Southeastern ERISA Watch

Jan Baldwin Offers Comments on Edison International ERISA Case to Law360.com

2016-05-18T10:59:00.001-04:00

Participants in an Employee Retirement Income Security Act (ERISA) case earned a victory when the U.S. Supreme Court vacated a Ninth Circuit ruling that their claims were filed too late (Tibble v. Edison International). Edison International employees participating in the company’s employee retirement plans are objecting to the company’s investment choices.

Womble Carlyle attorney Jan Baldwin offered comments on the ruling to Law360.com.

Read more...(wcsr.com).

Once Again, the Supreme Court Upsets Precedent in Fourth and Eleventh Circuit.

2015-06-10T15:31:00.000-04:00

As we reported in our March 11, 2014 article, the Eleventh and Fourth Circuit Court of Appeals definitively rejected the “continuing breach” theory in recent disputes involving statute of limitations deadlines in ERISA cases alleging fiduciary breach claims. This precedent was short-lived.

As way of background, plan fiduciaries have been under fire in recent years for their role in the selection and retention of underperforming or fee-heavy funds offered as investment options in 401(k) plans. Under ERISA, a lawsuit premised upon a breach of fiduciary duty must be filed by the earlier of: (1) three years after the participant had actual knowledge of the breach; or (2) six years after the breach occurred. As to the latter, the trigger date is: “(A) the date of the last action which constituted a part of the violation; or (B) in the case of an omission, the latest date on which the fiduciary could have cured the breach or violation.” ERISA § 413.

The focus of these recent cases has been on the second prong: When participants of a defined contribution plan allege that plan fiduciaries breached their duties by failing to remove poor performing funds from 401(k) investment options, is the date of the breach when the funds were initially selected? Or is there a continuing breach for each day that the funds remained in the investment lineup, assuming no substantial change of circumstance has occurred?

In 2013, the Court in David v. Alphin, 704 F. 3d 327, 341 (4th Cir. 2013), addressed this issue when plaintiffs alleged, inter alia, that plan fiduciaries failed to remove underperforming and fee-heavy funds from their 401(k) investment options. The Fourth Circuit Court of Appeals affirmed the District Court’s dismissal of the claim as untimely. Finding that the complaint’s allegations were “based on attributes of the funds that existed at the time of their initial selection,” the Court held that, “at its core,” plaintiff’s complaint was “simply another challenge to the initial selection of the funds to begin with.” Id. at 341. A year later, in Fuller v. SunTrust Banks, Inc., 744 F. 3d 685 (11^th Cir. 2014), the Court held, under a similar fact scenario, that the accrual date for purposes of ERISA § 413 of an alleged breach was the date of the initial selection, unless there existed circumstances or distinct conduct separate from the initial fund selection. The Eleventh Circuit Court of Appeals affirmed the District Court’s dismissal of plaintiffs’ claims as untimely.

In Tibble v. Edison Int’l., 2015 WL 2340845 (May 18, 2015), the United States Supreme Court came to the opposite conclusion. The Court emphasized that, under trust law, “a trustee has a continuing duty to monitor trust investments and remove imprudent ones. This continuing duty exists separate and apart from the trustees’ duty to exercise prudence in selecting investments at the outset.” The Court held that “as long as the alleged breach of the continuing duty [to monitor] occurred within six years of suit, the claim is timely.” In doing so, the Supreme Court reversed the Ninth Circuit’s decision, upon which the Court in Fuller had heavily relied.

The Supreme Court did agree with the Fourth and the Eleventh Circuit on one thing: It explicitly declined to define what a fiduciary’s continuing duty to monitor was supposed to look like: “We express no view on the scope of [defendants’] fiduciary duty.” Id. at. *5 (In both Fuller and David, the Courts were careful to decline to decide “whether a fiduciary had an ongoing duty to remove imprudent investment options from a Plan in the absence of a material change in circumstances.” Fuller, 744 F. 3d at 702; see also, David, 704 F. 3d at 341.) Instead, the Tibble Court remanded to the court below to consider whether the defendants did in fact “conduct the sort of review that a prudent fiduciary would have conducted absent a significant change in circumstances.” Id. at *5.

The Sixth Circuit Vindicates the Fourth and Eleventh.

2015-03-16T12:57:00.004-04:00

The en banc Sixth Circuit reaffirmed what the Fourth and Eleventh Circuits knew all along.

Ever since Cigna v.Amara, 131 S. Ct. 1866 (2011), in which the United States Supreme Court provided fresh theories (e.g., surcharge) of equitable relief under ERISA § 502(a)(3), some members of the plaintiff’s bar found a renewed interest in tagging on a claim for equitable relief when seeking employee benefits under ERISA § 502(a)(1)(B). Defendants were quick to say “whoa” - Amara did not change the long-standing rule under Varity Corp. v. Howe, 516 U.S. 489, 116 S. Ct. 1065 (1996) that a claimant seeking benefits under ERISA § 502(a)(1)(B) had an adequate avenue of relief available, making a claim for equitable relief under ERISA § 502(a)(3) duplicative and therefore not appropriate.

In the district courts of the Fourth and Eleventh Circuit, defendants consistently won this battle when seeking to dismiss ERISA § 502(a)(3) claims added to a straight-forward benefits case, the most recent ones being Beckham v. Liberty Life Assurance Co. of Boston, 4 F. Supp. 3d 1266 (M.D. Ala. 2014); Caudle v. LINA, 33 F. Supp. 3d 1288 (N.D. Ala. 2014); Benson v. LINA, 2014 WL 4769601 (E.D.N.C 2014); Esposito v. Wal-Mart, 2014 WL 4104731 (W.D.N.C. 2014); Campbell v. Rite Aid Corp., 2014 WL 3868008 (D.S.C. 2014); Leach v. Aetna, 2014 WL 470064 (D. Md. 2014); Jenkins v. Grant Thorton, 2014 WL 860547 (S.D. Fla. 2014).

However, as part of that battle, defendants often were required to address Rochow v. LINA, 737 F. 3d 415 (6th Cir. 2013), a Sixth Circuit outlier showing up in the claimants’ opposition briefs. Rochow involved the quintessential benefit case; the plaintiff sought employee benefits under ERISA § 502(a)(1)(B), and added an ERISA § 502(a)(3) claim. Plaintiff argued that two injuries were involved: (1) the denial of benefits; and (2) the withholding of the benefits during the length of time it took for plaintiff to have the denial reversed. Under the plaintiff’s theory of surcharge, the recovery of the plan fiduciary’s “unjust enrichment” of profits was calculated at a far greater amount than any conceivable pre-judgment interest rate. The District Court agreed with the plaintiff, using Amara as its authority. Rochow, 851 F. Supp. 2d 1090 (E.D. Mich. 2012). The Sixth Circuit Court of Appeals affirmed in December of 2013, but in February of 2014, the defendant’s motion for rehearing en banc was granted, leaving the decision vacated in the meantime. Then we waited.

Over one year later, the majority vacated the panel’s earlier decision, relying upon the authority that seemed clear under Varity and its progeny that the plaintiff’s claim for benefits was adequate relief, making the ERISA § 502(a)(3) claim duplicative and inappropriate: “Despite Rochow’s creative use of semantics, the reality remains clear- Rochow suffered one injury, the denial of his benefits.” Rochow,-- F. 3d -- , 2015 WL 925794 (6th Cir. March 5, 2015). The majority also found that pre-judgment interest could be awarded, but not at a rate so high as to be punitive. Id.

The decision was not unanimous, with concurring and dissenting opinions flowing forth. Nevertheless, the Sixth Circuit majority’s solid reliance on Varity told us what we already knew in the Fourth and Eleventh, and removed any doubt.

District Court in 11th Circuit Deems Claim for Equitable Relief Appropriate under Amara and Varity.

2014-09-11T16:39:00.002-04:00

Yet again, the Court has been called upon to negotiate the juxtaposition between Varity and Amara. According to the Complaint in Biller v. Prudential Ins. Co. and Six Continents Hotels, Inc., 2014 U.S. Dist. Lexis 118577, 2014 WL 4230119 (N.D. Ga. Aug. 26, 2014), Ms. Biller was enrolled for life insurance coverage through the employee benefit plan sponsored by Six Continents, her employer. The plan’s life insurance benefits were insured by Prudential. Ms. Biller ceased working on October 28, 2010 and called Prudential on November 3, seeking to convert her coverage to an individual policy, which was an option provided. After Prudential informed her that it required a written notice by her employer, Ms. Biller called her employer’s HR Department on November 9, and was told that a notice would be mailed to her. On November 11, she received a notice from her employer’s payroll administrator, informing her that she had 31 days from the date of termination to convert her policy, and to contact her employer for the application. She again contacted the HR department and was told that it would mail her the application. When it did not arrive, Ms. Biller called again, and she received it on December 10. When she then contacted Prudential, she was informed that the 31-day period had expired, and that her application would not be accepted.

