Your ERISA Watch - Eighth Circuit Warns Disability Administrators to Think Twice Before Terminating Disability Benefits, While Eleventh Circuit Allows Employer to Terminate Life Insurance Benefits Despite Written and Oral Promises That Such Benefits Would Be Maintained
The New Year is off to an exciting start with two noteworthy appellate decisions, one favorable to a plan participant and one favorable to a plan sponsor. First up is a case in which the Eighth Circuit reversed a denial of disability benefits to a long-term recipient of such benefits: Roehr v. Sun Life Assurance Co. of Canada, No. 21-1559, __ F.4th __, 2021 WL 6109959 (8th Cir. Dec. 27, 2021) (Before Circuit Judges Kelly, Erickson, and Grasz).
Insurers who are stuck with long-term expensive disability claims are often looking for ways to get rid of them. However, in this new decision from the Eighth Circuit, the court has warned insurers that they must be careful in how they deny those claims. While an insurer is not obligated to keep paying benefits just because it has done so in the past, it needs to have a good explanation for reversing itself, especially if it has been paying for almost a decade and the medical evidence has remained largely unchanged.
Here, Dr. Todd Roehr was a board-certified anesthesiologist in Davenport, Iowa. In 2004, Dr. Roehr began experiencing intermittent tremors in his hands and fingers. Dr. Roehr was concerned because his symptoms could lead to catastrophic results for his patients if they occurred at the wrong time, and also because he had a history of Parkinson’s disease in his family.
Dr. Roehr attempted to treat his condition with several doctors, but they were unable to agree on a specific diagnosis and his symptoms did not alleviate. Out of concern for his patients and his career, he stopped working and submitted a claim for long-term disability benefits to Sun Life, the insurer of his employer’s ERISA-governed disability benefit plan.
Sun Life approved his claim and paid benefits for nearly ten years. During this time, Dr. Roehr continued treatment, but he still experienced tremors, which were partly controlled by medication. In December of 2017, Sun Life suddenly terminated Dr. Roehr’s benefits, contending that he no longer met the plan definition of disability. In doing so, Sun Life pointed to several factors, including the lack of a concrete diagnosis, as well as medical records that suggested to Sun Life that Dr. Roehr’s condition might be “psychogenic,” had improved, or was not sufficiently impairing. Sun Life also demanded that Dr. Roehr return ten months of benefits, amounting to more than $100,000.
Dr. Roehr unsuccessfully appealed to Sun Life, and then filed suit against Sun Life. The district court concluded that Sun Life’s decision was entitled to deferential review, and that “substantial evidence” existed in the administrative record to support Sun Life’s decision. As a result, it granted judgment to Sun Life. Dr. Roehr appealed.
On appeal, the Eighth Circuit rejected Dr. Roehr’s argument that the district court used the wrong standard of review. It ruled that the mere presence of a conflict of interest – which existed here because Sun Life was both the adjudicator and payer of benefits – was insufficient to warrant less deferential review. The court further noted that Sun Life “actively sought to reduce any potential conflict of interest or bias” by retaining independent physicians and consulting with Dr. Roehr’s doctor before making its decision. As a result, the court agreed that Sun Life’s decision should be reviewed for “reasonableness” and whether it was supported by “substantial evidence.”
However, the court found that Sun Life erred even under this deferential standard of review. The court first noted some “unique factors” that complicated its review. The cause of Dr. Roehr’s tremors was “unexplained,” medical records showed that he had recently had “temporary improvement” in his condition, and Dr. Roehr had not undergone some suggested treatment, such as a neuropsychological examination. However, the court found that these were not serious concerns. Dr. Roehr’s improvement was “inherent” in an intermittent condition that waxed and waned. Furthermore, Sun Life’s own doctors were uncertain about the disabling nature of Dr. Roehr’s condition and had recommended further inquiry by Sun Life, in which it did not engage.
