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ERISA and Life Insurance News Covering ERISA and Life, Health and Disability Insurance Litigation
INSIDE THIS ISSUE Fourth Circuit Applies Fiduciary Exception to Attorney-Client Privilege............................................3 Insurer May Waive Policy Provisions Regarding Change of Beneficiaries...............................5 Non-Compliance with Claim Manual Does Not Require Reversal ..........................................5 Benefits Payable to “Surviving Spouse” Separated from Insured for 20 Years.............................6 Action Allowed Against Beneficiary to Recover ERISA Plan Benefits .....................................6 Breach of Fiduciary Duty Action Dismissed Because Plaintiffs Lacked Standing to Sue...................7 Providing Incomplete Records to Reviewing Physician Was Not an Abuse of Discretion................8 STD Insurer Not Liable for Producing Records in Employment Litigation.............................9 Failure to Consider Subjective Pain Results in Award of Benefits and Fees....................................10 Substantial Value of Benefits Claim Did Not Make Conflict of Interest More Signficant................11
oCToBER 2011
Plan Participant May Be Able to Claim Benefits and Appropriate Equitable Relief under ERISA ERISA’s civil enforcement provisions set forth the exclusive causes of actions and remedies available under ERISA. Plan participants and beneficiaries may bring actions “to recover benefits due [them] under the terms of the plan, to enforce rights under the terms of the plan, or to clarify [their] rights to future benefits under the terms of the plan.” ERISA, § 502(a)(1)(B). Actions alleging breach of fiduciary duties, actions to enjoin violations of ERISA or of the plan, actions for other equitable relief for such violations, and actions for violations of ERISA’s reporting requirements, may be brought by participants, beneficiaries, fiduciaries, and the Secretary of Labor. ERISA, §§ 502 (a)(2)-(a)(5). The plaintiffs in Del Rosario v. King & Prince Seafood Corp., 2006 u.S. Dist. LEXIS 76777, *4 (S.D. Ga. mar. 7, 2006), sought “recovery of benefits they believe they are owed” under their former employer’s Employee Stock Ownership plan, relying on § 502(a)(1)(B) of ERISA. They also alleged breach of fiduciary duty under § 502(a)(3). The defendants moved to dismiss the breach of fiduciary duty claim based on well-settled Eleventh Circuit precedent holding that an ERISA claimant who seeks the kind of relief available under § 502(a)(1)(B) – “to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan” – may not also pursue a breach of fiduciary duty action under § 502(a)(3). See Katz v. Comprehensive Plan of Group Ins., 197 F.3d 1084, 108990 (11th Cir. 1999) (upholding district court’s conclusion “that an ERISA plaintiff with an adequate remedy under § [502](a)(1)(B), cannot alternatively plead and proceed under § [502] (a)(3).”). CoNTINuED oN pAGE 2>>
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Eleventh Circuit Applies Varity
Varity Corp. v. Howe
In the wake of Varity, the Eleventh Circuit consistently held that ERISA plan participants who could avail themselves of potential remedies authorized by § 502(a)(1)(B) could not additionally pursue equitable relief under § 502(a)(3). See, e.g., Ogden v. Blue Bell Creameries U.S.A., Inc., 348 F.3d 1284 (11th Cir. 2003) (§ 502(a)(3) claim not allowed); Katz, 197 F.3d at 1089 (claim under § 502(a)(3) not permitted); Harrison v. Digital Health Plan, 183 F.3d 1235, 1237 n.1 (11th Cir. 1999) (§ 502(a) (3) claim properly dismissed as “duplicative” of claim under 502(a) (1)(B)).
This precedent stemmed from the United States Supreme Court’s decision in Varity Corp. v. Howe, 516 U.S. 489 (1996). In Varity, “[a]n employer, which was also the administrator of its employees’ welfare benefit plan, combined several of the unprofitable divisions of a subsidiary corporation into a new corporate entity” and convinced a number of employees to transfer their benefits to a plan offered by the new entity, which the employer knew “was insolvent from its inception.” When the new entity went into receivership, the employees lost their non-pension benefits. A group of employees sued in federal court in an attempt to recover the benefits they could have gotten under the old plan if they had not transferred to the plan offered by the new entity. The district court, the court of appeals, and the Supreme Court agreed (a) that the employer was acting in its capacity as an ERISA fiduciary when it deliberately deceived the employees; (b) that such deception was a violation of the fiduciary obligations imposed by ERISA; and (c) that ERISA § 502(a) (3) authorized the plan participants to seek individualized relief for the harm they suffered, specifically reinstatement in the old plan. In deciding Varity, the Supreme Court characterized § 502(a)(3) as a “catchall” provision, which affords relief to plan participants for injuries caused by violations for which § 502(a) does not elsewhere provide an adequate remedy. 516 U.S. at 512. The Court further explained that when ERISA furnishes an adequate remedy, “there will likely be no need for further equitable relief, in which case such relief normally would not be ‘appropriate.’” Id. at 514. Courts subsequently reasoned that “[t]he Supreme Court clearly limited the applicability of ... § [502](a) (3) to beneficiaries who may not avail themselves of ... § [502]’s other remedies.” Wilkins v. Baptist Healthcare Sys., Inc., 150 F.3d 609, 615 (6th Cir. 1998).
