As you probably know, CIGNA v. Amara, 131 S.Ct. 1866, 1878-80 (2011) contains dicta that can be viewed as expanding the range of “equitable relief” available to ERISA plan participants under Section 502(a)(3). This relief may include estoppel, reformation and surcharge.

But what proof is needed for plan participants to win equitable relief? We get some insights in a new case.

Is proof of a statutory violation (inaccurate Summary Plan Description (SPD)) enough to establish harm? NO.

Here’s the recent case of Skinner v Northrop Grumman Retirement Plan B [PDF], 673 F.3d 1162 (9th Cir. March 16, 2012)(Inaccurate SPD: insufficient evidence to establish equitable relief of reformation or surcharge).

FACTS: Northrop Grumman Corp. acquired Litton and other companies and transitioned retirement plans with those companies into a cash balance plan. Northrop informed ERISA plan participants of these changes before the effective date in 2003 by a Summary Plan Description (SPD). In May 2003 Northrop sent all participants a notice of plan amendments. Northrop also conducted meetings explaining the changes. In 2005 the company provided a Summary of Material Modifications that explained changes.

Plaintiffs Skinner and Stratton claimed pension benefits had been calculated incorrectly and made administrative claims, which were denied. They sued, claiming the circulated documents were inconsistent and failed to give proper notice of certain changes. They eventually made claims for equitable remedies under Section 502(a)(3) including estoppel, reformation and surcharge.

NINTH CIRCUIT HELD:

1. Reformation Requires Reliance and Fraud or Mistake. Plaintiffs argued the plan documents should be reformed to match the terms of the 2003 SPD. The Court held that reformation is appropriate only in cases of fraud or mistake. The Court found there was no evidence that: (a) the Plan participants were intentionally and materially misled, or that (b) plaintiffs actually relied on purportedly misleading information. Op. at 1166.

2. Surcharge Requires Unjust Enrichment or Proof of Harm to Participants. Plaintiffs sought monetary relief in the form of equitable surcharge, contending Northrop breached fiduciary duties by failing to enforce the terms of the 2003 SPD, rather than the plan document. The Court rejected this theory, citing CIGNA v. Amara, 131 S.Ct. 1866 (2011), and held that the SPD is merely a summary of plan terms and does not contain the actual terms of the plan. The Court found no evidence of harm as a result of an inaccurate SPD. “Harm” does not occur simply because one has been deprived of the statutory right to an accurate SPD. Op. at 1167.

KEY TAKE AWAYS:

1. Plan documents should be complete and consistent.

2. Skinner can be used to argue that for equitable relief, notwithstanding Amara, claimants must establish detrimental reliance for equitable remedies of reformation or surcharge.

We all know that ERISA disability claimants must exhaust administrative remedies before bringing a suit.  Exhausting administrative remedies typically includes seeking an internal appeal.

But…what is required in the claimant’s letter to the Plan to constitute an “appeal”?

Here’s a new case on the issue: Reindl v. Hartford Life and Accident Insurance Co.,[PDF]  __ F.Supp. 2d __ (E. D. Missouri March 21, 2012) (Claimant’s letter to Plan with the following language did not constitute an appeal: “We will be reviewing the records and obtaining additional medical information for my client’s appeal of the decision to terminate her Long Term Disability.”)

FACTS:  Plaintiff became disabled and applied for ERISA disability benefits under her employer’s plan, insured by The Hartford.  She received benefits from 2005 until November 25, 2008.  The plan provided that the decision to terminate benefits is appealable by “request[ing] a review upon written application within 60 days of the claim denial.”  The denial letter from Hartford informed Plaintiff that she could appeal by sending a signed, dated, written letter outlining her position and issues to Hartford within 180 days of receipt of the notice of termination. The plan contained discretionary language to determine benefit eligibility and to construe plan terms.

December 12, 2008: Plaintiff’s attorney sent a letter to Hartford requesting a copy of all medical records in file.  The letter closed by stating:  “We will be reviewing the records and obtaining additional medical information for my client’s appeal of the decision to terminate her Long Term Disability.”

July 8, 2009: Plaintiff’s attorney sent Hartford a letter disagreeing with the adverse decision along with “written comments, documents and information relating to the  appeal “ and requesting  that Hartford “review …and advise [Plaintiff and her attorney] of [Hartford’s] further determination.”

