ERISA and Life Insurance News by Smith Moore Leatherwood

MAY

2014

ERISA & LIFE INSURANCE NEWS Cover ing ERISA and Life, Health and Disability Insurance Litigation

INSIDE THIS ISSUE Amendment to Georgia Prompt Pay Statute Held Preempted by ERISA

Eleventh Circuit Rejects Healthcare Providers’ ERISA Claims to Payment for Manipulations under Anesthesia

Remand to Insurer Ordered Where Application for SSDI Benefits Was Required but Award Was Not Considered

Claim Denial Upheld, Based in Part on Surveillance Video That Was Significantly Inconsistent with Plaintiff’s Claim

Finding that Insured Was Not Disabled Because He Could Work with Accommodations Was Not Abuse of Discretion

Failure to Accept Opinion of Treating Physician Did Not Make Claim Decision De Novo Wrong

Reopening of Claim Does Not Waive Issues Regarding Timeliness of Appeal

Individual Life Insurance Policies Unenforceable Because Insured Did Not Sign Applications or Give Written Consent

Claim under Georgia Bad Faith Statute Is Not Saved from ERISA Preemption

Pending Claim for Attorney’s Fees Does Not Postpone Deadline to File Appeal from Judgment on the Merits

When an action is filed to recover benefits under § 502(a)(1)(B) of ERISA, or to enforce plan terms under other provisions of ERISA, the plaintiff generally includes a claim to recover attorney’s fees and costs under § 502(g). It is not unusual for a court to decide the main claim first, and to defer consideration of the claim for fees until after judgment on the merits has been entered. In fact, some district courts provide by local rule that an award of fees may be requested by separate motion after a final judgment has been entered on the merits of the main claim. See, e.g., LR 54.2, N.D. Ga. If the claim for fees and costs is not decided until more than 30 days after entry of the judgment on the merits, is it then too late to appeal from an adverse decision on the main claim? In other words, is there a “final decision” triggering the time to file continued on page 2 >>

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a notice of appeal when judgment is entered only on the main claim? Or is the decision not final until judgment also is entered on the claim for attorney’s fees and costs? Appellate Court Jurisdiction The jurisdiction of federal courts of appeals is established by 28 U.S.C. § 1291, which provides that “[t]he courts of appeals … shall have jurisdiction of appeals from all final decisions of the district courts of the United States ….” Rule 4 of the Federal Rules of Appellate Procedure provides generally that a “notice of appeal … must be filed … within 30 days after entry of the judgment or order appealed from.” Filing the notice of appeal too late is fatal to appellate review because “the timely filing of a notice of appeal in a civil case is a jurisdictional requirement.” Bowles v. Russell, 551 U.S. 205, 214 (2007). While this seems straightforward, federal courts of appeals have reached different results when considering whether the time to file a notice of appeal begins to run when a judgment on the merits is entered, or when a subsequent judgment is entered on an ancillary claim to recover attorney’s fees. In the context of a claim for fees authorized by a statute, that issue was resolved 26 years ago. In Budinich v. Becton Dickinson & Co., 486 U.S. 196 (1988), the Court held that a decision on the merits is a “final decision” for purposes of § 1291, even if a claim to recover statutory attorney’s fees remains unresolved. Budinich left open, however, the question of whether a contract-based claim – as opposed to a statutory claim – to recover 2

attorney’s fees is part of the merits, so that the time to file a notice of appeal does not begin to run until the court has decided both the underlying claim and the attorney’s fee claim.

for fees and expenses until July 25, 2011, more than a month later, when it entered a second judgment awarding $34,688, again less than the Funds had claimed. 792 F. Supp. 2d. at 143.

Supreme Court Decision That issue was resolved by the Supreme Court this year in Ray Haluch Gravel Co. v. Central Pension Fund of Internatonal Union of Operating Engineers and Participating Employers, 134 S. Ct. 773 (2014), an ERISA case. Certain labor union funds sued under § 515 of ERISA to compel additional employer contributions to employee benefit plans, and they also sought to recover attorney’s fees and costs. The claim for fees and costs had both a statutory and a contractual basis, because it was brought both under § 502(g)(2)(D) of ERISA and under the terms of a collective bargaining agreement.

