Newsom v. Reliance Standard Life Ins. Co., No. 20-10994, __ F.4th __, 2022 WL 500403 (5th Cir. Feb. 18, 2022) (Before Circuit Judges Higginbotham, Stewart, and Wilson).

When an ERISA administrator denies a benefit claim because the claimant is not an eligible plan participant, what happens when a court later rules that this decision was wrong? Does the court order that benefits be approved? Or does the court give the administrator a second chance to deny the claim by allowing it to determine whether the now-covered participant met the plan benefit criteria? The title gives this one away, but read on to find out how the Fifth Circuit decided the issue.

James Newsom was a software architect for Lereta, where he had been employed for 23 years. Unfortunately, he had a long history of health problems, including chronic fatigue syndrome, fibromyalgia, depression, and attention deficit hyperactivity disorder. Because of these issues, in September of 2017 he could no longer work a 40-hour work week, so Lereta reduced his hours to 32 per week, which was still considered full-time. However, this still proved too much, so Lereta reduced Newsom’s hours further to part-time status in October of 2017. By January of 2018 he was unable to work at all.

Newsom submitted a claim for short-term disability (STD) benefits under Lereta’s ERISA-governed disability plan, which was ultimately approved by Reliance, the plan’s insurer. However, Newsom’s claim for long-term disability (LTD) benefits received a chillier reception from Reliance. Reliance noted that the plan only covers “active, Full-time employees,” and “Full-time” meant “working for you for a minimum of 30 hours during a person’s regular work week.” Reliance further determined that Newsom’s date of disability was in January of 2018, and thus, because he was not working full-time in the weeks prior to that date, he was not covered under Lereta’s LTD plan and was ineligible for LTD benefits.

Having exhausted his appeals with Reliance, Newsom filed suit. At trial, the district court agreed that Reliance had erroneously denied his LTD claim. The district court found that Newsom was a “full-time employee,” eligible for benefits in October of 2017, regardless of whether he was actually working 32 hours per week, because he was scheduled to work those hours by Lereta. The court further found that Newsom became disabled in October of 2017. As a result, the court overturned Reliance’s decision and ordered it to pay Newsom benefits through the date of judgment.

Reliance appealed, arguing that the district court (1) incorrectly interpreted the “full-time” and “regular work week” plan provisions, (2) erred in finding that Newsom became disabled in October of 2017, and (3) should have remanded the case to Reliance instead of awarding benefits.

The Fifth Circuit quickly rejected Reliance’s first argument. The court noted that it was foreclosed by the court’s prior decision in Miller v. Reliance Standard, in which it had agreed with the Sixth Circuit that the term “full time” and its reference to a “regular work week” was “ambiguous and should thus be interpreted in favor of the insured pursuant to the rule of contra proferentem.” Thus, the district court “did not err by interpreting the term ‘full time’ and its reference to a ‘regular work week’ to mean the ‘scheduled work week’ set by Lereta for Newsom.”

Reliance’s second argument fared no better. Noting that factual findings are only reversible for clear error, the Fifth Circuit upheld the district court’s determination that Newsom became disabled in October of 2017. Both courts found it probative that Reliance had previously found that this date was Newsom’s effective date of disability for the purpose of his claim for STD benefits.

Reliance’s third argument was that because it denied Newsom’s claim on coverage grounds, it had never had a chance to determine whether Newsom was disabled for the purposes of the LTD policy. Thus, Reliance argued that the district court should not have awarded benefits, but remanded Newsom’s claim to Reliance to make that determination in the first place. Newsom objected, contending that “remand would amount to an impermissible ‘second bite at the denial apple,’” and pointing out that the district court had already found under de novo review that Newsom was entitled to benefits, so a remand was pointless.

However, the Fifth Circuit agreed with Reliance. Citing its prior decision in Schadler v. Anthem Life Ins. Co. and the Seventh Circuit’s decision in Pakovich v. Broadspire Servs., Inc., the court determined that the district court erred in not remanding the case to Reliance. The Fifth Circuit noted that the district court appeared to have “conflated the issues of eligibility and disability,” and evidence in the record suggested that Newsom might have been able to return to work by August of 2018. Thus, Reliance should have had an opportunity to address the question of disability in the first instance.

As for Newsom’s argument regarding the district court’s de novo review, “an administrative record answering these questions was simply not before the district court, irrespective of its de novo review. Once it determined that Newsom was not eligible for LTD benefits, Reliance stopped. Once the district court determined that Newsom was in fact eligible for LTD benefits, and the date on which his eligibility began, it should have stopped as well and remanded the case for Reliance to make the separate disability determination.”

Finally, the Fifth Circuit addressed the issue of attorney’s fees. The district court had awarded fees to Newsom, and Reliance appealed that decision. However, it failed to file any briefing regarding the issue, and the clerk dismissed Reliance’s appeal. Reliance filed a motion to reinstate the appeal, which the court granted, consolidated with the merits appeal, and remanded both to the district court “with instructions to remand Newsom’s claim to the administrator for further proceedings consistent with this opinion.”

The Fifth Circuit’s first two rulings in this decision are uncontroversial. As noted above, the first issue had already been decided in a previous case, and the second issue is an unremarkable application of the clear error rule. However, the third issue regarding the proper remedy deserves closer attention.

