Your ERISA Watch – The Pendulum Swings: Despite Thole, The Third Circuit Affirms Standing of Individual Account Plan Participants to Challenge Investments

Your ERISA Watch

Boley v. Universal Health Servs., No. 21-2014, __ F. 4th __, 2022 WL1768984 (3d Cir. Jun. 1, 2022) (Before Circuit Judges Greenaway, Jr., Scirica, and Cowen).

Newton’s first law of motion states that a body in motion stays in motion and a body at rest stays at rest unless acted upon by an outside force. A pendulum demonstrates this principle. So too do the court decisions in Thole v. U.S. Bank N.A., 140 S. Ct. 1615 (2020) and this case, as Article III standing in ERISA pension cases is pulled first in one direction and then swings back in the other.

In Thole, as ERISA Watch readers will remember, the Supreme Court held that participants in a defined benefit plan lacked standing to challenge losses to their defined benefit plans when they themselves had not lost any retirement benefits. Unlike Thole, this case involves a class action suit brought by participants in a defined contribution pension plan who allege that they did, in fact, suffer investment losses stemming from excessive fees associated with some of the plan’s investment options.

Specifically, the class representatives in this case are three current and former employees of Universal Health Services who challenged, as excessively costly, annual recordkeeping and administrative fees, as well as 13 target date funds – called the Fidelity Freedom Fund suite – designed to shift investment strategy as a target retirement year approaches.

The plaintiffs also challenged the method by which the plan fiduciaries selected and maintained investment options. In total, the plan offered 37 plan options and the target date funds in this suite were default investments for participants who did not affirmatively elect alternatives. The class representatives were all charged the annual recordkeeping and administrative fees and were invested in seven of the 37 plan options.

In an earlier phase of the case, Universal moved for partial dismissal, arguing that the named plaintiffs lacked Article III standing to challenge investment options in which they were not themselves invested, but the district court denied this motion. Undeterred, Universal renewed this argument in opposition to the plaintiffs’ motion to certify a class of all current and former plan participants, arguing that because the named plaintiffs were not invested in 30 of the plan’s funds, they lack constitutional standing to challenge these investments and their claims were therefore not typical of the claims of other class members.

The district court again rejected this contention and the Third Circuit affirmed on interlocutory appeal under 29 U.S.C. §1292(e) and Federal Rule of Civil Procedure 23(f). To reach this result, the Third Circuit looked to each of the asserted claims. First, the court concluded, as Universal conceded, that the plaintiffs had standing to challenge the allegedly excessive recordkeeping and administrative fees, because these fees allegedly injured them and affected all plan participants in the same way.

Second, the court concluded that the plaintiffs suffered a concrete injury with respect to the challenged investments in the Fidelity Freedom Fund suite because each of the plaintiffs was invested in at least one these funds and they challenged each of these target date investments on the same basis: that they were excessively expensive because they were invested in high fee actively managed funds rather than lower cost index funds.

The court reached a similar conclusion with respect to the allegedly imprudent evaluation process. Because the plaintiffs alleged that deficiencies in the process for selecting and maintaining investments (and in monitoring the other fiduciaries with respect to this process) led the plan to pay overall fees that were nearly double that of comparable plans, they adequately alleged harm for Article III purposes.

Thus, the appellate court concluded that Article III did not prevent plaintiffs from representing class members who were allegedly harmed by investments in other funds that were imprudent for the same reason, as the Third Circuit has previously held in Sweda v. University of Pennsylvania, 923 F.3d 320, 323 (3d Cir. 2019).

In reaching what it characterized as this “straightforward conclusion,” the court rejected Universal’s contention that Thole required it to adjust its analysis. To the contrary, the court reasoned that Thole turned on the absence of any personal loss to the plaintiffs in that case, whereas the plaintiffs in Boley allege just such an injury stemming from the decisions and alleged failures of the defendant.

Having concluded that the plaintiffs surmounted the Article III hurdle, the court had little trouble affirming the district court’s conclusion that their claims were sufficiently typical of the claims of the class to justify certification under Rule 23. This was not to say, the court noted, that there were no factual distinctions among the plan’s 37 funds, given that some funds charged significantly higher fees than others. But these differences in degree of injury and level of recovery were not so significant as defeat class certification in the absence of potential or actual conflicts among the class members. Thus, the court recognized that, although “there may be some situations where typicality for an ERISA class would not be satisfied unless the class representatives invested in each of the challenged funds . . . that is not the case here.”

