Many states have banned discretionary clauses in life and disability policies. But remember to look closely at the language… to see if the ban actually applies to the policy at issue.

Here’s the case of Brian H and Alex H v. Blue Shield of California, 2018 WL 5778318 (N.D. Cal. November 1, 2018)(California’s ban on discretionary language did not apply to health insurance).

FACTS: Plaintiff sued contending certain medical treatments were “medically necessary”. The initial claims denial was made by Blue Shield’s Mental Health Administrator, which had not been expressly granted discretionary authority to make claims determinations. The final claim decision, however, was made by Blue Shield, which did have discretionary authority under the ERISA Plan.

Plaintiff argued that: (1) that California’s ban on discretionary clauses in life and disability policies applied to health insurance policies; (2) that de novo review should apply because the claims administrator was not granted discretionary authority, and (3) a conflict (Blue Shield made claim decisions and would pay the claim) required “heightened skepticism” during the court’s review.

DISTRICT COURT HELD: Abuse of Discretion Standard of Review Applies

  1. California’s regulation banning discretionary clauses in a “‘policy…that provides or funds life or disability insurance coverage’ is not applicable, as the Plan provides health insurance.”  Op. at 1
  2. “[N]othing in the [ERISA] Plan precludes Blue Shield from applying the ‘Magellan Medical Necessity Criteria Guidelines’ in determining whether services are ‘medically necessary’ under the Plan.” Op. at 2.
  3. With regard to whether a structural conflict requires review by the Court under “heightened skepticism,” “courts need not accord such factor signficant weight in the absence of evidence of bias.”  Op. at 2

You already know that opinions by independent medical reviewers play a big role in the decision to grant or deny benefits.

The reasons why the independent medical reviewer came to the conclusions made are as important as the conclusion itself.

Don’t rely on the mere conclusions by the independent reviewer and inform your independent medical reviewer that the reasons for the conclusions are as important as the conclusions themselves.

That is because…your denial letter is only as good as the analysis/reasons stated in the IME report.

A case issued last week highlights the point: Westfall v. Liberty Life Assurance Company, __ F. Supp. 3d __ (N.D. Ohio March 1, 2018)(“Because Defendant’s denial letter relies on analysis [the independent medical reviewer] provided as to why his opinions controlled over the opinions of [two treating physicians], the Court will treat [the independent reviewer’s] analysis as Defendant’s purported reasons for relying on the review, rather than the opinions of Plaintiff’s treating physicians.”)

FACTS. In April 2015 Westfall’s son died at her place of work (Wal-Mart Distribution Center). Westfall then sought ERISA-governed long term disability benefits, stating she could not “bring herself to go back to that [work] site[.]” Liberty Life extended disability benefits from November 2, 2015-January 14, 2016. The plan vested discretion with Liberty Life. Liberty Life later discontinued benefits based upon an independent medical review that concluded that, while Westfall suffered from major depression, her records did not document “frequent and severe symptoms or corroborating mental status findings to support a finding of ongoing impairment.”  This lawsuit followed.

ISSUE:  Whether Liberty Life abused its discretion in discontinuing benefits?


  1. “[T[he Court may not overturn a plan administrator’s decision ‘if there is a reasonable explanation for the administrator’s decision denying benefits.””  Op. at 11.
  2. “Reliance on other physicians is reasonable so long as the administrator does not totally ignore the treating physician’s opinions.” Op. at 12.
  3. “Because Defendant’s denial letter relies on analysis [the independent medical reviewer] provided as to why his opinions controlled over the opinions of [two treating physicians], the Court will treat [the independent reviewer’s] analysis as Defendant’s purported reasons for relying on the review, rather than the opinions of Plaintiff’s treating physicians.”  Op. at 12.
  4. The independent medical review relied on for the denial failed to provide “sufficient reasons to show that Defendant’s analysis should have been preferred over the analyses of [two treating physicians].” Op. at 12.
  5. “‘[C]herry-picking symptoms…and then reverse engineering a diagnosis…is not the hallmark of a reasoned explanation.’”  Op. at 13.
  6. The independent medical reviewer ignored one treating physician’s express finding of “emotional lability”—which was not an accidental omission.  Op. at 13.
  7.  “Although evidence exists to support the conclusion that employment factors (i.e. working in the same place her son died) are central to Plaintiff’s impairment, the reasoning process Defendant used to deny Plaintiff benefits was flawed, as it ignored the emotional lability finding.” Op. at 14.