Newsom’s “second bite at the denial apple” argument is reminiscent of Ninth Circuit decisions that have used similar language. See Grosz-Salomon v. Paul Revere Life Ins. Co. (“a plan administrator will not get a second bite at the apple when its first decision was simply contrary to the facts”). In fact, in 2012 the Ninth Circuit explicitly stated that “the general rule…in this circuit and in others, is that a court will not allow an ERISA plan administrator to assert a reason for denial of benefits that it had not given during the administrative process.” Harlick v. Blue Shield of California. As Harlick explained, “ERISA and its implementing regulations are undermined ‘where plan administrators have available sufficient information to assert a basis for denial of benefits, but choose to hold that basis in reserve rather than communicate it to the beneficiary’” (quoting Glista v. Unum Life Ins. Co. of Am.).

As a result, the Fifth Circuit’s decision in this case seems to be starkly at odds with the Ninth Circuit’s approach, as it gives Reliance the proverbial second bite at the apple disfavored by Harlick. Interestingly, the Fifth Circuit did not cite, let alone discuss, Harlick (or any of the cases cited by Harlick) in reaching its decision. Because of this apparent conflict, the “second bite” issue may be one for the Supreme Court to sort out in the future.

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


First Circuit

Casale v. Ecolab Inc., No. 2:21-cv-00126-NT, 2022 WL 444463 (D. Me. Feb. 14, 2022) (Judge Nancy Torresen). After plaintiff Samuel Casale was terminated at the age of 50 by his employer, Ecolab Inc., Mr. Casale filed suit for age discrimination, a violation of the Maine Human Rights Act, a violation of the Maine Whistleblower Protection Act, and a violation of ERISA Section 510. Mr. Casale’s ERISA retaliation claim alleged that defendants fired him five years before his defined-benefit retirement plan benefits were set to “increase substantially.” Defendants moved to compel arbitration and dismiss the case. In their motion to compel arbitration defendants relied on a declaration from one of the company’s human resources representatives, and on a circumstantial piece of evidence: a confirmation email sent to Mr. Casale, which the HR representative attested would not have been sent to him unless he electronically signed the arbitration agreement. Defendants presented a copy of what they said was the governing arbitration agreement, but not one bearing Mr. Casale’s signature. However, the court was satisfied that defendants, “demonstrated a chain of events that they say could not have been set in motion if he had not signed the Electronic Authorization Document and the Arbitration Agreement.” As Mr. Casale provided no evidence to support the idea the email was fabricated, and did not deny that he signed the Arbitration Agreement or that he was unaware he had entered into an arbitration agreement, the court concluded the arbitration agreement was valid. Then, the court examined whether Mr. Casale’s claims fell within the arbitration agreement’s scope. In the agreement was an exclusion for, “claims related to… controversies over awards of benefits or incentives under Ecolab’s stock option plans, employee benefits plans or welfare plans that contain an appeal procedure or other procedure for resolution of such controversies.” Mr. Casale argued that because the plans have appeals procedures, no claims arising under the plans fall with the scope of the arbitration agreement. The court disagreed, reasoning that because the plans contain no appeal procedure for Mr. Casale’s Section 510 claim, it must be sent to arbitration. And though the court found the exclusion language unambiguous, even in the instance of ambiguity, the court noted that under the Federal Arbitration Act doubts ought to be resolved in favor of arbitration. Finally, the court decided that because all of Mr. Casale’s claims were subject to the arbitration agreement, “the prudent course of action,” is dismissal. For these reasons, defendants’ motion to compel arbitration and to dismiss the complaint was granted. 

Attorneys’ Fees

Ninth Circuit

Foster v. Adams & Assocs., No. 18-cv-02723-JSC, 2022 WL 425559 (N.D. Cal. Feb. 11, 2022) (Magistrate Judge Jacqueline Scott Corley). Class representatives Carol Foster and Theo Foreman brought this class action on behalf of participants and beneficiaries of the Adams and Associates Employee Stock Ownership Plan (“the Adams ESOP”), alleging that defendants breached their fiduciary duties, participated in prohibited transactions, improperly agreed to indemnification, and failed to disclose required documents. In previous rulings, the court certified the 3,561 member class of current and former Adams and Associates employees, and granted in part and denied in part the parties’ cross-motions for summary judgment. Before the trail was scheduled to commence, the parties reached a settlement and filed a motion for preliminary approval, which the court granted. Here, plaintiffs moved for final approval of the settlement and moved for attorneys’ fees, costs, and incentive awards. Applying the Churchill fairness factors and the Bluetooth  collusion factors, the court concluded that the $3 million settlement was adequate and fair. First, the court balanced the risk of continued litigation against the strength of plaintiffs’ claims and concluded that factor warranted approval of the $3 million settlement, which represents approximately 28.5% of the maximum loss determined by experts. The court was also satisfied that plaintiffs were well enough informed via discovery proceedings to broker a fair settlement. The fact no objections were made to the proposed settlement additionally led the court to infer the amount was reasonable. Additionally, the court concluded that class counsel – Feinberg, Jackson, Worthman & Wasow LLP and Block and Leviton LLP – were experienced ERISA class action lawyers who could fairly represent the interest of the class. Lastly, examination of the Bluetooth Factors persuaded the court that no there was no collusion between the parties in reaching the settlement amount. Accordingly, the motion for final approval of the settlement was granted. The court then turned to the motion for attorneys’ fees, costs, and incentive awards. Class counsel sought $1 million in attorneys’ fees, or 36% of their lodestar. First, the court was satisfied that the hourly rates requested – for partners at the firms ranging between $775 and $975 an hour; the hourly rates of associates of $600 per hour; the law associate’s hourly rate of $375 per hour; and the paralegal’s rate of $275 per hour – were all in line with rates charged by ERISA litigators in the San Francisco Bay Area. Additionally, because several other courts have granted class counsel these rates, the court concluded the rates sought were appropriate. Class counsel submitted time records for 3,830 hours of work performed on the case. The court found this number adequately reflective of the considerable number of motions, the great amount of discovery, and the trial preparation of the case. Multiplying the 3,830 hours of work by the rates, the lodestar amount would be $2,749,823, making an award of $1 million a “negative multiplier and 64 percent reduction to Class Counsel’s lodestar.” Therefore, the court concluded that although the requested attorneys’ fees make up 1/3 of the settlement fund, the amount was nevertheless appropriate, especially as a 33.3% recovery is on par with other complex ERISA class actions. The motion for attorneys’ fees was thus granted. So too was plaintiffs’ motion for $149,978.03 in costs. The court found the costs to be reasonable and well documented. Finally, the court granted the motion for incentive awards of $5,000 for each class representative, as both representatives took on substantial risk and devoted significant time to the case. 

