M Ay
2017
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ERISA
& Life Insurance News
Covering ERISA and Life, Health and Disability Insurance Litigation
“ERISA-fication” of Individual Policies: Why It Benefits Insurers and How It Is Done 4 State Law Claims for Misrepresentation, Constructive Fraud, and Emotional Distress Preempted by ERISA 5 Reliance on Dictionary of Occupational Titles Is Not an Abuse of Discretion 5 Denial of LTD Benefits Upheld When Physician Fails to Certify Permanent Inability to Work 6 “Unwillingness to Give Fair Consideration” to Claimant’s Evidence Was Abuse of Discretion 7 Termination of LTD Benefits Reversed, Because Decision-Making Not Reasoned and Principled 8 Georgia Bad Faith Statute Is Substantive for Choice-of-Law Purposes Under Erie 9 Loss of Sight in One Eye Results in Residual Disability, Not Total Disability 10 Insurer’s Creation of Retained Asset Account for Life Insurance Benefits Violated ERISA Fiduciary Duties
“ERISA-fication” of Individual Policies: Why It Benefits Insurers and How It Is Done “ERISA-fication” is a made-up term describing the application of ERISA to what, on its face, would appear to be a typical individual insurance policy. When an individual disability income insurance policy— an IDI policy—is shown to be part of an employee welfare benefit plan, as that term is defined by ERISA, and does not fall within the scope of the Department of Labor’s “safe harbor” exemption, 29 C.F.R. § 2510.3–1(j), the substantive and procedural benefits to the insurer can be significant. For example, if the insured files suit in state court and asserts state law claims to recover benefits under a policy governed by ERISA, the insurer can remove to federal court under 28 U.S.C. § 1441 as an action arising under federal law, even when the ERISA-related nature of the action does not appear on the face of the complaint. Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58 (1987); see also Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41 (1987). The insured’s statutory “bad faith” claim will be preempted. If the policy includes language of discretion, discovery likely will be limited and the standard of judicial review will be deferential. And the case will be decided by the judge, not a jury.
When an IDI Policy Is Governed by ERISA To establish that ERISA applies, the insurer must show that the IDI policy (1) is part of a plan, fund or program, (2) established or maintained (3) by an employer, (4) to provide disability benefits (5) to participants or their beneficiaries. 29 U.S.C. § 1002(1); Donovan v. Dillingham, 688 F.2d 1367, 1371 (11th Cir. 1982). In most instances, “[p]rerequisites (3), (4) and (5) are either self-explanatory or defined by statute.”
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ERISA & Life Insurance News
Donovan, 688 F.2d at 1371. With respect to the first requirement, “a ‘plan, fund, or program’ under ERISA is established if from the surrounding circumstances a reasonable person can ascertain the intended benefits, a class of beneficiaries, the source of financing, and procedures for receiving benefits.” Donovan, 688 F.2d at 1372. In the context of a group disability policy, these requirements are easily satisfied. The policy identifies the intended benefits (disability benefits), the intended beneficiaries (employees eligible for coverage under the group policy), the source of financing (premiums typically paid by the employer, but sometimes withheld from the employees’ pay), and the procedure to apply for and collect benefits (as outlined in the group policy). See Butero v. Royal Maccabees Life Ins. Co., 174 F.3d 1207, 1214 (11th Cir. 1999); Stefansson v. Equitable Life Assur. Soc’y of U.S., 2005 WL 2277486, at *6-8 (M.D. Ga. Sept. 19, 2005). The mere fact that the benefits in dispute are provided under an IDI policy does not necessarily dictate a different result. “Employee welfare benefit plans can be funded through the purchase of group or individual policies.” Merrick v. Northwestern Mut. Life Ins. Co., 2001 WL 34152095, at *6 (N.D. Iowa July 5, 2001); Mass. Cas. Ins. Co. v. Reynolds, 113 F.3d 1450, 1453 (6th Cir. 1997); Clark v. Unum Life Ins. Co. of Am., 95 F. Supp. 3d 1335, 1350 (M.D. Fla. 2015); Alexander v. Provident Life & Accident Ins. Co., 663 F. Supp. 2d 627, 634 (E.D. Tenn. 2009). In fact, an individual policy may be subject to ERISA “even when the premiums are paid entirely by the employee.” Shipley v. Provident Life & Accident Ins. Co., 352 F.
