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Plaintiff's Failure to Submit to Medical Evaluation Dooms Disability Benefits Claim

May 2006

The plaintiff brought this complaint against SmithKline Beecham Corporation, d/b/a GlaxoSmithKline (GSK), her former employer, alleging that her long-term disability benefits had been improperly terminated despite medical diagnoses of fibromyalgia, asthma, and depression after GSK had gathered conflicting medical examination information about the extent of her medical condition. After the denial of the plaintiff's fourth internal appeal, GSK offered to suspend a final determination as to her long-term disability benefits if she would submit to an independent medical evaluation, offering to reinstate long-term benefits if the findings of such an evaluation supported her claim that she was totally disabled. The plaintiff twice refused to submit to an independent evaluation. GSK thereafter denied the plaintiff's fifth appeal, reasoning that her failure to submit to an independent medical evaluation was a failure to comply with her obligations under the long term plan and established a new justification for disability benefits. The district court granted summary judgment to GSK, finding that GSK had the authority to make a final determination as to the denial of the plaintiff's long-term benefits due to her refusal to submit to an independent medical evaluation during the pendency of the appeals process.

The plaintiff appealed and the U.S. Court of Appeals for the 11th Circuit upheld the district court's ruling. The appellate court pointed out that, although her long-term benefits were initially suspended due to conflicting evidence gathered by GSK as to whether she was not totally disabled under the terms of the plan, her subsequent refusal to submit to an independent medical evaluation during the pendency of the appeals process "constituted an independent ground for denial of long-term benefits."

As the appellate court explained, the plan stated that GSK had the absolute right "to make all determinations of fact and eligibility for benefits." Moreover, it explicitly stated, "If you do not submit to a timely independent medical examination or if you do not provide timely and satisfactory proof of continued disability, your benefits will be suspended." Given this clear language, which required proof of a "continued disability," the appellate court upheld the district court's decision that GSK's request for an independent medical evaluation was reasonable given the factual circumstances, where GSK's reasons to terminate the plaintiff's long-term benefits conflicted with her proffered evidence concerning her asserted disability.

The appellate court concluded by finding that there was no support for the plaintiff's argument that the plan administrator "automatically" gave "blind adherence" to a non-treating medical director's opinion without regard to other medical opinions, through what the plaintiff called an improper "anti-physician rule." Rather, the appellate court concluded, the evidence was not that the plan administrator had blindly adhered to the reviewer's decision to deny long-term benefits due to a lack of disability but had given credence to his recommendation that the plaintiff submit to an independent medical evaluation to assist in resolving the conflict between GSK's and plaintiff's medical experts as to the plaintiff's medical condition. [Porter v. Provident Life and Accident Ins. Co., 2006 U.S. App. Lexis 2635 (11th Cir. Feb. 2, 2006).]

Comment: A plan provision imposing an obligation on employees to cooperate with a plan administrator can be used to terminate benefits where an employee fails to meet his or her obligations. As in the GSK case, such an event can be a more straightforward reason to terminate benefits when conflicting evidence makes it difficult to rely on other reasons.

Requests For Damages Barred By ERISA, Circuit Court Rules

An employee who had an employer-sponsored healthcare plan provided by Group Health Plan, Inc. (GHP) was diagnosed with non-Hodgkin's lymphoma and sought GHP's pre-approval for an allogeneic stem cell transplant. GHP denied coverage on the basis the procedure was "investigational and unproven" and therefore excluded under the plan's policy.

Following GHP's denial of coverage, the employee filed a lawsuit requesting that the court order "restitution" by the defendants to the plaintiff, award the plaintiff a "surcharge," provide compensation to the plaintiff for the defendants' alleged breach of fiduciary duty, and award attorney's fees. The district court dismissed the complaint, reasoning that the plaintiff was seeking monetary relief that was not available under ERISA. The plaintiff appealed, arguing that ERISA allows a monetary award of restitution and a surcharge when a plan administrator improperly failed to authorize a procedure.

