ERISA and Life Insurance News

SPRING

2016

2

ERISA

& LIFE INSURANCE NEWS

Covering ERISA and Life, Health and Disability Insurance Litigation

Health Plan Cannot Enforce Equitable Lien Against Insured’s General Assets under § 502(a)(3) 5 No Equitable Tolling of Contractual Limitations Period Where Plaintiff Failed to Diligently Pursue ERISA Claim 6 State Law Claims of Sub-Assignee to Recover ERISA Benefits Subject to Complete Preemption 7 Healthcare Provider’s Claims Barred by Plan’s AntiAssignment Provision 8 ERISA Discovery Limited to Evidence before Administrator in Deferential Review Case 8 Procedural Irregularities in Claim Decision Results in Remand.

9 Adverse Tax Impact Not Remediable under ERISA 9 Converted Life Insurance Policy Remains Subject to ERISA; State Law Claims Preempted 10 North Carolina Joins Other States in Requiring Life Insurers to Use Death Master File 11 Marriott Defeats Claim for Retirement Benefits, Based on Statute of Limitations

Health Plan Cannot Enforce Equitable Lien Against Insured’s General Assets under § 502(a)(3) In January 2016, the Supreme Court resolved a circuit split over whether a plan can enforce an equitable lien against a beneficiary’s general assets under ERISA § 502(a)(3). Montanile v. Board of Trustees of National Elevator Industry Health Benefit Plan, 136 S.Ct. 651 (2016). After Montanile, it is clear that plans may enforce an equitable lien only against the fund that caused there to be an overpayment, and it may not trace the fund into the beneficiary’s general assets.

Montanile Facts and Lower Court Decisions Robert Montanile was injured when a drunk driver ran a stop sign. The employee benefit plan in which Montanile participated paid more than $120,000 in medical benefits related to the accident. However, the terms of the health plan established that the plan had a right to reimbursement whenever a plan participant recovered money from a third party who was responsible for the injury and that the plan was entitled to “any amounts” that the participant “recover[ed] from any party by award, judgment, settlement, or otherwise.”

Montanile filed a negligence action against the drunk driver 2

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and made a claim for uninsured motorist benefits under his own insurance policy. He obtained a $500,000 settlement, from which Montanile’s attorneys received $260,000 for fees and costs. The health plan asserted that it had a right to $120,000 from the remaining $240,000 of the settlement.

Montanile’s attorneys retained the disputed amount in their trust fund while they attempted to negotiate a settlement of the health plan’s claim. After settlement discussions broke down, Montanile’s attorneys informed the health plan that they would distribute the remaining settlement funds to Montanile unless the plan objected within 14 days. The plan did not respond within this timeframe, and the attorneys distributed the remainder of the settlement fund to Montanile.

Six months after the negotiations failed, the health plan sued Montanile under ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3), seeking repayment of the $120,000 expended on his medical care. The plan asked the court to enforce an equitable lien upon any settlement funds or property in Montanile’s actual or constructive possession. The plan also requested an order

enjoining Montanile from dissipating the settlement funds.

Montanile stipulated that he still possessed some of the funds.

Following Eleventh Circuit precedent, the district court granted summary judgment to the health plan, rejecting Montanile’s argument that there was no specific, identifiable fund separate from his general assets against which the plan’s equitable lien could be enforced. The court held that the plan was entitled to reimbursement from Montanile’s general assets, regardless of whether Montanile had dissipated some or all of the settlement funds. The Eleventh Circuit affirmed the district court, reasoning that a plan can always enforce an equitable lien once the lien attaches and that dissipation of the specific fund to which the lien attached cannot destroy the underlying reimbursement obligation.

Supreme Court Precedent Montanile is the fifth in a series of decisions by the Supreme Court interpreting the words “appropriate equitable relief” under § 502(a)(3). In Mertens v. Hewitt Associates, 508 U.S. 248 (1993), the Court explained that the term “equitable relief” is limited to “those categories of relief that were typically available in equity” during the days of the divided bench. In Great-West & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002), the Court clarified that a plan could not impose personal liability under § 502(a)(3) on a participant for a contractual obligation to pay money but may be able to impose a constructive trust or equitable lien on a particular fund or property in the participant’s possession.

equitable because the plan’s terms created an equitable lien by agreement on a third-party settlement. And, as in Sereboff, the nature of the recovery requested was equitable because it claimed specifically identifiable funds within the beneficiary’s control—that is, a portion of the settlement fund.

