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Your ERISA Watch - Court Awards Accidental Death Benefits Under "Substantial Certainty" Test

Your ERISA Watch – Court Awards Accidental Death Benefits in Auto Accident Case,

Finding Death Was Not "Substantially Certain" to Occur

Wolf v. Life Ins. Co. of N. America, No. 3:20-cv-05684-BHS, __ F. Supp. __ (W.D. Wash. May 25, 2021) (Judge Benjamin Settle).

This week’s notable decision is a victory for the plaintiff, represented by Kantor & Kantor attorney Sarah Demers, in the Western District of Washington. The plaintiff was the father and life insurance beneficiary of 26-year-old Scott Wolf, who died in a car accident. While speeding the wrong way on a one-way access road along a highway, Scott hit a speed bump, which flipped his car into an adjacent bay, where he drowned. Scott had alcohol in his system at the time of his death. He was wearing a seatbelt and had his hazard lights on at the time of the accident.

Plaintiff had accidental death and dismemberment (“AD&D”) coverage through his employer, which insured his son for $50,000 in AD&D benefits. The policy was issued by Life Insurance Company of North America (“LINA”). It required that a “covered loss” be “the result, directly and independently of all other causes, of a covered Accident.” An “Accident” was “a sudden, unforeseen, external event that results, directly and independently of all other causes, in a Covered Injury or Covered Loss.”

LINA denied the claim based on the alcohol in Scott's system, taking the position that the death was “a foreseeable outcome of his voluntary actions” and thus not an accident, but intended. The policy did not specifically exclude reckless behavior or intoxication. Plaintiff appealed the denial and LINA upheld its decision, stating that a “reasonable person” would have viewed death “as a probable consequence substantially likely to occur.”

The court disagreed. Reviewing the file under the de novo standard of review, the court applied the Ninth Circuit’s test from Padfield v AIG Life Ins. Co., which requires that death must be “substantially certain” from the activity to be deemed intentional and not an accident. The court confirmed that “a number of courts have noted that, statistically, it is not reasonably foreseeable that a person driving drunk will be seriously injured or killed.”

After a detailed discussion of LINA’s authorities and the fact that they were decided under the abuse of discretion standard, the court opined that in this de novo review case, “the balance tips in favor of Wolf.” The court concluded that, “under the de novo standard, the Court cannot conclude that a reasonable person in Scott’s shoes would have viewed his death as substantially certain to occur as the result of his intentional conduct.” The court thus awarded benefits and attorney’s fees to plaintiff.

This week’s notable decision summary was prepared by Stacy Monahan Tucker. Stacy has practiced ERISA-related and insurance law for 20 years. She is admitted throughout the Ninth Circuit and has won appeals in the Ninth, Sixth, Fifth and DC Circuits.

Below is a summary of this past week’s notable ERISA decisions by subject matter and jurisdiction.

Breach of Fiduciary Duty

Seventh Circuit
Bernstein-Ellis v. AT&T Pension Plan, No. 20-C-7010, 2021 WL 1978279 (N.D. Ill. May 17, 2021) (Judge Ronald A. Guzman). Plaintiff’s husband was dying from cancer. Knowing this, he went on AT&T’s pension service center internet portal to take the steps necessary to commence his retirement – ensuring his wife would receive a 100% survivor benefit. He was unable to determine how to make a pension election and thus nothing was submitted. He later sent an email to his direct supervisor that Plaintiff claimed informed AT&T of his impending death and set forth his stated goals and intent regarding his pension. After her husband’s death plaintiff sought the 100% benefit, but her claim was denied and she filed suit. Plaintiff alleged that defendants breached their fiduciary duty of loyalty to her and her late husband by failing to provide (1) “a user-friendly internet portal that would enable [Mr. Ellis] to make retirement decisions consistent with his expressed desire during his terminal illness to make sure his wife was provided for after his passing”; and (2) “live human assistance to inquire as to his circumstances and intent and who could answer questions and help facilitate the election of an earlier retirement date that preceded [his] death.” Defendants moved to dismiss the complaint. Defendants contended that plaintiff failed to state a claim for breach of fiduciary duty under ERISA because there were no allegations that Mr. Ellis ever put defendants or AT&T on notice that he needed assistance with or additional information regarding pension benefit or retirement elections. The court agreed with defendants because Mr. Ellis’ email could not reasonably be interpreted as a request for assistance with changing Mr. Ellis’ planned retirement date or as an expression of confusion about pension benefit elections. This was because Mr. Ellis informed his supervisor that his plan was to retire “on or about August 1.” He did not express a desire to accelerate that date or indicate that he was having difficulty in arranging for retirement or pension elections. There was no indication that Mr. Ellis was confused or misled about how to change his retirement. Mr. Ellis’ email did not mention the Plan or online pension portal, request to speak with anyone, or suggest that he needed help with his elections. Thus, the court held there was no breach of a fiduciary duty. It also held that plaintiff had failed to allege the supervisor was a fiduciary, thus making the complaint defective, as a fiduciary duty to disclose arises only where a beneficiary’s circumstances become known to fiduciaries, benefits staff, or other plan representatives—which plaintiff had not alleged. The complaint was dismissed without prejudice.