Ms. Biller died in 2011. When her beneficiaries under the group life insurance policy submitted a claim, Prudential denied it on the grounds that Ms. Biller failed to timely convert to an individual policy.

The beneficiaries filed suit against both Prudential and the employer for breach of fiduciary duty, seeking equitable remedies under ERISA § 502(a)(3). The employer moved to dismiss, arguing, inter alia, that the plaintiffs had an adequate avenue of relief, (i.e., a benefit claim under ERISA § 502(a)(1)(B)), and therefore, their claim under ERISA § 502(a)(3) was not appropriate under the authority of Varity v. Howe, 116 S. C.t 1065 (1996) and its progeny. Sitting for the United States District Court for the Northern District of Georgia, the Honorable Richard W. Story denied the employer’s motion. The Court noted that the key to the Varity analysis was whether both theories of recovery were based upon the same alleged conduct; if so, the claim for equitable relief under ERISA § 502(a)(3) was not appropriate. But here, Judge Story found, the alleged wrongful conduct was not Prudential’s benefit determination, but rather the employer’s failure to provide the conversion application in a timely manner. In fact, as a direct result of the employer’s alleged breach, plaintiffs had no a claim for benefits pursuant to ERISA § 502(a)(1)(B) under the policy terms; they had a claim under ERISA § 502(a)(3) or nothing.

The employer then argued that the equitable remedy of “surcharge” limited recovery to the fiduciary’s unjust enrichment, which in this case was none. Judge Story rejected this argument as well, finding that the Supreme Court in Cigna v Amara, 131 S. C.t 1866 (2011) explicitly sanctioned monetary “make-whole” relief as an available remedy.

District Court in Fourth Circuit Rejects Extension of Amara-like Remedies to Benefit Cases.

2014-08-21T09:32:00.001-04:00

The Honorable Martin Reidinger, sitting in the United States District Court for the Western District of North Carolina, declined Plaintiff’s invitation to extend the applicability of Cigna v. Amara, 131 S. Ct. 1866 (2011), to ERISA benefit cases. In Esposito v. Wal-Mart Stores, Inc. and Hartford Life andAccident Insurance Company, Plaintiff, who was receiving LTD benefits under Wal-Mart’s employee benefit plan, filed a lawsuit after Hartford, the insurer and claims administrator, terminated further benefits. In Plaintiff’s first two causes of action, he sought recovery of his benefits under ERISA § 502(a)(1)(B). But Plaintiff did not stop there; he added four more causes of action, all premised upon ERISA § 502(a)(3) and sounding in equity, including reformation, equitable estoppel and restitution. These claims were based, in part, upon alleged representations by Hartford to Plaintiff during its administrative review of Plaintiff’s LTD claim.

Relying upon the teachings of Varity v. Howe, 516 U.S. 489, 116 S. Ct. 1065 (1996), which the Fourth Circuit followed in Korotynska v. Metropolitan Life Ins. Co., 474 F. 3d 101 (4^th Cir. 2006), Judge Reidinger granted both defendants’ Motions to Dismiss as to these causes of action: “In short, Plaintiff has ‘repackaged’ his denial of benefits claim,” which, as Varity held, is not an “appropriate” use of ERISA § 502(a)(3). Plaintiff had argued that his causes of action were supported by McCravy v. Metropolitan Life Ins.Co., 690 F. 3d 176 (4th Cir. 2012), which was the Fourth Circuit case that followed on the heels of Cigna v. Amara, applying it to find potentially available equitable remedies under ERISA § 502(a)(3) in a case involving lack of plan coverage. (See our previous post, Fourth Circuit Takes Expansive View of Equitable Relief. (July 9, 2012)). Judge Reidinger found that Plaintiff’s reliance on McCravy was “entirely misplaced,” because here, Plaintiff was seeking recovery under the terms of the Plan, something that was unavailable to the plaintiffs in either Amara or McCravy.

Judge Reidinger concluded with an admonition that a “straight-forward benefit case” should not be pleaded “in this manner,” a final nod to Varity’s long-standing rule (unbroken by Amara) that an ERISA § 502(a)(3) claim is not “appropriate” when a claim under ERISA § 502(a)(1)(B) claim will do the trick.

Disclaimer: Womble Carlyle represented a defendant in this case.

Supreme Court Refocuses the 11th Circuit in its Review of an ESOP Fiduciary's Duty of Prudence.

2014-07-14T15:01:00.001-04:00

Two years ago, when called upon to address an ESOP fiduciary’s duty of prudence in the context of a motion to dismiss, the 11th Circuit Court of Appeals followed a long line of cases: “We join our five sister circuits in …review[ing] only for an abuse of discretion the defendant’s decision to continue investing in and holding [company] stock in compliance with the direction of the Plan.” Lanfear v. Home Depot, Inc., 679 F. 3d 1267 (11th Cir. 2012). (See our blog, Eleventh Circuit Determines Standard of Prudence for ESOP Fiduciaries in Stock-Drop Case.) In defining that point at which a fiduciary abuses its discretion, the Lanfear Court explored and rejected the two ends of the spectrum: A fiduciary’s actions should not be subject to scrutiny with every rise and fall of the stock market, nor should the standard be so deferential as to presume prudence unless the company was on the brink of financial collapse. Rather, in following Moench v. Robertson, 62 F. 3d 553 (3d Cir. 1995), the Lanfear Court held that a fiduciary would be seen to have abused its discretion only when it continued to invest in company stock at a time when it could not have reasonably believed that “continued adherence to the ESOP’s directions was in keeping with the settlor’s expectations of how a prudent trustee would operate it.” Id. at 1280, quoting Moench.

Although the Moench Court called it a “presumption of prudence,” the Lanfear Court clarified that “the Third Circuit did not intend to use, and we disavow any intension of using, the word ‘presumption’ in a sense that had any evidentiary weight.” Instead, in the context of a motion to dismiss, the Lanfear described the standard in dauntingly deferential terms: “prescib[ing] who is to win in almost all of the circumstances that can be envisioned.” Id. at 1281.

Whether called a “standard of review” or a “presumption,” it is now gone. In Fifth Third Bancorp v. Dudenhoeffer, 134 S. Ct. 2459 (June 25, 2014), the United States Supreme Court held that no special presumption of prudence should apply to ESOP fiduciaries. Although the rule is stated simply, the issue is complex, when measured against a backdrop of putative class actions where the stakes are high at the pleadings stage. Defendants have been understandably concerned about meritless claims getting past a Rule 12(b)(6) motion, due to the high cost of going forward in litigation. The Supreme Court responded to these voiced concerns, but found that this judicially-created presumption did “not readily divide the plausible sheep from the meritless goats.” Id. at 2470. It suggested instead a “careful, context-sensitive scrutiny of a complaint’s allegations.” Id. Keeping intact a requirement for a robust review under Twombly and Iqbal, it provided guidelines on “plausibility.” This included the strong suggestion that a fiduciary’s prudence usually could not be questioned when it used major stock markets as an estimate of the company’s stock value. Nor could ERISA’s duty of prudence “require an ESOP fiduciary to perform an action…that would violate securities law,” such as insider trading. Id. at 2473. For this latter suggestion, it cited Lanfear, keeping at least part of the 11^th Circuit’s ruling intact.

Employee Benefit Plan is Governmental Plan, Even Though Employees are Not, says District Court in 11th Circuit.

2014-06-03T16:22:00.001-04:00

It is a deceptively simple statement: Governmental employee benefit plans are exempt from ERISA. 29 U.S.C. § 1003(b)(1). But what about an employee benefit plan of an entity affiliated with a governmental entity, but whose employees are not government employees? In Gunn v. United of Omaha, 2014 U.S. Dist. Lexis 70520 (M.D. Fla., April 16, 2014), Report and Recommendation adopted, 2014 U.S. Dist. Lexis 70521 (May 22, 2014), the Court grappled with such a hybrid entity. Halifax Hospital Medical Center, a county hospital in Florida, created a separate non-profit entity, Halifax Staffing, Inc. (“Staffing, Inc.”) to provide staffing and management to the Hospital. In connection with the creation of Staffing, Inc., the Hospital requested and received an opinion from the Florida Attorney General that employees of Staffing, Inc. were not state employees covered by the Florida Retirement System.

Staffing, Inc. provided certain employee benefits, including long-term disability (“LTD”) benefits, funded by an insurance policy issued by United of Omaha. A Staffing, Inc. employee, David Gunn, submitted a claim for LTD benefits, which United of Omaha denied. Mr. Gunn filed a lawsuit in state court, seeking his LTD benefits under the policy. United of Omaha removed the case to federal court, on the grounds that Mr. Gunn’s cause of action was governed by ERISA.

