Are those three year suit limitations provisions in ERISA-governed long term disability plans enforceable? YES!

Here’s today’s case, Heimeshoff v Hartford Life & Accident Insurance Co., __ U.S. __ (December 16, 2013) (“3 year from time proof of loss must be submitted” suit limitation provision enforced as reasonable).

FACTS.  Heimeshoff made an ERISA-governed long term disability claim on August 22, 2005. The claim, administered by the Hartford, was denied. Then Heimeshoff received extensions to file an appeal by September 30, 2007. The appeal was denied on November 26, 2007.

The plan had a suit limitations provision which reads: “Legal action cannot be taken against The Hartford…[more than] 3 years after the time written proof of loss is required to be furnished according to the terms of the policy.”

Heimeshoff filed suit on November 18, 2010.

ISSUE.  Was Plaintiff’s claim barred by the Plan’s limitations provision? YES

United States Supreme Court Rationale:

  1. “ERISA Section 502(a)(1)(B) does not specify a statute of limitations. Instead, the parties in this case have agreed by contract to a 3 year limitations period.” Op. at 5.
  2. “‘[I]n the absence of a controlling statute to the contrary, a provision in a contract may validly limit, between the parties, the time for bringing an action on such contract to a period less than that prescribed in the general statute of limitations, provided that the shorter period itself is a reasonable period.'”  Op at 6.
  3. “We must give effect to the Plan’s limitations provision, unless we determine either the period is unreasonably short, or that a ‘controlling statute’ prevents the limitations provision from taking effect.”  Op. at 9.
  4. “We hold that the Plan’s limitations provision is enforceable.”  Op. at 16.

Key Take Aways: The opinion addresses a number of legal and theoretical objections to suit limitations provisions, and rejects them. The decision also provides excellent language emphasizing that ERISA plan language should be enforced.  This is a very helpful decision from the Supreme Court.

Wow—You need to know what happened last week in the Sixth Circuit:

Disgorgement of profits as a remedy in an ERISA long term disability case?

Rochow v. LINA, __ F.3d __, 2013 WL 6333440 (6th Cir. December 6, 2013)(In a 2-1 decision, Court concludes disgorgement of unjust enrichment ($3.8m) is an appropriate equitable remedy under ERISA in a long term disability case).

It’s not over, however.  As an outsider looking in, one can expect that petitions for en banc review likely will follow.

FACTS:  Rochow filed a long term disability claim. He appealed the denial three times. Rochow then filed suit  and the District Court concluded LINA abused its discretion when it denied benefits. LINA appealed, and the Sixth Circuit affirmed and remanded.

Then, Plaintiff filed a “motion seeking an equitable accounting and a request for disgorgement.” Plaintiff claimed disgorgement of profits was appropriate because LINA breached fiduciary duties and that disgorgement was necessary to prevent LINA’s unjust enrichment resulting from profits it earned on wrongfully retained benefits. Plaintiff presented an “expert” who opined on a calculation of unjust enrichment damages.

LINA argued, among other things, that disgorgement is inappropriate because equitable relief under Section 502(a)(3) is available only when Section 502(a) fails to provide an adequate remedy.

The District Court ordered disgorgement of $3.8 million.

ISSUE: Is disgorgement an appropriate equitable relief in a long term disability claim?  YES

6th Circuit Rationale (with Dissent):

  1. “Nothing in ERISA itself or Varity [Corporation v. Howe, 516 U.S. 489 (1996)] limits this Court to allowing remedies under Section 503(a)(3) that focus on plaintiff’s injuries.” Op. at 15.
  2. “[T]he remedy of disgorgement of profits under Section 502(a)(3) was recognized by the Eighth Circuit….  Accordingly, we hold that disgorgement is an appropriate remedy under Section 502(a)(3) and can provide a separate remedy on top of a benefit recovery.”  Op. at 16.
  3. “Disgorgement does not result in double compensation….”  Op. at 15.
  4. There is a long discussion on how an expert calculates “unjust enrichment” for purposes of disgorgement of profits.  Op. at 18-23.
  5. DISSENT:
  • The decision “undermines ERISA’s remedial scheme and grants an astonishing $3,797,867.92 windfall under the catchall provision in Section 502(a)(3).”  Op. at 25.
  • “Both the Supreme Court and this Circuit have interpreted ERISA to prevent such double recoveries.”  Op. at 26.
  • “The majority’s ruling works a fundamental change in the interplay between Section 502(a)(1)(B) and Section 502(a)(3).  This is not authorized by Supreme Court precedent.”  Op. at 26.
  • “Plaintiff was made whole when he was paid his disability benefits and attorney’s fees.” Op. at 25.

