Circuit Court Rejects Claim for Lifetime Health Care Benefits

October 31, 2012 | Appeals | Employment & Labor | Insurance Coverage

Former employees of Xerox Corporation who participated in the Xerox Retiree Flex Health Care Plan alleged in a lawsuit they filed that they repeatedly had been promised lifetime benefits under a health care plan called the Flex Plan but that the defendants had reneged on that promise. The district court dismissed the claims and the plaintiffs appealed.

The circuit court affirmed. It explained that to succeed on their “denial of benefits” claim, the plaintiffs had to demonstrate the existence of “specific written language” contained in a plan document that was “reasonably susceptible to interpretation as a promise to vest the benefits.” As the circuit court noted, the plaintiffs alleged that the defendants had promised lifetime health care benefits in documents dating back to at least the 1950s. Specifically, they pointed to a 1980 Value Added Statement, a 1984 Guidebook, and a 1994 Retirement Counseling Handbook.

However, the circuit court found, the plaintiffs failed to allege that documents containing the relevant promise constituted plan documents that postdated the implementation of the Flex Plan, which did not exist before 1995. The circuit court also held that none of the language contained in the Flex Plan documents could reasonably be interpreted to create a promise of vested lifetime benefits. In any event, the circuit court added, even if a plan document of the Flex Plan had contained such a promise, it would likely have been unenforceable in light of a reservation-of-rights clause in several plan documents that clearly reserved to Xerox the right “to amend, suspend or terminate the Plan . . . at any time and for any reason.” [Coriale v. Xerox Corp., 2012 U.S. App. Lexis 16086 (2d Cir. Aug. 3, 2012).]

Award against Disability Insurer to Pay Beneficiary’s Attorney’s Fees May Be Garnished by Creditor

After Genworth Life and Health Insurance Company and Sun Life Assurance Company of Canada stopped paying long term disability benefits to the plaintiff in this case, he sued. The district court upheld Genworth’s termination decision, found that Genworth was entitled to repayment of past benefits to the plaintiff, and entered judgment for Genworth against the plaintiff for $105,114.07.

Sun Life, on the other hand, reversed its decision after taking part in several levels of administrative and judicial review and concluded that the plaintiff was in fact entitled to all remaining benefits under his policy. Sun Life set aside about $28,000 to cover this amount.

Thereafter, Genworth filed a request and writ for garnishment for the money held by Sun Life, asking that it be used to help satisfy Genworth’s judgment against the plaintiff. The district court denied Genworth’s request, holding that a Michigan statute exempted the money from garnishment because it was a payment from an insurance company for a disability.

Then, the district court ordered Sun Life to pay the plaintiff $46,641.94 in attorney’s fees and interest because of his successful appeal of its termination decision. Genworth filed a request and writ for garnishment for this money. Although the plaintiff again argued that the Michigan statute prohibited garnishment, this time the district court rejected his argument. The district court concluded that the statute’s language was “intended to exempt disability benefits from garnishment, nothing else.” The district court reasoned that the exemption was plainly limited to benefits, which did not include attorney’s fees. The plaintiff appealed.

The U.S. Court of Appeals for the Sixth Circuit affirmed. It found that the attorney’s fees in this case were not exempt under the Michigan statute because the fees were not disability benefits under the plaintiff’s insurance policy and the statute made no reference to attorney’s fees or to money paid by a party in litigation, exempting only money or other benefits paid “on account of” a disability. The phrase’s ordinary meaning did not include money paid by an insurance company because of a court judgment, the circuit court decided. In the circuit court’s opinion, that kind of payment was “not a benefit and not paid on account of a disability.” Concluding that limitations on garnishment exceptions protected the interests of legitimate judgment creditors, the circuit court refused to “rebalance” the various parties’ interests that had already been balanced by the Michigan legislature. [Helfman v. GE Group Life Assurance Co., 2012 U.S. App. Lexis 14700 (6th Cir. July 16, 2012).]