Class Actions

First Circuit
Sheet Metal Workers Local No. 20 Welfare & Benefit Fund v. CVS Pharmacy, Inc., Nos. 16-046 WES, 16-447 WES, 2021 WL 1986564 (D. R.I. May 18, 2021) (Judge William E. Smith). Plaintiffs moved to certify four classes of third-party payors or health plans in two consolidated cases. The First Amended Complaint alleged that the named plaintiff trusts were employee welfare benefit plans and employee benefit plans as defined under ERISA. The named plaintiffs asserted that they were not traditional trusts, but rather Voluntary Employees Beneficiary Association Plans (“VEBAs”), which are welfare benefit plans under Section 501(c)(9) of the Internal Revenue Code. A VEBA is subject to some aspects of ERISA, but is not considered to be a qualified retirement plan. Defendants opposed the class certification, in part, on the basis that the named plaintiffs did not have capacity to sue as VEBAs. The court found it was not clear whether ERISA conveyed to the named plaintiffs, as VEBAs, the capacity to sue, but that it would not undermine named plaintiffs’ ability to serve as adequate and typical class representatives. The court found that First Circuit authority favors directing plaintiff-trusts to substitute their trustees as plaintiffs, not dismissal of the claims. The court found that to the extent an employee benefit plan is subject to ERISA, ERISA provides it with the capacity to sue under state law. The court further found that ERISA trusts have the capacity to bring state law claims in federal court. Thus, to the extent the named plaintiffs were subject to ERISA, they would have capacity to sue. For these reasons, the court held that defendants’ capacity-based argument did not undermine the named plaintiffs’ ability to serve as adequate and typical class representatives.

Second Circuit
Negron v. Cigna Health & Life Ins. Co., No. 3:16-CV-01702 (JAM), 2021 WL 2010788 (D. Conn. May 20, 2021) (Judge Jeffrey Alker Meyer). Plaintiffs attempted to certify a class against Cigna, alleging it fraudulently schemed to overcharge millions of people for prescription drugs in violation of the terms of their health plans. Plaintiffs attempted to certify classes and sub-classes under ERISA and RICO, the Racketeer Influenced and Corrupt Organizations Act. The court denied plaintiffs’ motion for class certification, finding plaintiffs could not establish commonality because there were “material differences in language among the thousands of health plans at issue in this action that govern whether the plaintiffs have suffered the same injury or any injury at all.”

Eighth Circuit
Thorne v. U.S. Bancorp, No. CV 18-3405, 2021 WL 1977126 (D. Minn. May 18, 2021) (Judge Paul A. Magnuson). Plaintiffs moved for class certification of a case challenging the early retirement reduction factors in a pension plan, alleging the factors used did not result in a benefit that is the actuarial equivalent of their normal retirement benefit. The court denied class certification under the commonality factor because plaintiffs’ expert presented six alternative models using different assumptions from those used by the plan which resulted in some potential class members receiving less than their current pension benefit and, therefore, they were not injured and did not have standing. Therefore, the court found that plaintiffs could not show commonality with all of the class members. The court also denied class certification under all of the other factors and Rule 23 sections on the same basis.

Disability Benefit Claims

Second Circuit
Caccavo v. Reliance Standard Life Ins. Co., No. 19-CV-6025, 2021 WL 1987194 (S.D.N.Y. May 18, 2021) (Judge Ruby J. Krajik). Reliance Standard Life terminated plaintiff’s disability benefits when it determined he had returned to work. Plaintiff appealed, claiming he had not returned to work, and provided statements from his employer, wife, and others supporting that he had not returned to work and was not capable of doing so. Plaintiff also refused to provide certain documents RSL requested to clarify the issue such as his contract with his employer and payroll information. When RSL denied his appeal, plaintiff brought this lawsuit to recover his disability benefits. The court declined to apply a less deferential standard of review because, although RSL had a conflict of interest, there was no evidence the conflict impacted its decision. The record contained conflicting evidence about whether plaintiff had returned to work, and the court determined RSL had not abused its discretion by deciding to rely on the evidence that plaintiff was working.