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

Breach of Fiduciary Duty

Seventh Circuit

Woznicki v. Aurora Health Care Inc., No. 20-cv-1246-bhl, 2022 WL 1720093 (E.D. Wis. May 27, 2022) (Judge Brett H. Ludwig). In another putative class action challenging investment fees, plan participant Linda A. Woznicki claims that defendants Aurora Health Care Inc., the Board of Directors of the Aurora Health Care Inc. defined contribution plan, and Doe defendants breached their fiduciary duties of prudence and loyalty, their duty to disclose, and duty to monitor co-fiduciaries by charging excessively high administrative, investment management, and recordkeeping fees. Defendants moved to dismiss for failure to state a claim. The 403(b) Plan at issue in this case has over 36,000 participants and approximately $3.5 billion in assets. The court concluded that, “from the outset, Defendants hitched much of their case to the wrong wagon,” relying on Hughes v. Northwestern Univ., No. 19-1401, __ S. Ct. __, 2022 WL 199351 (U.S. Jan. 24, 2022). Contrary to defendants’ assertions, the court pointed out that the Supreme Court’s recent ruling in Hughes held that plan fiduciaries are not “off the hook” just because they offered prudent investment options along their imprudent ones. Taking Ms. Woznicki’s assertions as true, the court was satisfied that her complaint sufficiently alleged facts which demonstrate defendants’ process in managing the plan was imprudent and that the fiduciaries acted imprudently in offering two different managed account services with vastly different fees. The court noted that the complaint asserts clearly that there was no difference between the managed account services, Portfolio Xpress and Managed Advice, aside from Managed Advice charging “participants over eight times more in service fees.” According to the complaint, “none of the managed account services performed better than ubiquitously available, free alternatives.” Accordingly, the court denied the motion to dismiss the breach of prudence claim, as well as the derivative duty to monitor claim. However, because the complaint did not include allegations of self-dealing, the court dismissed the disloyalty claim. Finally, the court held that the complaint did not sufficiently allege that defendants’ failure to disclose revenue sharing rates violated ERISA Section 404. Thus, the court dismissed the failure to disclose claim. For these reasons and as explained above, the motion to dismiss was granted in part and denied in part.

Walter v. Kerry Inc., No. 21-cv-0539-bhl, 2022 WL 1720095 (E.D. Wis. May 27, 2022) (Judge Brett H. Ludwig). Much like his decision above in Woznicki v. Aurora Health Care Inc., Judge Ludwig decides once again to grant in part and deny in part defendants’ motion to dismiss a breach of fiduciary duty putative class action pertaining to an allegedly mismanaged defined contribution plan. In this case, participant Joshua Walter sued Kerry Inc., its board of directors, its benefits committee, and Doe defendants for breaches of fiduciary duties of prudence, loyalty, and to monitor in connection with the Kerry Inc. Savings 401(k) Plan. With exactly the same logic applied in the Woznicki decision, the court denied the motion to dismiss the duty of prudence and duty to monitor co-fiduciaries claims, and granted the motion to dismiss the duty of loyalty claim. The court was convinced that Mr. Walter sufficiently alleged that defendants had an imprudent process with respect to choosing and maintaining plan investment options, given his assertion that they allowed the plan to pay unreasonably high fees and maintained certain funds “despite the availability of cheaper, identical options.” With both decisions, Judge Ludwig also held that plaintiffs have standing to bring their claims, and described both sets of defendants’ attempts to use Thole as proof of the opposite as inappropriate, given that the Thole decision pertained to a defined benefit plan and not a defined contribution plan like the ones at issue in these two cases. Given this, the court was satisfied that Mr. Walter properly alleged claims of imprudence and a derivative claim of failure to monitor. However, like with the Woznicki decision, the court stated that the disloyalty claim could not survive under Seventh Circuit precent, which requires plaintiffs to include allegations of self-dealing in order to state an ERISA claim for disloyalty.