The appellate court pointed out that there was no dispute that the plaintiff had not received the allogeneic stem cell transplant, and it assumed only for purposes of the appeal and without deciding the issue that GHP had breached its fiduciary duty by denying coverage for the procedure. The appellate court then examined whether the restitution relief requested by the plaintiff was available under ERISA, and found that it was not. As the appellate court noted, the complaint sought monetary damages for expenses GHP would have paid if the plaintiff had received the transplant. Despite the use of semantics, it continued, the complaint sought monetary relief that did not constitute "other appropriate equitable relief" and thus was not permitted.

It also ruled that the surcharge that the complaint requested was not available as a remedy. As the circuit court noted, the plaintiff had not received the requested transplant and had never incurred any related medical or hospital expenses, i.e., benefits payable. Consequently, GHP held no readily identifiable funds or property that could be used to fund a surcharge. [Knieriem v. Group Health Plan, Inc., 434 F.3d 1058 (8th Cir. 2006).]

Comment: Merely re-labeling relief sought as "restitution" or a "surcharge" does not change the nature of the remedy. Thus, ERISA's prohibition of money damages should normally bar restitution and surcharge claims.

Management Agreements' Arbitration Provisions Do Not Govern Participant's Claims

The plaintiff in this case was a participant in two ERISA plans operated by Micor, Inc. The plan trustees retained Salomon Smith Barney, Inc. to provide investment advice. The relationship between Smith Barney and the trustees was governed by investment management agreements that contained arbitration clauses pursuant to which "all claims or controversies" between the trustees and Smith Barney "concerning or arising from" any of the trustees' accounts managed by Smith Barney had to be submitted to binding arbitration.

From 1999 through 2002, Smith Barney allegedly concentrated the plans' assets in high-tech and telecom stocks. Even after the bubble burst in early 2000, Smith Barney allegedly maintained its concentrated positions. The plans suffered heavy investment losses.

The plaintiff sued Smith Barney for breach of fiduciary duty. Because a suit for breach of fiduciary duty provides for the making good to the plan - not to the plaintiff - of any losses incurred as a result of an alleged breach of fiduciary duty, Smith Barney asked the court to apply the arbitration provision and to stay the court proceedings.

Smith Barney argued that the plaintiff was bound by the arbitration clauses as a matter of equitable estoppel and as a third party beneficiary. Equitable estoppel precludes a party from claiming the benefits of a contract while simultaneously attempting to avoid the burdens that contract imposes. In the arbitration context, the court stated, equitable estoppel has been used to hold nonsignatories to arbitration clauses where the nonsignatory knowingly exploited the agreement containing the arbitration clause despite having never signed the agreement.

In this case, the court ruled, there was an "insurmountable hurdle" for Smith Barney: there was no evidence that the plaintiff had "knowingly exploited the agreement[s] containing the arbitration clause[s] despite having never signed the agreement[s]." Prior to his suit, the plaintiff was simply a participant in trusts managed by others for his benefit. He did not seek to enforce the terms of the management agreements, nor otherwise take advantage of them. The court added that the plaintiff also did not do so by bringing his lawsuit, which he based entirely on ERISA and not on the investment management agreements. The court then ruled that Smith Barney's attempt to shoehorn the plaintiff's status as a passive participant in the plans into his "knowing[] exploitation" of the investment management agreements had to fail.

Smith Barney also argued that the plaintiff was bound by the arbitration clauses as a third party beneficiary. However, the court also rejected this argument, finding no evidence that the signatories to the investment management agreements intended to give every beneficiary of the plans, such as the plaintiff, the right to sue under the agreements. Accordingly, the court concluded, it followed that the plaintiff could not be bound to the terms of a contract he did not sign and was not even entitled to enforce. [Comer v. Micor, Inc., 436 F.3d 1098 (9th Cir. 2006).]

Comment: Other courts have reached a different result. For example, in a case with facts similar to the facts of the Smith Barney case, a New Jersey district court, in Bevere v. Oppenheimer & Co., 862 F. Supp. 1243 (D.N.J. 1994), held that "individuals who are not direct signatories to an arbitration agreement may nevertheless be bound by it when their claims arise from the very contract that contains the arbitration clause." Administrators and employers seeking the right to have claims arbitrated are best advised to include arbitration provisions in plan documents as well as any in other agreements with which plan participants are involved.