Disability Benefit Claims

Second Circuit

Feltington v. Hartford Life Ins. Co., No. CV 14-6616 (GRB), 2022 WL 499079 (E.D.N.Y. Feb. 17, 2022) (Judge Gary R. Brown). In this long-term disability denial case, filed by plaintiff Lisa Feltington against her insurer the Hartford Life Insurance Company, the court issues a warning to counsel (particularly for Hartford) that seven years of litigation is long enough. The court attributes “much of that delay… to the tactics of (Hartford’s) counsel.” Hartford objected to the Magistrate Judge’s ruling relating to the inclusion of one document, a letter by the physical therapist who performed Ms. Feltington’s three-hour Functional Capacity Evaluation, to the record. According to the court Hartford’s objection was based “upon scattershot assertions . . . none of (which) are completely true. Some are half-truths. Others don’t even rise to that level.” Finding this conduct unacceptable and counter to judicial economy, the court overruled Hartford’s objection to the Magistrate Judge’s order and affirmed the order in its entirety. The order also stressed that discovery in the case has produced information pertaining to practices and policies of the insurer with regards to handling disability claims that, “may be contrary to law or bear upon the Company’s structural conflict of interest in such matters.” Here too Hartford frustrated judicial economy by filing extraneous motions and objections, and by attempting to seal all discovery from the public record. Even much of the discovery the insurer eventually produced when ordered to do so was redacted and illegible. However, the unredacted portion of the  company’s internal denial policy made clear that Hartford directs its claims reviewers to, “deny any request for reconsideration after issuing a decision, even if new information is submitted with that request, and irrespective of the nature of that information.” Another discovered feature of the company’s inner workings was the company’s practice of putting information provided on appeal into specially marked envelopes which are not re-disclosed or included in the administrative record. Perhaps most revealing of all of the information gleaned through discovery was the differences in the procedures the company implemented for non-ERISA claims. Reviewers of these claims were directed to review all information and evidence submitted at all levels of the claims process and to include all reviewed information as part of the administrative record. Ironically, this case has revealed more about the internal policies and practices of an insurance company than the vast majority of ERISA disability cases, which routinely cycle through more quickly to their conclusions. 

Seventh Circuit

Sherrell v. Sun Life Assurance Co. of Can., No. 20 C 7519, 2022 WL 474206 (N.D. Ill. Feb. 16, 2022) (Judge Matthew F. Kennelly). Plaintiff Mary Sherrell suffered from mental health and psychiatric issues including depression, agoraphobia, anxiety, and panic disorder throughout her tenure as a research coordinator at the University of Chicago. In early 2020 two things happened simultaneously. First, Ms. Sherrell’s psychiatric disorders worsened considerably, to the point where her treating doctors recommended electroconvulsive therapy (“ECT”), and second, Ms. Sherrell was informed by the university that her position would be terminated in a matter of months due to lack of grant funding. On January 10, 2020, Ms. Sherrell filed a claim for long-term disability benefits with Sun Life Assurance Company of Canada, citing her depression, anxiety, and agoraphobia as the causes. Ms. Sherrell’s attending physician confirmed the diagnoses and scheduled Ms. Sherrell for ECT treatment at the Mayo Clinic in Minnesota. Sun Life denied Ms. Sherrell’s claim concluding she did not qualify as “totally disabled” per the terms of the plan because Ms. Sherrell had managed her conditions for over ten years and likely would have continued her job had her position not been terminated. After exhausting the administrative appeals process, Ms. Sherrell filed a Section 502(a)(1)(B) suit. Parties filed cross-motions for summary judgment. Under de novo review, the court examined whether Ms. Sherrell was unable to perform the material duties of her job throughout the 90 day elimination period. The court held the record demonstrated that Ms. Sherrell’s psychiatric condition was deteriorating in the months leading up to her claim for long-term disability benefits. Moreover, the court agreed with the assessments of Ms. Sherrell’s treating physicians that her condition as well as the 12 ECT treatments she received meant she could no longer perform the tasks of her job throughout the elimination period. According to the court, Sun Life selectively cherry-picked evidence to deny Ms. Sherrell’s claim, and made assumptions that were unsupported by the medical record. The court in particular took issue with Sun Life’s argument that the timing of the disability application belied an ulterior motive on Ms. Sherrell’s part. The court expressed that it would be, “extraordinarily improbable that Sherrell’s physicians prescribed (ECT) treatment … solely for the purposes of bolstering her disability claim,” as such treatment is only prescribed for severe psychiatric conditions when less intensive treatments have been ineffective. Finally, the court found the Social Security Disability Insurance benefits award to be significant evidence to support Ms. Sherrell’s claim of disability. Thus, the court granted Ms. Sherrell’s motion for judgment and denied Sun Life’s motion. 

