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ERISA Watch – Disability Plan Cannot Offset Direct Rollover Funds Against Long Term Disability Benefits

This week’s notable decision is a good one on those pesky “other income” offsets common in long term disability policies.  In Thomason v. Metropolitan Life Insurance Company, No. 16-10634, __F.App’x__, 2017 WL 3049528 (5th Cir. July 18, 2017), the Fifth Circuit Court of Appeals affirmed the decision of the district court in favor of Thomason who challenged MetLife’s offset of his direct rollover funds (from his pension fund to his IRA) against his long term disability benefits.  The Summary Plan Description (“SPD”) provides that long-term disability benefits “may be reduced by other sources of disability income,” including “[p]ension benefits from a Verizon pension plan, if [the beneficiary] elect[s] to receive them.”  The court found the phrase “elect to receive” to be ambiguous.  Specifically, the SPD gave no indication of whether a direct rollover in a trustee-to-trustee transfer constituted a beneficiary “electing to receive” pension benefits from a Verizon pension plan.  Because this language is ambiguous, the court interpreted the provision contra proferentem and construed the language against MetLife and in favor of Plaintiff.  The court declined to reach the actual meaning of “elect to receive” under the Plan.  Instead, the court held that Thomason had not elected to receive the funds when he directly rolled them over from the pension fund to his IRA through a trustee-to-trustee transfer.

Below is Roberts Bartolic LLP’s summary of this past week’s notable ERISA decisions.

Attorneys’ Fees

Sixth Circuit

Humana Ins. Co. of Kentucky v. O’Neal, No. CV 16-173-DLB-JGW, 2017 WL 3015173 (E.D. Ky. July 14, 2017) (Judge David L. Bunning) (appeal to 6th Circuit filed).  In this interpleader action brought by Humana to determine the rightful beneficiary of life insurance proceeds, the court denied Humana’s and Defendants’ request for attorneys’ fees.  Regarding Humana, the court determined that Humana has not shown that the opposing party acted in bad faith.  Humana is a sophisticated business entity that could foresee and plan for interpleader suits; fees are expenses that are part of its regular cost of doing business.

Ninth Circuit

Northwest Sheet Metal Workers Organizational Trust, et al. v. Associated Heating & Sheet Metal, Inc., No. C15-0458RSM, 2017 WL 3017537 (W.D. Wash. July 17, 2017) (Judge Ricardo S. Martinez).  In this action for unpaid contributions and following summary judgment in favor of Plaintiffs, the court awarded attorney’s fees of $14,427.00 based on an hourly rate of $180 (rather than the $210 requested by Plaintiffs).

D.C. Circuit

Fanning v. Seneca One Realty LLC, No. 17-CV-00126 (CRC), 2017 WL 3016757 (D.D.C. July 14, 2017) (Judge Christopher R. Cooper).  In this matter seeking unpaid contributions to the pension fund, the court granted default judgment to Plaintiff in the amount of $8,343.87 and awarded to $2,031 in attorney’s fees and costs for 5.2 hours of work at the hourly rate of $280.

Breach of Fiduciary Duty

Second Circuit

In re: Walter Kakareko III, Debtor, No. 14-73390-LAS, 2017 WL 3084386 (Bankr. E.D.N.Y. July 19, 2017) (Bankruptcy Judge Louis A. Scarcella).  The court determined that Plaintiff has presented ample evidence that ERISA defined the trust res, identified the ERISA fiduciary’s duties and imposed obligations on the fiduciary prior to and without reference to the alleged wrongdoing that created the debt owed to Plaintiffs, and that Defendant exercised sufficient discretionary authority or control over plan assets in functional terms to support a finding that he acted in fiduciary capacity for purposes of ERISA Section 523(a)(4).  The court denied summary judgment to Plaintiffs because there is a genuine dispute as to material fact as to whether Defendant committed a defalcation while acting in a fiduciary capacity.

