ERISA and Life Insurance News

Summer

ERISA

2018 & Life Insurance News

Covering ERISA and Life, Health and Disability Insurance Litigation

2 Fifth Circuit Reverses After a Quarter Century as a “ L o n e ly V o i c e i n t h e W i l d e r n e s s ,�

Its Pierre Decision 4 Insurer Reasonably Applied Suicide Exclusion to Self-Inflicted Death, Whether Insured Was Sane or Insane

5 Motion to Rescind Life Insurance Policy Fails for Lack of Clear and Convincing Evidence of Intent to Defraud 6 ERISA Plan Entitled to Recover Overpaid Pension Benefits Resulting from Erroneous Calculations by Plan Fiduciary 7 Fiduciary Not Required to Consider Evidence and Arguments First Made on Appeal 8 Application of Pre-Existing Condition Exclusion to Disability Claim Ruled Arbitrary and Capricious 9 Contractual Time Limitation Unenforceable, Due to Failure to Inform Participant of Limitation in Denial Letter 9 Absent Valid Assignment, Out-of-Network Provider Lacks Standing to Maintain Action for ERISA Benefits 10 Eleventh Circuit Suggests Substantial Compliance Is Not Sufficient for ERISA Beneficiary Designation

After a Quarter Century as a “ L o n e ly V o i c e i n t h e W i l d e r n e s s ,”

Fifth Circuit Reverses Its Pierre Decision

In 1986, James Pierre was shot to death by his lover, Antoinette Collins, who claimed self-defense. According to a New Orleans police detective, Ms. Collins said she and Pierre had argued at a New Orleans bar, and after leaving the bar, Pierre had stopped the car and beat her with a pistol. Ms. Collins told the detective she then took her own pistol from her purse and shot Pierre twice, killing him. The police credited her story, which was supported by photos showing bruises and lacerations, and declined to prosecute.

Pierre’s wife submitted a claim for accidental death insurance benefits under an ERISA plan funded by group insurance policies issued to Pierre’s employer. Connecticut General Life Insurance Company, which issued the policies, denied the claim, concluding that Pierre’s death was not “accidental” within the terms of the policies, because he was the aggressor and his actions precipitated the shooting and his death.

Pierre’s wife sued. At that time, when considering the denial of a claim for ERISA plan benefits, federal courts generally applied the arbitrary and capricious standard of review developed under the Labor Management Relations Act, 29 U.S.C. § 186(c). Thus,

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under the abuse of discretion standard, the federal district court in New Orleans upheld the claim decision, determining that the plan administrator had properly considered hearsay evidence.

Judgment for Connecticut General was upheld on appeal. 866 F.2d 141 (5th Cir. 1989).

The Bruch Decision Shortly afterwards, the Supreme Court decided Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989). The Court rejected the analogy to the LMRA, and noted that under trust law the decision of a trustee is accorded deferential treatment only when the trust instrument grants discretion to the trustee. The Court thus concluded that the benefit decision of an ERISA plan fiduciary is entitled to deference only when the plan grants deference to the fiduciary to interpret plan terms.

The plan sponsored by Pierre’s employer did not grant discretionary authority to the administrator, as was generally true of ERISA plans at the time.

Based on Firestone, the Fifth Circuit vacated its opinion and remanded the case. On rehearing, the district court excluded

the hearsay evidence, rejected the ERISA administrator’s decision, and entered judgment for Pierre’s wife. On appeal, the Fifth Circuit reversed, adopting a rule that was not accepted by any other circuit court of appeals during the next 26 years.

The issue before the Fifth Circuit in Pierre was whether, in the absence of a grant of discretion, the Supreme Court’s decision in Firestone required de novo review of factual determinations by ERISA fiduciaries, or whether the holding in Firestone was limited to benefit denials based on the interpretation of plan terms.

The Fifth Circuit’s opinion was heavily influenced by the fact that the Firestone decision turned on an issue of plan interpretation, not on the resolution of a factual dispute, and on this statement by the Supreme Court: “The discussion which follows is limited to the appropriate standard of review in § 1132(a)(1)(B) actions challenging denials of benefits based on plan term interpretations.” 489 US. at 108 (emphasis by the Fifth Circuit).

Relying on trust law principles, the Fifth Circuit adopted the following rule in Pierre: [W]e hold that for factual determinations under ERISA plans, the abuse of discretion standard of review is the appropriate standard; that is, federal courts owe due deference to an administrator’s factual conclusions that reflect a reasonable and impartial judgment.

