Shields v. United of Omaha Life Ins. Co., No. 21-1290, __ F.3d __, 2022 WL 4864522 (1st Cir. Oct. 4, 2022) (Before Circuit Judges Barron, Selya, and Gelpí)
In May of this year, Your ERISA Watch analyzed Skelton v. Radisson Hotel Bloomington, in which the Eighth Circuit discussed the system by which employers and insurers divide the duties of administering employee life insurance coverage. Skelton demonstrated how that system often fails, to the detriment of employees and their loved ones. In particular, the Eighth Circuit described the arrangement in Skelton as “a haphazard system of ships passing in the night.”
Until that system changes, we will see more cases like this week’s notable decision, Shields v. United of Omaha, which has a similar fact pattern and a similar resolution. The case involved Myron Shields, who began working for Duramax in 2008. Through his employment he obtained life insurance coverage from defendant United of Omaha, which insured Duramax’s employee life insurance benefit plan.
Like many such plans, Duramax’s plan had a basic life insurance benefit and a voluntary benefit. Employees were automatically guaranteed coverage for the basic benefit and could elect coverage for voluntary benefits. However, to receive coverage greater than $100,000 under the voluntary plan, employees were required to provide a “statement of physical condition or other evidence of good health” to United.
Myron enrolled in the voluntary plan and chose coverage greater than $100,000. However, he was not given an evidence of good health form, or any other kind of form, to complete by either Duramax or United. Prior to his death, he asked Duramax to verify his coverage, and Duramax told him he had the full coverage he had elected. Indeed, for a decade Duramax deducted premiums for the full coverage from Myron’s paycheck and transmitted them to United. Furthermore, Duramax represented to United on at least one occasion that Myron was enrolled for excess coverage under the voluntary plan.
Myron died in 2018, after which his wife, Lorna Shields, submitted a claim to United. As you have undoubtedly already guessed, United did not pay the full amount of voluntary coverage elected by Myron. United denied Lorna’s claim for benefits in excess of $100,000 on the ground that Myron had not complied with the plan’s “evidence of good health” requirement.
Lorna unsuccessfully appealed this decision, and then brought suit under ERISA, alleging that she was entitled to the excess benefits under 29 U.S.C. § 1132(a)(1)(B), or, alternatively, that United breached its fiduciary duty under 29 U.S.C § 1132(a)(3). The district court granted summary judgment to United on both claims, and Lorna appealed.
The First Circuit made short work of Lorna’s arguments under her (a)(1)(B) claim. The court stated that Myron had not submitted to United “any document that might be construed as either a ‘statement of physical condition’ or ‘other evidence of good health,’” and thus it was not arbitrary and capricious for United to determine that the plan’s conditions were not met.
Furthermore, the First Circuit was “not persuaded” that United had waived the good health requirement. The court stated that waiver required an intentional, knowing relinquishment of a right, and the evidence that United had accepted premiums and had been notified of Myron’s elections was insufficient to constitute a knowing waiver.
Nor, according to the court, did Duramax waive the requirement on United’s behalf. While it was true that Duramax had incorrectly responded to Myron that he was fully covered, the record did not show that Duramax knew at the time that Myron had run afoul of the good health requirement. As a result, Duramax’s response, even if wrong, could not constitute a knowing, voluntary waiver.
The court then turned to Lorna’s breach of fiduciary duty claim. Lorna made two arguments in support of this claim: (1) United breached its duty to notify Myron that he was uninsurable; and (2) United breached its duty by accepting premiums for nearly a decade while “making no effort to confirm” his coverage eligibility.
The First Circuit rejected the first argument, agreeing with the district court that “nothing in the record permits a supportable inference that United made an insurability determination regarding Myron’s excess coverage that could have triggered the claimed duty to notify.”
Lorna’s second argument gained more traction, however. The First Circuit determined that an insurer can be a “functional fiduciary” under ERISA when a benefit plan gives it “the discretion to choose when to accept premiums from an employee and when to determine if an employee is eligible for coverage.” Such a fiduciary has the duty “to make eligibility determinations for each employee from whom the insurer accepts premiums reasonably proximate to the acceptance of those premiums.”
United contended that ERISA did not support imposing such a duty on insurers, and the First Circuit noted that the American Council of Life Insurers and the Department of Labor had submitted dueling amicus briefs on this issue. ACLI argued that imposing such a duty on insurers would be “administratively onerous and expensive,” and thus conflict with ERISA’s goals. DOL contended that not imposing such a duty “would encourage abuse” and incentivize administrators to set up a system in which the insurer is “completely blind” to whether employees paying for coverage are actually eligible for that coverage, all the while accepting premiums for “non-existent coverage.”
The First Circuit determined that “DOL has the better of the argument.” The court observed that if an insurer did not have such a duty, the only risk the insurer would face would be the return of employee premiums, and even then “this risk would only materialize in the (likely small) subset of circumstances where plan participants actually needed the benefits for which they had paid.” The upside for insurers, however, was enormous: “essentially risk-free windfall profits from employees who paid premiums on non-existent benefits but who never filed a claim for those benefits.” Thus, ERISA’s purpose of protecting beneficiaries was fulfilled by imposing a fiduciary duty on insurers.
Two more questions remained: did the plan language actually impose such a duty on United, and if so, did United breach that duty? The First Circuit answered the first question in the affirmative. The court noted that the plan gave United “the discretion and the final authority to construe and interpret” the Plan, including to “decide all questions of eligibility and all questions regarding the amount and payment of any [Plan] benefits within the terms of the [Plan] as interpreted by [United].” The plan also provided that benefits under the plan “will be paid only if [United] decide[s], in [United’s] discretion, that a person is entitled to them.” The court concluded that this was a sufficiently broad grant of authority to encompass the more specific fiduciary duty to make eligibility determinations in a timely fashion.
As for the final question regarding breach, the First Circuit remanded. The court stated that the district court did not address what the record showed “about whether United took reasonable steps to confirm Myron’s eligibility for excess coverage in a timely manner after accepting his premiums.” Thus, the First Circuit left “the determination about what the record supportably shows – and conclusively establishes – with respect to the breach question to the District Court to make in the first instance.”
In short, this is yet another case that should prompt insurers and employers to reevaluate how they administer life insurance plans. The tide is clearly turning toward employees and beneficiaries on this issue, and the Department of Labor’s input shows that it is of growing importance.
