Your ERISA Watch – Fifth Circuit Construes Continuity of Coverage Provision in Favor of Disabled Participant

Your ERISA Watch – Fifth Circuit Construes Continuity of Coverage Provision in Favor of Disabled Participant

Miller v. Reliance Standard Life Ins. Co., No. 20-30240, __ F.3d __, 2021 WL 2221347 (5th Cir. June 2, 2021) (Before Circuit Judges Haynes, Duncan, and Engelhardt).

Continuity of coverage provisions in benefit plans seem fairly straightforward – if you have coverage under your employer’s plan, when your employer switches insurance companies you should still maintain your coverage. However, employees, through no fault of their own, often get tripped up in these transitions and sometimes lose their coverage despite years of service to their employers. In this case, the Fifth Circuit prevented that from happening.

Plaintiff Michael Miller is a Louisiana ship pilot who has an extensive history of health problems and injuries. While he was out on disability in 2015, his employer changed the insurer of its disability benefit plan from Prudential to defendant Reliance. Miller returned to work in July of 2016 but injured himself on a ladder in August of 2016 and stopped working again. Reliance denied Miller’s claim for long-term disability benefits, contending that he was not insured under the plan until August 1, 2016, the first day of the month following his return to active work. Because Miller had received medical treatment for the same issues within the three months prior to that date, Reliance argued that the pre-existing condition exclusion in its policy barred coverage.

Miller appealed, arguing that his coverage began long before August 1, 2016. He contended that Reliance was required to credit his prior disability coverage with Prudential, thereby resulting in a continuity of coverage that negated application of the pre-existing condition exclusion. When Reliance failed to render a timely decision on Miller’s appeal, he sued. The parties filed cross-motions for summary judgment. The district court granted Reliance’s and denied Miller’s, agreeing with Reliance that Miller’s coverage began on August 1, 2016, and thus his claim fell afoul of the pre-existing condition exclusion.

The Fifth Circuit reversed. The court focused on language in the plan providing that continuity of coverage existed where an “employee was covered under the prior group long term disability insurance plan maintained by you prior to this Policy’s Effective Date, but was not Actively at Work due to Injury or Sickness on the Effective Date of this Policy and would otherwise qualify as an Eligible Person.” The parties agreed Miller was previously covered and was not “Actively at Work.” Thus, to obtain coverage Miller was required to show that he was an “otherwise an eligible person,” i.e., that he was an active employee “in every respect other than actually performing his duties as of the policy’s effective date.”

In ruling for Miller on this issue, the Fifth Circuit relied on and agreed with a recent Sixth Circuit case, Wallace v. Oakwood Healthcare, Inc., 954 F.3d 879 (6th Cir. 2020). The Fifth Circuit found that Reliance’s definition of “eligible person” was ambiguous and construed it in Miller’s favor, ruling that the term “include[d] those who, on the relevant date, are current employees even if not actually working.” The court noted that interpreting the provision otherwise would result in redundant language and a “convoluted construction.” Because Miller was a full-time employee when healthy and on the job, the continuity of coverage provision applied and thus the pre-existing condition exclusion was inapplicable. The court rendered judgment for Miller and remanded for a calculation of his benefits.

This week’s notable decision was prepared by Kantor & Kantor attorney Peter Sessions. Peter has been practicing in the insurance and ERISA-related fields of law for more than 20 years and has special expertise in appellate litigation.

