How does an ERISA claimant start an administrative appeal?

Can a mere request for medical records, and a reference to an “appeal in the future tense,” trigger the appeal?  No.

Here’s the case of Reindl v. Hartford Life and Accident Insurance Co., –F.3d __, 2013 WL 425356 ( 8th Cir. February 5, 2013) [PDF].

FACTS.  Reindl participated in an ERISA governed employee benefit plan and sought and obtained disability benefits. Hartford later reassessed her claim and discontinued benefits.  On November 25, 2008, Hartford sent a letter informing Reindl she had 180 days to file an administrative appeal. On December 12, 2008, Reindl’s lawyer sent a letter requesting medical records and stating: “We will be reviewing the records and obtaining additional medical information for my client’s appeal of the decision to terminate [benefits].”  On July 8, 2009 Reindl’s attorney expressed disagreement with the benefits termination decision and stated: “I would appreciate your reversal of the decision to terminate [Reindl’s benefit claim].”

ISSUE: Whether a request for medical records, and a reference to an appeal sometime in the future constitute an “appeal.”

TRIAL COURT HELD: Plaintiff had failed to file a timely appeal.

EIGHTH CIRCUIT:  AFFIRMS

  1. A timely appeal is a prerequisite to filing an action in federal court;  Op. at 4.
  2. The December 2008 letter merely requested medical records.
  3. It was reasonable for Hartford to conclude Reindl’s December 2008 letter was not an appeal because it merely made “reference to an appeal [in] the future tense”.  Op. at 4.

What happens when an ERISA claimant submits contradictory statements to the Social Security Administration and the ERISA plan administrator? Can these contradictory statements be used to deny the ERISA claim?  YES.

What’s the difference between a “Commission” and a “Bonus” in calculating a claimant’s monthly benefit? The dissent in this new decision provides guidance…

Here’s the recent case of Govrik v. UNUM Life Insurance Company,[PDF] __ F.3d __ (8th Cir. January 10, 2013).

FACTS: Sullivan sought ERISA disability benefits. The amount of disability payments depended on the claimant’s monthly earnings before disability.  To calculate monthly earnings, the plan included “commission” payments received over a 12 month period before disability. But “bonus” payments were counted only if received in the prior calendar year (January-December). The policy also did not define “commission” or “bonus.”

Sullivan claimed his pay was “commission” or “bonus” depending on whatever definition applied.  UNUM started paying disability benefits.  But later, Sullivan contradicted this and told the Social Security Administration (SSA) in a sworn statement that the $440,000 received was for the sale of his business.  When UNUM heard about this, UNUM reviewed the claim, recalculated (and significantly reduced) Sullivan’s monthly benefit, and sought reimbursement for overpayment. Sullivan appealed to UNUM, however, again claiming the large payments were actually “bonuses” (so he could have a higher monthly ERISA benefit).  UNUM denied the appeal, relying on Sullivan’s representations to the SSA that the payments were for the sale of his business.  Sullivan sued.

DISTRICT COURT: Granted Plaintiff Summary Judgment and Awarded Attorney Fees.

EIGHTH CIRCUIT COURT OF APPEALS: REVERSES

  1. “It was reasonable for UNUM to rely on information Sullivan submitted to the SSA, rather than Sullivan’s latter day claim to UNUM that the large payments [were salary or bonuses]….Given Sullivan’s shifting positions on how his income should be characterized, it was not unreasonable for UNUM to hold Sullivan to his formal declaration [submitted to SSA].”  Op. at 6.
  2. UNUM’s decision was correct because at the time UNUM denied the appeal, Sullivan had not recanted representations he made to the SSA that the payments were for the sale of his business. Op. at 6.
  3. The court “defers to the administrator’s interpretation of the plan ‘so long as it is reasonable, even if the court would interpret the language differently[.]’”  Op. at 8 (Dissent).
  4. UNUM provided no evidence what the terms “commission” and “bonus” meant, so the court relied on the dictionary. Recourse to the dictionary is “reasonable.” Op. at 9 (Dissent).
  5. “Commission,” according to the dictionary, is a fee paid to an employee for transacting a piece of business or performing a service.  Op. at 9 (Dissent).
  6. “Bonus,” according to the dictionary, is money given in addition to usual compensation. Op. at 9 (Dissent).
  7. The dissent concludes UNUM abused its discretion in determining the large payments to Sullivan were from the sale of a business and not compensation in the form of a bonus.  Op. at 9 (Dissent).