Mr. Gunn moved to remand, on the basis that the plan was a governmental plan and therefore exempt from ERISA. A governmental plan is a plan that is established for its employees by the federal government, the state government “or any political subdivision thereof, or any agency or instrumentality of the foregoing.” 29 U.S. C. § 1002(32). While there was not much question that the Hospital was a governmental entity, the fact that Staffing, Inc.’s employees were not state employees made for a trickier question as to whether Staffing, Inc.’s plan was governed by ERISA. While the Eleventh Circuit had not spoken on the issue, two tests had emerged from other Circuits: (1) the Rose test, (Rose v. Long Island RR Pension Plan , 828 F. 2d 910 (2nd Cir. 1987); and (2) the Alley test (Alley v. Resolution Trust Corp.,984 F. 2d 1201 (D.C. Cir. 1993) (authored by the Honorable Ruth Ginsburg, then a Circuit Court Judge.)

In Rose, the Court referred to and adopted the IRS’s six-factor test used when defining a governmental “agency or instrumentality” for certain tax purposes. The Rose Court deferred to the IRS’s interpretation under the rationale that the IRS was one of the agencies that was charged with the enforcement of ERISA.

In Alley, by contrast, the Court focused on “what should be the core concern for ERISA purposes—the nature of an entity’s relationship to and governance of its employees.” Alley, 984 F. 2d at 1205 n. 11. The Court weighed such factors as whether the employees were included in the civil service system, were subject to governmental personnel rules and salary restrictions, or were participants in civil servant pension and welfare plans. United of Omaha argued that the Alley test was more appropriate under the circumstances of Staffing, Inc.’s plan, particularly when Staffing, Inc. was created to place the employees outside of the state retirement system.

However, the Magistrate Court disagreed, finding that the Alley test was not intended to be applied to entities affiliated with state government, citing federalism concerns. It opted instead to invoke the Rose test, and found five of the six factors weighing in favor of deeming Staffing, Inc. an “agency or instrumentality” of the government. The Magistrate Court recommended that Staffing Inc.'s plan be deemed a governmental plan exempt from ERISA. The District Court concurred with the Magistrate’s approach, and ordered a remand to state court.

Eleventh Circuit Joins Fourth Circuit in Rejecting Continuing Breach Approach to ERISA's Statute of Limitation

2014-03-11T10:46:00.004-04:00

When a participant of a defined contribution plan complains that the plan fiduciaries breached their duties in failing to remove poor performing funds from the 401(k)’s investment options, is the date of the breach when the funds were initially selected? Or is there a continuing breach for each day that the funds remained in the lineup?

In Fuller v. SunTrust Banks, Inc., 2014 U.S. App. LEXIS 3610, 2014 WL718309 (Feb. 26, 2014), the plaintiff, a former employee of SunTrust Banks, Inc., brought a putative class action lawsuit, alleging that the plan fiduciaries of SunTrust’s 401(k) plan had breached their fiduciary duties of loyalty and prudence when they selected and added certain investment options – SunTrust proprietary mutual funds – to the list of fund choices in SunTrust’s 401(k) plan. The plaintiff alleged that these funds performed more poorly than other funds on the market, and that the fees charged were higher than the market.

Defendants moved to dismiss under Rule 12(b)(6) on the grounds that the plaintiff’s complaint was untimely. ERISA provides a specific time limitation for bringing a fiduciary breach claim: The lawsuit must be filed by the earlier of: (1) three years after the participant had actual knowledge of the breach; or (2) six years after the breach occurred. As to the latter, the trigger date is: “(A) the date of the last action which constituted a part of the violation; or (B) in the case of an omission, the latest date on which the fiduciary could have cured the breach or violation.” ERISA § 413.

With respect to the first prong, the Court held that defendants’ Rule 12(b)(6) motion, which must be based solely on the Complaints allegations, was premature, without evidence as to when the plaintiff had actual knowledge of the breach. The focus then shifted to the second prong. Because it was undisputed that the SunTrust mutual funds at issue were selected and added to the 401(k) lineup more than six years before Plaintiff filed suit, the issue turned on whether the plan fiduciaries engaged in a continuing or subsequent breach in failing to remove the allegedly poor performing funds.

The Court found that the plaintiff’s allegations in the Complaint concerning the SunTrust plan fiduciaries’ failure to remove the funds from the 401(k) options were “in all relevant respects identical to the allegations concerning the [initial] selection process.” Thus, the Court held, without a set of circumstances or distinct conduct that was separate from the alleged breach at the time of selection, the accrual date of the alleged breach was the date of the initial selection for purposes of ERISA § 413, making the complaint untimely.

The Fuller Court relied heavily on the decision last year in the Fourth Circuit, David v. Alphin, 704 F 3d327 (4th Cir. 2013), in which the Court of Appeals, under a similar fact scenario, dismissed the plaintiffs’ complaint as untimely after finding that it was “based on attributes of the funds that existed at the time of their initial selection…” and therefore was “at its core, simply another challenge to the initial selection of the funds to begin with.” Id. at 341.

As the Fourth Circuit Court of Appeals was careful to do in Alphin, the Fuller Court declared that it was declining to decide “whether a fiduciary had an ongoing duty to remove imprudent investment options from a Plan in the absence of a material change in circumstances.” Rather, it described its ruling as limited to the prevention of a “continuing violation theory,” which could thwart the purpose of ERISA’s six-year statute of repose.

11th Circuit Court of Appeals Mandates Proactive Gathering and Review of SSA Information in LTD Benefit Review.

2014-02-12T14:34:00.000-05:00

Not long ago, the Unites States Supreme Court in MetLife v. Glenn, 128 S. Ct. 2343 (2008) gave a stern warning to plan fiduciaries who required a claimant to apply for disability benefits with the Social Security Administration (SSA), benefited from an SSA approval due to the benefit offset, and then failed to adequately distinguish its benefit denial from the SSA’s approval: This, the Court declared, not only “suggested procedural unreasonableness,” but also could be important in weighing the factors related to the inherent conflict of interest when the fiduciary was also the payer of benefits. Id. at 2352.

The 11^th Circuit Court of Appeals has now taken it a step further, requiring the fiduciary to not only acknowledge and reconcile the SSA decision if contrary to its own, but to proactively gather the information upon which the SSA decision was made. In Melech v. Life Ins. Co. of N.A., 739 F. 3d 663 (11th Cir. 2014), the plaintiff, an employee of Hertz, submitted a claim for LTD benefits with LINA, the claims administrator and insurer of the LTD benefits for Hertz’s employee benefit plan. As required under the Policy terms, Plaintiff also submitted an application for disability benefits with the SSA. After its initial review, LINA denied Plaintiff’s LTD benefits, and notified her of the right to appeal, along with the opportunity to provide “any medical evidence which supports your disability.” At that time of LINA’s initial denial, the SSA had not yet made its determination. Plaintiff appealed.

While the appeal was still pending, the SSA approved Plaintiff’s claim for disability benefits. Plaintiff notified LINA of the SSA’s approval, and gave LINA information about the SSA investigation. LINA upheld its denial, but provided Plaintiff with an opportunity for a second appeal, and the opportunity to provide additional information, including “office notes, test results, physical examination reports… or any other pertinent medical information.” In her second appeal, Plaintiff provided the names of two examining physicians who had provided new information in the SSA case, and she inquired as to why LINA had reached a different decision than the SSA. Without asking Plaintiff for the information generated during the SSA investigation, LINA upheld its denial on the second appeal, explaining in the letter that the SSA decision was independent of its decision.

The United States District Court for the Southern District of Alabama granted LINA’s summary judgment motion, affirming LINA’s denial. The Eleventh Circuit Court of Appeals reversed. It found that LINA, who required and assisted Plaintiff in applying for SSD benefits, and who benefitted from any offset in benefit payment resulting from the SSA approval, could not ignore the information relevant to the SSA’s decision. While the Court recognized that Plaintiff had the burden of establishing her entitlement to benefits, and that LINA was not required to “ferret out evidence in [Plaintiff’s] or the SSA’s possession,” it found it “troubling” that LINA “treated the SSA process and the evidence generated by it as irrelevant and unavailable" once it had denied Plaintiff’s claim at the initial level. The Court vacated and remanded the case back to the District Court, with instructions to remand to LINA for a new review, “with the full benefit of the results generated by the SSA process that it helped set in motion.”

The Honorable Orinda Evans (sitting by designation) dissented, finding that LINA had given Plaintiff ample opportunity to provide the information from the SSA investigation, and that it was her burden to do so. Judge Evans characterized the majority’s decision as indeed requiring fiduciaries to “ferret out the evidence,” even though the majority claimed otherwise.

