Gustafson-Feis v. Reliance Standard Life Ins. Co., No. C20-5336 BHS, ___F Supp. ___, WL 1561690, at *1 (W.D. Wash. Apr. 21, 2021) (Judge Benjamin Settle).

This week’s notable decision is a victory for the plaintiff, represented by Kantor & Kantor, in the Western District of Washington. It revolves around how an insurer determines whether a claim is barred by a pre-existing condition.  Plaintiff Lisa Gustafson-Feis had been hit by car in 2016, breaking several bones in her pelvis and sacrum. She worked for Microsoft, contracted through different employers. Her role required regular international travel and often moving heavy displays. She had multiple surgeries in 2016 to fix her spine and pelvis, went to physical therapy, and was released by her doctor in December 2017 to work full time with no restrictions.

She accepted a new position with another Microsoft contractor, HCL, starting in February 2018, with a 30-day waiting period to become eligible for benefits. Reliance Standard Life Insurance Company (“Reliance Standard”) provided the disability benefits under HCL’s welfare benefits plan. The policy included a pre-existing condition exclusion for any disability for which the new insured had been treated in the 90 days before her insurance coverage began. Plaintiff did not, in fact, receive medical care during the 90-day look-back period after her hiring, but she was tapering off pain medication during that period. 

In August 2018, Plaintiff made a claim for disability benefits. In June 2018, while on a work trip in China, she suffered a labral tear in her hip. Reliance Standard did a pre-existing condition review and determined that, because she had previously injured her pelvis and been treated for hip pain, the new injury was “likely related” to the 2016 accident. Reliance Standard therefore denied coverage based on the pre-existing condition exclusion. Meanwhile, plaintiff’s medical condition was worsening. The surgeon she saw insisted that her pain was caused by her sacrum hardware and not the labral tear and removed it. That removal destabilized Plaintiff’s spine and revealed that the spinal fractures had not healed, leaving her in a wheelchair. Plaintiff found another doctor who confirmed that the labral tear was the original source of her 2018 pain, and that it was a congenital issue that could not have been caused by her 2016 accident.  

Plaintiff appealed the denial of disability benefits, providing all of this information to Reliance Standard. Reliance Standard obtained in-house medical opinions that again simply opined that her labral tear was presumably “directly related” to her 2016 accident and surgeries, and did not address or consider the medical opinions of her own doctors explaining that it was not, and indeed could not, have been caused by the 2016 accident. Plaintiff brought suit.

The court determined that Reliance Standard failed to meet the Ninth Circuit requirements with respect to pre-existing condition exclusions. The policy language required that Reliance Standard prove that her 2018 injury was “caused by, contributed to by, or resulted from” a pre-existing condition.  To do this, the insurer “must show that preexisting condition itself … substantially caused or contributed to [the disability].”  “[T]o determine whether a cause is substantial, ‘there must be some evidence of a significant magnitude of causation.’” (Internal citations omitted.)  The court held that an unsupported statement that the injury must be “directly related,” without analysis or proof, and in direct contravention of the explanation of plaintiff’s own treating physicians, was insufficient to show substantial causation. The court therefore concluded that “Reliance has failed to engage with, let alone carry, its burden to establish that the accident was a substantial cause of Gustafson-Feis’s 2018 disability.” 

Below is a summary of this past week’s notable ERISA decisions by subject matter and jurisdiction.

Breach of Fiduciary Duty

Third Circuit

Solomon Schechter Day Sch. of Bergen Cty. v. C&A Benefits Group LLC, No. 2:20-CV-1122 (WJM), 2021 WL 1573843 (D.N.J. Apr. 22, 2021) (Judge William J. Martini). The plaintiffs in this case are private schools that purchased stop-loss insurance to cover excess claims by their employees under their ERISA-governed medical benefit plans. The schools sued their insurance broker when their stop-loss claims were denied, alleging that the broker failed to give them proper advice about how to submit proper documentation to ensure coverage. The broker filed a third-party complaint against the schools’ third-party claim administrator (TPA), which in turn made claims against the schools. The schools counterclaimed against the TPA, and included a claim under ERISA for equitable relief under ERISA Section 502(a)(3), 29 U.S.C. § 1132(a)(3)). The TPA moved to dismiss, alleging that it was not a fiduciary under ERISA and thus could not be held liable under the schools’ 502(a)(3) claim. The court denied the TPA’s motion, finding that the schools were not making a breach of fiduciary claim, and thus were not required to allege that the TPA was a fiduciary. Instead, the schools were seeking redress for an “act or practice which violates any provision of ERISA,” which applies to non-fiduciaries as well as fiduciaries. The court also denied without prejudice the TPA’s motion to dismiss the schools’ state law claims on ERISA preemption grounds, because the schools could plausibly allege that the TPA had obligations to the schools independent of what was required by the ERISA plans.