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

Class Actions

Third Circuit
Boley v. Universal Health Services, Inc., No. CV 20-2644, 2021 WL 2186432 (E.D. Pa. May 27, 2021) (Judge Mark A. Kearney). Former Universal Health employees, on behalf of the Plan and a purported class of tens of thousands of similarly situated Plan participants and beneficiaries, sued Universal Health and its Investment Committee (the “Fiduciaries”) under ERISA, alleging various breaches of fiduciary duties relating to the Plan's decision-making processes and recordkeeping. Defendants moved to stay all proceedings while the class certification was being appealed. The court analyzed the following factors in reaching its decision on the motion: (1) whether the stay applicant has made a strong showing that he is likely to succeed on the merits; (2) whether the applicant will be irreparably injured absent a stay; (3) whether issuance of the stay will substantially injure the other parties interested in the proceeding; and (4) where the public interest lies. While the first factor weighed in Defendants’ favor given the recent Supreme Court’s restrictive decision on standing in Thole v. U.S. Bank, N.A., 140 S. Ct. 1615 (2020), the remainder of the factors did not warrant a stay of all proceedings. In particular, the court deemed there was no harm in permitting Plaintiffs to proceed with already-scheduled discovery, but stayed all other obligations, including expert disclosures, summary judgment motions, and trial.

Disability Benefit Claims

Second Circuit
Archer v. Hartford Life & Acc. Ins. Co., No. 18-CV-1158-WFK-VMS, 2021 WL 2109113 (E.D.N.Y. May 25, 2021) (Judge William F. Kuntz II). The court reviewed Hartford’s denial of plaintiff’s long-term disability claim under the arbitrary and capricious standard of review and determined the decision was not an abuse of Hartford’s discretion. The court was not swayed by plaintiff’s argument that Hartford relied on the opinions of medical file reviewers who had never examined the plaintiff and ignored the opinions of the treating doctors. The court was also unbothered that Hartford did not share the opinions of the medical file reviewers with plaintiff prior to the final denial of her appeal. Although the ERISA claims regulations require fiduciaries to share adverse evidence prior to issuing a final denial, the court did not address the claim regulations in its opinion. Defendant’s motion for summary judgment was granted.

Fifth Circuit
Bunner v. Dearborn Nat’l Life Ins. Co., No. CV H-18-1820, 2021 WL 2119488 (S.D. Tex. May 25, 2021) (Judge Sim Lake). The court previously denied plaintiff’s motion for summary judgment and granted defendants’ summary judgment on all claims except ERISA estoppel. The court reviewed the estoppel claim de novo because it is a legal theory rather than an interpretation of Plan terms. Plaintiff sought estoppel based on sixteen alleged material misrepresentations by defendants regarding whether pre-existing conditions could preclude her from receiving disability benefits under the Plan and whether the waiver applicable to her short-term disability benefits extended to her claim for long-term disability benefits. The court found that defendants’ pre-enrollment representations were material misrepresentations, including statements that new hires were exempt from pre-existing condition exclusions. The court found that defendants’ post-enrollment representations were not material misrepresentations. The court found plaintiff established by a preponderance of the evidence that she reasonably and detrimentally relied on defendants’ pre-enrollment material misrepresentations, but not on post-enrollment representations. The court found that plaintiff failed to establish that she was an especially vulnerable plaintiff, that she was misled after she inquired about benefits, or that defendants engaged in acts of bad faith. The court denied plaintiff’s motion for judgment and denied defendants’ request for attorney’s fees and costs.

Tenth Circuit
Johnson v. Hewlett Packard Enterprises Co., No. 19-cv-01878-RBJ, 2021 WL 2254965 (D. Co. June 3, 2021) (Judge R. Brooke Jackson). Plaintiff, who suffered from progressive rheumatoid arthritis, sought long-term disability benefits under his former employer’s plan, which was governed by ERISA. Plaintiff filed a motion for summary judgment, which the court granted. The court found that the defendant relied on an inaccurate report regarding plaintiff’s employment because the report miscalculated the length of time plaintiff could type in a day, which made a substantial difference in his employability in various computer-based jobs, including his own prior role. The report’s employment analysis and conclusion determined plaintiff could perform some occupations and thus was not disabled, but it failed to consider all of plaintiff’s essential job duties, such as typing. The court held that it could not defer to defendant’s overall determination that plaintiff was not disabled because it was based on a flawed translation of his typing restriction into plaintiff’s ability to work.