More important to the court’s analysis was the fact that Sun Life had paid Dr. Roehr benefits for almost ten years without complaining, and then, when denying his claim, relied on many of the same records it had previously accepted. “While Roehr bears the burden of proving entitlement to benefits, this Court has explained that a plan administrator’s reliance on the same evidence to both find a disability and later discredit that disability does not amount to a reliance on ‘substantial evidence.’” The court found that Sun Life’s decision was “nothing more than a sudden change of heart on essentially the same record after almost a decade—and with no notice to Roehr prior to his benefits’ termination.” As a result, Sun Life had left Dr. Roehr “without any meaningful opportunity to respond or seek other treatment.”
As a result, the court concluded that Sun Life’s “about-face” was unreasonable, and it remanded to the district court with instructions to order Dr. Roehr’s reinstatement of benefits.
Also noteworthy this week is a decision from the Eleventh Circuit holding that life insurance plan participants had no right to life insurance benefits that they were repeatedly promised because the plan contained a reservation of rights clause: Klaas v. Allstate Ins. Co., No. 20-14104, __F.4th__, 2021 WL 6124337 (11th Cir. Dec. 28, 2021) (Before Circuit Judges Pryor, Luck, and Brasher).
In 2013, the Allstate Insurance Company decided it would stop paying insurance premiums on its life insurance policies for all its former employees who retired after 1990. The company took this action despite many years of oral and written promises to its employees and retirees communicating that their life insurance benefits were “paid up” at “no cost” and “for life.” However, these written and oral assurances were undermined by the company’s summary plan descriptions, which since 1990 consistently reserved for Allstate the right to terminate the benefit plans or to modify them at any time. The summary plan descriptions also included “no vesting rights” provisions.
Following Allstate’s termination of life insurance coverage, two classes sued the company under ERISA Section 502(a)(1)(B), alleging that the company had breached its fiduciary duties by failing to provide full and accurate benefit information. The first group, the Turner retirees, consisted of retirees whose life insurance benefits were terminated. The second group, the Klaas retirees, consisted of employees who took part in a special retirement opportunity (SRO) offered by Allstate who also lost their life insurance benefits.
The district court granted summary judgment in favor of Allstate, concluding that the company was within its rights to terminate benefits given the unambiguous language within the plan documents. The district court determined that the fiduciary breach claims were time-barred because the last documented date of Allstate misleading retirees about the benefits occurred in 2006, more than six years before the cases were brought in 2013. Plaintiffs appealed the decisions, arguing the district court erred by failing to consider extrinsic evidence which made the summary plan language ambiguous, and by considering the fiduciary duty claims untimely. The Eleventh Circuit affirmed, unpersuaded by plaintiffs’ arguments.
In reaching its decision, the Eleventh Circuit relied on the Supreme Court decision in M & G Polymers USA, LLC v. Tackett, 574 U.S. 427 (2015). In that case, the Supreme Court held vesting under an ERISA healthcare plan should be determined under ordinary principles of contract interpretation without application of any special inferences. The Eleventh Circuit also relied on the Seventh Circuit’s decision in Vallone v. CAN Financial Corp., 375 F.3d 623, 626 (7th Cir. 2004), and the Third Circuit’s decision in In re Unisys Corp. Retiree Medical Benefit “ERISA” Litigation, 58 F.3d 896, 900 (3d Cir. 1995), in which the courts held that employers were allowed to terminate retiree healthcare benefits despite promises of lifetime benefits when the governing plan documents contained reservation of rights provisions.
Given this case law, the Eleventh Circuit agreed with the district court that, as the summary plan descriptions after 1990 consistently and clearly gave Allstate the right to terminate life insurance benefits, the retirees had no right to the benefits under Section 502(a)(1)(B). The court reached the same conclusion with respect to the Klaas retirees, reasoning that Allstate was allowed to terminate the benefits because the SRO under which they retired contained an unambiguous reservation of rights clause, and also referred the retirees to the SPDs, which similarly reserved the right to terminate the insurance benefits. The decision did not touch on the fact that life insurance benefits are inherently different from health insurance benefits, as beneficiaries have in no way benefited from the insurance to date when the benefit is terminated while a person is still alive, and elderly participants cannot sign up for new life insurance coverage to replace what was lost.