Key Take Aways:

  1. There are lots of problems with this split decision.  The decision makes no sense when viewing the historical precedent on availability of equitable relief under ERISA. Besides that, denying a benefit should not be viewed, on its own, as a breach of fiduciary duty.  But that is what this majority seems to allow.
  2. Look for the Plaintiff’s bar to grab this case and add another cause of action for disgorgement.

PROBLEM: During the claim process your claims administrator mistakenly tells the claimant that the ERISA-governed plan is NOT governed by ERISA.  Uh oh.

Do you lose ERISA as the governing law over the policy and claim?  NO. This rule makes a lot of sense. Claims administrators have a tough job, and sometimes clerical mistakes can be made.  The courts seem to understand this.

Here the case of Hill v. Lincoln National Life Insurance, [PDF] __ F. Supp.2d __, 2013 WL 5863007 (N. D. Cal. October 30, 2013) that illustrates the point.

FACTS. Hill made a claim for long term disability benefits. Defendant contended the claim was governed by ERISA. During the claims process, however, a claim summary incorrectly stated the claim was “non-ERISA” and that a Legal Referral form incorrectly stated “Group is Non-ERISA.” Plaintiff contended that the insurance policy was not an ERISA plan because of these statements in the claim file.

ISSUE.  Whether incorrect statements by the claims administrator (that the policy is “non-ERISA”) estop the plan from arguing that ERISA applies.

HELD:  Mistaken statement or writings cannot change the application of ERISA.

  1. If the plan was originally governed by ERISA, “employee statements or writings opining on legal determinations that are not binding admissions of an insurer …do not determine the interpretation of an insurance contact.” Op. at 7.
  2. “To establish estoppel, Plaintiff must show that she justifiably relied on the statements.  Here, there is no evidence that Plaintiff even knew about these documents before discovery in this case, much less relied on them.” Op. at 7.
  3. The real debate in the case was whether the documents and practices satisfied requirements to establish that ERISA governed the insurance policy. The opinion has a good discussion about what it takes to make sure the court considers the policy to be governed by ERISA.  In this case the court concluded it was a “triable issue of fact” whether ERISA governed the insurance policy.  See Op. at 8-9.

What language is needed in the ERISA plan to confer discretion? 

The bar was just raised in the 4th Circuit.

Here’s the case of Cosey v. Prudential Insurance Company of America, [PDF] __F.3d__ (November 12, 2013).

FACTS:  Cosey was a marketing manager, eligible for short and long term disability (LTD) benefits under the company ERISA plan.  The LTD plan, administered by Prudential, stated that benefits will be paid only if the claimant “submit[s] proof of continuing disability satisfactory to Prudential” (emphasis added).

ISSUE:  Does the language confer discretion, or does the de novo standard of review apply?

4th CIRCUIT HELD:  De novo review applies—the language did not confer discretion.

  1. “[F]ive of our sister circuits recently have held that this language does not unambiguously confer discretionary authority…. We agree with the conclusions reached by the five sister circuits.”  Op. at 7.
  2. “[T]he phrase ‘proof satisfactory to us’ is inherently ambiguous. Op. at 7-8
  3. The phrase does not clearly confer discretion because “such a construction…would not be an insured employee’s ‘most likely’ interpretation of that language.”  Op. at 8.
  4. [A]mbiguities in an ERISA plan must be construed against the administrator responsible for drafting the plan.”  Op. at 9.
  5. The court sidesteps language in Gallagher v. Reliance Standard, 305 F.3d 264, 268, 269 (4th Cir. 2002).  There, the 4th Circuit stated that plan language requiring that a claimant submit “proof…that is satisfactory to [the plan administrator]” would “occasion abuse of discretion review.” But in this case the 4th Circuit stated the language in Gallagher was “dictum and does not bind our consideration of the plan language before us.” Op. at 7.

What does it take to assert an effective  exhaustion of remedies defense in ERISA cases? Properly drawn plan documents that expressly impose the duty upon the claimant to exhaust remedies before bringing a lawsuit.