Supreme Court's Decision in ERISA Case Overturns 4th and 11th Circuit Rule Governing Finality of Judgment.

2014-01-21T15:40:00.000-05:00

When a United States District Court judge enters judgment in a case, but postpones for a later date determination of a party's motion for attorneys’ fees, when is the Court’s decision “final” under 28 U.S.C. § 1291, particularly when counting the 30 days by which to appeal under the Federal Rules of Appellate Procedure? Until last week, the answer in the Fourth and Eleventh Circuit was: “It depends.”

Over twenty-five years ago, the United States Supreme Court held that a District Court’s decision was “final” as of the date of the decision on the merits, even if a party’s motion for attorneys’ fees remained unresolved and pending for a later determination. Budinichv. Becton Dickinson & Co., 486 U.S. 196, 108 S. Ct. 1717 (1988). However, in both the Fourth Circuit and the Eleventh Circuit, the Courts of Appeals interpreted the Budinich decision to apply only in those situations in which attorneys’ fees were recoverable pursuant to a statute; if attorneys’ fees were sought pursuant to a contractual provision, the District Court’s decision did not become “final” until all pieces of the litigation, including any attorneys’ fees request, were decided. CP&L Co. v. Dynergy Marketing and Trade,415 F. 3d 354 (4th Cir. 2005); Brandon, Jones, Sandall,Ziede, Kohn, Chalal & Musso, PA, 312 F. 3d 1349 (11th Circ.2002). The Fourth and the Eleventh Circuits, along with the First, Third and Eighth Circuits, were on one side of a Circuit split. The other side, comprised of the Second, Fifth, Seventh and Ninth Circuits, considered the Budinich rule to apply regardless of whether a contract or a statute was the basis of a request for an attorneys’ fee award.

Last week, the United States Supreme Court resolved the split, unanimously holding that a District Court’s decision on the merits was “final” and started the clock running for the appeal deadline, even if an attorneys’ fees award had not yet been determined, regardless of whether attorneys’ fees were sought pursuant to statute or by contract. Ray Haluch Gravel Co. v. Central Pension Fund of the Int’l Union ofOperating Engineers, 2014 WL 127952 (Jan. 15, 2014). Even though the case that was before the Supreme Court involved an ERISA cause of action, the holding will affect any type of civil action, ERISA–based or otherwise, on the issue of the finality of judgment and the running of the deadline for an appeal from the District Court to the Circuit Court of Appeals.

Supreme Court Overturns Fourth Circuit Precedent on Time Limitations for Filing ERISA Benefit Lawsuits.

2013-12-18T11:54:00.001-05:00

ERISA does not contain a statute of limitations governing the filing of a lawsuit for employee benefits under an ERISA plan, nor does it specify when the clock begins to run. Rather, a federal court hearing an ERISA benefits lawsuit will borrow from the forum state’s statute applicable to an analogous action (such as breach of contract) to arrive at the limitations period. The date upon which the deadline begins to run has been developed by federal common law: In general, a benefit claim accrues after administrative remedies have been exhausted and the claim has been finally denied. White v. SunLife Assur. Co., 488 F. 3d 240, 246 (4thCir. 2007).

The White decision established the rule in the Fourth Circuit that a plan’s terms could not modify the accrual date. In White, the plan language provided that a lawsuit must be filed within three years after proof of claim is required. Because a claimant is required to exhaust administrative remedies before he can file suit, (Makar v. Carefirst, 872 F 2d 80 (4^th Cir. 1989)), the White Court found that the plan’s terms impermissibly “start[ed] the clock [running] before the participants [could] even file suit.” Id. at 247. The White Court held that plan language could not trump federal common law with respect to the accrual date. (On the other hand, as clarified by the Fourth Circuit just last year, a plan’s time limit can trump the forum state’s statute, even if the plan’s time limit is shorter. Belrose v. Hartford Life & Accident Ins. Co., 478 Fed. Appx. 21 (4th Cir. 2012).)

The Fourth Circuit found itself on one side of a Circuit split, the other side allowing ERISA plans to alter the accrual date. See, Burke v. PriceWaterHouseCoopers LTD Plan, 572 F.3d 76 (2nd Cir. 2009); Rice v. Jefferson Pilot Financial Ins. Co., 578 F.3d 450 (6^th Cir. 2009). Just this Monday, the United States Supreme Court unanimously sided with the latter, abrogating White. Heimeshoff v. Hartford Life & Accident Ins. Co., 2013 WL 6569594 (Dec. 16, 2013). The Heimeshoff Court recognized that the deadline under a statute of limitations generally begins to run when the cause of action “’accrues’ – that is, when the plaintiff can file suit.” However, focusing on the sacrosanct ERISA principle that plan terms are to be enforced as written, the Court held that the parties could contract to commence the limitations period earlier, absent a controlling statute to the contrary, and as long as the period was reasonable. The Court relied upon Order of the United Commercial Travelers v. Wolfe, 331 U.S. 586, 67 S. Ct. 1355 (1947) for its holding, declaring that “the Wolfe rule necessarily allows parties to agree not only to the length of the limitations period but also to its commencement,” even though the accrual date was not the issue before the Court in the Wolfe case.

To allay fears of draconian consequences, the Heimeshoff Court suggested that equitable theories such as waiver, estoppel and equitable tolling could assist claimants in cases when the shortened limitation period resulted in inequitable circumstances. These circumstances did not exist in its case, the Court found. Justice Thomas delivered the opinion.

Pendulum Swing: Fourth Circuit Ends Use Of "Satisfactory Proof" Language For Bestowing Discretionary Authority To Plan Administrator.

2013-11-22T16:14:00.003-05:00

If Gallagher v. Reliance Standard, 305 F. 3d 264 (4th Cir. 2002) was the beginning of the end, the recent case of Cosey v. Prudential, 2013 WL 5977151 (4th Cir. Nov. 12, 2013) was the nail in the coffin.

Ever since Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 109 S. Ct. 948 (1989), prudent benefit plan drafters have included explicit language in their plans to bestow discretionary authority upon the administrator to determine benefit eligibility and entitlement. Under the Firestone edict, if such language is in the Plan, a Court will review the administrator’s decision for abuse of discretion, rather than de novo.

For years, defendants finding themselves in court without explicit language in their plans have pointed to other provisions as a grant of discretionary authority in an effort to win a deferential review by the Court. For instance, in Ceasar v. Hartford Life and Accident Insurance Co., 947 F. Supp. 204 (S.C. 1996), the defendant argued, and the Court agreed, that the administrator’s reservation of “the right to determine if Proof of Loss is satisfactory” conferred the requisite discretionary powers on the plan administrator to trigger a deferential review. And in Wilcox v. Reliance Standard, 175 F. 3d 1018 (4th Cir. 1999), the defendant pointed to the plan language that provided: “We will pay a Monthly Benefit if an Insured… submits satisfactory proof of Total Disability to us.” The Court held that this language was sufficient to trigger a deferential “abuse of discretion” review, declaring that “only the most tortured reading of the language … could lead to a conclusion that the plan in this case is not vested with the discretionary authority to determine eligibility for benefits.”

Along came Gallagher, a case involving the exact same plan language as in Wilcox: “We will pay a Monthly Benefit if the Insured ... submits satisfactory proof of Total Disability to us.”   However, the Fourth Circuit declined to follow Wilcox, which was an unpublished opinion. The Gallagher Court held that this language was insufficient to trigger a deferential review, based upon the reasoning that “the prepositional phrase ‘to us,’ as written in the Plan, is more naturally read as modifying ‘submit’ rather than “satisfactory.’”

The placement of the preposition did not seem to matter to the Cosey Court. In Cosey, Prudential’s plan stated that benefits would be paid to a claimant who “submit[s] proof of continuing disability satisfactory to Prudential.” The Cosey Court framed the issue as “whether the phrase ‘proof satisfactory to [the plan administrator]’ unambiguously confers discretionary decision-making authority on a plan administrator.”   It found this issue to be a matter of first impression, noting that the Gallagher Court’s musings about hypothetical phrases were dicta. The Cosey Court characterized the phrase “proof satisfactory to us” as “inherently ambiguous,” thus allowing it to construe it against the drafters. The Court went on to comment that such language did not put the participants on notice as to whether the administrator had discretionary authority, and rationalized that drafters had been given ample opportunity after Firestone to insert clear language in their plans. The Cosey Court remanded the case to the District Court to review the administrator’s decision de novo.

In the end, while the Court in Cosey, citing Gallagher, gave lip service to the principle that “no magic words” were required to ensure deferential review, it has now triggered a disappearing act on the charmed life of “satisfactory proof” language.

District Court in Florida Further Defines Parameters of Medical Provider’s Standing to Sue under ERISA.