Provision Providing for Reconsideration of Policy Exclusion Does Not Mandate Removal of Exclusion, Court Finds

Shortly before the plaintiff in this case purchased a disability insurance policy, he had undergone successful back surgery. For that reason, the insurer included a "back exclusion" in the policy, whereby the plaintiff would receive only 12 months of disability pay for any back injury. The policy also included a reconsideration offer that would allow the plaintiff to request reconsideration of removal, modification, or reduction of the back exclusion if the plaintiff's back was symptom-free for two years. The plaintiff's back, in fact, was symptom-free for two years, but he never requested that the insurer reconsider the policy's back exclusion.

Ten years after purchasing the policy, the plaintiff injured his back playing tennis and filed a claim with the insurer. The insurer agreed to pay only 12 months of disability benefits, citing the policy's back exclusion. The plaintiff claimed that because he had been symptom-free for two years, the insurer was contractually obligated to remove the back exclusion upon request, even if that request came after a significant back injury. The plaintiff claimed that the only valid ground for not removing the exclusion would be if he had exhibited back symptoms within two years of purchasing the policy. The insurer responded that under the policy, it was allowed to take into account any back problems that arose before the plaintiff asked the company to reconsider the back exclusion, including his current, debilitating injury. The district court granted summary judgment to the insurer, and the plaintiff appealed.

The appellate court affirmed the lower court's decision. It agreed with the insurer that the two years were essentially a time limitation on when the plaintiff could first apply for reconsideration, and the period in no way limited the scope of the insurer's review once the plaintiff applied. In the appellate court's view, it was "hardly fair" to claim that an agreement to "reconsider" a contractual provision was legally equivalent to an agreement to "remove" the provision altogether, especially since the agreement itself stated that "reconsideration can be given to removal, modification, or reduction" (emphasis added). The appellate court rejected the plaintiff's argument that the insurer was required to remove the back exclusion if the plaintiff was symptom-free for two years.

In sum, the appellate court found that the insurer merely promised to "reconsider" the plaintiff's back exclusion upon request. It did reconsider, and, in light of the fact that removing the exclusion would result in a 100 percent risk of paying years of benefits, declined to do so. The circuit court held that the insurer had fulfilled its obligation to reconsider, and was within its rights under the contract to enforce the back exclusion. [Jacobs v. Paul Revere Life Ins. Co., 432 F.3d 703 (7th Cir. 2005).]

Comment: Policy language once again was key in how a court settled a dispute over employee benefits. Careful review of language in policies and plans can help to limit risks and clarify the rights of the parties.

When Does an Employer Exercise "Substantial Control" over a Salesperson?

For nearly 15 years, the plaintiff in this case worked for Nynex Long Distance Co. d/b/a Verizon Enterprise Solutions (Verizon), a large telecommunications vendor, and its corporate predecessors. During his time at the company, he rose through the ranks and attained the position of "Account Manager," later renamed "Corporate Account Manager 3" (CAM 3). This was one of the highest level sales positions at Verizon, and the plaintiff held this position until his employment was terminated.

As a CAM 3 working out of Verizon's office in Portland, Maine, the plaintiff sold products and services associated with high-speed voice and data networks. He was assigned a module of 20 to 50 large customer accounts and was not permitted to call on customers who were not within his assigned module. This meant that he needed to make repeat sales to the same customers in his module.

To accomplish this, he had quarterly meetings, or "planning sessions," with his customers. In these meetings, the customers would state their general needs and goals, and the plaintiff would attempt to sell solutions to satisfy them. He also entertained the customers in his module by taking them to lunch or dinner, to Red Sox games, or to shows at the Wang Theater in Boston. This was done so that the plaintiff could maintain his relationships and position himself well to make repeat sales to the customers in his module.

After Verizon merged with Bell Atlantic, another telecommunications company, a number of service and implementation positions at Verizon were eliminated. The plaintiff thereafter received increased post-sale service implementation responsibilities and also was assigned a number of accounts, originally sold by other CAM 3s, that had chronic service problems. Many of these accounts provided the plaintiff with no sales opportunities, as the companies had already made it clear that they had no intention of making further purchases from Verizon. With these changes, the plaintiff found that 70 percent of his daily activities related to customer service problems. Moreover, the plaintiff was forced to remain in the office to deal with these issues, as this was the only means by which he could receive calls from customers and make calls to Verizon's Network Operations Center, the company's nerve center for resolving service-related issues.