Court Upholds Administrator’s Decision to Rely on Older Definition of “Disability”

The plaintiff in this case, a partner in a law firm, filed a claim for long term disability benefits under the firm’s long term disability policy on July 31, 2009. The Prudential Insurance Company of America, as claims administrator, initially denied the claim in September 2009, but reconsidered its denial in April 2010 and approved the claim retroactive to September 2009. Prudential then paid the plaintiff long term disability benefits through August 2010, when it terminated his benefits based on its conclusion that he did not meet the policy’s definition of “disabled.” Specifically, Prudential determined that the plaintiff did not have an impairment “that would prevent him from performing the material and substantial duties of his regular occupation.”

The plaintiff sued and moved for partial judgment as a matter of law. The plaintiff first argued that a May 1, 2010, change in the terms of the policy (specifically, a change in the definition of “disabled”) applied to his claim for benefits and required Prudential to assess whether he met the revised definition of “disabled.” The plaintiff also asserted that Prudential had abused its discretion in relying on the more restrictive definition of “disabled” contained in the earlier version of the policy to justify its denial of his claim.

In its decision, the court explained that the original definition of “disability” that Prudential applied in its decisions on the plaintiff’s claim required both an inability “to perform the material and substantial duties of your regular occupation” and “a 20% or more loss in your indexed monthly earnings” to establish disability. The definition as of May 1, 2010, which was after Prudential had approved the plaintiff’s claim and had begun to pay him benefits, defined disability more broadly, requiring either an inability “to perform the material and substantial duties of your regular occupation” or “a 20% or more loss in your monthly earnings” to establish disability.

As the court observed, the plan documents explained the effective date of amendments and stated that the plan “can be amended at any time…. But an amendment will not affect a claim incurred before the date of change.” Thus, the court continued, amendments to the group insurance certificates – which was where the 2010 amendment to the “disability” definition was found – could not affect a claim incurred before the date of change. The court therefore concluded that because the plaintiff incurred and submitted his claim before the 2010 amendment, Prudential was correct to apply the earlier definition. [Yarborough v. The Prudential Ins. Co. of America, 2012 U.S. Dist. Lexis 107303 (S.D.Miss. Aug. 1, 2012).]

Employee Required to Reimburse Insurer for Overpaid Disability Benefits

The plaintiff in this case, Unum Life Insurance Company of America, sued an employee of FKI Logistex who was a participant in a group disability insurance policy issued by Unum to recover overpaid disability benefits from him. The employee contended that he was not required to reimburse Unum because its failure to reduce his disability payments had caused the overpayment.

As the court explained, the employee became disabled in August 2005 and submitted a claim for disability benefits under the policy. The claim was approved, and Unum began making payments in June 2007. The employee also applied for Social Security benefits, and in May 2007, he submitted to Unum a “benefit payment option/reimbursement form” regarding his Social Security claim. On the form, the employee requested that Unum “estimate the amount of deductible benefits [he] … will receive from other sources … and reduce [his] disability benefit by this amount.” However, Unum continued to make full payments because the employee had submitted documentation to Unum indicating that his claim for Social Security benefits had been denied.

In March 2009, the Social Security Administration (SSA) reversed its denial and awarded the employee benefits, including retroactive benefits. After subtracting an amount for payment of the employee’s legal expenses, the SSA distributed two lump sum payments to him for his retroactive benefits.

After receiving documentation of the Social Security disability award, Unum notified the employee that he had been overpaid by more than $63,000. Unum reduced the overpayment amount to about $53,000 by withholding benefits, but the employee refused to refund the bulk of the overpaid sums. Unum sued, contending that it was entitled to summary judgment on its claim for equitable restitution because the employee had wrongfully retained benefits paid to him under the policy.

In response, the employee argued that ERISA did not authorize Unum’s claim because he had already spent the benefits he received from Unum and from Social Security and, therefore, “[n]o separate funds or accounts” existed from which Unum could recover any overpayments.

In granting Unum’s motion for summary judgment, the court first observed that the policy provided that “Unum has the right to recover any overpayments due to: … your receipt of deductible sources of income.” The court added that the term “deductible sources of income” was defined to include any amount that the claimant was “entitled to receive as disability payments because of [his] disability under … the United States Social Security Act.” It then found that Unum, indeed, was seeking to recover from a specific fund: the overpayments it made as a result of the employee’s award of Social Security benefits.

