Court Dismisses Breach of Fiduciary Duty Claim against Disability Plan Administrator for Failing to Provide Plan Summary

August 31, 2013 | Appeals | Employment & Labor | Insurance Coverage

After her claim for benefits was denied, the plaintiff in this case, a former employee of Corning Incorporated and a participant in the Corning Incorporated Long Term Disability Plan, sued the plan administrator – the Corning Benefits Committee – for breach of fiduciary duty by virtue of its alleged failure to furnish her with a copy of the summary plan description. The plaintiff asserted that because she had not read the plan summary, she was unaware of the “arbitrary and capricious” standard of review that it stated would apply to any decision by the committee to deny benefits. The plaintiff contended that had she known that the “arbitrary and capricious” standard would be applied to the committee’s decisions, she would have stopped paying premiums on the plan and, instead, would have sought “consumer-friendly” disability insurance that did not incorporate that standard. She argued that she had been harmed by paying premiums for a plan about which she had not been fully informed, and she sought damages in the amount of “the value of coverage which does not designate the carrier or administrator as entity [sic] with ‘sole and exclusive authority’ to determine benefit questions.” The committee moved to dismiss the plaintiff’s claim for breach of fiduciary duty.

In its decision, the court rejected the plaintiff’s argument that the committee’s alleged failure to provide her with the plan summary had harmed her because she had lost the opportunity to gain alternate insurance coverage and to appeal unfavorable decisions by plan administrators without their decision making being subject to any special deference.

For purposes of its analysis, the court accepted as true the plaintiff’s contention that, had she been aware of the plan’s provision that an “arbitrary and capricious” standard would apply to the review of benefits decisions by the committee, she would have stopped paying premiums under the plan and would have sought “consumer-friendly” insurance with a standard of review more favorable to her. The court found, however, that “connecting this factual allegation with the kind of damages alleged” by the plaintiff required a series of “prodigiously expansive conjectural leaps.”

The court reasoned that one had to speculate that “consumer-friendly” coverage such as that described by the plaintiff actually existed, that the plaintiff would have been eligible for it and would have been successful in obtaining it prior to her injury, and that she would have paid all necessary premiums to establish her entitlement to its benefits.

The court added that it also would have had to assume that the “consumer-friendly” plan administrator would have made a disability determination that would have provided the plaintiff with greater or more extended financial benefits than the Corning plan and that those benefits would not have been subsumed by any cost differences between the two plans, or that in the event of an unfavorable determination by the “consumer-friendly” plan administrator, the plaintiff’s success in appealing it would have been guaranteed.

Simply put, the court ruled, the chain of factual assumptions required to connect the plaintiff’s allegations of breach of fiduciary duty with her alleged harm was “so attenuated and speculative as to transport her claim outside the realm of plausibility.” The court concluded, therefore, that the plaintiff had failed to sufficiently allege the actual harm required to sustain her breach of fiduciary duty claim, and it granted the committee’s motion to dismiss it. [Miles v. Corning Inc. Long Term Disability Plan, 2013 U.S. Dist. LEXIS 79001 (W.D.N.Y. June 5, 2013).]

Court Upholds Workers’ Compensation Board’s Decision Awarding Benefits for “Psychic Injury”

The claimant in this case performed human resources work for her employer that required that she frequently travel between her office and New York City; her employer covered her travel and lodging expenses. New York State officials investigated an anonymous complaint regarding the claimant’s travel and determined that she had committed no wrongdoing, but referred the matter to the New York State Comptroller to assess the tax implications of the claimant’s employer’s travel reimbursement practices.

The comptroller ultimately determined that, to correct the employer’s reimbursement practices that violated Internal Revenue Service rules, the claimant should be deemed to have earned over $100,000 in additional income as a result of those practices. The comptroller also decided that the claimant was responsible for paying back taxes and penalties on that amount.

The claimant asserted that she had incurred a “psychic injury” upon learning of the comptroller’s findings, and she thereafter applied for workers’ compensation benefits. The New York Workers’ Compensation Board approved her claim and rejected the argument advanced by the claimant’s employer and its workers’ compensation insurance carrier that her claim was barred by New York workers’ compensation law, and they sought judicial review.