2013-10-29T20:35:00.001-04:00

Under ERISA §502(a)(1)(B), participants and beneficiaries are the only ones with standing to sue an employee benefit plan for benefits. Consequently, for a medical provider who seeks payment from an employee health plan for medical services rendered to a plan participant, the provider has no standing, unless it has a written assignment from the patient/plan participant. See e.g. Hobbs v. BCBS Alabama, 276 F 3d 1236 (11th Cir. 2001). The medical provider’s standing is wholly derivative of the plan participant’s rights.

The boundaries of the medical provider’s standing under ERISA were recently tested in the United States District Court for the Southern District of Florida. In MRI Scan Center v. MedSolutions/CIGNA, 2013 U.S. Dist. LEXIS 66741 (2013), the Plaintiff, MSC, provided imaging services to patients, including participants of employee health benefit plans insured by CIGNA. Plaintiff alleged that CIGNA had improperly inflated the cost of services by adding its own administrative fees, in order to charge higher premiums. MSC alleged that this practice was a breach of CIGNA’s fiduciary duty to the plans and plan participants in violation of ERISA. MSC brought its claim under ERISA §502(a)(3), under which standing is limited to participants, beneficiaries and fiduciaries. MSC claimed that it had proper standing in the same way that it had when it sought payment of benefits under ERISA §502 (a)(1)(B) - through written assignments from its patients who were participants of plans insured by CIGNA.

Not so fast, CIGNA argued; the assignments granted from patients/plan participants to MSC were not broad enough to cover a claim for breach of fiduciary duty. The Court agreed: “An assignment of the right to direct payment of benefits will not assign patients’/assignors’ right to bring causes of action under other ERISA provisions that are not related to the reimbursement of benefits.” Dismissing MSC’s claims against CIGNA on these grounds, the Court did not reach the issue of whether MSC could have established all elements of standing, particularly injury, under Article III. The question left for another day: Would broader language in the assignments be all that a provider needs, or do hurdles still remain under Article III?

District Courts in 11th and 4th Circuits Re-affirm Varity Rule in Face of Amara-like Claims.

2013-10-21T19:13:00.001-04:00

After Varity Corp. v. Howe, 516 U.S. 489, 116 S. Ct. 1065 (1996), a well-established rule developed throughout the Circuits: When a claimant has an adequate available claim for employee benefits under ERISA § 502(a)(1)(B), a claim for equitable relief under ERISA § 502(a)(3) is duplicative and therefore not appropriate. See e.g., Korotynska v. Metropolitan Life Ins. Co., 474 F. 3d 101 (4th Cir. 2006). In 2011, along came Cigna v.Amara, 131 S. Ct. 1866 (2011), in which the Court provided fresh suggestions of equitable remedies (such as surcharge) that a claimant might bring under ERISA § 502(a)(3). This ignited a resurgence by claimants bringing employee benefit lawsuits to tag on an equitable relief claim for good measure.

Last month, District Courts in the 11^th and 4^th Circuit joined courts in other Circuits (see e.g., Biglands v. Raytheon, 801 F. Supp. 2d 781 (N.D. Ind. 2011)), in finding nothing in Amara that alters the Varity rule. In Spivey v. Cigna, 2013 U.S. Dist. LEXIS 130219 (M.D. Ala. Sept. 12, 2013), the District Court heftily rejected the argument by the plaintiff seeking disability benefits that Amara changed the Varity rule. Likewise, in Harp v. Liberty Mutual, 2013 U.S. Dist. LEXIS 140083 (M.D. N.C. Sept. 30, 2013), also involving a disability benefit claim, the magistrate judge rejected the plaintiff’s citation to Amara, re-affirmed the Varity rule, and recommended dismissal of the plaintiff’s causes of action brought under ERISA § 502(a)(3). (As of date of reporting, the plaintiff has not filed an objection to the Recommendation.)

The Moon v. BWX Case Suffers Second Death after Remand, But Resurrection Sought.

2013-08-22T14:44:00.002-04:00

As we reported in June (McCravyKeeps Tortured Case Alive) the Fourth Circuit Court of Appeals, in keeping with its earlier McCravy ruling, sent the case of Moon v. BWX back to the District Court to give Plaintiff an opportunity to amend her complaint to bring equitable claims under ERISA § 502(a)(3). On remand, the District Court rejected Plaintiff’s proposed amended complaint as failing to state a viable claim. Moon v. BWXTechnologies, Inc., 2013 U.S. Dist. LEXIS 95626 (July 9, 2013).

The Background: During BWX’s annual enrollment period in late 2005, Mr. Moon, a BWX employee, enrolled for life insurance coverage for the coming 2006 plan year. Shortly thereafter, he ceased work due to a disability. In January of 2006, Mr. Moon received a confirmation statement of his life insurance enrollment choice, which erroneously classified him as an active non-disabled employee. Premiums were collected and accepted for the coverage (albeit, late). Mr. Moon died in late 2006. When Ms. Moon claimed benefits under the life insurance policy, MetLife, the plan’s insurer, denied her claim on the basis that Mr. Moon’s coverage under the terms of the plan ended when he ceased working; therefore no coverage was in place at the time of his death.

The District Court and the Fourth Circuit Court of Appeals agreed that Plaintiff had no claim for benefits under ERISA § 502(a)(1)(B) because the plan language clearly provided that Mr. Moon’s coverage ceased when he stopped working. The issue on remand was whether Plaintiff had a claim for which she could find relief under ERISA § 502(a)(3), such as reformation, surcharge, and equitable estoppel, using Cigna v. Amara as a guide.

The District Court first addressed Plaintiff’s claim for reformation, rejecting it quickly on the basis that Plaintiff “failed to sufficiently allege any type of fraudulent conduct,” a necessary element. Specifically, the District Court found that the January 2006 Confirmation Statement was nothing more than a confirmation of Mr. Moon’s benefit selections in a “run-of-the-mill employee benefit plan, weeks before his retirement," and therefore was insufficient to rise to the level of fraud in this case.

Next, in noting that the equitable remedy of surcharge is grounded upon a breach of fiduciary duty, the Court started with the first element: "Before one can conclude that a fiduciary duty has been violated, it must be established that the party charged with the breach meets the statutory definition of 'fiduciary.'" The Court went on to find that the actions by BWX’s Human Resource Manager in collecting premiums and sending out confirmation statements were not fiduciary in nature: “Under the Department of Labor's (DOL) regulation … non-fiduciary administrative functions [include] the ‘collection of contributions’ and ‘advising participants of their rights and options under the plan.’ The regulation goes on to explain that a person who performs the type of functions described above (including ‘collection of contributions’ and ‘advising participants of their rights and options under the plan’) is not a fiduciary because ‘such person does not have discretionary authority or discretionary control respecting management of the plan…’”

Finally, the District Court held that Ms. Moon’s equitable estoppel claim likewise required the element of fiduciary status by Defendant, at least in its case, because Plaintiff’s estoppel theory was premised upon Defendant’s lack of affirmative disclosure to Mr. Moon that his coverage terminated when he ceased working. In other words, no wrongful nonfeasance could occur without a duty to act in the first place: “This is not a case where the defendant ‘actively and deliberately misleads the plaintiff to the plaintiff's detriment.’”

The District Court dismissed the case, but Ms. Moon has filed an appeal. We will have to stay tuned.

District Court Judge Invites the 11th Circuit Court of Appeals to Reverse Him

2013-08-20T11:26:00.001-04:00

The Honorable William Acker, sitting in the United States District Court for the Northern District of Alabama, was not shy in letting his opinion be known, when he lambasted the entire ERISA benefits review process – from the fiduciary’s administrative claims handling to the 11^th Circuit’s unique six-step methodology in reviewing the fiduciary’s decision – even while ruling in favor of the defendants.

The case itself, May v.AT&T et al. 2013 U.S. Dist. LEXIS 105023 (N.D. Ala., July26, 2013), was ordinary in the ERISA benefit case sense. In fact, Judge Acker observed that the employee benefits at issue involved only a portion of the short-term disability period, and he questioned why the fiduciary was fighting with such “vigor and adversarial zeal” in a dispute involving “chump change.” Judge Acker then took the opportunity to editorialize on the dichotomy contained in the teachings of MetLife v. Glenn:   Certain conflicts-of-interest, says Glenn, are indisputable, yet the “mere existence of a conflict” is one factor, among many.   Judge Acker mused that “the word ‘mere’ rhymes with ‘sneer,’” which is “like saying ‘she had a mere case of terminal cancer.‘”

Next, Judge Acker took issue with the “sacrosanct” limit on the scope of admissible evidence to the administrative record. He found irony in the defendants’ emphasis during original briefing to the magistrate judge on the SSA’s denial of Plaintiff’s SSD benefits as support for defendants’ own denial, yet later filing a motion to strike Plaintiff’s proffer of the SSA’s subsequent approval, on the grounds that the SSA’s decision was outside of the administrative record.   Judge Acker conceded that he would have to grant the motion to strike, unless he chose instead to remand to the fiduciary for consideration of the SSA’s benefit approval. As to the latter option, he predicted that a remand would be a waste of time and expense for the claimant “in light of the virtually universal experience by ERISA claimants that reconsideration by an inherently conflicted plan administrator is rarely if ever worthwhile.”

