Source: https://www.erisa-employeebenefitslitigationblog.com/page/2/
Timestamp: 2019-04-18 14:40:12+00:00

Document:
In White v. LINA, No. 17-30356, __F.3d__, 2018 WL 2978641 (5th Cir. June 13, 2018), a case involving denial of life insurance benefits provided pursuant to an ERISA governed plan, the Fifth Circuit concluded that LINA abused its discretion in determining that the intoxication exclusion applied.
The facts of the case are straight forward. The insured was driving a car and collided with a truck. Following the crash, two blood samples were drawn from the insured, as well as a urine sample. These samples were tested, and while none tested positive for alcohol, all tested positive for illegal drugs. None of the test results, however, provided the level of drugs in the insured’s system. All of the samples subsequently were destroyed pursuant to the labs’ respective policies, and no further testing was conducted. The police did cite the insured for driving under the influence.
A few days after the crash, the insured died from a stroke. The medical examiner determined that the immediate cause of death was a “massive stroke,” and the underlying causes of death were “multiple trauma (from the car accident),” as well as illegal drug abuse.
The plan at issue, like many ERISA plans, contained exclusions precluding coverage if death is caused, at least in part, by intoxication or by voluntary ingestion of narcotics or drugs without a prescription. Upon receipt of Plaintiff’s claim for benefits, LINA hired a toxicologist to review the claim file to determine the level of impairment. Though the toxicologist concluded that it was impossible to estimate the level of the insured’s impairment, given that no qualitative analysis of the samples taken was complete, he concluded that in the absence of any other cause for the collision, the drugs in the insured’s blood system could explain his level of impairment that resulted in the crash. LINA thus denied the claim.
The district court found in favor of LINA, but the Fifth Circuit reversed, concluding that LINA had failed to provide Plaintiff’s claim a full and fair review because it did not disclose the toxicologist’s report until it filed the administrative record with the court after the lawsuit had been filed. On the merits, the Fifth Circuit acknowledged that the evidence was “close,” given that there was no other possible explanation for the insured’s driving on the night of the accident. Yet, because there was no way to determine the level of intoxication, if any, at the time of the accident, LINA’s structural conflict of interest acted as the tie-breaker.
In reaching this conclusion, the Fifth Circuit joined the other circuits in reading these exclusions to require an insurer to conclude that the insured was intoxicated at the time of the accident, which in turn requires some form of scientific proof. It is not sufficient, for example, for a toxicology report to reveal drugs in an insured’s system. It also may not be it sufficient, depending on the jurisdiction, that a toxicology report reveal alcohol intoxication at some point after the accident.
In sum, not having scientific proof to gird an otherwise logical conclusion could be fatal in defending the decision to apply the exclusion in court.
Seyfarth Synopsis: The Fourth Circuit found in favor of an insurer on a claim for life insurance benefits, finding the insured’s failure to submit the required evidence of insurability was not excused by his employer having wrongly deducted premiums for that coverage from his pay.
In Gordon v. CIGNA Corp., Plaintiff sought to represent a putative class of participants and beneficiaries who were deemed ineligible for additional life insurance benefits despite having paid premiums for the for the additional coverage, because they failed to submit the requisite evidence of insurability (“EOI”).
Plaintiff, as her deceased husband’s beneficiary, made a claim for supplemental life insurance benefits from the insurer and claims administrator, Life Insurance of North America (“LINA”). LINA denied the claim because the decedent never submitted the EOI required for supplemental coverage. Plaintiff claimed the employer and insurer breached their fiduciary duties by failing to notify the insured of the EOI requirement while continuing to accept premiums for that coverage. Plaintiff also alleged that, if any defendant was not a fiduciary under the plan, it was liable for knowingly participating in a breach of trust.
The district court granted LINA’s motion for summary judgment on the bases that LINA was not acting as a fiduciary with respect to enrollment for coverage, and there was no evidence it had knowledge of the employer’s collection of a premium for the additional coverage. The court also rejected Plaintiff’s argument that the motion was premature because she had not conducted discovery. On appeal, the Fourth Circuit affirmed the district court’s opinion in full.