The court affirmed the board’s determination.  It explained that, under New York workers’ compensation law, a workers’ compensation claim for psychic injury stemming from work-related stress was not compensable if it were “a direct consequence of a lawful personnel decision involving a disciplinary action, work evaluation, job transfer, demotion, or termination taken in good faith by the employer.”

The court found, however, that the claimant had not been accused of any wrongdoing by her employer. Instead, it ruled, her mental injury stemmed from the “serious financial liabilities she incurred as a result of a review of the employer’s reimbursement practices.” The court found that because that audit was not “aimed at” the claimant, substantial evidence supported the board’s determination that her resulting mental injury was not the direct consequence of a disciplinary action or work evaluation that would have barred her workers’ compensation claim.

Moreover, the court decided that it would not disturb the board’s determination that the stress that the claimant had experienced was greater than that generally experienced by similarly situated workers in a normal work environment, ruling that that factual finding was supported by substantial evidence.  In the court’s view, the stress suffered by the claimant from being advised that she was responsible for taxes and penalties on over $100,000 of imputed income due to her employer’s mistaken reimbursement practices, with no wrongdoing on her own part, along with her knowledge that she was not financially in a position to handle that substantial liability, “was not a normal occurrence in the workplace and exceeded the typical stress associated with claimant’s position.” [Matter of Claim of Brittain v. New York State Insurance Dep’t, 2013 N.Y. App. Div. LEXIS 4772 (N.Y. App. Div. 3d Dep’t June 27, 2013).]

Court Upholds Administrator’s Denial of AD&D Benefits for Insured Who Died in Motorcycle Accident While Under the Influence of Alcohol and Marijuana

The plaintiff’s husband, a Citigroup employee, was killed when he was riding his motorcycle eastbound on Colorado Highway 72 in Boulder, Colorado. He skidded off the road, was thrown from his motorcycle, and collided with a tree. Thereafter, the plaintiff sought to recover accidental death and dismemberment benefits under an insurance policy issued to Citigroup N.A. by Life Insurance Company of North America (LINA). The policy provided that LINA would “pay benefits for loss from bodily injuries: a) caused by an accident which happens while an insured is covered by this policy; and b) which, directly and from no other causes, result in a covered loss.” In her claim, the plaintiff stated that “something or someone forced” her husband “off the road at mile marker 43 and he was thrown from his motorcycle and fell 20 feet [and] died.”

LINA denied the plaintiff’s claim, asserting that an investigation showed that, at the time of the accident, the plaintiff’s husband had a 0.176 gm/dL blood alcohol concentration (BAC) (twice the legal limit in Colorado) and had tested positive for marijuana. In its denial letter to the plaintiff, LINA said that under the policy an accident was a “sudden, unforeseeable, external event” and that a loss that resulted from an action whose outcome was “reasonably foreseeable” was not a covered accident. LINA explained that “[s]erious injury and death” were “foreseeable outcomes of operating a motor vehicle while legally intoxicated.” Thus, LINA determined that a loss resulting from “driving while under the influence of alcohol” was not an unforeseeable covered accident. LINA’s letter stated that if the plaintiff could prove that her husband’s death “did not result from driving under the influence of alcohol or THC [marijuana],” it would reconsider her claim.

The plaintiff appealed LINA’s initial decision, contending that LINA’s denial was based on insufficient facts and incorrect analysis and reiterating that her husband’s death had been “the result of an unforeseen and unexpected circumstance in the roadway, which he attempted to avoid, but which caused him to lose control of the motorcycle and crash. His death was an accident, which is not altered by the findings of the toxicological studies.” LINA affirmed its initial decision, the plaintiff sued, and the parties cross-moved for judgment on the administrative record.

The court granted LINA’s motion. In its decision, the court observed that the policy did not define “accident,” but that LINA, in its initial denial letter, had defined “accident” as a “sudden, unforeseeable, external event.” The court then rejected the plaintiff’s argument that although the risks of operating a vehicle under the influence of drugs and alcohol were known, a collision and death under such circumstances was not intended, expected, or foreseeable because people frequently operated vehicles when impaired by drugs and alcohol without incident.