932 F.2d at 1562. Thus – until this year – courts in the Fifth Circuit granted deference to a plan fiduciary’s factual determinations, regardless of whether the plan documents contained a grant of discretionary authority.

Ot h e r C o u r t s D i s a g r e e When Pierre was decided, only one other federal appellate court had read Firestone as setting a default de novo standard of review for both legal and factual determinations. Reinking v.

Phila. Am. Life Ins. Co., 910 F.2d 1210, 1213-14 (4th Cir. 1990), overruled on other grounds by Quesinberry v. Life Ins. Co. of N. Am., 987 F.2d 1017 (4th Cir. 1993).

Since then, seven other courts of appeals have decided the issue, each of them holding that the standard of review does not depend on whether a claim denial was based on legal or factual grounds. Luby v. Teamsters Health, Welfare & Pension Trust Funds, 944 F.2d 1176, 1183-84 (3d Cir. 1991); Ramsey v. Hercules, Inc., 77 F.3d 199, 203-05 (7th Cir. 1996); Rowan v. Unum Life Ins. Co. of Am., 119 F.3d 433, 435-36 (6th Cir. 1997); Walker v. Am. Home Shield Long Term Disability Plan, 180 F.3d 1065, 1070 (9th Cir. 1999); Kinstler v. First Reliance Standard Life Ins. Co., 181 F.3d 243, 250-51 (2d Cir. 1999); Riedl v. Gen. Am. Life Ins. Co., 248 F.3d 753, 756 (8th Cir. 2001 ); Shaw v. Conn. Gen. Life Ins. Co., 353 F.3d 1276, 1285 (11th Cir. 2003).

T h e F i ft h C i r c u i t C h a n g e s C o u r s e In March 2018, in an 8-4 en banc decision, a sharply divided Fifth Circuit overruled Pierre, joining other circuit courts of appeals in holding that, in the absence of a grant of discretionary authority, “Firestone’s default de novo standard applies when the denial is based on a factual determination.” Ariana M. v. Humana

Health Plan of Tex., Inc., 884 F.3d 246 (5th Cir. 2018).

The issue in Ariana was whether a treatment described as “partial hospitalization” was medically necessary to treat the eating disorder of the minor dependent of an ERISA plan participant. The plan granted Humana “full and exclusive discretionary authority to: [i]nterpret plan provisions; [m]ake decisions regarding eligibility for coverage and benefits; and [r]esolve factual questions relating to coverage and benefits.”

Humana paid some “partial hospitalization” benefits, but eventually determined that such treatment no longer was medically necessary. The plan participant sued, arguing that the plan’s grant of discretion was unenforceable, because a Texas statute prohibits discretionary clauses. Tex. Ins. Code § 1701.062(a). Humana agreed not to rely on the plan’s grant of discretion, instead invoking the abuse of discretion standard of review applied under Pierre to factual determination, even when a plan does not grant discretion to the administrator.

The district court applied Pierre and concluded that Humana did not abuse its discretion when it determined that continued “partial hospitalization” was medically unnecessary. A panel of the Fifth Circuit affirmed. 854 F.3d 753, 762 (5th Cir. 2017). But the panel joined a concurring opinion questioning the continued validity of Pierre. Ariana requested full court reconsideration of Pierre, which was granted.

The resulting opinion dealt with multiple ERISA issues, the most significant of which was whether the Fifth Circuit should continue to apply the rule of Pierre, since its reasoning had been rejected by every other circuit court of appeals that had considered the issue. The majority stated: Being on the lonely side of the lopsided split means that ERISA denials involving nondiscretionary plans are reviewed with more deference in Texas, Louisiana, and Mississippi than they are in the rest of the country. It even means that employees working for the same company with the same health or retirement plan may suffer different fates in court depending on the circuit where they reside. Although sometimes there is virtue in being a lonely voice in the wilderness, in this instance we conclude that one really is the loneliest number. See Three Dog Night, One, on THREE DOG NIGHT (Dunhill 1969).

884 F.3d at 256.

The majority then concluded that the Pierre court had misread the Supreme Court’s Firestone decision: Firestone holds that “a denial of benefits challenged under § 1132(a)(1)(B) is to be reviewed under a de novo standard unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan.” The first part of this pronouncement – “a denial of benefits” – does not distinguish denials that rest on contractual interpretation from those based on a factual assessment of eligibility; any denial is “to be reviewed under a de novo standard.”