Supp. 2d 1213, 1216 (S.D. Ala. 2004). As it relates to the second requirement, whether a plan has been “established” or “maintained” by an employer “necessarily focuses on the employer and its involvement with the administration of the plan.” Anderson v. Unum Provident Corp., 369 F.3d 1257, 1263-64 (11th Cir. 2004). “If the employer has a role in obtaining and providing the benefit, plan status will likely be found.” Moorman v. UnumProvident Corp., 2005 WL 6074572, at *15 (N.D. Ga. Feb. 17, 2005); see, e.g., Butero v. Royal Maccabees Life Ins. Co., 174 F.3d 1207, 1214 (11th Cir. 1999) (finding implementation of plan where employer “consulted an insurance agent, selected the terms of the group policy it wished to purchase for its employees, completed an application form for the policy, solicited enrollments from its employees, collected money through payroll deductions, and remitted premium checks to” the insurer). “[T]he purchase of … multiple policies covering a class of employees offers substantial evidence that a plan, fund, or program has been established.” Donovan, 688 F.2d at 1373.
IDI Policies That Supplement Group LTD Coverage In two recent cases, insurers successfully opposed plaintiffs’ motions to remand disability actions that arose under IDI policies, by offering evidence establishing the applicability of ERISA. In both instances, the IDI policies were issued to certain employees to supplement their coverage under a group long-term disability policy issued to their employer. In Denson v. Provident Life and Accident Insurance Company, 1:16-CV-01635-ELR (N.D. Ga. Mar. 8, 2017), for example, Microvision obtained a group disability insurance policy from Unum Life as part of an employee welfare benefit plan established or maintained under ERISA. Several years later, Microvision retained a broker to solicit proposals for supplemental disability insurance to be offered to, and paid for by, certain categories of its employees. Provident offered to provide the supplemental coverage, and Microvision and Provident entered into a Supplemental Income Protection Plan agreement. Microvision negotiated certain policy terms and exceptions to the eligibility requirements. Microvision agreed to provide its employees with a letter of endorsement and to have “mandatory” enrollment meetings. Provident and Microvision also entered into an Employer Sponsored Multilife Agreement, by which Microvision agreed to withhold from its employees’ pay 100% of the premiums due for the IDI policies. Provident submitted a monthly premium invoice, or “list bill,” to Microvision, which, in turn, remitted the premiums to Provident by means of a single check. Provident assigned all the individual policies to a separate “risk group,” resulting in a 25% monthly premium discount.
Denson and more than 40 other employees applied for and were issued IDI policies under the Supplemental Income Protection Plan. Denson signed a payroll deduction authorization, which stated the plan was sponsored by Microvision. Based on this evidence, the court concluded that Microvision had established a “plan, fund, or program,” as contemplated by ERISA. Similarly, in Bender v. Unum Group, 2016 WL 5420156 (N.D. Cal. Sept. 28, 2016), coverage under the IDI policies was intended to “coordinate” with coverage under a group disability policy. The employer negotiated certain terms of the IDI policies and participated in their selection. The individual disability policies were offered to certain categories of employees. All eligible employees were provided personalized enrollment packets, which stated the coverage was “made available” by the employer and that the employer “selected” certain “features to add to your [IDI policy].” Because the IDI policies were obtained through the employer, they were sold at a 25% premium discount and were assigned the same “risk number.” The district court denied the motion to remand, finding the plaintiff’s IDI policy “was part of the larger Supplemental Disability Plan that was established by [the employer]” and, therefore, was “part of a program that provides disability benefits.” Id. at *5.
Overcoming the Safe Harbor Argument In both cases, the insureds argued that their IDI policies were exempt from ERISA under the “safe harbor” provision. See 29 C.F.R. § 2510.3–1(j). To qualify for that exemption, four criteria must be satisfied. Id. Thus, the insurer must be prepared to negate at least one requirement. To negate the first requirement, the insurer must show that “contributions [were] made by an employer.” Numerous courts have concluded that if an employee receives a discounted premium on an IDI policy by virtue of his employment, that constitutes a contribution by the employer. Alexander v. Provident Life & Accident Ins. Co., 663 F. Supp. 2d 627, 63-35 (E.D. Tenn. 2009) (employer established and maintained plan by entering into Salary Allotment Agreement with insurer, establishing a “risk number” for group billing, and paying a portion of the premiums each pay cycle); Halprin v. Equitable Life Assurance Soc’y of the U.S., 267 F. Supp. 2d 1030, 1037 (D. Colo. 2003). Other courts require the employer to make a financial contribution. See, e.g., Letner v. Unum Life Ins. Co., 203 F. Supp. 2d 1291, 1301 (N.D. Fla. 2001). To negate the second requirement, the insurer must show that “[p]articipation [in] the program is [not] completely voluntary for employees.” This may be done with evidence that the employer guaranteed the insurer a minimum participation rate and met that level of participation. Chamblin v. Reliance Standard Life Ins. Co., 168 F. Supp. 2d
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1168, 1171 (N.D. Cal. 2001). The third requirement prohibits the employer from endorsing the program and “explicitly obliges the employer who seeks its safe harbor to refrain from any functions other than permitting the insurer to publicize the program and collecting premiums.” Butero, 174 F.3d at 1213; see also Dept. of Labor Op. No. 94-23A at 7-8 (July 1, 1994) (construing third provision of “safe harbor” provision). In Bender, the court concluded the safe harbor regulation did not apply, finding the employer did not “remain neutral,” but endorsed the plan, including the IDI policies. In Denson, the court concluded the third element of the safe harbor exemption had not been met “[f]or the same reasons that the Court found that Microvision established the plan.”
