE: Whether Plaintiff established she was continuously unable to perform the main duties of an account receivable manager during the six months after she resigned from employment.

DISTRICT COURT HELD: Applying de novo review, the District Court concluded Plaintiff did not establish continuous disability during the Elimination Period.

SIXTH CIRCUIT COURT OF APPEALS AFFIRMS, HOLDING:

  1. “[T]he bar set by the plan’s requirement of ‘continuous’ disability…is a high one. Even one day of partial work ability during the Elimination Period is enough to defeat Tranbarger’s claim.”  Op. at 3 (emph. added).
  1. “Ample evidence suggests she could perform some work in some instances.”  Op. at 4-5.
  1. Having a diagnosis of fibromyalgia and chronic pain syndrome “do not answer the more granular question about her ability to work during the period in question.” Op. at 5.
  1. Plaintiff’s doctors opined Plaintiff was “totally disabled from working any occupation,” was limited to “20 minutes of effort” daily, and “faced a ‘progressive, unrelenting disease….” But “these assessments were made years after the Elimination Period closed, none speaks to the critical issue of whether Tranbarger could work during that period.  Rather, they detail her condition at the time of (much later) treatment.”  Op. at 5.
  1. “‘[W]e only consider [evidence from outside the Elimination Period] to the extent that it speaks to plaintiff’s condition during the relevant time period.’” Op. at 5.
  1. The Social Security Administration disability decision, that concluded Plaintiff was totally disabled, was not persuasive because it “primarily relied on evidence we have already said does not prove Tranbarger’s  claim, [and] the post-Elimination Period evidence …does not speak to the timeframe at hand.”  Op. at 6.

A lengthy concurring opinion argues that when the district court applies de novo review, then the Court of Appeals should apply “clear-error” review like that applied in the Fourth Circuit. Op. at 7.

As you know, the federal circuits have varying approaches to resolving ERISA denial-of-benefit cases. Some circuits use Rule 56 summary judgment as a process to resolve these cases, while the trend has been to use Rule 52 bench trials to resolve cases.

A new case highlights that, in cases applying de novo review, Rule 52 bench trials should be used–especially when there are factual debates on the diagnosis or severity of impairment of a claimant.  

And…how much weight should be given to independent reviews by physicians “who only review the paper record”?  This new case highlights that Independent Medical Exams (IME) may be needed more frequently, at least in the Fourth Circuit, due some overly broad language in the opinion concerning the weight to be given “paper reviews.”

Here’s the case of Tekmen v. Reliance Standard Life Insurance Company, 55 F.4th 951 (4th Cir. December 16, 2022).

FACTS: Tekmen, a financial analyst, sought ERISA-governed long term disability benefits after experiencing a concussion and dizziness, a sensitivity to sounds,  and cognitive dysfunction following an auto accident.  MRIs, EEGs and CT scans were read as normal. Reliance Standard denied the claim after two physicians reviewed Tekmen’s records. While they found some evidence of symptoms of hyperacusis and tinnitus, they found no objective evidence of neurological illness, and concluded “[i]n the absence of specific diagnosis, there is no evidence of impairment.” Tekmen appealed administratively and Reliance Standard then had an otolaryngologist and a psychiatrist review the records and they, too, found no impairment.

Tekmen then filed suit. Both parties filed motions for summary judgment, but then Plaintiff asked the district court to resolve the case under Rule 52. The court heard oral argument on the summary judgment motions and then denied both motions and awarded judgment for Tekmen after conducting a bench trial under Rule 52. Reliance Standard appealed to the Fourth Circuit Court of Appeals.

Fourth Circuit Court of Appeals: AFFIRMED judgment for Plaintiff— KEY HOLDINGS

  1. In de novo review ERISA denial-of-benefit cases, Rule 52 bench trials are the preferred route, rather than motions for summary judgment under Rule 56.

-“[S]ister circuits take diverging views on how ERISA denial-of-benefits cases should be handled….”  Summary Judgment “may be appropriate when there is no genuine issue as to any material fact” and “a bench trial [under Rule 52] is appropriate when fact-finding is required.”  Op. at 13.

