Source: https://www.insurancelawhawaii.com/insurance_law_hawaii/erisa/
Timestamp: 2019-04-22 06:44:05+00:00

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What steps should a reviewing court take when the administrator of an employee benefits plan governed by ERISA denies benefits, but has a conflict of interest? In Montour v. Hartford Life & Accident Ins. Co., No. 08-55803, 2009 U.S. App. LEXIS 20378 (9th Cir. Sept. 14, 2009)(authored by Hawai`i's Judge Clifton), the Ninth Circuit held that a reviewing court must take into account the conflict and utilize a more complex application of the abuse of discretion standard.
Montour was an employee of Conexant Systems, Inc. for thirty-seven years. He participated in his employer's group long-term disability insurance plan, which was governed by ERISA. Hartford was both the insurer and administrator of the Plan. The Plan granted Hartford, as the administrator, discretionary authority to interpret Plan terms and to determine eligibility for benefits.
Hartford initially accepted Montour's application and began paying benefits in January 2004. In August 2006, Hartford informed Montour that his benefits were being terminated because he no longer met the policy's definition of disability. After an unsuccessful internal review, Montour filed suit. The district court ordered judgment in favor of Hartford. Although the district court concluded Hartford had a conflict of interest in its position as both the administrator and payor of benefits, the insurer did not abuse its discretion in determining that Montour failed to prove disability under the policy.
On appeal, the Ninth Circuit first noted that when the plan gave the administrator discretionary authority, review of the administrator's decision was for abuse of discretion. Where, however, a conflict of interest existed because the same entity that funded the ERISA benefits plan also evaluated the claims, the abuse of discretion standard required a more complex analysis. In such a case, the court had to consider numerous case-specific factors, including the administrator's conflict of interest, and decide whether discretion had been abused by weighing and balancing the factors together.
Here, Hartford's bias in trying to terminate benefits for Montour infiltrated the entire administrative decision-making process. For example, although Hartford's decision was contrary to the Social Security Administration's determination of Montour's disability, Hartford failed to explain why it reached a different conclusion.
The Ninth Circuit concluded that Hartford's conflict of interest improperly motivated its decision to terminate Montour's benefits and was an abuse of its administrative discretion. The case was remanded with instructions for the district court to order reinstatement of long-term disability benefits.
Whether payment claims were preempted by ERISA was the issue in Lone Star OB/GYN Associates v. Aetna Health Inc., No. 08-50646, 2009 U.S. App. LEXIS 18572 (5th Cir. Aug. 18, 2009).
Aetna was the administrator of "employee welfare benefit plans" regulated by ERISA. Lone Star entered a provider agreement with Aetna and became a participating provider for individuals enrolled in Aetna-administered insurance plans. Lone Star alleged Aetna failed to pay the proper amount for services provided to Lone Star patients.
Lone Star sued Aetna in state court, alleging Aetna had not paid Lone Star's claims at the rates set out in the provider agreement. Aetna removed the case to federal court, arguing that Lone Star's state law claims were preempted by ERISA. ERISA allows a participant to bring a civil action "to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan." 29 U.S.C. 1132 (a)(1)(B). If a party's state law claims fall under this definition, they are preempted by ERISA.
Lone Star sought to amend its complaint to remove payment claims for which Aetna submitted no payment because coverage was denied. Instead, Lone Star only pursued payment claims that Aetna had partially paid. The district court granted Lone Star's motion for leave to amend and remanded the amended claims.
Aetna appealed the remand. The Fifth Circuit noted that after amending its complaint, Lone Star's claims were separate from coverage and instead arose out of the independent legal duty contained in the contract. The appellate court adopted the reasoning of the Ninth Circuit and other courts which relied on a distinction between "rate of payment" and "right of payment" in deciding whether ERISA preempted a claim brought in state court. In Blue Cross v. Anethesia Care Associates. Med Group, Inc., 187 F.3d 1045 (9th Cir. 1999), the Ninth Circuit found the cause of action arose out of the provider agreement, not ERISA. Where a medical service was determined to be covered and the only issue was the proper contractual rate of payment, coverage and benefit determinations were not implicated and ERISA was not applicable.
Nevertheless, the case was remanded because the Fifth Circuit could not determine whether the disputed payment claims were partially paid because Aetna denied the services for lack of coverage under the plan or because Aetna misinterpreted the provider agreement. It was possible an individual claim could include multiple procedures, only some of which were covered. Accordingly, partial payment could result from a denial of benefits under the plan, preempting the claim.