The court reasoned that given his experience riding his motorcycle on the road where he had been killed, the plaintiff’s husband “should have expected that it was highly likely he could be injured or killed if he rode his motorcycle downhill towards a curve while impaired by his consumption of alcohol and marijuana.”

Moreover, the court found that a “reasonable person” in the plaintiff’s husband’s position also would have viewed injury or death as “highly likely to occur as a result of riding a motorcycle under similar facts.” It explained that a “reasonable person” with the plaintiff’s husband’s college education and experience riding a motorcycle on the road on which he had his accident “would know the dangerous effects that alcohol and marijuana would have on the ability to ride downhill towards a curve.” Importantly, the court concluded, there were “no other factors that could have contributed to [his] loss of control, crash and death.” [Clark v. Life Ins. Co. of North America, 2013 U.S. Dist. LEXIS 85541 (N.D. Ga. June 18, 2013).]

Overruling Workers’ Compensation Board, Court Decides that Injuries Suffered by Team Leader During Off-Work Trip to Pick Up Paychecks Occurred in the Course of Her Employment

The claimant in this case worked for her employer as a “team leader” and, in that capacity, led a three-person crew assigned to clean a particular store near Portland, Oregon. The claimant’s crew was one of several in the Portland area; each was led by a team leader.

As a team leader, the claimant was responsible for receiving paychecks from her employer and distributing the paychecks to the members of her crew. The paychecks were delivered by an outside provider to her employer’s Tacoma, Washington office on the third and 23rd day of each month. The employer allowed local team leaders, including those from Portland, to travel to the Tacoma office, pick up paychecks for multiple crews, and then distribute them at prearranged sites; the employer did not knowingly pay team leaders for any time that they spent doing so. Team leaders who wanted to pick up paychecks were required to call or arrive at the Tacoma office by 3:00 p.m. Otherwise, the employer’s office manager would mail the paychecks to the team leaders for distribution to their crew members. Six or seven of the Portland crews routinely sent one or more team leaders to the Tacoma office to pick up paychecks. Alternatively, a district manager sometimes drove the paychecks from the Tacoma office to the Portland area for distribution.

On December 3, 2008, the claimant received a call at home from another team leader who explained that he could not drive to Tacoma that day to pick up the paychecks as planned and asked if the claimant could do so instead. The claimant agreed and arranged to drive to Tacoma with another employee in that employee’s vehicle. While traveling to Tacoma, they were involved in a car accident, and the claimant was injured.  The claimant subsequently submitted a workers’ compensation claim for the injuries she suffered.

The employer denied the claimant’s workers’ compensation claim on the ground that her injuries did not arise out of or in the course of her employment. An administrative law judge upheld that denial, as did Oregon’s Workers’ Compensation Board, which concluded that the claimant’s injuries had not occurred in the course of her employment. The board reasoned that claimant was “off work, not being paid, and was free to use her time as she wished” when the accident had occurred. Although the board noted that the “employer permitted team leaders to pick up the paychecks in person,” it found that the claimant “was neither required nor expected to pick up paychecks as a team leader” but that she had done so “because she needed the money right away.” It also decided that the claimant’s activity had “provided no benefit to her employer.”

On judicial review, the claimant challenged the board’s conclusion that her injuries had not occurred in the course of her employment. The court agreed with the claimant and ruled that her injuries in fact had occurred in the course of her employment. Put simply, the court ruled, the claimant was injured while performing a duty of her employment: receiving paychecks from her employer so that she could then distribute them to members of her crew.

In the court’s view, it was “immaterial” that the claimant had not been required to travel to the Tacoma office to receive the paychecks because she was required, as a team leader, to receive and distribute the paychecks to the members of her crew. The court noted that the employer provided local team leaders with two means of fulfilling that obligation: they could either (1) travel to the Tacoma office to pick up the paychecks, or (2) wait for the paychecks to be delivered or mailed. It added that, as the board had found, although the employer did not require or expect team leaders to pick up the paychecks at the Tacoma office, the employer “coordinated that activity by establishing rules governing when and how team leaders could do so.” Moreover, it continued, the fact that the claimant may have been motivated by a desire to receive her own paycheck sooner did “not mean that her conduct was not connected with work.”