The Montanile Decision In Montanile, the Court observed that the basis for the plan’s action was equitable because the plan had an equitable lien by agreement that attached to Montanile’s settlement fund when he obtained title to that fund. The Court also noted that the nature of the plan’s underlying remedy would have been equitable had it immediately sued to enforce the lien against the settlement fund in Montanile’s possession. However, the issue before the Court was whether a plan is still seeking an equitable remedy when the defendant, who once possessed the settlement fund, has dissipated it, and the plan then seeks to recover from the defendant’s general assets. To resolve this issue, the Court turned to basic principles of equity.

The Court concluded that the plan was seeking legal, not equitable, relief by attempting to collect from Montanile’s assets. In arriving at this conclusion, the Court considered standard equity treatises, noting that equitable remedies are, as a general rule, directed against some specific thing.

Accordingly, equitable liens are ordinarily enforceable only Continued onto page 4

Next, in Sereboff v. Mid Atlantic Medical Services, Inc., 547 U.S. 356 (2006), the Supreme Court held the plan was entitled to recover because both the basis for the claim and the remedy sought were equitable. In that case, the beneficiaries of the plan retained their settlement fund in a separate account. The plan created an equitable lien by agreement against a specific fund that was in the beneficiaries’ possession. The cause of action was equitable, because the plan sought to enforce a contract to convey a specific object, even though the parties entered into the contract before the beneficiaries acquired title to the settlement fund. Additionally, the underlying remedies were equitable because the plan sought specifically identifiable funds that were within the possession and control of the beneficiaries—not recovery from the beneficiaries’ general assets.

Finally, in US Airways, Inc. v. McCutchen, 133 S.Ct. 1537 (2013), the Court reaffirmed its analysis in Sereboff, again concluding that a plan sought to enforce an equitable claim by seeking equitable remedies. As in Sereboff, the basis for the claim was ERISA & LIFE INSURANCE NEWS

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against a specifically identified fund. The lien is eliminated when the defendant dissipates the fund on nontraceable items.

The Court noted that ordinarily, under these circumstances, the plaintiff would retain only a personal claim against the wrongdoer—a quintessential action at law. The Court did not expressly determine that such an action at law would be preempted by ERISA.

In support of its position, the plan argued three points, all of which the Supreme Court rejected.

In support of its position, the plan argued three points, all of which the Supreme Court rejected. First, the Court rejected a contention that, in Sereboff, it distinguished equitable liens by agreement from other types of equitable liens, which require a plaintiff to trace a specific fund into the defendant’s hands.

Rather, the Court emphasized that all types of equitable liens must be enforced against a specifically identified fund in the defendant’s possession.

Next, the plan argued that historical equity practice supported enforcement of an equitable lien against Montanile’s general assets. The plan’s argument was based on the methods by which equity courts might have awarded relief from a defendant’s general assets when a defendant wrongfully dissipated a fund to thwart enforcement of an equitable lien.

The Supreme Court acknowledged that equity courts could award money decrees as part of their ancillary jurisdiction to

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award complete relief. However, when equity courts did so, the rights of the parties were strictly legal, and legal remedies, even legal remedies that a court of equity could sometimes award, are not “equitable relief,” as required by § 502(a)(3).

Finally, the plan argued that ERISA’s objectives would be served by enforcing the terms of the plan. The Court reiterated previous decisions stating that vague notions of a statute’s “basic purpose” are inadequate to overcome the words of its text regarding a specific issue. Nonetheless, the Court determined that its interpretation of § 502(a)(3) promotes ERISA’s purposes by allocating liability for planrelated misdeeds in reasonable proportion to respective actors’ power to control and prevent the misdeeds. The Court observed that the plan had adequate notice of the existence and distribution of the fund, yet it failed to act promptly to enforce its lien.