Turning to the Section 502(a)(3) breach of fiduciary duty claims, the Eleventh Circuit agreed with the district court that the claims were time-barred under ERISA’s six-year statute of limitations because all the documented misrepresentations in the record occurred by 2006, seven years before the suit was filed. In so holding, the court rejected the retirees’ argument that Allstate continued to breach its duties by failing to correct misrepresentations it had made, noting that Allstate had “clarified (the) confusion by issuing subsequent SPDs that included reservation-of-rights provisions.” The court also rejected the argument that the claims were timely because it was not until 2013, when Allstate actually terminated benefits, that the previous representations of paid-up for life benefits became false. The Eleventh Circuit disagreed that this rendered the suit timely, reasoning that Allstate was not acting as a fiduciary when it terminated the life insurance benefits in 2013 and therefore its actions in doing so could not start the clock on the fiduciary breach claim.
Below is a summary of this past week’s notable ERISA decisions by subject matter and jurisdiction.
Disability Benefit Claims
Fonseca v. Standard Ins. Co., No. 20-1242, 2021 WL 6135563 (E.D. La. Dec. 29, 2021) (Judge Jay C. Zainey). If David Byrne were describing this decision, he might summarize it as being on the road to nowhere. In a very roundabout way, the court here decided very little and settled virtually nothing in this long-term disability case. Plaintiff Lucy Fonesca brought suit against Standard Insurance Co. seeking disability benefits. Standard denied the benefits claim citing a preexisting condition exclusion in the plan. Ms. Fonesca suffers from many auto-immune disorders including psoriatic arthritis, lupus, migraine headaches, and fibromyalgia, and from mental health conditions including anxiety and depression. Many of these conditions did pre-date her application of disability benefits. Ms. Fonseca worked as an insulation installer, a physically demanding construction industry job. However, as Standard denied the claim because of the preexisting conditions exclusion, it did not for the most part opine on whether Ms. Fonesca was able to perform the material duties of her own occupation. One of the central issues in the case was when Ms. Fonesca was hired, and consequently when her long-term disability effective date was. Only if the date Standard relied on is correct can the preexisting conditions exclusion apply. This is also the only issue the court comes close to resolving. The court found that the date Standard utilized as Ms. Fonseca’s hire date was likely incorrect and the sole document provided as evidence of that date “appears to the Court to be one either prepared or maintained by Standard and not the employer.” Therefore, the court could not conclude that Standard appropriately applied the preexisting condition exclusion to deny coverage. However, as Ms. Fonseca did not challenge the hire date during the internal administrative appeals process, the court allowed Standard to “resolve the discrepancy (presented by the hire date) on remand by obtaining clarification from the employer.” The court went on to write, “regardless of whether Standard confirms its determination that the Preexisting Condition exclusion applies, Standard must…analyze the supplemented record to determine whether Fonseca’s conditions…meet the Plan’s definition of disability.” Once the remand and the administrative process is complete, Ms. Fonseca “may move to reopen this matter.” Ms. Fonseca’s motion for judgment on the pleadings was thus denied.
Hamilton v. Unum Life Ins. Co. of Am., No. 20-cv-11119, 2021 WL 6133991 (E.D. Mich. Dec. 28, 2021) (Judge Gershwin A. Drain). Plaintiff Victoria Hamilton suffers from radiculopathy, neuropathy, fibromyalgia, and chronic pain. Ms. Hamilton applied for disability benefits in 2016 under her ERISA plan insured by defendant Unum Life Insurance Company of America. Unum paid Ms. Hamilton’s benefits for two years, after which it terminated the benefits citing a plan provision that limits benefit eligibility to 24 months for disabilities based primarily on “self-reported symptoms.” Ms. Hamilton sued, seeking reinstatement of benefits, and the parties cross-moved for judgment on the administrative record. Under the arbitrary and capricious standard of review, the court found Unum’s determination was based on substantial evidence. Because Unum’s reviewing physicians examined all of the medical records, the file reviewers considered Ms. Hamilton’s Social Security Administration’s disability award, and Unum’s doctors made reasonable efforts to communicate with Ms. Hamilton’s treating physician and considered his responses when evaluating her claim, the court was satisfied that the denial was not arbitrary and capricious. Under the plan terms, the court agreed with Unum that Ms. Hamilton was not entitled to benefits beyond 24 months. For these reasons the court granted Unum’s motion and denied Ms. Hamilton’s motion.