Ninth Circuit

Boykin v. Unum Life Insurance Co. of Am., No. 2:19-cv-00137-TLN-DB, 2022 WL 458213 (E.D. Cal. Feb. 15, 2022) (Judge Troy L. Nunley). Plaintiff Samuel Boykin fractured his spine in a car accident in 2014. After attempting to return to work as a maintenance specialist, Mr. Boykin’s back injuries and accompanying pain worsened, leaving him disabled. Mr. Boykin was informed by his doctors that he had very limited treatment options and was not a candidate for bone replacement surgery due to his fragmented vertebra and the possibility of bone fragments getting pushed towards his nerves. In 2016, Mr. Boykin applied for long-term disability benefits. After Unum Life Insurance denied his application, Mr. Boykin filed suit for wrongful denial of benefits. Parties filed cross-motions for judgment. Under de novo review, the court concluded that a preponderance of evidence supported that Mr. Boykin was disabled from his regular occupation as defined by the plan terms. Accordingly, the court granted Mr. Boykin’s motion for judgment and denied Unum’s cross-motion. However, the court granted Unum request that no benefits be awarded to Mr. Boykin past the 24-month “own occupation period” and remanded to the insurer to determine the narrow issue of whether Mr. Boykin is disabled under the plan’s definition from performing “any gainful occupation.” 

ERISA Preemption

Fifth Circuit

Shih v. Blue Cross & Blue Shield of Tex., Inc., No. 4:21-CV-01530, 2022 WL 444476 (S.D. Tex. Feb. 10, 2022) (Judge Keith P. Ellison). Medical Doctor Patrick Shih, brought suit in state court against Blue Cross & Blue Shield of Texas, Inc. and several employers whose welfare plans Blue Cross of Texas administers for contract violations, tortious interference, violation of Texas health laws, and violation of the Texas Prompt Payment of Claims Act. Dr. Shih provided medical services to over 200 patients insured by Blue Cross of Texas. According to his complaint, Blue Cross of Texas underpaid nearly $4 million for these services. Blue Cross of Texas removed the case to the district court. In a previous order, the court denied Dr. Shih’s motion for remand. Dr. Shih asked the court to reconsider its order denying remand under Federal Rules of Civil Procedure Rule 54(b). Examining ERISA preemption under the first prong of the Davila test, the court previously held that Dr. Shih waived his anti-assignment argument because he did not raise it in his motion to remand. In the motion for reconsideration, Dr. Shih argued that it was a clear error of law to exercise subject-matter jurisdiction based on a finding that he waived the anti-assignment issue. The court agreed that jurisdiction cannot be waived and thus reconsidered the applicability of the anti-assignment provisions in the Blue Cross of Texas plans at issue, and whether or not Dr. Shih had standing to sue under ERISA. The parties disagreed as to whether the anti-assignment provisions in the plans allowed the assignment of benefits, as defendants argued, or only authorized direct payments, as Dr. Shih argued. Having examined the relevant anti-assignment provisions the court agreed with defendants that assignment of benefits was possible under the plans. Furthermore, the court found that Dr. Shih’s state law causes of action were not independent from ERISA. Therefore, the court held that Dr. Shih’s claims are completely preempted by ERISA. Nor was the court swayed by Dr. Shih’s argument that the court mistakenly placed the burden of establishing federal jurisdiction on him, “by drawing factual findings and inferences in favor of Defendant.” The court asserted that it based its rulings on assignments Dr. Shih had received from  patients. Thus, the court found that Blue Cross of Texas met its burden of establishing complete ERISA preemption. In the event of such a ruling, Dr. Shih alternatively sought to dismiss the claims relating to 13 patients from whom he received assignments forming the basis for federal jurisdiction. Blue Cross of Texas opposed, arguing it would be prejudiced if Dr. Shih were to refile, “potentially resulting in parallel lawsuits with the same Parties.” Dr. Shih in reply voluntarily offered to dismiss claims related to all 34 patients at issue, including those from which he never received an assignment of benefits. The court was satisfied that if it granted Dr. Shih leave to dismiss all disputedly federal claims, there was no risk of parallel state and federal suits. Accordingly, the court granted Dr. Shih’s alternative request for leave to amend to voluntarily dismiss these claims. 

