Ninth Circuit Discusses Limits On Make-Whole Equitable Remedies for Breach of Fiduciary Duty

In Gabriel v. Alaska Electrical Pension Fund, 755 F.3d 647 (9th Cir. 2014), a venal claimant met a not-very competent plan administrator, and the result was a helpful discussion of limits on make-whole equitable claims. Continue reading

Administrator is Entitled to Require Strict Compliance With Plan Procedures

In Hall v. Met. Life Ins. Co., 750 F/3d 995 (8th Cir. 2014), the plaintiff’s husband participated in a life insurance plan, in which he named his son as beneficiary. After he married plaintiff, he executed a change of beneficiary form, but it was not filed until after he died. Shortly before his death, he executed a will that purported to designate plaintiff as beneficiary of the life benefit. Met Life denied plaintiff’s claim, and the court upheld the determination. Continue reading

Evidence Outside of Administrative Record Is Admissible to Determine Standard of Review

In Waldoch v. Medtronic, Inc., 757 F.3d 822 (8th Cir. 2014), the plaintiff argued that the plan’s grant of discretionary authority was overridden by procedural irregularities in plan administration, compelling use of the de novo standard of review. To counter that argument, Medtronic submitted an affidavit with supplemental evidence demonstrating its claims handling process. The district court overruled plaintiff’s motion to strike that evidence, and the Eighth Circuit affirmed. The court held that, though its review is normally limited to the administrative record, that rule “is relaxed when evidence is admitted for the limited purpose of determining the proper standard of review.”

After noting that Met Life v. Glenn may well have overruled Eighth Circuit precedent to the effect that serious procedural irregularities could compel de novo review even when the plan granted discretionary authority, the court held that it did not need to resolve that question, given its conclusion that there were no serious procedural irregularities present.

Sixth Circuit Adopts “Clear-Notice” Rule Before Statutory Penalties Can Be Imposed

Cultrona v. Nationwide Life Ins. Co., 748 F.3d 698 (6th Cir. 2014), involved the denial of benefits under an accidental death policy on the ground that the plaintiff’s husband’s death was excluded due to his intoxication. The court found that determination to be reasonable.

But the court also affirmed the district court’s determination that the plan administrator had to pay plaintiff a statutory penalty for its failure to provide a copy of the original policy in a timely manner. The administrator argued that the court should adopt the “clear-notice” standard, which requires a claimant to “provide clear notice to the plan administrator of the information they desire.” The court, as an issue of first impression, adopted that standard, and stated that the key question was whether the administrator knew or should have known which documents were being requested. The claimant’s attorney’s request for “all documents comprising the administrative record and/or supporting [the administrator’s] decision” gave clear notice that the original policy was being requested. This was further evidenced by the fact that an employee of the claim administrator proposed sending a copy of the original policy in response to the request.

Claim of ERISA Exemption Does Not Impact Subject Matter Jurisdiction

In Smith v. Regional Transit Auth., 756 F.3d 340 (5th Cir. 2014), the Fifth Circuit  rejected its prior precedent, and held that the governmental plan exemption (and presumably other, similar exemptions) does not impact subject matter jurisdiction.

The court noted that the “Supreme Court has repeatedly instructed that we must avoid conflating the question of whether we have subject matter jurisdiction to consider a claim with the determination of whether the plaintiff has stated a valid claim for relief.” Where the plaintiff alleged a claim under ERISA (as the plaintiff here did),  the district court had subject matter jurisdiction unless the claim was so insubstantial or implausible as not to involve a federal controversy.

Accordingly, the proper method for raising an ERISA exemption is a Rule 12(b)(6) motion (if the exemption can be determined from the face of the complaint), or a summary judgment motion (if extrinsic evidence is required). But here, the district court had based its dismissal on Rule 12(b)(1), under which a district court has the authority to resolve disputed issues of fact to the extent necessary to determine jurisdiction.

Because the district court used the incorrect procedural vehicle, the court reversed and remanded, without reaching the merits of the exemption.

Fifth and Sixth Circuits Consider Coordination-of-Benefits Remedies For ERISA Plans

Providing for “coordination of benefits” means including a provision in an insurance policy that address what should happen if more than one insurer covers the same claim. Virtually every primary insurance policy will say that, if other insurance exists, the other policy will pay first. Of course, when there are two policies providing coverage, each one typically says the other pays first. Coordination-of-benefits disputes involving deciding whether the provisions conflict, and, if so, how to resolve the conflict. Ordinarily, when policies have conflicting coordination-of-benefits provisions, courts rule that the provisions cancel each other out, and both policies share liability pro rata. Continue reading

Supreme Court Emphasizes that ERISA Plans Are Not Always Pre-Eminent

In a recent decision involving fiduciary duties in Employee Stock Ownership Plans (ESOPs), the Supreme Court emphasized an important limit on the pre-eminence of the plan document. Recent Supreme Court decisions, primarily in the welfare benefit plan context, have emphasized the primary importance of the plan document in establishing a fiduciary’s obligations and a participant’s rights.