Fourth Circuit

Turner v. Volkswagen Grp. of Am., Inc., No. 2:16-CV-06570, 2017 WL 3037803 (S.D.W. Va. July 18, 2017) (Judge Joseph R. Goodwin).  “Here, the plaintiff alleges that the defendants breached their fiduciary duties by failing to advise her of her rights under the benefits plan, failing to advise Mr. Turner of his rights under the plan while he was alive, and sending the plaintiff and Mr. Turner erroneous statements that indicated he continued to have life insurance under the plan. None of the conduct alleged by the plaintiff constitutes management or administration of the plan; indeed, all of the alleged conduct implicates advising the plaintiff or her rights under the plan—a category of conduct that the DOL specifically determined was ministerial.”  The court granted Defendant’s motion for judgment on the pleadings of Plaintiff’s breach of fiduciary duty claim.

Fifth Circuit

Hampton v. Maritime Association International Longshoreman Association Pension Retirement Welfare and Vacation Funds, No. 3:15-CV-247, 2017 WL 3008554 (S.D. Tex. July 14, 2017) (Judge George C. Hanks, Jr.).  In this lawsuit alleging breach of fiduciary duty for misapplying certain funds into a pension account rather than into a “vacation and holiday pay” fund, the court agreed with Defendants that the acts complained of were not discretionary, but that they instead deposited the monies received in the manner they were required to by the settlor and the Plan itself.  The court found no evidence that the acts complained of were a breach of any specific duties owed to the Plaintiffs or that they were harmed.

Sixth Circuit

Van Loo v. Cajun Operating Company d/b/a Church’s Chicken, No. 16-1980, __F.App’x__, 2017 WL 3034275 (6th Cir. July 18, 2017) (BEFORE: BOGGS, BATCHELDER, and WHITE, Circuit Judges).  A life insured’s parents sued Church’s for breach of fiduciary duty in making material misrepresentations about their daughter’s life insurance coverage, which she relied to her detriment.  The insured was an in-house attorney at Church’s.  The court affirmed the district court’s grant of summary judgment to Plaintiffs because it found that Plaintiffs have shown detrimental reliance, and that Defendant has failed to rebut that showing.  The court declined to address the Secretary of Labor’s position that the harm required to establish an ERISA fiduciary-breach claim is less stringent than that traditionally required to demonstrate detrimental reliance.

Seventh Circuit

Saginaw Chippewa Indian Tribe of Michigan, et al. v. Blue Cross Blue Shield of Michigan, No. 16-CV-10317, 2017 WL 3007074 (E.D. Mich. July 14, 2017) (Judge Thomas L. Ludington).  The court determined that BCBSM’s operation of Physician Group Incentive Program (PGIP) did not violate BCBSM’s fiduciary duty to the Tribe.  There was no self-dealing because BCBSM did not receive a financial benefit from PGIP.  To the contrary, the court found that PGIP likely resulted in a reduction in the Tribe’s overall healthcare expenses.

Ninth Circuit

Gendreau v. California Physicians’ Serv., No. 15-CV-02455-CAB-AGS, 2017 WL 3007199 (S.D. Cal. July 14, 2017) (Judge Cathy Ann Bencivengo).  Plaintiff argued that Blue Shield breached its fiduciary duty to disclose material information because Blue Shield fails to inform consumers of all relevant facts pertaining to the out-of-pocket maximum.  The court disagreed and explained that a fiduciary’s mishandling of an individual benefit claim does not violate any of the fiduciary duties defined in ERISA.  “To find a breach of fiduciary duty based on a denial of individual benefits, a plaintiff could show that the denial is part of a “larger systematic breach of fiduciary obligations.”   Here, Plaintiff did not allege anything larger in scope than the mishandling of his own personal benefits, which Blue Shield made efforts to correct.

Disability Benefit Claims

Second Circuit

Rehkugler v. Aetna Life Ins. Co., No. 516CV0024GTSATB, 2017 WL 3016835 (N.D.N.Y. July 14, 2017) (Judge Glenn T. Suddaby).  The court granted Aetna’s motion for summary judgment on Plaintiff’s denied long term disability claim, where Plaintiff alleged disability from degenerative thoracolumbar scoliosis, foraminal stenosis, and central canal stenosis, but the record does not contain objective evidence substantiating Plaintiff’s alleged functional impairments.  Defendant’s decision not to credit the physical limitations summarily offered by Plaintiff’s treating providers was not arbitrary and capricious.  Aetna’s denial was supported by reports prepared by Dr. Ferdinand Urmaza, Dr. Joseph Braun, Dr. James Wallquist, and Dr. Martin Mendelssohn.

