An Insurance Commissioner’s non-binding opinion banning discretionary language in an ERISA governed plan has no effect.

Here’s the case of Frazier v. Life Insurance Company of North America, __ F.3d __ (6th Cir. August 5, 2013) (Court  is “‘not bound by language in a non-binding opinion’ [banning discretionary language in a disability insurance policy] by Kentucky’s [Insurance] Commissioner.”).

But wait….there’s more.

Read this case to get some helpful rulings on a host of other key ERISA issues including:

  • when an insurer is vested with discretion,
  • what standard applies in determining the occupational duties of the claimant,
  • whether plan language obligates the insurer to conduct an independent medical exam,
  • whether the insurer is obligated to help the claimant with her Social Security Disability claim.

FACTS: Frazier was a sorter on a production belt and sought ERISA-governed long term disability benefits due to low back pain. The plan contained discretionary language, but Kentucky’s Insurance Commissioner issued a non-binding opinion that “discretionary clauses deceptively affect the risk purported to be assumed in any policy and as such, any forms containing discretionary clauses may be disapproved.” LINA denied the claim and appeal as there was no evidence of sensory deficits.  The trial court granted LINA’s summary judgment, applying the discretionary standard of review, and Frazier appealed.

SIXTH CIRCUIT AFFIRMS:

  1. Frazier claimed de novo review should apply because the Plan did not confer discretionary authority in LINA.  But the insurance policy was an ERISA plan document and therefore the plan documents made LINA a “named fiduciary for deciding claims for benefits under the Plan, and for deciding any appeals of denied claims.”  Op. at 9.
  2. Language in a plan requiring the claimant to “provide…satisfactory proof of Disability” grants discretion to administrators and fiduciaries.  Op. at 9 (Emph. in original).
  3. The court applied discretionary review, and not de novo review, because the court is “‘not bound by language in a non-binding opinion’ by Kentucky’s [Insurance] Commissioner.”  Op. at 10.
  4. LINA reasonably consulted with the employer to ascertain her job duties. “LINA needs only determine the duties of the occupation as it is normally performed in the national economy.” Op. at 12
  5. LINA sufficiently consulted with Frazier’s doctors by seeking notes and other information related to her condition and treatment. Op. at 12.
  6. LINA “reasonably gave more weight to the objective findings and express clearance to return to work provided by [one treating doctor] rather than [another treater’s assessment] which lacked diagnostic data.” Op. at 12.
  7. “LINA was under no obligation to have Frazier physically examined—although the Policy permits LINA to have a physical evaluation performed on a claimant, no language requires it.”  Op. at 12 (Emph. added).
  8. Plaintiff claimed LINA was judicially estopped from concluding she was not disabled because LINA apparently made representations supporting Frazier’s claim for disability with the Social Security Administration. The Court stated that LINA’s statement supportive of the SSDI claim have no effect because “[t]hese statements were made before LINA finished assessing Frazier’s benefits claim and thus before receiving any offsets from an SSDI award.”  Op. at 12.
  9. LINA was not required to assist Frazier in her Social Security Disability Claim application. The plan language indicates there is no “obligation” for LINA to assist Frazier. (“The Insurance Company may help the Employee in applying for [SSDI] Benefits.”)  Op. at 13.

Key Take Away:  A very nice case to read for a variety of issues.

See how the Supreme Court’s June 26, 2013 United States v. Windsor decision, which concluded the Defense of Marriage Act unconstitutionally restricted spousal benefits to members of the opposite sex, affects ERISA beneficiary decisions.

Here’s the case of Cozen O’Connor PC v. Jennifer Tobits, 2013 WL 3878688 (E.D. Pa July 29, 2013)(“Following the [Supreme Court’s ruling in Windsor], the term “’Spouse’ is no longer unconstitutionally restricted to members of the opposite sex, but now rightfully includes those same-sex spouses in ‘otherwise valid marriages.’”).

FACTS: Sarah Farley joined the Cozen law firm in 2004 and married Jennifer Tobits in Canada in 2006. The Cozen ERISA plan required that death benefits be paid “to the Participant’s ‘surviving Spouse’ upon the death of the Participant.” The Plan did not define “spouse” except to the extent that it required the “Spouse” to be married for a year period prior to receiving benefits. The Plan also allowed the Participant to designate a different beneficiary, but the Spouse first had to waive his or her rights to be the beneficiary before the designation of another beneficiary can be deemed valid.