must consider whether a state law claim for benefits under
Conclusion
maintain a plan to provide benefits to its employees as part
The ERISA-fication of an IDI policy will result in substantive and procedural benefits to the insurer. Therefore, an insurer
ERISA to a particular IDI policy.
an IDI policy can be governed by ERISA. The most critical factor both in establishing the existence of a “plan, fund, or program” under ERISA and in negating the applicability of the safe harbor exclusion is the employer’s involvement in procuring and in maintaining the IDI policy. Evidence of the employer’s involvement may be derived from the IDI policy itself, the insurer’s application and underwriting files pertaining to the insured, the premium payment history, and the records of the agent who sold the IDI policy. The insurer also should determine whether it provided group coverage to the employer or additional IDI policies to other employees, because all of that evidence, taken together, may establish the employer’s intent to establish or of the employment relationship and, thus, the applicability of
State Law Claims for Misrepresentation, Constructive Fraud, and Emotional Distress Preempted by ERISA Prince v. Sears Holding Corp. | 848 F.3d 173 (4th Cir. 2017)
Prince applied for life insurance for his wife through his employer, Sears. After Prince’s wife developed cancer, Sears informed Prince that his wife’s coverage was not in effect because an “evidence of insurability questionnaire” had not been submitted. Sears claimed it advised Prince that unless he submitted the questionnaire, his application for life insurance coverage would be terminated. Prince claimed he was not notified of this request to submit the questionnaire. Prince’s application for life insurance coverage was terminated. When Prince’s wife died, Prince did not receive the death benefit he expected, based on his application for life insurance. Prince sued Sears in state court for misrepresentation, constructive fraud, and intentional infliction of emotional distress. Sears removed the suit to the Northern District of West Virginia, arguing ERISA preempted Prince’s claims. The district
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court agreed and denied Prince’s motion to remand. On appeal, the Fourth Circuit affirmed. The Fourth Circuit held Prince’s state law claims satisfied the three-prong test for preemption under ERISA § 502(a)— that “(1) the plaintiff must have standing under § 502(a) to pursue its claim; (2) its claim must ‘fall[ ] within the scope of an ERISA provision that [it] can enforce via § 502(a)’; and (3) the claim must not be capable of resolution ‘without an interpretation of the contract governed by federal law,’ i.e., an ERISA-governed employee benefit plan.” (quoting Sonoco Products Co. v. Physicians Health Plan, Inc., 338 F.3d 366 [4th Cir. 2003]). Prince agreed he had standing to bring a claim under ERISA § 502(a). Accordingly, the Fourth Circuit examined only the second and third prongs. Prince argued that his state law claims were not preempted because they concerned Sears’ conduct prior to the denial of life insurance benefits. The
Fourth Circuit rejected this argument. The court held that “[r]egardless of whether his claims attack Sears’ actions prior to the denial or in issuing the denial, these claims are enforceable under § 502(a).” The court noted that Prince’s claims arose out of Sears’ duties “while administrating his benefits,” which “clearly fall within the scope of ERISA.” Thus, the court held the second prong was satisfied. As to the third prong, the court held that because the “only duty Sears had to Prince regarding his benefits (both prior to and after the denial of benefits) stemmed from the ERISA plan,” Prince’s state law claims could not be adjudicated without interpreting the ERISA-governed employee benefit plan. Thus, the court held the third prong was satisfied. Because all three prongs were met, the Fourth Circuit affirmed the district court’s order denying Prince’s motion to remand and dismissed his complaint.
