ERISA Reimbursement

On January 20, 2016, the United States Supreme Court decided the case of Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan.  The Court held as follows:  “When an ERISA-plan participant wholly dissipates a third party settlement on nontraceable items, the plan fiduciary may not bring suit under 502(a)(3) to attach the participant’s separate assets.”  The Court reasoned that Plan fiduciaries are limited per 502(a)(3) to “equitable relief.”  Montanile involved a individual (beneficiary) who was injured through the negligence of a third party.  The beneficiary was a participant in a health benefits plan governed by ERISA.  In other words, the injured beneficiary was covered by health insurance.  The health insurance plan paid for some of the injured beneficiary’s medical bills. The injured beneficiary was severely injured as the result of being struck by a vehicle operated by a drunk driver.  The medical expenses exceeded $120,000.00.

The injured beneficiary obtained a settlement totaling $500,000.00.  The lawyer fees were $200,000.00 (40%), and apparently said lawyers advanced about $60,000 in legal expenses.  The remaining balance of $240,000 was held in the attorney’s trust account while negotiations took place with the health insurer, who asserted a claim for reimbursement under the terms of the policy.

Eventually, the attorney for the injured beneficiary sent a letter to the health insurance plan advising that he was going to disburse the remaining funds to the client unless the plan objected within 14 days.  Receiving no response within 14 days, the attorney disbursed the remaining funds to his client.

Six months later, the plan brought suit in federal court against the plan beneficiary seeking over $120,000 for money spent on his medical care. The plan sought to enforce an “equitable lien upon any settlement funds” of the plan beneficiary.

The issue for the Court was simple: “whether an ERISA fiduciary can enforce an equitable lien against a defendant’s general assets under these circumstances.”  The Court answered in the negative: “We hold that it cannot, and accordingly reverse the judgment of the Eleventh Circuit and remand for further proceedings.”

The Montanile case will undoubtedly cause ERISA plans to be much more diligent in tracking and enforcing equitable liens. The Court made specific reference to the failure of the plan to object within 14 days of receiving the letter of the beneficiary’s lawyer, and also in failing to file suit until six months after the funds had been disbursed.

 

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ERISA – LTD Standard of Review: 6th Circuit

“The arbitrary or capricious standard is the least demanding form of judicial review of administrative action.” Davis By and Through Farmers Bank and Capital Trust Co. of Frankfort, Ky. v. Ky. Fin. Cos. Retirement Plan, 887 F.2d 689, 693 (6th Cir. 1989) (quotingPokratz v. Jones Dairy Farm, 771 F.2d 206, 209 (7th Cir. 1985)). Under this standard, the determination of an administrator will be upheld if it is “rational in light of the plan’s provisions.” McClain v. Eaton Corp. Disability Plan, 740 F.3d 1059, 1064 (6th Cir. 2014)(citing Marks v. Newcourt Credit Group, Inc., 342 F.3d 444, 457 (6th Cir. 2003); Borda v. Hardy, Lewis, Pollard & Page, P.C., 138 F.3d 1062, 1066 (6th Cir. 1998)); Shelby Cnty. Health Care Corp. v. S. Council of Indus. Workers Health and Welfare Trust Fund, 203 F.3d 926, 933-34 (6th Cir. 2000) (citation omitted). Stated differently, a claim administrator’s decision is not arbitrary and capricious if it “is based on a reasonable interpretation of the plan.” Johnson v. Eaton Corp., 970 F.2d 1569, 1574 (6th Cir. 1992).

While this review is “not without some teeth, it is not all teeth.”McClain, 740 F.3d at 1064. “A decision reviewed according to the arbitrary and capricious standard must be upheld if it results from a deliberate principled reasoning process and is supported by substantial [37]  evidence.” Id. (citing Schwalm v. Guardian Life Ins. Co. of Am., 626 F.3d 299, 308 (6th Cir. 2010). “When it is possible to offer a reasoned explanation, based on the evidence, for a particular outcome, that outcome is not arbitrary or capricious.” McClain, 740 F.3d at 1065 (citing Shields v. Reader’s Digest Ass’n, Inc., 331 F.3d 536, 541 (6th Cir. 2003)). Moreover, a court must accept an administrator’s rational decision, if it is not arbitrary or capricious, even in the face of an equally rational interpretation of a plan offered by a participant. Gismondi v. United Techs. Corp., 408 F.3d 295, 298 (6th Cir. 2005) (citingMorgan v. SKF USA, Inc., 385 F.3d 989, 992 (6th Cir. 2004)).

Ling v. Life Ins. Co. of N. Am., 2015 U.S. Dist. LEXIS 119865, *35-37 (M.D. Tenn. Sept. 9, 2015)

ERISA Preemption

In Dye v. Hartford Life & Accident Co., 2014 U.S. Dist. Lexis 47974 (M.D.GA. April 8, 2014), the plaintiff brought claims in state court for breach of contract, bad faith, etc., based on the denial of long term disability benefits by the Hartford.  Hartford removed the case to federal court and then filed a Motion to Dismiss based on ERISA preemption.  The facts in this case are unusual, and it seems quite likely the whole story is not in the record.  For example, the plaintiff’s claim was denied in 2006, but the lawsuit wasn’t filed until 2013.  After the case was removed to federal court, the plaintiff did not amend the complaint or move to remand the case to state court.  In fact, the plaintiff did not file an opposition to the Motion to Dismiss.  The District Court ultimately concluded that all of the plaintiff’s claims were preempted by federal law, and that because the lawsuit was based on state law, the case was dismissed.