Below is a summary of this past week’s notable ERISA decisions by subject matter and jurisdiction.
Breach of Fiduciary Duty
Radcliffe v. Aetna, Inc., No. 3:20-cv-01274-VAB, 2022 WL 4599059 (D. Conn. Sep. 30, 2022) (Judge Victor A. Bolden). Participants in Aetna’s 401(k) and Employee Stock Ownership plans brought a putative breach of fiduciary duty class action against Aetna, Inc., CVS Health Corporation, the plan’s committee, and individual committee members and fiduciaries. The complaint centered around the corporate merger between Aetna and CVS which occurred in the fall of 2018. CVS brought serious baggage with it to its merger with Aetna. Specifically, CVS and a pharmaceutical company it owns, Omnicare, had been sued for violating the False Claims Act for seeking reimbursement of drugs illegally prescribed to patients at the company’s elder care facilities, fraudulently billing for invalid prescriptions to the elderly patients, and cycle filling prescriptions for the assisted living facilities. Understandably, CVS’s legal baggage affected the stock valuation of the ESOP. Thus, the crux of plaintiffs’ complaint is that “in 2017 and 2018 CVS was facing profound risks to its operations which were not fully disclosed, nor appreciated by, the investing public.” Therefore, according to plaintiffs, prior to getting caught, Omnicare had inflated revenues earned through its illegal prescription schemes and following the legal repercussions of the qui tam False Claims Act action, Omnicare, and its parent company CVS, were not worth what investors were led to believe they were worth. One year ago, Your ERISA Watch summarized the court’s order dismissing without prejudice plaintiffs’ complaint. The court’s reasoning for dismissal was twofold. First, the court held plaintiffs failed to allege “that Aetna, CVS, and their individual officers and directors functioned as ERISA fiduciaries.” Second, the court concluded that plaintiffs insufficiently alleged their central allegation that CVS withheld material non-public information from the markets. In response, plaintiffs filed an amended complaint. However, plaintiffs failed to properly seek leave from the court to file the amended complaint. Thus, defendants, who moved to dismiss under 12(b)(6), argued that the court should dismiss the amended complaint for failure to obtain leave to amend, in addition to the reasons the court adopted last September. The court agreed with defendants and granted their renewed motion to dismiss for both reasons. This time, dismissal was with prejudice.
Gonzalez v. Northwell Health, Inc., No. 20-CV-3256 (RPK) (RLM), 2022 WL 4639673 (E.D.N.Y. Sep. 30, 2022) (Judge Rachel P. Kovner). Former employee and current plan participant Kaila Gonzalez brought a putative class action against Northwell Health, Inc., the Northwell Health 403(b) Plan Committee, and other fiduciaries for breaching their duties under ERISA. Ms. Gonzalez alleged in her complaint that defendants had a flawed management process that allowed the plan to be charged excessive recordkeeping fees and maintained underperforming investment options in its investment menu. Defendants moved to dismiss pursuant to Federal Rules of Civil Procedure 12(b)(1) and (6). The court declined to dismiss Ms. Gonzalez’s complaint for lack of standing, holding that she had adequately alleged an injury in fact and sufficiently pled causation. The standing holding was ultimately of little comfort to Ms. Gonzalez as the court granted the motion to dismiss the complaint for failure to state a claim. Regarding the challenged funds, the court concluded that Ms. Gonzalez’s allegations of underperformance were relatively modest and only a snapshot of a brief period of time. Additionally, the court rejected Ms. Gonzalez’s comparison of passively managed index funds to the actively managed funds at issue. The court also identified deficiencies in Ms. Gonzalez’s claims pertaining to excessive fees. The complaint, the court held, did not sufficiently compare total fees paid by plan participants in this plan to total fees paid by another plan for the same services offered. Accordingly, the court held Ms. Gonzalez did not state a claim for any breach of fiduciary duty. Absent an underlying fiduciary breach claim, the court also dismissed Ms. Gonzalez’s derivative failure to monitor and co-fiduciary breach claims. For these reasons, the court dismissed the complaint. The decision ended with the court allowing Ms. Gonzalez the opportunity to seek leave to file an amended complaint.
D.L. Markham v. The Variable Annuity Life Ins. Co., No. H-22-0974, 2022 WL 5213229 (S.D. Tex. Oct. 5, 2022) (Judge Sim Lake). An ERISA governed 401(k) Plan sued The Variable Annuity Life Insurance Company after the plan, dissatisfied with the services it was receiving from VALIC, chose to move all the plan assets from VALIC’s platform to a new service provider and VALIC imposed a 4.5% surrender fee of the plan’s assets. Plaintiffs brought two causes of action, a breach of fiduciary duty claim and a prohibited transaction claim. Defendants moved to dismiss, arguing that it was not a fiduciary when collecting the contractually bargained surrender fee as compensation, and that it was not a party-in-interest when it contracted with the plan and thus did not engage in a prohibited transaction by collecting the contracted fee. The court agreed on both counts and found both causes of action failed as a matter of law. Accordingly, the court dismissed the complaint and denied plaintiffs’ request for leave to amend.
Evans v. Associated Banc-Corp., No. 21-C-60, 2022 WL 4638092 (E.D. Wis. Sep. 30, 2022) (Judge William C. Griesbach). Participants of the Associated BancCorp 401(k) and Employee Stock Ownership Plan commenced this putative class action against Associated Banc-Corp, the plan’s administrative committee, Associated Trust Company, Kellogg Asset Management, LLC, and individual Doe defendants for breaching their fiduciary duties of loyalty, prudence, and to monitor. Plaintiffs alleged defendants improperly prioritized proprietary investments over superior available options to the financial detriment of participants. Additionally, their complaint outlined how defendants failed to employ a prudent process for monitoring the plan, leaving the poorly performing proprietary investments without oversight. Defendants’ actions, they asserted, were driven by their own self-interest in profiting and promoting their investment options. Seeking plan-wide relief, participants outlined how defendants’ alleged violative behavior cost the plan millions of dollars. Defendants moved to dismiss for failure to state a claim. Attached to their motion were the Associated Bank’s Form 5500s along with Morningstar fund fact sheets. Defendants asked the court to take judicial notice of these documents and argued that plaintiffs had incorporated them by reference. The court took notice of the Form 5500s, which are publicly available. However, the court declined to incorporate the Morningstar sheets, the authenticity of which was challenged by plaintiffs. Nevertheless, the court signaled that it was sympathetic to defendants’ argument that plaintiffs were engaging in “gamesmanship” by bringing this suit and indicated that it would “consider such conduct in deciding whether to award attorney’s fees.” The court then moved on to evaluating the sufficiency and plausibility of plaintiffs’ allegations. Using cursory language of its own, the court chided plaintiffs for their “conclusory allegations.” Specifically, the court stated that plaintiffs failed to include adequate benchmarks to plausibly support their claims of underperformance, and taking its cue from the Sixth Circuit in Smith v. CommonSpirit Health, 37 F.4th 1160 (6th Cir. 2022), noted that short periods of underperformance do not a fiduciary breach make. Furthermore, the court emphasized that offering proprietary options is not a per se breach. Thus, the court dismissed the complaint, finding it “insufficient to ‘unlock the doors of discovery.’” Dismissal was with prejudice.