Id. at 251 (internal cits. omitted). The majority added: This suggests Firestone was articulating a general default standard of review for Section 1132(a)(1)(B) actions – the

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provision that allows judicial review of benefit denials – rather than making the fine distinction Pierre saw between the review of factual determinations and legal interpretations.

Id. at 252.

The majority viewed two post-Pierre Supreme Court decisions as supporting its conclusion, citing Metropolitan Life Ins. Co. v. Glenn, 554 U.S. 105, 111 (2008) (“the language broadly speaks of ‘a denial of plan benefits’ without differentiating based on the nature of the denial”), and Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355, 386 (2002) (“the reference is to ‘benefit determinations’ with no distinction for legal or factual rulings”).

The majority reversed Pierre and remanded the case to the district court to consider under the de novo standard of review whether Ariana’s continued “partial hospitalization” treatment was medically necessary. “A different standard of review will sometimes lead to a different outcome,” the court said, “but there will also be many cases in which the result would be the same with deference or without it. We give no opinion on which is the case here, but leave application of the de novo standard to the able district court in the first instance.” Id. at 257.

The Dissenting Opinions In three separate dissents, six judges disagreed with the majority, emphasizing that principles of trust law apply to ERISA. The author of the first dissent was Senior Judge E. Grady Jolly, who wrote the Pierre decision in 1991. “A holistic reading of Firestone makes clear that its de novo standard of review applies only to legal questions,” he said. “[B]ased on the procedural history [of Firestone], the proper context, the oral argument, and the specific language of the opinion, it should be clear to all but the obstinate that the Firestone Court did not intend that de novo review would apply to factual questions that went before plan administrators.” Id. at 259.

Judge Jolly and five other dissenters found support for their position in Glenn and in Conkright v. Frommert, 559 U.S. 506 (2010), relying on traditional principles of trust law: [T]he majority’s view brushes aside the admonition of Glenn that Firestone cannot be read to endorse “near universal review” of all plan denials brought to our district courts. Other circuits may have interpreted Firestone in their own way fifteen to twenty years ago, but today, it should be understood that, in the list of more recent Supreme Court cases, Firestone did not change ERISA’s application of trust law.

Id. at 261. They concluded: [T]he misguided majority upsets twenty-six years of precedent in overruling Pierre, and for no compelling reason. In doing so, it ignores the practicality of administrative and trust law, misreads Firestone, and is swept up by outdated cases from other circuits.

Id. at 264.

Conclusion Despite the closeness of the decision, the majority ruling in Ariana has ended the Fifth Circuit’s position, unique among the circuit courts of appeals, that factual determinations by ERISA fiduciaries are entitled to deference, notwithstanding the absence of language of discretion. It apparently also ends for practical purposes the possibility of Supreme Court review of that issue.

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Insurer Reasonably Applied Suicide Exclusion to SelfInflicted Death, Whether Insured Was Sane or Insane Collins v. Unum Life Ins. Co. of Am., 700 F. App’x 205 (4th Cir. 2017)

After serving tours as a Navy SEAL, Collins was diagnosed with post-traumatic stress disorder, major depressive disorder, generalized anxiety disorder, and a progressive neurodegenerative disease caused by repetitive brain trauma. Collins was found dead in the driver’s seat of his car with a gunshot wound to his head. The death was ruled a suicide.

Collins’ wife submitted a claim for death benefits under basic and supplemental life insurance policies issued to her husband’s employer as part of an ERISA plan. Unum paid the death benefit under the basic policy, but denied the supplemental benefit based on that policy’s suicide exclusion.

Ms. Collins sued, contending that the suicide exclusion was unenforceable because it violated a Virginia statute prohibiting insurers from using suicide as a defense unless the policy included “[a]n express provision … limiting the liability of the insurer to an insured who, whether sane or insane, dies by his own act within two years from the date of the policy.”

Ms. Collins argued that the absence of the phrase “whether sane or insane” in Unum’s suicide exclusion nullified the exclusion. She contended that, because the exclusion did not include a clause specifying that suicide could be “sane or insane,” it did not apply to suicides committed by insane persons.

The Fourth Circuit applied the arbitrary and capricious standard of review and held that because Unum reasonably interpreted the suicide exclusion to encompass insane suicide, Collins’ sanity at death had no bearing on the outcome. “Because people could reasonably understand the term ‘suicide’ to include any non-accidental, selfinflicted death regardless of mental state, we defer to Unum’s interpretation,” the court said.