-“Ordinarily, in the summary judgment context, the court ‘cannot weigh the evidence or make credibility determinations.’” Op. at 13.

-Some circuits use a “modified summary judgment standard unique to ERISA cases. Instead of  “viewing the evidence in the light most favorable to the non-moving party [as is done in typical Rule 56 motions],” in ERISA cases, the courts in those circuits simply used summary judgment as a vehicle for deciding the issue “and ‘the non-moving party was not entitled to the usual inferences in its favor.’” Op. at 13 (quoting 1st Circuit cases).

-“The difficulty with employing summary judgment in ERISA [cases] arises where the parties disagree as to key facts.”  The Court is then forced to resolve “competing factual contentions within the administrative record about the cause, severity or legitimacy of an individual’s impairment.”  Op. at 13.

-“Where, as here, the district court is faced with directly at-odds contentions regarding whether the individual’s impairment is genuine, we see no alternative to the district court making findings of fact [under the Rule 52 procedure].”  Op. at 14.

-“Accordingly, in the context of de novo review of ERISA denial-of-benefits cases…district courts should employ…[a Rule 52 bench trial], which will typically be limited to the administrative record that was before the plan administrator….”  Op. 15 and fns 5 and 6.

  1. How much weight to give to opinions by treating physicians versus independent record reviews. Reliance Standard argued that the district court erred by giving more weight to the opinions of the treating physicians. The 4th Circuit disagreed, stating:
  • The United States Supreme Court Nord decision “did not create [a rule prohibiting the district court] from giving more weight to the opinions of treating physicians.”  Op. at 18
  • “Where, as here, the district court determines that accounts of treating physicians are more persuasive than those of physicians who only examined a paper record, it is not error for the district court to assign those opinions more weight.”  Op. at 18

Brief analysis: We understand the Court’s directive to use Rule 52 bench trials denial-of-benefit cases, and in practice most district courts in various circuits apply this approach to resolve these cases. However, this Court’s overly broad statement on whether a district court may give more weight to treating physicians versus an independent physician “who only examined a paper record,” should be addressed.  In most cases paper reviews by the independent physician involve a more holistic review of all of the claimant’s records and are much better informed than the siloed review by individual treating physicians. Practitioners should be ready to address this opinion and this overly broad statement. And plan administrators may want to give more thought to having IMEs versus record reviews in certain cases.  

Can a district court consider new arguments justifying claim denial that were not articulated in the initial claim denial or appeal? NO.  In fact this new Ninth Circuit decision indicates for the first time that it is “clear error” for a district court  to adopt “newly presented rationale when applying de novo review.”

Even rationale focused on a claimant’s credibility must be affirmatively stated in the claim denial, if considered, or it will be deemed a “newly presented rationale” and must be excluded from consideration by the district court if asserted in the litigation.

Here’s the newest case that highlights the point: Collier v. Lincoln Life Assurance Company of Boston, __ F.4th __ (9th Cir. November 21, 2022)(“[District court clearly errs by adopting newly presented rationale (for denying a Long Term Disability claim) when applying de novo review.”)

FACTS: Collier sought ERISA-governed Long Term Disability benefits claiming neck, and back pain prohibited her from doing her insurance sales occupation. Based on a medical record and vocational review, which concluded Collier could work full-time in her sedentary job, Lincoln denied her claim and she appealed. She then brought suit and the district court affirmed the denial.

DISTRICT COURT HELD: Collier’s claim properly denied because: (1) Collier was not credible in reporting her pain symptoms, (2) Collier’s medical providers based their opinions on Collier’s pain complaints, which were not credible, and (3) restrictions she might have could be accommodated with ergonomic equipment.