Pizarro v. The Home Depot, Inc., No. 1:18-cv-01566-SDG, 2022 WL 4687096 (N.D. Ga. Sep. 30, 2022) (Judge Steven D. Grimberg). A class of current and former Home Depot employees who are participants of the Home Depot FutureBuilder 401(k) brought this action alleging the plan’s fiduciaries breached their duties to participants by failing to prudently monitor the plan to prevent excessive plan fees and poorly performing plan investment options. Several motions were before the court. To begin, plaintiffs moved for Judge Grimberg to recuse himself from presiding over the action. Plaintiffs’ motion for recusal stemmed from Judge Grimberg’s position prior to his confirmation to the bench on the U.S. Chamber of Commerce’s Technology Litigation Advisory Committee, which they argued brought into question Judge Grimberg’s impartiality. Although Judge Grimberg cheekily stated that he was tempted to step away from this complicated ERISA class action, he ultimately denied the recusal motion as “no objective disinterested lay observer with these facts would entertain a significant doubt about the undersigned’s impartiality.” Having refused to recuse himself, Judge Grimberg moved on to the remaining motions before him, namely the parties’ cross-motions for summary judgment, and the Home Depot defendants’ motion to exclude the opinions of plaintiffs’ experts. In the end, the court granted defendants’ summary judgment motion, denied plaintiffs’ summary judgment motion, and denied as moot defendants’ motion to exclude. The court held that plaintiffs failed to meet their burden of providing evidence of loss causation regarding the excessive fees and challenged funds. Ultimately, the court could not conclude that no prudent fiduciary would have acted as defendants acted and there was “no evidence that (defendants’) actions or inactions caused the Plan a loss.”
Disability Benefit Claims
Field v. Sheet Metal Workers Nat’l Pension Fund, No. 1:20-cv-11939-IT, 2022 WL 4626883 (D. Mass. Sep. 30, 2022) (Judge Indira Talwani). Since 1995, plaintiff David Field had been receiving disability benefits from the Sheet Metal Workers’ National Pension Fund based on several disabling conditions including complications from a 1991 incident in which Mr. Field was electrocuted. Despite receiving benefits for 24 years, in 2019 Mr. Field’s benefits were terminated by the Fund. The Fund determined that Mr. Field was never eligible for benefits, and had engaged in disqualifying employment. Mr. Field appealed. He provided evidence that several of the permits the Fund had pointed to in its letter as proof of disqualifying employment were performed by a construction company owned by a different David Field and that work performed in 2016 which had used this Mr. Field’s licenses were an instance of fraud. In support of this assertion, Mr. Field provided evidence that he was having carpal tunnel surgery in Florida at the time when the 2016 project was taking place. Regarding the Fund’s argument that Mr. Field was never eligible for benefits, Mr. Field stated that he could not provide records of all his employment in the 80s and 90s, as they occurred many decades ago and he no longer had the detailed information the Fund was requesting. On appeal the Fund acknowledge that the work performed in 2008 and 2010 were in fact done by a different David Field with a different birth date. However, the Fund was unpersuaded by Mr. Field’s evidence that his licenses were fraudulently used in 2016. The Fund also stuck by its position that Mr. Field’s employment records pre-disability were unsatisfactory and indicated that he was always ineligible for benefits. Both parties moved for summary judgement. The court, applying deferential review, granted summary judgment in favor of the Fund. First, the court rejected Mr. Field’s argument that the Fund’s determination in 1995 that he qualified for benefits was “final and binding” under the plan terms. Next, the court agreed with the Fund that it was not an abuse of discretion for the Fund to request additional information pertaining to Mr. Field’s employment during the early 1990s. In addition, the court held the Fund had meaningfully engaged with Mr. Field’s evidence that his licenses were used fraudulently. Thus, the Fund’s conclusion that Mr. Field engaged in disqualifying employment was also upheld under abuse of discretion review. Finally, the court was unconvinced that the Fund was operating under a conflict of interest or that the Supreme Court’s decision in Metropolitan Life v. Glenn even applied to multi-employer plans. Even assuming it did, the court found no convincing evidence of bias. Accordingly, the court found the Fund’s denial of benefits was reasonable and “sufficient to survive an abuse-of-discretion standard.” Whether Mr. Field will be required to pay back benefits to the Fund was left unclear by the decision.
Smith v. Cox Enters. Welfare Benefits Plan, No. 1:20-cv-01434 (PTG/IDD), 2022 WL 4624727 (E.D. Va. Sep. 30, 2022) (Judge Patricia Tolliver Giles). In this disability benefit action plaintiff Jeremy Smith challenged his plan’s decision to terminate his long-term disability benefits which he had been receiving for over seven years. Up until the point of termination, Mr. Smith was receiving benefits due to his lumbar radiculopathy and lumbar post-laminectomy syndrome. The medical record demonstrates that Mr. Smith underwent two surgeries to treat his conditions, and that he was under the care of several treating physicians who opined that his pain left him unable to work. The parties each moved for summary judgment under abuse of discretion review. The court found that substantial evidence within the administrative record supported defendant’s position that Mr. Smith was not totally disabled. The court also held that defendant’s process was reasonable and allowed Mr. Smith to receive a full and fair review. This was especially true, the court held, because the plan outlined the reasons why it disagreed with Mr. Smith’s treating physicians and the Social Security Administration, which had awarded Mr. Smith disability benefits. Accordingly, the court concluded the decision to terminate was not an abuse of discretion and granted summary judgment in favor of the plan.