Motion to Rescind Life Insurance Policy Fails for Lack of Clear and Convincing Evidence of Intent to Defraud Ball v. USAA Life Ins. Co. | 2017 WL 4119659 (D.S.C. Sept. 18, 2017)

When Ball applied for life insurance, he spoke with a USAA representative by telephone and completed a medical questionnaire. Ball disclosed some of his medical history, told USAA where his medical records were located and signed an authorization for USAA to obtain the records.

However, he failed to disclose treatment for depression, PTSD, sleep apnea, memory problems/headaches, and traumatic brain injury in response to a question asking if he had “consulted a health care professional for any reason not previously disclosed.”

USAA did not obtain Ball’s medical records or conduct any additional investigation. Ball’s application was approved, and he was issued two life insurance policies. Ball was killed in a hit-and-run auto accident during the two-year contestable period of the policies. When USAA denied the claim for death benefits, Ball’s wife and beneficiary sued for breach of contract and insurance bad faith.

The parties filed cross-motions for summary judgment.

In an order covering multiple insurance issues, the district court denied the motions, except to grant summary judgment to USAA on Ms. Ball’s bad faith claim.

USAA argued it was entitled to rescind the policies based on Ball’s intentional failure to disclose his treatment for depression and PTSD. In South Carolina, an insurance policy may be rescinded if the insurer shows by clear and convincing evidence that a statement in the application was false, the falsity was known to the applicant, the statement was material to the risk, the statement was made with the intent to defraud the insurer, and the insurer relied on the statement when issuing the policy.

On the question of materiality, USAA’s underwriter showed that Ball would not have been offered coverage at a “preferred ultra” premium rate if the company had known of his treatment for depression. The court found an issue of material fact, however, based on the testimony of Ms. Ball’s expert, who said, based on

his experience in the life insurance industry, that “the industry would have look[ed] at [Ball’s] complete underwriting file and issued the [preferred ultra] rating to him.”

On the question of Ball’s intent to defraud, the court said there was “plenty of evidence that Ball intended to deceive USAA when he failed to disclose his treatment for depression and PTSD.” Nevertheless, the court found there was “at least some evidence that Ball did not intend to deceive USAA,” because during the telephone interview he told USAA’s representative where his medical records could be found.

The court acknowledged that “[b]ecause it seems that Ball must have known his answer was false, it is difficult to imagine why Ball would have given a false answer if he did not possess an intent to deceive.”

Nevertheless, the court said, “USAA’s argument is stronger – but it still does not meet the ‘clear and convincing’ evidence standard necessary to rescind a policy.”

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ERISA Plan Entitled to Recover Overpaid Pension Benefits Resulting from Erroneous Calculations by Plan Fiduciary Retirement Committee of DAK Americas LLC v. Brewer | 867 F.3d 471 (4th Cir. 2017)

In July 2013, DAK amended its ERISA retirement plan by adding a new benefit for certain participants who were separating from service due to the closure of DAK’s Cape Fear, North Carolina, plant.

The amendment stated that such participants could elect to receive an immediate lump sum distribution, which would be “Actuarially Equivalent to the Cape Fear Participant’s Accrued Benefit.”

The plan defined “Accrued Benefit” as the “portion, at any given date, of a Participant’s Normal Retirement Benefit that has accrued at such date.”

The plan defined “Normal Retirement Benefit” as “[t]he benefit payable at the Normal Retirement Date,” which was “[t]he first day of the month coinciding with or next following a Participant’s Normal Retirement Age.” On September 30, 2013, the DAK Retirement Committee sent a letter to eligible plan participants, informing them of the lump sum benefit option and the existing Early Retirement

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and Normal Retirement annuities.

The lump sum as stated in the letter was calculated incorrectly – the calculation was based on the actuarial equivalent at the Early Retirement Date for plan participants, instead of the Normal Retirement Date.

Acting on the letter, some plan participants elected to receive the lump sum in lieu of either the Early Retirement or Normal Retirement annuities, resulting in an overpayment of pension benefits.

A month and a half after receiving the incorrect lump sum, the plan participants were notified of the error.

By letter dated December 5, the Committee sent the plan participants a revised election package and informed them of negative tax consequences if the overpayments were not returned. In a December 16 letter, the plan participants were informed again of their individual corrected lump sums and were given a second election opportunity.

The plan participants did not return the overpaid funds or make an alternate election. The Committee filed suit, seeking a return the overpaid pension benefits. The plan participants asserted counterclaims for breach of fiduciary duty and fraud, seeking surcharge as a remedy.