Still, the plan may be able to enforce some of its rights, since Montanile admitted that he still retained some of the funds.

The Supreme Court remanded the case to resolve an issue of fact on how much dissipation there was and whether Montanile mixed the settlement fund with his general assets.

Justice Ginsburg dissented. She argued that in Montanile the Court perpetuated its profound error in Knudson, which effectively unraveled 40 years of fusion of law and equity.

Justice Ginsburg characterized the outcome of Montanile as bizarre in that it allowed a defendant to escape his reimbursement obligations by spending settlement funds rapidly on nontraceable items.

No Equitable Tolling of Contractual Limitations Period When Plaintiff Fails to Diligently Pursue ERISA Claim Wilson v. Standard Ins. Co. | 613 F. App’x 841 (11th Cir. 2015)

As an ERISA plan participant, Wilson was insured under a disability insurance policy issued by Standard. She sued to recover Long Term Disability (“LTD”) benefits, but her complaint was filed 34 months after expiration of the three-year contractual limitations period provided by the policy.

The district court granted summary judgment to the claims administrator, and the Eleventh Circuit affirmed.

Wilson argued that the limitations period was equitably tolled because the claim denial letter did not inform her that the policy imposed a time to sue period shorter than the six-year statute of limitation for contract actions that otherwise would have been borrowed from state law.

According to Wilson, this violated ERISA claims procedure regulation 29 C.F.R. § 2560.503–1(g)(1)(iv), which provides that notice to the claimant must “set forth … [a] description of the plan’s review procedures and the time limits applicable to such procedures, including a statement of the claimant’s right to bring a civil action under section 502(a) of the Act following an adverse benefit determination on review ….”

The Eleventh Circuit noted that while the regulation “clearly” required notice of the time limits for administrative procedures, and the right to bring a civil action, “what is anything but clear … is whether the regulation also requires a claims denial letter to include notice about the time limits applicable to filing a civil action,” as Wilson argued.

However, even construing the ambiguity in Wilson’s favor, the court determined that “it does not follow that Standard’s failure to interpret the ambiguous regulation that way renders the contractual limitations period unenforceable,” given the Supreme

Court’s opinion in Heimeshoff v. Hartford Life & Accident Ins. Co.,134 S.Ct. 604, 612 (2013), in which the Court emphasized: “The principle that contractual limitations provisions ordinarily should be enforced as written is especially appropriate when enforcing an ERISA plan. The plan, in short, is at the center of ERISA.” Wilson would be entitled to equitable tolling, the court said, only if she could show both extraordinary circumstances and diligence in pursuing her rights. With respect to the latter, “[w]e have held that there is no equitable tolling when ‘the plaintiffs had notice sufficient to prompt them to investigate and ... had they done so diligently, they would have discovered the basis for their claims.’” In finding that Wilson failed to show diligence, the court stated: “In the present case, the basis for

Wilson’s claim was no mystery to anyone.

In January 2007 Standard sent Wilson a letter stating that her request for benefits had been denied, the administrative review process was complete, and she had a right to bring a civil action under ERISA § 502. Not only that, but the letter also alerted her to the fact that she could request any documents she might need to pursue her claim … free of charge. She finally requested a copy of her policy and received it on June 21, 2011 … four years after the administrative review process of her denied claim was complete ….”

Wilson could have requested a copy of the policy, which was central to her claim, and which contained the applicable contractual limitations provision. Her lawsuit could have been timely filed if she had exercised even minimal diligence in discovering the terms of the policy.

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State Law Claims of Sub-Assignee to Recover ERISA Benefits Subject to Complete Preemption Gables Ins. Recovery, Inc. v. Blue Cross and Blue Shield of Fla., Inc. | 813 F.3d 1333 (11th Cir. 2015)

South Miami Chiropractic provided certain services to an insured of Blue Cross. When Blue Cross did not pay the resulting claim, South Miami assigned its alleged right to payment to Gables.

Gables sued Blue Cross, asserting only state law claims as the “successor in interest to the rights of the medical provider as an intended third party beneficiary of the pertinent health insurance contract.”