Reliance on Dictionary of Occupational Titles Is Not an Abuse of Discretion Till v. Lincoln Nat’l Life Ins. Co., 2017 WL 393257 (11th Cir. Jan. 30, 2017)
Till, a radiology technologist, submitted a claim for disability benefits under his employer’s ERISA plan due to back problems. The plan’s insurer, Lincoln, denied the claim. Till filed suit. The district court and the Eleventh Circuit upheld Lincoln’s decision. Till argued that Lincoln abused its discretion in relying on the Dictionary of Occupational Titles (“DOT”) to determine how Till’s job was performed in the national workforce. The Eleventh Circuit rejected this argument, noting that it and “several other circuits” have upheld reliance on the DOT. “Given that Lincoln was contractually required to consider the manner in which this job is performed in the national workforce, its decision to credit the DOT over Till’s personal experience was not only reasonable, it was undeniably correct,” the court added. Noting that the DOT was “much maligned,” the court wrote that “despite [the DOT’s] flaws, we see no reason why Lincoln should have been required to give more credit to the resources Till cites on appeal than to the DOT.” The court would “not disturb an administrator’s decision to credit one piece of evidence over another without evidence that they abused the discretion that had been committed to them.” The court also rejected Till’s arguments that Lincoln’s structural conflict of interest as both payor and decision-maker rendered the decision arbitrary and capricious. “Lincoln’s conflicts of interest are typical of the insurance industry,” the court reasoned, “and we have previously rejected attempts to prove that a benefits ‘decision was tainted by self-interest’ based on these standard industry practices.” The court added that “Lincoln’s conflicts are simply not of such a severity that they will turn an otherwise reasonable decision into an arbitrary and capricious one.” “As both this Court and the Supreme Court have noted,” the court wrote, “‘the presence of a structural conflict of interest [is] an unremarkable fact in today’s marketplace [and] constitutes no license, in itself, for a court to enforce its own preferred de novo ruling about a benefits decision,’” citing Metropolitan Life Ins. Co. v. Glenn, 554 U.S. 104, 120 (2008).
Denial of LTD Benefits Upheld When Physician Fails to Certify Permanent Inability to Work Pitts v. SCANA Corp. Health and Welfare Plan | 2016 WL 5956282 (D.S.C. Oct. 14, 2016)
SCANA, through its third-party administrator, Reed Group Ltd., denied long-term disability (“LTD”) benefits to its employee, Pitts. To receive LTD benefits under the plan, Pitts was required to show she was under the care of a physician who certified she was permanently disabled by a medical condition. The district court held Pitts did not establish she was permanently disabled by a medical condition as defined by the plan and, therefore, upheld the denial of her claim for LTD benefits. Beginning in July 2012, Pitts claimed and received short-term disability benefits for lower back and elbow pain. In December 2012, Reed Group asked Pitts’ primary physician, Dr. Pinner, whether Pitts might qualify for LTD benefits. Dr. Pinner informed Reed Group he would determine LTD once he received certain functional assessment test results. After Dr. Pinner received and reviewed the test results, he indicated that Pitts’ prognosis was “excellent.” In January 2013, however, Dr. Pinner reported to Reed Group that he believed Pitts was “permanently disabled,” but he also reported that Pitts may return to work with no limitations effective February 19, 2013. Reed Group attempted to have Dr. Pinner clarify his opinion, but those efforts were “ineffective.” The LTD Committee denied Pitts’ claim for LTD benefits, explaining that while the record showed Pitts was currently unable to work, it did not show she was
permanently unable to work. The LTD Committee also explained that while Dr. Pinner indicated a permanent disability, he also advised that he expected Pitts would be able to work. The LTD Committee’s decision was upheld by the Appeals Committee. The district court reviewed the decision to deny Pitts’ claim. To receive LTD benefits, the plan required Pitts’ physician to certify that she was disabled by a medical condition. The term “disabled” was defined by the plan as a condition that “permanently prevents [the employee] from performing one or more of the material and substantial duties.” The term “permanently” was not defined by the plan. The court noted that an undefined term will be accorded its plain and ordinary meaning or, if ambiguous, the meaning provided by the administrator, if reasonable. The court understood the LTD Committee and the Appeals Committee interpreted the term “permanently” to mean the employee is permanently prevented from performing her duties. Thus, if a physician opines that an employee can return to work, then the employee is not permanently prevented from performing her duties. The court found this interpretation accorded with the plain and ordinary meaning of “permanently” and, even if ambiguous, the interpretation chosen by the LTD Committee was reasonable. Therefore, the court upheld the denial of Pitts’ claim.