Eberle v. Am. Elec. Power Sys. Long-Term Disability Plan, No. 21-4224, __ F. App’x __, 2022 WL 5434559 (6th Cir. Oct. 7, 2022) (Before Circuit Judges Batchelder, Griffin, and Kethledge). Plaintiff-appellant Diane Eberle appealed the district court’s decision upholding American Electric Power System Long-Term Disability Plan’s decision terminating her long-term disability benefits. Ms. Eberle, who was receiving medical treatments for lower back and leg ailments, received disability benefits under her plan’s “own occupation” period of disability. However, once Ms. Eberle reached the time when the plan switched its definition of disability from a participant’s “own occupation” to “any occupation,” her benefits were terminated because a vocational specialist determined that there were occupations Ms. Eberle could perform based on her medical records. Under arbitrary and capricious review, the district court granted summary judgment in the plan’s favor, finding the decision reasonable and supported by substantial evidence within the record. On appeal the Sixth Circuit agreed and upheld the lower court’s holdings. The court of appeals disagreed with Ms. Eberle that Prudential and its reviewers had cherry-picked evidence within the record to suit its desired outcome. To the contrary, the court held that the denial should be upheld as it was a reasonable interpretation of the evidence and the “result of a deliberate principled reasoning process.” Finally, the court stated that the reviewers had not engaged in credibility determinations but had instead focused their conclusions on the objective medical evidence including x-ray and MRI imaging which cut against Ms. Eberle’s subjective pain complaints. Thus, finding no clear error in the district court’s findings, the Sixth Circuit affirmed.
Gielissen v. Reliance Standard Life Ins. Co., No. 21-1377, __ F. App’x __, 2022 WL 5303482 (10th Cir. Oct. 7, 2022) (Before Circuit Judges Tymkovich, Baldock, and Carson). Plaintiff-appellant Dana Gielissen began receiving disability benefits after complications from a cochlear implant surgery left her with significant balance problems leaving her unable to perform her job as a physical therapist assistant. Reliance Standard Life Insurance Company approved the benefits and continued paying them even after the policy entered into the “any occupation” benefit period. The benefits were only terminated after Reliance engaged in surveillance and captured video of Ms. Gielissen walking her dog. In the district court, Reliance’s decision to terminate the benefits was upheld under de novo review. The court concluded that the medical record supported the decision to end benefits and summary judgement was accordingly granted to Reliance. Ms. Gielissen appealed. The Tenth Circuit found the relevance of the surveillance video “of that evidence to her disability status (to be) beyond question.” Accordingly, the appeals court concluded that Reliance properly relied on the surveillance to determine that Ms. Gielissen was no longer physically disabled or restricted from performing any occupation, and thus affirmed.
Orlandi v. Osborne, No. 3:20-cv-2237, 2022 WL 4599252 (N.D. Ohio Sep. 30, 2022) (Judge Jeffrey J. Helmick). Plaintiff Stacey Orlandi is a participant of the Andeavor Executive Severance and Change in Control Plan. Following a corporate merger that occurred in 2018, Ms. Orlandi was informed that her current position as Executive Officer would continue for a one-year evaluation period. Ms. Orlandi was told that at the conclusion of the evaluation period “if you are offered a new role within the organization or offered to continue in your current role, you will be requested at that time… to waive your rights to payments or benefits under the Andeavor Executive Severance and Change in Control Plan.” Then, a few days later, Andeavor issued an official statement that Ms. Orlandi was “an employee selected for termination, but will remain employed for a period following October 1, 2018, to assist transition and other efforts.” Frustrated with these developments, Ms. Orlandi requested to exercise the Severance Plan’s “Good Reason” voluntary termination provision, which allows participants who experience “a significant diminution of (his or her) positions, duties, responsibilities and status with the Company from those immediately prior to a Change in Control,” to receive benefits under the plan. Ms. Orlandi’s claim was denied by the company’s director of compensation and benefits, defendant Johnathan Osborne. After the denial was upheld during the internal appeals process, Ms. Orlandi commenced this suit challenging the denial. In her complaint, Ms. Orlandi argues that Mr. Osborne had an inherent conflict of interest in deciding her claim and appeal, and informed defendants that she would be requesting limited discovery pertaining to this bias. That information prompted defendants to move for a protective order seeking to prevent Ms. Orlandi from conducting discovery. In response, Ms. Orlandi moved to compel discovery. The court agreed with Ms. Orlandi that the circumstances here constituted an inherent conflict of interest under Metropolitan Life v. Glenn. Furthermore, the court concluded the evidence of the company’s desire to deny Ms. Orlandi her benefits and to only allow Ms. Orlandi to continue working on its own conditions necessitated limited discovery “to allow me to meaningfully determine the weight to accord the conflict of interest in the course of my ultimate review of Osborne’s decision.” Thus, defendants’ motion was denied, and Ms. Orlandi’s motion to compel was granted.
LD v. United Behavioral Health, No. 20-cv-02254-YGR (JCS), 2022 WL 4878726 (N.D. Cal. Oct. 3, 2022) (Magistrate Judge Joseph C. Spero). In this discovery dispute plaintiffs requested that the court weigh in on the adequacy and untimeliness of defendant MultiPlan’s privilege log. Plaintiffs argued that MultiPlan waived privilege and work product protections due to MultiPlan’s failure to timely produce its privilege log. Although the court agreed that MultiPlan failed to offer “a particularly convincing explanation for its delay in producing a privilege log, a finding of waiver would be too drastic a sanction under the circumstances.” Thus, the court turned to addressing the adequacy of the privilege log itself. Plaintiffs identified several issues with the privilege log: (1) the assertions of privilege were vague and generic, (2) the log failed to list which correspondents were attorneys on some of the communications where attorney-client privilege was asserted, (3) documents were likely primarily for business rather than legal purposes, (4) MutliPlan improperly used the possibility of litigation as a defense against producing documents, (5) documents that were being withheld concerned plan administration and therefore fell within the fiduciary exception to attorney-client privilege, and (6) MultiPlan may have already waived privilege regarding some of the documents involved in a government investigation. The court agreed with plaintiffs and concluded MultiPlan did not meet its burden to assert privilege and likely improperly withheld documents. “Given the problems identified above as to both MultiPlan’s privilege log and the reasons offered in its Opposition papers for withholding documents listed on its log,” the court ordered an in-camera review of a sampling of the withheld documents.