Gables disclaimed any notion that it was seeking relief under ERISA. Gables sought relief under theories that Blue Cross breached the contract (i.e., the insurance policy) and that South Miami had confirmed coverage with Blue Cross.

According to Gables, Blue Cross had agreed to pay for the services and thus had breached an oral contract by failing to pay the claim. Finally, Gables sought to recover for quantum meruit and open account.

Blue Cross removed the case to federal court on the grounds of ERISA complete preemption, and moved to dismiss the complaint on the basis that South Miami had not exhausted administrative remedies.

Gables, in turn, moved to remand the case to state court.

The district court denied the motion to remand and dismissed the action without prejudice, holding that federal question jurisdiction existed as the result of ERISA complete preemption and that Gables had failed to exhaust administrative remedies.

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On appeal, Gables challenged only the jurisdictional finding. The company argued that its claims arose out of a “separate duty independent of the ERISA plan.”

The Eleventh Circuit disagreed. To succeed as a third party beneficiary, Florida law required a breach of the underlying contract.

“Absent a wrongful denial of benefits under the ERISA plan—the contract—Gables cannot succeed on a third party beneficiary breach of contract claim,” the court held.

The claims based on the alleged oral agreement also did not arise out of a duty independent of the plan. Rather, the complaint “expressly tethers Florida Blue’s preauthorization to its obligations under the ERISA insurance plan,” the court held.

Moreover, the claims were within the scope of ERISA § 502(a). Thus, “despite Gable’s efforts to distance its claims from the ERISA plan, each count is based expressly on Florida Blue’s alleged breach of the ERISA-regulated employee health benefits plan—that is, an alleged wrongful denial of coverage under the plan,” the court held.

Finally, Gables had standing to sue under ERISA by virtue of the assignment. Gables asserted that it lacked standing because it was a “sub-assignee and not the healthcare provider.” The Eleventh Circuit rejected the distinction, noting that the court had “never drawn the line Gables urges us to draw ….”

“Just as nothing in ERISA’s statutory language prohibits healthcare providers from obtaining derivative standing through assignment,” the court wrote, “nothing in the statutory language prohibits non-healthcare providers from obtaining derivative standing through a sub-assignment.”

Allowing the use of a sub-assignment also would not frustrate the purposes of ERISA. “To the contrary,” the court reasoned, “allowing a provider to assign the right to bring suit may protect plan participants by transferring the burden of bringing suit from healthcare providers who may be unable to collect on denied claims unless they outsource the collection effort to a third-party.”

Healthcare Provider’s Claims Barred

by Plan’s Anti-Assignment Provision Griffin v. Verizon Communications, Inc. | 2016 WL 116598 (11th Cir. Jan. 12, 2016)

A physician sued Verizon Communications after the claims administrator for Verizon’s health benefits plan denied her claims for payment based on medical services she provided to certain plan participants. The plan provided that “[t]he coverage and any benefits under the plan are not assignable by any covered member without the written consent of the Plan ....” An exception existed where “required by a ‘Qualified Medical Child Support Order’ as defined by ERISA or any applicable state or federal law ....”

The physician asserted claims for benefits, breach of fiduciary duty, and the failure to provide plan documents.

The district court dismissed the case on the ground that the physician lacked standing under ERISA because of the plan’s anti-assignment provision.

assignments from her patients, they were void because of the anti-assignment provision. Nor had the physician alleged or provided evidence that written consent to the assignments had been given by the plan, according to the court.

On appeal, the Eleventh Circuit agreed.

The court recognized that a healthcare The court rejected an argument that a provider could “acquire derivative Georgia statute, O.C.G.A. § 33-24-54(a), standing ... by obtaining a written rendered the anti-assignment provision assignment ... of his right to payment of invalid or required that insureds assign benefits under an ERISA-governed plan.” their claims to the physician. The statute The court also recognized that “an antirequired that an assignment provision insurer pay a nonin a plan, which nothing in this statute network provider limits or prohibits requires an insured to directly pursuant a plan participant assign her benefits to a to an assignment or beneficiary from where the insurer assigning her right medical provider pays participating to payment of providers directly. benefits, is valid and

“

enforceable.” As a result, such a provision could prevent a healthcare provider from acquiring a cause of action under Section 502(a).