You already know that plans that contain “discretionary language” should enjoy a more deferential review by the trial court.

But when the plan administrator decides and funds the benefit decision, courts view this as a “structural conflict” and impose additional expectations on the claims process.

Sometimes de novo review isn’t all bad.

Here’s the recent case Inciong v. Fort Dearborn Life Insurance Company, __ Fed. Appx. __, 2014 WL 1599513 (9th Cir. April 22, 2014)(Court affirms benefit denial, under de novo standard of review, even though there was no Independent Medical Exam).

This opinion also has some other “pearls” regarding vocational assessments and consideration of Social Security Administration decisions.

FACTS: Inciong received disability benefits under an ERISA-governed plan for fifteen (15) years. Then, Fort Dearborn obtained evidence that Inciong’s condition had improved, and terminated benefits. The trial court reviewed the termination of benefits under de novo review, and affirmed the termination because Inciong failed to “provide sufficient objective and quantifiable evidence to support his claim of total disability.” The policy did not specifically mention a requirement of “objective, quantifiable evidence of disability.”  Inciong appealed.


  1. Fort Dearborn presented evidence that Inciong’s “level of activity ha[d] actually improved over time.” Op. at 3.
  2. Inciong claimed he was disabled because no one would hire him after being out of the workforce for 15 years.  But the policy’s definition of disability “does not require a showing that Inciong would in fact be hired for a specific job; it only requires a showing that jobs exist that Inciong was qualified for and capable of doing.” Op. at 4.
  3. IME Required? When a court performs de novo review, an Independent Medical Exam is not required.  (When a court reviews a decision under the arbitrary and capricious standard, and the plan has a structural conflict, then a court may question the “thoroughness and accuracy of a benefit decision” if the plan relied only on a “pure paper review.”) Op. at 5.
  4. Failing to explain away the Social Security decision not a problem. “Fort Dearborn terminated benefits fifteen years after initially granting them, based on evidence that Inciong’s condition had improved. There is no evidence that the Social Security Administration has conducted a recent review of its determination. Op. at 5.

Does the claim administrator waive the timeliness defense if it failed to deny the claim on that basis during administrative review? YES!

Here is a nice case that summarizes the point, and the status of waiver in the circuits. Becknell v. Severance Pay Plan of Johnson and Johnson, 2014 WL 1577723 (D. N.J. April 21, 2014).

FACTS:  Plaintiff became disabled on April 16, 2008 and made a claim for short term and long term disability benefits under the self-funded ERISA plan.  On October 25, 2012 Plaintiff made a written claim for severance benefits under the ERISA plan.  The request was four years late.  The plan denied the severance benefit, but not because it was untimely.  Instead, the claim was denied because Plaintiff’s termination did not result from one of the severance events in the plan.

ISSUE:  Did the ERISA plan waive the timeliness defense because it was not asserted in the administrative process?


  1. “Some circuits prevent a plan administrator from relying on a defense…that was not articulated in the administrative proceedings[.]” Op. at 6.  (The court cites cases from the 1st, 2nd 5th, 8th 9th, 10th circuits.)
  2. “Other circuits have acknowledged that waiver is possible in some factual circumstances.” (The court cites cases from the 4th, 7th, 11th circuits). Op. at 7.
  3. “Defendants wish to preclude Plaintiff from asserting his claim based on a timeliness defense that they failed to raise during the administrative proceedings. The fact remains that ‘[t]he time to deny Plaintiff’s claim on that basis of untimeliness has come and long gone.’”  Op. at 12.

Can a court deny a successful ERISA claimant’s attorney fees solely because there is no evidence of bad faith?  NO.

Here’s the case of Donachie v. Liberty Life Assurance Company of Boston, __ F.3d __ (2nd Cir. March 11, 2014) [PDF].