NINTH CIRCUIT HELD: REVERSED

  1. Applying de novo review, the Ninth Circuit concluded: “[T]he district court must examine only the rationales the plan administrator relied on in denying benefits and cannot adopt new rationales that the claimant had no opportunity to respond to during the administrative process.”  Op. at 7. (Emph. added).
  2. “We have expressed disapproval of post hoc arguments advanced by a plan administrator for the first time in litigation.”  Op. at 8.
  3. “Lincoln did not cite Collier’s lack of credibility or the lack of objective evidence when it denied her claim initially and on review.” Op. at 8.
  4. “Although we have held that a plan administrator may not hold in reserve new rationale to present in litigation, we have not clarified whether the district court clearly errs by adopting newly presented rationale when applying de novo review. We do so now.” Op. at 9.
  5. “The district court erred because it relied on new rationales to affirm the denial of benefits—rationales that Lincoln did not assert during the administrative process.” Op. at 7.

Key Take Away: When drafting claim denial letters, and the record legitimately calls into question the claimant’s credibility, it is strongly advised to mention that issue in the claim denial.

Can a district court consider new arguments justifying claim denial that were not articulated in the initial claim denial or appeal? NO. In fact this new Ninth Circuit decision indicates for the first time that it is “clear error” for a district court to adopt “newly presented rationale when applying de novo review.”

Even rationale focused on a claimant’s credibility must be affirmatively stated in the claim denial, if considered, or it will be deemed a “newly presented rationale” and must be excluded from consideration by the district court if asserted in the litigation.

Here’s the newest case that highlights the point: Collier v. Lincoln Life Assurance Company of Boston, __ F.4th __ (9th Cir. November 21, 2022)(“[District court clearly errs by adopting newly presented rationale (for denying a Long Term Disability claim) when applying de novo review.”)

FACTS: Collier sought ERISA-governed Long Term Disability benefits claiming neck and back pain prohibited her from doing her insurance sales occupation. Based on a medical record and vocational review, which concluded Collier could work full-time in her sedentary job, Lincoln denied her claim and she appealed. She then brought suit and the district court affirmed the denial.

DISTRICT COURT HELD: Collier’s claim was properly denied because: (1) Collier was not credible in reporting her pain symptoms, (2) Collier’s medical providers based their opinions on Collier’s pain complaints, which were not credible, and (3) restrictions she might have could be accommodated with ergonomic equipment.

NINTH CIRCUIT HELD: REVERSED

  1. Applying de novo review, the Ninth Circuit concluded: “[T]he district court must examine only the rationales the plan administrator relied on in denying benefits and cannot adopt new rationales that the claimant had no opportunity to respond to during the administrative process.” Op. at 7. (Emph. added).
  2. “We have expressed disapproval of post hoc arguments advanced by a plan administrator for the first time in litigation.” Op. at 8.
  3. “Lincoln did not cite Collier’s lack of credibility or the lack of objective evidence when it denied her claim initially and on review.” Op. at 8.
  4. “Although we have held that a plan administrator may not hold in reserve new rationale to present in litigation, we have not clarified whether the district court clearly errs by adopting newly presented rationale when applying de novo review. We do so now.” Op. at 9.
  5. “The district court erred because it relied on new rationales to affirm the denial of benefits—rationales that Lincoln did not assert during the administrative process.” Op. at 7.

Key Take Away: When drafting claim denial letters, and the record legitimately calls into question the claimant’s credibility, it is strongly advised to mention that issue in the claim denial.

Can the ERISA claims administrator “cure” inadequacies, made during its initial claim denial, during the appeal process? Yes.

Did a claims administrator’s recommendation, that a claimant receive a job-accommodation, constitute sufficient proof of disability?  No.

This new case highlights these issues: Canter v. AT&T Umbrella Benefit Plan No. 3, 33 F. 4th 949 (7th Cir. May 11, 2022)(Errors made during the initial claim denial can be “cured” during the administrative appeal; “[D]isability-benefit and job-accommodation determinations may resemble each other, but they are not identical, and so different conclusions are to be expected from time to time.”)

FACTS: Canter installed overhead wires (as high as 28’ off the ground) for AT&T and sought ERISA-governed short-term disability after experiencing migraines, lightheadedness and dizziness. After paying benefits for a few months, Sedgwick, the ERISA claims administrator, denied benefits because Canter had normal test results and a peer medical review concluded Canter’s symptoms had improved. Canter’s internal appeal was denied and he brought suit.  The district court affirmed the claim denial, and Canter appealed.

