Due to the volume of Circuit court cases in the months of March and April, we have limited the summaries in this newsletter to just a few of the most significant cases. However, we have included a list of the other cases decided during this time frame with a brief discussion of the subject matter of each case. Please feel free to contact us if you would like more information or a complete summary of any of the cases referenced in this month's newsletter.
Estate of Kevin Schwing v. The Lilly Health Plan, --- F.3d ---, 2009 WL 9891114 (3d Cir. April 14, 2009): Schwing, who was terminated from his sales position with Eli Lilly and Company for falsifying call data, was denied severance benefits under the Lilly Severance Plan after the Employee Benefits Committee ("EBC") determined that he was ineligible for the benefits because he was terminated for misconduct. "[T]he District Court entered judgment for Schwing, finding that the EBC's decision was tainted by a conflict of interest and that the EBC failed to adequately investigate Schwing's claim. The Third Circuit reversed the judgment of the District Court finding that the Court had improperly applied a heightened standard of review based on its finding of a conflict of interest under a "sliding scale" approach that is no longer valid in light of Metropolitan Life Ins. Co. v. Glenn, 128 S.Ct. 2343 (2008).
Interestingly, one basis for the District Court's finding of a conflict of interest was the fact that the EBC's attorney also represented Lilly, which the Court concluded "tainted the deliberations to such a degree as to render the EBC's decision arbitrary and capricious." (Lilly also funded and administered the Plan.) The Third Circuit disagreed, explaining that the "attorneys' role vis-a'-vis the EBC was advisory only and her conduct, although criticized by the Court, was altogether appropriate...ERISA fiduciaries are not required to engage independent counsel to aid in their interpretation and administration of an ERISA plan..., and we note our disagreement with the Court's conclusion...that an attorney for an ERISA fiduciary owes a fiduciary-like duty of neutrality to each ERISA claimant."
Relying on Glenn, the Court held that "the decision to deny Schwing's claim for severance benefits was not so close that this factor would act as a 'tiebreaker' tipping the scales in favor of finding that the EBC abused its discretion." Rather, "there was an abundance of evidence of Schwing's misconduct to support the denial of his claim and a lack of evidence to support his theory of pretext."
* The Court lists numerous cases from the
various circuits that have addressed the issue of how Glenn impacts the "sliding scale" approach previously employed by many courts, many of which have
now abandoned that approach entirely.
AT&T, Inc. v. Flores, 2009 WL 1067953 (5th Cir. April 22, 2009) (unpublished opinion): Flores received approximately $315,000 in medical coverage under the Plan as a result of injuries sustained in an automobile accident, but later received $850,000 from a third-party settlement of claims arising out of the accident. The Plan sought reimbursement under 29 U.S.C. section 1132(a)(3) pursuant to a provision in the SPD indicating that the Plan reserved the right to seek reimbursement of medical benefits from the person who injured the insured or his or her insurance company.
The Court ruled that the constructive trust and equitable lien sought by AT&T constituted "appropriate equitable relief' under section 1132. In doing so, it applied a three-part test set forth in Bombardier Aerospace Employee Welfare Benefits Plan v. Ferrer, Poirot and Wansbrough, 354 F.3d 348 (5th Cir. 2003), which held that a claim qualified for relief under section 1132(a)(3) if the Plan seeks "to recover funds (1) that are specifically identifiable, (2) that belong in good conscience to the Plan, and (3) that are within the possession and control of the defendant beneficiary[.]" The Court also relied on Sereboff v. Mid-Atlantic Medical Services, 547 U.S. 356 (2006), which "held that an equitable lien placed on 'specifically identifiable' funds that were 'in the possession of [the plaintiffs], was an 'appropriate equitable remedy' under section1132(a)(3)." Finally, the Court ruled that not only were the remedies sought by AT&T equitable, but the basis of its claim was equitable as well. In doing so, the Court relied on Sunbeam-Oster Co., Inc. v. Whitehurst, 102 F.3d 1368 (5th Cir. 1996), which "rejected the 'make whole' doctrine where it was not expressly included in the language of the plan, and held that the clear and unambiguous subrogation/reimbursement provision entitled the Plan to the full amount of medical benefits paid on the insured's behalf."