The court next considered the employee’s argument that Unum’s action was barred by equitable estoppel because of the benefit payment option/reimbursement form that he had filled out and signed. That form, the court observed, offered two options to a beneficiary seeking Social Security benefits: (A) “Issue Benefit with No Reduction,” and (B) “Estimate & Reduce Benefit.” The employee chose Option B, signed the form, and submitted it to Unum. As a result of this selection, he argued, he “relied upon the written representations and contractual obligations of UNUM to properly calculate whether any reduction of benefits was necessary and to pay him the appropriate reduced benefit to avoid an overpayment situation.” Therefore, the employee asserted, he should not be “obligated to pay back any alleged overpayment due to [Unum’s] actions.”

The court was not persuaded by this argument.  It noted that Unum had not specifically represented in the form that it was contractually bound to reduce the plaintiff’s payments if he selected Option B. Moreover, it continued, the employee’s benefit payments from Unum never decreased at any point and he had notice that his payments from Unum had not been adjusted well before his first lump sum payment from the Social Security Administration. [Unum Life Ins. Co. of America v. Miller, 2012 U.S. Dist. Lexis 105579 (E.D. Ky. July 30, 2012).]

Life Insurance Benefits Are Not Recoverable Where Employee Did Not Pay Premiums After He Was Discharged

The plaintiff in this case was the widow of a former employee of the Federal Express Corporation who had participated in the company’s group term life insurance policy, had suffered a stroke, had requested a personal leave of absence, and had been granted time off by FedEx. According to FedEx’s Employee Benefits Administration Department (EBA), “when an employee is on a personal leave of absence, premiums for group health coverage and life insurance coverage are no longer deducted from the employee’s paycheck, but must be remitted by the employee to FedEx.” The plaintiff’s husband continued to pay the required premiums in accordance with the EBA’s policy to maintain his group benefit coverage during his leave of absence.

FedEx terminated the plaintiff’s husband’s employment after he failed to return to work from his illness. His release from FedEx triggered his right to convert his FedEx group life insurance coverage to an individual life insurance policy. FedEx contended, however, that he never submitted a conversion application to the EBA prior to his death. As a result, his beneficiaries did not receive any life insurance payment upon his death.

The plaintiff sued under ERISA §1132(a)(2), asserting that she was entitled to the recovery of her husband’s life insurance benefits because FedEx had breached its fiduciary duty when it failed to provide documentation that it served a COBRA packet to her husband containing a life insurance conversion form. The plaintiff further claimed that FedEx abused its discretion by providing an inadequate explanation as to why he had not received his notice of conversion form after his employment was terminated. After the trial court ruled in favor of FedEx, the plaintiff appealed.

The circuit court affirmed, finding that the plaintiff was barred from recovering the life insurance benefits. The circuit court acknowledged that FedEx served as a fiduciary with respect to the plan, but found that ERISA §1132(a)(2) barred the plaintiff’s recovery for individual relief in the form of payment for the individual insurance policy and required that the plaintiff allege injury with respect to the actual plan. Simply put, the circuit court found, the record did not support the plaintiff’s claim that FedEx violated its duty with respect to anything other than the plaintiff’s individual claim. In addition, it found, the record did not provide any facts that tended to show that any claim other than the plaintiff’s was mishandled or that even if mishandling had occurred, that that conduct reached beyond the plaintiff and caused plan-wide injury. Under these circumstances, it found, the remedy the plaintiff sought could only be characterized as “personal.” Therefore, it ruled, the plaintiff’s claim was barred and she could not recover individualized benefits for breach of fiduciary duty based upon the plain language of ERISA and governing court decisions.

The circuit court also found that ERISA did not require that FedEx notify individuals of their life insurance conversion rights. According to the circuit court, ERISA does not contain any provision that requires a plan administrator to provide notice to plan participants other than a summary plan description and certain statutorily required information about the benefits plan. It concluded by noting that the plaintiff had not argued that she never had received a copy of the summary plan description or the other statutorily required information. [Walker v. Federal Express Corp., 2012 U.S. App. Lexis 14468 (6th Cir. July 11, 2012).]

Reprinted with permission from the November 2012 issue of the Employee Benefit Plan Review – From the Courts.  All rights reserved.

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