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In Connecticut General Life Ins. Co. v. BioHealth Labs., Inc., No. 20-2312-CV,  — F.3d –, 2021 WL 476111 (2d Cir. Feb. 10, 2021), Cigna, as administrator of employee health plans, sued six  out-of-network lab companies for various fraudulent billing schemes, including fee forgiveness (not charging the patient for co-insurance, co-pays, etc.), unnecessary testing, and unbundling (separately billing for services that should be combined at a lower rate). In all, Cigna sought to recover $17 million in fraudulent or improper charges.

Cigna had completed its investigation that uncovered the alleged fraud in 2015, and began to deny payment of claims submitted by the labs. Two of the labs sued Cigna in Florida, but that action was dismissed and closed in 2017 for failure to exhaust administrative remedies. Cigna then sued the labs in Connecticut District Court in 2019, asserting “a variety of Connecticut state-law and federal claims,” all of which, according to Cigna, would have been compulsory counterclaims in the Florida action, had it not been dismissed. The district court dismissed the Connecticut complaint on the ground that all claims were time-barred under Connecticut’s three-year statute of limitations for tort claims.

The Second Circuit affirmed in part and reversed in part.…
Continue Reading Second Circuit Addresses Limitations Periods Governing Fraudulent Billing Claims Against Non-Participating Providers

The Second Circuit Court of Appeals recently issued an opinion in Frommert v. Conkright, affirming a district court decision regarding appropriate equitable remedies under ERISA and the amount of prejudgment interest to be applied. The Second Circuit’s views on each of these issues should be of interest to plan fiduciaries as well as practitioners.

This litigation has a long history, dating back to 1999, and has generated many court opinions along the way, from the district court level all the way up to the U.S. Supreme Court. Indeed, this is the Second Circuit’s fourth decision in this case. (Readers are likely familiar with this case from the 2010 Supreme Court decision, which addressed the standard of review and held that an honest mistake does not strip a plan administrator of the deference otherwise granted to it to construe plan terms.)

By means of background, the litigation was initiated by Xerox employees who had left the company in the 1980s, received distributions of the retirement benefits they had earned up to that point, and who were subsequently rehired by Xerox. In addition to the issues concerning interpretation of the Plan and related documents, the primary focus of the case was how to account for the employees’ past distributions when calculating their current benefits so as to avoid a “double payment” windfall.…
Continue Reading Second Circuit Upholds District Court’s Choice of Equitable Remedies Under ERISA and Its Decision to Award Prejudgment Interest at the Federal Prime Rate

The Second Circuit recently held that alleged misrepresentations by a “ministerial” plan representative about plan benefits will not support a claim for breach of fiduciary duty if the SPD clearly provides “complete and accurate” information, but might support a claim for breach of fiduciary duty if the SPD does not.  In re DeRogatis, 16-977-cv, 16-3549-cv (2d Cir. Sept. 14, 2018) (slip op.).

Petitioner’s Claim

Emily DeRogatis brought two lawsuits concerning benefits under her deceased husband’s pension and health plans. She claimed that two plan employees provided inaccurate information about her husband’s eligibility for, and the amount of, survivor benefits payable under the pension plan, and the impact of early retirement on health benefits under the welfare plan.…
Continue Reading Second Circuit Speaks On When Ministerial Acts Can Breach a Fiduciary Duty

In the world of ERISA litigation, one of the safest bets is usually that, if an employer establishes something that it calls a “plan,” and the plan allows a significant number of its employees to obtain money after retirement, ERISA is going to govern. Sure, there are situations where the employer is exempt from ERISA (it may be a governmental entity or affiliated with a church), but those exceptions are generally easy to spot.

However, Pasternack v. Shrader, 863 F.3d 162 (2d Cir. 2017), is a reminder of the risks of drawing such automatic conclusions, because sometimes a plan is just a plan. Pasternack essentially held that, when the primary purpose of a stock ownership plan was something other than deferring income or providing retirement income, ERISA may not govern.  Though the Court asserted that the distinction between a pension plan and one that offered present benefits was “crisp and unambiguous,” one might be forgiven for harboring doubt that the line is as well-defined as the Court believed.…
Continue Reading A stock plan is not necessarily an ERISA plan

Deciding an issue of first impression, the U.S. Court of Appeals for the Second Circuit recently held that a plaintiff’s claim under ERISA § 502(c)(1) was barred by Connecticut’s one-year statute of limitations for an action seeking to collect a statutorily-imposed civil penalty. Brown v. Rawlings Fin. Servs. LLC, (2d. Cir., 8/22/17) (Jacobs, Leval, Raggi, Js.).