ISSUES:  

  1. Whether Sedgwick can “cure” inadequacies in its initial claim denial during the appeal process? Yes.
  2. Whether Sedgwick failed to properly investigate the claim because peer reviewers made only two (2) attempts to contact treating physicians? No.
  3. Whether Sedgwick’s recommendation for a job-accommodation is sufficient proof of disability?  No.

Seventh Circuit Court of Appeals Held:  Sedgwick’s Claim Denial Affirmed.

  1. The plan called for “objective Medical Evidence” consisting of “results from diagnostic tools and examinations….” The court noted that “the fact that pain or dizziness…evades clinical detection or explanation is not by itself a reason to discount or disregard it.”  Op. at 3, 10.
  2. “But just as self-reported evidence is not irrelevant, neither is it a trump card. The record as a whole is what matters.” Op. at 10.
  3. Canter argued that Sedgwick’s initial determination did not properly consider his job duties, like his job duty to be able to climb. The court agreed that the initial claim denial failed to address whether Canter was disabled from climbing—a key job duty.  But Sedgwick’s omission of this job duty “was cured during Sedgwick’s internal appeal [when the peer reviewers] explicitly touched on ‘climbing’….”  Op. at 11.
  4. Canter claimed the investigation was inadequate because Sedgwick’s peer reviewers unsuccessfully made only one or two attempts to reach only one of several treating physicians. The court concluded errors in this regard were “harmless.”  Op. at 13.
  5. The district court correctly disregarded Sedgwick’s earlier recommendation that Canter receive a job accommodation. Job accommodation evidence, even if considered, would not have undermined Sedgwick’s disability decision. “[D]isability-benefit and job-accommodation determinations may resemble each other, but they are not identical, and so different conclusions are to be expected from time to time.” Op. at 14.

Sometimes an ERISA-governed disability benefit claim is denied on a specific issue that precludes the need for a full development of the record on the merits of the claim. E.g., claimant was not eligible for benefits because he was not a full-time employee at the time of disability.

But when should courts order remand, after determining the claimant may be eligible for benefits?  This new decision provides some helpful guidance.

Here’s the case of Newsom v. Reliance Standard Life Ins. Co., 2022 WL 500403, __ F.4th __ (5th Cir. February 18, 2022)(“‘[I]t is unnecessary for plans to hedge their bets on a possible reversal on appeal by requiring that, after a plan has already found that an employee does not qualify for disability benefits under the ‘own occupation’ standard, it also must determine whether the employee is disabled from  ‘any occupation.’’”)

FACTS: Newsom sought ERISA-governed short and long term disability benefits, claiming he had chronic fatigue syndrome, depression, and other ailments. Reliance denied benefits because, by the time Newsom filed his claim he was part-time and not eligible for LTD benefits. The District Court concluded, however, that Newsom was eligible for benefits but refused to remand the claim and then “summarily awarded $194,290.72”.  Reliance appealed.

ISSUE: Whether the district court should have remanded the claim back to the claims administrator after concluding Plaintiff was eligible as a full-time worker.

FIFTH CIRCUIT COURT OF APPEALS REVERSES, HOLDING: YES.