H.R. v. United Healthcare Ins. Co., No. 2:21-cv-00386-RJS-DBP, 2022 WL 5246662 (D. Utah Oct. 6, 2022) (Judge Robert J. Shelby). This action pertains to United Healthcare Insurance Company’s denials of plaintiff D.R.’s inpatient medical treatment claims. Before the court was plaintiffs’ motion to complete the pre-litigation appeal record by including a copy of a letter plaintiffs mailed United requesting plan documents sent on May 26, 2020. In their motion plaintiffs argued that including a copy of this letter was necessary for the court to resolve their statutory penalties claim. The court agreed, granting the motion. “Without proof of the Letter, Plaintiffs cannot maintain their statutory penalties claim; thus, the extra-record evidence is necessary.” Defendants’ challenges to the authenticity and weight of the letter, the court held, could be raised during the briefing of the merits of the statutory penalty claim. Thus, the court found plaintiffs met their burden for supplementing the record and the court officially included the draft of the letter in the administrative record.
Life Insurance & AD&D Benefit Claims
Colonial Life & Accident Ins. Co. v. Bryant, No. 1:21-cv-00332-MR, 2022 WL 5027526 (W.D.N.C. Oct. 4, 2022) (Judge Martin Reidinger). In this interpleader action, plaintiff Colonial Life & Accident Insurance Company sought the court’s assistance in determining the proper beneficiary of life insurance benefits belonging to decedent Peggy A. Bryant. Previously in the litigation Colonial Life had deposited the $75,000 proceeds with the court. It had also complied with the requirements of Federal Rule of Civil Procedure 4 by serving the potential beneficiaries, i.e., Ms. Bryant’s family members, including her ex-husband, children, and siblings, with summons and a copy of the complaint. However, none of the defendants have appeared in this action to date. Accordingly, Colonial Life requested the court dismiss it with prejudice, discharge it with further liability regarding Ms. Bryant’s proceeds, enjoin defendants from initiating further proceedings or actions against in connection with the proceeds, and enter final default judgment. The court granted the motions, agreeing that Colonial Life acted appropriately in its interpleader action and finding Colonial Life’s requests appropriate considering defendants’ absences.
Colmer v. Admin. Concepts, No. 20-12263, 2022 WL 4647274 (E.D. Mich. Sep. 30, 2022) (Judge Denise Page Hood). In 2019, pilot Philip Colmer died while flying a private aircraft that had just undergone annual maintenance. Following Mr. Colmer’s death, his widow, plaintiff Rebecca Colmer, sought benefits on an insurance policy issued by Defendant ACE American Insurance Company. Ms. Colmer’s claim was denied under the policy’s “test flight” exclusion. Defendants’ denial was upheld during the internal appeals process. Ms. Colmer subsequently commenced this action. Defendants moved for judgment on the administrative record. Ms. Colmer moved to overturn the benefit denial. The parties disputed the appropriate standard of review. Although the court ultimately agreed with defendants that a discretionary clause within the policy warranted abuse of discretion review, the court ultimately said the review standard was immaterial as it would come to the same conclusion under de novo or arbitrary and capricious review. That decision: defendants’ interpretation of “test flying” was reasonable and Mr. Colmer’s flight constituted a test flight under the “plain meaning construction of the exclusion,” the purpose of which was to exclude coverage for risky flights. Even Ms. Colmer’s smoking gun – internal emails among defendants that showed they were unsure whether the flight fell within the test flight exclusion – was found by the court to “lack significance.” Accordingly, the court granted defendants’ motion and denied plaintiff’s motion.
Gerth v. Metropolitan Life Ins. Co., No. 20-13295, 2022 WL 4667965 (E.D. Mich. Sep. 30, 2022) (Judge Denise Page Hood). Plaintiff Jessica Gerth brought suit after her claim for benefits under her father’s life insurance policy was denied by defendant Metropolitan Life Insurance Company (“MetLife.”) MetLife denied Ms. Gerth’s claim because the latest beneficiary designation that decedent Mr. Gerth had completed named his sister, plaintiff’s aunt, Tonia Lee, as his beneficiary. Accordingly, MetLife paid benefits to Ms. Lee. The parties each moved for judgment under abuse of discretion review. The court granted judgment in favor of MetLife, concluding that its reliance on Mr. Gerth’s electronic beneficiary designation was reasonable and rational, especially in light of the fact that Ms. Gerth’s rival claim to benefits came after MetLife had already paid benefits to Ms. Lee. Thus, without evidence that MetLife modified the beneficiary designation, its reliance on the designation was not an abuse of discretion.
Medical Benefit Claims
Gallardo v. IEH Corp., No. 21-cv-3257 (LDH), 2022 WL 4646514 (E.D.N.Y. Oct. 1, 2022) (Judge LaShann DeArcy Hall). At the height of the COVID-19 pandemic in December 2020, single mother Carina Gallardo took leave under the Families First Coronavirus Response Act (“FFCRA”) to care for her child whose school was closed due to the pandemic. However, while she was on FFCRA leave, her employer, defendant IEH Corporation, sent her a letter stating that her position was eliminated. In response to this termination, Ms. Gallardo commenced this action against IEH for violating FFCRA, for discriminating and retaliating against her for being a single mother under the New York State Human Rights Law, and for violating her COBRA rights under ERISA by failing to inform her of her right to continued health benefits. IEH moved to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). The motion was granted in part. The court denied the motion regarding the FFCRA claim, holding Ms. Gallardo plausibly alleged that she was fired while exercising her protected rights during her FFCRA leave. With regard to the discrimination and retaliation claims premised on Ms. Gallardo’s protected status as a single mother, the court stated that the complaint failed to sufficiently tie the termination to her protected class in a way that could allow the court to infer cause and effect. Finally, Ms. Gallardo’s COBRA claim was dismissed for lack of Article III standing. Ms. Gallardo, the court held, failed to plead an injury in fact for the alleged statutory violation of the notice requirement, and thus could not state a claim.