Will courts enforce Plan language even when a 24 month limitation is “not what a reasonable employee would expect” to see in a disability plan?  YES.

Here’s an interesting, recent case showing the power of Plan language. The opinion also supports the effect of “choice of law” provisions in Plans.

Bland v. Metropolitan Life Insurance Company,[PDF] 2013 WL 56117 (M.D.Ga. January 3, 2013). (Kudos also go to Elizabeth Bondurant on some fine legal work.)

FACTS: Bland hurt her back and had lumbar radiculopathy.  She made an ERISA disability claim under her a plan drafted by the employer, Novartis, and administered by Met Life.  This plan had a 24 month limitation for “neuromuscular-musculoskeletal or soft tissue disorder.”  The Plan language did not define “neuro-musculoskeletal” and dropped typical language in this type of provision that required “objective evidence.”   An independent medical review concluded Bland was totally disabled from her back injury.  Met Life determined the 24 month “neuro-musculoskeletal” limitation applied and denied the claim. The plan called for de novo review.

DISTRICT COURT HOLDING:  Met Life Was Not De Novo Wrong in Terminating Benefits under the 24 Month Neuro-musculoskeletal Limitation.

  1. “A claimant suing under ERISA has the burden of proving entitlement to plan benefits.”  Op. at 3.
  2. “[T]he insurer generally must prove the exclusion prevents coverage.”  Op. at 3.
  3. The Court declines to determine which party has the burden of proving that the Plaintiff is not disabled because of limiting condition.  Op. at 4.
  4. Choice of Law. “[B]ecause the Plan has a choice of law provision, if there were applicable New Jersey law that did not conflict with ERISA, then the application of the law to this case would be appropriate.”  Op. at 4
  5. The neuro-musculoskeletal 24 month limitation language unique to this case is drafted so broadly that it applies to any neck or back injury and applies even to a paraplegic.  The problem with this limitation is not its clarity, but its breadth.  But no known legal precedent “bars Novartis from drafting its plan any way it chooses, so long as it complies with ERISA requirements. Op. at 5.
  6. “The fact that the Plan is a contract of adhesion or that Novartis employees would be surprised to learn that their disability coverage is not what a reasonable employee would think, is of no consequence.  Novartis is the master of its plan and no ERISA provision bars it from excluding coverage for neuro-musculoskeletal disorders.” Op. at 5.

Many ERISA plans contain “subrogation” or “reimbursement” provisions. Can equitable defenses change the Plan’s reimbursement rights?

You need to know about US Airways Inc. v. McCutchen — a critical case before the United States Supreme Court, with oral argument set for tomorrow.

THE ISSUE: Whether “equitable defenses” can limit a plan’s recovery under ERISA § 502(a)(3).

The case will most likely have a huge impact on ERISA reimbursement. Here is a mini-summary of the case.

FACTS. McCutchen was a plan participant. He was seriously injured when a car crossed the center-line and hit him head-on.  The US Airways ERISA plan paid out over $66,000 in medical expenses. McCutchen received $110,000 in settlement of the tort claims, and after his attorney received 40%, McCutchen’s net proceeds from settlement was $66,000—about equal to the reimbursement sought by the ERISA plan. McCutchen refused to reimburse the plan for medical expenses. The ERISA plan sued under ERISA § 502(a)(3) for full reimbursement of medical expenses.

DISTRICT COURT. The District Court granted summary judgment to US Airways, as plan administrator, based on language in the plan allowing full reimbursement of any monies recovered by the participant.

THIRD CIRCUIT. The Third Circuit vacated and remanded. 663 F.3d 671 (3d Cir. 2011). The Third Circuit rejected the plan’s claim for full reimbursement concluding that ERISA § 502(a)(3) incorporates traditional equitable defenses. Id. at 678-79. Requiring the participant to provide full reimbursement to the plan (without allowing offset for his attorneys’ fees and expenses) would be “inappropriate and inequitable relief.” Id. at 679. (This holding conflicts with the Fifth, Seventh, Eighth, Eleventh, and D.C. Circuits.)