The Funds filed a notice of appeal to the First Circuit Court of Appeals on August 15, 2011, more than 30 days after entry of the judgment on the merits but less than 30 days after the judgment awarding fees and expenses. The First Circuit held that the appeal was timely and that the first judgment entered on June 17 was not final and appealable, because a contractual claim for fees and expenses remained pending. 695 F.3d 1, 6 (1st Cir. 2012).

The relevant facts were these: Under a collective bargaining agreement, Haluch Gravel, a landscape supply company, was required to pay contributions to union-affiliated benefit funds. After an audit was conducted, some of the Funds sued, alleging that Haluch Gravel failed to make the required contributions in violation of ERISA and the Labor Management Relations Act of 1947. The Funds also sued to recover attorney’s fees, audit fees, and costs of $143,600. The district court entered judgment for the Funds on June 17, 2011, ruling that they were entitled to unpaid contributions of $26,897, which was less than had been claimed. International Union of Operating Engineers, Local 98 Health and Welfare, Pension and Annuity Funds v. Ray Haluch Gravel Co., 792 F. Supp. 2d 129 (D. Mass.).

The district court did not rule on the claim | ERISA and Life Insurance News | May 2014

The Supreme Court granted certiorari to resolve conflicting decisions by the circuit courts of appeals, some of which had held that Budinich applies to all claims for attorney’s fees, both statutory and contractual, and others of which had held that contractual claims for attorney’s fees fall outside the Budinich ruling. Contractual and Statutory Fee Claims Treated the Same The Court held that the Funds’ appeal was untimely, and that the time to file the notice of appeal began to run when the judgment on the merits of the claim for additional contributions was entered – regardless of whether the claim for attorney’s fees was based on a statute or on a contract. “Were the jurisdictional effect of an unresolved issue of attorney’s fees to depend on whether the entitlement to fees is asserted under a statute, as distinct from a contract, the operational consistency and predictability stressed in Budinich would be compromised in many instances,” the Court said. “Operational consistency is not promoted by providing for different jurisdictional effect to district

court decisions that leave unresolved otherwise identical fee claims based solely on whether the asserted right to fees is based on a contract or a statute.” The Court declined to base the finality of a judgment on“complex variations in statutory and contractual fee-shifting provisions,” noting that “[s]ome fee-shifting provisions treat the fees as part of the merits; some do not. Some are bilateral, authorizing fees either to plaintiffs or defendants; some are unilateral. Some depend on prevailing party status; some do not.”

Instead, the Court said, “[t]he rule adopted in Budinich ignores these distinctions in favor of an approach that looks solely to the character of the issue that remains open after the court has otherwise ruled on the merits of the case.” Consequently, whether the claim for attorney’s fees is based on a statute, a contract, or both, the fact that a claim for fees and costs remains pending does not prevent a judgment on the merits from becoming final for purposes of appeal.

sponsors and claims fiduciaries, the lesson is clear. If the district court enters judgment on the merits for the plan participant or beneficiary, that is a final decision for the purpose of appeal. A notice of appeal must be filed within 30 days of the date of that judgment – even if a claim to recover attorney’s fees and costs remains pending. If the decision on the ancillary claim for fees is entered more than 30 days later, a subsequent notice of appeal from the earlier judgment on the merits of the claim will be untimely.

In the context of representing ERISA plan

Amendment to Georgia Prompt Pay Statute Held Preempted by ERISA America’s Health Ins. Plans v. Hudgens, 742 F.3d 1319 (11th Cir. 2014) In May 2011, Georgia enacted the Insurance Delivery Enhancement Act of 2011 (“IDEA”), which amended certain portions of Georgia’s “prompt pay” laws. Georgia’s prompt pay statute originally applied only to fully insured ERISA plans, not to self-funded plans. However, several sections of IDEA, if placed into effect, would extend prompt pay restrictions to self-funded health plans and their TPAs, something the original statute expressly excluded from its breadth.

the Commissioner from enforcing the challenged sections. On the eve of the amendments’ effective date, the district court granted AHIP’s motion and preliminarily enjoined the Commissioner from enforcing Sections 4, 5, and 6 of IDEA on the ground that each was preempted by Section 514 of ERISA. The Commissioner filed an interlocutory

appeal, primarily arguing (1) that AHIP lacked standing, and (2) that the district court erred in granting the preliminary injunction. The Eleventh Circuit first held that AHIP had standing to sue on behalf of its members because they could have sued in their own right. Specifically, the court found that the continued on page 4 >>