In ultimately ruling in defendant’s favor, Judge Acker found that the fiduciary’s decision was de novo wrong (reversing the magistrate judge’s finding), but he nevertheless conceded that he could not hold that the fiduciary’s determination was arbitrary and capricious without being reversed under controlling Eleventh Circuit authority.   He ruled with a sarcastic undertone that “it was not ‘unreasonable’ for Sedgwick to prefer the opinion of its own hired physicians over the findings of Ms. May’s treating physicians, … [and] because Sedgwick’s obvious conflict-of-interest is a “mere” factor that can be discounted into virtual oblivion, this court defers to Sedgwick’s discretion.”

In concluding, Judge Acker gave Plaintiff the “unsolicited advice” to forego an appeal, citing insurmountable odds.   Nevertheless, Judge Acker made it known that, in the event Plaintiff appealed, “his feelings would not be hurt” if he were reversed.

District Court in 11th Circuit Enters the Fray, Weighing in on Definition of “Accident.”

2013-07-08T14:02:00.001-04:00

It is all in your perception, according to a District Court sitting in the Northern District of Georgia. Clark v. LINA, 2013 U.S. Dist. LEXIS 85541 (N.D. Ga. June 18, 2013), adding new perspective to the challenge of defining "accident."

As we reported last month, the Fourth Circuit reversed a District Court decision in defining “accident” for purposes of an Accidental Death & Disability (AD&D) benefit under an ERISA-qualified plan when a driver dies as a result of intentionally becoming intoxicated and intentionally driving, knowing the inherent dangers, but probably not intending to crash and perish. Johnson v. Am. United Life Ins. Co., 2013 U.S. App. LEXIS 10528 (4th Cir. May 24, 2013). In Johnson, a participant of an employee benefit plan died after his truck left the road at high speed, hit a sign, and overturned several times. The post-mortem toxicology report showed a blood-alcohol concentration (BAC) of .289, more than three times the legal limit.

Reviewing the fiduciary’s decision de novo, the District Court considered the tests under Wickman v. Northwestern Nat’l Ins. Co., 908 F. 2d 1077, 1087 (1st Cir. 1990), and Eckleberry v. ReliaStar Life Ins. Co. 469 F. 3d 340 (4th Circ. 2006) (“reasonable foreseeability” test), but settled upon the definition of “accident” under N.C.G.S. § 58-3-30(b). Under this statute, which uses an “accidental result” test, a loss resulting from an intentional, voluntary act is still accidental if the injury (or result) is unanticipated and unexpected, unless the result was substantially certain to occur from the actions taken. When the District Court applied this test, it found that “a crash by a speeding driver in Mr. Johnson’s [intoxicated] condition [is] as much an anticipated and expected result as a bullet hitting the head of someone who chooses to play Russian Roulette,” (giving a nod to the Wickman Court’s illustration of an unreasonable expectation of survival, even if death were not actually intended.) Johnson v. AUL, 2012 U.S. Dist. Lexis 32718 (M.D.N.C. 2012)

However, the Fourth Circuit Court of Appeals came to the opposite conclusion: Evidence of driving while intoxicated, even at a BAC level of .289, by itself, did not establish that the insured’s death was “substantially certain,” under the statute’s definition, or even “highly likely,” under the Wickman test. The Court’s conclusion was partly based upon statistics published by the CDC that an intoxicated driver’s chances of a fatal crash are 1 in 9,128. (The other 9,127 apparently survive.)

In Clark, the District Court in the Northern District of Georgia reached yet another result, finding in favor of the plan fiduciary. (While the plan’s empowerment of discretionary authority to the fiduciary triggered the deferential standard of review, the Court’s first step in the analysis was to determine whether the fiduciary’s determination was “de novo wrong.” ) The Court applied the test espoused by the Court in Wickman, supra: When there was no evidence of the deceased’s actual (subjective) intentions and expectations (as is often the case), the Court asks whether a reasonable person in the deceased’s shoes would have viewed the injury as highly likely to occur as a result of the deceased’s intentional conduct. If so, then the loss was not the result of an accident. While the parties in Clark sparred with statistics and court decisions involving lower and higher intoxication levels, (Mr. Clark’s BAC was .17, twice the legal limit but .12 less than in Johnson, supra), the Court rejected that approach: “’[T]he focus of … Wickman was not on the statistical probability that death would occur from the decedent’s actions. Instead, we are concerned chiefly with what a reasonable person would perceive to be the likely outcome of the intentional conduct.’” Id., quoting Stamp v. MetLife, 531 F. 3d 84, 92 (1^st Cir. 2008). The Clark Court found that, in its case, a reasonable person in the decedent’s shoes would have perceived that death was a highly likely outcome of riding a motorcycle downhill on a curvy road while intoxicated.

In the continuing theme that the definition of “accident” is elusive, we are now told that it depends on your perspective.

Is DWI an Accident? Kathy Lange Discusses in Law360.com

2013-06-24T13:44:00.001-04:00

CHARLOTTE, N.C.—When a motorist dies while driving drunk, is that death an “accident” or a reasonably predictable outcome of dangerous behavior? From a legal standpoint, that question remains open for debate.

Womble Carlyle attorney Kathy Lange examines this question in a new article at Law360.com. Lange examines a recent decision in the Fourth Circuit Court of Appeals. The appeals court reversed a district court decision and ruled that the widow of a motorist who died while driving intoxicated is entitled to collect accidental death and disability insurance.

Click here to read “‘Accident’ Remains Open to Interpretation” at Law360.com.

Kathy Lange’s practice has focused almost exclusively in the area of ERISA employee benefit plan litigation for more than fifteen years. She has represented plans, plan administrators and plan fiduciaries in hundreds of lawsuits involving a variety of employee benefit plan issues, including benefit entitlement, COBRA compliance and statutory compliance. Lange is a co-author of the Southeastern Erisa Watch Blog.

McCravy Keeps Tortured Case Alive.

2013-06-09T20:32:00.001-04:00

In the fall of 2005, Mr. Moon, an employee of BWX, was provided with an employee benefit enrollment package for the following year. During the open enrollment period, he elected life insurance coverage. He then retired on December 1, 2005. On January 13, 2006, Mr. Moon received a confirmation statement of his life insurance coverage, effective January 2, 2006. The confirmation statement incorrectly noted that Mr. Moon was a non-disabled active employee.

Mr. Moon died in November of 2006. At the time of his death, his life insurance premiums were in arrears. These were quickly paid. Mr. Moon’s spouse then submitted a claim for the life insurance benefits. BWX denied her claim on the basis that Mr. Moon was no longer eligible for life insurance coverage after he ceased working.

Ms. Moon brought a lawsuit in state court, alleging state law claims, including breach of contract, negligence and estoppel. When BWX removed the case to federal court, based upon ERISA’s complete preemption, Ms. Moon moved for a remand, arguing that ERISA did not govern her case. The District Court denied remand, holding that her state law claims were completely preempted by ERISA’s civil enforcement provision, Sec. 502, and that Plaintiff’s claim was a claim for benefits under ERISA sec. 502(a)(1)(B). The District Court went on to hold that the clear terms of the plan provided that Mr. Moon was no longer eligible for life insurance coverage after he retired, and, therefore, Ms. Moon could not prevail.

Ms. Moon appealed to the Fourth Circuit, who affirmed the District Court’s denial of her remand motion. However, between the time that the the District Court’s decision and the Fourth Circuit’s review, the Fourth Circuit had decided McCravy v. Metro. Life Ins. Co., 690 F.3d 176 (4th Cir. S.C. 2012), which allowed a participant to bring a claim under ERISA sec. 502(a)(3) for equitable relief in certain circumstances in which the participant’s claim for benefit under Sec. 502(a)(1)(B) was defeated. Based upon McCravy, the Court remanded the case back to the District Court, allowing Ms. Moon another opportunity to amend her complaint to add a possible claim for equitable relief under Sec. 502(a)(3). Moon v. BWX Technologies, Inc., 498 Fed. Appx. 268; 2012 U.S. App. Lexis 24898 (2012).

Fourth Circuit Reverses District Court and Trend, Finding Death from Driving While Intoxicated to be An “Accident.”