Class Actions

Ninth Circuit

Kazda v. Aetna Life Ins. Co., No. 19-cv-02512-WHO, 2022 WL 1813994 (N.D. Cal. Jun. 2, 2022) (Judge William H. Orrick). Defendant Aetna Life Insurance Company moved under Civil Local Rule 7-9(b) for reconsideration on the court’s order in April granting class certification and moved in the alternative for the court to revise the class definition in this class action pertaining to Aetna insureds who had their claims for liposuction or lipedema treatments denied as being cosmetic. Aetna’s main argument for reconsideration was that the court failed to consider problems with providing a remedy in the form of reprocessing of denied claims. The court stated that it specifically addressed this argument during the motion to certify the class and concluded that Ms. Kazda has standing and retrospective reprocessing injunctions like the one in this class action have been considered a usual and adequate remedy. The court relied on Ninth Circuit precedent in Saffle v. Sierra Pac. Power Co. Bargaining Unit Long Term Disability Income Plan, 85 F.3d 455, 456 (9th Cir. 1996), which held that it is not up to the court to decide whether benefits should be awarded to each individual, but that courts should instead instruct the plan administrator to make those determinations “under a properly construed plan.” Aetna attempted to convince the court that because class actions like this one typically settle and the reprocessing is done after settlement by ERISA administrators, retrospective reprocessing “likely will not provide a remedy to the class.” The court rejected this argument, which would naturally question whether benefits should be awarded, something the court stated “that Saffle places beyond my reach.” For this reason, the motion for reconsideration was denied. The motion to redefine the class was likewise denied. The court was unwilling to limit the class only to those individuals who paid out of pocket for their surgery, rather than to include all individuals covered under ERISA plans administered by Aetna whose claims for liposuction or lipedema were denied as cosmetic. The court determined that limiting the class in this way would “raise anew questions about certification, particularly numerosity.” Given that Aetna could have proposed this definition during the class certification motion, but did not do so, the court saw no reason to redefine the class at the conclusion of the case.

Disability Benefit Claims

Sixth Circuit

Klancar v. The Hartford Life & Accident Ins. Co., No. 1:20-cv-730, 2022 WL 1721134 (S.D. Ohio May 27, 2022) (Judge Matthew W. McFarland). In this decision, the court briefly addresses plaintiff Patrick Klancar’s filed objections to Magistrate Judge Karen L. Litkovitz’s Report and Recommendation recommending that defendant The Hartford Life & Accident Insurance Company’s motion for judgment on the administrative record be granted. In disability cases like this one, the court states, “a plaintiff must prove by a preponderance of evidence that he was ‘disabled’ as that term is defined in the Plan.” Reviewing the Magistrate’s Report de novo, the court concluded that despite Mr. Klancar’s objections that the Report erroneously relied on the conclusions of Hartford’s reviewing doctor over those of Mr. Klancar’s treating physicians as well as his own self-reported statements, there was no error of law in the Report and the Report “correctly explains why Klancar failed to satisfy his burden” of proof. Accordingly, the court adopted the Report, granted Hartford’s judgment motion, denied Mr. Klancar’s motion for judgment, and denied Hartford’s motion for attorneys’ fees.

Ninth Circuit

Dimry v. Bell, No. 19-cv-05360-JSC, 2022 WL 1786576 (N.D. Cal. Jun. 1, 2022) (Magistrate Judge Jacqueline Scott Corley). Plaintiff Charles Dimry is a former NFL player who sued the Bert Bell/Pete Rozelle NFL Player Retirement Plan and its Board after it denied his claim for total and permanent disability benefits. The first time this case was before the court, it held that the Board abused its discretion “and denied Mr. Dimry full and fair review of his disability claim under ERISA,” and the Plan’s denial was “based upon an unreasonable bias in favor of Plan-selected physicians.” The court then remanded to the Board to reevaluate Mr. Dimry’s benefits claim. On remand, Mr. Dimry provided even more evidence in support of his disability claim, including his award of benefits from the Social Security Administration. The Retirement Board once again denied Mr. Dimry’s claim, “this time based solely on a review of the record by the Retirement Board’s Medical Director.” Mr. Dimry then brought this action. The parties filed cross-motions for judgment on the administrative record. The court granted Mr. Dimry’s motion and held that the Board once again abused its discretion in denying the claim on remand. However, the court once again concluded that remand was the appropriate remedy because the Board had not asked its reviewing physician whether “given (Mr. Dimry’s) subjective reports of pain, if objective evidence was not required, Mr. Dimry had a total and permanent disability.” Parties filed cross-appeals. The Ninth Circuit affirmed and remanded to the court with instructions to determine whether Mr. Dimry is entitled to benefits. The parties once again moved for judgment under Federal Rule of Civil Procedure 52. This time, the court granted judgment in Mr. Dimry’s favor and for the first time held that he is permanently and totally disabled as defined by the Plan and entitled to benefits. Upon review of the administrative record, the court held that “each of Mr. Dimry’s treating and examining physicians recorded his debilitating reports of pain,” supporting a finding that Mr. Dimry is permanently disabled. Mr. Dimry was thus awarded all withheld benefits including interest. This decision was therefore a long-awaited and significant victory for Mr. Dimry.