HELD/RATIONALE: Defendant’s Motion to Dismiss GRANTED for Failure to Exhaust Administrative Remedies.

1. A claimant must exhaust administrative remedies before filing suit.  Op. at 5.
2. It was reasonable for Hartford to conclude that the December 12, 2008 letter from Plaintiff’s attorney did not constitute an appeal of Hartford’s termination of disability benefits. Op. at 9.
3. A plain reading of the December 12, 2008 letter reveals that plaintiff “intended to first obtain Hartford’s records, as requested by the letter, and then obtain additional medical information.” Op. at 9.
4. The July 8, 2009 letter constitutes a letter demanding an appeal, but it was untimely. Op. at 10.

What can you do when a claimant seeks claims manuals, policies and procedures?  Seek an agreed protective order.

What if the Plaintiff will not agree to a protective order?  Move for a protective order to assure the documents will be used only for this one case.

Why are claims manuals entitled to protection?  Courts conclude they are “commercial information” warranting a protective order or confidentiality agreement.

You will want to read this case.  Anderson v. Reliance Standard Life Insurance Company [pdf], 2012 WL 835722 (D. Md. March 9, 2012).

Keep it handy because it addresses obtaining protective orders when producing the ERISA Plan and insurers’ claims handling procedures and manuals.  It also has great language that can help defeat typical arguments used to oppose motions for  protective orders involving the discovery of claims manuals, policies and procedures confidential.

FACTS:

Plaintiff Anderson had a bad back.  He sought disability benefits under an ERISA plan with his employer.  Reliance Standard was the claims administrator.  When his appeal was denied, Anderson sued the Plan and Reliance Standard. During the suit Plaintiff sought discovery from Reliance including:  (1) information regarding relationships between the defendants and “various health care providers”;  and (2) documents about “internal guidelines, policies, procedures, [and] claims handling manuals.”  Discovery matters had been referred to a Magistrate Judge, subject to review by the District Court under a “clearly erroneous” standard of review.

ISSUES/RATIONALE GRANTING PROTECTIVE ORDER:

1.      What evidence is required to obtain a protective order?

• “A proponent of a protective order must present a particular and specific demonstration of fact that harm will result without a protective order.”  Op. at 3

2.     Are Claims manuals, policies and procedures entitled to a protective order or  a confidentiality agreement? YES

• “[A]n insurance company’s claims manual is the type of commercial information that warrants a confidentiality agreement when it is produced in discovery.”  Op. at 3

• ERISA regulations do not require general public access to ERISA Plan internal guidelines.  Op. at 4

3.     Courts should deny discovery requests when the purpose of the discovery is to obtain the documents for use in other lawsuits.

• “[W]hen the purpose of a discovery request is to gather information for use in proceedings other than the pending suit, discovery is properly denied.” Op. at 3

• “The rules implementing ERISA require Plans to produce internal rules and guidelines to beneficiaries who receive an adverse benefit determination, [but] that requirement governs the case-by-case provision of the documents. The regulations do not require—or support—general public access to internal guidelines.”  Op. at 4.

• Even though Reliance Standard failed “to make a particularized showing of good cause” for the protective order, “the purpose of the particularized showing is to ensure that the requesting party obtains needed information, not to enable the requesting party to share information with third parties.” Op. at 3.

4.       If the Claims Manual is already in the public domain, then “that availability would have been sufficient for [the Judge] to have denied the discovery request.”  Op. at 4

5.       The fact that other insurers produce their claims manuals without a protective order is irrelevant to whether a protective order should be issued in this case.

• “Anderson contends that other insurers have provided their claims manuals without protective orders.  Anderson does not explain why another insurer’s choice to make its claims manual public has any bearing on this Court’s determination whether Reliance’s manual contains protection-worthy commercial information.” Op. at 4.

What if the employee reimburses the employer for the premiums?  This is an interest free loan and may be “sufficient employer contribution” to render the policy governed by ERISA.

There are a number of issues that need to be addressed to determine whether an individual policy constitutes an ERISA plan. 