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“Unwillingness to Give Fair Consideration” to Claimant’s Evidence Was Abuse of Discretion Montero v. Bank of America LTD Plan | 2016 WL 7444957 (W.D.N.C. Dec. 27, 2016)
Montero participated in an ERISAgoverned plan administered by Aetna for employees of Bank of America. Montero claimed that severe pain in her neck and back caused by fibromyalgia and chronic fatigue syndrome prevented her from performing her work functions. Following initial acceptance of Montero’s long-term disability claim, benefits were denied when the “any occupation” standard became effective. Montero’s treating physician concluded she was disabled as a result of her condition. Aetna obtained two independent peer review opinions, both of which concluded there was insufficient evidence to support the conclusion that Montero was unable to perform the duties of her occupation. Moreover, Aetna had a transferrable skills analysis performed, which identified multiple positions Montero could fill with her
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ERISA & Life Insurance News
background and skill level. Montero appealed the denial and submitted statements from her husband, her attorney, and an additional physician supporting her disability claim. In response, Aetna obtained two additional peer reviews, both of which again concluded the evidence did not support a finding of functional impairment. Aetna upheld its denial. Acknowledging that discretionary authority was properly delegated to Aetna and, thus, the “abuse of discretion” standard applied, the court nonetheless found that Aetna’s actions were not the “product of a principled, reasoned decision-making process supported by substantial evidence.” The court stated that Aetna “did not adequately consider or rebut the evidence” Montero provided regarding her disability. Citing DuPerry v. Life Ins. Co. of N. Am., 632 F. 3d 860, 873 (4th Cir.
2011), the court stated that when Montero submitted sworn statements from her husband regarding the extent of her pain and disability, and years of medical records documenting her complaints of pain, the burden of proof shifted to Aetna to present substantial evidence in rebuttal. According to the court, rather than providing evidence in rebuttal, Aetna based its decision on its peer reviewers and the lack of objective findings supporting an inability to function. Aetna also relied on Capabilities and Limitations worksheets, completed by Montero’s treating physician, indicating that she “could stand, walk, and lift up to ten pounds occasionally.” Aetna’s recitation of the findings and conclusions in Montero’s submission of additional evidence did not qualify as addressing that evidence “thoughtfully and at length,” the court said. Rather, Aetna’s focus
on “functional impairment,” a term not found in the plan, failed to reconcile how Montero’s ability to perform certain tasks occasionally and for short periods of time could be instructive on Montero’s ability to “endure the rigors of a full workday or workweek.” The court found significant Aetna’s failure to obtain an independent medical exam or surveillance to support its apparent belief that Montero’s subjective evidence was fabricated or exaggerated. Citing to Seventh and Forth Circuit opinions, the court said such evidence was required because Aetna was both operating under a conflict of interest and had rejected the treating physician’s opinion. With respect to Aetna’s conflict of interest, the court found it to be more than a structural conflict because Aetna also encouraged Montero to apply for Social Security benefits, offering to pay a third party to represent her. Thus, on the one hand, Aetna denied Montero’s claim for disability benefits, and at the same time requested that counsel Aetna obtained for Montero argue that Montero “exhibited classic fibromyalgia tender points” and that her complaints of “chronic pain are consistent with the medical records and should be found credible.” Due to its “manifest unwillingness to give fair consideration to evidence that supports” Montero, the court determined that remand was not appropriate. It ordered that Aetna reinstate Montero’s benefits and pay pre-judgment interest, attorney’s fees, and costs.
Termination of LTD Benefits Reversed, Because Decision-Making Not Reasoned and Principled Wilkinson v. Sun Life and Health Ins. Co. | 2017 WL 56721 (4th Cir. Jan. 5, 2017)
As an employee of Dolan & Traynor, Inc. (“D&T”), Wilkinson was a participant in D&T’s employee benefit plan. He sued Sun Life, the claims administrator, after Sun Life terminated his long-term disability benefits. Wilkinson claimed to be disabled following a diagnosis of cardiomyopathy. Just months before the diagnosis, Wilkinson’s wife died, leading to a period during which Wilkinson struggled emotionally and physically to perform his job. At the time, Wilkinson was a D&T vice president, routinely working approximately 60-hours per week and earning an annual salary of $434,300. Given his decreased performance, D&T stockholders became concerned about Wilkinson’s ability to continue in the vice president role. Several meetings were held between Wilkinson and the stockholders, during which Wilkinson acknowledged his decreasing productivity and expressed his desire to work 30-40 hours per week. The stockholders did not agree to this limitation. In a later meeting on April 21, 2004, Wilkinson and the stockholders agreed it would be beneficial for Wilkinson to take a leave of absence.
