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.
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
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
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]
Back in December, we reported on the Sixth Circuit’s “unprecedented and extraordinary step to expand the scope of ERISA coverage” in Rochow v. LINA, 737 F.3d 415 (6th Cir. 2013). In that case, the court held that it was appropriate to require a disability claim administrator to disgorge $3,800,000 in profits it allegedly made on $900,000 in benefits that it had unreasonably failed to pay. Disgorgement of $3,800,000 ordered for failure to pay $900,000 in disability benefits
Well, there’s good news. On February 19, 2014, the Sixth Circuit granted LINA’s petition for rehearing en banc. This means that the December 2013 decision is vacated. Under the court’s rules: “The effect of the granting of a hearing en banc shall be to vacate the previous opinion and judgment of this court, to stay the mandate and to restore the case on the docket sheet as a pending appeal.”
So, this bad decision doesn’t exist for the time being. Hopefully the court will make it go away permanently. We wish LINA and its lawyers good luck.
A divided panel on the Eleventh Circuit has imposed on plan administrators “an obligation to consider the evidence presented to the SSA” by the claimant. While it is not particularly novel to hold that an SSDI award must be considered – most circuits require disability claim administrators to consider an SSDI award, or at least to explain why it is not relevant – the Eleventh Circuit seems to have taken the requirement a step further, requiring the administrator to seek out the evidence the SSDI award was based on, and perhaps even delay an adverse decision until the SSDI process is completed. Continue reading
I imagine that, for a federal judge, getting reversed is not pleasant, even though it’s part of the job. Well, pity poor Judge Larimer of the Western District of New York, who has now been reversed three times in the same case – twice by the Second Circuit and once by the Supreme Court. Continue reading
In Heimeshoff v. Hartford Life & Acc. Ins. Co., 571 U.S. __ (Dec. 16, 2013) , the Supreme Court held that a contractual limitation provision under which the clock begins to run before administrative remedies are exhausted is enforceable under ERISA, as long as a reasonable time is left after exhaustion is expected to occur.
Julie Heimeshoff filed a claim with Hartford for benefits under a disability plan established by WalMart. The plan provided that litigation must be commenced within three years after proof of loss was due. The Court noted that, under applicable ERISA regulations, the typical ERISA claim would be fully administered in about a year, perhaps as long as 16 months. Thus, one would ordinarily expect a claimant to have 1-1/2 to 2 years to bring suit after a claim was fully administered.
When Heimeshoff’s claim was fully administered, she had about 1 year left under the limitation provision to sue. But she waited almost three years, making her suit almost 2 years late under the contractual provision. Hartford and WalMart moved to dismiss Heimeshoff’s action as untimely, and the District of Connecticut agreed, applying Second Circuit precedent enforcing an identical limitation provision. Heimeshoff appealed, and the Second Circuit affirmed on the same basis. The Supreme Court granted certiorari to resolve a split in the circuits regarding the enforceability of a contractual limitation provision that starts to run before administrative remedies are exhausted. (The District Court and the Second Circuit also found that Heimeshoff could not establish a basis for equitable tolling of the limitation period; the Supreme Court declined to grant certiorari on that question).
The Supreme Court unanimously affirmed the dismissal of Heimeshoff’s action. Continue reading
The Sixth Circuit has just taken an “unprecedented and extraordinary step to expand the scope of ERISA coverage” (in the words of the dissent) by affirming a judgment directing a disability insurer to pay about $900,000 in improperly denied benefits plus disgorge an additional $3,800,000, representing profits it allegedly made on the benefits. I agree with the dissent; this represents a significant expansion of potential liability for ERISA fiduciaries in the Sixth Circuit. Continue reading
Every so often a bit of legal synchronicity seems to occur. Sometimes its personal, like when you have several cases with the same uncommon issue, or multiple cases in the same rarely visited court. In 2013, there appears to be a larger force at work that has caused three circuits to address the question whether a plan that requires proof to be satisfactory to the insurer confers discretion.
It has long been clear that a plan document must give discretionary authority to an insurer in order to require courts to conduct an arbitrary and capricious review. It is also well-established that no “magic words” are required to give discretion. However, the vast majority of plans intending to grant discretion use the magic words anyway, and say that the insurer has “discretionary authority to determine claims and construe the plan” or some variant.
But what happens when a plan does not use the magic words? Continue reading