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Otherwise, the courts reasoned, “ERISA claimants [could] simply characterize a denial of benefits as a breach of fiduciary duty, a result which the Supreme Court expressly rejected.” Wilkins, 150 F.3d at 615. Nor did the ultimate viability of a claim for benefits under § 502(a)(1) (B) determine whether the claimant could maintain an alternate claim under § 502(a)(3). In Ogden, 348 F.3d at 1288, for example, the court held that the plaintiffs “had no cause of action under Section 502(a)(3) because Congress provided them with an adequate remedy elsewhere in the ERISA statutory framework.” This was true even though the plaintiffs’ claim for benefits was barred by res judicata. Id. Similarly, in Hembree v. Provident Life & Acc. Ins. Co., 127 F. Supp. 2d 1265, 1273 (N.D. Ga. 2000), the plaintiff could not pursue a claim for breach of fiduciary duty because he had an adequate remedy under § 502(a)(1)(B), even though that claim was barred by the contractual limitations period. Clarification in Jones v. American General The Eleventh Circuit subsequently clarified that a district court should consider “whether the allegations supporting the Section 502(a)(3) claim were also sufficient to state a cause of action under Section 502(a)(1)(B), regardless of the relief sought and irrespective of the [claimant’s] allegations supporting [his] other claims.” Jones v. American Gen. Life & Acc. Ins. Co.,
370 F.3d 1065, 1073-74 (11th Cir. 2004) (district court should not have dismissed § 502(a)(3) claim “because participants in an ERISA-governed plan that rely to their detriment on a fiduciary’s misrepresentations of the plan’s terms may state a claim for
‘appropriate equitable relief’ if they have no adequate remedy elsewhere in ERISA’s statutory framework”). In other words, “the proper question is not whether a plaintiff could be awarded benefits under § [502](a)(1) (B) for a violation of § [502](a)(3), but rather whether the facts alleged under § [502](a)(3) also support a claim under § [502](a)(1)(B).” Nolte v. BellSouth Corp., 2007 WL 120842, *5 (N.D. Ga. Jan. 11, 2007) (citing Jones). Based on the holding in Jones, the district court in Del Rosario held that “if the allegations of misconduct are sufficient to state a claim for benefits under § 502(a)(1)(B), and Defendants concede that they are, then [plaintiff is] precluded from asserting these same allegations of misconduct through a breach of fiduciary duty claim under § 502(a)(3).” 2006 U.S. Dist. LEXIS 76777, *32 (S.D. Ga. Mar. 7, 2006). The district court certified a class action with respect to the § 502(a)(1) (B) claims for benefits, but ultimately those claims were unsuccessful. The plaintiffs appealed to the Eleventh Circuit. CIGNA Corp. v. Amara In the meantime, the Supreme Court decided CIGNA Corp. v. Amara, 131 S. Ct. 1866 (May 16, 2011). In Amara,
the employer’s pension plan provided a retiring employee with an annuity based on preretirement salary and length of service, but the employer changed the plan and replaced that annuity with a cash balance based on a defined annual contribution from the employer, increased by compound interest. The district court held that the employer’s disclosures to its employees regarding changes to the plan violated its fiduciary obligations, and ordered two-step relief under ERISA § 502(a)(1)(B) – first, that the plan be reformed, and second, that the plan be enforced as reformed. The Second Circuit summarily affirmed “the judgment of the district court for substantially the reasons stated” by the district court. 131 S.Ct. at 1876. The Supreme Court held, however, that § 502(a)(1)(B) did not provide the district court with authority to reform the plan at issue in Amara. The section that does provide that authority, according to the Court, is § 502(a)(3). Apparently, the district court did not think that section was available as a vehicle for the remedy it considered appropriate based on its conclusion that certain opinions
from the Court had “narrowed the application of the term ‘appropriate equitable relief.’” Id. at 1878. The Court found that concern “misplaced,” and explained in detail why all the relief provided by the district court in Amara was actually equitable or “resembles forms of traditional equitable relief”: (a) “affirmative and negative injunctions obviously fall within this category” of equitable relief; (b) reformation of the plan terms is consistent with “[t]he power to reform contracts (as contrasted with the power to enforce contracts as written) [which] is a traditional power of an equity court, not a court of law, and was used to prevent fraud;” (c) holding the employer to what it had promised resembled the traditional equitable remedy of estoppel; and (d) injunctions requiring money payments under the plan resembled the “exclusively equitable” “monetary remedy against a trustee, sometimes called a ‘surcharge,’” which is imposed for violating fiduciary duties. Id. at 1878-80.