America’s Health Insurance Plans (“AHIP”), a trade association, filed an action for declaratory judgment against the Georgia Insurance Commissioner, seeking to prevent enforcement of certain portions of IDEA. Specifically, AHIP (1) sought a declaration that Sections 4, 5, and 6 of IDEA, as applied to self-funded health plans and their administrators, are preempted by ERISA, and (2) moved to preliminarily enjoin Smith Moore Leatherwood LLP | Attorneys at Law |

allegations of the complaint, along with the Commissioner’s stated intent to enforce the new prompt pay statute, were sufficient to support the district court’s finding that “AHIP’s members will be faced with the choice of complying with its requirements, which impose direct and indirect costs, or ignoring it, which will expose them to penalties imposed by the Commissioner.” The court found a sufficient threat of imminent injury to AHIP’s members to confer standing. Next, the court upheld the preliminary injunction, finding that Sections 4, 5, and 6 of IDEA were expressly preempted by Section 514 of ERISA. The court first determined that the legislation “relates

to” self-funded ERISA plans, because “the challenged provisions would require self-funded ERISA plans to process and pay provider claims, or notify claimants of claim denials, within fifteen or thirty days, depending on whether the claim is submitted electronically or conventionally.” Thus, “employers offering self-funded health benefit plans would be faced with different timeliness obligations in different states, thereby frustrating” ERISA’s intent to allow employers “to establish a uniform administrative scheme, which provides a set of standard procedures to guide processing of claims and disbursement of benefits.”

district court that ERISA’s saving clause applied, because the challenged sections of IDEA “regulate insurance.” However, the court also agreed with the district court that ERISA’s deemer clause, which exempts self-funded ERISA plans from state laws that “regulate insurance,” applied. The court found that “Sections 4, 5, and 6 of IDEA regulate the timeliness of benefit payments under self-funded ERISA plans, and it is apparent that the purpose and effect of IDEA is to extend Georgia’s prompt pay laws to claims made under self-funded ERISA plans.” Thus, the court concluded that the deemer clause applied to preempt the challenged IDEA provisions.

The Eleventh Circuit agreed with the

Eleventh Circuit Rejects Healthcare Providers’ ERISA Claims to Payment for Manipulations under Anesthesia Sanctuary Surgical Centre, Inc. v. Aetna Inc., 546 F. App’x 846 (11th Cir. 2013) Two groups of medical care providers sued Aetna, seeking reimbursement for a medical procedure known as manipulations under anesthesia (“MUAs”). Plaintiffs’ patients had assigned their rights to insurance benefits to the medical groups. The complaint alleged that Aetna “generally denied the MUA claims on the basis that they were an unproven service, experimental, investigational, not medically necessary, or not a covered benefit or covered service under the plan.” The complaint asserted claims under ERISA §§ 502(a)(1)(B) and 502(a)(3), as well as claims for civil penalties under ERISA for failure to provide documents. The complaint also asserted a claim for reimbursement under a theory of equitable estoppel.

The complaint included three broad factual allegations: (1) that the specific terms of each insurance plan provided coverage for MUAs; (2) that MUAs qualify as “medically necessary” procedures

Aetna filed a motion to dismiss the complaint for failure to state a claim. The district court granted Aetna’s motion to dismiss, and the Eleventh Circuit upheld the district court’s decision.

because they are included in the American Medical Association’s Codebook of Reimbursable Procedures; and (3) that Aetna orally represented that the MUAs were within the scope of the patients’ insurance coverage.

The court first considered plaintiffs’ allegation that MUAs were medically necessary, and thus were covered procedures, for each patient in question. Plaintiffs’ primary factual support for

