Happy New Year! The holiday season certainly didn't slow the Courts down. They continue to be busy dealing with time-honored ERISA issues - from preemption to the applicable standard of review. This newsletter highlights circuit court opinions reported during November 2008 on these issues and more. In addition, we are leading off with a summary of the recent Champion v. Black & Decker, Inc. opinion, which clarifies the Fourth Circuit's position regarding the standard of review post-Glenn. We will be e-mailing another newsletter with summaries of additional cases decided in December 2008, but because Champion has the potential to impact all ERISA cases currently pending in our circuit, we wanted to highlight it sooner as opposed to later. Finally, you may notice that the format of this newsletter is a little different. To make the content easier to access, we have added navigation options to the sidebar for each circuit opinion discussed along with the subject matter of the cases. We are always open to your suggestions on how we can make this newsletter more functional and useful -- please share your thoughts with us.
Champion v. Black & Decker (U.S.) Inc., The Black & Decker Disability Plan, No. 07-1991 (4th Cir. Dec. 19, 2008):Champion, a former employee of Black & Decker (U.S.) Inc., was a participant under the Black & Decker Disability Plan ("the Plan"). Champion was paid long term disability benefits for a period of 30 months. After 30 months, her benefits were terminated because the Plan determined that her disability resulted from mental illness and, based on the language of the Plan, no benefits were payable after 30 months. Thereafter, Champion filed an action in the District Court of South Carolina alleging that the Plan abused its discretion in terminating her benefits. The district court initially found that the Plan abused its discretion by failing to determine whether Champion's disabilities fell within the definition of mental health. The district court remanded the case to the Plan to determine the proper classification of her disability and allow her an opportunity to submit additional evidence. On remand, the Plan reaffirmed its termination of benefits after 30 months. The district court reviewed the Plan's decision and held that the Plan had not abused its discretion. Champion appealed, alleging that the Plan operated under a conflict of interest, the Plan's decision was unreasonable and the district court should not have remanded the case to the Plan.
On appeal, the Fourth Circuit addressed the standard of review in light of Metropolitan Life Ins. Co. v. Glenn, decided after the district court's decision. The Court explained that prior to Glenn, when a conflict of interest was present, the Fourth Circuit applied a "modified abuse of discretion" standard to neutralize the conflict. It also defined a conflict more narrowly. After Glenn, a conflict is found by the dual role of an administrator but courts still apply the abuse of discretion standard. The conflict is simply one factor considered in determining reasonableness. The Court cited eight factors, enumerated in Booth v. Wal-Mart Stores, Inc. Assocs. Health & Welfare Plan, 201 F.3d 335 (4th Cir. 2000), and endorsed in Glenn, which it would consider in determining reasonableness:
(1) the language of the plan; (2) the purposes and goals of the plan; (3) the adequacy of the materials considered to make the decision and the degree to which they support it; (4) whether the fiduciary's interpretation was consistent with other provisions in the plan and with earlier interpretations of the plan; (5) whether the decision making process was reasoned and principled; (6) whether the decision was consistent with the procedural and substantive requirements of ERISA; (7) any external standard relevant to the exercise of discretion; and (8) the fiduciary's motives and any conflict of interest it may have.
The Court considered these factors and found that the Plan acted within its discretion and found that the other factors were not closely balanced; thus, the conflict factor approached "the vanishing point." The Court affirmed the decision of the district court.
* In a case decided before Champion, the Fourth Circuit indicated that it would continue to apply a modified abuse of discretion standard of review. See Gorski v. ITT Long Term Disability Plan for Salaried Employees, 2008 WL 4790117 (4th Cir. Nov. 3, 2008). It is now clear, however, that district courts in this circuit should no longer reduce the deference afforded a conflicted fiduciary or use a sliding scale analysis ; rather, courts examine a combination of factors like those set forth in Booth to determine whether the decision was an abuse of discretion.
Island View Residential Treatment Center v. Blue Cross Blue Shield of Massachusetts, Inc., 2008 WL 4891203 (1st Cir. Nov. 14, 2008): Plaintiffs
brought suit against Blue Cross Blue Shield of Massachusetts ("Blue
Cross") under ERISA for the denial of benefits for in-patient care
furnished by Island View Residential Treatment Center. The district
court disposed of the case on the basis that the contractual time
limit provision in the plan barred suit after two years from the denial of
coverage. The First Circuit agreed that while a claim for benefits
under ERISA is typically treated as a contract claim and the applicable
state statute of limitations is applied to the claim, there was nothing
unconscionable about the contractual limit in the plan and it complied
with Massachusetts state law permitting such provisions for health
insurance suits as long as they are for not less than two years. The
dismissal of the case by the district court was affirmed.