The Supreme Court concluded: We have premised our discussion ... on the need for the District Court to revisit its determination of an appropriate remedy for the violations of ERISA it identified. Whether or not the general principles we have discussed above are properly applicable in this case is for it or the Court of Appeals to determine in the first instance. Because the District Court has not determined if an appropriate remedy may be imposed under § 502(a)(3), we must vacate the judgment below and remand this case for further proceedings consistent with this opinion. Id. at 1882. The Eleventh Circuit considered Del Rosario a little over a month after the Amara case was decided. 2011 U.S. App. LEXIS 13204 (11th Cir. June 28, 2011). The court affirmed the district court’s rejection of the plaintiffs’ § 502(a)(1)(B) claims, but remanded in part to the district court “for reconsideration of the issue of whether a remedy exists under ERISA § 502(a)(3) ... in light of the Supreme Court’s decision in ... Amara ....”
Fourth Circuit Applies Fiduciary Exception to Attorney-Client Privilege Solis v. Food Employers Labor Relations Ass’n, 644 F.3d 221 (4th Cir. 2011) The Secretary of Labor is authorized by ERISA, 29 U.S.C. § 1134(a), to conduct an investigation to determine whether a violation of Title I of ERISA, or of regulations or orders issued thereunder, has occurred or is about to occur.
maintained by plan fiduciaries. In some cases, such subpoenas have been challenged by plan fiduciaries on the ground that the requested documents were protected from disclosure, either by the attorney-client privilege or the work product doctrine.
The Secretary is empowered to “require the submission of reports, books, and records” by ERISA plan fiduciaries, and “to inspect such books and records and question such persons as he may deem necessary to enable him to determine the facts relative to such investigation, if he has reasonable cause to believe there may exist a violation ….” Id.
In Solis, two multi-employer benefit plans were involved – a pension fund and a health fund. Both funds had invested in entities related to Bernard Madoff, who later was convicted of securities fraud, resulting in the loss of more than $10 million in ERISA plan assets.
Such an investigation may include the issuance of administrative subpoenas to ERISA plans to obtain records
The Secretary of Labor issued subpoenas duces tecum to the funds, calling for the production of documents concerning the decision by plan fiduciaries to commit fund assets to the
Madoff-related investments. The funds produced some documents, but they redacted parts of certain documents and withheld others, claiming that they were protected as attorney-client communications or work product. The Secretary filed a petition in federal court to require compliance with the subpoenas. The district court held that the fiduciary exception applied to the privileges asserted by the funds and ordered the documents produced. CONTINUED ON PAGE4>> 3
The court excluded from production, however, documents dealing with benefit disputes, individual claims for benefits, and similar matters, as well as attorney-client communications and work product documents that were dated after the subpoenas were served and that were prepared in connection with the Secretary’s investigation.
the first place.’” Citing U.S. v. Mett, 178 F.3d 1058, 1063 (9th Cir. 1999). “Under either rationale,” the Fourth Circuit wrote, “‘where an ERISA trustee seeks an attorney’s advice on a matter of plan administration and where the advice clearly does not
The funds appealed. In a case of first impression in the Fourth Circuit, the court separately analyzed the attorneyclient privilege and the work product doctrine in the context of ERISA.
Applying the fiduciary exception to the attorney-client privilege, the Fourth Circuit upheld the district court’s order, which required plan fiduciaries to produce the minutes of board of trustees meetings, handwritten notes distributed and taken during those meetings, and correspondence concerning the Madoffrelated investments.
Acknowledging that the attorneyclient privilege is “the oldest of the privileges for confidential communications known to the common law” (quoting Upjohn v. U.S., 449 U.S. 383, 389 (1981)), the Fourth Circuit recognized an exception to the privilege when it is asserted in the context of fiduciary relationships, relying on ERISA cases from the Second, Third, Fifth, Seventh, and Ninth Circuits. Comparing the role of an ERISA fiduciary to that of a trustee at common law, the court noted that its sister circuits have applied one of two related rationales to find an exception to the attorney-client privilege: ● “[S]ome courts have concluded that the ERISA fiduciary’s duty to act in the exclusive interest of beneficiaries supersedes the fiduciary’s right to assert the attorney-client privilege.” Citing, e.g., Bland v. Fiatallis N. Am. Inc., 401 F.3d 779, 787 (7th Cir. 2005), and Becher v. Long Island Lighting Co., 129 F.3d 268, 271-72 (2d Cir. 1997). ● “Other courts … have reasoned that the ERISA fiduciary, as a representative of the beneficiaries, is not the real client in obtaining advice regarding plan administration and ‘thus never enjoyed the privilege in
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The court concluded that it could “discern no principled basis on which to distinguish between enforcement actions and investigations,” noting that the Secretary has “wellestablished subpoena power in the context of investigating potential ERISA violations,” and that Congress “sought to provide the Secretary with a wide range of tools to protect the interests of beneficiaries and participants.”