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their complaint, the AMA Codebook, did not support an inference that the MUAs were medically necessary, because (1) the AMA Codebook expressly stated that the inclusion of a procedure in the book did not represent an endorsement or imply health insurance coverage, and (2) the only plausible inference from the inclusion of MUAs in the AMA Codebook was that MUAs are generally accepted procedures. Further, the allegation that plaintiffs received pre-approval of the procedures did not shed light on the question of medical necessity. Because the plaintiffs provided no further support for their claim that each MUA was medically necessary, the court determined that the plaintiffs did not create a plausible inference that they were entitled to benefits. The Eleventh Circuit also considered the

issue of standing for the ERISA breach of fiduciary duty and civil penalties claims. The court observed that healthcare providers fall outside of the group of parties with standing to sue under an ERISA plan, although they may obtain derivative standing by securing an assignment of rights. Noting that assignment agreements are narrowly interpreted, the court determined that the right to bring suit under 29 U.S.C. § 1132 cannot be assigned “by implication or by operation of law.” Instead, the assignment must be “express and knowing.” Interpreting the language of the assignment agreements, the court determined that the assignments only included the right to receive benefits, and not the right to assert claims for breach of fiduciary duty or civil

penalties. Therefore, the Eleventh Circuit held that the medical providers did not have standing to bring these claims. Finally, the court considered the plaintiffs’ equitable estoppel theory. Although the Eleventh Circuit has recognized equitable estoppel as a remedy in addition to the remedies explicitly authorized under ERISA, it is available only to plaintiffs who can show (1) that the relevant provisions of the plan at issue are ambiguous, and (2) that the plan provider or administrator made representations that constitute an informal interpretation of the ambiguity. The court held that the plan language did not support the plaintiffs’ assertion that the terms “medically necessary” and “covered service” were ambiguous. Therefore, the plaintiffs’ equitable estoppel claim also failed.

Remand to Insurer Ordered Where Application for SSDI Benefits Was Required but Award Was Not Considered Melech v. Life Ins. Co. of N. Am., 739 F.3d 663 (11th Cir. 2014) Melech stopped working in May 2007, claiming to be disabled due to degenerative cervical disc disease and tendonitis. She submitted a claim for long-term disability benefits in October 2007. As required by her employer’s ERISA plan and at LINA’s insistence, she applied for Social Security Disability Income benefits. The plan allowed LINA to offset SSDI benefits from LTD benefits payable under the plan. LINA denied Melech’s claim in November 2007, while her SSDI application was pending. Melech appealed the denial of her LTD claim. Melech was awarded SSDI

benefits in February 2008, while her appeal was still pending, and she so informed LINA. LINA then upheld its adverse LTD decision without obtaining or considering the Social Security Administration’s decision or any evidence before the SSA. Melech likewise did not submit any evidence from the SSA in support of her appeal. Melech brought suit under ERISA, arguing that LINA was unreasonable in (1) requiring her to apply for SSDI benefits, and (2) then refusing to consider SSDI evidence during the LTD appeal. The district court granted summary judgment to LINA, concluding

that its decision to deny benefits was correct, based on the administrative record in LINA’s possession at the time it made its decision – a record that did not contain any information from Melech’s SSDI claim. On appeal, the Eleventh Circuit did not reach the merits of LINA’s benefits decision, but rather, in a split decision, held that LINA was obliged to consider the continued on page 6 >>

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evidence presented to the SSA. Because LINA did not have this evidence when it denied Melech’s last appeal, and could not have had it when it initially denied her claim, the court vacated the district court’s judgment and remanded Melech’s claim to LINA for consideration of the evidence presented to the SSA. The court emphasized that “as a matter of common sense,” it could not evaluate LINA’s benefits decision without first considering whether the record before LINA was complete. The court acknowledged that it was Melech’s burden to provide medical support for her LTD claim, and further that neither ERISA nor the plan required LINA to ferret out evidence in Melech’s or the SSA’s possession. The court also found nothing necessarily troubling in the terms of the plan allowing LINA to benefit from the SSA’s alternative compensation

mechanism, and it did not take issue with LINA’s requirement that claimants apply for SSDI, or LINA’s right to second guess an SSA decision. Nevertheless, in light of LINA’s “openly self-interested efforts,” the court was “troubled” that LINA seemingly “ignored [Melech’s] SSDI application and the evidence generated by the SSA’s investigation once it no longer had a financial stake in the outcome.” The court was “struck by the procedural unfairness created by LINA’s approach,” and held that LINA’s “treatment of Melech’s SSA application is inconsistent with the fundamental requirement that an administrator’s decision to deny benefits must be based on a complete administrative record that is the product of a fair claimevaluation process.”

by designation, dissented. Judge Evans observed that LINA complied with all ERISA regulations, including notifying Melech that she should submit medical documentation to support her appeal. Yet, Melech failed to submit the SSDI information, and LINA could not have independently obtained medical opinions from the Social Security Administration. Judge Evans wrote that the district court correctly ruled that it would not consider any materials which were not before the plan administrator at the time it made its decision to deny benefits, and emphasized that while “the majority’s opinion explicitly says ‘neither ERISA nor the Policy required LINA to ferret out evidence in Melech’s or the SSA’s possession,’ I think that will be the perceived message of the majority opinion.”