UNITED STATES SUPREME COURT: Here are the legal arguments being made tomorrow:

US AIRWAYS (ERISA PLAN) LEGAL ARGUMENT:  ERISA does not empower the courts to “use free-floating equitable principles to rewrite benefit plans.” First, § 502(a)(3) authorizes only appropriate equitable relief to “enforce . . . the terms of the plan.” McCutchen’s approach would improperly “obliterate[]” the plan terms. Second, the equitable relief sought by the Plan (an equitable lien by agreement) requires the court to enforce the actual agreement of the parties, which allows full reimbursement, rather than rewrite the parties’ agreement. Third, McCutchen’s approach conflicts with the goals of ERISA by making liabilities unpredictable. The Third Circuit’s decision threatens the stability of self-funded ERISA plans, and will discourage employers from offering benefits.

McCUTCHEN’S LEGAL ARGUMENT:   First, the Plan’s approach is neither appropriate nor ‘equitable’ because it ignores principles of unjust enrichment in favor of “rote enforcement of contract terms.” Second, the Third Circuit’s approach  is like how a court should handle an insurer’s subrogation claims — limited to a pro rata share of a recovery. Third, the equitable common fund rule requires that US Airways pay its proportional share of the attorney fees and costs incurred in obtaining the damages recovery.  Fourth, “the plans have not offered a scintilla of actual evidence that their apocalyptic vision of life under the Third Circuit’s approach will come to pass.” “[T]here is every reason to believe that [the Plan’s] full-reimbursement approach would increase litigation costs by making it less likely that tort claimants would be willing to settle cases.”

DISCUSSION. A very tough factual case—McCutcheon was seriously injured and is now disabled.  His attorneys already took 40% of the very limited settlement proceeds—the tortfeasor had little or no assets or insurance; if the ERISA plan wins, McCutchen will have little or no recovery. Tough facts could result in some bad law.

We will keep you advised on this important case before the Supreme Court.

We know that an ERISA plan administrator both administering and funding the plan is operating under a “structural conflict of interest.”  This “structural conflict of interest” may lower the deference a trial court will give to the plan administrator’s benefits decision.

So, ERISA plans frequently delegate a plan administrator different from the funding source of the plan to eliminate this structural conflict of interest.

But what happens if the plan administrator “consults with” the plan (with a separate funding source) in making benefit decisions?  Is that enough to create a structural conflict of interest anyway?  NO.

Here’s the case of Day v. AT&T Disability Income Plan, [PDF] __F.3d __, 2012 WL 5359628 (9th Circuit November 1, 2012)(plan administrator’s “consultation with plan” on benefits decision was insufficient to create a structural conflict of interest because there was no evidence that the plan “had any influence over” plan administrator’s decision making process).

FACTS: Day sought disability benefits under the AT&T ERISA plan, funded by AT&T.  The AT&T plan conferred full discretion to Sedgwick Claims Management as plan administrator.  Day disputed how Sedgwick calculated his benefit payments and sued.

ISSUE: Whether Sedgwick’s consultation with AT&T on benefits issues creates a structural conflict of interest, requiring heightened scrutiny of the benefits decision?

HELD:  Plan Administrator’s “consultation” with AT&T (that funded the ERISA Plan) does not create structural conflict of interest.

RATIONALE:  “Just because Sedgwick consulted with AT&T in responding to Day’s concerns about [the amount paid on benefit] does not show that AT&T had any influence over Sedgwick’s decision making process in that regard.”  OP. at 13047.

We all know that ERISA claim administrators must consider and weigh a claimant’s Social Security Administration (SSA) disability determination when deciding whether the claimant is “disabled.”

But what happens when the SSA’s favorable disability determination arrives after the Plan has denied the final appeal?

Do you have to reopen the claim to assess this new information? No.

Here’s the recent case of Hooks v Hartford Life and Accident Insurance Co., 2012 WL 5187780, (M.D. Ala. October 19, 2012)(Plan not obligated to reopen and consider SSA determination received after appeal denial) [PDF].