Discovery

Sixth Circuit
Martin v. Guardian Life Ins. Co. of Am., No. 5: 20-507-DCR, 2021 WL 1994229 (E.D. Ky. May. 17, 2021) (Judge Danny C. Reeves). Plaintiff filed discovery motions in this ERISA litigation to obtain disability insurance benefits denied by his insurer. Plaintiff sought to depose the claims handlers on his claim and a corporate designee. Guardian agreed to produce a corporate designee on narrower issues than noticed, but not the claims handlers. The court noted that such depositions are “routinely granted” in Kentucky federal courts and ordered Guardian to produce the deponents on the issues of conflict of interest and bias. The court also ordered Guardian to respond to interrogatories requesting information about the amounts it pays its third-party examiners and the number of claims it used the vendors to evaluate. It further ordered Guardian to supplement its responses to interrogatories to provide information related to how bonuses are awarded. The court denied plaintiff’s request to access the entire claims handling manual rather than only the excerpts relating to his claim. Plaintiff also asked to have the portions of the administrative record stricken subsequent to the date Guardian failed to make a decision on his appeal, a request the court denied.

Ninth Circuit
Abdilnour v. Blue Cross of Idaho Health Service, Inc., No. 1:17-CV-00412-DWM, 2021 WL 2019621 (D. Idaho May 20, 2021) (Judge Donald W. Molloy). In a dispute over health insurance benefits with Idaho Blue Cross, plaintiff served a third-party subpoena on North Dakota Blue Cross regarding reimbursement rates. Plaintiff also sought documents from Idaho Blue Cross regarding reimbursement determinations. Idaho Blue Cross sought a protective order over the third-party subpoena and plaintiff moved to compel Idaho Blue Cross to respond to his discovery. The court denied the request for a protective order and granted plaintiff’s motion to compel on substantially similar grounds. The court observed that when a conflict of interest exists in an abuse of discretion case, the court may consider extra-record evidence regarding that conflict. Idaho Blue Cross argued there was no conflict of interest because it did not both fund and administer the Plan. But plaintiff did not claim that was the nature of the alleged conflict. Rather, plaintiff claimed the conflict arose because Idaho Blue Cross failed to act as a fiduciary when it coordinated with North Dakota Blue Cross and the Idaho Blue Cross litigation team to deny plaintiff’s request for reimbursement during the review process. While plaintiff did not allege a structural conflict of interest, the court held the reasoning for allowing discovery in such a situation was applicable to the sort of fiduciary-administrator conflict of interest plaintiff alleged. The court also held that there was evidence the information sought should have been included in the administrative record anyway, and thus it was discoverable.

ERISA Preemption

Third Circuit
MedWell, LLC v. Cigna Corp., No. CV-20-10627-KM-ESK, 2021 WL 2010582 (D.N.J. May 19, 2021) (Judge Kevin McNulty). MedWell is a medical provider seeking healthcare benefit payments from Cigna. Cigna moved to dismiss for failure to state a claim. In a prior decision, the court found that it had subject matter jurisdiction based on complete preemption by ERISA. MedWell, LLC v. Cigna Corp., Civ. No. 20-10627, 2020 WL 7090745 (D.N.J. Dec. 4, 2020). Regarding breach of contract, the court found that MedWell’s regular billing relationship with Cigna for 15 years, coupled with a pattern of preauthorization, allowed an inference of the mutuality of obligation necessary for contract formation. Regarding breach of good faith and fair dealing, the court found MedWell alleged Cigna’s denials were not in good faith and Cigna’s small sample audit did not justify denying all payment going forward. However, the court dismissed on ERISA preemption grounds most of the other ten state-law claims brought by plaintiff, including equitable estoppel, tortious interference, and civil conspiracy.