Sixth Circuit

Merritt v. Flextronics Int’l U.S., No. 2:20-cv-02943-TLP-cgc, 2022 WL 476079 (W.D. Tenn. Feb. 16, 2022) (Judge Thomas L. Parker). Pro se plaintiff Kenneth Merritt brought suit in state court for breach of contract and a violation of the Tennessee Consumer Protection Act against his employer, Flextronics International USA, Inc., and his insurer, Hartford Financial Services Group, Inc. after defendants failed to pay him, and delayed paying him, his short-term disability benefits. Because ERISA governs Mr. Merritt’s disability insurance plan, defendant Hartford removed the case to the federal district court. For all pretrial matters, the court referred the case to Magistrate Judge Claxton, who issued a Report and Recommendation recommending the court deny both defendants’ motion to dismiss and Mr. Merritt’s motion for summary judgment. First, although Judge Claxton agreed with defendants that ERISA preempts Mr. Merritt’s state law claims, because Mr. Merritt was appearing pro se, Judge Claxton determined the appropriate course of action would be providing Mr. Merritt leave to amend his complaint  to bring claims under ERISA rather than granting defendants’ motion to dismiss. As for Mr. Merritt’s summary judgment motion, because the state law claims were preempted, Judge Claxton held that Mr. Merritt was not entitled to summary judgment. In this decision, the court agreed with Judge Claxton’s conclusions and adopted the Report and Recommendation in full. 

Eighth Circuit

Overby v. Tacony Corp., No. 4:21 CV 1374 CDP, 2022 WL 503732 (E.D. Mo. Feb. 18, 2022) (Judge Catherine D. Perry). After his employment with the Tacony Corporation ended in 2021, plaintiff Bradley Overby became entitled to a lump sum payment under the Tacony’s Stock Appreciation Plan. According to Mr. Overby, Tacony improperly calculated how much was owed to him, and allegedly underpaid him $14,390.13. Seeking to recoup this amount in damages, Mr. Overby filed suit in state court against his former employer for breach of contract. The Tacony Corporation removed the case, claiming the breach of contract claim was completely preempted by ERISA. Mr. Overby argued to the contrary, contending that the plan is a bonus plan exempt from ERISA and moved to remand the case to state court. As the plan systematically defers compensation until after the end of employment or death, the court was satisfied that it qualified as an ERISA top-hat pension benefit plan and was not an exempt bonus plan. Therefore, the court concluded it has federal jurisdiction over the case and denied Mr. Overby’s motion to remand. 

Eleventh Circuit

Allen v. First Unum Life Ins. Co., No. 2:18-cv-00069-JES-MRM, 2022 WL 485223 (M.D. Fla. Feb. 17, 2022) (Judge John E. Steele). Radiologist Dr. Marcus Allen became disabled in 2010 after he experienced a sudden change in his vision which affected his ability to diagnostically review x-ray imagery. Dr. Allen was diagnosed with “ocular degeneration, posterior vitreous detachment with retinal tear, bleed in his left eye, as well as significant floaters and visual disturbances in both eyes detrimentally impacting his visual field.” At issue in this case are 5 disability insurance policies covering Dr. Allen, four individual long-term disability policies Dr. Allen purchased through an insurance agent and personally paid all the premiums on, and a Group Policy, administered by Dr. Allen’s employer Prospect Hill Radiology Group, P.C. All of the policies were insured by defendant First Unum Life Insurance Company (“Unum”). In 2015, after paying for Dr. Allen’s disability benefits for five years, Unum terminated Dr. Allen’s disability benefits under both his individual policies and his group policy. On administrative appeal, Unum upheld its denials, prompting this suit. Dr. Allen asserted two claims of breach of contract, the first count pertaining to the four individual policies and the second pertaining to the group policy. Parties filed cross-motions for summary judgment. In addition, Dr. Allen moved for summary judgment on defendants’ affirmative defenses involving ERISA preemption, failure to exhaust, and failure to state a claim upon which relief could be granted. The court held that the individual policies were not governed by ERISA because Prospect Hill neither established or maintained the individual policies, nor paid any of the premiums on them. However, the same was not true of the group policy. Dr. Allen argued that the group policy falls within the safe harbor provision of ERISA because he was a “shareholder/partner/owner” of Prospect Hill not an employee. The court disagreed with Dr. Allen, and because Prospect Hill endorsed the group policy by purchasing it and serving as the plan administrator, the group policy was determined to be an ERISA plan. Dr. Allen’s second breach of contract claim pertaining to the group policy was therefore dismissed as preempted by ERISA. The court granted Dr. Allen leave to amend his complaint to restate his claims as a violation of ERISA with regards to the group policy. Turning to Dr. Allen’s motion for summary judgment on the breach of contract claim pertaining to the individual policy, the court held there were genuine issues of material fact that as to whether Dr. Allen’s visual impairments rendered him incapable of working as a radiologist that precluded summary judgment. Finally, the court granted Dr. Allen’s motion for summary judgment on defendant’s affirmative defenses with regards to the individual policies but denied the motion with regards to the ERISA-governed group policy. 