Although the physician had obtained

”

According to the Eleventh Circuit, “nothing in this statute requires an insured to assign her benefits to a medical provider” nor “prohibits a health benefits plan from barring assignments.”

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ERISA Discovery Limited to Evidence before Administrator in Deferential Review Case Blake v. Union Camp Int’l Paper | 622 F. App’x 853 (11th Cir. 2015)

Blake brought an action to recover when it denied the claim for benefits,” pension benefits alleged to be due under the court continued. “The district court an ERISA plan. In the district court, is limited to ‘the facts as known to the Blake sought to compel discovery of administrator at the time the decision documents beyond those contained in was made,’” the court the administrative record. The district The district court is limited concluded, quoting court denied the Glazer v. Reliance motion to compel to ‘the facts as known to Standard Life Ins. Co., and granted the administrator at the 524 F.3d 1241 (11th summary judgment to the plan time the decision was made Cir. 2008). administrator.

“

The Eleventh Circuit affirmed the decision on appeal. “A district court reviewing a denial of ERISA benefits where, as here, the plan administrator is granted broad discretionary authority, applies an arbitrary and capricious standard of review,” the court wrote.

“In such a review, the district court should limit discovery to the evidence that was before the plan administrator

”

Blake

could

not

show that the district court abused its discretion in refusing to allow additional discovery. Rather, “the court properly limited discovery to the evidence that the ERISA plan administrator had before it in making its decision regarding Mr. Blake’s benefits.” Indeed, “[n]othing else that Mr. Blake could have discovered was relevant,” the court reasoned.

Procedural Irregularities in Claim Decision Results in Remand Boyd v. Sysco Corp., 2015 WL 7737966 (D.S.C. Dec. 1, 2015)

Boyd sought mental health/ substance abuse benefits under the Sysco Corporation Group Benefit Plan for treatment his son received at a residential rehabilitation program. Boyd filed suit after an internal review and an external review by an Independent Review Organization, which upheld the denial of benefits by the claims administrator.

Boyd asserted that Sysco and its claims administrator did not process the claim on time, denied him a full and fair review by omitting documents from the administrative record, and issued benefit determinations that did not identify medical records or plan provisions on which the decisions were based. Although the Plan conferred discretionary authority, Boyd urged the court to apply a de novo standard of review in light of the procedural irregularities.

The court declined to adopt a heightened standard of review, finding that the remedy for procedural irregularities is to excuse a failure by a claimant to exhaust administrative remedies or to remand the case. The court remanded to the claims administrator to consider the corrected administrative record, relevant plan provisions, and internal guidelines and directed the claims administrator to begin the review process anew.

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Adverse Tax Impact Not Remediable under ERISA Taylor v. NCR Corp. | 2015 WL 5603040 (N.D. Ga. Sept. 23, 2015)

Taylor, a former employee of NCR Corporation, brought suit under ERISA after the company terminated a top hat retirement plan in which he participated.

The plan provided that it could be terminated, but that “no such action shall adversely affect any Participant’s ... accrued benefits prior to such action under the Plan or the benefits payable [thereunder].”

Taylor received a lump sum payment that was reduced by federal and state income taxes. He maintained that the lump sum payment “adversely affected” his benefits because of the tax consequences. In addition to a claim for benefits under Section 502(a)(1)(B), Taylor sought an administrative penalty because the administrator allegedly failed to provide certain plan documents upon his request.

to “satisfy the reporting and disclosure provisions ... by (1) Filing a statement with the Secretary of Labor ... [and] (2) Providing plan documents ... to the Secretary upon request.” 29 C.F.R. § 2520.104-23(b).

Here, NCR had complied by making the required filing with DOL.

Addressing the penalty claim first, the court determined that the claim was subject to dismissal because top hat plans are exempt by regulation from ERISA’s disclosure requirements. Instead, U.S. Department of Labor (“DOL”) regulations allow the administrator of a top hat plan

The court then dismissed Taylor’s benefit claim based upon the adverse tax consequences of the lump sum payout.