District Judge Orinda Evans of the Northern District of Georgia, sitting

Claim Denial Upheld, Based in Part on Surveillance Video That Was Significantly Inconsistent with Plaintiff’s Claim Bloom v. Hartford Life and Accident Ins. Co., 2014 WL 840765 (11th Cir. Mar. 5, 2014)

Bloom, a participant in an ERISA-governed disability plan, claimed benefits due to frequent seizures. According to Bloom and her treating physician, the seizures were unpredictable, and, among other things, they made it unsafe for Bloom to drive an automobile. Hartford’s review of the claim included two days of surveillance, during which Bloom was observed driving an automobile approximately 90 miles. Hartford denied the claim, and upheld its decision on appeal. The district court held that Hartford’s denial of Bloom’s claim was not arbitrary and capricious. On appeal, the Eleventh Circuit affirmed, noting that the surveillance video provided “substantial evidence” to support Hartford’s claim decision. “[T]he fact that she drove an automobile approximately

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90 miles during that two-day period is significantly inconsistent with her account of her condition and that of the opinion of her treating physician, which seems to have been based upon her self-reported symptoms,” the court said. The court rejected Bloom’s argument that Hartford was arbitrary and capricious because it did not sua sponte attempt to obtain a copy of an ambulatory EEG report mentioned by the treating physician for the first time in a letter supporting Bloom’s appeal. “Although it is true that the administrator acts in a fiduciary capacity,”

the court said, “the case law in this Circuit clearly establishes that the plaintiff has the burden of proving her claim for disability benefits.” While noting that under certain circumstances a claims administrator might have “a fiduciary duty to seek out the location of and consider omitted documents referred to in the record where it is apparent that the document would provide significant support for the claimant’s claim,” those circumstances were not present. Instead, the treating physician “referred to the document only

in passing,” and he “gave no indication that it provided any significant support for a disabling seizure disorder.” Finally, Bloom argued that Hartford’s failure to comply with its claims manual was evidence that its decision was arbitrary and capricious. The Eleventh Circuit disagreed, stating that “our careful review leads us to agree with the district court that deviations in this case, if indeed there were any at all, were de minimis,” and they did not affect the fullness and fairness of the review.

Finding that Insured Was Not Disabled Because He Could Work with Accommodations Was Not Abuse of Discretion Miller v. Unum Life Ins. Co. of Am., No. 1:12-cv-02956-TCB (N.D. Ga. Jan. 23, 2014) Miller worked for Turner Broadcasting Systems as a maintenance engineer, which was a “medium” level occupation. The material duties of his job included analyzing and troubleshooting computer servers, routers, and other equipment, and responding to maintenance calls. While receiving short-term and long-term disability benefits under an ERISA plan for a leg abscess and depression, which eventually resolved, Miller was involved in an automobile accident. After the accident, he claimed he could not work due to low back and neck pain. During the claim evaluation and the administrative appeal, Unum had the file reviewed by three in-house physicians. They concluded that there were no neurological, orthopedic, or other conditions that would prevent Miller from performing his regular medium-duty occupation. The reviewing neurosurgeon opined that Miller could

return to work “with accommodation to prevent repetitive lifting and bending.” Ultimately, Unum determined that Miller was able to perform his “regular occupation.”

Unum moved for judgment on the administrative record under Fed.R.Civ.P. 52. Applying the first step of the Eleventh Circuit framework for reviewing ERISA benefits decisions under the arbitrary and capricious standard of review, as set forth in Blankenship v. Metropolitan Life Insurance Company, 644 F.3d 1350, 1354 (11th Cir. 2011), the district court determined that Unum’s claim decision was de novo “wrong” (i.e., the court disagreed with the decision). However, because Unum was vested with discretion when reviewing claims, the district court’s inquiry proceeded to the next steps to determine whether reasonable grounds supported the decision. Relying on the “binding precedent” of