Plaintiff, a plan participant, had filed suit against Rawlings, Aetna, and the William W. Backus Hospital claiming that they had failed to timely respond to her request for documents concerning her healthcare benefit plan. The defendants moved to dismiss her complaint on the ground that the suit was not timely filed, and the District Court granted the motion. Plaintiff thereafter appealed to the Second Circuit, arguing that the District Court had applied the incorrect limitations period.…
Continue Reading ERISA § 502(c)(1) Claim for Statutory Penalties is Barred by One-Year Statute of Limitations, Second Circuit Holds

A recent decision by the Eighth  Circuit Court of Appeals, Jones v. Aetna Life Ins. Co., No. 16-1714, 2017 U.S. App. LEXIS 8112 (8th Cir. May 8, 2017), provides another signal that those of us defending against benefit claims increasingly may have to contend with simultaneous equitable claims for breach of fiduciary duty. Though the law is developing in this area (when is ERISA law not “developing”?), and likely will vary from circuit to circuit, you can expect more plaintiffs to add an equitable claim to a benefits complaint, and you can expect at least some courts to allow those claims to go forward. What strategies will prove most effective in responding to this latest tactic? While there are no definitive answers at this point, there are some ideas to consider.…
Continue Reading It May Be Time to Start Thinking About Equitable Claims Again

In Hannan v. Hartford Financial Services, Inc., (2d Cir., April 25, 2017), the Second Circuit Court of Appeals affirmed dismissal of a potential ERISA class action against Family Dollar Stores, its employee benefits plan, and the plan’s group life insurance provider (Hartford), rejecting allegations by plan participants that the plan defendants had engaged in a so-called “cross-subsidization” scheme in violation of federal law. The Second Circuit confirmed that neither the negotiation of premium rates nor any alleged subsidization component between different types of life insurance provided under the plan constituted a breach of fiduciary duty or prohibited transaction under ERISA.

The background facts, as alleged in the complaint and summarized in the court decisions, are as follows. Family Dollar contracted with Hartford to provide group life insurance coverage to employees under the Family Dollar Stores, Inc. Group Insurance Plan (the “Plan”).  All employees were automatically enrolled in basic life insurance under the Plan at no cost to them. They also were offered the option (but were not obligated) to purchase supplemental life insurance coverage for which they would pay the premiums. …
Continue Reading Second Circuit Upholds Dismissal of ERISA Claims Against Plan Defendants for Alleged “Cross-Subsidization” Scheme

The Second Circuit Court of Appeals recently held that claim fiduciaries must strictly comply with ERISA claim regulations or lose the deferential standard of review, as we have discussed in previous posts: Second Circuit rejects “substantial compliance” rule, Insurer’s Failure to Establish “Special Circumstances” for Extension of Time to Decide LTD Appeal Warrants De Novo Review, and District of Connecticut Rules that Violations of Claims Procedure Regulations Result in Loss of Discretion.

While other courts have not applied the same strict level of scrutiny to the claims regulations as Halo and its progeny, the Ninth Circuit recently held that a procedural violation in the claims-handling process may warrant de novo review if it resulted in substantive harm to the claimant. In Smith v. Reliance Standard Life Ins. Co., Dkt. # No. 16-15319 (9th Cir., March 16, 2017), the Ninth Circuit Court of Appeals vacated a district court’s order in favor of the insurer on a plan participant’s claims for short- and long-term disability benefits, remanding the case back to the district court for further consideration.…
Continue Reading Ninth Circuit Holds That Violation of DOL Claim Regulations Can Result in a Loss of Deference

Following the 2016 decision of the Second Circuit Court of Appeals in Halo v. Yale Health Plan, 819 F.3d 42 (2d Cir. 2016), in which the Second Circuit rejected the doctrine of “substantial compliance” with ERISA claim regulations in favor of a much stricter interpretation, courts within the Second Circuit have increasingly held insurers and other claims fiduciaries to a high standard of compliance with the claim regulations, regardless of the type of benefit at issue.

Under Halo, a plan’s failure to comply with the claims-procedure regulations will result in that claim being reviewed de novo, unless the plan has otherwise “established procedures in full conformity” with the regulations and can show that its failure to comply with the regulations was both inadvertent and harmless. We have previously written about this here and here.

Most recently, in Schuman v. Aetna Life Ins. Co., 2017 U.S. Dist. LEXIS 39388 (D. Conn. Mar. 20, 2017), the U.S. District Court for the District of Connecticut ruled that Halo compelled de novo review of a denial of long-term disability benefits, despite the grant of discretion in the plan. The plaintiff (plan participant) alleged several violations of the claims-procedure regulations, including: failure to adequately consider a vocational assessment submitted by the plaintiff; improper deference to the initial decision on appeal; failure to provide copies of internal policy guidelines upon request; and lack of adequate safeguards to ensure that claims decisions were made in accordance with the applicable plan document.…
Continue Reading District of Connecticut Rules that Violations of Claims Procedure Regulations Result in Loss of Discretion

Running an employee benefit claims operation is a complex undertaking, which requires continual training and oversight. A robust quality assurance organization can play an important part in the overall management mix. Curran v. Aetna Life Ins. Co., 13-cv-289, 2016 WL 3843085 (S.D.N.Y. July 11, 2016), gives a concrete example of a quality assurance review catching a significant error that would have resulted in an incorrect six-figure payment, and documenting the correction of the problem in a responsible, non-biased way. I always think that an organization’s strength is best revealed by how it responds to a problem, so Aetna deserves a gold star for this case.…
Continue Reading Internal quality assurance discussion about $100,000 error in plan interpretation not evidence of conflict