ERISA Industry Committee v. Asaro-Angelo, No. 3:20-CV-10094-BRM-TJB, 2021 WL 2010572 (D.N.J. May 20, 2021) (Judge Brian R. Martinotti). Plaintiff’s complaint concerned recent amendments to the Millville Dallas Airmotive Plant Job Loss Notification Act (“WARN Act”). On January 21, 2020, New Jersey Governor Phil Murphy signed into law S.B. 3170, amending the New Jersey WARN Act. Plaintiff filed its Complaint against the commissioner of the New Jersey Department of Labor and Workforce Development, in his official capacity, for declaratory and injunctive relief. Plaintiff sought a declaration from the court that ERISA “expressly preempts” the WARN Act amendments. Defendant argued he had no authority to enforce the WARN Act, but the court disagreed, holding that even entirely ministerial duties can be sufficient because the inquiry is not into the nature of an official’s duties but the effect of the official’s performance of his duties on the plaintiff’s rights. In addition, the court held that plaintiff had sufficiently alleged an injury-in-fact because it alleged having to expend and divert resources to address the WARN Act amendments and educate its members on its ramifications. Defendant’s motion to dismiss was denied.

Exhaustion of Administrative Remedies

First Circuit
Ortiz v. De Empleados Telefónicos, No. 18-01729-WGY, 2021 WL 2010656 (D.P.R. May 19, 2021) (Judge D.J. Young). Retirees of the Puerto Rican Telephone Company sued for breach of fiduciary duty in violation of ERISA, alleging that defendants knowingly induced them to sign up for a health plan that did not provide coverage to retirees. Defendants filed a motion to dismiss, arguing that plaintiffs failed to exhaust administrative remedies. Acknowledging that the First Circuit has not resolved whether breach of fiduciary duty claims are subject to administrative exhaustion requirements, the court held that this action was a “statute-based claim” for which a plaintiff is not required to exhaust administrative remedies. The court explained further that this case illustrates the practical reasons against exhaustion for statute-based claims because it was unclear in this case what administrative remedies the plaintiffs were supposed to exhaust.

Plan Status

Tenth Circuit
Bond v. Whitley, No. 20-CV-00594-GKF-SH, 2021 WL 1987525 (N.D. Okla. May 18, 2021) (Judge Gregory K. Frizzell). Plaintiff was hired by the Department of the Army as a cartographer. After experiencing numerous panic attacks, she was diagnosed with PTSD and was removed from her employment. Ms. Bond asserted that the Army’s “unlawful interference with her protected rights” exacerbated her medical conditions in that it was essential for her to obtain immediate psychiatric treatment or she would suffer permanent effects from PTSD, and the Army had been informed of same. Ms. Bond stated that the cancellation of her medical insurance prevented her from obtaining the immediate medical care needed to prevent long term deleterious effects. Ms. Bond stated that from March 2019 to December 2019, she was deprived of her “retirement benefit of medical insurance from Blue Cross Blue Shield free of any additional premium payment, charge, or fee.” During that nine-month period, Ms. Bond alleged she was forced to live without medical insurance coverage. The medical insurance coverage was belatedly reinstated, but Ms. Bond had to pay a premium in excess of $3,000 to cover the time when her medical insurance was not in effect. Based on these facts, Ms. Bond alleged a violation of ERISA. But the court held that ERISA explicitly exempts from its coverage “governmental plans.” The amended complaint included no explicit allegations that Ms. Bond received benefits from a group health benefit plan covered by ERISA. Nor did the amended complaint include any allegations from which the court could reasonably infer that Ms. Bond was entitled to benefits under a plan to which ERISA applies. Thus, Ms. Bond failed to state a plausible claim under ERISA.

Pleading Issues & Procedure

Second Circuit
Rol-Hoffman v. Regional Care Inc., No. 20-cv-02549-LTB-SKC, 2021 WL 1978780 (D. Colo. May 18, 2021) (Judge Lewis T. Babcock). This case involved a denial of medical benefit claims under an ERISA-governed plan. Plaintiff’s first count sought monetary relief for wrongful denial of benefits under Section 502(a)(1)(B). Defendants filed a partial motion to dismiss, arguing that plaintiff’s second count for equitable relief under Section 502(a)(3) was duplicative of the first count, but the court denied defendant’s motion, explaining that the court was unable to determine at the pleading stage whether relief under Section 502(a)(1)(B) would be adequate. In plaintiff’s third claim for relief brought under ERISA Sections 404(a) and 502(a)(3), plaintiff alleged that defendant breached its fiduciary duty by committing procedural violations when handling and denying her claim, and the court likewise denied defendant’s motion to dismiss this count. The court, however, dismissed plaintiff’s claim for wrongful denial of benefits under ERISA Section 404(a) and the ACA, finding that these claims were already covered by the first count. Plaintiff also alleged, among other things, that the Plan did not give her proper notice, but the court determined that this count was duplicative of the second count for equitable relief and dismissed it. Finally, the court dismissed plaintiff’s common law breach of contract claim because it was preempted by ERISA.