2013-06-08T18:43:00.000-04:00

In Johnson v. Am. United Life Ins. Co., 2013 U.S. App. LEXIS 10528 (4th Cir. May 24, 2013), the Fourth Circuit reversed the District Court’s holding, a decision we reported in March of last year. Johnson v. AUL, 2012 U.S. Dist. Lexis 32718 (M.D.N.C. 2012). At the District Court, Magistrate Judge Patrick Auld concluded that, under the circumstances of the case, a death resulting from driving while intoxicated was not an “accident” for purposes of an Accidental Death & Disability (AD&D) benefit under an ERISA-qualified employee benefit plan. The reversal at the Fourth Circuit illustrates again the struggle to define the word “accident,” in a situation involving a driver who intentionally becomes highly intoxicated and intentionally drives, knowing the inherent dangers, yet probably does not intend to crash, sustain injury and/or perish.

In Johnson, a participant of an employee benefit plan insured by AUL died after his truck left the road at high speed, hit a sign, and overturned several times. The post-mortem toxicology report showed a blood-alcohol concentration (BAC) of .289, more than three times the legal limit.

As did Judge Auld in the District Court below, the Fourth Circuit Court of Appeals explored a spectrum of interpretations of the word “accident.” AUL argued for the definition adopted in Eckleberry v. ReliaStar Life Ins. Co. 469 F. 3d 340 (4th Circ. 2006), in which the Court interpreted the policy’s definition of “accident” to exclude losses from death or injury that were “reasonably foreseeable.” Under the Eckleberry test, AUL argued, Mr. Johnson’s death was not the result of an accident because injury or death from driving while intoxicated was reasonably foreseeable. The Fourth Circuit rejected AUL’s argument, distinguishing Eckleberry in two pivotal ways. First, unlike the policy in the Eckleberry case, AUL’s policy did not empower it with discretionary authority sufficient to trigger the “abuse of discretion” standard of review. Secondly, the plan in Eckleberry defined “accident” to suggest a “reasonable foreseeability” test, while, by contrast, the term "accident" was undefined in AUL's policy. (This is not uncommon. As the Court recognized in the seminal case, Wickman v. Northwestern Nat’l Ins. Co., 908 F. 2d 1077, 1087 (1st Cir. 1990), the word “accident” eludes articulation.)

Reviewing AUL’s denial de novo, the Johnson Court characterized the term “accident” as ambiguous because it was undefined, and applied the contra proferentum doctrine. (Cf. Carden v. Aetna Life Ins. Co., 559 F.3d 256, 260 (4th Cir. S.C. 2009) in which the Court held that the doctrine did not to apply in a review for abuse of discretion.).

Moving on from Eckleberry, the Court considered two other interpretations that were skewed “against the drafter” more than the “reasonable foreseeability" test. The first was the test espoused by the Court in Wickman, supra: When there was no evidence of the deceased’s actual (subjective) intentions and expectations (as is often the case), the Court asks whether a reasonable person would have viewed the injury as highly likely to occur as a result of the deceased’s intentional conduct. If so, then the loss was not the result of an accident.

Secondly, the Court considered the definition of “accident” under N.C.G.S. § 58-3-30(b), the test adopted by Judge Auld in the District Court. Under this statute, which uses an “accidental result” test, a loss resulting from an intentional, voluntary act is still accidental if the injury (or result) is unanticipated and unexpected, unless the result was substantially certain to occur from the actions taken.

When Judge Auld applied this test, he found that “a crash by a speeding driver in Mr. Johnson’s [intoxicated] condition [is] as much an anticipated and expected result as a bullet hitting the head of someone who chooses to play Russian Roulette,” (giving a nod to the Wickman Court’s illustration of an unreasonable expectation of survival, even if death were not actually intended.) However, the Court of Appeals came to the opposite conclusion: While Eckleberry’s “reasonable foreseeable” test would most likely exclude coverage here, evidence of driving while intoxicated, even at a BAC level of .289, by itself, did not establish that the insured’s death was “substantially certain,” under the statute’s definition, or even “highly likely,” under the Wickman test. The Court’s conclusion was based upon statistics published by the CDC that an intoxicated driver’s chances of a fatal crash are 1 in 9,128. (The other 9,127 apparently survive. Query: How many drunk drivers with a BAC of .289 make it home safely?)

The proverbial “nail in the coffin” was the fact that another provision in the policy, providing a “Seat Belt Benefit,” specifically excluded recovery when the insured was driving while legally intoxicated. The Johnson Court interpreted this exclusion to suggest that the policy’s drafters considered a death when driving while intoxicated to constitute an accident, choosing to exclude benefits based on legal intoxication only with respect to the Seat Belt Benefit, but not in general.

U.S. Supreme Court Decision in McCutchen Leaves 11th Circuit Precedent Unscathed.

2013-04-17T11:21:00.000-04:00

In its decision published yesterday in U.S. Airways, Inc. v. McCutchen, 2013 U.S. LEXIS 3156 (April 16, 2013), the United States Supreme Court said what the Eleventh Circuit has been saying all along: Recovery through (and defenses to) ERISA Sec. 502(a)(3) are limited to enforcement of the terms of the plan, and cannot be crafted in contradiction of clear plan terms.

The issue in McCutchen was the enforcement of a reimbursement clause in an ERISA health benefit plan. The plan provided that, if the participant recovered from a third party for injuries, he must reimburse the plan for any medical benefits paid to treat the injuries, out of "any monies recovered." Because the avenue of recovery for a plan's reimbursement claim is "appropriate equitable relief" under ERISA Sec. 502(a)(3), the participant argued that equitable defenses such as the make-whole doctrine and the common fund doctrine could be applied as well.

The Third Circuit Court of Appeals agreed with the participant, allowing these doctrines to reduce the amount of the reimbursement to the plan, even if these doctrines contradicted the terms of the plan. (The Third Circuit's holding was recently lambasted by a District Court in the 11^th Circuit in Schwade v. Total Plastics, Inc., 2012 U.S. Dist Lexis 37091 (M.D. Fla. 2012) (See April 5, 2012 blog for a more detailed discussion) and was directly contrary to the Eleventh Circuit's holding in Zurich American Ins. Co. v. O’Hara, 604 F. 3d 1232 (11th Cir. 2010))

The Supreme Court reversed the Third Circuit. The Court recognized that the equitable doctrine by which the plan sought recovery under ERISA 502(a)(3) was most akin to an equitable lien by agreement, which "arises from and serves to carry out a contract's provisions." Because the boundaries of relief under ERISA § 502(a)(3) are limited to enforcing plan terms, any equitable defenses that resulted in undermining the plan terms could not be used to defeat the plan terms.

Applying its holding to the plan in its case, the Supreme Court found that the "make-whole" doctrine could not defeat the terms of the plan to be reimbursed first-dollar from any recovery. However, it found that the plan did not specifically address the apportionment of attorneys' fees; therefore, the common fund doctrine could be used as a default rule to require the plan to contribute to those fees. (In contrast, the plan provision at issue in Zurich specifically disavowed the common fund doctrine; accordingly, it appears that Zurich would be factually distinguishable on this point and, under the McCutchen analysis, the plan provision in Zurich would not be subject to the common fund defense.)

Creditors Can Reach Benefits under “Top Hat” Plan, United States District Court of Maryland Rules.

2013-04-11T15:45:00.000-04:00

A familiar feature of ERISA is its protection of a participant’s retirement savings from creditors; ERISA requires that pension plans contain an anti-alienation provision. However, unfunded deferred compensation plans for high-level executive employees, generally known as “top hat” plans, are exempt from ERISA’s mandate. But what if a “top hat” plan has an anti-alienation provision in it anyway? Can this provision trump state garnishment laws under the ERISA preemption umbrella?

The United States District Court for the District of Maryland answered “No.” In Sposato v. First Mariner Bank, 2013 WL 1308582 (D. Md. March 29, 2013), Plaintiff, a former executive of Cecil Bank, was a participant of Cecil Bank’s Supplemental Executive Retirement Plan, a “top hat” plan. The Plan provided that benefits “under the Plan may not be alienated, assigned, [or] transferred …. Benefits shall be exempt from the claims of creditors or other claimants of the Participant … and from all … garnishment or execution …..”

The defendant, a creditor of Plaintiff, sought to garnish Plaintiff’s benefits under the Plan. After recognizing that the Plan was exempt from ERISA’s anti-alienation provision mandate, the Court went on to address whether the terms of the Plan controlled over Maryland’s garnishment laws by virtue of ERISA’s preemption section 514. In holding in favor of the creditor, the Court relied upon the United States Supreme Court decision of Mackey v. Lanier Collection Agency & Service, Inc., 486 U.S. 825, 108 S. Ct. 2182 (1988), which held that ERISA did not preempt state garnishment laws that simply provided a procedural device for enforcing a judgment. As to the Participant’s argument that garnishment would violate the terms of the Plan, the Court held that the creditor’s rights were not subject to the terms of the Plan, which was a contract solely between the Plan sponsor and the Participant.