Disability Benefit Claims

Second Circuit

Parrish v. Aetna Life Ins. Co. No. 1:17-CV-04837-FB-AKT, 2021 WL 1565440 (E.D.N.Y. Apr. 21, 2021) (Judge Frederic Block). The court upheld Aetna’s decision to deny plaintiff’s long-term disability claim under an abuse of discretion standard of review. It found the opinions of Aetna’s medical file reviewers – Drs. Gorski, Polanco, and McPhee – to be credible. The court was not convinced by plaintiff’s argument that Aetna’ claim handling practices were known to be deficient, or that Aetna operated under a conflict of interest. The court concluded that “Aetna’s determination was not unreasonable, erroneous as a matter of law, or unsupported by substantial evidence” and was therefore not an abuse of discretion.

Fifth Circuit

Youboty v. NFL Player Disability, No. 20-40613, __Fed.App’x__, 2021 WL 1533662 (5th Cir. Apr. 16, 2021) (Before Higginbotham, Jones, and Costa, Circuit Judges). Youboty played six seasons in the National Football League (NFL), suffered various injuries while playing, and eventually retired. As part of his job, Youboty had a benefit plan subject to ERISA which “covers partial disabilities and is called ‘line of duty’ (LOD) benefits.” The plan stated that each eligible player must apply for benefits within 48 months after retirement. In this case, Youboty’s application deadline was August 25, 2018. He submitted his application in May of 2018. On that application he indicated that was not expecting any additional surgeries in the next year and was not planning on submitting additional documentation. The dispute in this case turned on how the plan’s fiduciary Board should treat a 2019 knee surgery Youboty underwent after he had already filed his application and the deadline to file his application had passed. Had the Board awarded points based on the 2019 surgery, Youboty would have qualified for LOD benefits. The court held that the Board’s interpretation was legally correct. The plan was completely silent on whether surgeries that occur after the application deadline should count toward the LOD determination, but it does note an application deadline. The court concluded that interpreting this deadline also to serve as a deadline for surgeries that count toward the LOD determination was a fair reading of the plan.

Ninth Circuit

Dioquino v. United of Omaha Life Ins. Co., 20-cv-00167, 2021 WL 1378747 (S.D. Cal. April 12, 2021) (Judge Cynthia Bashant). A participant in an ERISA-governed disability plan brought suit for disability benefits. The insurance company argued that her claim for short-term disability benefits (STD) was moot and her claim for ling-term disability benefits (LTD) was not properly before the court because the participant did not exhaust her plan remedies. The court agreed that plaintiff’s claim for STD benefits was moot because the insurer had paid her the maximum STD benefits to which she was entitled. However, the court held that she had standing to assert her claim for LTD benefits and that, although she had failed to avail herself of the plan remedies, the court refused to dismiss her claim for these benefits because there was a genuine dispute as to whether exhaustion of administrative remedies would have been futile.   

ERISA Preemption

Third Circuit

Gotham City Orthopedics, LLC v. Aetna Inc., No. CV2014915SDWLDW, 2021 WL 1541069 (D.N.J. Apr. 19, 2021) (Judge Susan D. Wigenton). Plaintiff provided out-of-network medical services to five patients who were covered under their employers’ Aetna health insurance plans. Plaintiff filed suit in state court asserting that Aetna underpaid for the medical services provided. Aetna removed the case based on diversity and moved to dismiss based on ERISA preemption. The court dismissed all five causes of action. Although plaintiff argued the first four were brought in an individual capacity, not as assignees of plan participants, the court concluded that the complaint did not suggest any separate contractual relationship between plaintiff and Aetna or assert that Aetna proffered any specific representations to Plaintiff. Thus, all claims required analyzing the plan, triggering ERISA preemption. The fifth cause of action was based on a state statute that arguably regulated insurance but was preempted nonetheless because it provided a separate vehicle to assert a claim for benefits outside of, or in addition to, ERISA’s remedial scheme. 