Fourth Circuit

Smith v. The PNC Financial Services Group, et al., No. MJG-15-2232 (D. Md. July 21, 2017) (Judge Marvin J. Garbis).  In this case where Plaintiff sought disability benefits for major depression and panic disorder, the court granted Plaintiff’s motion for summary judgment.  Liberty Life did nothing more than a “mere cursory file review,” which in the face of evidence from Plaintiff and his treating providers, did not constitute substantial evidence to support Liberty Life’s decision.  Thus, the Plan abused its discretion.

Fifth Circuit

Thomason v. Metropolitan Life Insurance Company, No. 16-10634, __F.App’x__, 2017 WL 3049528 (5th Cir. July 18, 2017) (Before REAVLEY, ELROD, and GRAVES, Circuit Judges).  The court affirmed the decision of the district court in favor of the disability plan participant who challenged MetLife’s offset of his direct rollover funds (from his pension fund to his IRA) against his long term disability benefits.  At issue is the phrase “elect to receive,” which appears in the Summary Plan Description.  Because this language is ambiguous, the court interpreted the provision contra proferentem and construed the language against MetLife and in favor of Plaintiff.

Hayes v. Dearborn Nat’l Life Ins. Co., No. CV 16-0214, 2017 WL 3039779 (W.D. La. July 17, 2017) (Judge Rebecca F. Doherty).  The court found that the circumstances in this matter do not suggest a higher likelihood that Dearborn National’s conflict affected the decision on Plaintiff’s long term disability claim.  The court explained that Dearborn National conducted a years-long investigation into plaintiff’s disability; consulted with, or reviewed reports by, more than ten medical and vocational experts; gave plaintiff multiple opportunities to introduce evidence in support of his disability; and to rebut its evidence showing plaintiff was not disabled.  Based on this, the court found that Dearborn National did not abuse its discretion.

Sixth Circuit

Sun v. United of Omaha Life Ins. Co., No. 16-11339, 2017 WL 3050477 (E.D. Mich. July 19, 2017) (Judge Victoria A. Roberts).  “United based its conclusions on aspirational language in medical reports, Sun’s goals, and medical consultants who did not treat or examine Sun, despite ample evidence of disability based on examinations and findings. This leads this Court to conclude that United’s decision to terminate Sun’s LTD benefits was arbitrary and capricious.”

Discovery

Fourth Circuit

Boyce v. Eaton Corp., No. 1:16-CV-242, 2017 WL 3037392 (W.D.N.C. July 18, 2017) (Judge Martin Reidinger).  In this case involving long term disability benefits, limited discovery will be allowed to enable the court to conduct a proper review of the denial of the Plaintiff’s long term disability benefits under Booth.  Plaintiff will be allowed to investigate whether a certain individual was a Committee member and can only seek information and/or documents reflecting the identities of the members of the Committee during the period of the Committee’s review of Plaintiff’s claim.

Eighth Circuit

Barnes v. Ascension Health Alliance & Sedgwick Claims Management Services Inc., No. 4:16-CV-2170 (CEJ), 2017 WL 3006882 (E.D. Mo. July 14, 2017) (Judge Carol E. Jackson).  In this lawsuit for long-term disability, Plaintiff seeks to conduct limited discovery outside of the administrative record, including obtaining the:  (1) the Administrative Services Agreement and Step Process Manuals; (2) a deposition of corporate representative(s); and (3) a deposition of the records reviewer.  The court ordered Defendants to provide the Ascension Health LTD Step Process Manuals and a redacted version of the Administrative Services Agreement (redaction of dollar amounts).  The court denied the other discovery.

