Source: https://www.lifeanddisabilitylaw.com/erisa-watch-june-19-2014/
Timestamp: 2019-04-21 22:25:25+00:00

Document:
In Hipple v. Matrix Absence Mgmt., Inc., 13-CV-11059, 2014 WL 2647299 (E.D. Mich. June 13, 2014), Matrix based the denial of Hipple’s claim solely on one ground: because he worked until June 6, 2012-the date on which he was terminated-he was not “disabled” under the terms of the Program while he was a Participant and, therefore, he was not entitled to benefits. In denying Hipple’s claim, Matrix did not evaluate the medical evidence to determine whether, as Hipple claimed, Hipple was in fact disabled before his termination-i.e., while was still a Participant in the Program. Rather, Matrix simply assumed that because Hipple continued to show up to work until his termination on June 6, 2012, he was not disabled before that date. The court found that this assumption is contrary to Sixth Circuit precedent that an employee can be present at work and receiving a paycheck for his labor and, at the same time, be “disabled” under the terms of the employer’s benefit plan. Although the court found that Matrix erred, it declined to award benefits and instead ordered Matrix to complete its review of the claim on an expedited basis since Hipple has waited far too long for an appropriate review of his claim.
In Oldoerp v. Wells Fargo & Co. Long Term Disability Plan, 3:08-CV-05278 RS, 2014 WL 2621202 (N.D. Cal. June 12, 2014) (Plaintiff’s attorneys: John Breslo and Russell Petti), the court ordered Defendants to pay the plaintiff $406,185 in attorneys’ fees and $8,213.70 in taxable costs and out-of-pocket expenses, totaling an award of $414,398.70. MetLife, one of the defendants, did not dispute that Oldoerp achieved success on the merits but it argued that since defendants prevailed at the first bench trial, only for the Ninth Circuit to reverse upon a clarification of the proper standard of review-the court should decline to award fees. In deciding whether to award fees in an ERISA action, a district court should consider, among other things, the five “Hummel factors”: (1) the degree of the opposing parties’ culpability or bad faith; (2) the ability of the opposing parties to satisfy an award of fees; (3) whether an award of fees against the opposing parties would deter others from acting under similar circumstances; (4) whether the parties requesting fees sought to benefit all participants and beneficiaries of an ERISA plan or to resolve a significant legal question regarding ERISA; and (5) the relative merits of the parties’ positions. The court determined that a review of the Hummelfactors reveals that while some tip in MetLife’s favor, no “special circumstances” would render a fee award to Oldoerp unjust. The first factor-the degree of culpability or bad faith-favors MetLife. Although defendants erred in denying Oldoerp’s claim, there is no evidence that their actions were taken in bad faith and, as evidenced by the initial findings of fact and conclusions of law issued in 2011, defendants’ conduct was defensible under an “abuse of discretion” standard. The second factor weighs in Oldoerp’s favor, as MetLife does not contest it can satisfy a fee award. The third factor, which focuses on the potential deterrent effect of a fee award, also tips in plaintiff’s favor. A fee award could help ensure that, going forward, MetLife exercises more care in processing claims-especially claims pertaining to chronic fatigue, depression, and other conditions that may require the administrator to evaluate a claimant’s self-reported symptoms. The fourth factor-whether the parties requesting fees sought to benefit all participants and beneficiaries of an ERISA plan or to resolve a significant legal question regarding ERISA-implicates two considerations. First, Oldoerp brought this claim for herself and not for any other beneficiaries. This weighs slightly against a fee award. Second, however, Oldoerp’s case ultimately helped clarify a significant legal question: Is an “abuse of discretion” standard appropriate where an ERISA Summary Plan Document vests discretion in the plan’s administrator? The court found the fourth factor to be neutral. The fifth factor-the relative merits of the parties’ positions-redounds in Oldoerp’s favor. Plaintiff won every major disputed legal issue in this case: the appropriate standard of review (de novo), whether extrinsic evidence was admissible (yes), and whether MetLife erred in denying her claim (yes).
Denial of Life Insurance Benefits Upheld. In Green v. Life Ins. Co. of N. Am., 13-60049, 2014 WL 2609863 (5th Cir. June 11, 2014), the 5th Circuit Court of Appeals upheld Life Insurance of North America’s (“LINA”) denial of benefits to plaintiffs, beneficiaries of two Accidental Death and Dismemberment (“AD&D”) policies the plan participant-decedent held with LINA through his employer, Northrop Grumman Corporation. The covered plan participant died from head injuries sustained while operating a boat intoxicated. The policies defined a “Covered Accident” as a sudden, unforeseeable, external event that results, directly and independently of all other causes, in a Covered Injury or Covered Loss. The Covered Accident must also not be excluded under the terms of the policies. The policies excluded any injury due to operating any type of vehicle while under the influence of alcohol or any drug. Reviewing LINA’s decision de novo, the court found the accident excluded under the policies, rejecting the plaintiffs’ argument that the term “vehicle” did not encompass a boat. The court determined that the usage of the word “vehicle” in the policies unambiguously reinforces a generally accepted meaning of “vehicle” as including a boat and that Mississippi and federal law’s definitions of “vehicle” and “motor vehicle” failed to create an ambiguity concerning the term “vehicle.” Because there is no ambiguity and the plain meaning of “vehicle” includes a boat, the court found that the death fell within the policies’ explicit exclusion for accidents involving the operation of a vehicle while intoxicated.