Zall v. Standard Ins. Co., No. 21-cv-19-slc, 2021 WL 6112638 (W.D. Wis. Dec. 27, 2021) (Magistrate Judge Stephen L. Crocker). Plaintiff Dr. Eric Zall became disabled in 2013 from a cervical disc herniation and radiculopathy causing him chronic neck pain and numbness in his right hand. His insurer, defendant Standard Insurance Company, paid his benefit claim for six years. However, in December 2019, Standard terminated the benefits, citing the policy’s Other Limited Conditions (“OLC”) provision which limits long-term disability benefits to two years when the disabling condition is caused by “diseases or disorders of the cervical…back and its surrounding soft tissue.” Dr. Zall appealed the denial, asserting that his disability was caused by cervical disc herniation and radiculopathy, conditions specifically excluded from the OLC limitation. Standard refused to reinstate the benefits, which prompted Dr. Zall to bring this ERISA suit challenging the decision. The parties filed cross-motions for summary judgment. Under an arbitrary and capricious standard of review the court held that the claims administrator “fully and fairly reviewed all of the evidence related to Dr. Zall’s claim and came to the rational conclusion that Dr. Zall’s disabling condition was not one for which long term disability was available under the policy.” Accordingly, the court granted defendant’s motion for summary judgment and denied Dr. Zall’s motion. The court reached this conclusion despite that fact that Dr. Zall’s treating physicians, supported by an EMG and an MRI, diagnosed Dr. Zall with cervical radiculitis and a herniated cervical disc with severe foraminal narrowing. The court was not persuaded by any of Dr. Zall’s arguments that the benefit determination was arbitrary and capricious. First, Dr. Zall argued that Standard failed to provide him a copy of its reviewing doctor’s report or the opportunity to respond to it. This argument failed, because the court held that the Department of Labor’s new rule requiring this information only applies to “claims for disability benefits filed under a plan after April 1, 2018.” Second, Dr. Zall argued that the medical record supported his diagnoses of cervical radiculopathy and cervical herniated disc. The court found Standard’s conclusions, based on its own reviewing doctors’ opinions, to be reasonable under the deferential review standard, especially as the objective medical evidence was from several years ago. Dr. Zall’s final argument, that Standard waived its right to terminate benefits after paying him benefits for more than six years, “after it now says his benefits should have ended,” also did not persuade the court, which reasoned that nothing prohibits a plan administrator from performing periodic reviews of a beneficiary’s disability status. As there was no evidence “to suggest that (Standard) continued to pay Dr. Zall because it found that the (OLC) limitation did not apply,” Standard was within its rights to conduct a review and terminate the benefits even after six years of payment. Judgment was thus entered in favor of Standard.