First, the court found the employer, and not LINA, was tasked with day-to-day administration of the plan, including billing and screening applications. Given this allocation of duties, LINA was not responsible for notifying the decedent of the EOI requirement, and therefore could not be liable for a breach of that duty.
Second, the court found that, even if breach of trust was a cause of action, Plaintiff’s claim would still fail. The record lacked evidence that LINA had any knowledge of the employer’s acceptance of premiums on behalf of the decedent for coverage above the guaranteed amount. To the contrary, the evidence showed that the employer remitted premiums to LINA as a lump-sum and did not provide employee names or associated coverage amounts.
Finally, the court rejected the argument that discovery was required before ruling on the motion. It noted Plaintiff had a reasonable opportunity to conduct discovery, also further found that the information sought would not have created a genuine issue of material fact given the clear allocation of fiduciary duties in the plan documents and, especially, the employer’s concession that it erred in collecting premiums and failing to obtain EOI.
This case is positive for insurers and claims administrators, and stands in stark contrast to the Ninth Circuit’s recent opinion in Salyers v. MetLife, 871 F.3d 934 (9th Cir. 2017) (finding employer acted as insurer’s agent in collecting premiums, thereby imputing knowledge of premium collection to insurer). The finding that LINA did not owe a fiduciary duty to the decedent with respect to enrollment, as the plan did not vest it with that duty, will help insurers defend against similar cases where premiums paid to the employer exceed the actual level of coverage.
Seyfarth Synopsis: While an employer can bargain to impasse and exit a critical status multiemployer pension fund, under the Pension Protection Act it cannot bargain to impasse and implement a proposal that would have it remain in the fund, but under different terms than the rehabilitation plan schedule the parties had previously adopted.
In a case of first impression, the Fourth Circuit held that the Pension Protection Act’s (“PPA”) obligation on bargaining parties to continue to follow a multiemployer pension fund’s rehabilitation plan schedule trumps an employer’s right, upon lawful impasse, to unilaterally implement a proposal to move new hires to a 401(k) plan. Bakery & Confectionary Union & Industry International Pension Fund v. Just Born II, Inc., Case No. 17-1369 (4th Cir., decided April 26, 2018).
Just Born, the maker of Peeps, participated in the Bakery & Confectionary Union & Industry International Pension Fund (“Pension Fund”). The Pension Fund is in critical and declining status, and had adopted a rehabilitation plan under the PPA which included a preferred schedule adopted by the Company and its Union pursuant to which Just Born was required to contribute hourly for every bargaining unit employee.
The Company proposed during its 2015 union negotiations that it remain in the Pension Fund for existing employees, but move new hires to a 401(k) plan. The parties bargained to impasse, and the Company implemented its pension proposal. The Pension Fund sued. The Pension Fund relied on a PPA provision (as amended by the Multiemployer Pension Reform Act), 29 U.S.C. § 1085(e)(3)(C)(ii) (“the “Provision”), that the bargaining parties to an expired contract remain obligated to contribute under the rehabilitation plan schedule, which under the Pension Fund’s schedule included all employees, until such time as they reached an agreement. Indeed, the Provision expressly provides that if the parties cannot reach an agreement within 180 days after contract expiration, the Pension Fund must apply the schedule, as updated, upon which the parties had previously agreed.
The Fourth Circuit ruled for the Pension Fund. In addition to rejecting various affirmative defenses, the Court rejected the Company’s claim that it ceased being a “bargaining party” governed by the Provision once it reached a lawful impasse because it was no longer a party to an operative collective bargaining agreement. The Court found that a plain reading of the Provision makes clear that a contract’s expiration cannot alter the employer’s status as a bargaining party. Indeed, the Provision only applies to parties whose contracts have expired.
The Court further rejected the Company’s Hotel California argument that such an interpretation would mean that once an employer found itself in a critical status plan it would never be able to exit. The Company argued that Trustees of the Local 138 Pension Trust Fund v. F.W. Honerkamp Co., 692 F.3d 127 (2d Cir. 2012), which upheld an employer’s right to bargain to impasse and implement a proposal to exit a critical status fund, gave it the Company the right to implement its proposal. The Court distinguished Honerkamp, for it did not provide that an employer could implement a proposal to remain in the fund under different rules than provided for in the rehabilitation plan.