* Many courts since Sereboff are taking a similar approach to claims for reimbursement by an insurer, especially in the context of medical insurance benefits. The analysis should also be applicable to claims for reimbursement under long term disability plans, though it is often more difficult to satisfy the requirements discussed above because the third-party payments may not be discovered by the insurer for some time after payment was made to the insured.
American Counsel of Life Insurers, et. al. v. Ken Ross, 558 F.3d 600 (6th Cir. 2009): Plaintiffs filed this suit seeking declaratory and injunctive relief to prevent the enforcement of administrative rules issued by the Michigan Office of Financial and Insurance Services, which "prohibits insurers from issuing, delivering, or advertising insurance contracts or policies that contain 'discretionary clauses'" providing that "courts will give deference to a plan administrator's decision to award or deny benefits or interpretation of plan terms in any court proceeding challenging such decisions or interpretations." The Sixth Circuit held that the rules "fall within the ambit of ERISA's savings clause insofar as they are state laws regulating insurance, and thus are not preempted by ERISA."
The Court rejected Plaintiffs' argument that the rules conflict with ERISA's civil enforcement provision, concluding that the rules "do not create, duplicate, supplant, or supplement any of the causes of action that may be alleged under ERISA." Nor do they serve as an alternative enforcement mechanism. The Court also rejected Plaintiffs' argument that the rules should be preempted because they "conflict with ERISA's policy of ensuring a set of uniform rules for adjudicating cases under ERISA. In doing so, the Court reasoned that the standard of review is not established by the plain language of ERISA and, in fact, the de novo standard is already the default standard of review, "so it is difficult to imagine how a state law requiring that level of review would conflict with the statute." The Court also explained that its decision was consistent with, if not supported by, Metropolitan Life Ins. Co. v. Glenn, 128 S.Ct. 2343 (2008) because it eliminates the potential for the conflict of interest Glenn sought to protect against.
* Interestingly, the Court concludes by stating that "while Michigan's law may well establish that the courts will give de novo review to lawsuits dealing with the meaning of an ERISA plan, it does not follow that they will do so in reviewing the application of a settled term in the plan to a given benefit request." This implies that the rules only apply where an ambiguous plan term is at issue, but the rules clearly prohibit discretionary language at all - including to make benefit determinations, decisions about coverage and eligibility for benefits, etc. The interpretation of terms is only one of many circumstances included in Michigan's prohibition of discretionary clauses, and by upholding the rules in their entirety, the impact of the Court's decision seems to be that the Court will make a de novo review of most, if not all, administrator decisions, not just those involving the interpretation of unsettled plan terms.
Mondry v. American Family Mut. Ins. Co., 2009 WL 539861 (7th Cir. March 5, 2009): Mondry was a participant under a self-funded group health insurance plan and sought reimbursement for speech therapy her son was receiving. She was denied benefits because the therapy was "educational or training" and "not restorative." Mondry repeatedly requested copies of the plan documents that contained the language relied upon in denying her claim from both the plan administrator, American Family, and the claims administrator, CIGNA. After requesting the applicable plan documents on different four occasions, Mondry was supplied with these documents and found that the claims administrator had not relied on the correct plan language to deny her claim. After this finding, she was reimbursed for most of her expenses related to her son's speech therapy. Subsequent to this decision, Mondry filed suit against American Family and CIGNA alleging violation of their obligation to supply plan documents and breach of fiduciary duty.
The district court dismissed both causes with respect to CIGNA and entered summary judgment in favor of American Family on both causes of action. Mondry appealed. The Seventh Circuit found that pursuant to 29 U.S.C. section 1024(b)(4), the administrator of a plan has an obligation to furnish certain documents upon request. The Court found that this duty was imposed on the plan administrator and not the claims administrator; therefore, CIGNA could not be held liable for violating this provision. Further, the Court found that Mondry was entitled to copies of the service agreement between American Family and CIGNA as well as documents, while not dispositive, that were treated by CIGNA as the equivalent of plan documents and expressly relied upon to deny Mondry's claim. The Court noted that American Family's duty to supply these documents was not excused even though the documents were within the exclusive possession of CIGNA.