The district court awarded summary judgment to the Committee, concluding there was an overpayment of funds which must be returned to the plan. The plan participants’ crossmotions for summary judgment were denied, and they appealed.

The pertinent issues on appeal were (1) whether the disputed funds belonged in good conscious to the plan; (2) whether the doctrine of equitable estoppel could be used to estop the Committee from recouping the overpaid funds; and (3) whether the plan participants were entitled to the remedy of surcharge.

To establish a right to equitable restitution under ERISA, the

Committee was required to show that it sought to recover property that (1) was specifically identifiable, (2) belonged in good conscience to the plan, and (3) was within the possession and control of a defendant. The plain language of an ERISA plan must be enforced in accordance with its literal and natural meaning. The doctrine of equitable estoppel cannot be used to require the payment of benefits that conflict with the express, written terms of the plan. To obtain relief by surcharge, a plan participant must show actual harm as a result of the violation.

With these rules in mind, the Fourth Circuit held that the disputed funds belonged in good conscience to the plan because the plain language of the plan and the amendment required the optional lump sum to be based on normal retirement annuity and not early retirement annuity. Thus, the excess money the participants received belonged to the plan.

The court further held, based on the plain language of the plan, that equitable estoppel was not applicable. Lastly, the court held that, except for one defendant, the participants were not entitled to a surcharge because they asserted only speculative and undefined claims of loss. Further, they claimed they were subjected to unwarranted income and excise taxes because of overpayments, but the Committee had sent them letters warning of these consequences before they occurred. The court reasoned that plan participants could not show actual harm based on their own informed choices.

The court did, however, find that one participant had a viable claim for surcharge, because he presented evidence that he relied on the erroneous lump sum calculation when he declined a job offer. The judgment against this participant was vacated and remanded only for the surcharge claim.

Fiduciary Not Required to Consider Evidence and Arguments First Made on Appeal Hooper v. United Healthcare Ins. Co. | 2017 U.S. App. Lexis 10482 (4th Cir. June 13, 2017)

Hooper sought additional medical benefits for steroid knee injections administered to his spouse. Hooper was employed by Michelin North America, which sponsored an ERISA medical and prescription drug plan for employees and their dependents. A summary plan description functioned as both the plan document and the SPD. United Healthcare provided claims processing services. It made the initial benefits determination and handled first-level appeals, but second-level appeals were decided by the Michelin Appeals Board.

The plan required a $65 copayment per office visit for certain specialists. Expenses for outpatient surgeries were paid at 80% of eligible expenses. Hooper’s wife received a series of steroid injections by an orthopedic surgeon, who used Current Procedural Terminology (“CPT”) codes for billing purposes.

Based on the CPT codes, Hooper was responsible for the $65 copayment for the office visit, and UHC paid 80% of the charges associated with the steroid injections.

In October 2010, Hooper filed a first-level appeal, contending that the plan should have paid more than 80% of the charges for the injections, but he provided no further information, despite a request from UHC. UHC upheld its initial decision.

In November 2010, Hooper filed a second-level appeal to the Appeals Board, again stating only that the patient’s responsibility for payment was incorrect.

The Appeals Board contacted Hooper for additional information, but none was provided. Hooper did not attend the Appeals Board meeting in person, by representative, or by telephone, and the Appeals Board denied his appeal.

Having exhausted his administrative remedies, Hooper filed a putative class action, alleging that the Appeals Board

abused its discretion in three ways.

The district court granted summary judgment to the defendants, and this appeal followed.

Hooper first argued that Michelin abused its discretion by relying on the CPT codebook. The court found that while the CPT codebook was not expressly incorporated into the terms of the plan, nothing in the plan precluded Michelin, in the exercise of its discretion, from relying on the codebook, a well-established industry standard for procedure classification and medical billing.

Moreover, Hooper did not make this argument during the administrative process.

Hooper next argued that Michelin’s determination was unreasonable, because it failed to take into account information about injections that appeared on a summary webpage.

However, the SPD did not incorporate the terms of the website into the plan, and despite repeated requests for additional information, Hooper never submitted information from the website in either appeal. The court found the website references were not so clear and unambiguous as to render Michelin’s reliance on the CPT codes, rather than the summary website, unreasonable or unprincipled.