First, the court held, “Plan sponsors have a right under ERISA to terminate or amend plans where that right is reserved in plan documents.” Moreover, the “power to

Converted Life Insurance Policy Remains Subject to ERISA; State Law Claims Preempted Woods v. Am. United Life Ins. Co. | 2015 WL 7075284 (N.D. Ala. Nov. 13, 2015)

Woods, the beneficiary of her mother’s life insurance policy, alleged that American United wrongfully denied her claim for a death benefit and then, after acknowledging that benefits should have been paid, misrepresented the amount of the benefit in an effort to get her to sign a release.

She filed suit, asserting state law claims for breach of contract; fraud; suppression/concealment; bad faith; deceit; and negligent screening, hiring, training, and supervision. She sought to recover compensatory and punitive damages and requested a trial by jury on her claims.

First, Woods alleged that her mother’s coverage, although originally issued as part of an ERISA plan, was converted to an individual or personal plan upon her mother’s retirement and that her mother’s continuation policy was not subject to ERISA. The court found this argument without merit and turned to the issue of preemption.

The court held that Woods’s claims for fraud, suppression/concealment, and deceit all related to the existence and amount of her mother’s life insurance coverage under an ERISA plan, as did Woods’s rights as a beneficiary of the plan. Her claims were based on the

terminate a plan necessarily implies the power to pay out the benefit in a lump sum upon termination.”

More fundamentally, the court concluded that “tax losses do not fall within the relief available to redress a violation of ERISA.” Courts have uniformly so concluded, the court noted. Moreover, the Eleventh Circuit has held that “extra-contractual” damages are not available under ERISA. The court agreed that “an adverse tax impact is not a basis for an ERISA remedy under Section 502(a)(1)(B).” core allegations that American United misrepresented that no insurance benefit was payable because her mother had not continued her coverage under the group policy, concealed the existence of documents showing that her mother had increased her coverage and had continued the coverage after retirement, and misrepresented the amount of her mother’s continuation coverage.

The court held that the misrepresentations and omissions alleged in the complaint related directly to the ERISA plan. Because the fraud, suppression/concealment, and deceit claims all related to the plan, and because Woods conceded that her other state law claims were preempted if ERISA applied, all of her claims were preempted and dismissed. The court allowed Woods two weeks to amend her complaint to plead claims under ERISA. ERISA & LIFE INSURANCE NEWS

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North Carolina Joins Other States in Requiring Life Insurers to Use Death Master File The North Carolina General Assembly ratified Senate Bill 665 in August 2015, clarifying the circumstances under which life insurers must compare their records against the death master file maintained by the Social Security Administration (or some other database that is substantially as inclusive). The legislation, entitled “Unclaimed Life Insurance Benefits Act,” became effective October 1, 2015.

The Act requires insurers authorized to transact life insurance business in North Carolina to perform a comparison of inforce policies, annuities, and account owners against the death master file, on a semi-annual basis, to identify potential death master file matches. N.C.G.S. § 58-58-390(a). This general requirement is subject to certain exceptions.

First, to the extent an insurer’s records are not available electronically, an insurer is only obligated to use “the records most easily accessible by the insurer” when performing its search. N.C.G.S. § 58-58-390(a). This exception provides some relief to those insurers who have decades-old policy information recorded on index cards or paper.

Second, an insurer has no obligation to compare its records to the death master file for those policies or annuities for which the insurer has received 10

ERISA & LIFE INSURANCE NEWS

an active premium payment within 18 months before the comparison.

N.C.G.S. § 58-58-390(b)(1).

Third, an insurer does not have to make a comparison for policies, annuities, or retained asset accounts issued or delivered before October 1, 2015, if the insurer attests in a sworn statement that it (i) has not engaged in asymmetric conduct; (ii) has complied historically with North Carolina’s claims settlement practice requirements; and (iii) has monitored the limiting age of insureds and turned over unclaimed property to the state when insureds reach the limiting age. N.C.G.S. § 58-58-390(b)(2).