Eleventh Circuit

Sisung v. Unum Life Ins. Co. of Am., No. 21-11593, __ F. App’x __, 2022 WL 1772273 (11th Cir. Jun. 1, 2022) (Before Circuit Judges Grant, Lagoa, and Brasher). Plaintiff/appellant Sonja Sisung suffered a back injury, which left her in tremendous pain. In order to treat her pain, her physicians prescribed a drug called gabapentin, which worked well for pain management, but left Ms. Sisung with cognitive impairments. Ms. Sisung sued Unum Life Insurance Company of America after the insurer terminated her long-term disability benefits after 24-months, determining that Ms. Sisung could perform “any occupation” for which she is “reasonably fitted by education, training, or experience.” The insurer concluded that as a pharmacist Ms. Sisung could perform the sedentary careers of pharmacy area supervisor, pharmacy manager, and pharmacy supervisor. However, Ms. Sisung disagreed. In the district court, Unum’s motion for summary judgment was granted. Ms. Sisung appealed that decision, arguing that even under arbitrary and capricious review standard Unum’s termination of benefits was unreasonable. The Eleventh Circuit agreed. Although the court of appeals stated that it might reach a different conclusion than Unum regarding Ms. Sisung’s physical capacity, that portion of Unum’s decision was not arbitrary and capricious given that some evidence within the record supported such a finding. Nevertheless, the Eleventh Circuit held that Unum’s disregard of Ms. Sisung’s cognitive limitations was an abuse of discretion. Simply put, “Unum’s conclusion that Sisung had no cognitive limitations was not supported,” and in fact Unum’s own reviewing neurologist “did not disagree with the psychologist’s conclusion that Sisung’s test scores on the neuropsychological evaluation, if accurate, showed cognitive impairments that would prevent her from working in her field.” The court also rejected Unum’s assertion that because Ms. Sisung did not exhibit other potential and common side effects from gabapentin she could not possibly be disabled by the cognitive effects she was experiencing from the drug. “In short, Unum had no reasonable basis for rejecting Sisung’s evidence of disabling cognitive impairments, and its denial of continued long-term benefits was therefore arbitrary and capricious.” Accordingly, the Eleventh Circuit reversed the entry of judgment in favor of Unum and remanded to the district court for further proceedings to establish the amount of benefits due and whether an award attorneys’ fees was warranted.


Second Circuit

Cohen v. CME Grp., No. 21-CV-5324 (JMF), 2022 WL 1720318 (S.D.N.Y. May 27, 2022) (Judge Jesse M. Furman). Plaintiff Samuel Cohen sued his former employer, ENSO Financial Management, and plan administrator CME Group Inc. seeking pay of severance benefits. As the court put it, “whether Cohen is entitled to such a payment turns largely, if not entirely, on whether ENSO terminated him…or he resigned.” In this decision, the court considered Mr. Cohen’s motion to compel, seeking discovery outside the administrative record. In his motion, Mr. Cohen sought to depose 5 individuals and sought documents that defendants withheld claiming they were protected by attorney/client privilege. The court granted in part and denied in part the discovery motion. First, the court stated that for the purposes of this motion, and given the plan’s discretionary language, the court assumed that abuse of discretion review standard will apply. Next, the court was satisfied that Mr. Cohen demonstrated that his benefits determination “was tainted by the plan administrator’s conflict of interest,” which was supported by notes of interviews conducted by the person tasked with investigating the appeal who asked each interviewee, “Is there anything else you can think of that would show (Mr. Cohen) voluntarily resigned rather than was terminated?” The court thus held that discovery was necessary to “determine the extent and nature of the conflict and the appropriate weight to give this conflict in the ultimate meris analysis.” Accordingly, the court granted Mr. Cohen leave to depose two his requested five witnesses. These were a representative of CME and one of the three people interviewed by the appeals investigator. Finally, the court granted Mr. Cohen’s request for documents that defendants were withholding pursuant to attorney/client privilege and work product doctrine. The court held that, unless defendants can prove otherwise by revising their privilege log, the requested documents fall within the fiduciary exception of attorney/client privilege.