Blankenship, the district court found that the claim decision was not unreasonable, stating: Here, Unum’s actions mirror MetLife’s. It considered the opinions of Miller’s physicians, but gave them less weight than the opinions of its own physicianreviewers. Each reviewer was convinced that Miller’s complaints of pain and diminished physical capacity were not supported by evidence of physical deficits or abnormalities .... And these opinions were not totally baseless or unfounded. Miller’s own treating physicians, despite their beliefs that his pain was genuine and that he was disabled, never identified explanatory physical abnormalities .... continued on page 8 >>

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Under Blankenship, it was not arbitrary and capricious for Unum to credit the opinions of its own reviewing physicians and not the contrasting opinions of Miller’s treating physicians. In so holding, the district court rejected Miller’s argument that the decision was unreasonable because the policy required only that he be disabled from his occupation, without regard to whether he could perform his occupation with accommodations. However, the district court concluded: “Miller misreads the policy. It requires a showing that he is unable to perform the ‘material and substantial duties’ of his occupation and

defines those duties as those that ‘cannot be reasonably omitted or modified.’ Denying benefits based on [the physician reviewer’s] opinion – no matter that the Court finds it de novo wrong – was not unreasonable because the policy permitted accommodations.” The district court also found unpersuasive Miller’s argument that Unum acted unreasonably because it “argued to one branch of the federal government [i.e., the SSA] that Miller was disabled ... and then turn[ed] around and argu[ed] to this Court that he is not disabled.” Distinguishing Metropolitan Life Insurance Company v. Glenn, 554 U.S. 105 (2008), the district court

noted that the SSA concluded in that case that the insured was disabled, but that MetLife ignored that conclusion and denied benefits, finding that she was not disabled. In Miller’s case, however, the SSA denied Miller’s request for disability benefits. Finally, the district court determined that “Miller’s allegations that Unum suffered a case-specific conflict of interest are merely unsupported accusations, and a general conflict of interest – both deciding and paying claims – is not enough to deem its denial arbitrary and capricious.” Rather, “the record shows that several layers of Unum doctors and benefits specialists reviewed Miller’s file and came to the same conclusion: he was not disabled.”

Failure to Accept Opinion of Treating Physician Did Not Make Claim Decision De Novo Wrong Eads v. Liberty Life Assurance Co. of Boston, No. 4:13-CV-0238-HLM (N.D. Ga. Mar. 27, 2014)

Eads was a sales representative for Charter Communications. He was a participant in Charter’s self-funded short term disability plan, which was governed by ERISA. Liberty Life was the claims administrator for the plan. Eads submitted a claim for benefits, reporting that he was disabled due to anxiety. Liberty sought the opinion of a 8

board-certified psychiatrist, who reviewed Eads’s medical records and spoke with his primary care physician, who had diagnosed agoraphobia with panic disorder. The reviewing psychiatrist opined that the disability claim “was unsupported for any time period,” because there were no abnormal findings on a mental status exam. The claim was denied.

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During the administrative appeal, Liberty sought the opinion of a second boardcertified psychiatrist, who reviewed additional medical records and spoke with Eads’s treating psychiatrist. The second psychiatrist opined that Eads was not impaired by a psychiatric condition and that he appeared to be over-reporting his anxiety symptoms.

Liberty upheld its decision, noting that the information received on appeal did not support the claim that Eads was unable to perform his job duties.

the Court cannot find that Defendant’s decision to deny Plaintiff’s claim for benefits was de novo wrong [i.e., the court disagrees with the administrator’s decision].”

After suit was filed, Liberty moved for judgment on the administrative record under Fed.R.Civ.P. 52. The district court granted Liberty’s motion, ruling that its claim decision was neither de novo wrong nor unreasonable under the arbitrary and capricious standard of review.

The court said that Liberty’s decision could not be found to be de novo wrong “simply because Defendant failed to accept the opinions of Plaintiff’s treating physician concerning Plaintiff’s limitations, declined to give special weight to those opinions, or weighed the evidence in the record before it,” citing Blankenship v. Metropolitan Life Insurance Company, 644 F.3d 1350, 1356 (11th Cir. 2011) (“Plan administrators need not accord extra respect to the opinions of a claimant’s treating physicians.”).