After Ms. Farley died in 2010, the Plan interpleaded the death benefit funds and asked the court to determine whether Jennifer Tobits  qualified as the “spouse.” The District court suspended any decision, pending the Supreme Court’s decision in United States v. Windsor 1013 WL 3196928 (U.S. June 26, 2013), which was to address whether the Defense of Marriage Act, which restricted the term “Spouse” only to opposite sex couples, was constitutional.

HELD: Partner in Same Sex Marriage is Deemed “Spouse.”

RATIONALE:

  1. “For purposes of ERISA, the Defense of Marriage Act, by operation of its Section 3, restricted any reference to ‘Spouse’ to mean only opposite sex spouses.” Op. at 7 (Emphasis in Original)
  2. In United States v. Windsor, 2013 WL 3196928 (U.S. June 26, 2013), the Supreme Court held that because New York recognized same sex marriages as valid, the Defense of Marriage Act unlawfully deprived those couples of equal liberty of persons, a  protection established under the Fifth Amendment. Op. at 7.
  3.  “That ‘written inequality’ in the [Defense of Marriage Act] extended to the ERISA definition of ‘Spouse’.”  Op. at 7.
  4.  “Following the [Supreme Court’s ruling in Windsor], the term “’Spouse’ is no longer unconstitutionally restricted to members of the opposite sex, but now rightfully includes those same-sex spouses in ‘otherwise valid marriages.’”  Op. at 7.
  5. ERISA and the Code incorporate valid state law. Since Illinois law recognizes same sex marriage as valid, “the United States Constitution requires that federal laws and regulations of this country acknowledge that marriage.”  Op. at 8.

Key Take Away:  The death benefit issue in this case became ripe before the Supreme Court issued the Windsor decision. This court applied Windsor retroactively in deeming Ms. Tobits the “Spouse.”

Who IS the proper defendant in a claim seeking ERISA benefits?

Generally the ERISA Plan is the proper defendant, BUT you need to know about this new case determining that the INSURER is a proper defendant.  Larson v United Healthcare Insurance Co., et. al, __ F.3d __, (7th Cir. July 26, 2013) (adopting Ninth Circuit analysis that insurer may be proper defendant).

FACTS: Five named plaintiffs asserted a class action against five health insurers, claiming the insurers were improperly requiring co-payments for chiropractic care.  The insurers moved to dismiss contending, among other things, that the insurers were not proper defendants in a benefits claim asserted under ERISA Section 1132(a)(1)(B).

TRIAL COURT HELD: Granted dismissal: “[A]n ERISA claim for benefits due under an employee-benefit plan ordinarily should be brought against the plan.”

 7th CIRCUIT HELD–REVERSED

  1. Under Section 1132(a)(1)(B) (also known as Section 502(a)(1)(B)) a civil action may be brought to recover benefits due under a plan.
  2. The general rule is that the proper defendant in a suit for benefits is normally the plan.  Op. at 8.
  3. “But it does not follow from the general rule that an ERISA claim for benefits may NEVER be brought against an insurer.”  Op. at 9. (Emphasis in original).
  4. “Section 1132(a)(1)(B) does not specify who may be sued.  Nor does it limit ‘the universe of possible defendants[.]'”  Op. at 13.
  5. “When an employee-benefits plan is implemented by insurance and the insurance company decides contractual eligibility and benefits questions and pays the claims, an action against the insurer for benefits ‘is precisely the civil action authorized by Section 1132(a)(1)(B).'”  Op. at 14.

Where do you litigate an ERISA disability claim governed by a collective bargaining agreement?

It has to be sent to arbitration, not to federal court, if the Railway Labor Act applies.

Here’s the case of Oakey v. US Airways Pilots Disability Income Plan, __ F.3d __, (D.C. Cir. July 19, 2013) (attached).

FACTS: Oakey, an airline pilot, submitted a disability claim with a Plan created through a union collective bargaining agreement, governed by the Railway Labor Act (RLA). Under the CBA, claims are reviewed and decided by the Retirement Board, comprised of two US Airways representatives, and two union representatives. A board decision is “final and binding.”  After Oakey was denied benefits, Oakey brought suit in federal court. The Plan contended the claim should be arbitrated, under the provisions of the RLA.

HELD: The District Court dismissed the case for lack of ERISA subject matter jurisdiction.

DC CIRCUIT HELD:  AFFIRMED Dismissal of Plaintiff’s Claim.