Here is an excellent blog post by one of the true experts in the field, Stephen Rosenberg, and his Boston ERISA & Insurance Litigation Blog.

http://www.bostonerisalaw.com/archives/benefit-litigation-opening-up-the-courthouse-door-the-second-circuit-weighs-in-on-exhaustion-of-administrative-remedies.html

Key points:

1. The Second Circuit may have weakened the “failure to exhaust administrative remedies” defense.

2.  In addition to the Second Circuit, two other “circuits have held that, where a plaintiff reasonably interprets the plan terms not to require exhaustion and, as a result, does not exhaust her administrative remedies, the case may proceed in federal court.”

3.  “[T]here have been a smattering of decisions over the years . . .finding that an administrator cannot insist on particular internal claim procedures if the plan documents themselves do not clearly impose them.”

4.  KEY TAKE AWAY:  “Properly drawn plan documents, which clearly imposed such an obligation, would have been sufficient to preclude the Court’s ruling, and to allow the plan to prevail solely on the ground that the participant had failed to exhaust administrative remedies available under the plan.”

You already know that under ERISA a court may, in its discretion, award reasonable attorney’s fees and costs to a claimant seeking benefits if there is a showing of “some degree of success on the merits.”

What does “some degree of success on the merits” mean?

You probably already know it does not require the claimant to be the “prevailing party.”

The United States Supreme Court explained this in Hardt v. Reliance Standard Life Ins. Co., 560 U.S. 242 (2010) (As a first step in determining whether a claimant is entitled to attorney fees, the party seeking attorney’s fees in an ERISA action need not demonstrate that it was a “prevailing party” in the lawsuit, but must show that it achieved “some degree of success on the merits” to be awarded fees. As a second step in the analysis, courts may apply a five-factor test.)

So what proof is needed to establish “some degree of success on the merits” after the Hardt decision?

Here is a mini-summary of a sampling of recent September 2013 cases:

  1. Binaley v. AT&T Umbrella Benefit Plan No. 1, __ F. Supp. 2d _, 2013 WL 5402236 (N.D. Cal. September 26, 2013) (Attorney fees denied: “The evidence shows that Plaintiff did not serve Defendants with the Complaint until after the decision had been made to reverse the previous denial and award of LTD benefits [and Defendants had no prior knowledge of the lawsuit].”)
  2. Scarangella v. Group Health, Inc., _ F.3d _, 2013 WL 4792466 (2nd Cir. September 10, 2013) ( Remanded to district court: “[A] party that obtains relief due to the voluntary conduct of another party after minimal litigation in the district court is unlikely to succeed in demonstrating that the impetus for the relief was some action by the court[.]”)
  3. Adair v. El Pueblo Boys & Girls Ranch, _ F. Supp. 2d _, 2013 WL 4775927 (D. Colo. September 5, 2013) (Attorney fees awarded because the district court had earlier remanded the benefit claim, and benefits were partially approved after remand).

KEY TAKE AWAYS:

  1. Consider settling early in the suit (minimal litigation) and before the court renders a decision on the merits;
  2. Know and apply the 5 factor test addressed in these cases;
  3. Make sure your ERISA settlement agreements address and resolve attorney fee claims, and consider adding a waiver for attorney fee claims.

How will a court construe ambiguities in ERISA plan terms?

If the plan confers discretion to the administrator “to interpret plan terms,” ambiguities may NOT be construed against the plan administrator.

Here’s the case of Porter v. Lowe’s Companies, __ F.3d__ (5th Cir. September 24, 2013) (PDF).

FACTS: Elizabeth Porter, employed with Lowe’s and eligible for ERISA death benefits, died in an auto accident while driving to work to respond to a security alarm.  The plan conferred discretion to “interpret the terms of the Plan to determine eligibility for benefits.”  Newman, the plan administrator, denied the death benefit claim because the Plan excludes injuries or death sustained “during travel to and from work.”  The surviving spouse sued.

District Court Held: Administrator abused discretion in denying benefits because employee was injured in an accident while on her way to work.  Court concluded the employee was on a “Bonafide Trip” and therefore the beneficiary was entitled to death benefits under the plan.