ERISA Preemption

Wall v. Reliance Standard Life Ins. Co., No. 20-2075 (EGS), 2021 WL 2209405 (D.D.C. June 1, 2021) (Judge Emmett Sullivan). Plaintiff filed a pro se claim in small claims court for disability benefits under a policy governed by ERISA. Plaintiff brought state law causes of action for intentional infliction of emotional distress, harassment, and invasion of privacy. Reliance Standard removed the case to federal court under ERISA and moved to dismiss the complaint. Plaintiff sought to file an amended complaint and asserted a cause of action under ERISA, plus intentional infliction of emotional distress, bad faith, harassment, invasion of privacy and negligence. He also added a cause of action for malpractice against one of Reliance Standard’s reviewing physicians. During the pendency of his complaint, Reliance Standard reversed its denial and reinstated benefits, and argued that the complaint was now moot. The court rejected that argument and held that the insured could still bring suit even after reinstatement under ERISA. The court permitted plaintiff to amend his complaint to include the ERISA-based causes of action, but denied his inclusion of state-based causes of action as preempted. However, the malpractice action against the reviewing physician was allowed to proceed.

In re Fin. Oversight & Mgmt. Bd. for Puerto Rico, 2021 WL 2071094 (D.P.R. May 21, 2021) (Judge Laura Taylor Swaine). Because the court found that the plaintiffs are unlikely to succeed in their ERISA claims due to lack of standing and ERISA not applying to the plan in question, the court denied plaintiffs’ motion for a preliminary injunction under ERISA. Plaintiffs are unions, and not ERISA plan participants, beneficiaries, or fiduciaries. Unions are not permitted to bring suit under ERISA. Further, the plan in question is a government plan and excluded from ERISA, making the ERISA claims inapplicable. Plaintiffs’ motion as it pertained to the ERISA claims was therefore denied.

Medical Benefit Claims

Fifth Circuit
Worob v. Blue Cross & Blue Shield of Texas, No. 1:20-CV-00492-LY, 2021 WL 2211112 (W.D. Tex. June 1, 2021) (Mag. Judge Susan Hightower). Plaintiff filed suit seeking reimbursement for his son’s mental health treatment at two treatment facilities under an ERISA-governed medical benefit plan. The magistrate judge reviewed motions for summary judgment under de novo review. The magistrate found BCBS entitled to summary judgment because the treatment centers were ineligible for reimbursement as “inpatient hospital expenses” under the plan as they were excluded from the definition of residential treatment centers. The court also found that the services did not qualify as a covered “medical-surgical expense” under the plan. The plan requires services to be billed to the patient directly to be considered a “medical-surgical” expense and the providers did not directly bill the patient for services but rather billed BCBS. The magistrate judge issued her report and recommendations with the above finding.

Sixth Circuit
Schmidt v. Overland Xpress, LLC, No. 1:12-CV-397, 2021 WL 2186455 (S.D. Ohio May 28, 2021) (Judge Michael R. Barrett). The dispute centers on plaintiff’s eligibility for medical benefits coverage when she took a disability or medical leave of absence from work. The court reviewed motions for summary judgment by the Browns, two officers of the employer company, and the plaintiff under an abuse of discretion review. The court granted summary judgment as to the Browns for the benefits claims. However, the court found the evidence suggests that the Browns interfered with plaintiff’s attainment of benefits in violation of ERISA and the benefit plan. The Browns reported false information to the administrator, Humana, including falsely informing Humana that plaintiff resigned. The Browns also relied on a misreading of the employee handbook. Evidence suggests the Browns may have had specific intent to interfere with plaintiff’s attainment of plan benefits. The court allowed the parties to proceed to a bench trial on the ERISA interference claim. The court found the Ohio disability discrimination claim and fraud claims were preempted in part and otherwise failed in part.