Finally, Hooper argued that the district court erred when it refused to consider two additional items of information that he never submitted during the administrative appeals process. The first was a 2009 claim decision, finding similar steroid injections reimbursable at 100%.

This determination was made solely

by UHC without any involvement by Michelin. Michelin, which had sole discretionary authority to interpret the plan, did not consider or make any decision in connection with the 2009 claim. Therefore, the court of appeals found the district court did not err in its refusal to consider this

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piece of information.

Hooper also presented an affidavit prepared by the doctor who performed the steroid injections, opining that the injections, despite being in the CPT codebook section for musculoskeletal procedures, should not have been considered as a musculoskeletal procedure.

The court held the district court’s refusal to consider this

affidavit was not in error. Both UHC and Michelin repeatedly requested that Hooper submit any information that might support his appeals, but Hooper did not submit the affidavit.

Therefore, Michelin could not have known the doctor had a different opinion. Moreover, even if Michelin had known of the affidavit, a refusal to rely simply on the doctor’s opinion

would not necessarily be unreasonable or unprincipled.

Therefore, the court of appeals found no abuse of discretion in Michelin’s decision not to provide additional benefits for the steroid injections, and no error in the district court’s refusal to consider information Hooper failed to present during his administrative appeals.

Application of Pre-Existing Condition Exclusion to Disability Claim Ruled Arbitrary and Capricious Bradshaw v. Reliance Standard Life Ins. Co. | 707 F. App’x 599 (11th Cir. 2017)

Bradshaw, a participant in an ERISA disability plan, suffered a stroke within the pre-existing condition period. Prior to the stroke and before her coverage began, Bradshaw was pregnant and ultimately had a successful delivery, although she experienced some “mild preeclampsia” during the pregnancy.

A week after delivery, she suffered a significant stroke.

The plan excluded benefits for a disability “(1) caused by; (2) contributed to by; or (3) resulting from a Pre-existing Condition,” which included a “sickness” for which medical treatment had been received during the three months before the effective date of coverage. “Sickness” was defined to include pregnancy.

In the medical discharge notes concerning the stroke and subsequent surgery, hypertension was identified as “contributory” to the stroke, and it was further noted that “[t]here was likely some residual deficit from her preeclamptic childbirth.”

While hypertension and preeclampsia were not evidenced during the preexisting look back period, an independent medical consultant opined that the pregnancy and stroke were at least related, since “pregnancy is required for preeclampsia to develop, and certainly preeclampsia contributed to if not caused her neurovascular accident.” Reliance concluded that Bradshaw’s pregnancy had “contributed to” the stroke, and

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therefore denied her claim based on the pre-existing condition exclusion.

Although the district court ruled in favor of Reliance in the ensuing lawsuit, the Eleventh Circuit reversed. Relying on earlier case law, the court construed the language of the pre-existing condition exclusion to require that the condition “substantially contributed” to the disability. This construction, the court wrote, “gives this exclusionary language reasonable content without unreasonably limiting coverage.”

Moreover, it advances “ERISA’s purpose

to promote the interests of employees and their beneficiaries.”

While the pregnancy may have been a “but for” cause of the stroke, it was the first in a chain that required four links, from pregnancy to hypertension to preeclampsia to stroke. That was too many, the court reasoned. Because it could not “fairly be said that Bradshaw’s healthy pregnancy substantially contributed to her disability,” the court concluded, “use of the pre-existing condition exclusion to deny Bradshaw benefits was unreasonable.”

Contractual Time Limitation Unenforceable, Due to Failure to Inform Participant of Limitation in Denial Letter Starnes v. Universal Fidelity Administrators Co., Case No. 6:17-3073-HMH (D.S.C. Feb. 5, 2018)

Starnes submitted a claim for health insurance benefits under an ERISA plan. Universal denied the claim, issuing a final denial letter on November 11, 2014, following an administrative appeal. Starnes filed a lawsuit on November 13, 2017.

Universal sought judgment on the pleadings based on the expiration of a contractual one-year time limitation.

Starnes argued that Universal was barred from raising the one-year time limitation, because it failed to advise her of the right to bring a civil action, the contractual time limitation for bringing such an action, the right to obtain records, and the option of alternative dispute resolution, in violation of the Department of Labor ERISA claims regulation, 29 C.F.R. § 2560.503-1.