Elder v. Quartz Health Sols., No. 21-cv-671-wmc, 2022 WL 5241857 (W.D. Wis. Oct. 6, 2022) (Judge William M. Conley). In the late summer and early fall of 2019, plaintiff Brian Elder was receiving care for a heart attack. In August he underwent surgery. Mr. Elder then developed an infection from the surgery. He remained at the hospital while he was treated with IV antibiotics and received vacuum-assisted closure of his wound. On September 9, Mr. Elder was discharged from the hospital to a skilled nursing facility, Hillview Healthcare Center. Three days later, Mr. Elder was readmitted to the hospital due to fluid buildup in his abdomen. He stayed at the hospital for a couple more weeks. On September 24, the hospital once again decided Mr. Elder was stable enough to be discharged to a skilled nursing center. Mr. Elder agreed to be discharged but stated that he did not want to return to Hillview Healthcare Center. Why Mr. Elder took this position is somewhat unclear, but it seems from the medical records that Mr. Elder was experiencing cognitive problems at this time. By September 26, the neuropsychologist treating Mr. Elder saw significant improvements in his cognitive functioning, and Mr. Elder no longer stated that he would not go to Hillview for care. Unfortunately, by this time no nursing center, including Hillview, had a bed for Mr. Elder. Accordingly, Mr. Elder stayed at the hospital until October 3, 2019, when a bed opened up at a nursing facility and he was finally discharged. The crux of this lawsuit then, was whether it was appropriate for Quartz Health Solutions to refuse to pay for Mr. Elder’s hospital coverage from September 24 to October 3 as not being medically necessary. The parties filed cross-motions for summary judgment. The court applied arbitrary and capricious review, and although it was sympathetic to Mr. Elder, it upheld the denial. The court found Quartz’s position that hospitalization was unnecessary after September 24 to be supported by the records. Unfortunately for Mr. Elder, under deferential review the court felt it could not overturn the decision absent fraud or bad faith on defendant’s part, even though the circumstances surrounding Mr. Elder’s refusal of care were due either to a mistake or temporary cognitive incompetence. Finally, the court denied Mr. Elder’s request that it order Quartz to pay a portion of his hospital stay bill equivalent to what it would have paid for a skilled nursing facility during the relevant time. Such a request, the court stated, did not have a footing in the law. Thus, the court granted Quartz’s motion for summary judgment, and denied Mr. Elder’s cross-summary judgment motion.
Pension Benefit Claims
Salvucci v. The Glenmede Corp., No. 22-1891, 2022 WL 4648561 (E.D. Pa. Sep. 30, 2022) (Judge Eduardo C. Robreno). Plaintiff Louis Salvucci, on behalf of himself and as executor of his cousin Carla Marie Salvucci’s estate, brought this action against Glenmede Corporation, its committee, and its board of directors under ERISA Sections 502(a)(1)(B), (a)(2), (a)(3), and 510 in connection with pension benefits he believes he is entitled to under Glenmede’s defined benefit pension plan. Mr. Salvucci alleged in his complaint that defendants violated ERISA by not providing Ms. Salvucci with a Notice of Benefit Election Rights prior to her death, which deprived her of the opportunity to designate a beneficiary of her pension benefits. Because Ms. Salvucci died without naming a beneficiary to her pension benefits, and because she was unmarried, plaintiff’s claim for benefits was denied by defendants, prompting this suit. Defendants moved to dismiss. To begin, defendants challenged Mr. Salvucci’s Section 502(a)(1)(B) claim. They argued that because Mr. Salvucci was neither participant nor beneficiary of the plan, he cannot sue for benefits under Section 502(a)(1)(B). The court agreed and dismissed the claim. Next, the court dismissed the Section 502(a)(2) claim because Mr. Salvucci sought only individual relief rather than a benefit to the plan as a whole. As for Mr. Salvucci’s Section 502(a)(3) equitable relief claim, the court concluded that Mr. Salvucci is seeking reimbursement and compensatory damages which falls outside the meaning of equitable restitution recoverable under this section. Finally, the court dismissed the Section 510 claim for failure to allege an adverse action affecting Ms. Salvucci’s employment relationship with Glenmede, which is the scope recognized for Section 510 claims in the Third Circuit. For these reasons, the motion to dismiss was granted. Dismissal on all claims was without prejudice.
Anastos v. IKEA Prop., No. 1:19-cv-3702-SDG, 2022 WL 4715637 (N.D. Ga. Sep. 30, 2022) (Judge Steven D. Grimberg). In 2017, IKEA underwent a major reorganization. In preparation, IKEA amended its Retiree Recognition Policy to remove “retirement as a port-eligible event” for its ERISA-governed life insurance plans. Up until this point, IKEA had offered post-retirement portability of some of its life insurance plans. Despite this significant change, “the IKEA Retiree FAQ was not updated to reflect change regarding portability and (the) Voluntary Retiree Life (program) for retirees.” Unaware of these changes, plaintiff James Anastos was offered the choice of relocating or accepting a voluntary retirement offer agreeing to leave the company in exchange for severance. Mr. Anastos, who had worked for IKEA for 25 years, opted to select the latter option, agreeing to separate from the company. A large part of Mr. Anastos’s decision to agree to retire had to do with his understanding of the continuation of his life insurance plans. Accordingly, Mr. Anastos read the Policy which provided that “retirees will receive information from the life insurance vendor regarding their option to continue their basic and/or supplemental life coverage for themselves and any eligible dependents.” When Mr. Anastos made the decision not to relocate, he was under the firm belief that the word “continue” meant that he could port his plan insurance. Meetings with IKEA’s HR manager confirmed this understanding. Nevertheless, once Mr. Anastos effectuated his retirement, the option to port the life insurance plans was unavailable. Accordingly, Mr. Anastos commenced this ERISA claim for benefits action. IKEA moved for summary judgment. It argued that the Retiree Recognition Policy is not a plan under ERISA. Mr. Anastos argued the Policy is an ERISA plan as a “reasonable person could ascertain the intended benefits, a class of beneficiaries, the source of financing, and procedures for receiving benefits.” Examining the Policy under the Donovan v. Dillingham factors, the court decided the Policy was not governed by ERISA. The court pointed to the fact that neither the Policy nor its FAQ provided information about a source of financing or a procedure to apply for and collect benefits as evidence the Policy is not a plan. Additionally, the court held there was no evidence the Policy was established or maintained as an ERISA plan. For these reasons, the court concluded that the Donovan prerequisites were unmet, and that Mr. Anastos’s claim failed as a matter of law. Thus, IKEA’s summary judgment motion was granted.