Life Insurance & AD&D Benefit Claims

Sixth Circuit

Fulkerson v. Unum Life Ins. Co. of Am., No. 21-3367, __ F. 4th __, 2022 WL 1829128 (6th Cir. Jun. 3, 2022) (Before Circuit Judges Sutton, Siler, and Readler). After her son, Daniel Tymoc, died in a car crash, plaintiff/appellee Judy Fulkerson filed a claim for accidental death benefits under her son’s life insurance policy insured by defendant/appellant Unum Life Insurance Company. Unum denied the claim invoking a crime exclusion in the policy because Daniel had been speeding more than 60 miles per hour above the limit and driving recklessly. In the district court, Ms. Fulkerson succeeded in convincing the court that Unum’s interpretation of the crime exclusion was incorrect and was awarded the accidental death benefit. Unum appealed, arguing that reckless driving is unambiguously a crime and thus falls within the exclusion. The Sixth Circuit was convinced by Unum’s interpretation that reckless driving constitutes a crime. The simplest definition of the term “crime” as defined by Black’s Law Dictionary, Merriam-Webster’s Collegiate Dictionary, and the American Heritage Dictionary means “an illegal act for which someone can be punished by the government.” Because reckless driving can be understood to be “willful or wanton disregard of safety of persons and property” while operating a motor vehicle, it is consistent that such an act, illegal in all states, and can thus be understood to be a crime as defined above. Ms. Fulkerson argued that defining crime broadly could lead to “unfair results where an insurer invokes the crime exclusion for jaywalking, de minimis speeding, so-called blue laws, or other readily enacted yet seldomly enforced offenses.” The court stated that this was a fair point, but not relevant to its interpretation of whether reckless driving falls within the policy exclusion. The Sixth Circuit responded by stating, “we do not purport to be resolving every possible application of the crime exclusion,” and the limits of that exclusion were a question for another day. Accordingly, the Sixth Circuit reversed the portion of the lower court’s judgment, which concluded reckless driving was not a crime within the exclusion of the policy and determined that “Unum is entitled to judgment in its favor as to the applicability of the crime exclusion.”

Pleading Issues & Procedure

Third Circuit

Trs. & Fiduciaries of The Sheet M Workers Local Union No. 25 N.J. Annuity Fund v. Precision Air Balancing, No. 21-14645, 2022 WL 1748243 (D.N.J. May 31, 2022) (Judge Madeline Cox Arleo). Plaintiffs are the Sheet Metal Workers Local Union No. 25 and its ERISA-governed plans and funds. They moved, unopposed, for default judgment against defendant Precision Air Balancing in this case arising out of an alleged breach of settlement agreement between the parties stemming from a 2020 lawsuit pertaining to unpaid contributions under a collective bargaining agreement. Plaintiffs therefore requested that the court enter judgment in their favor for the balance due under the settlement agreement, plus interest, attorneys’ fees, and liquidated damages. However, the court denied the motion for default judgment, without prejudice, holding that it lacked jurisdiction to enforce settlement agreements, like the one at issue, that lack a provision retaining jurisdiction over the settlement agreement or incorporating the settlement agreement or any of its terms, and because as currently pled, “Plaintiff’s claims asks the Court only to enforce a judgment for payment of damages due under a contract adjusted by a contractual-not-ERISA-based liquidated damages clause.” Therefore, because the court held that enforcement of the settlement agreement does not implicate ERISA or the Labor Management Relations Act, the court found no basis for subject matter jurisdiction. However, the court expressed that if plaintiffs can rectify these deficiencies, they may refile a renewed motion.