On Mondry's breach of fiduciary duty claim, the Court found that American Family had contributed to the delay in Mondry receiving benefits she was entitled to by failing to provide her documents upon request and, therefore, failed to discharge its fiduciary duty as plan administrator. With respect to CIGNA, the Court held that because CIGNA did not benefit from the delay in providing Mondry benefits and did not have an obligation to supply documents to the participant, it did not breach its fiduciary duties. The court reversed and remanded in part and affirmed in part.
* Mondry illustrates that failure of a plan administrator to supply plan documents upon request can result in liability for statutory violation of obligations under ERISA and breach of fiduciary duty.
Midgett v. Washington Group International Long Term Disability Plan, 2009 WL 996822 (8th Cir. April 15, 2009): Midgett was an assistant contract manager for Washington Group International and a participant under Washington Group's short-term and long-term disability plans when she allegedly became disabled. Broadspire, and later Aetna Life Insurance Company, was the claims administrator for Washington Group's short-term disability plan. After leaving work alleging certain disabilities, Midgett filed a claim for short-term disability. Broadspire denied her claim and Midgett appealed. In connection with the review of Midgett's claim on appeal, Aetna obtained three peer reviews that all concluded that the medical evidence did not support the conclusion that Midgett was suffering from a condition that would prevent her from performing her job duties. Aetna upheld the denial of benefits on appeal. Thereafter, Midgett filed suit seeking short-term and long-term disability benefits. The District Court granted summary judgment in favor of Defendants and Midgett appealed.
On appeal, Midgett claimed that the district court erred in granting summary judgment in favor of defendants because she did not received a full and fair review. In support of this claim, Midgett argued that she was entitled to review and rebut the peer reviews Aetna relied upon in denying her second-level appeal. The Eighth Circuit disagreed, stating that "requiring a plan administrator to grant a claimant the opportunity to review and rebut medical opinions generated on administrative appeal would set up an unnecessary cycle of submission, review, re-submission, and re-review. The Court held that Midgett was not denied a full and fair review.
Midgett also argued that she did not have to exhaust administrative remedies because it would have been futile to do so in light of the denial of the STD claim. The district court rejected this position and the Eighth Circuit affirmed concluding that it would not have been futile for her to seek long-term disability benefits based on the plan language. Thus, plaintiff should have exhausted her administrative remedies.
* Midgett is significant in holding that claimants are not entitled to review and rebut medical opinions that administrators generate on administrative appeal.
Toy v. Plumbers & Pipefitters Local Union No. 74 Pension Plan, 2009 WL 692398 (3d Cir. Mar. 18, 2009): Third Circuit reviewed the denial of attorney's fees under 29 U.S.C. section 1132(g)(1). The Court found that the district court only considered two of the five factors that Ursic v. Bethlehem Mines, 719 F.2d 670, 673 (3d Cir. 1983) held must be addressed in determining if attorney's fees are warranted under ERISA. Therefore, the Court vacated the district court's order denying attorney's fees and remanded for the district court to complete its analysis under Ursic.
Burtch v. Hartford Life and Accident Insurance Company, 2009 WL 714078 (5th Cir. March 19, 2009) (unpublished opinion): Fifth Circuit reaffirms the rule that there must be evidence in the record to support a denial of benefits - holding that evidence of a participant's ability to do "occasional walking" was not evidence that the participant could perform the essential duties of his job, which included "frequently walking."
DeLisle v. Sun Life Assurance Co. of Canada, --- F.3d ---, 2009 WL 529171 (6th Cir. Mar. 4, 2009): Sixth Circuit held the defendant insurer's denial of LTD benefits was arbitrary and capricious based on conflict of interest, failure to distinguish the Social Security Administration's ("SSA") determination of disability, "the quality and quantity of medical evidence and opinions," and "reliance on non-medical evidence to deny benefits." This case is troublesome in that it appears the Court clearly substituted its own judgment for that of the plan administrator disregarding all of the evidence that supported the insurer's determination that the plaintiff was not disabled and giving substantially more weight to the evidence that favored the plaintiff. The dissenting judge noted that "when it is possible to offer a reasoned explanation, based on the evidence, for a particular outcome, that outcome is not arbitrary and capricious." The majority opinion, however, provides some clear warnings about the denial of benefits based on a lack of coverage after the date of termination, as well as the failure to articulate a distinction between the administrator's decision and that of Social Security.