The court applied the Eleventh Circuit’s series of steps for reviewing a denial of benefits in an ERISA case. Applying the first step, the court determined that Liberty “thoroughly reviewed Plaintiff’s claim, obtaining separate medical opinions from board certified psychiatrists finding that Plaintiff was not disabled, as defined by the Plan .... Under those circumstances,

The court also refused to consider an opinion and an office note from another treating psychiatrist, because those materials were not part of the

Reopening of Claim Does Not Waive Issues Regarding Timeliness of Appeal

The court found “misplaced” Eads’s argument that Liberty had relied on inadmissible hearsay when reaching its claim decision, given that the court’s review was “limited only by what was available to the plan administrator, not by the Federal Rules of Evidence.” Finally, the court determined that the same evidence showing that the claim decision was not de novo wrong constituted reasonable grounds for Liberty to deny the claim, and therefore its decision also was not arbitrary or capricious.

In February 2011, Witt submitted additional documents through his attorney. The following month, MetLife informed Witt that, upon review of the medical information, the claim would remain terminated. The letter also informed Witt that he could appeal within 180 days. Witt’s attorney stated in September 2011 that he was appealing. After several extensions of time, the attorney submitted additional documents in November 2011.

Witt v. Metropolitan Life Ins. Co., 2014 WL 769285 (N.D. Ala. Feb. 25, 2014) Witt was paid disability benefits until May 1997, when his claim was denied on the grounds that he had failed to provide adequate medical records in support of the claim. The denial letter – which Witt denied having received – provided a 60day time limit to request an administrative appeal. Witt submitted no appeal of the claim decision. Twelve years later, in May 2009, Witt’s attorney contacted MetLife and requested the status of the claim, stating that Witt had received an approval letter but no payment. MetLife stated that it would pull the archived file once the attorney submitted a copy of the approval letter and a letter of representation. These documents

administrative record. Moreover, the court said, those materials had little probative value because they related to Eads’s condition after Liberty’s final claim decision.

MetLife issued a final denial in May 2012. In June 2012, Witt filed suit.

were not provided until December 2009. Thereafter, MetLife reviewed the file and informed Witt’s attorney that the claim had been terminated. MetLife offered, however, to review additional supporting medical records if submitted.

MetLife argued that Witt missed two deadlines which barred his lawsuit. First, Witt failed to submit an appeal within 60 days of the original claim decision. Additionally, he did not file suit within the six-year statute of limitation generally applied in Alabama for ERISA claims. Witt continued on page 10 >>

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argued in response that MetLife had waived its timeliness arguments by failing to assert them during the reopened administrative proceedings. First, the court determined that the sixyear statute had begun to run “at the latest” by June 1997. Even if Witt had not received the denial letter, “he should have known about his termination when he realized he was no longer receiving the money that MetLife had been paying to him on a monthly basis,” the court reasoned. As a result, Witt filed his suit “long after the statute had run – and many years after the 60 day time period under the Plan.” The court also rejected Witt’s waiver arguments. Although the parties cited case law on both sides of the issue, the court found the cases cited by MetLife to be more persuasive. The court noted that “it stretches credulity ... to argue that a plaintiff who allows his claim to lie dormant for twelve years and is in no rush to provide the needed documentation when he finally gets around to reasserting his claim, should be able to accuse the defendants of waiving their statute of limitations defense by reviewing the medical documentation that he finally provides nearly fourteen years later.” To conclude otherwise, the court wrote, would create negative incentives for ERISA plan administrators. “If courts were to hold that the provision of any extra review would prevent plan administrators from invoking the statute of limitations, then plan administrators would be forced to invoke a strict policy of no review outside of the strict time periods provided by the plan,” the court reasoned. 10

Individual Life Insurance Policies Unenforceable Because Insured Did Not Sign Applications or Give Written Consent Youngblood v. North Carolina Mut. Life Ins. Co., Case A13A1946 (Ga. Ct. App. Mar. 26, 2014) With the assistance of an insurance agent, Youngblood signed her brother’s name to applications for two policies insuring her brother’s life. At the time, the brother resided in Japan. The applications were signed in Georgia, reportedly at the brother’s request and with his consent. The policies were issued in 2009, designating Youngblood as her brother’s beneficiary. When her brother died in Japan in 2011, Youngblood submitted a claim for death benefits under the policies. North Carolina Mutual denied the claim, based on discrepancies in the applications concerning the brother’s name and date of birth. In response to a lawsuit filed by Youngblood, North Carolina Mutual asserted that the policies were void ab initio and unenforceable because they were obtained in violation of O.C.G.A. § 33-246(a). Subject to certain exceptions which were not applicable, the statute provides that no individual life insurance contract “shall be made or effectuated unless at the time of the making of the contract the individual insured, being of competent legal capacity to contract, applies for [the]

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life … insurance contract or consents in writing to the contract ….” The trial court granted summary judgment to North Carolina Mutual. The Georgia Court of Appeals affirmed, stating: “Although Youngblood testified … that she had her brother’s oral and written consent to apply for the insurance on his behalf, it is clear that the brother did not personally apply for the insurance, and Youngblood was unable to produce the alleged written consent of her brother in response to summary judgment. Furthermore, the brother’s oral consent is insufficient because O.C.G.A. § 33-4-6(a) specifically requires such consent to be in writing.” The court stated that “[t]he logical purpose of the statute is to put beyond all doubt the issue of whether the coverage was obtained with the knowledge and consent of the individual insured, and the purpose and requirements of the statute ‘would be rendered meaningless if one could meet its terms by alleging consent to have been verbally authorized, something the deceased insured would hardly be in a position to dispute.’” Citing Wood v. New York Life Ins. Co., 255 Ga. 300, 336 S.E.2d 806 (1985).

Claim under Georgia Bad Faith Statute Is Not Saved from ERISA Preemption Dye v. Hartford Life & Accident Co., 2014 WL 1379246 (M.D. Ga. Apr. 8, 2014) Dye brought suit after her claim for disability benefits under an employee welfare benefit plan was denied. Her complaint alleged only state law theories of breach of contract, fraud, and bad faith. The bad faith claim was premised on Georgia’s insurance bad faith statute, O.C.G.A. § 33-4-6.

claims. The breach of contract claim, the court held, was also defensively preempted and thus subject to dismissal.

Hartford moved to dismiss the complaint based on preemption by ERISA. The district court granted the company’s motion, concluding that all of the claims were subject to ERISA’s express preemption provision.

Similarly, the alleged conduct upon which the fraud claim and the bad faith claim were based – an alleged attempt “to alter the terms of the insurance policy and use[ ] said alteration as a basis to terminate her long term disability benefits” – was “intertwined” with the company’s denial of benefits. Under Eleventh Circuit case law, those claims thus “related to” the plan for purposes of ERISA’s express preemption provision.

First, although the breach of contract claim was “completely preempted” and re-characterized as a federal claim for purposes of determining the court’s subject matter jurisdiction, the court nonetheless noted that Dye had not amended her complaint to assert ERISA

Addressing the saving clause issue, the court next noted that the breach of contract and fraud claims were “plainly ... not based on state laws specifically directed toward the insurance industry.” The bad faith statute, however, was “unquestionably directed toward the

insurance industry,” according to the court. As a result, the court was required to reach the second prong of the saving clause test, namely, to determine whether the bad faith statute affected the risk pooling arrangement between the insurer and the insured. Here, that question was answered in the negative because the statute “imposes liability for bad faith refusal to pay claims that are covered by an already existing insurance policy.” As a result, the bad faith claim was not “saved” from preemption. The court noted that its decision was also consistent with determinations made by other district courts in the Eleventh Circuit.

Message from the Editors After four decades of jurisprudence, ERISA continues to present new challenges and opportunities for benfits litigators. The latest edition of this newsletter illustrates that reality. We welcome your continuing input regarding this publication.

Sanders Carter

Kent Coppage

Aaron Pohlmann

Nikole Crow

Jennifer Rathman

Contributors to this Issue

Dorothy Cornwell

Smith Moore Leatherwood LLP | Attorneys at Law |

ERISA AND LIFE INSURANCE LITIGATION Smith Moore Leatherwood’s ERISA and Life Insurance Litigation Team has earned a national reputation for excellence. The Team is comprised of attorneys who have represented ERISA entities and insurers in hundreds of cases in federal and state courts throughout the nation. In addition to claims brought under ERISA, the firm’s attorneys defend a broad variety of actions, including those brought under federal and state RICO Acts, the ADA, class actions, discriminatory underwriting claims, actions involving allegations of agent misconduct, and breach of contract claims for the recovery of life, accidental death, disability, and health insurance benefits.

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