The parties signed a document titled “Response to Employee Request for Family or Medical Leave and Employee Acknowledgements of Obligations.” The document noted that the parties became aware of the need for Wilkinson to take medical leave in April 2004, and that Wilkinson needed the leave beginning on or about May 10, 2004. Consistent with the agreement, Wilkinson was paid by D&T until May 7, 2004, and D&T’s records reflected that Wilkinson’s last day of work was May 7, 2004. Wilkinson’s health did not improve, and on August 18, 2004, he applied to Sun Life for LTD benefits. The Sun Life policy became effective on May 1, 2004 (replacing prior continuous coverage). In the LTD application, Wilkinson said he became disabled on May 7, 2004, and that he worked five days per week, eight hours per day, at the time of his disability. His disability application was supported by his treating physician, who also reported the date of disability as May 7, 2004. Likewise, in the employer portion of the form, D&T indicated that Wilkinson’s last full day worked was May 7, 2004. Sun Life approved the LTD claim
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and paid LTD benefits to Wilkinson without interruption for four years. In 2007, Wilkinson sued D&T and its stockholders for fraudulent inducement. In his verified pleadings Wilkinson stated, “At the April 21st meeting, Timothy Dolan asked that I take a leave now ... I agreed to take the leave of absence with Tim Traynor’s agreement that, in a few weeks, they would have a written agreement prepared for me and that my health insurance would continue... Based on their promises to work out an agreement within a few weeks, I began a medical leave for an undetermined period of time, beginning on May 7, 2004.” The statement “take a leave now” in the verified complaint led Sun Life to assert that Wilkinson ceased work before May 1, the date the Sun Life policy came into effect. In July 2008, Sun Life sent a letter to Wilkinson, terminating his LTD benefits, based on insufficient medical evidence to support disability and his verified complaint, which showed he resigned from D&T because of disagreements with the stockholders over financial matters and not because of medical reasons. Wilkinson appealed. Focusing on assertions in the civil lawsuit regarding Wilkinson’s decreased performance, Sun Life affirmed its decision on the theory that Wilkinson was not an “Active Fulltime Employee” when he became disabled. No determination was made as to Wilkinson’s disability. Wilkinson appealed again, stating he had no incentive to misrepresent his date of disability or work level, since he had coverage under the prior policy. Based on an independent medical examination ordered by Sun Life, which contradicted its 2008 termination, Sun Life concluded that Wilkinson did
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suffer a disability under the policy. However, it determined that because Wilkinson accepted the terms of his leave of absence on April 21, 2004, he was not an “Active, Full-Time Employee” when the Sun Life policy went into effect. Applying the “abuse of discretion” standard of review, the court held that Sun Life abused its discretion in terminating the LTD benefits because the decision was not supported by substantial evidence and the decision-making process was not reasoned and principled. According to the court, Sun Life relied principally on part of a statement in Wilkinson’s civil lawsuit, but ignored the following sentence, which said, “Based on [the partners] promises to work out an agreement within a few weeks, I began a medical leave for an undetermined period of time, beginning on May 7, 2004.” The court concluded that Sun Life ignored numerous documents and statements by Wilkinson, his physician, and D&T indicating he was a full-time employee, working a fulltime schedule (defined as 30-hours per week) on May 7, 2004. The court found that Sun Life’s evidence was mere speculation. The Court said Sun Life’s reliance on different reasons at each level of review evidenced a lack of a reasoned and principled decisionmaking process, stating, “Sun Life’s persistence in denying Wilkinson benefits on the basis of three different theories suggests Sun Life’s decision was driven by a desired outcome.” Moreover, the court said, despite terminating Wilkinson’s benefits based on his decreased work schedule, Sun Life did not seek information from the D&T stockholders to clarify any concerns regarding Wilkinson’s work schedule or circumstances of departure.