Kramer v. Paul Revere Life Ins. Co., 2009 WL 928573 (6th Cir. April 8, 2009) (unpublished opinion): This case involves the termination of LTD benefits under two plans, one with discretionary language and one without, which subsequently merged into one plan. The district court reached different results under each plan. The Sixth Circuit reversed the court's decision upholding the termination of benefits under the plan with discretionary language noting that the same evidence was discredited by the court in its de novo review. It also noted that despite a plan's discretionary language, its review of an administrator's decision is not inconsequential and is not for the purpose of "rubber stamping those decisions."
Hackett v. Standard Insurance Co., 2009 WL 703235 (8th Cir. March 19, 2009): Held that the Woo test previously used by the Eighth Cirucit to determine the effect of conflict of interest was inapplicable post-Glenn.
Chronister v. Unum Life Ins. Co. of Am., 2009 WL 1150325 (8th Cir. April 30, 2009): Post-Glenn, the rule was no longer that "a financial conflict of interest would not trigger less-deferential review unless the claimant could show that the conflict was causally connected to the specific decision at issue." Further, the court found an abuse of discretion after weighing all the evidence, as Glenn requires, specifically noting the following factors: 1) Unum's financial conflict of interest, 2) Unum's "pattern of erroneous and arbitrary benefit denials, bad faith contract misinterpretations, and other unscrupulous tactics," and 3) failure to follow claims handling procedures included in their manual regarding weight given to SSA determinations.
Baldoni v. Unumprovident, 2009 WL 613049 (9th Cir. Mar. 11, 2009): Ninth Circuit clarified that Abatie v. Alto Health & Life Ins. Co., 458 F.3d 955 (9th Cir. 2006) does not "mandate" discovery in all cases involving conflict of interest. Rather, discovery as to the nature, extent and effect of a conflict is within the discretion of the district court.
Summers v. Carvist Corp., 2009 WL 1096290 (9th Cir. April 17, 2009) (unpublished opinion): Ninth Circuit held that "the proper method for determining the amount of attorneys' fees in ERISA actions is the 'hybrid lodestar/multiplier approach used by the Supreme Court in Hensley v. Eckhart 461 U.S. 424 (1983), and where the difference in the amount awarded and the amount requested is large, a "specific articulation of the court's reasoning is expected."
Waugh v. The Williams Co., Inc. Long Term Disability Plan, 2009 WL 1090069 (10th Cir. April 23, 2009) (unpublished opinion): The district court rejected plaintiff's argument that under Glenn, courts have the "authority to reverse a plan administrator's decision even if that decision is reasonable and supported by substantial evidence," holding that the Glenn court had "no intention of mandating a de novo review." The Tenth Circuit also affirmed the district court's decision to deny plaintiff's motion for a new trial under Fed. R. Civ. P. 59(a)(2) because Plaintiff sought only to advance arguments she could have readily asserted before.
Farr v. Hartford Life and Accident Ins. Co., 2009 WL 1069181 (10th Cir. April 22, 2009) (unpublished opinion): Involves a denial of LTD benefits based on the Plan's change from the "own occupation" to the "any occupation" test of disability. The Tenth Circuit upheld the termination of benefits under an arbitrary and capricious standard of review, applying a "sliding scale approach" in light of Hartford's conflict of interest. It did so notwithstanding evidence that the consulting physician who completed a physical capacities exam of plaintiff changed his report to indicate that plaintiff could perform certain tasks "frequently," as opposed to "occasionally," to be consistent with his ultimate conclusion that plaintiff could perform full-time sedentary work, and notwithstanding that one of the jobs identified in an employability analysis was that of plaintiff's own occupation from which she was previously determined to be disabled.
Brannon v. Bellsouth Telecommunication, Inc., 2009 WL 567234 (11th Cir. Mar. 6, 2009) (unpublished opinion): Affirms use of a six-step analysis to determine whether an administrator's decision was arbitrary and capacious. While the Court's analysis did not go past the first step, it did state that post-Glenn, step six has been recently modified.