The court dealt separately and briefly with the funds’ argument that the work product doctrine applied to certain documents covered by the Secretary’s subpoenas. implicate the trustee in any personal capacity, the trustee cannot invoke the attorney-client privilege against the plan beneficiaries.’” Citing Mett, 178 F.3d at 1064. The court said, however, that the fiduciary exception does not apply to communications with an attorney concerning non-fiduciary matters, such as the ERISA fiduciary’s personal defense in a breach of fiduciary duty action, or advice regarding the adoption, amendment, or termination of an ERISA plan. With regard to the subpoenas issued by the Secretary of Labor, the court held that the requested documents were subject to production, because “the fiduciary exception extends to the Secretary acting on behalf of beneficiaries in the context of an ERISA enforcement action.”
Because the funds had not provided privilege logs and had not identified the litigation for which specific documents were prepared, the court said “we see no reason to reach the issue of whether the work product doctrine is subject to the fiduciary exception,” concluding that the funds had “failed to carry their burden to demonstrate the applicability of the work product doctrine.” The court did say, however, that “there is no legitimate basis on which to distinguish between the [attorneyclient privilege and the work product doctrine] in the application of the fiduciary exception in the ERISA context.”
Insurer May Waive Policy Provisions Regarding Change of Beneficiaries Globe Life and Accident Ins. Co. v. Lewis, No. 1:09-cv-3574 (N.D. Ga. Aug. 2, 2011) Globe Life brought an interpleader action to resolve competing claims by the insured’s daughters to death benefits payable under a policy of life insurance. Regarding the insured’s right to change beneficiaries, the policy provided that by “written form satisfactory to [Globe Life] the Certificate Holder may change the beneficiary at any time, without the beneficiary’s consent.” The policy further provided: “When recorded by [Globe Life] at our Home Office, the change will be effective as of the date the form is signed, whether or not the Certificate Holder is living when the form is recorded.”
Less than a month before the insured’s death, she changed the beneficiaries of the policy from one daughter to the other daughters by making a telephone call to Globe Life’s customer service department. In the interpleader action, the former beneficiary asserted a counterclaim against Globe Life for benefits and for a bad faith penalty, alleging among other things that Globe Life was not permitted to change the beneficiary designation in response to a telephone request in light of the policy provisions requiring a written change of beneficiary form.
Non-Compliance with Claim Manual Does Not Require Reversal of Reasonable Decision Mullins v. AT&T Corp., 2011 U.S. App. LEXIS 9266 (4th Cir. Apr. 20, 2011) Mullins submitted a claim for disability benefits under an ERISA plan sponsored by her employer, AT&T. Connecticut General Life Insurance Company, the plan’s claim administrator, denied the claim and upheld that decision on administrative appeal after consulting an independent physician, referring Mullins for a functional capacity evaluation, and obtaining both a transferable skills analysis and a labor market study. Mullins sued to recover benefits, and also to have statutory penalties imposed against AT&T for its failure to timely produce a copy of the summary plan description upon request. The federal district court granted summary judgment against Mullins on her claim for benefits, noting that the medical opinions of her treating physicians were in conflict,
both as to her specific diagnosis and her functional capacity to perform her sedentary job duties. The court granted summary judgment in favor of Mullins, however, on her claim for a penalty, but awarded only $25 per day against AT&T, rather than the maximum penalty authorized by the statute. Mullins’s case had been remanded twice with instructions that she be provided copies of any claimsprocessing documents used by Connecticut General, such as claims manuals, protocols, and other internal guidelines relating to the processing of LTD claims and appeals. After receiving those documents, Mullins argued that Connecticut General failed to comply with its internal procedures. The Fourth Circuit ruled, however, that “strict compliance is not a prerequisite
Granting summary judgment to Globe Life on these claims (and also discharging the company from the interpleader action), the court held that the insurer was permitted to waive the change of beneficiary provision. “Under Georgia law,” the court wrote, “an original beneficiary cannot object if an insurance company waives compliance with a policy provision prescribing the method for changing a beneficiary, since this provision is solely for the benefit of the insurer.” Quoting Bohannon v. Manhattan Life Ins. Co., 555 F.2d 1205, 1211 (5th Cir. 1977). This waiver occurred, the court reasoned, when Globe Life changed the beneficiary in response to the telephone call. “Given that this occurred nearly a month before [the insured] died, Globe had a right to waive the policy’s change-ofbeneficiary provisions at that time,” the court concluded.