Here’s the case of Boles v. UNUM Life Insurance Co. of America [pdf], __ F.Supp. 2d __, 2012 WL 204297 (D. Neb. January 24, 2012) (Employee reimbursed employer the discounted premiums for the employee’s individual policy.  The Court held the employer was essentially providing an interest free loan to the employee which amounted to “sufficient” employer contribution to render the policy governed by ERISA.)

This case highlights key issues to address in making that determination.

FACTS: Boles acquired an individual disability policy while a part-owner of a restaurant.  In his Policy application he stated that the employer would pay the premium.  The employer paid the premium but Boles reimbursed the employer for at least part of the amount paid.  In this way Boles paid a discounted  premium for the individual policy, receiving the group premium rate through a special billing method offered, known as “FLEX-BILL.” Two other non-owner employees also received individual policies with discounted group FLEX-BILL rates.

ISSUE:  Is the claim under the individual policy governed by ERISA?

TRIAL COURT HELD: Individual policy governed by ERISA.

1. Whether the insurance policy is a “plan” within the meaning of ERISA is a mixed question of law and fact.
2. ERISA plans that cover a working owner or partner and at least one non-owner are considered ERISA plans.  Op. at 4.
3. Because the employer (a) used a FLEX BILL option to provide several non-owners with individual disability policies, (b) processed paperwork for these policies, and (c) and paid premiums, the plan embodied a set of administrative practices.  Op. at 4.
4. Even if Boles reimbursed the employer for premium payments, the employer advanced payment of the premiums. This constituted an interest free loan to the employee and is, therefore, “sufficient to be considered an employer contribution to the plan.” Op. at 5.

What does this mean?

Does this mean you have to include specific language detailing the time limitations for bringing a legal action?  Depends on your venue.

Here’s a great new case on the topic: Heimeshoff v. Hartford Life & Accident Ins. Co. and Wal-Mart [PDF], __F. Supp. 2d __ (D. Conn. January 16, 2012)(attached)(Benefit denial letter not required to specify time limitations for suit because the ERISA regulation language “suggests that the DOL did not intend to require such a time limit notification in the benefit determination.”).

FACTS:

Claimant claimed she became disabled as of June 8, 2005.  She applied for disability benefits under Wal-Mart’s ERISA plan in August 2005. Hartford was the administrator and sent Claimant “group forms” to be completed and returned.

The plan language states: “[l]egal action cannot be taken against The Hartford…3 years after the time written proof of loss is required to be furnished according to the policy. The plan also provides: “Proof of loss must be sent to The Hartford within 90 days after the start of the period for which The Hartford owes payment.”

Under the Plan, Claimant had to file suit by September 30, 2010.

Hartford sent Claimant a letter denying the claim for failure to “provide satisfactory proof of loss.” The letter did not include notice of the limitations period by which a lawsuit should be filed.

Claimant files suit November 18, 2010.

QUESTIONS PRESENTED:

1. Is claim barred by contractual limitations period?
2. Whether an initial adverse determination letter must include the limitations period for judicial review imposed by the Summary Plan Description?

HELD: TRIAL COURT GRANTED Rule 12(b)(6) MOTION TO DISMISS BECAUSE LAWSUIT WAS UNTIMELY

RATIONALE:

1. A limitations period that begins to run before a claimant may bring a legal action is enforceable.  Op. at 7.

2. Given that claimant alleged she was disabled as of June 8, 2005, “then the period for which The Hartford would have owed payment began on June 8, 2005, and written proof of loss would have to be due on September 6, 2005.”  Op. at 8.

3. “The Plan unambiguously disallows legal action more than three years after the time written proof is required to be furnished.” Op. at 8.

4. Claimant could not take legal action later than September 30, 2010. “She filed her complaint on November 18, 2010 and it is therefore untimely under the terms of the Policy.”  Op. at 9

5. 29 C.F.R. Section 2560.503-1(g(1)(iv) unambiguously requires that the notification of benefit determination include “a statement of the claimant’s right to bring a civil action….”  Although the regulation requires notification of the time limits for claim review procedures, the regulation “says nothing about time limits with respect to civil actions….”  This “suggests that the DOL did not intend to require such a time limit notification in the benefit determination.” Op. at 10 (emph. Added).