FACTS: Hooks sought disability benefits under the ERISA plan. Hartford provided benefits from June 22, 2009 to August 3, 2010, when it then concluded Hooks did not meet the definition of disability. Hooks appealed. Hartford denied the appeal on May 16, 2011.

On June 27, 2011, Hooks informed Hartford for the first time that the SSA had ruled that she was disabled. (The ruling had been issued June 2, 2011). Hooks demanded that Hartford reopen the claim and consider this SSA decision. Hartford refused to reopen the claim to consider the post appeal denial SSA decision.  Hooks sued.

ISSUES:

  1. Whether the ERISA Plan must consider SSA determinations issued after a final appeal decision has been rendered?
  2. Should the Court remand back to the claim administrator to consider the post appeal SSA decision?

HOLDING/RATIONALE:  New evidence after the appeal decision need not be considered.  No remand.

  1. “Review of the plan administrator’s denial of benefits is limited to consideration of the material available to the administrator at the time it is made.”  Op. at 2
  2. Remand should be denied because “if the party requesting remand desired new evidence to be in the administrative record it should have acquired that evidence before the appeals process ended.” Op. at 2.
  3. But watch out for this: Remand might have been appropriate if Hooks had alerted Hartford to the pending SSA determination before the appeals process closed.  Op. at 2. (Case citation omitted).
  4.  Imposing a remand to consider new information obtained after the final appeal decision “would undercut longstanding precedent in ERISA jurisprudence and…would ‘require a reassessment of the entire regime of ERISA litigation.’” Op. at 3.

Are in-house consultations on plan term interpretation, before a final appeal denial, privileged and confidential?  NO says the Ninth Circuit…

Here’s the attached case of Stephan v. Unum Life Insurance Company of America, __F.3d__, 2012 WL 3983767 (9th Cir. September 12, 2012) that highlights the point.

 The case also shows that:

  •  an Insurance Commissioner’s ban on discretion language may not affect a plan that is “amended” rather than having a “new” policy added;
  •  “bonus” might be considered in calculating “basic monthly earnings” in some circumstances.

FACTS: Plaintiff Stephan earned $200,000 annually, plus a $300,000 guaranteed annual bonus.  He became permanently disabled and a quadriplegic after a biking accident. His employer’s long term disability plan was underwritten and administered by UNUM. The plan conferred discretion.  Unum paid benefits using his monthly salary (and did not consider the bonus) in calculating the “basic monthly earnings” calculation.

Stephan claimed Unum should have included his annual bonus in the benefit calculations.  His appeal was denied and he sued.

Stephan contended discretionary review should not apply because: (1) California Settlement Agreement with Unum and California rules ban discretionary review and (2) discretionary review is against public policy.

Stephan also sought discovery of internal memos between claims analysts and in-house counsel (before his final appeal) about how the insurance policy ought to be interpreted and whether the bonus ought to be considered as “monthly earnings.”

District Court Held:

  1. Discretionary review applied and Unum’s conflict of interest did not weigh heavily in decision-making process.
  2. Summary judgment granted: Unum did not abuse its discretion in the benefit calculation.

Ninth Circuit Court of Appeals Reverses.

1.       Discretionary review applies and the Insurance Commissioner ban on discretionary language has no effect because:

  • The old policy containing discretionary language merely had been amended.  It was not a “new” policy. Op. at 6
  • The 2007 California Insurance decision does not void all discretionary clauses in policies issued or renewed. This policy form was written and approved by the Insurance Commissioner in 1991. After Unum and California reached a settlement agreement, the policy was re-approved.
  • Because the policy was a renewal, the Plan could contain discretionary language and be in compliance. Op. at 6.
  • Because the Plan had been approved by the Insurance Commissioner, it must be “conclusively presumed to comply” with California Law.  Op at 6.

2.       Weighing Conflict—Bench Trial with Evidence Outside Record.

  • Unum’s dual role as administrator and insurer created structural conflict. Op. at 8
  • The trial court should weigh the effect of conflict “in a light most favorable” to the claimant.  Op. at 8. The trial court did not do this.
  • The trial court may need to hold a bench trial to determine the impact of Unum’s conflict of interest.  Op. at 8.
  • The court should permit evidence outside of the administrative record, including internal memoranda between claims analyst and in-house counsel. Op. at 9.