Seventh Circuit

Bergen v. Fastmore Logistics, No. 21 C 5796, 2022 WL 1801295 (N.D. Ill. Jun. 2, 2022) (Judge Joan H. Lefkow). Plaintiff Paul Van Bergen brought this suit against his former employer, Fastmore Logistics, LLC, and the company’s owner and president, Raymond Sciuckas, under ERISA Sections 502(a)(1)(B), 409, and 510, and in the alternative brought a claim under the Illinois Wage Payment and Collection Act seeking to recover benefits under Fastmore’s Equity Appreciation Plan. Mr. Van Bergen alleged that, upon resigning, he was entitled to payment of cash benefits called Unit Appreciation Rights. Fastmore Logistics and Mr. Sciuckas countered that these units had no redemption value and moved to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). As a preliminary matter, the court needed to decide whether the Equity Appreciation Plan was a top hat plan, an unfunded excess benefit plan, or a bonus plan. Determining that the primary purpose of the Plan was to provide deferred compensation to a select group of highly compensated employees, like Mr. Van Bergen, who was the Chief Operating Officer at the company, the court held that the Plan could be “plausibly characterized as a top hat plan,” subject to ERISA but exempted from certain of ERISA’s provisions. The court then turned to each of Mr. Van Bergen’s claims. First, the court stated that Mr. Van Bergen’s ERISA claim for benefits could proceed against both the company and its owner and did not have to be brought against the plan, as defendants argued. Next, the court examined the breach of fiduciary duty claim and held that as a top hat plan, the Equity Appreciation Plan was not subject to ERISA’s fiduciary obligations. Accordingly, the fiduciary breach claim was dismissed with prejudice. Mr. Van Bergen’s Section 510 retaliation claim was also dismissed, but without prejudice. The court stated that Mr. Van Bergen did not “allege any facts that plausibly support any type of interference with his employment relationship as described under §510, let alone a specific intent to do so.” Finally, the court dismissed the state law wage claim as preempted by ERISA, but did so without prejudice holding that neither party submitted fully developed arguments on the issue of preemption.

Provider Claims

Ninth Circuit

Beverly Hills Reg’l Surgery Ctr. v. Grp. Hospitalization & Med. Servs., No. CV 22-01217-RSWL-MRWx, 2022 WL 1909550 (C.D. Cal. Jun. 3, 2022) (Judge Ronald S.W. Lew). Plaintiff Beverly Hills Regional Surgery Center, L.P. is a healthcare provider in California which commenced this action against Group Hospitalization and Medical Services, Inc. d/b/a CareFirst BlueCross Blue Shield, alleging claims for fraud, promissory estoppel, negligent misrepresentation, and a claim for benefits under ERISA Section 502(a)(1)(B) stemming an allegedly underpaid claim from medical services it provided to a patient. Defendant moved to dismiss under Rules 12(b)(6) and 12(b)(2). Plaintiff moved for leave to file a second amended complaint. First, the court took judicial notice of two documents, the patient’s ERISA plan, upon which plaintiff’s complaint necessarily relies, and an order granting a motion to dismiss in another action, the authenticity of which, as a public record, is not subject to reasonable dispute. The court then evaluated the motion to dismiss. Under the terms of the plan defendant is required to pay the “Max Allowed Amount or Allowed Amount and that said amount was determined based on Plaintiff’s billed charge.” Although the plan requires defendant to pay a percentage of all amounts billed by plaintiff, the plan does not require defendant to base the “Allowed Amount” on the provider’s billed charge, “on the contrary, the Plan provides that the ‘Allowed Benefit” for a covered service provided by an out-of-network provider will be ‘based on the lower of the provider’s actual charge or established fee schedule.” Given this plan language, the court held that plaintiff failed to identify a specific plan term that conferred the benefit they seek, a required pleading burden for an ERISA benefit claim. Accordingly, plaintiff’s ERISA claim was dismissed. Turning to the other three state law causes of action, the court agreed with defendant that it lacks personal jurisdiction over it. The court stated there was no “substantial connection” between defendant and the state of California beyond the relationship to the plaintiff. Defendant’s relationship with the patient here was pretty slim, as defendant is not the patient’s insurer, rather it was the third-party administrator of the plan and does no more than provide administrative services to the employer in exchange for a fee. “Defendant’s role in overseeing a Plan that a California resident happens to be a member of is insufficient evidence of purposeful availment.” Accordingly, the court held that plaintiff failed to prove that defendant purposefully availed itself “of the privilege of conducting business in California,” and granted the motion to dismiss for lack of personal jurisdiction. Finally, the court denied plaintiff’s motion for leave to file an amended complaint, holding amendment would be futile and would not cure the pleading deficiencies identified.