* This case explains the difference between a statute of limitations defense and application of a contractual time limit provision in the plan barring suit unless it is brought within a specific time period after the denial of benefits. The decision also rejects an attempt by the minor to assert that the time limitation should have been tolled until she reached age 18 where there was no showing that she was being held responsible for the medical bills and where precedent exists declining to apply state law equitable tolling principles to contractual limitations periods.
Ward v. Avaya, Inc., 2008 WL 4888494 (3d Cir. Nov. 13, 2008):
Ward appealed the decision of the district court dismissing his claims
against Avaya for breach of fiduciary duty. Ward's claims focused on
the fact that defendants invested the plan assets in the stock funds of
the employer. The district court concluded that Ward's breach of
fiduciary duty claim must be dismissed because he failed to plead
sufficient facts to overcome the presumption from Monech v. Robertson,
62 F.3d 553 (3d Cir. 1995). The Third Circuit agreed and explained
that "in the context of an ERISA plan that offers employees the option
of investing in a fund consisting solely of the employer's own
securities, there is a 'presumption that a fiduciary acted prudently in
investing in employer securities' and that, to rebut the presumption,
'a plaintiff must show that the ERISA fiduciary could not have believed
reasonably that continued adherence to the [Plan's] direction was in
keeping with the settlor's expectations of how a prudent trustee would
operate.'" The Court further explained that "short-term financial
difficulties do not give rise to a duty to halt or modify investments
in an otherwise lawful ERISA fund that consists primarily of employer
securities." The fact that Avaya was undergoing corporate
developments, which may have a negative effect, did not rebut the Monech presumption. The Court affirmed the decision of the district court dismissing of Ward's breach of fiduciary duty claims.
* Ward upholds the Third Circuit Monech presumption that a fiduciary acted prudently in investing in employer securities even when an employer is undergoing corporate development which may have a negative impact on the company.
Gagliano v. Reliance Standard Life Ins. Co., 2008 WL 4916330 (4th Cir. Nov. 18, 2008):
This case addresses a number of relevant issues in the context of an
LTD claim, including the failure of a plan to conduct a full and fair
review, preemption of state law claims for waiver and estoppel, and the
effect of relying on a different plan provision to deny a claim after
remand than was cited in the initial denial letter. In the case,
Reliance initially terminated plaintiff's claim because the medical
records did not support a physical or mental condition that would
preclude her from performing her occupation in the general economy.
Plaintiff timely appealed but filed suit before the review was
completed. The district court remanded the case to the administrator
to complete the administrative review and render a final decision.
During the review, an IME was conducted which established that
plaintiff was disabled under the terms of the plan. Nevertheless,
Reliance terminated the claim under the Plan's pre-existing conditions
limitation. In the letter, Reliance indicated that its decision was
final. The court held that Reliance did not comply with the notice
requirements of ERISA when it denied plaintiff's claim on a different
basis than the first denial and did not give plaintiff the opportunity
to appeal the decision based on the pre-existing conditions
limitation. The court concluded that Reliance negligently failed to
evaluate evidence of plaintiff's pre-existing condition in its initial
processing of the claim and, therefore, the appropriate remedy was to
The Fourth Circuit agreed that Reliance failed to provide plaintiff
a full and fair review of the decision denying benefits on the basis of
the pre-existing condition limitation and that the failure was a
violation of the notice requirements of ERISA. But, it held that the
district court erred when it effectively ruled that Reliance waived its
right to deny benefits based on the pre-existing condition provision
and was estopped from doing so. The Court reiterated the well-settled
principle that state law theories such as waiver and estoppel are
preempted by ERISA. It explained that Reliance's "mistake" in failing
to initially assert the limitation did not estop it from asserting it
under some notion of waiver because ERISA requires the plan to be
administered as written.
The Court also relied on its holding in Sedlack v. Braswell Services Group, Inc.,
134 F.3d 219 (4th Cir. 1998) that "a defective notice to a plan
participant [does] not create a substantive remedy for a claim that was
otherwise not cognizable under the terms of the ERISA plan". Where
there is a procedural violation of ERISA, the appropriate remedy is not
to award benefits under the Plan but to remand the matter to the
administrator for a full and fair review.
* This case makes it clear that in the Fourth Circuit, the remedy for procedural defects and/or "mistakes" is not the payment of benefits under the Plan but, rather, a remand to the administrator for a full and fair review.
Catholic Healthcare West-Bay Area v. Seafarers Health and Benefits Plan, 2008 WL 4951648 (9th Cir. Nov. 18, 2008):
Plaintiff, a third-party medical provider, sued an ERISA plan in state
court alleging state law claims including breach of implied contract,
negligent misrepresentation, estoppel, quantum meruit, and indebitatus assumpsit.
The Ninth Circuit reversed and vacated the district court's award of
summary judgment to the Plan, instructing the district court to remand
the action to state court for lack of subject matter jurisdiction. The
Court explained that "where a third party medical provider sues an
ERISA plan based on contractual obligations arising directly between
the provider and the plan (or for misrepresentation of coverage made by
the plan to the provider), no ERISA-governed relationship is implicated
and the claim is not preempted." The Court acknowledged that the provider could have brought an ERISA claim derivatively as an assignee, but it did not.
* It is unclear how persuasive the Court's analysis will be when applied to similar actions in other circuits as the provider claim arguably relates to an ERISA plan and it seems there is a strong argument for preemption.
Leon v. Quintiles Transnational Corp., 2008 WL 4927361 (9th Cir. Nov. 19, 2008) (unpublished):
In this case involving the denial of LTD benefits, the Court held that
the district court properly applied the abuse of discretion standard,
affording little weight to the administrator's conflict of interest
after concluding that the conflict did not taint the administrator's
decision, notwithstanding alleged procedural irregularities argued by
plaintiff. The Court rejected plaintiff's argument that the
administrator conditioned receipt of benefits on her submission to a
dangerous test where the administrator advised that plaintiff's claim
was denied because plaintiff failed to provide objective evidence of
angina and that, on appeal, she should submit objective medical data
including but not limited to a cardiac catheterization with ergonovine
The Court also rejected plaintiff's more general argument that the
administrator improperly required objective evidence to support her
claim. In doing so, the Court explained, "The plan gave Kemper
discretion to determine whether 'proof....[was] satisfactory for
receipt of benefit payments.' That provision fairly contemplates a
requirement of objective evidence where, as here, tests to confirm a
diagnosis are available. Moreover, in the initial denial letter,
Kemper advised Leon that she was required to submit objective evidence
to support her diagnosis and claim for benefits."
* The Court's discussion regarding the objective
evidence requirement is particularly helpful to insurers who reserve the right
to determine whether proof is satisfactory; however, it is unclear whether its
interpretation is limited to cases involving a disabling condition for
are available to confirm the diagnosis.
Plaintiff appealed the decision of the district court entering summary judgment in favor of Textron and asserted that the court erred in not granting a jury trial, finding Textron was not acting as a fiduciary, and not reinstating his state law claims that were preempted by ERISA. Without explanation, the Eleventh Circuit upheld the court's holding that plaintiff was not entitled to a jury trial under ERISA and that Textron was not acting as a fiduciary. The Eleventh Circuit focused on Plaintiff's assertion that his state law claims of fraud should have been reinstated. The Court explained that Rolland's claims were preempted because ERISA supersedes any and all state laws that relate to employee benefit plans and "where state law claims of fraud and misrepresentation are based upon the failure of a covered plan to pay benefits, the state law claims have a nexus with the ERISA plan and its benefits system." Further, the Court found that when a claim is preempted by ERISA, "there [is] no entitlement for the fraud claim to be reinstated because the ERISA claim was unsuccessful." The decision of the district court was affirmed.
* This decision highlights the effect of ERISA preemption on state law claims. If a state law claim is preempted by ERISA it cannot be reinstated even if the plaintiff's ERISA claim ultimately fails.
Kaplan v. Blue Cross Blue Shield of Florida, 2008 WL 4926623 (11th Cir. Nov. 19, 2008) (unpublished): Plaintiff incurred approximately $800,000 in medical bills as a result of injuries sustained when she was injected with raw botulinum-A toxin instead of BOTOX during a cosmetic procedure. Her health insurance provider, Blue Cross Blue Shield of Florida ("BCBSF"), determined that the injections themselves were "'cosmetic services,' not covered under their health insurance plan and that the medical care...required as a result of those injections were 'complications of non-covered services,' also not covered under their health insurance plan." The Court held that BCBSF correctly interpreted the language of the plan in denying plaintiff's claim and rejected plaintiff's argument that the substitution of raw botulinum-A toxin "transformed the medical services they later received to treat their resulting injuries into covered services."
* Interestingly, the Court never identified the standard of review it was applying - it appears that it merely determined that the interpretation was "correct" and affirmed the decision solely on that basis.