Last but not least, the Company argued that the Pension Fund’s interpretation undermined the Company’s right under the National Labor Relations Act (“NLRA”) to implement its last, best proposal upon impasse. The Court disagreed, noting that although the right to implement a final offer applies to the Company’s bargaining rights and obligations, the Company’s statutory obligations under the PPA are separate and independent from its rights and obligations under the NLRA. Just Born was free to bargain to impasse and implement its proposals provided, however, the Company could not implement proposals contrary to the PPA.
Just Born sets an important limit on an employer’s right to bargain to impasse over its participation in a critical or endangered status fund. An employer is free under the PPA to bargain out and pay the resulting withdrawal liability, even if it has to reach lawful impasse and unilaterally implement. What it cannot do, according to Just Born, is to remain in the fund but negotiate to impasse and implement conditions on participation different from the rehabilitation or funding improvement plan schedule to which it is a party. Just Born does not address whether an employer can negotiate to impasse and implement a different schedule provided for in a rehabilitation plan — although it is doubtful since there would still be no agreement as required by the Provision. Nor does it provide that the bargaining parties can just agree to terms different from a rehabilitation plan schedule. While a fund may agree to different schedules, it is under no obligation to do so. Employers beware.
In Krash v. Reliance Standard Life Insurance Group, No. 17-1814, the Third Circuit affirmed the judgment of the Middle District of Pennsylvania, which had concluded that the plaintiff’s disability was limited to the plan’s 24 month period for mental/nervous conditions.
The plan at issue limited benefits “caused by or contributed to by mental or nervous disorders” to 24 months. The plaintiff stopped working in May 2010 due to physical complaints (back pain and tremors). Reliance Standard, the plan’s insurer and claims administrator, paid benefits for four years, and then requested that the plaintiff submit to an in-person independent medical examination. The examining physician concluded that the plaintiff’s tremors were psychological, not physical, in nature. The plaintiff’s medical records also showed that she suffered from depression and anxiety. Accordingly, Reliance Standard terminated the claim, asserting that it was subject to the 24 month limitation for mental/nervous disorders.
The Middle District of Pennsylvania sided with Reliance Standard, and the Third Circuit affirmed. The Third Circuit stated that the plan’s language made clear that to remain eligible for benefits beyond 24 months, it was the plaintiff’s burden to “prove she was totally disabled from any occupation solely due to a physical condition.” The Third Circuit further explained that the terms of the mental nervous limitation in the plan (“’caused or contributed to by’ in a mental disorders limitations clause”) means “that benefits may be terminated when physical disability alone is insufficient to render a claimant totally disabled.” Accordingly, because the record reflected that the plaintiff was capable of performing sedentary work even with her physical condition, the Court found that Reliance Standard did not abuse its discretion in concluding that the mental/nervous limitation applied.
While this is a good win for ERISA plans in the Third Circuit (New Jersey, Delaware, and Pennsylvania), plan and claims administrators should continue to tread carefully, as courts in other circuits take a more plaintiff-friendly view of this type of limitation. Also, this decision turned on the language in the at-issue plan. It is important to review plan documents with counsel to see if their mental and nervous limitations are similarly broad.
Seyfarth Synopsis: Disputes over lifetime retiree health benefits for union retirees may become a memory of the past. For the second time in three years, the Supreme Court confirms that collective bargaining agreements must interpreted based on ordinary principles of contract law and it is inappropriate to presume that an agreement allows lifetime vesting of retiree benefits.
On February 20, 2018, in CNH Industrial N.V. v. Reese, No. 17-515 (per curium), the Supreme Court rejected the Sixth Circuit’s attempt to revive the Yard-Man inference. In 2015, the Court in M&G Polymers USA, LLC v. Tackett, 135 S.Ct. 926 (2015), struck down the Sixth Circuit’s use of the Yard-Man inference, which courts used to infer that negotiated retiree benefits were intended to continue for the retirees’ lives. The Court found that when a contract is silent as to the duration of retiree benefits, “a court may not infer that the parties intended for those benefits to vest for life.” Rather, collective bargaining agreements must be interpreted based on ordinary principles of contract law. You can read about the Court’s decision in M&G Polymers USA, LLC v. Tackett, 135 S.Ct. 926 (2015), here.