Ninth Circuit

Hancock v. Aetna Life Ins. Co., No. C16-1697JLR, 2017 WL 3085744 (W.D. Wash. July 20, 2017) (Judge James L. Robart).  In this matter seeking long-term disability benefits, the court granted in part and denied in part Plaintiff’s motion to compel.  An interrogatory seeking Defendants to state the number of appeals of LTD benefit denials that Aetna received from any person claiming LTD benefits under the Plan for the years 2012 through 2016 is not relevant or proportional to the needs of the case.  Discovery regarding Aetna personnel who manage LTD appeals will only minimally support Plaintiff’s breach of fiduciary duty claim and is not proportional to the needs of the case.  The court granted the deposition of:  Douglas Burdick, an Aetna employee; Kathy Leonard, a former Aetna employee; Aren Giske, a physician who conducted Ms. Hancock’s outside medical review.  The court denied the deposition of a Rule 30(b)(6) designee for Aetna; and a Rule 30(b)(6) designee for non-party PDA.

ERISA Preemption

Fourth Circuit

Estate of Amanda G. Criswell, by her Pers. Representative, Judy Criswell v. Aetna Life Ins. Co., No. 4:15-CV-04831-RBH, 2017 WL 3066856 (D.S.C. July 19, 2017) (Judge R. Bryan Harwell).  The Supplemental Life Insurance Policy is part of the larger McClatchy Company Comprehensive Welfare Benefit and Cafeteria Plan.  Because the employer endorsed the Plan, the Supplemental Life Insurance Policy at issue in this case fails to qualify for the safe harbor exception set forth in 29 C.F.R. § 2510.3-l(j).  The Supplemental Life Insurance Policy is governed by ERISA and Plaintiff’s state law claims for breach of contract, bad faith, and negligence are preempted.

Fifth Circuit

Houston Methodist Hosp. v. Humana Ins. Co., No. CV H-16-1469, __F.Supp.3d__, 2017 WL 3037416 (S.D. Tex. July 17, 2017) (Judge Sim Lake).  The court agreed with Defendant Humana that Methodist’s Texas Prompt Payment of Physicians and Providers Act (the “TPPA”) claims arising from fully insured ERISA Plans are preempted by ERISA because the TPPA “relates to” ERISA Plans, the TPPA is not saved from preemption, and if saved, the TPPA is nevertheless preempted because its statutory deadlines and late pay penalties conflict with ERISA’s claim processing regulations.

Exhaustion of Administrative Remedies

Fourth Circuit

Turner v. Volkswagen Grp. of Am., Inc., No. 2:16-CV-06570, 2017 WL 3037803 (S.D.W. Va. July 18, 2017) (Judge Joseph R. Goodwin).  “Because there are facts sufficient to support a showing that Volkswagen failed to comply with 29 C.F.R. § 2560.503-1(g) and Volkswagen’s failure denied the plaintiff reasonable review of her life insurance claim, I FIND that the pleadings present sufficient allegations to support a showing that the plaintiff’s administrative remedies are deemed exhausted for her life insurance benefits claim, and therefore, dismissal is improper at this time.”  But, Plaintiff did not exhaust the plan’s administrative remedies prior to filing the lawsuit for the survivor benefits claim and she has not alleged facts to support a showing of futility.

Sixth Circuit

Humana Ins. Co. of Kentucky v. O’Neal, No. CV 16-173-DLB-JGW, 2017 WL 3015173 (E.D. Ky. July 14, 2017) (Judge David L. Bunning) (appeal to 6th Circuit filed).  In this interpleader action to determine the beneficiary entitled to life insurance proceeds, the court determined that this is not a case in which the insurer has “punted” its decision-making authority to the Court, but instead faces the real threat of multiple liability, and reverse exhaustion is neither appropriate nor necessary.

Life Insurance & AD&D Benefit Claims

Sixth Circuit

Metro. Life Ins. Co. v. Kelly, No. 16-CV-12544, 2017 WL 3085519 (E.D. Mich. July 20, 2017) (Judge Gershwin A. Drain).  When viewing that evidence in the light most favorable to the non-moving party, the insured’s struggle with alcohol and hallucinations on at least two occasions are insufficient to invalidate the insured’s life insurance designation as a result of undue influence.