  1. Plaintiff was eligible for long term benefits because plaintiff was “full-time” as defined under the policy. Op. at 7.
  2. The District Court erred in failing to remand so Reliance could develop a full factual record on the merits of his benefits claim. Op. at 12-13.
  3. Plaintiff argued that court precedent suggests remand should be denied because Reliance should have made “their record prior to coming to federal court” and “allow[ing] the administrator another opportunity to make a record discourages this effort.”  Op. at 12.
  4. The Court of Appeals stated that remand in this case would be appropriate because the record on remand would be focused on a merits determination whether Newsom was entitled to benefits, which is different from the record developed to assess whether Newsom was a full-time worker. Op. at 12.
  5. “‘Because Defendants denied that coverage ever existed until the matter was before the district court, the administrator never had occasion to exercise discretion to interpret the terms of the Plan.’” Op. at 13.
  6. “Remand was proper because ‘the disability issue did not ripen into an apple ready to be bitten until after an initial finding of eligibility.’” Op. at 13.
  7. “‘[I]t is unnecessary for plans to hedge their bets on a possible reversal on appeal by requiring that, after a plan has already found that an employee does not qualify for disability benefits under the ‘own occupation’ standard, it also must determine whether the employee is disabled under from ‘any occupation.’’” Op. at 14 (citing Pakovich v. Broadspire Svcs. Inc., 535 F.3d 601, 605 (7th Cir. 2008)).
  8. The district court “provided no explanation for how it reached the amount of disability that Newsom should be awarded beyond noting ‘there is no evidence of any offset or reduction to which Reliance is entitled.’…An administrative record answering these questions was simply not before the district court, irrespective of de novo review.”’ Op. at 15.
  9. “Once the district court determined that Newsom was in fact eligible for LTD benefits, and the date on which his eligibility began, it should have stopped as well and remanded the case for Reliance to make the separate disability determination.” Op. at 16.

What is the most efficient way to invite the district court to resolve ERISA-benefit claims?

What’s the difference between using Rule 56 motions for summary judgment, versus a Rule 52 Motion for Judgment?

This new case highlights why Rule 52 motions may be the preferred motion to efficiently resolve ERISA benefit claims.  Avenoso v. Reliance Standard Life Insurance Company, __ F.4th __, 2021 WL 5570816 (8th Cir. November 30, 2021)(“‘[S]ummary judgment is inappropriate when the record permits reasonable minds to draw conflicting inferences about a material fact.’” “Parties that wish the district court to exercise its fact finding under the Federal Rules of Civil Procedure 39(b) or 52(a)(1) to decide the case on the administrative record should ask the district court to do exactly that.”)

FACTS: Avenoso sought ERISA-governed long term disability benefits. The district court granted Avenoso’s motion for summary judgment, and made findings on disputed factual questions when deciding that Avenoso was entitled to benefits under the “any occupation” provision. Reliance Standard appealed.

ISSUE:  Whether, in an ERISA-benefits case, the district court can assess credibility of evidence when ruling on a motion for summary judgment.

EIGHTH CIRCUIT HELD: NO.  District court improperly “weighed the evidence” and credibility in ruling on motion for summary judgment

  1. “[W]here the parties agree that the administrator lacked discretionary authority…[t]he district court reviews the decision of an administrator …de novo, acting as factfinder on the administrative record.” Op. at 6.
  2. Some federal circuits, like the First Circuit Court of Appeals, allow ERISA-benefits cases to be resolved under Rule 56 (motion for summary judgment) because those circuits consider a lawsuit contesting the denial of benefits as “‘simply a vehicle for teeing up the case for decision on the administrative record’ and thus ‘the district court…may weigh the facts’ and ‘resolve conflicts in evidence.’”  Op. at 5. (citing First Circuit case).
  3. But in the Second, Sixth, Seventh, Eighth, Ninth and Eleventh Circuit Courts of Appeal, “‘summary judgment is inappropriate when the record permits reasonable minds to draw conflicting inferences about a material fact.’” Op. at 5.
  4. “Parties that wish the district court to exercise its fact finding under the Federal Rules of Civil Procedure 39(b) or 52(a)(1) to decide the case on the administrative record should ask the district court to do exactly that.”  Op. at 8.
  5. “If…a party moves for summary judgment under Federal Rule of Civil Procedure 56, then the district court must follow the procedures outlined in that rule and grant summary judgment only if ‘there is no genuine issue of material fact’ and ‘the moving party is entitled to judgment as a matter of law.’”   Op. at 8.
  6. The Eighth Circuit concluded the district court improperly weighed credibility of the evidence when it granted summary judgment. But the Eighth Circuit concluded the district court’s error was “harmless” and affirmed the district court decision granting benefits to Avenoso anyway. Op. at 11.

KEY TAKE AWAY: In most circuits, with cases involving de novo review, the safer practice is to bring Rule 52 motions for judgment, which allows the court to assess the weight and credibility of the evidence and requires the court to issue findings of fact and conclusions of law.