Rios v. Unum Life Ins. Co. of Am., No. 21-55020, __ F. App’x __, 2021 WL 6116635 (9th Cir. Dec. 27, 2021) (Before Circuit Judges Berzon and Rawlinson, and District Judge Kennelly). Plaintiff Yolanda Rios brought suit against defendants Unum Life Insurance Company and Provident Life and Accident Insurance Company after her long-term disability benefits were terminated. Unum initially granted Ms. Rios’s benefits but later terminated them during the “own occupation” period when Unum concluded that Ms. Rios could perform her occupation as a User Support Specialist. The district court, however, concluded that Ms. Rios was entitled to both “own occupation” and subsequent “any occupation benefits.” Unum appealed the decision to the Ninth Circuit. On appeal, the court affirmed the district court’s ruling for Ms. Rios with respect to the “own occupation” benefits but reversed the district court’s ruling that Ms. Rios was entitled to “any occupation” benefits, and remanded to the district court instructing it to remand the matter to Unum to determine Ms. Rios’s entitlement to “any occupation” benefits. The Ninth Circuit was satisfied that there was ample medical evidence including x-rays, MRIs, diagnostic examinations, and treating physician records to support the district court’s finding that Ms. Rios could not perform the duties of her job. However, the Ninth Circuit found that the district court clearly erred in concluding Ms. Rios could not perform any occupation. The Ninth Circuit was not satisfied that Ms. Rios’s favorable Social Security Administration decision alone warranted such a finding. Ms. Rios’s disability was not specified, although the Ninth Circuit did allude to it being progressive and potentially incurable. Nevertheless, the Ninth Circuit found the district court’s decision with regard to the "any occupation" period lacked sufficient evidentiary support.
Life Insurance & AD&D Benefit Claims
Workman v. Dearborn Nat’l Life Ins. Co., No. 20-55182 20-55268, __ F. App’x __, 2021 WL 6140042 (9th Cir. Dec. 29, 2021) (Before Circuit Judges Berzon and Bea, and District Judge Bennett). Plaintiff-appellant Lovada Workman was the life insurance beneficiary of her former husband, John Borum, who died on June 30, 2002. The ERISA-governed life insurance plan was administered by defendant-appellee Dearborn National Life Insurance Company. Although Ms. Workman was required by the plan to file written notice of claim within 20 days of Mr. Borum's death, she filed her claim nearly fourteen years later. Dearborn paid Ms. Workman the full life insurance benefit guaranteed by the policy, plus interest at a rate of 0.74% calculated from the date when she filed her claim in 2016. Ms. Workman brought this suit claiming the amount Dearborn paid in interest was incorrectly calculated, and instead ought to have been calculated at a higher interest rate from the date of Mr. Borum’s death in 2002, totaling $9,085.19. Ms. Workman argued that her claim was supported by Section 10172.5(a) of the California Insurance Code, which states that an “insurer admitted to transact life insurance…in this state that fails or refuses to pay the proceeds of, or payments under, any policy of life insurance issued by it within 30 days after the date of death of the insured shall pay interest, at a rate not less than the current rate of interest on death proceeds left on deposit with the insurer computed from the date of the insured’s death, on any moneys payable and unpaid after the expiration of the 30-day period.” The district court was not persuaded by this argument and granted judgment in favor of Dearborn. The Ninth Circuit affirmed the lower court’s decision. The appeals court held that because Dearborn did not have a duty to pay benefits until Ms. Workman had submitted her claim it also was not required to pay interest on that money until that date. The court stated that finding otherwise might incentivize beneficiaries to withhold filing claims. Accordingly, Dearborn was not required to pay any additional interest to Ms. Workman. Turning to Ms. Workman’s breach of fiduciary duty ERISA claim, the court held that Dearborn had a fiduciary duty only to the disposition of the guaranteed benefit. As Dearborn paid the full policy benefit, the court was satisfied that it fulfilled its fiduciary duties. Nor was the court persuaded that general trust law principles expanded Dearborn's duties, and thus it rejected the argument that Dearborn was required to disgorge the additional interest Ms. Workman sought.