Life Insurance & AD&D Benefit Claims

Seventh Circuit

McNinch v. The Guardian Life Ins. Co. of Am., No. 19-cv-2305, 2022 WL 444133 (N.D. Ill. Feb. 14, 2022) (Judge Mary M. Rowland). Forty-four year old Jason McNinch died in 2017 after ingesting a combination of cocaine and fentanyl. Up until his death, Mr. McNinch worked as an audiovisual manager at the Chicago Museum of Contemporary Art. Through his employment, Mr. McNinch was a participant in the Museum’s employee welfare benefit plan which provided basic term life insurance as well as basic accidental death and dismemberment insurance coverage. Following Jason’s death, his parents, plaintiffs Terrance and Peggy McNinch attempted to obtain the $50,000 of accidental death benefits insured by defendant the Guardian Life Insurance Company of America. Guardian Life denied the benefits application citing the policy’s voluntary drug use exclusion writing, “it is our position that Jason’s death was caused by his use of controlled substances, therefore, was not the direct result of an accident independent of all other causes.” The McNinch’s appealed the denial and then filed suit. The parties filed cross-motions for summary judgment. The court reviewed the benefits decision under de novo standard of review. Plaintiffs argued that defendant’s denial was improper and that the assumption Jason voluntarily took a lethal dose of cocaine laced with fentanyl was unsupported by evidence and, “belies common sense given all we know about the opioid epidemic.” Guardian Life argued that as a long-time drug user, Jason’s death was not an “accident” because he could not have had an objectively reasonable expectation of surviving. Furthermore, defendant argued, the death was not an “accident” because it was not independent of the disease of substance use disorder. The court agreed with Guardian Life on both points and concluded that plaintiffs failed to meet their burden of proving entitlement to coverage. Additionally, for the sake of being thorough, the court found the voluntary use exclusion also applied to preclude the McNinch’s entitlement to benefits. The parties disputed whether Jason’s death was caused by his “voluntary” use of illegal substances. It does not appear that plaintiffs were arguing that addiction itself caused their son’s drug use to be involuntary. Rather, they argued that no one knows the circumstances under which the drugs that killed Jason entered his system. They also argued that it was due to the combined use of cocaine and fentanyl that Jason died and perhaps he only voluntarily used cocaine, unaware that it was laced with a deadlier substance. Neither argument was persuasive to the court. The court concluded that per the plan’s exclusion Jason had only to voluntarily use a controlled substance, thus the exclusion was triggered by Jason’s voluntary use of cocaine, whether or not he knew that the cocaine was mixed with fentanyl. Because Jason used an illegal drug that was not prescribed to him by a physician, the voluntary use exclusion was deemed applicable. Accordingly, the court denied plaintiffs’ motion for summary judgment and granted summary judgment in favor of Guardian Life. 

Medical Benefit Claims

Second Circuit

Vollmer v. Xerox Corp., No. 20-CV-6979 (CJS), 2022 WL 446628 (W.D.N.Y. Feb. 14, 2022) (Judge Charles J. Siragusa). Plaintiffs Paul and Marilyn Vollmer brought this putative class action against the Xerox Corporation, its plan administrator committee, the Xerox Medical Care Plan for Retired Employees, and the Xerox Corporation 1986 Enhanced Early Retirement Program. In their complaint, the Vollmers alleged that defendants breached their fiduciary duties and violated the terms of the welfare plan after they began requiring participants in the company’s enhanced early retirement program pay 50% of the premiums for medical and dental insurance despite promises of lifetime non-contributory benefits. The parties filed cross-motions for summary judgment. Defendants argued that they should be granted summary judgment because the Vollmers’ claims are time-barred and lack merit, on the grounds that the governing plan document does not contain a promise of non-contributory lifetime benefits. First, the court examined whether the claims were time-barred and concluded that the fiduciary breach claim under ERISA Section 502(a)(3) was time-barred, while the Section 502(a)(1)(B) claim for benefits was not. The court reasoned that the alleged fiduciary breach occurred when Xerox sent the early retirement program applicants communications informing those who elected to retire early that lifetime coverage under the plan would be non-contributory. The date of the last action, “which constituted a part of the breach or violation,” then, according to the court, was the date that Mr. Vollmer retired and began receiving the early retirement benefits. Accordingly, the alleged fiduciary breach occurred well over six years before the suit was filed, and in the absence of fraud or concealment on Xerox’s part, the claim was not timely. Therefore, the court granted summary judgment in favor of defendants on the fiduciary breach claim. As for the Section 502(a)(1)(B) claim, the court agreed with the Vollmers that this claim was not time-barred because the 2010 benefits guide Xerox sent them did not “clearly repudiate” the previous claims for non-contributory benefits. The court concluded that Xerox did not repudiate the claim until 2018, when it began requiring participants contribute 50% of the premiums themselves. Nevertheless, the court refused to grant with party summary judgment on the Section 502(a)(1)(B) count because the court found a genuine dispute of material fact concerning what constitutes the operative document(s) for the plan. 