Investment requirements for all insurance companies are addressed in the Article VI of the Hawaii Insurance Code, Haw. Rev. Stat. §431:6-101-6-602. Generally, any security or other investment purchased by an insurer must be interest bearing, a dividend or income paying; not in default; and purchased at or below its fair value. Haw. Rev. Stat. §431:6-104. Other than investments in general obligations of the United States or any State government, an insurer shall not hold any combination of investments or loans upon the security of obligations, property, and securities of any one entity aggregating an amount exceeding ten percent of the insurer’s assets. Haw. Rev. Stat. §431:6-105.
An incorporated insurer must invest its funds aggregating in amounts not less than sixty percent of its minimum required capital in cash or public obligations and in mortgage loans on real property. Haw. Rev. Stat. §431:6-201(a). Further, an insurer shall invest its funds aggregating not less than one hundred percent of its reserves required by the Insurance Code in cash or premiums in course of collection, or in investments eligible in accordance with Article VI. Haw. Rev. Stat. §431:6-201(b).
Permitted investments by the insurer are addressed in Haw. Rev. Stat. §§431:6-301 - 6:324. These include such items as public and corporate obligations, preferred or guaranteed stocks, common stocks, evidences of debt secured by mortgages or deeds of trust guaranteed or insured by the United States, security agreements, real property, savings accounts, and certificates of deposit, etc.
The insurer can also invest in "investment pools" with other insurers. Haw. Rev. Stat. §431:6-601. The statute sets forth the types of investments permitted by an investment pool. Haw. Rev. Stat. §431:6-601(b).
Prohibited investments include a company's own stock, securities issued by an insolvent corporation, or any investment which is determined by the commissioner to be designed to evade any prohibitions of Article VI. Haw. Rev. Stat. §431:6-401.
Finally, any investment must be approved by the insurance company's board of directors. Haw. Rev. Stat. §431:6-404.
Insurers file an annual report with the Insurance Commissioner that gives detailed information on investments. These reports are available to the public.
ERISA provides further regulation of the investment of funds held by a health insurer.
for the exclusive purpose of providing benefits to participants and beneficiaries, and defraying the reasonable expenses of administering the plan. 29 U.S.C. §1104(a)(1)(A).
with the care, skill, prudence, and diligence that a prudent person acting in like capacity and familiar with such matters would use. 29 U.S.C. §1104(1)(1)(B).
by diversifying the investments of the plan to minimize the risk of large losses, unless, under the particular circumstance, it is not prudent to diversify. 29 U.S.C. §1104(a)(1)(C).
in accordance with the documents and instruments governing the plan to the extent those documents and instruments are consistent with the provisions of ERISA. 29 U.S.C. §1104(a)(1)(D).
ERISA does not establish any specific limitations on the amount or percentage of plan assets that may be invested in securities. However, the basic fiduciary standards impose restrictions on the amount of plan assets that may be invested in securities by establishing diversification requirements. 29 U.S.C. §1104(a)(1)(C).
ERISA prohibits some transactions, including transactions between a plan and a party in interest with respect to the plan. 29 U.S.C. §1106(a)(1). Further, a fiduciary may not deal with the assets of the plan in his or her own interest or for his or her own account. 29 U.S.C. §1106(b).
Must an ERISA plan reimburse its beneficiaries for the cost of photocopying medical records? Faced with this issue, the Ninth Circuit decided against the beneficiary in Sgro v. Danone Waters of N. Am., Inc., No. 06-55916 (9th Cir. July 2, 2008). The result would presumably be controlling in an ERISA case originating in Hawaii.
Sgro applied for disability benefits from MetLife, the company that made benefit determinations under the employer's ERISA plan. After a dispute on who should pay for copying medical records, Sgro eventually paid $412 for copies submitted to MetLife. Sgro's claim for benefits was then denied.
On appeal, Sgro argued a California insurance regulation required MetLife to reimburse him for the cost of copying the medical records it requested. The Ninth Circuit disagreed because the plan was governed by ERISA, which preempted the California regulation.
Sgro also claimed MetLife violated ERISA's regulation on "claims procedures," 20 C.F.R. 2560.503-1. The regulation prevented an insurer from unduly inhibiting beneficiaries from claiming benefits, including requiring payment of a fee as a condition to making a claim. The Ninth Circuit rejected this argument as well. The copying expenses here were not a "condition" of making his claim. The plan merely required Sgro to provide documentation, which was not the same as conditioning his application on a payment. Nothing in the regulation prohibited MetLife from requiring Sgro to provide, at his own expense, the documents needed to prove his disability.

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