Standard of Review

First Circuit

DeCristofaro v. Life Ins. Co. of N. Am., No. 1:21-cv-00184-MSM-LDA, 2022 WL 1801088 (D.R.I. Jun. 2, 2022) (Judge Mary S. McElroy). Plaintiff Dianne DeCristofaro sued Life Insurance Company of North America (“LINA”) after her claim for long-term disability benefits was denied. Ms. DeCristofaro moved to apply de novo review and the court’s decision therefore determined what standard of review it should apply on its eventual decision on the merits. Unsurprisingly, LINA objected to Ms. DeCristofaro’s motion and sought application of abuse of discretion review. The court began its examination by determining which documents it should consider as part of the plan in order to decide how much discretion LINA had been given. The court looked at the Group Policy itself and the Group Long-Term Disability Insurance Certificate, within which there is additional language that LINA relied on in support of its argument that it had been granted with discretionary authority. As the Policy itself contains language that declares it the “sole contract,” and the Certificate likewise states that it is “not part of the Plan,” nor “the insurance contract,” the court held that LINA cannot rely on the discretionary language within the Certificate as grounds for arbitrary and capricious review. The court went on to express that even were it to consider the language within the Certificate, it would not find that LINA has unambiguous and express discretionary power. In addition, the court agreed with Ms. DeCristofaro that Rhode Island’s ban on discretionary clauses renders “the Plan’s provision ineffective to justify deferential review.” The court did not accept LINA’s argument that ERISA preempts this law, given that state statutes prohibiting discretionary language have been found not to be preempted by ERISA in numerous other states. Additionally, the court held that although the statue was enacted after the Policy was first effective, it could be applied retroactively given express statutory terms that it applies to existing policies and its very intent to afford “more balance to the relationship between insurer and insured.” Having so found, the court granted Ms. DeCristofaro’s motion and determined that it will apply de novo review when it decides the merits of the denial.

Seventh Circuit

Murch v. Sun Life Assurance Co. of Can., No. 20 C 3900, 2022 WL 1773772 (N.D. Ill. Jun. 1, 2022) (Judge Gary Feinerman). In this Section 502(a)(1)(B) suit for long-term disability benefits parties submitted briefing addressing the issue of whether arbitrary and capricious or de novo review standard governs the court’s review of defendant Sun Life Assurance Company of Canada’s denial. Defendant Sun Life argued that the policy includes a clause providing Sun Life with the “entire discretionary authority to make all final determinations regarding claims for benefits under the benefit plan insured by this Policy,” making deferential review standard applicable to this case. Plaintiff Trent Murch argued three reasons why de novo review instead governs. First, as an Illinois resident, Mr. Murch argued that an Illinois regulation 50 Ill. Admin. Code § 2001.3prohibits the use of discretionary clauses for disability plans offered or issued in Illinois. This argument proved unpersuasive to the court because the plan states that it “is delivered in Florida and is subject to the laws of that jurisdiction,” and lists Mr. Murch’s employer’s Miami, Florida office as the location on the summary plan description. Mr. Murch next argued that Sun Life did not include the discretionary clause in the certificate of coverage and for this reason his claim should be reviewed de novo. The court again disagreed, stating that because “the policy includes a discretionary clause, Sun Life’s failure to include similar language in the summary plan description is of no moment.” Finally, Mr. Murch argued that there was no evidence that his employer actually delegated authority to Sun Life making the discretionary clause alone an inadequate delegation of discretionary authority. This argument, the court held was “meritless because the policy expressly delegates discretionary authority to Sun Life.” In conclusion, the court determined that arbitrary and capricious standard of review will be applied, and it will review the benefits determination under this deferential standard; making this decision an interesting counterpart to the decision from the District of Rhode Island in DeCristofaro v. LINA summarized above it.

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.

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