Eighth Circuit
Scott v. UnitedHealth Grp., Case No. 20-CV-1570 (PJS/BRT), 2021 WL 2018839 (D. Minn. May 20, 2021) (Judge Patrick J. Schiltz). Plaintiffs are employees covered by self-insured group healthcare benefit plans under ERISA. Defendant UnitedHealth acts as the third-party administrator for the plans. Plaintiffs accused UnitedHealth of engaging in “cross-plan offsetting,” a practice in which UnitedHealth, if it believed it had overpaid a provider for one insured’s treatment, would recoup that overpayment when paying the same provider for a different insured’s treatment, regardless of whether the two patients were insured under the same plan. Plaintiffs argued that this practice violated ERISA, as the district court judge had already concluded in a prior decision. However, the court held that plaintiffs lacked standing to bring a claim for breach of fiduciary duty because plaintiffs alleged that the breaches caused injury to the plan, not to plaintiffs themselves. Plaintiffs made no showing that any of their individual benefit claims had been denied or that they had been financially harmed by the cross-plan offsetting. Thus, the court found the outcome was dictated by the Supreme Court’s 2020 ruling in Thole v. U.S. Bank. The court granted UnitedHealth’s motion to dismiss, granting plaintiffs leave to amend.

Ninth Circuit
Gotta v. Stantec Consulting Services, Inc.. No. CV-20-01865, 2021 WL 1986469 (D. Ariz. May 18, 2021 (Judge G. Murray Snow). Plaintiffs are former employees of Stantec and participants in the ERISA-governed Stantec 401(k) benefit plan. Defendants are fiduciaries of the Plan. Plaintiffs’ complaint focuses on the alleged deficiency of several of the Plan’s investment offerings and defendants’ failure to adequately monitor other fiduciaries. Stantec filed a motion to dismiss, which the court denied. The court noted that plaintiffs alleged that the bargaining power of the Plan should have allowed for defendants to select less expensive classes of investments. Plaintiffs’ claims were not defeated by their failure to allege which processes led to a breach of fiduciary duties. Plaintiffs also alleged defendants failed to monitor the process by which investments were evaluated and did not have a system in place for doing so. Plaintiffs’ claims were likewise not defeated by their failure to plead specific facts about the fiduciaries’ internal processes because such information is typically in the exclusive possession of a defendant.

Severance Benefit Claims

Seventh Circuit
Fountain v. Zimmer Inc., No. 3:17-CV-323 JD, 2021 WL 2037819 (N.D. Ind. May 20, 2021) (Judge Jon E. DeGuilio). Zimmer, a medical device company, terminated Fountain after it discovered he had violated the company’s policy which prohibited organizing or paying for entertainment-related activities with healthcare providers. Because Fountain was terminated for cause, Zimmer found him ineligible for severance benefits. Fountain sued Zimmer and the severance plan under ERISA. Zimmer filed a summary judgment motion, which the court granted. The court found that ample evidence existed in the administrative record to support Zimmer’s decision to deny severance benefits, including a detailed summary of Zimmer’s compliance investigation, as well as “de facto admissions” by Fountain that he participated in entertainment with clients for business purposes. The court further found that Fountain could not make a prima facie case that Zimmer intentionally interfered with his rights under the severance plan, and in any event, Zimmer asserted a legitimate, non-discriminatory reason for terminating Fountain, namely his violation of company policy. Furthermore, the evidence did not indicate that Zimmer’s offered reasons for terminating Fountain were pretextual.

Your ERISA Watch is made possible by the collaboration of the following Kantor & Kantor attorneys: Brent Dorian Brehm, Jaclyn Conover, Beth Davis, Sarah Demers, Elizabeth Green, Elizabeth Hopkins, Andrew Kantor, Monica Lienke, Anna Martin, Susan Meter, Tim Rozelle, Peter Sessions, Stacy Tucker, and Zoya Yarnykh.

Note from the Your ERISA Watch editors:

Your ERISA Watch is edited by Elizabeth Hopkins and Peter Sessions. Each week our goal is to provide you with the benefit of the expertise of knowledgeable ERISA litigators who are on the frontline of benefit claim and fiduciary breach litigation. Although our firm represents plaintiffs, we strive to provide objective and balanced summaries so they are informative for the widest possible audience.

We include recent cases that have been picked up by Westlaw or sent to us by one of our readers. If you have a decision you'd like to see included in Your ERISA Watch, please send it to Elizabeth Hopkins at ehopkins@kantorlaw.net.

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