Pleading Issues & Procedure
Guenther v. BP Ret. Accumulation Plan, No. 21-20617, __ F. 4th __, 2022 WL 5350106 (5th Cir. Oct. 7, 2022) (Before Circuit Judges King, Duncan, and Engelhardt). In the 1980s British Petroleum acquired Standard Oil of Ohio. After this acquisition, the legacy Standard Oil of Ohio employees became BP employees, and their old defined-benefit plan was soon converted into a cash balance plan. This conversion caused a pension shortfall and therefore, according to the class action plaintiffs, was a breach of fiduciary duties and a violation ERISA’s anti-cutback provision. Ultimately, two independent class actions would arise out of these actions. The first, the Guenther case, was brought in 2016, and the second, the Press case, was brought four years later in 2020. Shortly after the Press action was filed it was transferred to the Southern District of Texas under the first-to-file rule. Press was then stayed pending resolution of the class certification motion that was taking place in Guenther. Then, in March 2021, the magistrate judge in the Guenther action issued a recommendation for class certification. The Press plaintiffs moved to intervene in the Guenther action to object to the magistrate judge’s recommendation. The district court disagreed with the Press plaintiffs that they were entitled to intervene as of right and declined to allow them permissive intervention. The district court concluded that the Press plaintiffs’ interests did not meaningfully diverge from the Guenther plaintiffs and thus concluded that the Press plaintiffs would be adequately represented by Guenther classes. The Press plaintiffs appealed. The Fifth Circuit was no friendlier to their arguments than the district court had been, and agreed wholly that the Press plaintiffs’ interests were not considerably distinct from those of the certified class in Guenther. The court of appeals described the differences the Press plaintiffs pointed to between their action and Guenther as “negligible or spurious.” Because the same facts underpin both actions, both groups suffered the same harm, and both groups seek the same objective of make-whole relief, the Fifth Circuit found no distinct interest between the groups at risk of being adversely represented, and thus no right to intervene. Therefore, the Fifth Circuit affirmed.
Haynes v. Kone, Inc. Emp. Retirement Plan, No. 21 C 6647, 2022 WL 5119830 (N.D. Ill. Sep. 29, 2022) (Judge Elaine E. Bucklo). Plaintiff Robert Haynes commenced suit after learning his pension benefits under the Kone, Inc. Employee Retirement Plan were lower than he expected. Mr. Haynes and defendants disagree over the definitions of certain terms within the plan, including “total base salary” and “actually paid,” the meaning of which affect the calculation of benefits. Resolution of these disputes, however, was not the focus of this decision. Instead, the court in this order ruled on two motions filed by defendants – (1) a motion to amend their answer to Mr. Haynes’s amended complaint, and (2) a motion for a protective order relieving them from answering Mr. Haynes’s discovery requests. To begin, the court concluded defendants had demonstrated good cause to grant their request for leave to amend. The court also stated defendants made the required showing that amendment is proper and would not prejudice Mr. Haynes. Thus, the court granted the first of the motions. Next, to analyze the discovery dispute, the court ruled on the appropriate standard of review in the case. Because the plan includes a discretionary clause and the court found defendants substantially complied with ERISA’s requirements, the court concluded that arbitrary and capricious review applies. The court then assessed the merits of Mr. Haynes’s arguments in favor of discovery. First, because defendants submitted an affidavit attesting to the completeness of the administrative record, the court was satisfied the administrative record was complete. The court then determined that the structural conflict of interest that exists in the case was, on its own, insufficient proof of bias warranting discovery. Finally, the court rejected Mr. Haynes’s assertion that defendants have information he needs within their control. Having reached this conclusion, the court granted defendants’ motion for a protective order and the shut the door to discovery for Mr. Haynes.
United Healthcare Servs. Inc. v. Advanced Reimbursement Solutions LLC, No. CV-21-01302-PHX-DLR (CDB), 2022 WL 4783771 (D. Ariz. Sep. 30, 2022) (Judge Douglas L. Rayes). In this lawsuit UnitedHealthcare Insurance Company, on behalf of itself, as the provider of fully insured health plans, and as third-party administrator to ERISA health plans, accuses medical billing company defendant Advanced Reimbursement Solutions LLC, along with individual out-of-network healthcare providers who contracted with Advanced Reimbursement, of healthcare fraud. United alleges defendants engaged in a series of illegal behavior, including submitting inaccurate and up-coded bills designed to receive higher payments. United asserted nine causes of action under both state law and ERISA. Defendants moved to dismiss, and the court denied their motion in this order. The court concluded that United adequately pled all its claims with specificity, including under the heightened pleading standard required for allegations of fraud. The court also found that United did not impermissibly lump all the defendants together as one. As for the ERISA claims brought under Section 502(a)(3), the court stated, “United plausibly alleges that it made payments not required by the terms of its members’ plans.” Additionally, the court declined to require United to trace the specific res from which it seeks restitution at the pleading stage. Finally, the court refused to narrow the scope of United’s claims for declaratory and injunctive relief at the pleading stage. All other arguments in favor of dismissal were rejected.
Johnson v. Reliance Standard Life Ins. Co., No. 1:21-cv-02900-SDG, 2022 WL 4773515 (N.D. Ga. Sep. 29, 2022) (Judge Steven D. Grimberg). Plaintiff Cheriese D. Johnson sued Reliance Standard Life Insurance Company after her claim for long-term disability benefits for her rare auto-immune disorder was denied by the insurer pursuant to her plan’s pre-existing condition exclusion. Ms. Johnson asserted four causes of action; (1) a claim for benefits under Section 502(a)(1)(B); (2) a breach of fiduciary duty claim under Section 502(a)(3); (3) a claim for violation of Section 1133; and (4) a state law breach of contract claim pled in the alternative. Reliance moved to dismiss all but Ms. Johnson’s claim for benefits, and requested the court strike her jury demand. These motions were both granted. To begin, the court dismissed the Section 502(a)(3) claim because Ms. Johnson has an adequate remedy at law under Section 502(a)(1)(B), and therefore cannot pursue a claim for fiduciary breach based on these same set of facts. Next, the court dismissed the Section 1133 claim, holding there is no independent right of action for violation of Section 1133 itself. Lastly, the court dismissed the breach of contract claim as preempted by ERISA and struck Ms. Johnson’s jury demand. Accordingly, Ms. Johnson’s suit will proceed with a single claim for relief under Section 502(a)(1)(B).