3.      Discoverability of Internal Unum Documents with In-House Counsel Prior to Final Appeal are Not Privileged.

  • Stephan sought discovery of internal memos between claims analysts and in-house counsel about how the insurance policy ought to be interpreted and whether the bonus ought to be considered as “monthly earnings.” Op. at 10
  • The documents “offer advice solely on how the Plan ought to be interpreted [and] do not address any potential civil or criminal liability…”.
  • “[I]t is not until …after the final administrative appeal that the interests of the Plan fiduciary and the beneficiary diverge.”  Op. at 10-11.
  • Communications prior to a final appeal decision are not “preparation for litigation” and therefore are not privileged. Op. at 11.

4.      What is Gross Monthly Benefit?  Include the bonus.

  • The “central question…is not whether Stephan was entitled to receive his bonus in its entirety, but whether he earned it on a pro rata basis each month as part of his income.” Op. at 14  (Emph. In original).
  • Unum relied on evidence from the offer letter, premiums paid, and interviews with the employer to conclude the bonus was not to be considered monthly income.  Op. at 13-14.  The Court rejected this analysis.
  • “[T]he record confirms that [the employer] understood Stephan’s bonus as part of his monthly earnings, and therefore as earnings upon which disability payments ought to be calculated.” Op. at 14.

You know you are having a bad day when you have LOST the administrative file for a claim seeking ERISA disability benefits.

But is it fatal to the Plan’s defense of a decision terminating benefits? 

Maybe not.

Here’s the case of Schorsch v. Reliance Standard Life Insurance Co., __ F.3d __ (7th Cir. August 28, 2012) [PDF] (lost administrative file—Summary judgment for Reliance granted on defense of failure to exhaust administrative remedies).

This new case also confirms that insurers are not responsible for penalties caused by failing to provide ERISA plan documents.

FACTS:  Schorsch was a beneficiary under employer United Conveyor’s long term disability ERISA plan. United Conveyor was the plan sponsor and administrator, and delegated determinations on eligibility of benefits to Reliance Standard.  The plan did not have discretionary language.

United Conveyor never gave Schorsch the Summary Plan Description or ERISA plan documents. In 1993, Schorsch was deemed totally disabled following an auto accident.  In 2006, Reliance requested an independent medical exam (IME), which concluded Schorsch could work a medium duty job.  The IME conclusions were based in part on surveillance. Reliance then terminated disability benefits.  Schorsch’s attorney sent a “notice of intent” to seek reconsideration, but never submitted a request for review.

Schorsch sued.  During discovery Reliance admitted “it had lost the administrative record relating to Schorsch’s claim.” Op. at 4.

SEVENTH CIRCUIT HELD/RATIONALE and “PITHY QUOTES”:  Summary Judgment Affirmed.

  1. Schorsch did not exhaust administrative remedies. Op. at 4.
  2. Losing the administrative file does not preclude Reliance from asserting the defense of failure to exhaust administrative remedies. Op. at 4.
  3. “Flaws in Reliance’s termination notice and other errors become relevant only if Schorsch reasonably relied on them in failing to request a review of its decision to terminate her disability benefits or if Reliance’s missteps denied her meaningful access to a review[.]”  Op. at 5.
  4. Reliance’s termination of benefits letter provided adequate notice of the reasons for its decision and the process for review.  Op. at 5-6.
  5. With regard to the lost administrative record, “[Schorsch] has not shown how Reliance benefitted from the loss or destruction of the administrative record….Reliance’s loss of the administrative file is regrettable, but we cannot see how it had any effect on Schorsch’s failure to seek review years earlier.”  Op. at 6.
  6. ERISA penalties when employer does not provide plan documents: “We have long refused to attribute an employer’s behavior to an insurer because the employer is not the insurer’s agent.”  Op. at 6.
  7. “We do not condone Reliance’s missteps—particularly loss of the administrative record, the confusion over who performed her vocational assessment, and the impression it gave Schorsch that its decision was based only on her medical records when in fact the surveillance report suggesting she ran a babysitting service influenced the decision by some measure.  But Schorsch cannot show how these problems caused her failure to seek review of Reliance’s termination decision.” Op. at 7.