Georgia Bad Faith Statute Is Substantive for Choice-of-Law Purposes Under Erie Days v. Stonebridge Life Ins. Ins. Co., 2016 WL 6877743 (S.D. Ga. 2016)
Days brought an action in Georgia to recover benefits under multiple accidental death insurance policies issued by Stonebridge Life. The policies included choice of law provisions, identifying Illinois law as controlling. In addition to a claim for the accidental death benefits, Days sought to recover a bad faith penalty under a Georgia statute, O.C.G.A. § 33-4-6. Before addressing the merits of the claims decision, the federal district court—to which the case had been removed—entered a decision concerning the choice of law issue and its effect on the bad faith claim. Applying Georgia choice of law jurisprudence, the court noted that “Georgia will honor choice of law provisions unless no reasonable basis exists for doing so or, application of the chosen state’s law is contrary to a fundamental policy of Georgia.” Neither party asserted that the application of Illinois law would contravene any policy of the forum state or would be prejudicial to its interests. As a result, the court enforced the choice of law provisions in the policies. The effect of applying Illinois law required the dismissal of plaintiff’s claim to recover a penalty under the Georgia bad faith statute. According to the court, the statute authorizing that cause of action “is substantive for purposes of Erie, and thus not applicable if the laws of some other state should be applied to the issues in this case,” quoting Pinkerton & Laws, Inc. v. Royal Ins. Co. of Am., 227 F. Supp. 2d 1348, 1357 (N.D. Ga. 2002). Since Illinois law applied to the policies, the court concluded that the claim based on Georgia’s bad faith statute was inapplicable, and it was dismissed.
Loss of Sight in One Eye Results in Residual Disability, Not Total Disability Nefsky v. Unum Life Ins. Co. of Am. | 2017 WL 621269 (N.D. Ga. Feb. 15, 2017)
Nefsky was the president and sole
to advertise in trade publications, and
if Nefsky was totally disabled, defined
shareholder of a business that buys and
continued to purchase items from
as the inability “to perform the material
sells watches, jewelry, china, crystal,
estates and jewelry stores. Nefsky had
and substantial duties of his regular
and silverware. The majority of Nefsky’s
no other physical limitations. He was
occupation to an extent that prevents him
inventory consisted of watches, which he
able to drive, hike, bike, swim, jog, and
from engaging in his regular occupation.”
bought wholesale from manufacturers.
travel for pleasure.
Unum Life denied the claim for benefits
He also purchased items from estates,
A month after his retinal occlusion,
jewelry stores with excess inventory,
Nefsky submitted a claim for total
and stores going out of business.
under the Rider, and Nefsky sued. The
court
granted
summary
disability benefits under an individual
judgment for Unum Life. The court
Nefsky did not sell goods in a
disability policy. The insurer, Unum Life,
looked to earlier cases in which the
showroom or store. Most of his
determined that Nefsky was residually
Georgia Court of Appeals defined “the
inventory was sold through eBay.
disabled, not totally disabled. Residual
material and substantial duties of [an
Nefsky would write a description of the
disability was defined to mean the insured
insured’s] occupation” as “most or a
items to be sold, and an employee would
was not prevented from engaging in his
vast majority of the material duties” of
photograph the items, list them for sale,
regular occupation, but was restricted
the occupation. Pomerance v. Berkshire
and fill orders received over the internet.
from performing his duties for as long as
Life Ins. Co. of Am., 654 S.E.2d 638 (Ga.
In 2006, Nefsky suffered a retinal
he customarily did before his sickness or
App. 2007). The court concluded Nefsky
vein occlusion, which severely impaired
injury, or as effectively as before. Nefsky
was residually disabled, not totally
the vision in his left eye. He continued
was paid residual disability benefits until
disabled. The court reasoned: “Plaintiff’s
to operate his business, but the loss of
age 65, the maximum benefit period
eye condition restricts his ability to
vision caused his right eye to “tire out
under the policy.
perform certain tasks ‘for as long [or as
much faster” and prevented him from
Nefsky then submitted a claim for
effectively] as he customarily performed
analyzing items for more than two hours
continued benefits under a Lifetime
them before [his] injury or sickness.’ It
a day. He remained a representative for
Sickness Benefit Rider to the policy. The
does not, however, ‘prevent[] him from
two watch manufacturers, continued
Rider provided lifetime benefits only
engaging in his regular occupation.’”
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Insurer’s Creation of Retained Asset Account for Life Insurance Benefits Violated ERISA Fiduciary Duties Owens v. Metropolitan Life Ins. Co. | 2016 WL 5868103 (N.D. Ga. Sept. 27, 2016)
As a participant in his employer’s
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was paid to Owens.