“

Fourth, the legislation expressly provides that certain policies are exempt from the comparison. Group life insurance policies for which the insurer does not perform record-keeping services, policies governed by ERISA, federal employee benefit programs, and policies or certificates of credit life insurance are exempt. N.C.G.S. §§ 58-58-390(10) & 58-58-390(b)(3).

Within 90 days of learning of the possible death of an insured or annuity owner, an insurer must make efforts to determine whether benefits are due and to locate beneficiaries. N.C.G.S. § 58-58-390(e).

A pattern of Asymmetric conduct failure to meet the is defined as “an [n]othing [herein] shall requirements of the insurer’s selective use be construed to create Act may constitute of information from an unfair claims the death master file or imply a private settlement practice. ... to identify whether cause of action.

N.C.G.S. § 58-58-400. certain persons The Act provides, are deceased, in order to terminate benefits, but not to however, that “[n]othing [herein] shall determine whether insureds under the be construed to create or imply a private insurer’s insurance policies in a non-active cause of action.” N.C.G.S. § 58-58-400. premium paying status are deceased for These provisions leave open the question the purpose of paying benefits.” Thus, an of whether anyone other than the North insurer cannot avail itself to this exception Carolina Insurance Commissioner has if it has been using the death master standing to sue an insurer for an unfair file only for the purpose of terminating claims settlement practice based on a violation of the Act. annuities or other benefits.

”

Marriott Defeats Claim for Retirement Benefits, Based on Statute of Limitations Bond v. Marriott Int’l | 2016 WL 360801 (4th Cir. Jan. 29, 2016)

The Fourth Circuit has ruled that Marriott is not obligated to afford statutory protections to employees covered by its stock incentive plan, despite urging by the Labor Department.

In finding the lawsuit against Marriott to be untimely, the court avoided the issue that drew the U.S. Department of Labor’s (“DOL”) attention—namely, what types of employees can participate in “top-hat” plans, which are exempt from the funding and vesting requirements of ERISA. In an unpublished opinion, the Fourth Circuit declined to decide whether the Marriott plan qualified for the top-hat exemption, finding instead that the workers suing the company filed their lawsuit too late.

In so ruling, the court rejected a district court decision finding that the lawsuit was timely filed because Marriott had not

issued a “formal denial” of the workers’ claims until after they filed suit. The Fourth Circuit explained that the “formal denial” standard for determining when to file suit does not work in situations where there was never a formal claim denial. In those cases, the court said, the statute of limitations begins to run when there has been a “clear repudiation” of the workers’ benefits.

The court explained: “The ‘clear repudiation’ rule serves the goals of statutes of limitations, to ‘promote justice by preventing surprises through the revival of claims that have been allowed to slumber until evidence has been lost, memories have faded, and witnesses have disappeared,’ and to encourage ‘rapid resolution of disputes.’

These goals ‘are served when the accrual date anchors the limitations period to

a plaintiff’s reasonable discovery of actionable harm.’”

Applying the rule, the court concluded that the employees’ claims were untimely and were filed more than 30 years too late. To begin, a 1978 prospectus―in a section entitled “ERISA”― stated that the retirement plan did not need to comply with ERISA’s vesting requirements. The prospectus explained that “inasmuch as the Plan is unfunded and is maintained by the Company primarily for the purpose of providing deferred compensation for a selected group of management or highly compensated employees,” the plan was a top-hat plan “exempt from the participation and vesting, funding and fiduciary responsibility provisions” of ERISA. This language informed plan participants that the retirement awards were not subject to ERISA’s vesting requirements, the very claim made by the employees.

This language was included in prospectuses distributed in 1980, 1986, and 1991.

ERISA & LIFE INSURANCE NEWS

EDITORS

SANDERS CARTER

K E N T C O P PA G E

A N D R E A C ATA L A N D

OTHER CONTRIBUTORS TO THIS ISSUE

MANNING CONNORS

DOROTHY CORNWELL

MARY RAMSAY

JENNIFER RATHMAN

PETER RUTLEDGE

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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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