You probably already know that an ERISA Plan that fails to properly delegate administrative duties to another party may lose discretionary review.

But does the delegation of authority have to be in writing?  Maybe not, so long as the Plan  allows for delegation.

The recent case of Aschermann v. Aetna Insurance Company [PDF], __ F.3d__, 2012 WL 3090291 (7th Cir. July 31, 2012) gives a clue.  The case also has some helpful discussion on the value of “boilerplate” in denial letters. (Kudos go to my friend, Mark Schmidtke, on a nice result).

FACTS: Aschermann was a pharmaceutical sales person with a bad back. She received 24 months of ERISA disability benefits under an “own occupation” provision.   An  Administrative Services Agreement delegated discretion to Aetna. Aetna, the plan administrator, concluded she could do sedentary work after 24 months and denied future disability benefits.  There was discretionary language in the plan.

Aschermann contended: (1) denovo review should apply because Aetna was not properly designated in Plan documents as having authority to make benefit decisions; (2) she was denied a full and fair review because Aetna asked for new tests and medical information.

TRIAL COURT HELD:  Discretionary review applied because Aetna had been properly designated with authority to make benefit decisions.

ISSUES:

  1. Is a written delegation of administration of the plan effective? YES
  2. Is “boilerplate” language describing the appeal process, and the medical information needed for an appeal, effective?  YES

SEVENTH CIRCUIT: AFFIRMS, with the following rationale:

  1. “[D]elegation does not depend on an express grant; instead it is permissible unless it would be ‘contrary to the public policy or the terms of a promise.’” Op. at 3
  2. “There is no reason why an employer cannot make a summary plan description be part of the plan itself and thus reduce the length of the paperwork and the potential for disagreement between the summary and the full plan[.]”  Op. at 3
  3. Nothing in this plan forbids delegation [to Aetna].  A signed document captioned “Administrative Services Agreement” [effectively] transfers to Aetna all of Lumbermens’ day-to-day duties and discretion.  Op. at 2.  By delegating to Aetna, “Lumbermens has not done anything fundamentally different from choosing a particular working group within its internal hierarchy.”
  4. The delegation from Lumbermens to Aetna reduced any potential conflict. Lumbermens, as an underwriter, benefits when claims are denied…. Aetna, as a third party administrator, has no financial interest… Op. at 3.
  5. The denial letter offered a process to appeal the claim denial, and described the information needed for an appeal. “Language gets called “boilerplate” when it is used frequently….”  “But formulaic [language] does not mean irrelevant.”
  6. Aschermann received a reasonable opportunity to supplement the file and receive a “full and fair review”….

Are claims manuals “confidential business information” or “trade secrets” entitled to a protective order restricting dissemination?  YES

Can the Plaintiff’s attorney keep the claims manual for use on another case?  NO.

Here’s the recent opinion issued in Takata v. Hartford Comprehensive Benefit Service Company and Battelle Memorial Institute, __ F.Supp. 2d __ (E. D. Washington June 29, 2012) (publication pending) (PDF attached here).

FACTS:  This case involves an ongoing claim for long term disability benefits under an ERISA plan. Plaintiff sought Hartford’s claims handling policies, manuals and claims handling information. Plaintiff’s counsel refused to enter into a protective order because he “want[ed] to be able to use whatever I get in another case against Hartford should one arise.” Hartford moved for a protective order.

HELD:  Motion for Protective Order GRANTED.

RATIONALE:

  1. Claims manuals are “confidential business information.” The information “is the result of many years of business and ‘extensive research.’”  Op. at 7
  2. The information contained in claims manuals creates a protectable “competitive advantage”.  Op. at 7
  3. “[P]ublic disclosure of this information would harm Hartford, [and] that competitive advantage would be lost if the information becomes public or known to competitors, and that trade secret status would be destroyed.” Op. at 7
  4.  “Plaintiff’s counsel may not retain the information to use in any other case.” Op. at 8

This opinion may help in your next motion on the topic…