Accordingly, the court ruled that the claimant’s trip to the Tacoma office was an off-premises work activity—picking up paychecks at the Tacoma office to distribute to fellow employees—that was contemplated (and coordinated) by her employer and that provided a benefit to her employer. Thus, the court concluded, the claimant’s injuries had occurred in the course of her employment. [Matter of the Compensation of Mendoza v. Liberty Northwest Ins. Corp., 2013 Ore. App. LEXIS 691 (Ore. Ct. App. June 12, 2013).]

Appeals Court Denies Coverage Under Health Policy Where Insured Failed to Timely Enroll Newborn For Coverage

In a lawsuit she filed against Blue Shield of California Life & Health Insurance Company, the plaintiff in this case alleged that she had purchased a contract of family health insurance from Blue Shield that, effective March 1, 2009, provided benefits to her, her spouse, and her children; that her son was born on January 25, 2010; that on or about March 1, 2010, her newborn son was admitted to a hospital for medical care and was discharged on or about March 13, 2010; that the hospital issued a bill for over $182,000 in medical services and that other contractors at the hospital issued separate invoices; and that the type of services provided to her newborn son at the hospital were covered under the policy, but that Blue Shield had refused to pay for the care her son had received.

Blue Shield asserted that it was entitled to summary judgment because the plaintiff had failed to send Blue Shield a timely subscriber change request adding her newborn baby to the policy. As a result, Blue Shield argued, the baby was not an insured under the policy at the time of his hospitalization and, thus, all causes of action against it had to fail as a matter of law.

The trial court denied Blue Shield’s motion for summary judgment, finding that it had known that the plaintiff was expecting a child, that it had communicated with her about her delivery date, and that it had received claims for the baby’s coverage several days after his birth with the plaintiff’s subscriber information number and the baby’s home address. 

Blue Shield appealed, asserting that even though it had been aware that the plaintiff was pregnant and had accepted claims incurred by the baby within the initial 31-day period of coverage after his birth in accordance with the terms of the policy, this did not raise a triable issue of material fact, as the trial court had determined. Rather, Blue Shield contended, the issue remained one of law: whether Blue Shield could be held liable for nonpayment when the policy specifically provided that coverage for a newborn child did not extend beyond 31 days unless a subscriber change request form was submitted to Blue Shield.

The appellate court agreed with Blue Shield. It observed that the policy clearly and unambiguously provided in paragraph 3 under “Conditions of Coverage, Enrollment,” that “[t]he Effective Date of the benefits of a newborn child will be the date of birth subject to the section entitled LIMITATION OF ENROLLMENT.” The court added that the policy also provided that coverage of a newborn child whose effective date of coverage was established as his or her date of birth under paragraph 3 “shall terminate on the 32nd day following that Dependent’s Effective Date unless a Subscriber Change Request for the Dependent is submitted to Blue Shield Life prior to such 32nd day.”

The appellate court rejected the plaintiff’s argument that notice should have been imputed to Blue Shield on the grounds that it had received all the information necessary to include the plaintiff’s baby in the policy within the 31-day period, ruling that that contention ignored the fact that the policy required that the subscriber notify Blue Shield by a written subscriber change request that the subscriber wished to continue coverage for the newborn child beyond the 31-day period following birth. That notification, the appellate court decided, was an “affirmative requirement and a condition precedent to continued coverage for a newborn child” under the policy.

Because the plaintiff had not provided the required notice within the time frame set forth in the policy, the appellate court concluded that the trial court should have entered summary judgment in favor of Blue Shield. [Blue Shield of California Life & Health Ins. Co. v. Superior Court, No. A138356 (Cal. Ct. App. 1st App. Dist. May 30, 2013).]

Reprinted with permission from the September 2013 issue of the Employee Benefit Plan Review – From the Courts.  All rights reserved.

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