6. Hartford was “not required to inform [claimant] of the Plan’s limitations period for legal action in its benefit determination letter….”  Op. at 11.

7. But see contrary cases: Chappel v. Lab. Corp. of America, 232 F.3d 719, 726-7 (9th Cir. 2000)(benefits denial letters must include time limits applicable to post denial arbitration.)

Here’s the case of Curtis v. Hartford Life and Accident Insurance Company, [PDF], No. 11 C 24489 (N.D. Illinois, January 18, 2012)(Magistrate Judge Jeffrey Gilbert)(Opinion attached)(Plan’s choice of law provision, applying another state’s law which does not ban discretionary language was found to be contrary to public policy).

FACTS: Illinois resident Curtis sought ERISA disability benefits under a plan administered by Hartford. Hartford determined that Curtis was not disabled, and terminated the benefits. Curtis sued. The plan had discretionary language, but Illinois has an insurance regulation banning discretionary language. Noteworthy: the plan included a choice of law provision requiring application of Delaware law.

ISSUE: Does the Illinois Insurance regulation banning discretionary language apply when the ERISA Plan’s choice of law provision requires application of Delaware law?

HELD: The ERISA Plan’s Choice of Law Provision Did Not Trump the Insurance Regulation Banning Discretionary Language

1. The Illinois insurance regulation applies to this ERISA plan and de novo standard of review controls. Op. at 17. ERISA does not preempt the Illinois insurance regulation. Op. at 19.
2. The Plan’s choice of law provision (requiring application of Delaware law which does not have a regulation banning discretionary language) does not control. Delaware allows inclusion of discretionary clauses in policies. This is clearly contrary to the Illinois regulation “and the public policy of Illinois.” Accordingly the Illinois regulation is not displaced by the Plan’s choice of law provision. Op. at 19.

Not any more in the Ninth Circuit. The issue is now merely an element of the ERISA case. Rather than a subject matter motion, attorneys in the Ninth Circuit are advised to fashion their motions to dismiss as a “failure to state a claim.”

Here’s the case of Leeson v Transamerica Disability Income Plan, __F.3d__ (9th Cir. January 23, 2012)( “The issue of participant status goes to the merits of the claim and not to the subject matter jurisdiction of the district court.”)(Overrules prior Ninth Circuit precedent including Curtis v. Nevada Bonding Corp. (9th Cir. 1995) 53 F. 3d 1023, 1027)).

FACTS: This case has a long sordid history, but here are some key facts. While Leeson was employed with Transamerica, he participated in the long term disability ERISA plan. Plan documents provided that “if an Eligible Employee is on an unpaid leave of absence, his or her status as a Long-Term Participant shall be suspended and he or she shall not be eligible for Long Term Benefits.”

Leeson was injured in a car accident and applied for disability benefits in 1996. Prudential, the plan administrator, deemed him eligible and paid disability benefits for four years. Benefits were denied and Leeson sued. In 2008 the Ninth Circuit determined the de novo standard of review should apply, and remanded the case to the district court.

On remand the Plan argued for the first time that Leeson was not a plan participant because he had been on unpaid leave when he applied for disability benefits. The Plan then moved to dismiss the case for lack of subject matter jurisdiction, relying on Franchise Tax Bd. v. Const. Laborers Vacation Trust, 463 U.S. 1, 21 (1983)(district court lacked subject matter jurisdiction because ERISA is “limited to suits brought by certain parties….”).

TRIAL COURT: GRANTED MOTION TO DISMISS FOR LACK OF SUBJECT MATTER

ISSUE: Whether Plaintiff’s status as a plan participant goes to the merits of the ERISA claim, or implicates federal subject matter jurisdiction?