The Court concludes all of the Plaintiff’s claims are preempted by ERISA. The ultimate inquiry is whether the Plaintiff must bring her claims pursuant to ERISA or not at all. Here, the Plaintiff has chosen to limit her complaint to state law claims, despite the Defendant’s removal to federal court based on ERISA preemption. Her counsel has not contested removal nor sought to amend the complaint. Thus, the claims must be dismissed.

Private Long Term Disability Policy

If you have a private long term disability policy, or a similar type of contract that pays benefits while you are unable to work, state law may assist you in your claim.  For example, in Georgia, a policy is to be construed liberally in favor of coverage.  Barrett v. Nat’l Union Fire Ins. Co. of Pitt., 304 Ga.App. 314 (2010).  If you have an insurance policy and you live in Georgia, contact our office if you are not receiving benefits you feel you are entitled to receive. We may be able to help. 

Heimeshoff v. Hartford Life & Accident Ins. Co

Yesterday, the United States Supreme Court decided a very important case in the context of ERISA long term disability.  The plaintiff filed a claim for long term disability benefits, which was denied by the Hartford.  Almost three years after the denial, but more than three years after the date proof of loss was due under the Policy, the Plaintiff filed suit.  The Policy contained a contractual statute of limitation providing that suit must be filed within three years of the date proof of loss is required. The case made it up to the U.S. Supreme Court, which held The Plan’s limitation provision is enforceable.  Heimeshoff v. Hartford Life & Accident Ins. Co., ____ U.S. _____, No. 12- 729 (Dec. 16, 2013).  
The Court ruled that unless the contractual limitation period is unreasonably short or there is a “controlling statute to the contrary”, the limitation will be given effect.  In this case, the Court held the 3 year contractual statute of limitation was reasonable. The Court did not preclude the application of equitable tolling, waiver or estoppel.
What remains to be seen is whether LTD insurers will seek to impose a contractual limitation in a scenario where the Plaintiff is approved for two years, and subsequently denied, but unable to file suit within the applicable period of time.  It is difficult to imagine a Court enforcing a contractual limitation in a situation where the claimant is initially approved for a period of time. Nevertheless, the Heimeshoff case opens the door to such arguments. 

ERISA Time deadlines and Standard of Review

Under the ERISA regulations, a plan must issue a benefits determination no later than 45 days after receiving a claim.  The regulations provide for an extension of that deadline, but what happens if the plan doesn’t comply with the 45 day deadline?  It appears the answer depends upon the jurisdiction.

One consequence of the failure to comply with the 45 day deadline is “exhaustion.”  In other words, a claimant is not permitted to file suit in federal court until such time as administrative remedies have been exhausted.  Thus, if a decision is not made by the plan within 45 days, there is authority for the proposition that such a situation constitutes a constructive denial of the claim.  As a result, the plaintiff can bring a lawsuit in federal court. See 29 CFR 2560.503-1.

Once the Plaintiff brings the claim in federal court, what happens?  Normally, disability determinations under ERISA are reviewed by the court under the arbitrary and capricious standard of review.  Interestingly, there is some authority for the proposition that a plan’s failure to comply with the 45 day benefit determination deadline results in de novo review instead of the deferential arbitrary and capricious standard.   Stefansson v. The Equitable Life Assurance Society of the United States, 2005 U.S.Dist. Lexis 21723 (M.D. Ga. 2005) (“because DMS failed to render a benefits determination in accordance with the regulatory requirements, application of the de novo standard of review is appropriate”).  See also: Gilbertson v. Allied Signal, Inc., 328 F.3d 625 (10th Cir. 2003); Jebian v. Hewlett Packard Co., 349 F.3d 1098 (9th Cir. 2003); Kinstler v. First Reliance Standard Ins. Co., 181 F.3d 243 (2nd Cir. 1999); Buck v. Kraft Food Global, Inc., (M.D.Tenn. 2007); Kosiba, 384 F.3d 58 (3rd Cir. 2004). But see: Southern Farm Bureau Life Ins. Co. v. Moore, 933 F.2d 98 (5th Cir. 1993); Hackney v. The Lincoln National Life Ins. Co., 2012 U.S.Dist. Lexis 694 (W.D.Ky. 2012) (de novo determination appropriate in some situations, but Court remanded to insurer for benefit determination).

If you have a long term disability claim governed by ERISA, and the insurer has not rendered a timely decision, it is important that you contact an attorney to discuss your rights.

Supplemental Evidence – Long Term Disability ERISA

A reviewing court has discretion to consider supplemental evidence presented by the parties in the context of an ERISA LTD claim.  Viera v. Life Ins. Co. of North American, 642 F.3d 407, 418 (3rd Cir. 2011).  In particular, a party may supplement the record with evidence concerning a plan’s funding mechanism to show a conflict of interest.  Kosiba v. Merck & Co., 384 F.3d 58 (3rd Cir. 2004).   Interestingly, in the context of a conflict of interest, Court’s have noted “structural conflicts of interest”; but held that disposition of the matter turns on “whether a reasonable basis existed for the administrator’s benefits decision.”  Blankenship v. Metropolitan Life Ins. Co., 644 F.3d 1350 (11th Cir. 2011).   In other words, some Courts find that although the conflict of interest must be considered, it does not alter the basic analysis of an ERISA LTD claim.  Id.  In my opinion, the fact of a conflict of interest should be important, especially on “borderline” claims.