Ninth Circuit
Continental Med. Transp. LLC v. Health Care Serv. Corp., No. C20-0115-JCC, 2021 WL 2072524 (W.D. Wash. May 24, 2021) (Judge John C. Coughenour). Plaintiff is a provider of long-range international air ambulance services. Plaintiff seeks benefits under a medical benefit plan for a participant it transported from Lima, Peru to Miami, Florida for critical medical care. The court reviewed cross-motions for summary judgment under an abuse of discretion review. The plan provides coverage for air ambulance under three conditions, including that the first hospital does not have the services or facilities to treat the patient’s condition. The court found that the plan of care at the hospital in Miami was comparable to the one in Peru and plaintiff’s briefing does not specify how the treatment in Miami differed from the treatment the patient received in Peru. The court found plaintiff did not meet requirements for air ambulance coverage and granted summary judgment to defendants.

Pension Benefit Claims

Ninth Circuit
Raya v. Barka, No. 19-CV-2295-WQH-AHG, 2021 WL 2254975 (S.D. Cal. June 3, 2021) (Judge William Q. Hayes). Plaintiff alleged that defendant, his former employer, kept his 401(k) loan repayments for personal use. He also alleged that defendant hid the existence of the 401(k) and pension plans from employees, resulting in damages to those employees due to missed contributions. Plaintiff was terminated after bringing these issues to defendant’s attention, and alleged his termination was ERISA interference. Plaintiff brought claims for benefits due under the plans, breach of fiduciary duties, and intentional interference. The court declined to dismiss plaintiff’s claims for benefits due or breach of fiduciary duty, finding the complaint did not allege facts that would clearly bar these claims based on those defenses. Defendant’s motion to dismiss the intentional interference claim was dismissed as untimely because plaintiff sued more than two years after his employment was terminated. All other claims were allowed to proceed.

Pleading Issues & Procedure

Ninth Circuit
Winsor v. Sequoia Benefits & Ins. Svcs. LLC, No. 21-CV-00227-JSC, 2021 WL 2207430 (N.D. Cal. June 1, 2021) (Judge Jacqueline Scott Corley). Plaintiffs filed suit alleging unlawful kickbacks by fiduciaries of RingCentral’s Welfare Benefit Plan. Defendants moved to dismiss, arguing plaintiffs have no standing to pursue their claims because plaintiff had no injury in fact. Plaintiffs argued they were injured in two ways: first, because their contributions to the welfare benefit plan would be lower if not for defendants’ ERISA violations, and second, because the excessive insurance charges exhausted the funds available to pay for the benefits provided by the plan. The court found plaintiffs’ complaint did not allege facts sufficient to show they would have paid less in contributions for their benefits. The court thus granted defendants’ motion to dismiss with leave to amend.

Remedies

Ninth Circuit
Haddad v. SMG Long Term Disability Plan, No. 16-CV-01700-WHO, 2021 WL 2187979 (E.D. Cal. May 28, 2021) (Judge William H. Orrick). At issue was whether Hartford owed plaintiff prejudgment interest in connection with Hartford’s November 2019 payment of Long-term disability (LTD) benefits. Plaintiff argued that he was entitled to an award of prejudgment interest, despite not having secured a judgment on either his short-term disability (STD) or LTD benefit claims, and that interest should be awarded at a rate higher than the default Treasury Bill rate. Specifically, plaintiff sought an award at 8% because that rate approaches the California Insurance Code default 10% rate and, because if plaintiff had invested the money not paid by Hartford, he would have secured a rate of return at least at 8%. Hartford argued that because plaintiff’s LTD benefits award was the result of the claim administrative process – and not the result of any judgment entered by the court – plaintiff was not entitled to any prejudgment interest. After weighing the equities and considering fairness, the court found that plaintiff was not entitled to a prejudgment interest on the LTD award. It explained there had been no judgment by any court regarding the LTD payments. Once Hartford’s initial denial of STD benefits was overturned, the parties swiftly settled the STD benefits and then Hartford promptly determined the newly submitted LTD benefits issue. In these circumstances, prejudgment interest on the LTD payments was not warranted. The result might have been different if there was evidence that Hartford’s denial of LTD benefits was made in bad faith or took excessively long. But there was no such evidence. Hartford promptly determined the LTD issue after the STD issue was settled and the LTD issue was submitted to it.

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.