The district court agreed with Starnes that the failure to provide such information constituted a violation of the regulation. Moreover, the court found “unpersuasive” certain decisions upholding time limitations despite the failure to advise of the limitations in the denial letter. The court also concluded that even if the regulation did not require Universal to specifically inform Starnes of the contractual time limitation, it “was certainly required to advise her of her rights to file a civil action, which it plainly failed to do.” The court found that the “failure to inform a claimant of their right to file suit under § 502(a) is per se prejudicial to the claimant.”

The court ruled that the one-year contractual limitation period was unenforceable and denied Universal’s motion for judgment on the pleadings.

Absent Valid Assignment, Out-ofNetwork Provider Lacks Standing to Maintain Action for ERISA Benefits AvuTox, LLC v. Cigna Health and Life Ins. Co. 2017 WL 6062257 (E.D.N.C. Dec. 7, 2017)

AvuTox is a toxicology laboratory that provides urine drug testing and monitoring services. Many of the patients referred for testing are Cigna insureds, but AvuTox is not an in-network provider with Cigna.

AvuTox requires each Cigna-insured patient to sign a form which states: I acknowledge that AvuTox may be an out of network facility with my insurance provider. I authorize any holder of medical information about me to release to the insurance company … any information needed to determine … benefits payable …. This assignment will remain in effect until revoked by me in writing.

In 2015, Cigna questioned AvuTox’s billing practices and the medical necessity of services provided, and it demanded repayment of more than $2.7 million in benefit payments it said were erroneous. AvuTox filed suit under ERISA, alleging that Cigna improperly withheld more than $2.4 million in payments for services provided to Cigna insureds.

AvuTox sought to recover benefits alleged to be due. It also alleged that Cigna failed to comply with federal claims regulations and failed to provide plan documents, as required by ERISA. Additionally, AvuTox alleged state law claims under North Carolina law.

Cigna moved to dismiss the complaint, asserting that AvuTox lacked standing to bring ERISA claims. Although AvuTox was not a plan participant or beneficiary, it contended it had derivative standing to maintain the action as an assignee of plan benefits.

The court granted the motion to dismiss, holding that the claim of derivative standing failed on two bases.

First, the court said, although AvuTox alleged generally, upon information and belief, that many of the Cigna plans at issue were governed by ERISA, it “failed to identify one plan which is, in fact, governed by ERISA.” Thus, AvuTox failed to show that it had received an alleged assignment of benefits under an ERISA-governed plan.

Second, the purported assignment was insufficient to provide AvuTox with derivative standing to pursue claims under ERISA. “In order for an assignment under ERISA to be valid, it must be express,” the court said. “The language … relied on by plaintiff as an assignment of benefits is more properly construed as a payment authorization, and the Court agrees with those courts that have held that a payment authorization, without more, is not an assignment of benefits for purposes of ERISA.” Because AvuTox failed to allege it had received a valid assignment of benefits under ERISA, its ERISA claims were dismissed. The court declined to consider the remaining state law claims and dismissed them without prejudice.

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Eleventh Circuit Suggests Substantial Compliance Is Not Sufficient for ERISA Beneficiary Designation Metropolitan Life Ins. Co. v. Waddell | 697 F. App’x 989 (11th Cir. 2017)

MetLife determined that the death benefit under an ERISA plan was payable to the plan participant’s wife, not his son. After the son obtained a temporary restraining order preventing MetLife from paying the benefit to his step-mother, MetLife filed an interpleader action.

The issues included the scope and standard of judicial review, whether the son’s submission of change-ofbeneficiary forms after the participant’s death satisfied the terms of the policies, and whether the common law substantial compliance doctrine applies in ERISA beneficiary designation cases.

The plan participant, Waddell, was insured under two life insurance policies issued by MetLife under an ERISA plan. He designated his wife as the primary beneficiary of one policy, but did not designate a beneficiary of the second policy. MetLife had discretionary authority to make benefit determinations.

Both policies described the procedure for changing beneficiaries as follows: “You make the choice in Writing on a form approved by [MetLife]. This form must be filed with the records for this Plan.” The policies further provided: “You may change the Beneficiary at any time by filing a new form with us....

When we receive a form changing the Beneficiary, the change will take effect as of the date you Signed it. The change of Beneficiary will take effect even if you are not alive when it is received.”

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The policies further stated: “If there is no Beneficiary at your death [the death benefits] will be paid to one or more of the following persons who are related to you and who survive you: (a) Spouse; (b) child(ren); (c) parents; (d) brother and sister.”

Waddell died unexpectedly of a heart attack. MetLife received conflicting claims from Waddell’s wife and son.