Fifth Circuit

Estate of Goudreau v. Estate of Goudreau, No. 4:20-CV-970, 2021 WL 1518114 (E.D. Tex. Apr. 16, 2021) (Judge Amos L. Mazzant). A husband and wife passed away within a month of each other. They both died intestate. During the administration of the estates, a dispute arose between their estates over the funds contained in several employee benefit plans, including a 401(k) and stock option plan. The wife’s estate filed suit claiming community property interests. The husband’s estate disputed this claim, arguing that ERISA governs these plans, thereby preempting the state law claims brought by the wife’s estate. Specifically, his estate asserted that because the issues in this case involve interpretation and application of federal ERISA laws, a federal question is implicated, and the court has subject matter jurisdiction. The wife’s estate moved to dismiss based on lack of subject matter jurisdiction, arguing that the assets at issue “were either never subject to an ERISA plan or are no longer governed by ERISA since they were paid out 100% to [Husband’s] estate.” The court granted the motion, finding that because the claims advanced by the Husband’s estate did not satisfy the applicable test, the claims are not completely preempted by ERISA. Accordingly, the court concluded that there was no federal question before it, which meant that it did not have subject matter jurisdiction to adjudicate the claim.

Ninth Circuit

Ymeri v. Life Ins. Co. of N. Am., No. 2:21-cv-01491-VAP-JPRx, 2021 WL 1564457 (C.D. Cal. Apr. 20, 2021) (Judge Virginia A. Phillips). The plaintiffs in this case are all residents of Kosovo who performed work in Afghanistan in connection with American military efforts on behalf of several American corporate defendants. The defendants allegedly represented that plaintiffs would receive long-term disability benefits for on-the-job injuries, which would be provided by defendant LINA. Plaintiffs incurred injuries and submitted claims, which were denied by LINA on the ground that plaintiffs were not eligible for coverage. Plaintiffs sued in California Superior Court, and defendants removed the case to federal court based on ERISA preemption. Plaintiffs filed a motion to remand, which the court granted because it held that ERISA does not extend to foreign nationals employed abroad. The court applied the Supreme Court’s two-part test to determine whether a statute has extraterritorial effect. First, it found that defendants could not overcome the presumption against extraterritoriality because nothing in ERISA evinced an intention by Congress for it to have extraterritorial effect. Second, the “domestic application exception” did not apply because the claims accrued, and the relevant conduct occurred, abroad. Thus, because ERISA did not preempt plaintiffs’ claims, removal was improper, and the court remanded the case back to state court.

Life Insurance & AD&D Benefit Claims

Tenth Circuit

Stachmus v. The Guardian Life Insurance Company of America, No. 20-7019, ___Fed.App’x___, 2021 WL 1590006 (10th Cir. Apr. 23, 2021) (Before Moritz, Baldock, and Eid, Circuit Judges). Guardian issued a life insurance policy to Stachmus’s father (the insured) through his employer on July 1, 2011. The insured originally designated Stachmus and his son each 50% beneficiaries, but on May 9, 2012, the insured designated Stachmus a 90% beneficiary and Stachmus’s step-sister, Andrea, a 10% beneficiary. After the insured died on September 4, 2013, Andrea submitted claims to Guardian on behalf of herself and Stachmus’s step-mother and step-brother (“Andrea’s claims”), with an August 27, 2013, beneficiary-change form designated Andrea a 50% beneficiary and Stachmus’s step-mother and step-brother each 25% beneficiaries. Guardian paid Andrea’s claims. Stachmus filed suit seeking declaratory relief that he and his son were the proper beneficiaries. He alleged that the August 27, 2013, beneficiary-change form was invalid because when Andrea signed it, the insured was receiving hospice care for cancer, he had suffered a massive stroke, and he was “completely incompetent.” The Circuit court affirmed district court’s judgment in Guardian’s favor, finding that there was no evidence supporting Stachmus’s theory of entitlement, and although he was once a beneficiary, the evidence indicated that the insured elected to change the beneficiary designations. 

Medical Benefit Claims

Sixth Circuit

Mich. Educ. Ass’n Family Retired Staff Ass’n v. Mich. Educ. Ass’n, Case No. 20-1174, __ F.App’x. __, 2021 WL 1546129 (6th Cir. Apr. 20, 2021) (Before Cook, Bush and Nalbandian, Circuit Judges). Plaintiffs filed for a preliminary injunction when their collective bargaining negotiations broke down with their union over its planned changes to vested retirement healthcare benefits.  Plaintiffs argued that a Letter of Understanding (“LOU”) from 1993 barred changing the vested benefits. The district court denied the injunction and plaintiff appealed. Although the Sixth Circuit upheld the denial, it differed on the reasoning. The district court determined that the plaintiffs’ claims were unlikely to succeed. The Sixth Circuit, after reviewing the documents, agreed there was little chance of success and no showing of irreparable harm and remanded for further proceedings consistent with its decision.