What happens when an ERISA-governed disability claim is denied solely under the “own occupation” provision, but a reviewing district court concludes the claimant is entitled to “own” occupation benefits?

Does an insurer “waive” an evaluation of the “any occupation” provision because the insurer denied the claim solely on the “own occupation” standard? NO.

Can the district court evaluate and award continued benefits under the “any occupation” standard when the insurer has not yet made that assessment?  NO.

Here’s the recent case of Martinez v. Standard Ins. Co., 2021 WL 4592430 (5th Cir. October 5, 2021)(“[W]hen the plan administrator has not issued a decision on a claim for benefits that is now before the courts, the matter must be sent back to the plan administrator to address the issue in the first instance.”  Insurers denying benefits solely under the “own occupation” standard” are not required “to spend resources evaluating participants” under the “any occupation” standard.)

FACTS:  Martinez sought her deceased husband’s ERISA-governed long term disability benefits for “cellutis and abscess” (infection) of his right hand.  Standard Insurance concluded Chavez qualified for “own occupation” benefits which could go as long as 24 months.

But when Chavez sustained a rotator cuff injury, Standard determined that his benefits were limited to 12 months because a provision limited benefits for claimed disabilities (right wrist infection and shoulder rotator cuff) involving carpal tunnel, arthritis or muscle sprains.

DISTRICT COURT HELD FOR PLAINTIFF:

  1. Chavez’s wrist condition was not subject to the 12 month limitation even though the court agreed that infection-caused damage to his wrist was “technically…a species of arthritis.” The district court theorized, however, that the “average plan participant” would understand “arthritis” to refer only to degenerative joint disease.
  2. Standard had failed to give notice to Chavez that it was denying benefits because Chavez did not meet the requirements under the own occupation provision.
  3. The court then awarded “any occupation” benefits because Standard “waived” its right to request evidence on the “any occupation” issue.

FIFTH CIRCUIT COURT OF APPEALS HELD: REVERSED 

  1. “[T]he plan administrator has the obligation to identify evidence in the administrative record and…the claimant may then contest whether the record is complete.” Op. at 7.
  2. Insurers do not necessarily waive exclusions if the exclusion or analysis is not asserted in the initial denial letter. Op. at 8.  Schadler v. Anthem Life Ins. 147 F.3d 388, 393 (5th Cir. 1988)(Administrator initially denied claim because policy was never in effect. Insurer allowed to later argue for the first time other exclusions once it was shown the policy was actually in effect.)
  3. Insurers denying benefits solely under the “own occupation” standard are not required “to spend their resources evaluating participants” under the “any occupation” standard.  Op. at 8.
  4. Remand for further assessment of the any occupation standard is required. “[W]hen the plan administrator has not issued a decision on a claim for benefits that is now before the courts, the matter must be sent back to the plan administrator to address the issue in the first instance.”  Op. at 9.

You already know that many state laws ban the “abuse of discretion” standard of review in denials of ERISA-governed long term disability benefits.

But self-funded ERISA plans may still apply the discretionary standard of review.

And “incorporating by reference” the Summary Plan Description (SPD) is effective in making the SPD part of the ERISA plan.

Here’s the recent case of Sorger v. Norvatis, __ Fed. Appx. __ (9th Cir. August 25, 2021)(Pre-existing condition case: Abuse of discretion standard of review applied to self-funded plan and employee-purchased supplemental benefit).

FACTS:  Sorger sought ERISA-governed long term disability (LTD) benefits from a self-funded plan. Participants could also purchase supplemental LTD coverage that added 17% more to the disability benefit. Funds from purchases by employees were held in a Voluntary Employee Benefit Association (VEBA) trust. The operative ERISA plan conferred discretion to Met Life to construe plan terms and decide eligibility.

Sorger argued the pre-existing condition clause was not valid because the plan stated that Met Life would establish the pre-existing condition limitations, but argued that Met Life had not created the relevant limitation.

