Here is a recent news item showing the scope of the employee disability problem.

In a nutshell:

There are more disabled employees than ever.  As of May 2014, the total number of Social Security disability beneficiaries in the United States hit an all-time high of about 11 million beneficiaries.

But fewer employees are covered with long term disability coverage.  The number of U.S. workers with long-term disability coverage decreased 6% from 2009-2013.

From 2009-2013:

  • fewer employers are offering long term disability coverage: down from 220,000 to 214,000
  • fewer employees have long term disability coverage: down from 34 million  to 32.1 million
  • more total number of employees in the U.S. workforce: up 6.6 million

An excellent article out of the July 17, 2014 Portland Press Herald summarizes the issue.  http://www.pressherald.com/2014/07/17/employers-dropping-long-term-disability-coverage/

 

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.

My apologies for such a direct question for the New Year, but a new case raises the point:

Must a beneficiary have his/her hands or feet at least partially “cut off” to qualify for Accidental Death and Dismemberment benefits? What does the term “dismemberment by severance” in an ERISA plan mean? Isn’t paralysis enough? No.

Here’s the case of Fier v. UNUM Life Insurance Co., __F.3d __ (PDF)(9th Cir. January 4, 2011)(paralysis resulting from “severance of spine” insufficient to qualify for AD&D benefit).

FACTS: Fier was a beneficiary under the employer’s Long Term Disability (LTD) and Accidental Death and Dismemberment (AD&D) benefits. An accident in 1992 severed his spinal cord and he became a quadriplegic; the company tailored a new position for him, paying him the same salary. His salary was reduced $20,000 in 1997. UNUM paid benefits from 1997-2004.

In 2004 UNUM informed Fier he had not been eligible for disability payments (since 1998) because he earned greater than 80% of his pre-disability earnings.

Fier sued, seeking benefits from 1993-1997 and a continuation of benefits. Fier contended, among other things: although his hands and feet remain physically attached to his body, he has lost them from a functional standpoint due to “severance” of his spinal cord.

TRIAL COURT: Applied de novo review and affirmed UNUM’s decision to end benefits.

NINTH CIRCUIT: AFFIRMS with the following rationale.

“‘Dismemberment by severance’ has to mean some actual, physical separation.” This is “unambiguous draftsmanship by an abundantly cautious lawyer.” The court relied on the holding involving nearly identical facts in Cunninghame v. Equitable Life Assurance Society of the United States, 652 F.2d 306, 307 (2nd. Cir. 1981).