MetLife determined that Waddell’s wife was the designated beneficiary of the first policy, and that she was “first in line” for the death benefit under the second policy.

The son appealed the claim decision, providing MetLife with two changeof-beneficiary forms purporting to designate him as the primary beneficiary of each policy. The forms were signed

by Waddell and dated 11 days before his death. The son argued the forms became effective upon receipt by MetLife, even if Waddell was not then alive.

MetLife upheld its claim determination, explaining: “The intent of such a provision [setting forth the procedure for changing beneficiary] is for when an insured sends or mails such a designation and while in transit their death occurs. That is not the case here and the provision you are relying upon does not apply.”

In support of his motion for summary judgment, the son filed documents not previously submitted to MetLife, including written declarations signed by him, by Waddell’s attorney, and by the

wife’s caregiver.

The son stated in his declaration that he found the signed change-ofbeneficiary forms among his father’s papers after his death. The son stated that his father’s intent to name him as the sole beneficiary could be inferred from Waddell “having obtained the necessary forms from MetLife, filled them out completely, and signed them prior to his death.”

Waddell’s attorney stated in his declaration that he had conferred with Waddell about estate planning in 2007 and 2011. He said Waddell wanted to pass his remaining assets to his son and a woman whom Waddell considered and treated as a daughter.

The wife’s caregiver stated in her declaration that Waddell told her that he was designating his son as the beneficiary of the policies. She said she watched Waddell sign the forms and walk toward the fax machine to send the forms to MetLife. She stated that a few days later, Waddell confirmed he had sent the forms to MetLife.

The son argued the competing claims should be reviewed de novo.

The district court and the Eleventh Circuit disagreed, because the policies were governed by ERISA and conferred discretionary authority on MetLife. The courts concluded that the applicable standard of judicial review was the Eleventh Circuit’s “multi-step ERISA framework,” and that only those facts known to MetLife when it made its

decision could be considered.

In interpreting the policies, the district court determined that they “required [that Waddell] intend to return the forms, even if acting through a third person.” Finding no evidence in the administrative record that Waddell intended to return the forms, the district court concluded that MetLife’s decision to deny benefits to the son was supported by substantial evidence and was not wrong. The district court posited that Waddell could have signed the forms and then changed his mind.

The son argued that MetLife could not demand strict compliance with the policy requirements for changing beneficiaries, because interpleader is an equitable remedy. The district court noted the Eleventh Circuit has not adopted the substantial compliance doctrine in the context of ERISA. Assuming, without decided the applicability of the doctrine, the district court found insufficient evidence of substantial compliance. The Eleventh Circuit affirmed.

The Eleventh Circuit noted that neither the district court nor the parties discussed whether the common law substantial compliance doctrine is viable “in ERISA beneficiary designation cases” after Kennedy v. Plan Administrator for DuPont Savings and Investment Plan, 555 U.S. 285 (2009).

There, the Supreme Court held the plan administrator properly disregarded a divorce decree purporting to divest the wife of her rights under the policy, “owing to its conflict with the designation made by the former husband in accordance with the plan documents.”

The Eleventh Circuit determined that it “need not decide” that issue, but its recitation of the Kennedy explanation for its decision suggests the substantial compliance doctrine is not viable in ERISA beneficiary designation cases in the Eleventh Circuit: “The Kennedy Court explained that ‘by giving a plan participant a clear set of instructions for making his own

instructions clear, ERISA forecloses any justification for enquiries into nice expression of intent’ because allowing any less-certain rules would force plan administrators to ‘examine a multitude of external documents that might purport to affect the dispensation of benefits, and be drawn into litigation like this over the meaning and enforceability of purported waivers.’”

One district court in the Eleventh Circuit came to that same conclusion a few months before the court decided Waddell. In Ruiz v. Publix Super Markets, Inc., 248 F. Supp. 3d 1294, 1303 (M.D. Fla. 2017), the district court concluded: “After Kennedy, it is doubtful that the doctrine of substantial compliance remains viable, given the Supreme Court’s emphasis on the duty of a plan administrator to act in accordance with the plan documents. The Supreme Court specifically stated that ERISA forecloses any justification for inquiries into expressions of intent that do not comply with the plan documents.”

E R I S A & L i f e I n s u ra n c e Ne w s

Ed i t o r s

Sa n d e r s C a r t e r

K E n t C o p pag e

A n d r e a C atala n d

Other Contributors to This Issue

Emily Bridges

Olivia Fajen ERISA & Life Insurance News

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