State Bans on Discretionary Clauses. Several states have adopted bans on insurance policy provisions which reserve to the administrator the sole discretion to determine eligibility for benefits. These “discretionary clauses” change the judicial standard of review from de novo to arbitrary and capricious (or abuse of discretion review). In Rose v. Hartford Life & Accident Ins. Co., No. 11-CV-02905-WJM-CBS, 2014 WL 2609628 (D. Colo. June 11, 2014), the district court declined to decide whether Colorado Revised Statutes §§ 10-3-1116(2) and (3) (“§ 1116”), which prohibit employee benefit plans from reserving discretion to themselves, applies retroactively to the disability plan in this case. The court noted that whether § 1116 has been preempted by ERISA appears to be an open question in the 10thCircuit Court of Appeals. Instead of ruling on the applicability of Colorado’s statute, the court decided to review the plaintiff’s claim de novo and affirmed Hartford’s denial of benefits based on the plan’s pre-existing condition exclusion.
ERISA Remedies. In Weaver Bros. Ins. Associates, Inc. v. Braunstein, CIV.A. 11-5407, 2014 WL 2599929 (E.D. Pa. June 10, 2014), the court ordered Weaver Brothers Insurance Associates, Inc. to pay the defendants an equitable “surcharge” remedy of $120,000, equaling the value of life insurance policy benefits that its former employee, Deborah Braunstein, would have received if she were properly covered by the relevant insurance policies. In this case, Deborah Braunstein, a plan participant, was covered by a life insurance plan provided as a benefit by her employer, Weaver Bros. The Plan provided that upon Braunstein’s death, a sum of money would be paid to her designated beneficiaries. Under the Plan, Weaver Bros. was the Plan Administrator, while Fortis Benefits Insurance Company (“Fortis”) was the Claims Administrator. After enrolling in the Plan, Braunstein was diagnosed with cancer. To ensure that her beneficiaries received the Plan life insurance proceeds after her death, she consulted with Weaver Bros. before going on disability leave. A Weaver Bros.’ Human Resources Manager assured Braunstein that her benefits would continue as if she was an active employee while she was out on disability leave. Braunstein then began collecting short-term disability benefits and then long-term disability benefits when her condition worsened. One year and three months after she began disability, Braunstein passed away. Her beneficiaries filed a claim for the money guaranteed to them under the Plan, but their claim was rejected by Fortis. Unbeknownst to Weaver Bros. and Braunstein, under the terms of the Plan as interpreted by Fortis, Braunstein’s coverage lapsed on October 11, 2010, one year after she began short-term disability and ceased what Fortis describes as “active work” with the company. According to Weaver Bros., Braunstein had the right to continue her benefits by converting the policy to an “individual policy” within thirty-one days after the one-year period, but she did not exercise this right because she was unaware of the need to do so.
The court determined that Weaver Bros. is a fiduciary under ERISA because it is named as the Plan Administrator in the Plan. The HR Manager who gave Braunstein the wrong information is also named as a Plan Administrator. The court rejected the claim that the HR Manager’s role as fiduciary was limited to “clerical and administrative duties” since she advised Braunstein about her benefits, misinforming her that they would continue while she was on disability leave. Based on 3rd Circuit law, the court found that Weaver Bros can be held liable for breach of fiduciary duties based on its employee’s misrepresentations.
The court also determined that Weaver Bros. breached its fiduciary duty to Braunstein by providing an inadequate Summary Plan Description (“SPD”) and by making material misrepresentations to her about the life insurance plan. The court rejected Weaver Bros.’ contention that it fulfilled its fiduciary duties to Braunstein under ERISA by simply furnishing her with the SPD, that the SPD did not have to notify her about her right to convert to an individual plan or about the fact that she was entitled to remain a plan participant for only one year following the end of her active work. The court also rejected Weaver Bros.’ claim that the Certificate of Insurance is part of the SPD and found that, even if it was, it did not clearly and simply describe the life insurance conversion right.
In addition to providing an inadequate SPD, the court found that Weaver Bros. breached its fiduciary duties by making material misrepresentations to Braunstein about her coverage that she relied upon to her detriment. The court also found that Weaver Bros. was under an affirmative duty to disclose the life insurance conversion right and that evidence of intentional deception is not required to establish a breach of fiduciary duty claim based on a Plan Administrator’s material misrepresentations. The court also found that a writing is not required to establish a breach of fiduciary duty claim based on a Plan Administrator’s material misrepresentations (refusing to follow the rule set forth in the opinions of the Second and Seventh Circuit Courts of Appeals).
ERISA Statute of Limitations. In Kinsman v. Osram Sylvania, Inc., CIV.A. 3:12-1952, 2014 WL 2592755 (M.D. Pa. June 10, 2014), the court determined that the three-year statute of limitations for actions governed by Pennsylvania’s Wage Payment and Collection Law would apply to plaintiff’s ERISA claim. The court determined that an ERISA claim for denial of benefits accrues when either the benefits are explicitly denied or when such a denial becomes clearly known to the beneficiary. In this case, where there was a formal denial of benefits, the court found that the claim accrued from when the denial was communicated to the plaintiff by a letter the defendants sent plaintiff’s counsel on March 25, 2009. The plaintiff’s attorney responded to that letter on March 30, 2009 so the court determined that the letter was received, at the latest, on March 30, 2009. As such, the plaintiff had three years from that date to file his suit, but because he failed to do so, his case is barred by the three-year statute of limitations.

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