Ninth Circuit

Hewko v. Coffman Engineers, Inc., et al., No. 3:19-CV-00169-JWS, 2021 WL 1536570 (D. Alaska Apr. 19, 2021) (Judge John W. Sedwick). Plaintiff brought suit seeking inpatient neurodevelopmental therapy benefits for treatment following a cerebral stroke. Defendant Regence, the claims administrator, moved for partial summary judgment claiming plaintiff was only entitled to the limited plan benefits for rehabilitation and not the unlimited plan benefits for neurodevelopmental therapy. The court found the administrator’s interpretation of the plan was not an abuse of discretion and the services rendered after a stroke fall under the rehabilitative services provision. The court did not give weight to alleged procedural errors because it concluded that the record showed that the administrator was working with plaintiff in good faith. The court granted Regence’s motion for partial summary judgment.

Pension Benefit Claims

First Circuit

Kahn v. PTC, Inc., No. 20-11710, 2021 WL 1550929 (D. Mass. April 20, 2021) (Judge William G. Young). Participants in a 401(k) pension plan brought a putative class action against numerous plan fiduciaries alleging breaches of fiduciary duty with respect to the plan’s investments. The defendants moved to dismiss, asserting that the court lacked subject matter jurisdiction because the participants had failed to allege a redressable injury in fact for purposes of Article III standing. The court rejected this argument reasoning that the participants’ allegations that the plan suffered millions of dollars in losses due to the alleged breaches by the fiduciary in selecting excessively costly investment options. The court also rejected the fiduciaries’ argument that the participants had failed to adequately plead redressability under the Supreme Court’s recent decision in Thole v. U.S. Bank.  The court pointed out that Thole addressed injury in fact, not redressability and that, in any event, the Thole decision turned on the fact that a defined benefit plan was at issue, whereas the plaintiffs in Kahn were participants in a defined contribution plan where the investment returns would directly affect the pensions they would receive. For these reasons, the court denied the fiduciaries’ motion to dismiss.      

D.C. Circuit

Fisher v. Pension Benefit Guaranty Corp., Case No. 20-7063, 2021 WL 1538234 (D.C. Cir. April 20, 2021) (Before Rogers, Katsas and Sentelle, Circuit Judges). Plaintiff, a pension plan beneficiary, brought an ERISA action challenging the Pension Benefit Guaranty Corporation (“PBGC”)’s denial of plaintiff’s request for payment of pension benefits in a lump sum. The district court granted summary judgment in favor of the PBGC. On appeal, the circuit court affirmed. The court found that if an administrative agency, on remand from a reviewing court, chooses to deal with problem afresh by taking a new agency action, it is not limited to its prior reasons but must comply with the procedural requirements for new agency action. Here, the reviewing court had set aside the PBGC’s initial 2011 decision as inadequate. Thereafter, in 2016, the PBGC properly reexamined the administrative record and dealt with issue afresh. In doing so, the PBGC determined that a lump-sum payment to beneficiary from ERISA-governed pension plan was prohibited by federal regulation governing distribution of assets in anticipation of plan termination. Accordingly, the appellate court found the PBGC’s decision to deny plaintiff’s lump-sum payment was permissible as a new agency action. The court further found that 29 C.F.R. § 4044.4(b), the regulation prohibiting lump-sum distribution of assets in anticipation of termination of a pension plan, was a reasonable interpretation of ERISA. Lastly, the court found that the PBGC’s denial of plaintiff’s request for a lump-sum payment was not arbitrary and capricious. Accordingly, the circuit court affirmed the district court’s grant of summary judgment in favor of the PBGC.

Pleading Issues & Procedure

Sixth Circuit

Delauter v. Nissan Supp. Exec. Ret. Plan II, No. 3:20-CV-00609, 2021 WL 1530926 (M.D. Tenn. Apr. 19, 2021) (Judge Eli Richardson). The court denied plaintiff’s motion to convert defendants’ motion to dismiss into a motion for summary judgment. The court reasoned that defendants’ motion was based on the allegations in the amended complaint and documents referenced in the complaint, and therefore did not exercise its discretion to convert the motion to one for summary judgment.