to finding that the plan administrator’s overall decision was principled and reasonable.” Such standards are but one factor to weigh, along with other factors and the administrative record. Based on the entire record, the Fourth Circuit found that Connecticut General’s denial of benefits “was clearly supported by substantial evidence in the administrative record.” With regard to the statutory penalty imposed against AT&T, Mullins had requested “a copy of all other plan documents concerning [the LTD] policy” – which the Fourth Circuit found sufficient to notify AT&T that it should provide the summary plan description. In considering AT&T’s delayed production of the SPD, the Fourth Circuit weighed the prejudice to Mullins and the employer’s conduct in responding to her request for plan documents. Because Mullins ultimately was not prejudiced by the delay in obtaining the SPD, the district court imposed a fine of only $25 per day. Noting that a finding of bad faith was not necessary to impose a penalty, the Fourth Circuit upheld the fine as an incentive for plan administrators to comply with requests for plan documents in a timely fashion. 5
Benefits Payable to “Surviving Spouse” Separated from Insured for 20 Years Minnesota Life Ins. Co. v. Bush, No. 1:10-CV-2620-RWS (N.D. Ga. May 18, 2011) Bush was provided life insurance and accidental death insurance of $400,000 under ERISA-governed group insurance policies issued to his employer by Minnesota Life. He did not designate a beneficiary. The policies provided that if there is no eligible beneficiary, or if the insured does not name one, we will pay the death benefit to: (1) the insured’s lawful spouse (this does not include a domestic partner), if living; otherwise, (2) the insured’s natural or legally adopted child (children) in equal shares, if living .... Bush was killed in a motor vehicle accident. Minnesota Life received claims from Cynthia Bush, who was married to Bush in Illinois in 1985 and who had been separated from him for more than 20 years, and from several persons claiming to be children of
Bush. Minnesota Life identified additional children or purported children, then filed an interpleader action, naming as defendants Cynthia Bush and the various children. Cynthia Bush contended that she was the surviving spouse, because she and Bush were only separated and never divorced. Various of the children contended that the marriage had been dissolved, that Cynthia Bush had not held herself out as Bush’s wife, that she was involved in a relationship with another man, that Bush had children with other women, and that Bush had been living in Georgia with another woman for 17 years at the time of his death. The claimants disputed whether Georgia law or Illinois law should control the children’s claim that the marriage had been abandoned and therefore dissolved. The court concluded that the result probably would be the same in either case, but because Bush was domiciled in
Georgia at the time of his death, the court applied Georgia law to determine whether the marriage remained valid. “Even recognizing that James Rodney Bush and Cynthia Bush lived apart for 20 years since their marriage and that they did not hold themselves out as spouses, no act taken by either party has the effect of dissolving the marriage,” the court said. “Neither ever re-married, for example, such that the court would be required to determine which marriage was lawful.” While acknowledging the argument of the children, the court observed that if Bush had designated a beneficiary, or if he had divorced Cynthia, “he could have effectuated his purported desire to have his children receive the insurance policies proceeds. But he did neither.” Therefore, the court held that at the time of Bush’s death, Cynthia “remained his ‘lawful spouse’ and is entitled to the proceeds of the insurance policies.”
Action Allowed Against Beneficiary to Recover ERISA Plan Benefits Alcorn v. Appleton, 308 Ga. App. 663, 708 S.E.2d 390 (2011) At the time of his death, Richard Alcorn was a participant in two ERISA benefit plans, a life insurance plan and a 401(k) pension plan, sponsored by his employer. He did not designate a beneficiary for the 401(k) plan, and he named his second wife, Appleton, as the beneficiary of the life insurance plan. As provided by the plan documents, the benefits under both plans were paid to Appleton. The parties agreed that payment of the benefits to Appleton was required by Kennedy v. Plan Administrator for DuPont Sav. & Inv. Plan, 555 U.S. 285 (2009), in which the Supreme Court 6
held that “the plan administrator did its statutory ERISA duty by paying the benefits to [decedent’s ex-wife] in conformity with the plan documents.” Alcorn’s daughters then sued Appleton for breach of contract, alleging that she had waived her right to the benefits when she and Alcorn signed a settlement agreement that was incorporated into an order of separate maintenance before Alcorn’s death. Under the settlement agreement, Appleton waived her right to claim benefits under both the 401(k) plan and the life insurance plan.