Ninth Circuit Court of Appeals Held:

  1. The abuse of discretion standard applied. The VEBA Trust was not a separate ERISA plan because the trust was used only as a funding mechanism for the plan’s supplemental LTD benefit. Op. at 4. Since there was only one ERISA plan, and it clearly conferred discretion, the abuse of discretion standard applied. Op. at 4-5.
  2. “[T]he pre-existing condition clause in the Summary Plan Description was valid.” The plain language of the Plan expressly incorporates, in its entirety, the Summary plan Description prepared by Novartis.  Accordingly, Met Life had discretion to construe and enforce the Summary Plan Description.  Op. at 6-7.
  3. Sorger had a pre-existing condition, justifying denial of the claim. During the look back period, but prior to when a definitive diagnosis was reached,  Sorger received treatment for a variety of unrelated conditions and “underlying conditions” related to his ultimate medical diagnosis. Consequently, “Sorger ‘received medical treatment, consultation, care or services’ for his pre-existing condition.” Op. at 9.

We all are seeing more “breach of fiduciary duty claims” asserted in lawsuits seeking ERISA-governed benefits.  As you know, ERISA allows participants, beneficiaries, and the Secretary of Labor to obtain relief against ERISA fiduciaries for breaching the fiduciary duties they owe to the plan or its participants. ERISA fiduciaries can also be liable under § 502(a) for engaging in certain types of specified self-dealing and prohibited transactions under ERISA § 406 that are per se fiduciary duty violations.

But what is a “fiduciary duty”?  Do repeated calculation errors, or the failure to audit for calculation errors, involve “fiduciary duties”? NO. 

This new case highlights the point:  Morris v. Aetna Life Insurance Company, 2021 WL 3509553 (C.D. California August 9, 2021)(“…miscalculation [of benefits], the repeated affirmation of the miscalculation, and the failure to audit to catch miscalculations—all are inextricably entwined with the ‘calculation of benefits,’ which is ‘a ministerial function that does not have a fiduciary duty attached to it.’”)(Emph. added).

FACTS:  In 2009, Morris sought ERISA-governed long term disability benefits during chemotherapy treatments for cancer.  Aetna approved benefits, concluding she was totally disabled.  Over the next ten years Aetna paid Morris based on the assumption that her employer paid Morris bi-weekly (26 paychecks a year)… but the employer had paid Morris bi-monthly (24 paychecks per year). Aetna’s repeated ten-year calculation errors resulted in an overpayment to Morris totaling $56,478.

So, when Aetna discovered its repeated calculation errors and overpayment, it began reducing monthly payments to Morris.  Morris sued alleging she was entitled to the higher benefit, and also asserted an ERISA 502(a)(3) claim seeking equitable remedies, like estoppel and waiver, claiming Aetna breached its fiduciary duties to her.

ISSUE: Whether Aetna breached its fiduciary duty because of repeated calculation errors overpaying Morris, and for seeking reimbursement of the overpayment?

DISTRICT COURT HELD: Aetna wins summary judgment: Repeated calculation errors, and failure to audit to catch miscalculations, do NOT involve fiduciary duties.

  1. “In every case charging breach of ERISA fiduciary duty…, the threshold question is not whether the actions of some person employed to provide services under a plan adversely affected a plan beneficiary’s interest, but whether that person was acting as a fiduciary (…performing a fiduciary function) when taking the action subject to the complaint.”  Op. at 8-9.
  2. “[T]he calculation of benefits according to a pre-set formula was not a fiduciary function under ERISA.” Op. at 9 (Citing Bafford v. Northrop Grumman Corp., 994 F.3d 1020, 1028 (9th Cir. 2021) (Emph. added)).
  3. “The alleged breach of fiduciary duties—resulting from the miscalculation, the repeated affirmation of the miscalculation, and the failure to audit to catch miscalculations—all are inextricably entwined with the ‘calculation of benefits,’ which is ‘a ministerial function that does not have a fiduciary duty attached to it.’”  Op. at 9-10.
  4. “Claims for estoppel and waiver fail for another reason: ‘The concepts of waiver or estoppel cannot be used to create coverage beyond that actually provided by an employee benefit plan.’”  Op. at 10.