Seventh Circuit

Central Labor Pension Fund, et al. v. Taylor Ridge Paving & Construction Co., Case No. 19-3041, 2021 WL 1535408 (C.D. Ill. April 19, 2021) (Judge Richard Mills). Plaintiffs filed a debt collection suit, seeking to collect past due contributions, dues and assessments, with respect to defendant’s fringe benefit contributions. Defendant moved to dismiss the second amended complaint for failure to state a claim. The court found there was a factual question as to whether the collective bargaining agreements between the local unions and area-wide associations that were part of a Memorandum of Agreement that explicitly excluded payment of wages, assessments or fringe benefits from being subject to the arbitration proceedings. The court held that a party has no duty to arbitrate issues which it has not contractually agreed to arbitrate. Accordingly, the court found the motion to dismiss was without merit with respect to defendant’s argument that plaintiffs failed to exhaust the mandatory grievance-arbitration provisions in the agreements. The court further found that the second amended complaint alleged that plaintiffs have the right to an audit pursuant to the trust agreements referenced in the Memorandum of Agreement. The court further rejected defendant’s argument that the Memorandum of Agreement was an unenforceable illusory contract. Accordingly, the court concluded that plaintiffs’ allegations were sufficient to assert a plausible claim and defendant’s motion to dismiss was denied.

Eighth Circuit

Faith Regional Health Services v. Ironshore Indemnity, Inc., et al., No. 8:20CV444, 2021 WL 1575662 (D. Neb. Apr. 22, 2021) (Judge Susan M. Bazis). Defendants are UMR, the Plan fiduciary, and Ironshore, the stop loss insurance carrier, for a group health plan. Plaintiff filed suit seeking claims payment denied by Ironshore. Plaintiff alleges Ironshore’s denial was a breach of contract under state law and alternatively that UMR breached its fiduciary duties under ERISA by failing to properly process the claim. UMR moved to strike Plaintiff’s jury demand for the ERISA breach of the fiduciary duty claim. The court found that because plaintiff’s claim is seeking review of UMR’s benefits determination under an ERISA plan, Plaintiff is not entitled to a jury trial on its claim against UMR. 

Ninth Circuit

Lundstrom v. Young, No. 20-55002, 2021 WL 1561661 (9th Cir. Apr. 21, 2021) (Before Smith, Jr., Ikuta and Steele, Circuit Judges). Plaintiff filed suit seeking to invalidate a domestic relations order issued by a Texas state court and alleging breaches of fiduciary duty. The district court dismissed the complaint in its entirety, and plaintiff appealed. The Ninth Circuit applied the Rooker-Feldman doctrine to determine whether plaintiff’s suit in federal court was akin to requesting review of a state court judgment based on allegations the state court order violates federal rights. The court held two of the six claims were directly seeking review of the Texas state court judgment, over which the federal court has no jurisdiction pursuant to the Rooker-Feldman doctrine. However, the court overturned the decision to dismiss the other claims, explaining that the Rooker-Feldman doctrine should be narrowly construed. Because the other claims were independent of the state court judgment, and included alleged violations of ERISA and ancillary state law claim over which the federal court had jurisdiction, the Ninth Circuit reversed the district court’s dismissal of those claims, remanded those claims to the district court for review and allowed plaintiff leave to amend the complaint. 

Wilson v. Craver, No. 18-56139 2021 WL 1523253 (9th Cir. Apr. 19, 2021) (Before Tashima, Smith and Murguia, Circuit Judges). Plaintiff brought this putative class action against two executives of Edison International Inc. who were ERISA fiduciaries of an Employee Stock Ownership Plan (ESOP). Plaintiff alleged that defendants breached their duty of prudence because they knew the Edison stock price was artificially inflated but failed to make certain disclosures to protect ESOP participants from foreseeable harm that would be caused when fraud was revealed to the market. With reference to the pleading standard set forth in Fifth Third Bancorp v. Dudenhoeffer, the Ninth Circuit upheld the district court’s dismissal, agreeing that alleging general economic principles was insufficient; rather, the complaint must include context-specific allegations as to why an earlier disclosure would have been clearly beneficial. The Ninth Circuit thus determined plaintiff had failed plausibly to plead that a prudent fiduciary in defendant’s position could not have concluded that plaintiff’s proposed alternative action of issuing a corrective disclosure would do more harm than good.