Humana Ins. Co. of Kentucky v. O’Neal, No. CV 16-173-DLB-JGW, 2017 WL 3015173 (E.D. Ky. July 14, 2017) (Judge David L. Bunning) (appeal to 6th Circuit filed).  In this interpleader action, the court found the life insurance benefits payable to the insured’s estate since the decedent did not name a beneficiary for the 2015 term.  Beneficiaries need to be re-entered each year and all dependents and previously identified beneficiaries are offered to the participant via a drop down box and are visible to the participant for selection.  Although Defendant was previously listed as a beneficiary, the insured did not select his name and did not select any pre-populated beneficiary option.

Medical Benefit Claims

Fifth Circuit

Ravannack v. United Healthcare Ins. Co., No. CV 14-2542, 2017 WL 3025536 (E.D. La. July 17, 2017) (Judge Jane Triche Milazzo).  The court denied Plaintiff’s motion for contempt against United for failing to comply with the Court’s order to complete a full determination of all medical benefit claims.  The court denied the motion on the basis of substantial compliance.  Plaintiff did not provide the court with authority indicating that failure to comply with ERISA’s deadlines should inure to her benefit in the form a full award of her claim without any review whatsoever.

Pension Benefit Claims

Third Circuit

United States v. Tilley, No. CR 07-290, 2017 WL 3007799 (W.D. Pa. July 14, 2017) (Judge Joy Flowers Conti).  Plaintiff’s pension plan and profit sharing plan are not exempt from garnishment by the government to satisfy his restitution obligation in the Mandatory Victims Restitution Act.

Fifth Circuit

Motes v. Time Warner Cable Pension Plan, No. 6:15-CV-00373-RWS, 2017 WL 3034675 (E.D. Tex. July 18, 2017) (Judge Robert W. Schroeder III).  “In sum, the evidence does not establish a prima facie case that Motes ever became a Participant in the Paragon Plan or that Paragon assumed the pension obligations of Group W.  Because Motes did not establish a prima facie case, TWCPP did not have the burden to produce records reflecting Motes’s entitlement to benefits.  Under the circumstances, TWCPP did not abuse its discretion in denying benefits to Motes.  Accordingly, it is ordered that judgment be entered in favor of Defendant Time Warner Cable Pension Plan.”

Sixth Circuit

Johnston v. Dow Employees’ Pension Plan & Dow Chemical Company Retirement Board, No. 16-2246, __F.App’x__, 2017 WL 3049546 (6th Cir. July 19, 2017) (BEFORE: GIBBONS, SUTTON, and COOK, Circuit Judges).  In this putative class action challenging Defendant’s new method of retirement benefit calculation for employees that were transferred from Dow to DuPont Dow Elastomers and then back to Dow, the court affirmed the district court’s grant of judgment on the administrative record in favor of Defendants.  The majority held that the board’s determinations were not arbitrary or capricious or in violation of the anti-cutback rule.  Sutton dissented.  He found no plausible interpretation of the pension plan supporting Defendants’ position and wrote that “Johnston deserves the extra pension benefit.”

Ninth Circuit

Buster v. Comp. Comm. of Bd. of Directors of Mechanics Bank, No. C 16-01146 WHA, 2017 WL 2999990 (N.D. Cal. July 14, 2017) (Judge William Alsup).  The court found that the bank’s compensation committee’s conclusion that Plaintiff knowingly and voluntarily waived his accrued SERP benefits was illogical and implausible, particularly when viewed with increased skepticism in light of the compensation committee’s significant conflict of interest.  Therefore, the compensation committee abused its discretion in denying Plaintiff’s claim for benefits.  The bank has not carried its burden to show that Plaintiff’s claims for relief were based upon events occurring prior to November 21, 2012, so as to breach the covenant not to sue in his retirement agreement.