The Supreme Court once again said “no.” It rejected the Sixth Circuit’s way of handling these disputes, which the justices said was rooted in inferences and assumptions and not the text of the applicable collective bargaining agreements. The agreement at issue contained a general durational clause that applied to all benefits unless otherwise specified. As such, the Court held that the general durational clause meant the agreement unambiguously provided that CNH retirees were entitled to company-provided health benefits only until the agreement expired and not indefinitely. The Sixth Circuit’s decision to the contrary inappropriately used inferences inconsistent with Tackett. The Court reverse the Sixth Circuit’s judgment and remanded the case for further proceedings consistent with this opinion.
Thus, for the second time in three years, the Supreme Court has rejected Yard-Man and has definitively held that collective bargaining agreements are to be interpreted according to ordinary principles of contract law. Yard-Man is dead. The interference cannot even be used to find an ambiguity in a contract. Hopefully, this time the Sixth Circuit will listen.
Seyfarth Synopsis: In a major victory for ERISA plans and other payors, the Fifth Circuit recently overturned a district court’s notorious decision in favor of a healthcare provider and reinstated a plan administrator’s ability to guard against healthcare billing fraud, waste, and abuse.
On December 19, 2017, the United States Court of Appeals for the Fifth Circuit issued its decision in Connecticut General Life Insurance Co. v. Humble Surgical Hospital, LLC, 878 F.3d 478 (5th Cir 2017), reversing a highly publicized trial court decision that threatened the ability of ERISA plans, insurers, and other payors to safeguard their coffers from providers engaged in healthcare fraud, waste, and abuse.
As described by the Court of Appeals, between 2010 and the initiation of litigation in 2016, Humble Surgical Hospital (“Humble”), a physician-owned hospital in Harris County, Texas, performed hundreds of non-emergency services on members of ERISA and welfare benefit plans administered by Connecticut General Life Insurance Company and its parent corporation (together, “Cigna”). After processing an expensive claim from Humble for what appeared to be a noncomplex outpatient surgical procedure, Cigna increased its scrutiny of Humble’s claims and surveyed plan members whom Humble had treated. Based on its analysis, Cigna concluded that Humble was engaged in “fee-forgiving” (i.e., waiving patients’ co-insurance or deductible fees) and also intentionally inflating its charges to increase reimbursements.
Cigna then sued Humble to recover over $5 million in alleged overpayments. In response, Humble asserted counterclaims against Cigna for nonpayment or underpayment of claims, breach of fiduciary duty, and failure to comply with requests for plan documents. After a bench trial, the district court concluded that Cigna’s claims and defenses failed as a matter of law. The district court also awarded Humble nearly $11.4 million in damages based on Cigna’s underpayment of claims, nearly $2.3 million in statutory penalties based on Cigna’s failure to provide plan documents upon request, and over $2.7 million in attorneys’ fees based on Humble’s success in the litigation. Cigna appealed.
On review, first, the Fifth Circuit reversed the award to Humble of nearly $11.4 million in damages based on underpaid claims and Cigna’s purported breach of fiduciary duties. Notably, the Fifth Circuit held both that the plans at issue vested Cigna with discretionary authority to determine eligibility for benefits and also that Cigna’s interpretation of plan provisions to prohibit “fee‑forgiving” was not arbitrary or capricious. The Court of Appeals also determined that Cigna’s decision was supported by substantial evidence, namely, the survey responses from plan members indicating that Humble had informed the members that they would not be charged for any of the services at issue. This conclusion affirms that courts should defer to a plan administrator’s interpretation of the terms of its own plan.
Second, the Fifth Circuit reversed the approximately $2.3 million awarded to Humble as statutory penalties, because Cigna was not an “administrator” as defined by ERISA. The Fifth Circuit also joined at least eight other circuits in rejecting the notion that a person or entity may become a de facto administrator for notice or statutory penalty purposes. The Court of Appeals’ decision supports the proposition that courts should adhere closely to the express language of the relevant ERISA provision when resolving a dispute, and it also provides welcome comfort to third party claims administrators and other “non-designated” persons or entities that they cannot be held liable for ERISA statutory penalties.