Because the creditor in Sposato sought garnishment of benefits as they become due and payable to the Participant, the Court resisted speculating about the issues that could arise if a participant’s creditor sought to collect before the deferred compensation was due, leaving that question for another day.

District Court in 11th Circuit Applies Presumption against Suicide When Interpreting AD&D Policy.

2013-03-27T10:50:00.000-04:00

In Acree v. Hartford Life & Accident Ins. Co., 2013 WL 140097 (M.D. Ga. 2013), Mr. Gwinette was found dead on his porch, with a gunshot wound to his chest. When Mr. Gwinette’s beneficiaries submitted a claim for life insurance and AD&D benefits under the employee benefit plan provided by Mr. Gwinette’s employer, Defendant paid the life insurance benefits, but denied the AD&D benefits. In finding coverage excluded, Defendant relied upon “official” reports from the investigation, including: (1) the Death Certificate, which listed the manner of death as “Undetermined”; (2) the Autopsy, which listed the manner of death as “suicide (self-inflicted)”; and (3) the Incident Report, which provided a narrative of the first responder, who listed the incident type as “suicide.” In their administrative appeal, the claimants alleged Mr. Gwinnett accidently shot himself while cleaning his shotgun. They submitted testimony regarding Mr. Gwinette’s character, state of mind, relative inexperience with guns, and the tendency for the gun to “jam.” They also presented evidence that gun-cleaning materials were beside Mr. Gwinette’s chair on the porch where he was found. Nevertheless, Defendant upheld its determination on appeal, relying on the original “official” reports.

In reviewing Defendant’s determination, the Court held that federal common law “firmly established a negative presumption against suicide.” Under this rule, “the presumption[] never drop[s] out of the case until the fact finder, [i.e., the Court] becomes convinced, given all the evidence, that it is more likely than not that the insured committed suicide.” Id. at *19, quoting, Horton v. Reliance Standard Life Ins. Co., 141 F. 3d 1038, 1042 (11^th Cir. 1998). Here, the Court was not so convinced, and remanded the case for Defendant to investigate further into whether Mr. Gwinette’s “self-inflicted” shooting was simply an accident while he was cleaning his gun. Implicit in the Court’s ruling was its sense that the “official” reports did nothing more than rule out a homicide.

The Court also foreclosed any argument that, even if Mr. Gwinnett had been cleaning his gun, he should have known that serious injury would be a probable outcome in cleaning a gun that tended to jam, thus failing the Wickman test. (Wickman v. Northwestern Nat’l Ins. Co., 908 F. 2d 1077 (1^st Cir. 1990) was a landmark case inserting an objective test into evaluating whether a loss was due to an “accident” as a result of risky behavior.) Here, the Court found: “[Mr.] “Gwinette made no more than a fatal mistake,” and that AD&D insurance is “purchased … ‘for the very purpose of obtaining protection from one’s own miscalculations and misjudgments.’” Id. at *28, quoting Padfield v. AIG Life Ins. Co., 290 F. 3d 1121, 1130 (9^th Cir. 2002).

ERISA Does Not Preempt State Court Order Requiring Beneficiary to Renounce Right to Employee’s Plan Benefits, Fourth Circuit Rules.

2013-03-15T09:33:00.001-04:00

The scenario is not difficult to imagine: An employee designates her spouse as the primary beneficiary under her employer’s life insurance and retirement benefit plans. Years later, the couple divorces, and in the marital settlement agreement, the ex-spouse waives his right to the employee’s life insurance and retirement benefits. However, the employee forgets to change the beneficiary designation on her employer’s form. The employee then dies.

Under ERISA, the plan administrator must distribute the proceeds under the terms of beneficiary designation form. Unless the marital settlement agreement qualifies as a QDRO, it does not enter the picture. Consequently, in this scenario, the plan administrator must distribute the benefits to the ex-spouse as the named beneficiary. Kennedy v. DuPont Savings and Investment Plan, 555 U.S. 285, 129 S. Ct. 865 (2009).

However, this outcome does not prevent the employee’s estate from seeking the proceeds from the ex-spouse. This was the scenario in Andochick v. Byrd, slip opinion 12-1728 (March 4, 2013), in which the Fourth Circuit Court of Appeals acknowledged that it was answering a question left open by the Supreme Court in the Kennedy decision. In Andochick, the employee’s estate sought an injunction in state court, asking the Court to find the ex-spouse in contempt of the marital settlement agreement and ordering him to renounce his rights to the life insurance and retirement benefits under the employee benefit plan. Meanwhile, the ex-spouse filed an action in federal court, seeking a declaratory judgment that the plan administrator must distribute the plan benefits to him, under Kennedy. The United States District Court for the Eastern District of Virginia held that, while the plan administrator would be required to adhere to the beneficiary designation, the employee’s estate could enforce the marital settlement agreement in state court against the ex-spouse. Andochick v. Byrd, 2012 U.S. Dist. Lexis 65903 (E.D. Va. 2012). The Fourth Circuit Court of Appeals affirmed the District Court, finding that the state court’s injunction affected the parties’ rights post-distribution, even if the court entered the injunction prior to the plan’s distribution. In this way, the state court’s order did not interfere with ERISA’s goals in efficient plan administration recognized by the Supreme Court in Kennedy, the Court held.

The lesson: An estate can sue the employee benefit plan beneficiary before the plan distribution is made, putting in place the threat of a court’s contempt powers by the time the distribution is made.

The Fourth Circuit Opens the Door to Extrinsic Evidence in Considering a Claim for Employee Benefits.

2013-03-08T10:51:00.001-05:00

The very first principle applied in a lawsuit for benefits from an ERISA-governed employee benefit plan is as follows: When the plan bestows the administrator with discretionary authority to determine whether the claimant is entitled to benefits under the plan, the Court reviews the administrator’s decision for abuse of discretion. Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989).

From there, the second main principle follows: When the Court reviews the administrator’s decision for abuse of discretion, the scope of admissible evidence is limited to the Administrative Record, i.e., all the documents and information “known to the administrator at that time of its decision.” Sheppard & Enoch Pratt Hosp. v. Travelers Ins. Co., 32 F. 3d 120, 125 (4^th Cir. 1994).

In the Fourth Circuit’s brand new decision, Helton v. AT& T, Inc. Pension Benefit Plan, 2013 U.S. App. LEXIS 4575 (4^th Cir. March 6, 2013), the Court examined under the microscope what an administrator may have “known at the time,” and interpreted that phrase to include anything that the administrator would have, could have, or should have known when it reviewed the claimant’s benefit claim. Otherwise, the plan administrator “could simply omit any evidence from the administrative record that would suggest their decisions were unreasonable.”

This particular comment by the Court was not earth-shattering; of course, an administrator has a duty to review what is before it. However, the Court went further. Relying upon Booth v. Wal-Mart Stores Inc. Assoc. Health and Welfare Plan, 201 F. 3d 335 (4^th Circ. 2000) and its long-standing factor test for evaluating whether an administrator abused its discretion, the Court held that “a district court may consider evidence outside of the administrative record … when such evidence is necessary to adequately assess the Booth factors and the evidence was known to the plan administrator when it rendered its benefits determination.”

The Helton Court went on to interpret what is “known” when the administrator is a corporation (the most common situation): Basically, any records the corporation has are imputed upon the corporation’s knowledge. Thus, the Helton Court explained, the Court should be able to review the plan administrator’s prior coverage determinations to assess whether its decision in the subject case was consistent with earlier interpretations of the plan (the fourth Booth factor). While this appears facially logical, the Helton Court suggested a dramatically increased discovery burden, requiring the administrator to make exhaustive searches into past decisions – something for which the administrator would not necessarily have had any reason to search in reviewing the claimant’s benefit claim, as every claimant’s case is based upon its own unique facts. The Court also discussed the eighth factor, conflict of interest, which was recently addressed by the Supreme Court in MetLife v. Glenn, 554 U.S. 105 (2008), and declared: “One can envision many circumstances in which a Court would need to look to extrinsic evidence to evaluate … the impact of a plan fiduciary’s conflict of interest.”

Arguably, the Helton Court’s application of its holding to the fourth and eighth Booth factors was dicta, as it was not necessary for reaching its decision, which involved the fiduciary’s alleged failure to examine its own records to determine whether it gave proper notice of a plan change to the Plaintiff. Nevertheless, Plaintiffs’ counsel in the Fourth Circuit now have increased leverage in arguing for expanded discovery and the admissibility of extrinsic evidence in ERISA benefit cases.