Plan Status

Seventh Circuit

Saginaw Chippewa Indian Tribe of Michigan, et al. v. Blue Cross Blue Shield of Michigan, No. 16-CV-10317, 2017 WL 3007074 (E.D. Mich. July 14, 2017) (Judge Thomas L. Ludington).  The Employee Plan and Member Plan are two separate plans, not one ERISA plan with multiple coverage options.  A plan must be created for the purpose of covering employees, but assuming that is so and at least one employee is covered, it is not necessarily exempted from ERISA simply because it also covers non-employees.  The Member Plan is not governed by ERISA since it was created to provide healthcare coverage to non-employee members.  This is the case even though some tribal employees who are also members of the Tribe have opted into the Member Plan.  “To summarize, the circumstances surrounding the creation and administration of the Employee Plan and Member Plan demonstrate that they were not intended to be a single plan. Rather, they were created at different times, via different contracts, with different eligibility requirements, and for different purposes.”  The court entered judgment for the Tribe regarding hidden fees paid via the Employee Plan but judgment is entered for BCBSM for all of the ERISA claims involving the Member Plan.

Pleading Issues & Procedure

Ninth Circuit

Stenzel v. Metropolitan Life Insurance Company & Does 1 through 5, No. CV-17-27-GF-JTJ, 2017 WL 3017498 (D. Mont. July 17, 2017) (Magistrate Judge John Johnston).  The court found that good cause exists to set aside default in this case because although MetLife’s conduct was culpable in causing the default (it did not update its agent’s address with the Commissioner), it has a meritorious defense to the claims against it and Plaintiff has not suffered any prejudice due as a result of MetLife failing to appear in a timely manner.

Remedies

Eighth Circuit

McGillivray v. Wells Fargo & Co. Salary Continuation Pay Plan, No. 15-CV-4347 (SRN/LIB), 2017 WL 3037557 (D. Minn. July 18, 2017) (Judge Susan Richard Nelson).  In this case seeking Salary Continuation Plan benefits, the Plan failed to comply with the requirements of 29 U.S.C. § 1133 and 29 C.F.R. § 2560.503-1, and as such, the court found its denial of benefits was an abuse of discretion and must be reversed.  The appropriate remedy for a violation of 29 U.S.C. § 1133 and the Claims Regulation is generally not an award of benefits by the court, but rather a remand to the plan administrator so that the claimant gets the benefit of a full and fair review.  The court remanded the matter to the Plan for the limited purpose of allowing it to clarify or reconsider its decision to deny Plaintiff’s claim for benefits.  The court cautioned that should procedural deficiencies noted in this order persist in a future action for administrative review, an award of benefits may be warranted.

Statute of Limitations

Eighth Circuit

Crumb v. Plan # 501 Group Long Term Disability Plan For Employees Of Wal-Mart Stores, Inc., No. 2:16-CV-2231, 2017 WL 3084904 (W.D. Ark. July 20, 2017) (Judge Susan O. Hickey).  Plaintiff began receiving long-term disability benefits on November 28, 2012, and her benefits were terminated effective November 28, 2013 pursuant to an “other occupation” provision.  The policy at issue required Plaintiff to bring suit within three years after the proof of loss is due, which is within ninety days after the start of the period of disability for which payment is sought.  The court found that the Plan’s contractual limitations period began to run before the cause of action accrued; however, Plaintiff still had twenty-one months to file suit after the denial of her administrative appeal.  Plaintiff did not argue that the twenty-one month time period in which to file suit was unreasonably short.  Plaintiff’s suit is time-barred because it was filed over six months after the expiration of the contractual limitations period.

Ninth Circuit

Gendreau v. California Physicians’ Serv., No. 15-CV-02455-CAB-AGS, 2017 WL 3007199 (S.D. Cal. July 14, 2017) (Judge Cathy Ann Bencivengo).  Plaintiff had actual knowledge of the alleged ERISA breach or violation at least as early as April 2011.  This is when Plaintiff first complained to Blue Shield about the alleged improper calculation and accrual of his deductible and out-of-pocket maximum amounts.  The continuing violation theory does not apply.  Plaintiff filed his complaint outside of the statutory limitations period so Blue Shield is entitled to summary judgment on this ground alone.

Subrogation/Reimbursement Claims

Sixth Circuit

Sun v. United of Omaha Life Ins. Co., No. 16-11339, 2017 WL 3050477 (E.D. Mich. July 19, 2017) (Judge Victoria A. Roberts).  The court granted United’s motion for summary judgment on its counterclaim for overpaid long term disability benefits resulting from Plaintiff’s retroactive receipt of Social Security Disability Insurance benefits.

 

 

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