NINTH CIRCUIT REVERSES, OVERRULES PRIOR PRECEDENT and HOLDS: “The issue of participant status goes to the merits of the claim and not to the subject matter jurisdiction of the district court.” Op. at 8

RATIONALE:

1. Federal courts have broad adjudicatory authority. A claim should not be dismissed for lack of subject matter if “the right of the petitioners to recover under this complaint will be sustained if the Constitution and laws of the United States are given one construction and will be defeated if they are given another.” Op. at 5.
2. ERISA authorizes a plan participant to initiate a civil action. A “participant” includes former employees who have “a colorable claim that…she will prevail in a suit for benefits.” Op. at 6.
3. The key case relied on by the court is Vaughn v. Environmental Management, 567 F.3d 1021, 1024 (9th Cir. 2009)(A motion for dismissal because Plaintiff is not a plan participant is properly viewed as a motion for failure to state a claim and not a dismissal for lack of subject matter jurisdiction.)
4. Nothing in ERISA requires that a plaintiff assert anything more than a colorable claim that he or she is a participant to assert an ERISA claim. Op. at 7.
5. “Because Leeson’s ERISA claim rises and falls on the district court’s determination of participant status, the construction of the term “participant” involves a merits-based determination, even if it results in dismissal.”

1. An ERISA Plan can lose discretionary standard of review if it failed to properly delegate third parties to make benefit decisions. How do you prove the Plan properly delegated benefit decision-making?
2. How much weight can one give to sporadic surveillance video of a claimant?

Here’s the case of Maher v Massachusetts General Hospital Long Term Disability Plan, [PDF] _-F.3d_ (1st Cir. December 7, 2011) (The Plan must (1) expressly provide for procedures to designate third parties to make benefit decisions, and (2) delegation must actually occur. The Court can look to Plan terms and affiliated documents, like trust documents and the Summary Plan Description to make that determination.)

FACTS:  Maher, a nurse at Mass General Hospital(“MGH”), received long term disability ERISA Plan benefits from 2001-2007.  The plan contained abuse of discretion language.  

Surveillance video and a Doctor’s record review convinced the Plan’s “claim processor” — Liberty — to conclude Maher was no longer “totally disabled.”  Maher appealed to Liberty and to the plan administrator — “Partners.”  On appeal, different doctors reviewed the claim and concluded disability had not been established. Partners then denied the appeal, and Maher sued.

TRIAL COURT:  Termination of Benefits Affirmed.  Plaintiff appealed.

ISSUES BEFORE THE FIRST CIRCUIT:

1. Whether the Plan properly delegated Partners authority to determine benefit eligibility?
2. Whether the plan “expressly provided for procedures” to designate Partners as a fiduciary with discretionary authority to make benefit decisions?
3. How much weight can one give to surveillance in denying a claim?

FIRST CIRCUIT REVERSES AND REMANDS, with the following rationale:

1. Absent a proper delegation of authority, the Plan cannot rely on the abuse of discretion standard of review. Op. at 6
2. The primary plan document reserves to the Hospital the authority to determine eligibility.  Partners, which decided the appeal, “appears” to operate in part as a coordinating body that performs functions for member hospitals like MGH.
3. “Viewed as a conventional delegation [of authority]–the MGH Plan has not relied on affiliation or provided detailed information about it.”  “[T]he treatment of Partners as a proper inheritor of ‘the Hospital’s’ discretionary authority is justified, but perhaps only by a modest margin.”  Op. at 6.
4. As to whether the plan “expressly provide[s] for procedures to designate Partners as a fiduciary with discretionary authority to administer the plan, the court first looks to the primary plan document. Op. at 8. “Nothing there expressly identifies decisional authority to determine benefits as a power that can be delegated.”  
5. Any uncertainty about express delegation can be “resolved by looking to associated documents” like trust agreements and the summary plan description. Op. at 8. These plan documents make clear that the plan authorized delegation to Partners, and that such delegation actually occurred. Op. at 9.
6. The court has in the past upheld termination of benefits based upon “sporadic surveillance capturing limited activity.”  Op. at 13.  But the weight of surveillance will depend upon the “amount and nature of the activity observed.” Op. at 14.  The video evidence and failure to produce pain clinic information is overstated.  Op. at 14.

HAPPY HOLIDAYS — Mike Reilly, Lane Powell PC–Seattle,Portland,Anchorage

The Circuits are split on this.  A new case, applying recent United States Supreme Court precedent, concludes the beneficiary can assert equitable defenses.

This new case highlights the issue.  US Airways, Inc. Plan v. McCutchen [PDF], __F.3d__ (3rd Cir. 11/16/2011)(beneficiary may assert equitable defenses to reduce reimbursement amount sought by ERISA Plan).