The trial court granted Appleton’s motion to dismiss the breach of contract claim, concluding that Appleton “was properly awarded benefits under the ERISA plans inasmuch as any waiver executed in the settlement agreement was not ERISA compliant.” The trial court noted that it relied on Kennedy in reaching its decision.
contract claim, which presented an issue that the Supreme Court expressly declined to reach. In a footnote, the Supreme Court had noted that it did not “express any view as to whether the Estate could have brought an action against [the decedent’s exwife] to obtain the benefits after they were distributed.”
On appeal to the Georgia Court of Appeals, the Alcorns argued that Kennedy did not bar their breach of
The Georgia Court of Appeals was persuaded by the cases cited by the Alcorns, in which courts from other
jurisdictions have allowed state law claims to recover funds that were distributed by ERISA plans. The court reversed the trial court, stating that the result was “consistent with Georgia decisions concluding that ERISA does not preempt claims against funds already distributed from ERISA plans.”
Breach of Fiduciary Duty Action Dismissed Because Plaintiffs Lacked Standing to Sue Malkani v. Clark Consulting, Inc., 2011 U.S. App. LEXIS 15980 (4th Cir. Aug. 1, 2011) Malkani was the CEO of Information Systems and Networks Corporation (“ISN”). Malkani and ISN sued Clark Consulting and others, who were the administrators of ISN’s employee pension plan, alleging breach of fiduciary duties under ERISA, 29 U.S.C. § 1132(a)(2) and (3). Malkani and ISN contended that the plan administrators had incorrectly interpreted and applied the plan language, which resulted in excess contributions to the plan by ISN and a miscalculation of distributions to ISN employees. The defendants challenged the standing of Malkani and ISN to maintain the action, relying on both ERISA and Article III of the United States Constitution. ERISA plan participants or beneficiaries may bring a civil action for breach of ERISA’s fiduciary provisions only when recovery is sought on behalf of the plan itself. The district court concluded that ISN had no standing, noting that an employer has standing under § 1132(a)(2) only if it is a fiduciary of the ERISA plan and is asserting a claim in its fiduciary capacity. In this case, the defendants were the sole fiduciaries of the plan. Accordingly, the district court dismissed the claims of ISN. 727 F. Supp. 2d 444 (D. Md. 2010).
Unlike ISN, Malkani sued on behalf of the plan itself, seeking to hold the defendants liable for losses to the plan and for any third-party claims to which the plan might be exposed as a result. Nevertheless, the court held that Malkani lacked standing because she failed to allege an actual injury to the plan. Therefore the court granted the motion to dismiss for lack of subject matter jurisdiction, which was affirmed by the Fourth Circuit. To establish standing, a plaintiff must show that (1) she “suffered an injury in fact”; (2) “there [is] a causal connection between the injury and the conduct complained of” by the defendant; and (3) “it [is] likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision.” To satisfy the “injury in fact” requirement, the plaintiff must allege that she has suffered the invasion of a “legally protected interest which is (a) concrete and particularized and (b) actual or imminent, not conjectural or hypothetical,” the court said. Here, Malkani’s because:
complaint
failed,
(1) Malkani’s claims that ISN had been forced to make excess contributions to the plan and that the plan made improper distributions to employees did not allege any injury to
the plan itself; rather, her claims were allegations of injury to the company, ISN, which did not give rise to an ERISA cause of action. (2) Malkani’s contention that the defendants’ actions could result in a loss of tax-qualified status for the plan alleged a hypothetical, rather than an “actual or imminent,” injury. (3) Malkani failed to allege that the plan’s potential underfunding was “imminent.” (4) “Finally, and most significantly,” the court said, it was not possible for a defined contribution plan such as the ISN plan to become underfunded or have its assets depleted because “an employee’s attainment of a vested right to his or her account balance more quickly does not ... reduce the amount of money in the Plan as a whole.”
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Providing Incomplete Records to Reviewing Physician Was Not an Abuse of Discretion Frankton v. Metropolitan Life Ins. Co., 2011 U.S. App. LEXIS 10542 (4th Cir. May 23, 2011)
After working in a sedentary job for more than 20 years, Frankton applied for long-term disability benefits under an ERISA plan funded by MetLife, based on multiple diagnoses. MetLife initially approved the claim for benefits, but later requested additional records as part of its on-going obligation to review claims under the plan. Based on conflicting medical reports, MetLife requested an independent medical evaluation. The physician who conducted the IME concluded that Frankton could work at her regular job without restrictions and that the restrictions identified by her treating physician were not supported. MetLife terminated the payment of benefits, in part because the IME report was inconsistent with Frankton’s self-described limitations. When Frankton filed an administrative appeal, MetLife submitted the claim file to an independent physician consultant, who determined that the 8
medical records were insufficient to support Frankton’s claimed inability to perform her sedentary job. MetLife, therefore, upheld its decision to terminate the benefits. Frankton filed suit in federal court for wrongful denial of benefits, and the court, applying the deferential abuse of discretion standard of review, held that MetLife’s decision was supported by substantial evidence. On appeal to the Fourth Circuit, Frankton argued that MetLife (1) submitted incomplete records to the independent physician consultant; (2) failed to consider her award of Social Security disability benefits; and (3) did not accord appropriate weight to her treating physician’s opinions. The Fourth Circuit upheld the district
court’s ruling. The Court held that (1) the records omitted from MetLife’s submission to the independent physician consultant were duplicative and insufficient to undermine the reasonableness of MetLife’s conclusions; (2) it would be inappropriate to consider the Social Security award because there was no evidence that MetLife ever received a letter confirming the award and, regardless, MetLife was not obligated to weigh the Social Security Administration’s disability determination more favorably than other evidence; and (3) ERISA does not require administrators to accord special deference to the opinions of treating physicians.
