Articles Posted in ERISA

Here is a rare win in an ERISA case.  Unfortunately the win is the the 7th Circuit Court of Appeals rather than the 5th Circuit which controls most ERISA plans for readers of this blog.

The ERISA case is styled, Susan Hennen v. Metropolitan Life Insurance Company.  The case does illustrate how to win an ERISA case.

Hennen had received short term disability (STD) benefits for two years as the result of a back injury.  Hennen then applied for long term disability (LTD) benefits.  The disability plan that Hennen had contained a two year limit for neuromusculoskeletal disorder, subject to exceptions, including one for radiculopathy, a “Desease of the peripheral nerve roots supported by objective clinical findings of nerve pathology.”  After Metlife terminated Hennen’s benefits, she sued under ERISA, arguing that Metlife’s determination that she did not have radiculopathy was arbitrary and capricious.  The court hearing the case had granted summary judgment in favor or Metlife.  This appeals court reversed the ruling saying Metlife acted arbitrarily when it discounted the opinions of four doctors who diagnosed Hennen with radiculopathy in favor of one physician who ultimately disagreed, but only while recommending additional testing that Metlife declined to pursue.

Here is a case from the United States 7th Circuit that deals with life insurance when the policy is an Employee Retirement Income Security Act (ERISA) policy.  The case is styled, Emma Cehovic-Dixneuf v. Lisa Wong.

Pursuant to 29 U.S.C., Section 1104(a)(1)(D), ERISA requires administrators of employee benefit plans to comply with documents that control the plans.  In the case of life insurance policies, that means death benefits are paid to the beneficiary designated in the policy, notwithstanding equitable arguments or claims that others might assert.

In this case, the employee, Georges Cehovic, had two life insurance policies through his employer and the policies named his sister Emma as the sole and primary beneficiary.  When Georges died, his ex-wife, Wong, claimed that she and the child she had with Georges were entitled to the policy benefits.

Disability claims filed under an ERISA plan are different than disability claims that are not governed by ERISA.  The United State District Court, Northern District, Dallas Division, issued an opinion in 2018, that discusses these types of cases.  The case is styled, Aaron Rome v. HCC Life Insurance Company.

This is a dispute between a former professional hockey player (Aaron) and his insurer (HCC).

Aaron suffered a career ending injury.  He sough benefits under the HCC policy and was denied.  Aaron filed suit in State Court including claims for violations of State law and the case was removed to Federal Court where HCC filed motions to have have the State law claims dismissed under Rule 12(b)(6) or in the alternative a motion for summary judgment.

Employee Retirement Income Security Act (ERISA) cases are difficult at best.  But finally, here is a win in the courts.  The 5th Circuit issued a ruling on June 13, 2018, in favor of a claimant.  The case is styled, Ester Hill White v. Life Insurance Company of North America.

Among other issues, the Court first addressed whether LINA had a conflict of interest.  This issue arises when the insurer of the plan also determines whether the claimant is entitled to benefits.  A conflict of interest, such as the one in this case, should prove more important where circumstances suggest a higher likelihood that it affected the benefits decision.

The Court was concerned with LINA’s failure to address Dr. Fochtman’s report in its denial of life insurance benefits.  White argues that such failure amounts to procedural unreasonableness.  Procedural unreasonableness is important in its own right and also justifies the court in giving more weight to the conflict.

Lawyers who handle Employee Retirement Income Security Act (ERISA) claims will tell that insurance claims made on an individual policy and claims made on an ERISA plan are remarkably different.  ERISA requires that the insurer or third-party claims administrator engage in a dialogue with the claimant about the claim and the reasons for denial, allowing the claimant an opportunity to rebut the reasons for denial and compelling a fiduciary review of a denied claim.  The downside of that review is that if the claimant asks for judicial review of a denied appeal, the federal court will probably have to defer to the claim fiduciary’s decision and the evidence will be limited to the contents of the claim file.

There is no monetary remedy within ERISA for a violation of claims procedures nor does ERISA allow for consequential damages.  The remedies for claims violations are potentially (1) a remand to the claims fiduciary for another try, or (2) forfeiture of deference, i.e. a change in the standard of review from abuse of discretion to a preponderance of the evidence.  The 5th Circuit had never awarded an ERISA claimant a change in the standard of review as a result of claims handling violations.

The collective policy of Texas and other states is that deference is harmful because it impairs the rights of insured.  The 5th Circuit takes a different view, believing that ERISA deference provides a lubricant to a federal court system.  According to the 5th Circuit and many other federal courts, any harm to individual claimants is outweighed by the harm requiring de novo review of each ERISA benefit claim would bring to the court system.  The 5th Circuit is also at odds with the Department of Labor (DOL), as the DOL considers deference to be forfeited if the claims procedures are not followed.