FACTS: McCutchen was injured in an auto accident. The US Airways ERISA Plan paid $66,866 in medical expenses.  McCutchen then obtained a personal injury settlement for $110,000.  After paying his attorneys, McCutchen netted $66,000. The Plan sought reimbursement, asserting a claim under ERISA Section 502(a)(3), seeking “appropriate equitable relief” in the form of a constructive trust. The Plan terms also required reimbursement from “any monies recovered” from a third party.

TRIAL COURT: Summary Judgment GRANTED for PLAN, requiring McCutchen to reimburse Plan $66,866.

APPEAL ISSUE: Whether Section 503(a)(3)’s requirement that equitable relief be “appropriate” limits the Plan’s recovery from a beneficiary by equitable defenses “typically available in equity.”

THIRD CIRCUIT:  REVERSES— EQUITABLE DEFENSES MAY REDUCE PLAN RECOVERY.

RATIONALE:

1. “Appropriate equitable relief” under ERISA 502(a)(3) means “something less than all equitable relief.”  Congress intended to limit equitable relief available under this section through the application of equitable defenses.  Op. at 11. (Emph. in original).
2. Equitable liens by agreement are not subject to the asset tracing requirements imposed on liens sought as a matter of equitable restitution.  Op. at 9.
3. Equitable relief must mean “something less that all relief.”  Op. at 10.
4. “Unjust enrichment” is applicable to claims for equitable relief.  Op. at 12.  The Court rejects the Plan’s argument that equitable doctrines limiting reimbursement recovery are inapplicable.  Op. at 14-15.
5. The Court rejects decisions from other circuits (8th and 11th Circuits) that have held “that it would be pioneering federal common law to apply equitable limitations on an equitable claim.”  Op. at 15.
6. Applying the doctrine of unjust enrichment, McCutchen prevails because the net amount of his recovery from the third party is less than full payment of his medical bills, “thereby undermining the purpose of the Plan.”  Op. at 17.

What happens when an ERISA claimant brings state law claims against independent medical consultants retained by the Plan to provide medical reviews eventually relied upon in claim denials?

Are these claims preempted by ERISA?

Good news: Sometimes yes.

Here’s the case of Cacoperdo v Hartford Life Ins. Co., 2011 WL 4632881 (S.D.N.Y October 5, 2011) [PDF] (state law claims against plan’s independent medical consultants preempted by ERISA; Court also denies Plaintiff discovery propounded to independent physicians as a “fishing expedition”).

FACTS: Cacoperdo sought ERISA disability benefits from his employer’s plan. He received benefits for a while but eventually Hartford retained two different companies to prepare independent medical review reports. Hartford relied on these reports to deny the disability claim.

Plaintiff then sued, asserting ERISA claims against Hartford and state law tortious interference claims against the physicians providing independent reviews.

Plaintiff’s theory: The independent medical consultants are not ERISA entities. “[The independent medical consultants] knew or should have known of a valid contract between Hartford and the Plaintiff, and that they induced Hartford to breach the contract by creating medical findings that would lead Hartford to fail to discharge its duties and obligations under the contract.”

ISSUE: Whether claims against medical consultants are preempted by ERISA?

TRIAL COURT HELD: The claims against the physicians are preempted. The Court also denies discovery from the physicians.

RATIONALE:

1. Unlike other court decisions which allowed state law invasion of privacy claims (Dishman v. UNUM, 269 F.3d 974 (9th Cir. 2001)) or outrage claims (Barker v. Hartford, 2007 U.S. Dist Lexis 55532 (N.D. Tex. July 31, 2007)), Plaintiff’s claim here specifically “derive[s] from his benefits claim….[T]he state law claim here stems from the Plan that is breached—not an independent duty of care owed to the Plaintiff [by the independent medical reviewers].” Op. at 5.
2. “There was no direct evidence that [the physicians] breached an independent duty of care owed to Cacoperdo.” Op. at 5.
3. The Court denied discovery from the physicians. The Court said: “[N]o factual allegations have been pled with any amount of specificity against [the reviewing physicians] that would support an independent state law tort cause of action against them. The Court will not allow Cacoperdo to engage in a fishing expedition against non-fiduciary third party vendors in order to determine whether any factual allegations can be made.” Op. at 6 (Emph. added).