  1. ERISA does not displace the Railway Labor Act requirement that disputed claims be arbitrated.  Op. 6-10.
  2. Oakey’s claim for unpaid disability benefits involves “the application and interpretation” of the plan for which arbitration is compulsory under the RLA. Op. at 7.
  3. “[E]very circuit that has considered the issue has reached the same conclusion:…the district court lacks ERISA jurisdiction over a dispute involving the interpretation of a collectively bargained benefit plan within the exclusive jurisdiction of the appropriate adjustment board pursuant to the RLA.”  Op. at 7.

Key Take Away:  If you have an ERISA claim originating out of a collective bargaining agreement, check to see if the Railway Labor Act applies.  If it does, it is likely the case should be dismissed from federal court and arbitrated.

Does telling a claimant that you “will be happy to reconsider the claim” waive a contractual limitations provision? No.

Here is a great new case that highlights virtually every argument that could be used to trump (unsuccessfully) a statute of limitations or contractual limitations provision.  Engleson v. Unum Life Insurance Company of America, __ F.3d __, 2013 WL 3336741 (6th Cir. July 3, 2013) [pdf].

FACTS: Engleson waited eight (8) years before seeking judicial review of his long-term disability claim denial, managed by Unum. He sued, claiming that: (a) Unum violated ERISA regulations, which tolled the limitations period; (b) Unum waived the limitations period by saying it would be “happy to” reconsider the claim; (c) the SPD was silent as to applicable contractual and judicial time limits which resulted in a conflict with regard to the applicable limitations period; and (d) Unum was equitably estopped from asserting a contractual limitations provision.

TRIAL COURT HELD:  Trial Court Dismissed Plaintiff’s Claims.

Sixth Circuit Court of Appeals HELD: UNUM’s Denial of Claim Affirmed.

KEY RATIONALE:

  1. It was not fatal that the SPD failed to disclose applicable time limits for judicial review. Summary Plan Descriptions (SPD) are not “legally binding” nor parts of the benefit plans themselves.  Op. at 11. “Silence in the SPD regarding a term the plan defines more explicitly does not make out a ‘conflict[.]’” Op. at 10-11.
  2. Unum did not have to prove what was in the administrative file to rebut Plaintiff’s equitable tolling defense. Equitable tolling is a defense to the assertion that a suit is out of time by statute or contract.  But the burden of proof rests with the party invoking the defense. Plaintiff failed in his burden of proving Unum failed to provide him the administrative record. Unum had no burden to prove what was in the file.  Op. at 14.
  3. Unum did not waive the contractual limitation period when it said in its denial letter that it would be “happy to” reconsider upon submission of additional information.  Op. at 13.
  4. What is full and fair review? “When an adverse benefit determination is justified in the first instance and later denials are premised on the initial reason, there has been a ‘full and fair review’ that satisfies [the regulations].” Op. at 10.
  5. Since the denial of benefits did not deviate from prior appeal determinations, “Unum had no need to repeat the specific reasons for declining to reconsider Engleson’s appeal.”  Op. at 10.

How do you handle a claim supported only by “subjective” evidence?

Can you reject the claim outright?  No.  You must weigh the subjective evidence. That’s a key point highlighted in a recent case.

Miles v. Principal Life Insurance Company [pdf], __ F.3d __ (2nd Cir. June 26, 2013) (Merely pointing out that the evidence is subjective is not, by itself, a proper basis to reject evidence.)

This case also stands for the interesting proposition that a claimant with a history of “hard work” may be more credible…

FACTS: Miles, a real estate lawyer, stopped working in April 2009, claiming disability from ringing in the ears (tinnitus), hearing loss, headaches and vertigo. He made an ERISA disability claim.  The law firm benefits coordinator told Principal, the administrator, that Miles may have quit working for “other reasons[.]” Independent Medical Evaluators concluded Miles could work. Principal concluded Miles failed to present objective evidence of significant impairment. After his claim was denied, Miles sued and lost before the district court. He appealed.

Second Circuit HELD: REVERSED and Remanded to Administrator

  1. A reviewing court must determine whether the plan gave “sufficient attention to [the claimant’s] subjective complaints …before determining that they were not supported by objective evidence.”  Op. at 16.
  2. Principal “did not give adequate attention to Miles’s subjective complaints as it failed to assign any weight to subjective complaints, or specific reasons for its reasons to discount them.” Op. at 16.
  3. “Pointing out the evidence is subjective is not, by itself, a proper basis to reject evidence.” Op. at 16.
  4. “Miles’s long history of hard work supports his credibility on [the claimed tinnitus and hearing loss].” Op. at 16.
  5. “As Principal cites no reason to discount the evidence (other than its subjective nature), we conclude that Principal arbitrarily rejected Miles’s subjective evidence of disability.”  Op at 16.
  6. Requiring objective evidence of tinnitus was unreasonable. The record suggest there is no objective test to prove the presence of tinnitus.  Op at 17.