Discretionary Clauses in Employee Retirement Income Security Act (ERISA) policies — In protecting deference in the face of substantial claims procedure violations, the United States 5th Circuit’s position not only conflict with other United States Circuits but with the Texas Department of Insurance and other state insurance commissioners regarding what is fair to an insured.  In the balance between an individual insured’s rights and the efficiency of the federal court system, the 5th Circuit has found the latter to be more important, perceiving de novo review to be a threat to the court’s efficiency.  The Texas Department of Insurance and Texas legislators perceive deference to be a greater threat.

In 2010, the Texas Commissioner of Insurance wrote as follows regarding discretionary clauses in policies that are meant to bind a court to deferential standard of review:

“Discretionary clauses are unjust, encourage misrepresentation, and are deceptive because they mislead the consumers regarding the terms of coverage.  For example, a consumer could reasonably believe that if they are disabled they will be entitled to benefits under the policy and will be able to receive a full hearing to enforce such rights in court.  Instead, a discretionary clause permits a carrier to deny disability income benefits even if the insured or enrollee is disabled, provided that the process heading to the denial was not arbitrary or capricious.”

The United States 5th Circuit Court of Appeals has never found sufficient claims procedure abuse to warrant a change in the standard of review from abuse of discretion to a preponderance of the evidence in an Employee Retirement Income Security Act (ERISA) case.  In that regard, the court has noted that “this circuit has rejected arguments to alter the standard of review based upon procedural irregularities in ERISA benefit determinations, such as delays in making the determination ….  Absent potential wholesale or fragrant violations that evidence an utter disregard of the underlying purpose of the plan, this court does not heighten the standard of review from abuse of discretion to de novo.

Oddly, the 5th Circuit has protected deference to the factual determinations of the claims fiduciary even when the claims fiduciary did not make any factual determinations.  This resulted from the 5th Circuit’s overriding concern that allowing de novo review of ERISA benefit claims will clot the veins of the federal court system.  Regarding this, this court has held as follows:

The courts simply cannot supplant plan administrators, through de novo review, as resolvers of mundane and routine fact disputes.  Considerations of expediency therefore support reference to factual determinations made in the administration of the plan.  Otherwise, federal trials are encouraged in the vast number of claims that are filed in the thousands of ERISA plans throughout this county. . .  We therefore conclude that a deferential standard of review for factual determinations is buttressed, if not compelled, by practical considerations.

Lawyers handling Employee Retirement Income Act (ERISA) cases will tell you that the answer to the above question is … nothing happens.

Generally, the United States Supreme Court has not allowed any remedy that is not clearly expressed within ERISA’s provision 29 U.S.C. Section 1132.  Section 1132 allows for injunctive relief and the monetary remedies limited to (1) up to $100 per day for a plan administrator’s failure to provide certain documents to a plan participant within 30 days of a proper written request, and (2) benefits that should have been paid under the plan pursuant to Section 1132(a)(1)(B).

A narrow opportunity for an additional monetary remedy is created by allowance of “other appropriate equitable relief” under Section 1132(a)(3).  The Supreme Court’s decision in CIGNA Corp. v. Amana opened the door to a potential monetary remedy under paragraph (a)(3), reviving the term “surcharge” relief from decisions by the equity courts during the days of the divided bench.  Surcharge relief is available for certain consequential damages that might result from violations of ERISA.  In SIGNA, the claimants alleged violations of ERISA due to improper notice of modifications to the Cigna pension plan that resulted in financial harm to some pensioners.  The court allowed that monetary relief might be available to some plan participants as a “surcharge” remedy.

The Employee Retirement Income Security Act (ERISA) is governed by federal statutes.

The claims procedures originate from 29 U.S.C., Section 1133 and 1135.  Section 1133(1) requires that a carrier or claims administrator provide adequate notice of the reasons for denial that can be readily understood by the claimant.  Section  1133(2) requires ERISA plans to afford claimants a full and fair review, usually called an appeal, of a denied claim by a claim fiduciary.  The full and fair review is usually conducted by the same entity that issued the denial, typically an insurance carrier or third-party administrator, but must be conducted by someone other than the adjuster who denied the claim.

Section 1135 grants the power to the Secretary of the U.S. Department of Labor (DOL) to establish claims regulations that comply with ERISA.

Employee Retirement Income Security Act (ERISA) issues can be more onerous than most people can imagine.

Most people who get their insurance from work do not think about it except the the extent of how much it costs, the extent of coverage, and which providers are in the network.  Rarely will anybody consider the differences in litigating a denied claim between one type of coverage and another type of coverage.  When a plan is not an ERISA plan, the insured stills retains their rights under the Texas Insurance Code.  And the insurer suffers penalties if a trier of fact determines the insurer took advantage of the insured or was slow about paying the insured’s claims.

The Texas Insurance Code levels the playing field between the insurer and the insured.  As the Texas Supreme Court has stated: