ERISA and Life Insurance News by Smith Moore Leatherwood

May

2015

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

INSIDE THIS ISSUE Claim for Disability Benefits Barred by Insured’s Failure to Comply with 90-Day Proof of Loss Provision

Failure to Provide “Satisfactory” Proof of Death Authorizes Denial of Claim Under Individual Policy

Administrator Abuses Discretion by Not Obtaining Information that Could Confirm Plaintiff’s Disability

Denial of Disability Claim by SelfFunded Plan Upheld as De Novo Correct and Reasonable

STOLI Company’s Failure to Adequately Prepare Witness Authorizes $850,000 Sanction

“Sane or Insane” Suicide Exclusion Limits Liability to Return of Premiums

Claim for Implied Life Insurance Contract Survives Summary Judgment

Disability Claim Barred by Late Notice, Despite Insurer’s Requests for Proof of Loss and Payment of Some Benefits

The ERISA Newsletter is available online! To view the complete online version of the ERISA Newsletter, visit www.smithmoorelaw.com/ ERISAMay15

May an ERISA Plan Restrict Venue to a Single Federal District?

When

deciding where to bring an action in federal court to recover benefits under ERISA, a plan participant generally has three choices of venue. 29 U.S.C. § 1132(e)(2), provides: Where an action under this subchapter is brought in a district court of the United States, it may be brought in the district where the plan is administered, where the breach took place, or where a defendant resides or may be found … Plan participants generally choose to sue where they reside, electing as the forum “the district … where the breach took place.” The plan sponsor may attempt to limit those choices, however, by including a venue selection provision in the plan documents. For example, the plan may provide that an action to recover benefits must be brought in the jurisdiction where the plan sponsor is located and where the plan is administered. continued on page 2 >>

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Sixth Circuit Enforces Venue Selection Clause In Smith v. AEGON Companies Pension Plan, 769 F.3d 922 (6th Cir. 2014), a pension plan participant, who resided in Kentucky, challenged a venue selection provision requiring him to file suit in Cedar Rapids, Iowa, where the plan was administered. His several arguments were unsuccessful at both the district court and appellate court levels. Smith, the plan participant, was employed by Commonwealth General Corporation when it agreed in 1997 to merge with AEGON USA, Inc. Under a Voluntary Employee Retention and Retirement Program, Commonwealth General agreed to pay enhanced compensation to Smith if he remained with the company until the merger with AEGON was completed. Smith was to retire on March 1, 2000, when he was to receive both monthly retirement benefits and a supplemental lump sum payment. In 2007, seven years after Smith’s retirement, the plan was amended to add a venue provision, which stated: “A participant or beneficiary shall only bring an action in connection with the Plan in Federal District Court in Cedar Rapids, Iowa.” In 2011, the plan notified Smith that his retirement benefits had been overpaid for the past eleven years. The plan reduced, and then eliminated, Smith’s monthly benefits, stating that it would do so until the entire overpayment had been recovered. Smith exhausted his administrative remedies by appealing to the AEGON Pension Committee.

Smith then sued Commonwealth General in state court in Kentucky, asserting state law claims for breach of contract, violations of wage and hour statutes, estoppel, and breach of the duty of good faith and fair dealing. Commonwealth General removed the case to federal court in the Western District of Kentucky and filed a motion to dismiss on ERISA preemption grounds. When that motion was granted, Smith sued the AEGON Companies Pension Plan under ERISA in the Western District of Kentucky. The district court dismissed his complaint without prejudice, based on the plan’s venue selection provision. 2013 WL 321632 (W.D. Ky. Jan. 28, 2013). The district court noted that it previously had reviewed a forum selection clause in another plan and found it to be reasonable and enforceable. See Williams v. CIGNA Corp., 2010 WL 5147257 (W.D. Ky. Dec. 13, 2010). Smith appealed to the Sixth Circuit Court of Appeals, which reviewed de novo the enforceability of the venue selection provision. Clause Did Not Deny Ready Access to Federal Courts Smith argued that the plan’s venue selection clause was precluded by ERISA, because enforcement of the clause would deny him the right to select any one of the three forums authorized by 29 U.S.C. § 1132(e)(2), thereby denying him “ready access to the Federal courts,” as promised by 29 U.S.C. § 1001(b). The Sixth Circuit rejected that argument, noting that “ERISA’s venue provision is permissive: suit ‘may be brought’ in one of several districts,” and that “AEGON’s venue selection clause provides that suit is

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to be brought in one of those statutorily designated places, namely, the district where the plan is administered – Cedar Rapids, Iowa.” In fact, the court said that “even if the venue selection clause laid venue outside of the three options provided by § 1132, the venue selection clause would still control,” noting that it previously had upheld the validity of mandatory arbitration clauses in ERISA plans. See Simon v. Pfizer Inc., 398 F.3d 765, 773 (6th Cir. 2005). An arbitration clause, the court said, is “in effect, a specialized kind of forum-selection clause.” Further, the court stated that Smith failed to explain “how a venue provision inhibits ready access to federal courts when it provides for venue in a federal court.” To the contrary, the court said, the provision furthers ERISA’s goal of consistency, because “limiting claims to one federal district encourages uniformity in the decisions interpreting that plan, which furthers ERISA’s goal of enabling employers to establish a uniform administrative scheme so that plans are not subject to different legal obligations in different States,” citing Rodriguez v. PepsiCo Long Term Disability Plan, 519 F. Supp. 2d 430, 436 (N.D. Cal. 2010). In an earlier case, Wong v. Party Gaming LTD, 589 F.3d 821 (6th Cir. 2009), the court provided a three-part test to evaluate the enforceability of a forum selection clause: “(1) whether the clause was obtained by fraud, duress, or other unconscionable means; (2) whether the designated forum would ineffectively or unfairly handle the suit; and (3) whether the designated forum would be so seriously inconvenient such that requiring the plaintiff to bring suit there would be unjust.”

Smith did not demonstrate that these factors precluded enforceability of the venue selection clause. “[A]s the district court noted, ‘[Smith] has not argued that the clause was induced by fraud, that the Cedar Rapids federal court would ineffectively or unfairly handle the case, or that the inconvenience to [Smith] is unjust or unreasonable.’ ” The Sixth Circuit also rejected Smith’s arguments that the venue selection clause was not the product of an arms-length transaction, because it was added years after his benefits commenced; the clause imposed an excessive burden on ERISA litigants; and the 2007 amendment was inapplicable, because his claims had accrued in 2000. As for the last argument, the court said that Smith’s claims related only to action taken by

the pension plan in 2011 to reduce his benefits, which occurred after the venue selection clause had been added. The court cited Rodriguez, supra, and a number of other district court cases upholding the validity of venue selection clauses in ERISA-governed plans. See Smith v. Aegon USA, LLC, 770 F. Supp. 2d 809 (W.D. Va. 2011); Gipson v. Wells Fargo & Co., 563 F. Supp. 2d 149 (D.D.C. 2008); Klotz v. Xerox Corp., 519 F. Supp. 2d 430 (S.D.N.Y. 2007); Schoemann v. Excellus Health Plan, Inc., 447 F. Supp. 2d 1000 (D. Minn. 2006); Rogal v. Skilstaf, Inc., 446 F. Supp. 2d 334 (E.D. Pa. 2006); Williams v. CIGNA Corp., 2010 WL 5147257 (W.D. Ky. Dec. 13, 2010); Sneed v. Wellmark Blue Cross & Blue Shield of Iowa, 2008 WL 1929985 (E.D. Tenn. Apr. 30, 2008); Bernikow v. Xerox Corp. Long-Term Disability Income Plan, 2006 WL 2536590 (C.D. Cal. Aug. 29, 2006).

Dissenting Judge Would Find the Clause Unenforceable A dissenting judge wrote that the “preclusive venue selection clause that the AEGON Companies Pension Plan … added in 2007 is inconsistent with the purpose, policy, and text of ERISA, and contravenes the ‘strong public policy’ declared by ERISA; therefore, the clause should be deemed unenforceable.” “Requiring [Smith] to litigate in a distant venue imposed a substantial increase in expense and inconvenience that obstructs his access to federal courts,” the dissent said. “Because the express purpose and policy of ERISA is to provide unobstructed access to a forum in which participants and beneficiaries can pursue their claims for benefits, the unilaterally added venue selection clause … should be deemed unenforceable …”

Claim for Disability Benefits Barred by Insured’s Failure to Comply with 90-Day Proof of Loss Provision Royal v. New York Life Ins. Co., 2015 WL 339781 (S.D. Ga. Jan. 26, 2015)

Royal

was insured under a disability policy issued by New York Life Insurance Company to his business, Royal Commercial Refrigeration, the owner of the policy. Paul Revere Life Insurance Company later assumed the insurer’s rights and obligations under the policy. In February 2004, Royal submitted a claim for benefits alleging he had become totally disabled in June 2002, and he had returned to work part time in January 2003. Based on the proof of loss submitted, Paul Revere paid total disability and residual disability benefits from June 2002 through March 2006.

In May 2006, Paul Revere received a tip on its insurance fraud hotline from RCR’s office manager. Based on surveillance of Royal and an audit of his company’s business records, Paul Revere concluded that Royal had not been eligible for benefits under the policy. Paul Revere closed the claim in October 2006. More than four years later, in November 2010, Royal filed suit to recover additional residual disability benefits under the policy, beginning April 1, 2006, and to recover a penalty and attorney’s fees under Georgia’s bad faith statute. Paul Revere filed a counterclaim for fraud, seeking to recover benefits previously paid to Royal.

The case was stayed pending the completion of a related criminal action against Royal for insurance fraud. The case was reopened in August 2013, after a jury acquitted Royal. During the interim, Royal attained age 65 in March 2012, and the policy’s maximum benefit term ended. In February 2014, during discovery, Royal for the first time provided proof of loss pertaining to the period for which he sought additional benefits, i.e., April 2006, through March 2012. Defendants moved for summary judgment on several grounds. The federal district court granted summary judgment, continued on page 4 >>

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concluding that Royal’s claims for disability benefits from April 2006 through July 2007 were barred by the policy’s three-year legal action provision, and that the rest of his claims were barred by the 90-day proof of loss provision. The court’s ruling centered on three policy provisions. The Proof of Disability or Loss provision provided that “[w]ritten proof must be given within 90 days after a period of disability ends or within 90 days after a loss occurs.” The Legal Actions provision barred legal actions brought “after 3 years from the date proof [was] required to be given.” And the Time of Payment of Claim provision stated that, “[s]ubject to proof of loss, payment for a covered disability will be made not later than every 30 days during the period of disability.” Although “proof of disability” was not defined in the policy, the court concluded the proof of loss provision, when read in conjunction with the payment provision, was unambiguous. “The only reasonable

construction of the Proof of Disability or Loss provision that gives effect to the periodic payments provision is that proof was due within 90 days after any claimed 30-day loss period,” the court said. “[B]ecause each 30-day period claimed represents a claimed loss, ... proof of loss for periodic benefits was due within 90 days of the end of any 30-day period for which Royal sought periodic payment under the Policy.” Based on its construction of the proof of loss provision, the court construed the legal actions provision to bar “suit upon any claim for which proof of loss was due more than three years before November 2, 2010, the day before Royal filed this lawsuit.” Because “[p]roof of loss for a period ending on August 5, 2007, would have been due on November 3, 2007,” i.e., three years and 90 days before suit was filed, the court determined as a matter of law that Royal’s claims from April 2006 through July 2007 were barred by the legal actions provision of the policy.

Failure to Provide “Satisfactory” Proof of Death Authorizes Denial of Claim Under Individual Policy Florida Tube Corp. v. MetLife Ins. Co. of Conn., 2015 WL 1189210 (11th Cir. Mar. 17, 2015)

predecessor of MetLife issued an insurance policy in 1996, insuring the life of Fernandez, the president of Florida Tube Corporation and Corus Hardware Corporation. Florida Tube was named as beneficiary, but Corus became the beneficiary in 2003.

the finding of death; a written statement by a medical doctor who attended to the deceased; or any other proof satisfactory to us.”

The policy’s proof of death requirement could be satisfied by providing MetLife with “a copy of a certified death certificate; a copy of a certified decree of a court of competent jurisdiction as to 4

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In construing the proof of loss provision, the court further held that the policy “unambiguously conditions payment of claims on the receipt of proof of loss.” Without mentioning the proof of loss provided by Royal during discovery, the court stated: “The evidence clearly shows that Royal has not submitted proof of loss to Paul Revere since September 2006… Therefore, Defendants are entitled to summary judgment regarding all claims for benefits from September 2006 through March 2012.” Finally, the court denied Royal’s motion for summary judgment on Paul Revere’s counterclaim for fraud, finding a fact issue as to whether the four-year statute of limitations generally applicable to fraud was tolled under O.C.G.A. § 9-3-96, Georgia’s tolling provision for fraudulent concealment of claims, and O.C.G.A. § 9-3-99, Georgia’s tolling provision for torts arising from a crime.

Both Florida Tube and Corus Hardware filed for bankruptcy in the 2000s, and Fernandez and his wife filed for personal bankruptcy in 2004. The policy’s death benefit was “an indispensable part” of the proposed plan of reorganization in the Fernandez family’s personal bankruptcy. MetLife received a claim that Fernandez had died on August 18, 2008, when his private airplane allegedly crashed during

a 37-minute flight from the Dominican Republic to Puerto Rico. No medical evidence of death was submitted, and no wreckage from the plane was found. Fernandez’s son submitted a death certificate issued by the Central Electoral Board of the Dominican Republic, but it listed a date of death five days before Fernandez allegedly attempted the flight to Puerto Rico. In 2009, the Central Electoral Board issued a second death certificate, this time with the correct date of death, but the Board later declared the second certificate null and void because it was “full of irregularities.” MetLife also received a National Transportation Safety Board report, which described the incident “in uncertain terms,” and did not mention Fernandez by name, but stated only that the airplane “presumably collided with coastal water,” and that “[t]he pilot ... [is] presumed deceased.”

MetLife denied the claim based on insufficient proof of death. When the suit was filed, the federal district court granted summary judgment to MetLife, which was upheld by the Eleventh Circuit on appeal. In the absence of a death certificate, a judicial decree of death, or a report of death from an attending physician, the Eleventh Circuit concluded that “we are left to construe the ‘proof satisfactory to us’ provision” of the policy. That provision, the court held, was unambiguous. “The most literal and plain meaning of the ‘proof satisfactory to us’ policy language is ‘proof satisfactory to MetLife,’” the court said. “Applying that meaning, MetLife was within its discretion to deny coverage when the beneficiaries gave it circumstantial proof of death that it deemed unsatisfactory.” The court relied on its decision in Tippitt v. Reliance Standard Life Insurance Company, 457 F.3d 1227 (11th Cir. 2006), a case in which it held that the phrase “satisfactory ...

to us” vested an ERISA plan administrator with the discretion to determine whether the evidence provided in support of the claim was satisfactory. The Eleventh Circuit rejected the argument that Tippitt should not be followed because it was an ERISA case. “Nothing in our holding confined our interpretation of the policy language to ERISA cases,” the court stated. “Secondly, the beneficiaries point to no case that explains why we must interpret policy language in non-ERISA plans differently.” The court concluded that the reason for proof of death provisions in life insurance policies is the same in ERISA and nonERISA policies. “It is to make sure that an insurance company has the facts it needs ‘to afford the insurer an adequate opportunity to investigate, prevent fraud, and form an intelligent estimate of its rights and liabilities before it is obligated to pay.’”

Administrator Abuses Discretion by Not Obtaining Information that Could Confirm Plaintiff’s Disability Harrison v. Wells Fargo Bank, 773 F.3d 15 (4th Cir. 2014)

Harrison,

customer service representative for Wells Fargo Bank, underwent a thyroidectomy in 2011. One week after the surgery, she informed Wells Fargo that her condition would require a second surgery approximately two months later. Before her surgeries, Harrison’s husband died suddenly, triggering a recurrence of post-traumatic stress disorder related to the death of Harrison’s mother and children in a house fire years earlier. Harrison’s primary care

physician referred her to a psychologist, Dr. Glenn, for treatment of PTSD. Wells Fargo’s self-funded short-term disability plan entitled employees to salary replacement benefits when “a medically certified health condition” rendered an employee “unable to perform some or all of [his or her] job duties for more than seven consecutive days.” The plan defined “a medically certified health condition” as a disabling injury or illness

that is “documented by clinical evidence as provided and certified by an approved care provider … including medical records, medical test results, physical therapy notes, mental health records and prescription records.” After determining that three weeks was the typical recovery period for a thyroidectomy, Wells Fargo paid Harrison STD benefits for three weeks postsurgery. Harrison sought continuing STD continued on page 6 >>

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benefits on the basis of both physical and psychiatric conditions. In support of a second level appeal, Harrison provided records from her surgeon and primary care physician, as well as a letter from her sister, who detailed Harrison’s continuing pain and panic attacks. She also provided Wells Fargo with contact information for Dr. Glenn and a release permitting Wells Fargo to contact any of her physicians. As a part of its review, Wells Fargo sought two independent medical reviews – one of her physical disability claim and another of her psychological disability claim. The physician reviewing the psychological disability claim, Dr. Daniel, contacted Harrison’s primary care physician but not Dr. Glenn, the psychologist. Dr. Daniel concluded: “In the absence of psychiatric/ psychological records or telephone conference with her psychologist, an opinion as to whether her psychiatric status limited her functional capacity cannot be provided.” Wells Fargo thereafter upheld the decision to deny the claim for STD benefits based on a psychological condition.

The federal district court upheld Wells Fargo’s claim decision. The Fourth Circuit reversed and directed the district court to remand the case to Wells Fargo for further proceedings. The Fourth Circuit held: By failing to contact Dr. Glenn when it was on notice that Harrison was seeking treatment for mental health conditions and when it had his contact information, as well as properly signed release forms from Harrison, [Wells Fargo] chose to remain willfully blind to readily available information that may well have confirmed Harrison’s theory of disability. The Fourth Circuit reached this conclusion under an abuse of discretion standard of review. The court acknowledged that a claimant has the primary responsibility for providing medical support of disability, and emphasized that “[n]othing in our decision requires plan administrators to scour the countryside in search of evidence to

Denial of Disability Claim by Self-Funded Plan Upheld as De Novo Correct and Reasonable Smith v. Cox Enterprises, Inc., 2015 WL 331116 (N.D. Ga. Jan. 27, 2015)

S mith brought an action under ERISA to recover disability benefits from a self-funded employee benefit plan sponsored by her employer. She maintained she was totally disabled as the result of Meniere’s disease, a condition affecting the inner ear, and complications therefrom, including vertigo. Smith was employed as an administrative assistant, a sedentary position. 6

During an earlier review of a claim for short term disability benefits, Smith’s medical records were reviewed by a board certified otolaryngologist and a board certified neurologist, both of whom found a lack of support for a totally disabling condition. In addition, the otolaryngologist spoke with Smith’s treating physician who expressed the chief concern that she might suffer a vertigo episode while driving to work and be injured. He added that she

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bolster a petitioner’s case.” Citing Gaither v. Aetna Life Ins. Co., 394 F.3d 792 (10th Cir. 2004). In this case, however, the court found that Wells Fargo was on notice that Harrison was seeking benefits based on psychiatric treatment. Harrison provided Dr. Glenn’s contact information and a release allowing direct contact with all of her physicians. Wells Fargo then retained Dr. Daniel to conduct an independent medical review. Dr. Daniel contacted Harrison’s primary care physician, but did not take the additional step of contacting Dr. Glenn directly. The court also noted that the record did not otherwise refute Harrison’s claim. Under these circumstances, the court concluded that Wells Fargo abused its discretion when it neither sought readily available records from Dr. Glenn nor informed Harrison that Dr. Glenn’s records were necessary for a full and fair review of her claim.

“would actually have no problem doing her work at home or at work if she could get a ride there.” On an attending physician’s statement, Smith’s doctor also indicated that she was capable of “sedentary work activity” and that she was capable of such work for eight hours a day, five days a week. He identified limitations only of no climbing, crawling, kneeling, pulling, pushing, bending, twisting, stooping, no neck and head movements, and no lifting more than 20 pounds. Smith’s claim was denied by Aetna, the plan’s third-party claims administrator.

During the ensuing administrative appeal, Smith’s records were reviewed by a third independent physician, a board-certified otolaryngologist. This physician also spoke with Smith’s treating physician, who indicated that there was no specific record regarding Smith’s inability to drive. The independent reviewer concluded that there was insufficient information to support a functional impairment and that Smith could perform sedentary to medium work. The denial of Smith’s claim was upheld. In the ensuing litigation, under an arbitrary and capricious standard of review, the court granted summary judgment in favor of

Cox Enterprises. First, consistent with the methodology prescribed by the Eleventh Circuit, the court concluded that the denial was not de novo “wrong.” “While it is clear that Smith suffers from Meniere’s disease, migraines, vertigo, and hypoactive labyrinth, she failed to provide sufficient medical evidence that these conditions prevent her from performing her job,” the court wrote. The court noted that Smith had been diagnosed with Meniere’s disease in 2005 and had successfully worked fulltime for six years. “Diagnosis alone,” the court reasoned, “cannot support a claim for long-term disability.”

STOLI Company’s Failure to Adequately Prepare Witness Authorizes $850,000 Sanction

trust. In order to avoid Florida’s insurable interest law, Cotton falsely stated on the application that he was not buying the policy for resale and that he would not use a third party to finance the premiums.

Sciarretta v. Lincoln Nat’l Life Ins. Co., 778 F.3d 1205 (11th Cir. 2015)

Cotton,

a resident of Florida, told an insurance agent in 2007 that he wanted to buy a multimillion dollar life insurance policy and finance the premium payments. The agent referred Cotton to Bryan, who was “doing that kind of work.” Bryan contacted Imperial Premium Finance LLC, which offered financing for strangeroriginated life insurance (“STOLI”) premiums.

Finally, the court determined that – even assuming that the decision was “wrong”— it was not unreasonable, i.e., arbitrary or capricious. Smith’s physician himself had provided “documentation that is blatantly at odds with the contention that Smith is permanently disabled,” the court noted. Moreover, “multiple medical notes, diagnostic reports, and peer consultations comport with the assessment and opinion of three independent physicians and Aetna’s in-house nurse: Smith is capable of performing full-time, sedentary work,” the court wrote. “These opinions were not baseless and Aetna’s reliance on them was not misplaced,” the court concluded.

term of two years, a relatively high floating interest rate, and ‘substantial’ origination fees, all of which made the borrower more likely to default.” Cotton and an irrevocable trust in his name applied to Lincoln National for a life insurance policy. Cotton’s wife and children were the beneficiaries of the

Lincoln issued a policy insuring Cotton’s life for $5 million. The policy became an asset of the trust. Contrary to the representations in the application for insurance, the trust obtained a $335,000 loan from Imperial to pay the premiums. Cotton died of cancer in 2010. Lincoln conducted an investigation, which, continued on page 8 >>

According to the court,“Imperial’s business was not a STOLI scheme in its purest form. Instead of buying a policy on a person’s life outright, Imperial provided financing for life insurance premiums in the form of a loan whose terms allowed Imperial to foreclose on the policy and become its owner if the borrower defaulted.” Under this arrangement, Imperial was likely to become the owner of the policy. The court stated, “The typical loan had a Smith Moore Leatherwood LLP | Attorneys at Law |

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according to the court, “turned up the fact that Imperial had financed the purchase of the policy on Cotton’s life in order to market it to speculators under a STOLI scheme.” When Lincoln denied the claim, the Cotton trustee sued to recover the death benefit. Lincoln counterclaimed by alleging fraud, negligent misrepresentation, and civil conspiracy, and filed a third-party action against Imperial. During discovery, Lincoln served a notice to take a Rule 30(b)(6) deposition of Imperial. Because the deposition topics touched on subjects involved in an ongoing criminal investigation of Imperial’s business, its employees refused to testify, invoking their Fifth Amendment rights. Imperial then obtained permission from the court to use a non-employee witness to testify on its behalf. Imperial hired Norris, described as “an independent economist with a history of testifying as an expert witness,” to serve as its corporate representative. However,

Norris “was often unable to answer questions apparently because Imperial had not briefed him on the answers.” At trial, Lincoln called Norris as a witness, but “he was unable to answer about 20 questions due to his lack of knowledge.” The jury found that Cotton made material misrepresentations in his application for insurance, but that Lincoln had not relied on the misrepresentations or been damaged by them. As a result, judgment was entered for the trust for the $5 million death benefit and for $850,000 in attorney’s fees. The district court then notified the parties that it was considering sanctions against Imperial and Norris, stating that Imperial “hid behind” Norris, meaning “that it hid facts harmful to it by not briefing Norris on them.” After a hearing, the court assessed sanctions of $850,000 against Imperial, explaining that Imperial was “the driving force behind the litigation and its selective preparation of Norris constituted bad faith.” The court reasoned that

because Imperial had created the issues that led to the litigation, Imperial, and not Lincoln, should bear the cost of the award of attorney’s fees. On appeal, the Eleventh Circuit affirmed, finding that Imperial had acted in bad faith by producing an unprepared witness for the Rule 30(b)(6) deposition. “Preparing a designated corporate witness with only the self-serving half of the story that is the subject of his testimony is not an act of good faith,” the court said. Instead, Imperial “seized on the existence of the criminal investigation as an opportunity to craft a perfect witness for its interests: one who was knowledgeable about helpful facts and dumb about harmful ones.” As a result, “[t]he district court did not err, much less clearly err, when it found bad faith in Imperial’s calculated preparations that produced the one-way witness that Imperial designated to testify for it.”

“Sane or Insane” Suicide Exclusion Limits Liability to Return of Premiums Robinson v. American Gen’l Life Ins. Co.,

2014 WL 3385162 (D.S.C. July 10, 2014)

February 2011, Mitchell was issued a life insurance policy by American General, providing a death benefit of $800,000. The policy included the following exclusion: In the event of the suicide of the insured, while sane or insane, within two years from the Date of Issue, [the insurer’s] liability will be limited to the premiums paid. Mitchell designated his wife Meredith Mitchell as the sole beneficiary of the policy, and he paid all premiums on time.

In September 2012, Mitchell died of a selfinflicted gunshot wound to the head. His wife claimed the death benefit under the policy. American General sent a check to Ms. Mitchell as a refund of the premiums paid under the policy. Ms. Mitchell returned the check and demanded the full death benefit of $800,000. She later filed suit, and American General removed the case to federal court and filed a motion for judgment on the pleadings. Before his death, Mitchell had been receiving treatment for depression at

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Three Rivers Center for Behavioral Health, and, according to the complaint, he “did not want to die.” The complaint included three expert witness affidavits, asserting that Three Rivers provided care that fell below the relevant standard of care. Ms. Mitchell argued that because of her husband’s mental illness, his death was

not an intentional self-killing, and therefore, it was not a suicide. The court determined that the real legal question was whether insanity may be used to avoid a suicide exclusion in a life insurance policy – not whether the insured killed himself intentionally. The clear language of the exclusion provided that insanity could not be used to avoid the policy’s suicide exclusion. Next, Ms. Mitchell argued that her husband’s death was “caused by the negligence of third parties,” alleging that Three Rivers was guilty of medical malpractice, and that the death therefore was not intentional.

S.C. Code § 38–63–225(A) provides: “If an individual life insurance policy contains a suicide provision, it may not limit payment of benefits for a period more than two years from the date of issue of the policy and it must provide for at least the return of premiums paid on the policy.” The court relied on an unpublished decision construing South Carolina law in which the Fourth Circuit held: “[W]here it is already established that the policyholder committed suicide ... [the insurer] need only establish that it has complied with the above two restrictions” to avoid liability – except for the return of premiums paid. McKinnon v. Lincoln Benefit Life Co., 162 F. App’x 223, 227 (4th Cir. 2006).

The court found that Mitchell’s policy clearly complied with § 38-63-225(A), because it provided for the return of premiums, and it limited nonpayment of the full death benefit to a two-year term. Mitchell committed suicide about 19 months after the policy’s date of issue – well within the two-year window described in the policy. Moreover, American General complied with the policy by attempting to refund the premiums to Ms. Mitchell. Because the complaint and expert affidavits plainly alleged and admitted that Mitchell died from suicide, the question of his mental health – sanity or insanity – was irrelevant.

Claim for Implied Life Insurance Contract Survives Summary Judgment McKown v. Symetra Life Ins. Co., 2014 WL 6604059 (D.S.C. Nov. 20, 2014)

McKown

was the beneficiary of a universal life insurance policy issued by Symetra on the life of his father, providing a death benefit of $100,000. The policy had an anniversary date of September 18. The policy included a grace period for the payment of premiums: “A grace period of 61 days will be granted if the cash value is not sufficient to cover the Cost of Insurance for the next following month.” However, this provision warned that “[i]f such premium is not paid within the grace period, all coverage under the policy will terminate without value at the end of the 61 day period.” McKown paid a premium of $2,787.62 on September 15, 2009. On September 18, 2009, Symetra sent a Universal Life Insurance Statement, informing McKown that the cost of insurance from September 18 to the next anniversary date was

$9,233.76, and the policy would remain in force only until October 18, 2009, if no additional premium was paid. Symetra later explained that the $2,787.62 payment had been insufficient to fund the policy for a full year beginning September 18, 2009. On October 18, 2009, Symetra sent McKown a notice, informing him that all coverage would cease on December 19, 2009, the end of the 61-day grace period, if the required premium was not received. The past due premium was not paid by December 19, 2009.

due premium, which was then $3,986.57. McKown sent a check for $3,986.57, which Symetra deposited on February 1, 2010. The insured died on February 9, 2010. The parties disputed when Symetra received notice of the death. McKown claimed that he called Symetra and reported the death “on or about” February 19, 2010. Symetra provided a copy of a letter to McKown dated March 17, 2010, which stated that McKown had reported the death by telephone on February 23, 2010.

On December 21, 2009, Symetra sent McKown a Lapse/Reinstatement Notice, informing him that the 61-grace period had expired, and that the policy had lapsed effective December 19, 2009. The notice stated that in order to reinstate the policy, Symetra also provided a copy of a letter McKown must submit a reinstatement dated February 22, 2010, stating that it was application, a medical release, and the past continued on page 10 >> Smith Moore Leatherwood LLP | Attorneys at Law |

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refunding the premium of $3,986.57 under separate cover. The letter requested that the insured “answer all of the questions on the enclosed health statement/HIPAA form, sign, date, and return the forms along with your premium payment of $3,986.57.” The letter said nothing about the insured being deceased. Symetra refunded the premium by check dated February 23, 2010, which was mailed on February 24, 2010. McKown contended that he “rejected” this refund and did not negotiate the check. Under South Carolina law, “[a]n implied contract, like an express contract, rests on

an actual agreement of the parties to be bound to a particular undertaking.” Stanley Smith & Sons v. Limestone Coll., 283 S.C. 430, 322 S.E.2d 474, 477 (Ct. App. 1984). For an implied contract to be created, “[t]he parties must manifest their mutual assent to all essential terms of the contract in order for an enforceable obligation to exist.” Id. Thus, a plaintiff must prove the defendant’s “assent by conduct to all those terms essential to create a binding contract.” Id. However, “[i]t is for the jury to determine whether there was a contract and whether it was performed according to its terms.” Johnston v. Brown, 292 S.C. 478, 357 S.E.2d 450, 452 (1987) (citing Quality Concrete

Products, Inc. v. Thomason, 253 S.C. 579, 172 S.E.2d 297 (1970)). In opposition to Symetra’s motion for summary judgment, McKown argued that because Symetra had retained the reinstatement premium for 21 days, an implied contract of insurance was created, even though neither a reinstatement application nor a medical release had been submitted. The court denied the motion for summary judgment, holding: “A reasonable jury could find that, by retaining the premium for approximately three weeks without any indication of any deficiencies or problems with the reinstatement, an implied contract of insurance was created.”

Disability Claim Barred by Late Notice, Despite Insurer’s Requests for Proof of Loss and Payment of Some Benefits Joseph v. Northwestern Mut. Life Ins. Co., 2015 WL 1309648 (M.D. Ga. Mar. 24, 2015)

individual disability insurance policy issued by Northwestern Mutual to Joseph contained the following notice of claim provision: “Written notice of claim must be given to the Company within 60 days after the start of any loss covered by this policy. If the notice cannot be given within 60 days, it must be given as soon as reasonably possible.” In April 2011, Northwestern Mutual was notified by telephone that Joseph intended to submit a claim for benefits. Northwestern Mutual provided claim forms to Joseph and identified additional documents needed to evaluate his claim. Eighteen months later – in October 2012 – Joseph submitted the completed claim form. In the form, Joseph stated that his claim was based on “consistent/ permanent” loss of hearing that began

10 years earlier in April 2002, and a disc herniation that began causing pain in August 2012 and that prevented him from working the usual duties or hours of his occupation in September 2012. With the claim form, Joseph submitted individual tax returns for 2009, 2010, and 2011. Less than two weeks later, Joseph told Northwestern Mutual that he was claiming benefits back to April 2002. Northwestern Mutual requested, and Joseph subsequently provided, proof of disability for the entire period claimed, including an employment chronology for the period 1997 through

| ERISA and Life Insurance News | May 2015

2012, and individual and corporate tax returns, and profit and loss statements for the same period. Northwestern Mutual determined that Joseph became partially disabled due to his hearing loss effective February 1, 2011, and began paying benefits. In May 2013, Joseph filed suit to recover additional disability benefits for the period January 2003 through February 2011. Northwestern Mutual moved for summary judgment based on three policy provisions – the three-year Legal Actions provision,

the Notice of Claim provision, and the Proof of Disability provision. The district court granted summary judgment in favor of Northwestern Mutual, finding “as a matter of law that Joseph failed to comply timely with the insurance policy’s notice provisions.” The district court noted that, under Georgia law, the insured’s compliance with a notice of claim provision is a condition precedent to the insurer’s duty to pay. The court further noted that “issues relating to reasonableness and sufficiency” of the insured’s compliance may be decided as a matter of law, depending on the sufficiency of the excuse and the insured’s diligence after any disability has been removed. Joseph offered several excuses for failing to submit a claim before October 2012. He “didn’t really understand the details of [his] policy.” He “wasn’t incapacitated” and believed the policy applied to more catastrophic conditions. He thought his “hearing loss was going to get better.” When his back condition worsened, he “got scared” and decided to submit a claim. And, he thought the

business he started in 2003, after he purportedly became disabled, “was going to be successful.” Citing Equitable Life Assurance Society v. Studenic, 77 F.3d 412 (11th Cir. 1996), the district court concluded that each of Joseph’s excuses was unreasonable as a matter of law. The court reasoned that the policy “clearly define[d] both total and partial disability and provided Joseph with sufficient notice about when the effects of a disability triggered coverage under the Policy and the requirements for initiating a claim.” The court also rejected Joseph’s arguments that Northwestern Mutual waived compliance with the notice provision or was otherwise estopped from asserting a late notice defense, based on the company’s failure to send a reservation of rights letter to Joseph, the company’s repeated requests for records dating back to 2002, and the company’s failure to show prejudice resulting from the late notice. First, Georgia law “does not require an insurance company to show prejudice to bar coverage for late notice.”

Second, Georgia law does not require insurers to send a reservation of rights letter in the context of first-party insurance contracts. Although some insurers may send such letters, the purpose for reserving rights in the third-party context is not furthered in the context of firstparty claims. Finally, a Georgia statute provides, “[w]ithout limitation of any right or defense of an insurer otherwise,” that “none of the following acts by or on behalf of an insurer shall be deemed to constitute a waiver of any provision of a policy or of any defense of the insurer under the policy: (1) Acknowledgment of the receipt of notice of loss or claim under the policy; (2) Furnishing forms for reporting a loss or claim, for giving information relative to the loss of claim, or for making proof of loss or receiving or acknowledging receipt of any forms or proofs completed or uncompleted; or (3) Investigating any loss or claim under any policy or engaging in negotiations looking toward a possible settlement of any loss or claim.” O.G.G.A. § 33-24-40.

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Kent Coppage

Sanders Carter

Andrea Cataland

Contributors to this Issue

Manning Connors Greensboro, NC

Jennifer Rathman Atlanta, Ga

Mary Ramsay Charleston, SC

Peter Rutledge Greenville, SC

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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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