STD Insurer Not Liable for Producing Records in Employment Litigation Floyd v. SunTrust Banks, Inc., 2011 U.S. Dist. LEXIS 65190 (N.D. Ga. June 13, 2011) Floyd, an in-house attorney, sued her employer, SunTrust, for alleged gender discrimination. During that litigation, SunTrust served Floyd with requests to produce her medical and psychotherapy records, to which Floyd filed objections. Without notice to Floyd, another in-house attorney for SunTrust, Hammond, then requested Floyd’s Family Medical Leave Act file from Aetna Life Insurance Company, which administered the FMLA and shortterm disability claims of SunTrust employees. Aetna’s representative, Alexander, produced the FMLA file to Hammond “for use . . . in a lawsuit filed by [Floyd],” but he assumed that the file had been requested for legitimate purposes. Floyd subsequently sued Aetna, Alexander, SunTrust, and Hammond, asserting various claims, including tortious interference with confidential relationships, negligent supervision, “gross negligence,” negligence per se, conspiracy under 42 U.S.C. § 1985, neglect to prevent conspiracy under 42 U.S.C. § 1986, and to recover attorney’s fees and costs. Aetna and Alexander moved to dismiss all claims against them for failure to state a claim upon which relief could be granted. The federal district court granted the Rule 12(b)(6) motion to dismiss on the following grounds: ● Georgia does not recognize a cause of action for tortious interference with a confidential relationship unless the interfering person induces a fiduciary to breach his duty. Because Aetna and Alexander “were already in the lawful possession of the confidential information and only chose to disclose that information following their proper receipt of it,” Floyd’s claim was “not a classic third-party interference claim and is not recognized in Georgia law.”
● Floyd’s negligence claims were based on violations of laws and regulations that did not apply to Aetna or Alexander. Specifically, (1) HIPAA did not apply to Aetna or Alexander as administrators of the short-term disability and FMLA plans, because they were not “covered entities”; (2) Aetna and Alexander were not subject to the disclosure rules of 45 C.F.R. § 164.504(f)(1), because they were not a “group health” plan under that regulation; and (3) Aetna and Alexander did not owe any “HIPAArelated duty” to Floyd based on the theory that they were “business associates” of SunTrust, because SunTrust was not a “covered entity.” ● Floyd failed to “plausibly allege any facts which would support” a claim against Aetna or Alexander under the Americans with Disabilities Act. ● Floyd’s allegations of an agency relationship between SunTrust and Aetna and/or Alexander could not support her negligence claims, because “[t]o argue that the Aetna Defendants were the SunTrust Defendants’ agents contradicts any
assertion that information sharing between the two would somehow be nefarious.” ● Georgia recognizes a claim for negligent supervision only if “there is sufficient evidence to establish that the employer reasonably knew or should have known of an employee’s tendencies to engage in certain behavior relevant to the injuries allegedly incurred by the plaintiff.” However, Floyd did not “plausibly plead any facts that Aetna knew or should have known that Alexander specifically would make any improper dissemination to SunTrust.” ● Because a conspiracy requires an agreement between two parties to injure another party, and because Floyd failed to plausibly plead a meeting of the minds or knowledge of an improper purpose on the part of Aetna and Alexander, she could not maintain an action against those defendants under 42 U.S.C. § 1985. ● Finally, without an underlying § 1985 violation, Floyd could not maintain a claim under 42 U.S.C. § 1986. 9
Failure to Consider Subjective Pain Results in Award of Benefits and Fees DuPerry v. Life Ins. Co. of N. Am., 632 F.3d 860 (4th Cir. 2011)
DuPerry submitted a claim for longterm disability benefits under an ERISA plan based on diagnoses of rheumatoid arthritis, osteoarthritis, and fibromyalgia. In support of her claim, DuPerry submitted statements and records from her treating physicians, who said that she was unable to perform her sedentary job duties. After the initial and administrative appellate reviews of the claim, which included reviews by a nurse case manager and an independent physician consultant, LINA determined that DuPerry was not entitled to benefits. DuPerry then sued in federal court for wrongful denial of benefits. Applying the deferential abuse of discretion standard, the district court ruled that DuPerry was entitled to benefits. The district court observed that this case “falls into that difficult class of ERISA cases involving subjective complaints of pain as a primary cause and driver of the insured’s claim of disability,” and noted that the plan did not specifically address DuPerry’s subjective complaints of pain. The district court found that just as the plan need not simply accept subjective complaints of pain without question, it 10