Third, the Fifth Circuit reinstated Cigna’s fraud claims on the ground that the district court failed to address Cigna’s argument that Humble affirmatively misrepresented actual charges by overbilling Cigna. The court’s decision is a reminder that a trial court should examine carefully all of the ways in which a fraudulent scheme may be perpetrated before dismissing a plan’s fraud claims. Finally, based on the foregoing outcomes, the Fifth Circuit vacated the award of attorneys’ fees to Humble and remanded the issue for reconsideration in light of the appellate decision. It remains to be seen whether the trial court will award Cigna its attorneys’ fees in light of its significant success before the appellate court.
Healthcare litigation is on the rise, especially reimbursement disputes. In this instance, Cigna filed suit against Humble in hopes of protecting itself — and health plans for which it serves as claims administrator — from healthcare fraud and abuse. In exchange, Cigna faced a judgment against it in excess of $16 million. The Fifth Circuit’s decision vindicating Cigna’s position constitutes a significant victory for ERISA plans, insurers, and other payors, both for its affirmation of ERISA principles and also for its reversal of a trial court decision that had gained some notoriety for its slant in favor of healthcare providers.
Seyfarth Synopsis: In Medina v. Catholic Health Initiatives, — F.3d —, 2017 WL 6459961 (10th Cir. Dec. 19, 2017), the Tenth Circuit held that a retirement plan sponsored by Catholic Health Initiatives (“CHI”), a church-affiliated healthcare organization, is a “church plan” under ERISA. This decision strengthens the litigation positions of religiously-affiliated healthcare systems who are facing similar lawsuits across the country and gives other courts a solid framework to analyze the relevant statutory provisions.
We have previously written about the Supreme Court’s June 2017 Advocate Health Network v. Stapleton decision here. In Advocate, the Supreme Court held that plans maintained by certain tax-exempt organizations controlled by or associated with a church may qualify as church plans. Specifically, a plan established by a non-church may qualify for the exemption if the plan is maintained by a “principal-purpose organization,” i.e., an organization whose principal purpose is administering or funding a plan and that is controlled by or associated with a church. That being said, the Court did not further explain what qualifies as a “principal-purpose organization” or what it means to be “controlled by” or “associated with” a church.
The Tenth Circuit analyzed these open issues by answering three questions: (1) Is the entity offering the plan a tax-exempt nonprofit organization associated with a church? (2) If so, is the entity’s plan maintained by a principal-purpose organization? That is, is the plan maintained by an organization whose principal purpose is administering or funding a plan for entity employees? (3) If so, is that principal-purpose organization itself associated with a church?
First, in determining whether CHI was “associated with” the Catholic Church, the Court looked to the language of 29 U.S.C. § 1002(C)(iv), which defines the phrase to mean sharing “common religious bonds and convictions” with a church. It found CHI was “associated with” the Catholic Church because of, among other things, CHI’s relationship with Catholic Health Care Federation, a “public juridic person” created by, and accountable to, the Vatican; CHI’s Articles of Incorporation provide it was organized exclusively to carry out religious purposes; and CHI was listed in the Official Catholic Directory.
Second, Court considered what it means to “maintain” a plan under 29 U.S.C. § 1002(C)(i). Analyzing the ordinary meaning of the term, the Court concluded that to “maintain” a plan means that an entity “cares for the plan for purposes of operational productivity.” Based on this definition, CHI’s Defined Benefit Plan Subcommittee, which administers the CHI Plan, was a “principal purpose organization” that “maintained” the plan for purposes of the exemption.
Third, the Court determined that the subcommittee was an “organization” because it satisfied the ordinary meaning of the term, which means “a body of persons . . . formed for a common purpose.” The Court also concluded that the subcommittee was “associated with” the Catholic Church because it is a subdivision of CHI and the plan itself stated that the subcommittee shared “common religious bonds and convictions” with the Catholic Church.
The Court also found that the church plan exemption, as applied to CHI’s retirement plan, did not violate the Establishment Clause of the First Amendment.

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