Key Take Away:  Document your assessment and weighing of the subjective evidence.

You know that many ERISA governed plans provide basic life insurance benefits.

But what happens when the plan offers employees the choice to purchase supplemental life insurance? If the employee pays the entire premium for the supplemental benefit, is that benefit still governed by ERISA?

Here’s the case of Cox v Reliance Standard Life Insurance Co. [PDF], 2013 WL 2156546 (E.D. Cal. May 17, 2013) (supplemental life benefit, where premiums paid solely by employee, governed by ERISA).

The case outlines the tests to determine when ERISA should govern supplemental life insurance benefits.

FACTS: Steven Miles was eligible for life insurance under a group policy. He applied for supplemental life insurance and was responsible for all of the premiums for the supplemental life benefit.  After Miles died, his estate sued claiming Reliance had failed to pay portions of the supplemental life insurance benefit.  Plaintiff contended ERISA did not apply and that state law claims were not preempted.

TRIAL COURT HELD:  Supplemental insurance coverage, with premiums paid solely by beneficiary, is governed by ERISA.

RATIONALE:

  1. The Ninth Circuit has stated, “[a]n employer can establish an ERISA plan rather easily.”  The life insurance purchased is an ERISA plan because all five Donovan factors are met. The plan was “established and maintained”. Op. at 4
  2. ERISA applied because Plaintiff could not establish the four ERISA safe harbor factors. Op. at 4
  3. ERISA applied because the plan was not completely voluntary because the employer guaranteed that 33% of its eligible employees would take the supplemental life benefit. Op. at 4.
  4. ERISA applied because the supplemental life benefit could not be severed from the plan as a whole to defeat ERISA coverage. The employer’s contribution to the basic life coverage applies to the supplemental life insurance plan as well.  Op. at 5.
  5. The supplemental life benefit was not a different “plan” from the plan containing the basic life insurance benefit. There are no facts showing different identification numbers or documents that the employer intended to establish multiple plans.  Op. at 6-7.

Gabe Baker and Steve Jensen give a good analysis of this case.

In Judge v. Metropolitan Life Insurance Company [PDF], 710 F.3d 651 (6th Cir. 2013), the Sixth Circuit rejected plaintiff’s proposed bright-line rule requiring plan administrators to obtain vocational evidence and an IME before making their determination.  However, those steps may be required depending on the particular facts of a claim.

FACTS: Claimant Thomas Judge, a baggage handler and ramp agent for Delta Airlines, applied for benefits following heart surgery.  He submitted a series of post-surgery assessments prepared by his treating physicians.  An April 2010 assessment restricted lifting to no more than 15 pounds.  A July 2010 report indicated he could lift up to 50 pounds and could participate in mild to moderate aerobic activity. October and December 2010 reports indicated that he could work eight hours per day, but limited him to two hours sitting and no standing or walking.

A MetLife nurse consultant reviewed the reports, and determined that Judge did not meet the definition of disability under the plan.  On appeal another nurse reviewed the records and concurred with the first nurse’s analysis.  Applying the arbitrary and capricious standard, the district court granted judgment in favor of MetLife.  Judge then appealed to the Sixth Circuit.

KEY ISSUES:

  • Was MetLife required to obtain vocational evidence before making its determination? NO.
  • Was MetLife required to send Judge for an IME before making its determination? NO.
  • Was MetLife required to use a doctor, rather than a nurse, to review Judge’s medical files?  NO.

HOLDING–Affirmed:

1.     “[A] plan administrator is not required to obtain vocational evidence where the medical evidence contained in the record provides substantial support for a finding that the claimant is not totally and permanently disabled.  Applying this principle to the present case, we hold that MetLife was not required to obtain vocational evidence…” 710 F.3d at 662-3.