cannot simply dismiss such complaints out of hand, “especially where there is objective medical proof of a disease that could cause such pain.” The court dismissed LINA’s basis for denying benefits as “minor inconsistencies,” not “the type of substantial conflicting evidence that a plan administrator can use to justify a denial of benefits.” On appeal, the Fourth Circuit affirmed the district court’s reversal of LINA’s benefits decision, finding that the evidence relied on by LINA showed only that DuPerry was able to perform certain of her sedentary job tasks for relatively brief periods, and that LINA did not adequately consider the combined effects of her medical problems. The Fourth Circuit stated: “As the Policy contained no provision precluding DuPerry from relying on her subjective complaints as part of her evidence of disability, LINA could not reasonably deny her claim because of such reliance.” The mere fact that the independent physician consultant concluded that DuPerry had not adequately supported her claim was an insufficient basis for denial, especially considering LINA’s structural conflict of interest. The
Fourth
Circuit
also
rejected
LINA’s argument that DuPerry had only exhausted her administrative remedies with regard to her claim for “own occupation” benefits, and that LINA had not considered whether she also was disabled from “any occupation.” “[H]aving denied DuPerry’s claim under the regular occupation standard, [LINA] would have surely denied a claim under the any-occupation standard as well,” the court said. The court found this to be “one of those rare cases where a remand to the plan administrator would serve no purpose.” Finally, applying the five factors laid out in Quesinberry v. Life Insurance Company of North America, 987 F.2d 1017 (4th Cir. 1993), the Fourth Circuit ruled that DuPerry was entitled to an award of attorneys’ fees. The court found that although LINA’s conduct did not rise to the level of bad faith, LINA “certainly demonstrates some degree of culpability in its dismissal of DuPerry’s subjective complaints without meaningful inquiry.” The court wanted to encourage “plan administrators to inquire more meaningfully into disability claims that rely on subjective complaints of pain” and not rely on “minor inconsistencies in and disingenuous interpretations of [] physicians’ reports.”
Substantial Value of Benefits Claim Did Not Make Conflict of Interest More Significant Blankenship v. Metropolitan Life Ins. Co., 644 F.3d 1350 (11th Cir. 2011) The Eleventh Circuit reversed the district court’s ruling in favor of Blankenship, the claimant in this ERISA long-term disability case, because the evidence did not demonstrate that the benefits decision was arbitrary and capricious, even accounting for the structural conflict of interest resulting from the fact that MetLife insured the plan and made the benefits decision. The court noted that “[t]he presence of a structural conflict of interest – an unremarkable fact in today’s marketplace – constitutes no license, in itself, for a court to enforce its own preferred de novo ruling about a benefits decision.” The district court had concluded that MetLife’s reliance on independent physicians who did not examine Blankenship was persuasive evidence that the decision was arbitrary and capricious. The Eleventh Circuit, however, saw nothing in the record showing that MetLife either unreasonably relied on the independent medical opinions or unreasonably credited those opinions over those of the treating physician. To the contrary, the court noted record evidence casting doubt on the opinions offered by Blankenship’s physicians. Moreover, the Eleventh Circuit was not persuaded that the size of the potential claim made the structural conflict of interest more significant. “Even half a million dollars – a large sum to be sure – is a relative amount when the plan administrator is a global, Fortune 100 company with annual revenues exceeding $50 billion.”
A Message from the editors
Sanders Carter
Kent Coppage
Aaron Pohlmann
We are pleased to announce that Smith Moore Leatherwood has expanded to a seventh office, located in Charleston, South Carolina. The new office is headed by Michael Bowers and Robert Pearce, experienced lawyers who joined Smith Moore Leatherwood from other Charleston firms. The firm’s other offices are in Atlanta, Georgia, Greenville, South Carolina, and Charlotte, Greensboro, Raleigh, and Wilmington, North Carolina. When considering any firm expansion, we do it thoughtfully, balancing the needs of our clients with our desire to add top legal talent in all the markets in which we practice. Charleston has grown from a national cultural and travel destination into an international business hub. Smith Moore Leatherwood attorneys have represented clients in Charleston for years, and the addition of these attorneys will greatly enhance the services we provide our clients in the lowcountry and across the southeast. 11
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