Pleading Issues & Procedure

Second Circuit

Carlisle v. The Bd. of Trs. of Am. Fed’n of N.Y. State Teamsters Conference Pension & Ret. Fund, No. 8:21-cv-00455, 2022 WL 425483 (N.D.N.Y. Feb. 11, 2022) (Judge Brenda K. Sannes). Plaintiff Robert Carlisle brought this putative class action on behalf of himself and similarly situated participants in the New York State Teamsters Conference Pension and Retirement Fund. Mr. Carlisle alleged that in 2014, the defined benefit multi-employer plan began imprudently allocating over half of its assets in extraordinarily high risk and high cost Emerging Market Equities and Private Equity funds, putting the plan into “dangerous and worsening financial condition.” In addition, the plan was paying investment management fees to the tune of $1.4 million annually. Things got so bad that the fund’s actuary projected the fund would become insolvent and unable to pay benefits by 2026. Accordingly, the Department of Treasury approved high benefit cuts pursuant to the Multiemployer Pension Reform Act (“MPRA”) of 2014, resulting in a monthly 19% reduction for active participants and a 29% reduction for retirees. Mr. Carlisle sought declaratory relief, restoration of the fund losses resulting from the fiduciary breaches, as well as other equitable and monetary relief. Defendants moved to stay proceedings pending the determination of the fund’s application for Special Financial Assistance with the Pension Benefit Guaranty Corporation (“PBGC”) to restore the reduced benefits, both retroactively and prospectively to participants. Should this application be approved, the fund would be required to restore benefits previously reduced under the MPRA and would be prohibited from applying for further benefit reductions. This proposed stay would last up to 120 days, which is the time the PBGC has to make a determination on the application. Mr. Carlisle opposed the stay, arguing that it is unclear whether the application will be approved and in what amount. Mr. Carlisle also argued that even if he were to receive a full recovery of damages caused by the benefit cuts, “the maximum payments… will only provide Fund participants with payments equal to the amount of the MPRA benefit cuts (and would not provide) interest or investment returns.” Mr. Carlisle argued that such an outcome would be “tantamount to a decade-long interest-free loan” by plan participants, like himself, to the fund. However, the court found the relevant factors weighed in favor of staying proceedings. The court primarily reached its conclusion based on the fact that the stay would be only a few months long. In this short duration of time, the court concluded that Mr. Carlisle would not be unduly prejudiced, and the PBGC determination might in fact shed light on existing issues, including issues of interest rates and investment returns. In addition, granting the motion would enable defendants to avoid undue litigation burdens. Moreover, the court held that its own interests would be served by granting the stay. For these reasons, the court granted the motion to stay proceedings for up to 120 days until the PBGC reaches its conclusion on the application. 

Sixth Circuit

Brimmeier v. DeMaria Bldg. Co., No. 20-cv-10426, 2022 WL 494372 (E.D. Mich. Feb. 17, 2022) (Judge Bernard A. Friedman). Plaintiff Mark Brimmeier brought a suit against his former employer, DeMaria Building Company, for refusing to pay him the $412,019 in benefits he claims accrued under the company’s deferred compensation program. Mr. Brimmeier brought claims for breach of contract and a Section 502(a)(1)(B) ERISA claim for benefits. The parties filed cross-motions for summary judgment. DeMaria Building also moved to dismiss. First, the court held that the version of the benefit program before it was amended in 2016 governed whether Mr. Brimmeier was entitled to recover his deferred compensation benefits because his benefits accrued solely under the pre-2016 program. Next, the court determined that the pre-2016 program was not an ERISA plan because the final prong of the Dillingham test, whether a reasonable person could ascertain the procedures for receiving benefits, was not satisfied. The court expressed, “a jumble of internal notes, inconsistent employee compensation summaries, and a litany of conflicting declarations and deposition testimony, all point to one inescapable conclusion: that no reasonable person could discern the procedures for obtaining deferred compensation under the pre-2016 program.” As the program failed the Dillingham test, Mr. Brimmeier could not recover his benefits under Section 502(a)(1)(B), and the court dismissed this count. Finally, because the federal claim was dismissed, the court weighed exercising supplemental jurisdiction over the breach of contract claim. Finding the probability of multiple litigations “minimal” the court concluded that Michigan state courts would be better suited to address the state law claim, and the court thus declined to exercise supplemental jurisdiction, dismissing the breach of contract claim without prejudice. 

Tenth Circuit

IHC Health Servs. v. Aetna Health of Utah, Inc., No. 2:21-CV-30 TS, 2022 WL 487919 (D. Utah Feb. 17, 2022) (Judge Ted Stewart). Plaintiff IHC Health of Utah, Inc. provided medical services to a patient in January of 2018. The patient was a plan participant in an ERISA-governed healthcare plan sponsored by defendants Banner Health and insured by defendant Aetna Health of Utah, Inc. Although the patient’s treatment costs were $20,216.70, defendants paid on $374.01 to IHC Health, prompting the provider to bring this ERISA action for breach of fiduciary duties and seeking recovery of benefits under Section 502(a)(1)(B). Defendants moved for judgment on the pleadings, arguing IHC Health lacks standing to sue under ERISA. IHC Health did not respond to the motion. The court first addressed IHC Health’s Section 502(a)(1)(B) claim. Although IHC Health alleged it received a written assignment of benefits from the patient, the plan expressly prohibits assignment of benefits. Accordingly, the court held there was no valid assignment to IHC Health and it therefore lacked standing to sue for recovery of benefits. As for IHC Health’s fiduciary breach claims, such claims, the court concluded, could only be brought by a plan participant or beneficiary, the Secretary of Labor, or a plan fiduciary, not by a healthcare provider. Therefore, the court once again concluded that IHC Health lacked standing and granted defendants’ motion for judgment on the pleadings. 