2.    In some cases, “[a] plan administrator’s decision to conduct a file-only review (rather than getting an IME) might raise questions about the benefits determination, particularly when the right to conduct a physical examination is specifically reserved in the plan.”  710 F.3d at 663.  In particular, a file-only review may be questionable when either “the file reviewer concludes that the claimant is not credible without having actually examined him or her” or “the plan administrator, without any reasoning, credits the file reviewer’s opinion over that of a treating physician.”  Id.  In this case, the file reviewers “made no credibility determinations about Judge and did not second-guess Judge’s treating physicians.”  Id.  For those reasons, the court held that “MetLife did not act arbitrarily or capriciously in conducting a file review.”  Id.

3.     In regard to the use of nurse for the file review, the court held: “Judge’s argument that MetLife acted arbitrarily and capriciously in referring his file to a nurse for review, rather than to a physician, is meritless.”  710 F.3d at 663.

You already know that an employee benefit plan qualified as a “government plan” is exempt from ERISA’s framework.

But what is the definition of “government”? Some employers may not actually be government entities, and public private partnership may inject ERISA back into the framework.

This new case gives you the tests to apply to determine whether a government entity exists, which then means ERISA does not apply.   Smith v. Regional Transit Authority, __ F. Supp. 2d __ (E.D. La. May 10, 2013) [PDF] (whether the entity was created directly by the state, so as to constitute a department or “administrative arm” of the government, or whether it was merely administered by individuals responsible to public officials or the general electorate).

FACTS:  The Plaintiffs had been employed by New Orleans Public Service Inc. (NOPSI), a privately-held company that ran the New Orleans transit system until the early 1980s.  Then NOPSI transitioned into a publicly held system owned by RTA. Transit Management of Southeast Louisiana Inc. (TMSEL) then operated the RTA. The former employees claimed that from 1983 until 2006, RTA administered their employee benefit plan as it had been administered by NOPSI. They alleged violations of ERISA and Louisiana state law because they thought they had been wrongfully denied premium free medical insurance, among other things guaranteed by their employee benefit plan.

ISSUES:

  • Was the Employee benefit plan exempt from ERISA because it was a “governmental plan?”
  • What is a government plan?
  • What operative date does one use to determine whether a plan is a governmental plan?

TRIAL COURT HELD:

  1. A plan would be considered governmental if it was “established by an entity falling within the confines of the aforementioned definition” or if it “is currently maintained by such an entity.”
  2. The benefit plan qualified as a governmental plan and was exempt from ERISA because the plan in question was established and maintained by both a political subdivision and an “agency or instrumentality” of that political subdivision.
  3. A governmental plan is “a plan established or maintained for its employees by the Government of the United States, by the government of any State or political subdivision thereof, or by any agency or instrumentality of any of the foregoing.” A plan is considered governmental if it was “established by an entity falling within the confines of the aforementioned definition” or if it “is currently maintained by such an entity.”
  4. What is a “political subdivision?  ERISA provides no definition for “political subdivision.”  The court looked to the U.S. Supreme Court’s ruling in National Labor Relations Board v. Natural Gas Utility District of Hawkins County, 402 U.S. 600 (1971), in which the Supreme Court adopted the NLRB’s test for political subdivisions in the context of the National Labor Relations Act.
  5. Under this NLRB test, a court should consider whether the entity was created directly by the state, so as to constitute a department or “administrative arm” of the government, or whether it was administered by individuals responsible to public officials or the general electorate.
  6. The court found: (a) “it is clear that RTA is a political subdivision of Louisiana.” RTA was created by a public act, the court said, and its stated purpose was to plan and design a metropolitan transit system “for the benefit of the people of Jefferson, Orleans, St. Bernard, and St. Tammany parishes”; (b)  the RTA is administered by a board consisting of members appointed by the chief executive officer of each parish, “subject to the approval of its governing authority.”
  7. TMSEL qualified as an “agency or instrumentality” of a political subdivision under ERISA, based on the six-factor test established by the Internal Revenue Service in Rev. Rul. 57-128. TMSEL was created specifically to manage and operate the public transportation system for the benefit of certain parishes and performed this benefit specifically on behalf of RTA, its owner and a political subdivision of the state.

Key take away:  Some entities that look like government entities may not meet the tests stated.  Moreover, plans that involve both public and private employers may result in ERISA application.  See, e.g., South Cent. Indiana Sch. Trust v. Poyner, No. 1:06-cv-1053-RLY-WTL, 2007 U.S. Dist. LEXIS 78804, 2007 WL 3102149, at *5 (S.D. Ind. Oct. 19, 2007) [*5] (”[T]he Plan at issue involves both public and private employers for the benefit of their respective employees. It is therefore subject to ERISA regulation.”)