Pleading Issues & Procedure
Lowman v. Gen. Motors Corp., No. 20-cv-12515, 2021 WL 6112095 (E.D. Mich. Dec. 27, 2021) (Judge Nancy G. Edmunds). Plaintiff Kenneth Lowman brought suit against General Motors Corporation (“GM”) in the Wayne County Circuit Court alleging his retirement benefits under the GM pension plan were wrongfully denied. GM then removed the complaint to the Eastern District of Michigan citing ERISA preemption. GM then offered Mr. Lowman a settlement. Mr. Lowman received the settlement proposal on October 19, 2020, but refused to sign it on the grounds that he didn’t want to pay his own attorney’s fees from the settlement. In March of 2021, the Magistrate Judge conducted a settlement conference with the parties. GM stated it would honor its prior settlement offer, but would not increase the amount to include Mr. Lowman’s attorney’s fees. A few weeks later, the parties and the Magistrate Judge held a conference in which Mr. Lowman unequivocally agreed to the terms of the settlement agreement. In a transcript included in the decision, the Magistrate Judge asked Mr. Lowman over and over again if he understood the terms of the agreement and if he agreed to them. Each time he was asked these questions, Mr. Lowman answered, “yes.” Based on that conference and Mr. Lowman’s verbal agreement, the Magistrate Judge issued a minute order confirming that settlement had been reached. However, when GM’s counsel provided the settlement agreement to Mr. Lowman’s attorney for Mr. Lowman’s signature, Mr. Lowman again refused to sign. Once again, he said he did not want to pay his attorney’s fees. GM then filed a motion to enforce settlement. Plaintiff filed a motion to reinstate the case and opposing settlement. His attorney, frustrated, withdrew as counsel and filed a response to GM’s motion concurring with “defendant counsel’s assessment of the current status of the matter.” The Magistrate Judge recommended granting GM’s motion to enforce the settlement, and denying Mr. Lowman’s motion to reinstate the case and opposing settlement, reasoning that, “there was an informed and unambiguous offer and acceptance of the proposed settlement that constituted a meeting of the minds.” The court conducted a de novo review of the Magistrate Judge’s report and accepted and adopted the report and recommendation.
OSF Healthcare Sys. v. SEIU Healthcare IL Pers. Assistants Health Plan, No. 3:21-cv-50029, 2021 WL 6113207 (N.D. Ill. Dec. 27, 2021) (Judge Iain D. Johnston). Provider OSF Healthcare Saint Anthony Medical Center (“OSF”) brought suit against SEIU Healthcare IL Personal Assistants Health Plan and its board of trustees under ERISA Sections 502(a)(1)(B) and (c)(1)(B) to recover payment for services it provided to plan participant Ms. Harmon in 2018. OSF was an out-of-network provider under the plan. Ms. Harmon was referred to OSF by her in-network provider because that provider did not offer the treatment she required. Ms. Harmon was told that due to these factors, OSF would be treated as an in-network provider under the circumstances. OSF treated Ms. Harmon and then submitted a claim to the plan for $78,448.60. The plan paid $9,847.14 of that claim and refused to pay the remainder, stating the services were provided by an out-of-network facility. Ms. Harmon appealed, although the plan referred to the appeal as an “adjustment claim.” Her formal appeal, submitted later, was denied by the plan as untimely. OSF then commenced this suit. Defendants moved to dismiss pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). Defendants argued that because OSF is a medical provider, not a beneficiary or participant of the plan, it has no standing to bring ERISA claims. Defendants stressed that participant rights under the plan are not assignable. The court agreed. Ms. Harmon, the court held, possessed the right to sue the plan under ERISA; OSF did not. OSF’s argument that the plan documents did not “prohibit an appointed personal representative to file suit on behalf of a participant,” was not persuasive to the court. The court wrote, “simply because it is not prohibited does not mean it is allowed.” The court went on to express that, although an authorized representative may be permitted to act on behalf of a participant, that representative does not have the authority to initiate judicial proceedings on the participant’s behalf. The court therefore ordered OSF to provide Ms. Harmon a copy of this order to allow Ms. Harmon to ratify or join the action as the real party in interest. If she fails to do so, the court stated that it will grant the plan’s motion to dismiss with prejudice.
Note from the Your ERISA Watch editors:
Your ERISA Watch is written and edited by Elizabeth Hopkins and Peter Sessions, with the assistance of Emily Hopkins. 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 email@example.com.
And don't forget to check out the ERISA Watch podcast, which tells the true stories behind the cases. The newest episode focuses on the importance of the investment fees at issue in Hughes v. Northwestern University. Former Assistant Secretary of Labor Phyllis Borzi explains why investment fees are matters of great importance to anyone with a pension. You can listen to this podcast and other episodes here.