“the assets backing the TCA, as accrued yet unpaid benefits, are plan assets for
ERISA plan, Owens’ husband was
Owens sued MetLife on behalf of
insured under a group life insurance
herself and a class of others similarly
policy issued by MetLife. The policy
situated, alleging that MetLife breached
Owens alleged in Count I that
provided: “We will pay the Life Insurance
fiduciary duties owed under ERISA
MetLife breached fiduciary duties under
in one sum. Other modes of payment
when it kept a majority of the interest
ERISA § 404(a)(1)(A), which states that “a
may be available upon request.”
earned on the assets backing the TCA,
fiduciary shall discharge his duties with
which [MetLife] acts as a fiduciary.”
When her husband died, MetLife
rather than sending a single check for
respect to the plan solely in the interest
did not pay the death benefit in one
the entire amount owed her. Owens’
of the participants and beneficiaries … for
lump sum. Instead, it established a
complaint was brought in five counts.
the sole purpose of: (i) providing benefits
“Total Control Account” (“TCA”) in
Both Owens and MetLife filed motions
to participants and their beneficiaries;
Owens’ name and provided her with
for summary judgment.
and (ii) defraying reasonable expenses of
a book of bank drafts, which allowed
The district court first determined
administering the plan.” The court held a
her to withdraw funds from the TCA in
that MetLife acted in a fiduciary
genuine issue of material fact existed as
increments of $250 or more. The TCA
capacity when it kept possession of
to whether making payment via a TCA
paid interest to Owens of no less than
the death benefit, giving Owens only
violated MetLife’s fiduciary duties. Both
0.50%. MetLife’s practice was to hold
the ability to request possession of the
parties’ motions for summary judgment
death benefits in its general account
funds by writing a drafts on the TCA.
as to Count I were denied.
until it was called upon to transfer funds
Creation of the TCA, the court said,
In Count II, Owens alleged the
to cover drafts drawn on TCAs. The
was inconsistent with the terms of the
MetLife violated ERISA § 406(b)(1),
funds held in the general account earned
policy, which required MetLife to “pay
which prohibits a fiduciary from dealing
interest for MetLife at a rate higher than
the Life Insurance in one sum.” Thus,
“with the assets of the plan in his own
ERISA & Life Insurance News
interest or for his own account.” The
assets backing that liability in MetLife’s
“services necessary for the establishment
court granted summary judgment to
general account constituted a loan.
or operation of the plan, if no more
Owens on this count, stating: “While
The court held this arrangement fell
than reasonable compensation is paid
some of the interest earned was passed
within the definition of a loan and granted
therefor.” The court found a genuine
along to [Owens], [MetLife] kept a
Owens’ motion for summary judgment
issue of material fact as to whether
portion for itself. … Even if this was
as to Count III. “[MetLife] had temporary
the exception applied and denied both
not done in bad faith, [MetLife] violated
use of the assets backing the TCA liability
parties’ motions for summary judgment
ERISA § 406(1)(b) when it used plan
between the time the account was set up
as to Count IV.
assets to generate investment income
and the time [Owens] withdrew the funds
Owens sought in Count V to
for its own account.”
from the account,” the court said. “This
recover statutory interest on unpaid
falls within the definition of lending.”
life insurance benefits under Georgia
Count III alleged that MetLife violated ERISA § 406(a)(1)(B), which provides
Count IV alleged a violation of ERISA
law, O.C.G.A. § 33-25-10(a). The court
generally that a fiduciary “shall not cause
§ 406(a)(1)(C), which provides that a
granted summary judgment to Owens
the plan to engage in a transaction, if
fiduciary “shall not cause the plan to
on this count, holding that she “is
he knows or should know that such
engage in a transaction, if he knows
entitled to interest at a rate of twelve
transaction constitutes a direct or indirect
or should know the such transaction
percent from thirty days after the claim
… lending of money or other extension
constitutes a direct or indirect …
was filed until payment is actually made.”
of credit between the plan and a party
furnishing of goods, services, for facilities
in interest.” This claim, the court said,
between the plan and a party in interest.”
submit a proposed briefing schedule
depended on whether creation of the
An exception is made for reasonable
for resolution of Owens’ motion for
TCA in Owens’ name while keeping the
arrangements with a party in interest for
class certification.
The
parties were
directed
to
E R I S A & L i f e I n s u ra n c e Ne w s
Editors
S a n ders C arter
K E n t C oppage
A n drea C atala n d
O ther C o n tri b u tors to T his I ss u e
Jason Maertens
Jennifer Rathman
Lisa shortt
ERISA & Life Insurance News
11
Smith Moore Leatherwood LLP Attorneys at Law Atlantic Center Plaza 1180 W. Peachtree St. NW Suite 2300 Atlanta, GA 30309-3482 T 404.962.1000 F 404.962.1200 www.smithmoorelaw.com
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