Severance Benefit Claims

Second Circuit

Soto v. Disney Severance Pay Plan, No. 20-4081, __ F. 4th __,  2022 WL 468126 (2d Cir. Feb. 16, 2022) (Before Circuit Judges Carney, Sullivan, and Bianco). After a stroke and other serious health problems left her unable to work, plaintiff-appellant Nancy J. Soto was terminated from her employment by The Walt Disney Company. Upon termination, Disney did not pay Ms. Soto severance benefits under the Disney Severance Pay Plan. The plan administrator as well as the administrative committee of the plan determined that Ms. Soto’s termination did not qualify as a “layoff’ as defined by the language of the plan. Ms. Soto brought suit against Disney, the plan, and the plan administrator, contesting their interpretation of the term “layoff” and alleging the benefits denial was improper. In addition to a Section 502(a)(1)(B) benefits claim, Ms. Soto also brought an alternative claim under Section 502(a)(3) seeking equitable relief to reform the plan to comply with ERISA’s requirement that plan language be “written in a manner for the average participant to understand.” The severance plan narrowly defined the term “layoff” as, “the involuntary termination of employment of an Eligible Employee from the Company, except for reasons of poor performance or misconduct as determined by the Company in its sole and absolute discretion.” When denying Ms. Soto’s claim, the plan administrator interpreted the plan’s definition of “layoff” as meaning, “a layoff occurs under the Plan when there is a separation from the Company in the context of situations similar to a job elimination, reduction in force, or geographic relocation of the place of employment.” On November 9, 2020, the district court granted defendant’s motion to dismiss on the technicality Ms. Soto did not receive notice of her eligibility under the Plan as required for severance benefits. The district court did not decide whether Ms. Soto plausibly alleged that the denial itself was wrong or whether Ms. Soto’s termination qualified as a layoff. On appeal, the Second Circuit affirmed the dismissal of Ms. Soto’s claim for severance benefits, but for a different reason than the district court. The court of appeals concluded that the plan administrator was not arbitrary and capricious in denying benefits and had a reasoned bases for its interpretation of the term “layoff.” Additionally, the Second Circuit affirmed the dismissal of Ms. Soto’s Section 502(a)(3) claim because she was not a participant in the plan entitled to bring a claim for equitable relief. Dissenting from the majority opinion, Circuit Judge Sullivan disagreed with his colleagues’ “extra-textual” interpretation of the term “layoff”. According to Judge Sullivan, the simple and unambiguous reading the plan’s language would include terminations due to disability, and the definition of “layoff” that the plan administrator relied on when denying the claim was found nowhere in the language of the plan itself. 

Subrogation/Reimbursement Claims

Eighth Circuit

Vercellino v. Optum Insight Inc., No. 20-3524, __ F. 4th __,  2022 WL 433036 (8th Cir. Feb. 14, 2022) (Before Circuit Judges Benton, Kelly, and Erickson). In 2013, when he was a minor, plaintiff Nathan Vercellino was injured in an accident involving an all-terrain vehicle (“ATV”) operated by his friend, Connor Kennedy. Mr. Vercellino was a covered dependent on his mother’s ERISA-governed insurance plan, administered by Optum Insight Inc. Optum paid approximately $600,000 in medical expenses arising out of the injuries Mr. Vercellino sustained in the accident. In 2019, Mr. Vercellino, who was at this point an adult, brought suit in state court against Connor Kennedy seeking damages for the accident. Along with his suit against Mr. Kennedy, Mr. Vercellino brought a separate federal suit seeking declaratory judgment that Optum would have no right of reimbursement from the proceeds recovered in his litigation against Mr. Kennedy. The district court in that suit granted summary judgment in favor of Optum based on the policy’s subrogation and reimbursement clause, finding the plain language of the plan allowed for reimbursement of proceeds recovered in Mr. Vercellino’s state court case. Mr. Vercellino appealed this decision. On appeal, the Eighth Circuit affirmed the lower court’s decision. None of Mr. Vercellino’s arguments were persuasive to the court. First, Mr. Vercellino argued that as he was a minor at the time of the accident he was never a real “party-in-interest” with a legal right to seek recovery during the statutory period, and as the statute of limitations for both Optum and Mr. Vercellino’s mother to seek recovery has passed, the obligation to reimburse Optum for the medical bills cannot now be passed to him. The court disagreed, holding that the insurer’s right to reimbursement under the plan is broad, and Optum is entitled to reimbursement regardless of whether the recovery at issue comes after the statute of limitations has run. Mr. Vercellino also argued that Optum waived its right to seek reimbursement by failing to exercise its subrogation rights during the statutory period. Again, the court held that because the plan includes an independent right to reimbursement not limited to settlements for medical expenses, Mr. Vercellino was incorrect that Optum was required to pursue its rights to reimbursement during the limitations period. Lastly, Mr. Vercellino argued that Optum breached its fiduciary duties by failing to warn him that it would seek reimbursement from any legal recovery he received. However, as the plan documents clearly and unambiguously spells out the insurer’s rights of subrogation, and because  Optum made no false or misleading statements to Mr. Vercellino, the court was not convinced that any fiduciary breach had occurred. The summary judgment order of the district court was thus upheld.