FACTS: Donachie had a peculiar heart condition: Everyone “sitting in the same room” with Donachie could literally hear his heart beating.  This caused him anxiety and he sought ERISA-governed Long Term Disability (LTD) benefits. After Donachie’s claim appeal was denied, he filed a lawsuit for ERISA benefits.

The trial court eventually granted Donachie disability benefits. The court then DENIED Donachie’s request for attorney fees because he had “failed to show any bad faith by [the Plan] administrator in making its LTD determination.”

ISSUE: Can a Court deny Claimant’s attorney fee request because there is no evidence of a “bad faith” claim denial?


  1. “’Congress intended the fee provisions of ERISA to encourage beneficiaries to enforce their statutory rights.’” Op. at 8.
  2. Attorney fees may be awarded to a beneficiary only if he has obtained “some degree of success on the merits.”  Op. at 8.
  3. Hardt v. Reliance Standard Life Ins. Co., 560 U.S. 242 (2010) permits courts to use the five factor test to channel discretion in awarding fees. Those factors are: (a) degree of bad faith; (b) ability to pay an award of fees; (c) whether an award would deter other persons in similar circumstances; (d) whether the decision benefits all participants or resolves a significant ERISA legal issue; (e) the merits of the parties’ positions.  Op. at 9.
  4. “[T]here is no question that Donachie…was eligible for an award of attorneys’ fees.”  Op. at 11.
  5. The trial court abused its discretion by failing to consider all five factors, and denying fees on the sole basis that the plan “had not acted in bad faith [because the court has]  explained that ‘a party need not prove that the offending party acted in bad faith’ in order to be entitled to attorney fees.”  Op. at 11.

Happy St. Patrick’s Day…

Here is an excellent post by James Baker at Baker & McKenzie explaining the recent case law that roundly supports instituting arbitration as the mechanism to resolve employee benefit disputes.

Given the current case law which is enforcing class action waivers,  arbitration is an excellent way of knocking out ERISA class actions.

You already know that a “church plan” is exempt from ERISA, unless the Plan specifically elects to be governed by ERISA under Internal Revenue Code Section 410(d).

But what does it take to become a “church plan”?

Does ERISA require that the Plan be established by a CHURCH before the “church plan” exemption applies? YES.

Here’s the case of Rollins v. Dignity Health, et al., __ F.Supp. 2d __, 2013 WL 6512682 (N.D. Cal. December 12, 2013)(Court gives no deference to “three decades” of IRS private letter rulings and concludes only a church can establish a church plan).

FACTS:  Plaintiff Rollins was employed with Dignity Health, a non-profit healthcare provider associated with the Roman Catholic Church. Rollins sought pension benefits, and contended Dignity Health had failed to comply with ERISA administrative requirements.

Dignity Health contended the Plan was not governed by ERISA because it is a “church plan,” explicitly exempt from ERISA.

ISSUE: Whether ERISA requires a church plan to have been established by a church?

HELD: Dignity’s Pension Plan was governed by ERISA. Dignity did not qualify for the “Church Plan” exemption because it is not a “Church.”


  1. “Text (of the ERISA statute) and the history confirm that a church plan must still be established by a church.  Because Dignity is not a church or an association of churches, and does not argue that it is, the Court concludes that Dignity does not have the statutory authority to establish its own church plan….”  Op. at 12.
  2. “[T]he Court declines to defer to the IRS’s (‘three decades’ of) interpretation of the ERISA statute here.”  Op. at 5.
  3. “The IRS’s private letter rulings apply only to the persons or entities who request them and are not entitled to judicial deference.”  Op. at 5.
  4. “[W]e must presume that Congress acted intentionally in using the words ‘establish and maintain’…as something only a church can do.”  Op. at 8.
  5. “The Court acknowledges that the position it takes here runs contrary to several cases outside this circuit….”  Op. at 9

KEY TAKE AWAY:  Watch out for this case in ERISA pension litigation.  The decision may also play an important role in Long Term Disability litigation, as it supports a substantial narrowing of the Church Plan exemption.

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.
  • 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.

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.


  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.

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.


  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.