5th Circuit REVERSES and finds no abuse of discretion:

  1. Ambiguities may not be construed against the plan administrator when the administrator is given discretion to interpret plan terms.  Op. at 7, fn. 13.
  2. The Court, in reviewing a Plan administrator’s decision, can by-pass without deciding whether the determination is legally correct, “and move directly to whether the determination was an abuse of discretion.” Op. at 9.

Did you know that awarding at least some benefits, rather than denying benefits entirely, helps prove the claims administrator is “unbiased”?

Also, when there are sharp conflicting opinions between the claimant’s doctors and claims administrator reviewing doctors, the claims administrator may be entitled to greater deference….

Here’s the case of Cannon v. Aetna Life Ins. Co., __F.3d__, 2013 WL 527655 (D. Mass September 17, 2013) (“when the medical evidence is sharply conflicted, the deference due to the plan administrator’s determination may be especially great.’”)

FACTS: Cannon was a pharmacist, eligible for disability benefits under his employer’s ERISA Plan. The plan conferred discretionary authority to Aetna to determine entitlement to benefits. There was a structural conflict—Aetna funded the plan benefit and made benefit determinations. Cannon filed a short term disability (STD) and long term disability (LTD) for exhaustion and heart arrhythmias. Aetna granted benefits for a period of time, but based on a medical review and peer reviews, Aetna then discontinued benefits. Cannon sued and claimed Aetna ignored records.

Dist. Court Held: Case remanded for further review (but there were some nice pearls in the opinion).

1.         “A decision to award at least some benefits rather than deny benefits entirely ‘manifests an approach demonstrating an unbiased interest that favor[s the claim applicant], making the conflict factor less important (perhaps to the vanishing point).’” Op. at 6. (Emph. Added)

2.         In ERISA cases, “when the medical evidence is sharply conflicted, the deference due to the plan administrator’s determination may be especially great.’” Op. at 8 (citing Leahy v. Raytheon Co., 315 F.3d 11, 19 (1st Cir. 2002).

3.         An expert retained by the claim administrator stated that it would be “beneficial” to review additional records. The Court remanded to Aetna to allow review of those additional records.  Op. at 9.

4.         A word about the statutory penalty claim (failure to provide plan documents): Claimant must demonstrate “a connection between Aetna’s procedural misstep [in failing to provide requested documents] and his inability to have a full and fair review of the claim to benefits[.]” Op. at 10.

What happens when an independent, unsolicited source provides evidence that a disability claimant may be committing fraud?  Can you consider emails hacked from a computer? What must the claim administrator do to evaluate the source of the evidence?

Here’s a fun new case to read (even if you don’t care about the issue presented). Truitt v. Unum Life Insurance Company of America, (pdf) __ F.3d__, 2013 WL 4777327 (5th Cir. Sept. 6, 2013).

FACTS: Truitt, a litigation attorney, claimed disability due to leg and foot pain. UNUM began paying benefits in 2003. But based upon surveillance video, two Independent Medical Exams, and a Functional Capacities Assessment, Unum discontinued benefits in 2006.  On appeal, however, Unum reinstated benefits.

But then… a former scorned boyfriend blew the whistle.  He provided Unum 600 pages of emails, photos and documents.  They showed that during her claimed disability Truitt was “swamped” with legal work, and had an impressive vacation travel schedule, including “dancing on decks.” Unum had additional experts review the information and terminated benefits concluding Truitt was not “disabled.” Truitt claimed her computer had been hacked and that Unum should not have considered the emails.  Truitt filed suit and Unum counterclaimed for $1m in overpayments.

5th CIRCUIT HELD:

  1.  “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 the claimant.”  Op. at 15.
  2. A conflicted administrator is “not under a duty to ‘reasonably investigate’ a claim.” When confronted with a denial of benefits by a conflicted administrator, the district court may not impose a duty to reasonably investigate on the administrator. Op. at 15.
  3. Unum did not abuse its discretion by considering emails (from the scorned boyfriend) because Unum: (a) identified evidence it received (emails and travel documents etc.) that supported the decision to deny benefits; (b) considered Truitt’s rebuttal evidence that the emails had been hacked; (c) addressed Truitt’s objections to the emails, finding no evidence the emails had been manipulated or tampered with.  The emails appeared authentic and reliable.  Op. 16
  4. Unum’s $1m reimbursement claim: When assessing fraud of a claimant, courts must apply federal common law, not Texas law. Op. at 19. The case was remanded for the trial court to reassess this claim.