The plaintiff was not happy with this turn of events and complained to his superiors that with this new emphasis on customer-service issues, he did not have enough time for sales. This had little effect, however. Furthermore, the plaintiff's sales quota was increased from $1 million to $5 million. This too displeased him, as he thought that such a quota could not possibly be met. The changes eventually became overwhelming for the plaintiff, and he took a leave of absence from Verizon. Thereafter, he was fired.

Approximately two years later, the plaintiff filed suit. Among other things, he sought unpaid overtime wages pursuant to Maine law. The court granted summary judgment for Verizon, and the plaintiff appealed.

The appellate court noted that Maine law contains a so-called "sales commission" exemption that provides that employees whose earnings were derived in whole or in part from sales commissions and whose hours and places of employment were not "substantially controlled by the employer" were not entitled to overtime pay.

As the appellate court noted, the plaintiff's earnings were derived, at least in part, from sales commissions. It then examined whether Verizon substantially controlled the hours and places of the plaintiff's employment.

To support his claim that the company had indeed exerted substantial control over his hours and places of employment, the plaintiff pointed to how the nature of his job had changed after Verizon's merger with Bell Atlantic. Instead of working as he had as a sales representative responsible for selling new products and services to potential clients, the plaintiff argued that his primary function following the merger was ensuring that service was delivered to Verizon's customers. He asserted that by forcing him to handle additional service matters that required him to stay in the office, the company substantially controlled the hours and places of his employment. As a result, he argued that he did not fall within the terms of the exemption and should have received overtime pay.

The appellate court rejected the plaintiff's arguments. First, it stated, it did not believe that there was any "substantial control" by Verizon. It pointed out that this was not a case where Verizon told the plaintiff that he had to be at his desk every day for a set number of hours to answer service-related calls from customers. Rather than being "substantially controlled," the appellate court found, he was given substantial latitude to work as he saw fit. He saw himself as an "entrepreneur" and noted that he put in the amount of time necessary to keep customers happy. Furthermore, he admitted that Verizon placed few controls over his places of work. "This hardly sounds to us like a person who has his hours and places of employment controlled by the employer, let alone 'substantially' controlled," the appellate court ruled.

The appellate court acknowledged that Verizon's decision to impose upon the plaintiff additional service-related responsibilities may well have influenced the manner in which the plaintiff could conduct business (including hours and work locations). It may have required him to come to the office more frequently to check if anyone called. If a customer did call with a problem, he would have to stay and deal with it. If, however, no one called, he could leave as he saw fit and work on sales. The appellate court stated that the point was that the plaintiff was not required by his employer to sit at his desk every day and wait for customers to call. He had substantial freedom each day to structure his hours and places of employment. Although he may have had less freedom than before the Bell Atlantic merger to structure his day, he still was not under the substantial control of his employer. The appellate court therefore held that the lower court was correct in stating that, although the plaintiff's choices were impacted and circumscribed by Verizon's assignments, the company "plainly cannot be said to have substantially controlled his hours and places of work." [Palmieri v. Nynex Long Distance Co., 2006 U.S. App. Lexis 2831 (1st Cir. Feb. 6, 2006).]

Comment: Although the Maine statute used the word "substantially," other states have different formulations. For example, Washington and California incorporate the element of "control" in a determination of whether an employee is exempt from receiving overtime pay, but do not contain the word "substantially" to modify "control." The Washington statute uses the phrase "no control," thus tightly restricting the applicability of the exemption. See Wash. Admin. Code 296-128-540 ("where . . . the employer has no control over the total number of hours worked"). The California provision contains no modifier whatsoever. See 8 Cal. Code Regs. § 11010(2)(G) ("subject to the control of their employer"). Different state wage hour or employment statutes can lead to different results despite similar fact patterns

Reprinted with permission from the May 2006 issue of the Employee Benefit Plan Review - From the Courts.  All rights reserved.

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