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Nice Second Circuit Decision Illustrating Appropriate Administrative Review

Ingravallo v. Hartford Life & Acc. Ins. Co., 2014 WL 1622798 (2d Cir. Apr. 24, 2014), doesn’t break any new legal ground, but it is nonetheless noteworthy for several reasons. It is rare that the Circuit reverses a District Court’s determination; here, it reversed and directed entry of judgment for Hartford. Second, it contains excellent findings regarding the adequacy of a claim administrator’s evaluation of a SSDI award, surveillance, and medical evidence. Continue reading

New York Times article: Breach of fiduciary duty to fail to monitor and reduce fees

It’s not often that an ERISA issue gets prominent play in the press, but a recent article by Gretchen Morgenson is an exception. A Lone Ranger of the 401(k)’s  began:

The arithmetic could not be simpler. The more fees you pay in your 401(k) plan, the less cash you’ll have for retirement.

Still, fees hidden from view can make it hard for 401(k) holders to find out what they are paying. Plan sponsors, usually an employer, have a fiduciary duty to safeguard workers’ retirement accounts. But sponsors don’t always push providers like mutual funds to reduce fees or cut costs.

That may be about to change. On March 19, the Eighth Circuit Court of Appeals in St. Louis affirmed a lower-court ruling in one of the first 401(k) fee cases to go to trial. In that case, the court found that ABB Inc., a power and automation technology company, failed to monitor its plan’s internal costs and paid excessive fees by not negotiating for rebates from investment companies whose funds were offered in the plan. This, the court said, violated ABB’s fiduciary duties to the 401(k) participants

Disability Benefit Underpayment Claim Accrues When Benefit Calculated

Long-term disability plans typically pay benefits on a monthly basis. When there is a dispute about the calculation of benefits, when does that claim accrue? And does each new underpayment give rise to a new claim? The First Circuit answered those questions in Riley v. Met Life Ins. Co., — F.3d –, 2014 WL 814742 (1st Cir. Mar. 4, 2014).

Riley filed an LTD claim that was approved in 2005, and Met Life determined that he qualified for only the minimum benefit. Riley contended that Met Life used the wrong salary for its calculation. When he received his first payment, he refused to cash it, and returned it to Met Life. He did the same with subsequent payments, and ultimately asked Met Life to stop sending him checks. There ensued two litigations filed by an apparently not-very-competent lawyer, which were dismissed without the merits being reached.

Riley hired new counsel, and sued for a third time in 2011. This time, Met Life moved for summary judgment, arguing that the claim was barred by the applicable six-year statute of limitations. The district court agreed, and the First Circuit affirmed.

First, the court held that Riley’s claim accrued when Met Life approved his claim, calculated the benefit, and issued the first check: “MetLife allowed Riley’s LTD claim, but with its first check for $50, MetLife denied his explicit assertion that any award of that sum was inaccurate. This was not a complete repudiation or a formal denial of all LTD benefits. But it was a clear repudiation of Riley’s assertion that he was entitled to more than the amount MetLife actually awarded.”

The court explicitly agreed with decisions by the Second, Third, Seventh and Eighth Circuits, which had “concluded that an ERISA cause of action accrues when, after a claim for benefits is made and a specific sum is sought, the ERISA plan repudiates the claim or the sum sought, and that rejection is clear and made known to the beneficiary.” See, e.g., Miller v. Fortis Benefits Ins. Co., 475 F.3d 516 (3d Cir.2007); Union Pac. R.R. Co. v. Beckham, 138 F.3d 325 (8th Cir.1998); Daill v. Sheet Metal Workers’ Local 73 Pension Fund, 100 F.3d 62 (7th Cir.1996); Novella v. Westchester Cnty., 661 F.3d 128 (2d Cir.2011).

Next, the court rejected Riley’s argument that each monthly payment gave rise to a new claim, and that the statute of limitations barred, at most, claims concerning benefits paid more than six years before the action was filed. Calling it an issue of first impression in the Circuit, the court “rejected Riley’s argument that the ERISA plan must be treated as a continuing violation or as an installment contract, with a new accrual date starting a new limitations period for each payment.”

The court held that “an underpayment can qualify as a repudiation because a plan’s determination that a beneficiary receive less than his full benefits is effectively a partial denial of benefits.” The court distinguished between a case in which there are separate violations of the same type or character, which are repeated over time (in which case each violation might be a separate claim), and a claim “based on a single decision that results in lasting negative effects” (in which there is a single claim accruing when the decision is made).

The court explained that its ruling on this point was consistent with decisions from the Second, Third and Ninth Circuits, and observed that Riley had not identified any circuit cases “applying an installment contract accrual theory to ERISA benefit claims.

Finally, the court gave a shout-out to the policies underlying ERISA, and held that those policies supported its decision:

One of ERISA’s main purposes is the promotion of predictability, through which ERISA seeks to induce employers to offer benefits by assuring a predictable set of liabilities. Allowing beneficiaries to challenge alleged miscalculations on which the statute of limitations has already run by limiting the challenge to recent and future payments would undermine that predictability interest. It could also undermine the ERISA plan’s reliance on its original calculations and payments for actuarial purposes. [citations, quotation marks and brackets omitted]