Saloojas, Inc. v. Aetna Health of Cal., Inc., No. 22-cv-02887-JSC, 2022 WL 4775877 (N.D. Cal. Sep. 30, 2022) (Judge Jacqueline Scott Corley); Saloojas, Inc. v. CIGNA Healthcare of Cal., No. 22-cv-03270-CRB, 2022 WL 5265141 (N.D. Cal. Oct. 6, 2022) (Judge Charles R. Breyer); Saloojas, Inc. v. Blue Shield of Cal. Life & Health Ins. Co., No. 22-cv-03267-MMC, 2022 WL 4843071 (N.D. Cal. Oct. 3, 2022) (Judge Maxine M. Chesney). Separate proved to be equal in three decisions this week dismissing these individual but nearly identical lawsuits. Plaintiff Saloojas, Inc. filed three separate actions against three insurers, Aetna, CIGNA, and Blue Shield, seeking payment for COVID testing it provided to each company’s insureds. In each lawsuit the claims were the same; (1) violation of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act and the Families First Coronavirus Response Act (“FFCRA”); (2) violation of Section 502(a)(1)(B) of ERISA; (3) violation of the Racketeer Influenced and Corrupt Organizations Act (“RICO”); (4) promissory estoppel; (5) injunctive relief; and (6) violation of California’s Unfair Competition Law. Aetna, CIGNA, and Blue Shield each filed motions to dismiss their respective lawsuits. Despite each lawsuit beginning in front of a different federal judge – Judges Corley, Breyer, and Chesney – the dismissals were indistinguishable from one another. Thus, the orders can be summarized as one. To begin, the courts dismissed the FFCRA and CARES Act claims, concluding that neither statute creates a private right of action for providers. Next, Saloojas’s ERISA claims were dismissed for lack of standing. The courts agreed that Saloojas failed to include language of any specific assignment of benefits or name the specific ERISA-governed plans. As for the RICO and state Unfair Competition Law claims, the courts agreed with the insurers that plaintiff did not meet the heightened pleading requirements under Federal Rule of Civil Procedure 9 for allegations of fraud. The claims for “injunctive relief” were dismissed because injunctive relief is a remedy rather than an independent cause of action. Finally, the courts held that plaintiff’s promissory estoppel claims failed to allege an unambiguous promise made by the insurers.
Univ. of N.C. Health Care Sys. v. ITPEU Health & Welfare Plan, No. 4:20-cv-246, 2022 WL 4668079 (S.D. Ga. Sep. 29, 2022) (Judge R. Stan Baker). In May 2017, health plan beneficiary Ronnie Taylor was severely injured in a car crash. Mr. Taylor, who sustained burns covering 60-90% of his body, was rushed to a University of North Carolina (“UNC”) Health Care System hospital where he received numerous medical treatments, including amputations of his toe and portions of both arms. Mr. Taylor’s health plan, the ITPEU Health and Welfare Fund, originally covered the $3,656,863.74 in emergency medical benefits the hospital provided to Mr. Taylor. However, shortly after issuing these payments, the Fund “directed its third-party claims administrator to halt payments, recoup prior payments, and deny future claims for Mr. Taylor’s treatment costs” based on the summary plan description’s crime exclusion. The Fund argued that Mr. Taylor, who was the at-fault party of a multi-car collision, sustained his injuries while he was fleeing the scene of the collisions, presumably because he was under the influence of alcohol. Thus, the Fund concluded that Mr. Taylor committed a hit-and-run while driving impaired and UNC Health’s medical bills therefore fell within the crime exclusion. After the Fund recouped over $3.6 million in payments, the provider initiated this action to recover benefits. Under the Eleventh Circuit’s atypical method of reviewing ERISA benefit decisions, the court upheld the decision, concluding it was not de novo wrong. The court agreed with defendants that Mr. Taylor sustained his injuries while committing a crime and that per the of terms the plan the medical benefits therefore were excluded from coverage. Accordingly, defendants’ motions for summary judgment were granted in part and denied as moot in part, UNC Health’s summary judgment motion was denied, and the court denied UNC Health’s motion for attorneys’ fees, finding it had not obtained success on the merits.
Withdrawal Liability & Unpaid Contributions
Northeast Carpenters Funds v. K&K Contractors LLC, No. 21-12253 (MAS) (LHG), 2022 WL 4626979 (D.N.J. Sep. 30, 2022) (Judge Michael A. Shipp). Twice – once in 2016 and once in 2021 – plaintiffs the Northeast Carpenters Funds (the “Fund”) and the Eastern Atlantic States Regional Council of Carpenters (the “Union”) were awarded arbitration awards against non-parties Richie Jordan Construction, Inc. and CJ Contractors NJ, Inc., for hundreds of thousands of dollars in unpaid contributions. To date, the Fund and Union have not received these amounts. According to their complaint, the employers have avoided paying by manipulating their assets and maneuvering money to their corporate alter-egos, defendants K&K Contractors LLC and Richard J. Jordan. Plaintiffs allege these four entities “are all one in the same,” and therefore plaintiffs brought this action to enforce the arbitration judgment by piercing the corporate veil. Defendants moved to partially dismiss. Before the court would even address defendants’ motion, however, it addressed its own concern with the complaint, namely whether it has jurisdiction over this action. The court felt uncertain whether this is a state-law enforcement action, or whether it is an ERISA violation action. To provide clarity, the court analyzed whether the complaint sufficiently alleged alter-ego liability. In the end, the court highlighted plaintiffs’ use of the phrase “upon information and belief” as illustrative of the complaint’s failure to adequately assert that defendants were in fact alter egos of Richie Jordan Construction or CJ Contractors, “much less that Defendants dominated those companies.” Accordingly, the court dismissed the complaint for lack of jurisdiction, but did so without prejudice, allowing plaintiffs the opportunity to amend their complaint to correct the jurisdictional deficiency.