Court Dismisses LTD Claim For Failure To Exhaust Administrative Remedies

December 31, 2011 | Appeals | Employment & Labor | Insurance Coverage

As a full time employee of Toyota Motor Manufacturing North America, Inc., the plaintiff in this case qualified for and participated in Toyota’s short term disability (STD) and long term disability (LTD) plans. The plaintiff contended in his lawsuit that he met the definition of “disability” under both plans but that he had been wrongfully denied both short term and long term benefits. The defendant claims administrator moved to dismiss the plaintiff’s LTD benefits claim on the ground that he had failed to exhaust his administrative remedies because he never had submitted a claim for LTD benefits. Acknowledging that he had not applied for LTD benefits, the plaintiff argued that he was not required to do so because such an attempt would have been futile.

The court explained that the purposes of administrative exhaustion are to minimize the number of frivolous ERISA lawsuits; promote the consistent treatment of benefit claims; provide a non-adversarial dispute resolution process; and decrease the cost and time of claims settlement. The exhaustion of administrative remedies requirement enables plan fiduciaries to efficiently manage their funds, correct their errors, interpret plan provisions, and assemble a factual record to assist a court in reviewing decisions by fiduciaries. The court added that there was an exception to the administrative exhaustion requirement when it could be shown “by clear and positive indication” that a plaintiff’s pursuit of administrative remedies would be “futile.”  To meet this standard, a plaintiff must show that “it is certain that his claim will be denied on appeal, not merely that he doubts that an appeal will result in a different decision.” 

The plaintiff maintained that it would have been an act of futility to apply for LTD benefits because his claim for STD benefits had been denied and the same claims administrator who had denied his STD benefits claim also would have decided his LTD benefits claim – and would have done so under a more restrictive disability standard than his STD benefits claim. The court rejected that argument, explaining that the claims administrator did “not treat STD and LTD benefits claims as one in the same.” The plaintiff’s failure to file an application for LTD benefits resulted “in no administrative record” for the court to review, it noted. Moreover, the court pointed out, when the plaintiff filed his lawsuit, he was not even eligible to receive LTD benefits. Consequently, the court granted the defendant’s motion to dismiss, holding that the plaintiff could not prove that it was certain that his LTD benefits claim would have been denied and he failed to establish by a “clear and positive indication” that filing an LTD benefits claim would have been futile. [Fisk v. CIGNA Group Insurance, 2011 U.S. Dist. Lexis 113903 (E.D. Ky. Oct. 3, 2011).]

Michigan Court Enforces “Forum Selection Clause” And Transfers LTD Benefits Case To Missouri

The plaintiff in this case filed suit in a federal district court in Michigan challenging the defendants’ denial of her claim for long term disability benefits. The defendants moved to dismiss or, alternatively, to transfer the case – to change “venue” – on the ground that a forum selection clause in the plan provided that the plaintiff’s claims had to be adjudicated in the U.S. District Court for the Eastern District of Missouri.

In granting the defendants’ motion, the court explained that under federal law, the plaintiff could have brought her lawsuit in the district where the plan was administered, where the breach took place, or where the defendant resided or could be found. Because the plan administrator was a Missouri corporation with its principal place of business in St. Louis, Missouri, the Eastern District of Missouri was a district in which the plaintiff’s suit “could have been brought,” the court said.

The court then examined the plaintiff’s contention that the forum selection clause, which was added to the plan before the plaintiff had become disabled, had been obtained through “fraud” or “overreaching” because she had not been provided notice of the amendment to the plan that added the forum selection clause. The court rejected this argument. It explained that the plan was not a typical contract that was negotiated between the plaintiff and the defendant but rather was a welfare benefit plan negotiated by the plaintiff’s employer and the plan administrator. Thus, the court ruled, it could not find that “the [forum selection] clause was obtained by fraud, duress, or other unconscionable means” simply because it was unilaterally added to the plan allegedly without notice to the plaintiff. In the court’s view, where the plaintiff did not have bargaining power to negotiate the inclusion or exclusion of the forum selection clause, notice was “not relevant to determining whether the provision was freely negotiated and enforceable.”

Moreover, the court added, the Summary Plan Description (SPD), which the plaintiff conceded she had received, informed participants and beneficiaries of the plan administrator’s right to unilaterally amend, modify, or terminate the plan. The court noted that the SPD further informed participants and beneficiaries of their right to examine, without charge, or request copies of, all documents concerning the plan. Thus, participants and beneficiaries were on notice that additional terms applied to the plan and were provided the opportunity to review those terms, the court declared.  It then transferred the case to the Eastern District of Missouri. [Conte v. Ascension Health, 2011 U.S. Dist. Lexis 111657 (E.D. Mich. Sept. 28, 2011).]

Comment: A forum selection clause may be unenforceable where the designated forum would be so seriously inconvenient such that requiring the plaintiff to bring suit there would be unjust.  However, this factor is far less relevant in a lawsuit concerning the denial of ERISA benefits, particularly when the administrator is granted discretionary authority to make benefit determinations.  In such cases, a lawsuit generally is resolved without discovery or a trial and by the filing of cross-motions for summary judgment.  Under these circumstances, forum selection clauses in ERISA plans are generally enforced. 

“Temporary Impairment” Insufficient For Employee To Claim That He Was Disabled Under the ADA

In this case, the plaintiff alleged that he worked on and off as a motorman on a drilling rig, which involved very heavy manual labor, including repeatedly lifting and carrying 100 pounds. The plaintiff asserted that he fractured his left shoulder blade on the job and that his physician gave him a light-duty work restriction, which his employer accommodated by creating a light-duty position. During the next 13 months, the plaintiff remained on light duty and had two out-patient surgeries. During this time, his employer hired an extra hand on the rig to do the heavy lifting that the plaintiff could not perform because of his restrictions.

According to the plaintiff, he subsequently aggravated his shoulder injury, his physician imposed additional light-duty work restrictions on him, and his employment was terminated. The plaintiff was later rehired but after several months, the plaintiff started having problems with his shoulder again. Thereafter, his physician once again imposed light-duty restrictions, which included a lifting restriction of 50 pounds and his employment was again terminated. The plaintiff subsequently obtained a full-duty release, but asserted that the company would not allow him to return to work, and he was never re-hired.

The plaintiff brought suit against the company, contending that he suffered from a disability as defined by the Americans with Disabilities Act (ADA) and that the company had violated the ADA.

The court explained that the threshold issue was whether the plaintiff suffered from a disability protected by the ADA. The court explained that to be disabled within the meaning of the ADA, the plaintiff had to demonstrate that he had a mental or physical impairment that substantially limited one or more major life activities. It noted that an individual was “substantially limited” if he or she were unable to perform a major life activity that the average person in the general population could perform or were significantly restricted as to the condition, manner or duration under which he or she could perform a particular major life activity as compared to the condition, manner or duration under which the average person in the general population could perform that same major life activity.

The court then pointed out that, with respect to the major life activity of “working,” “substantially limits” meant “significantly restricted in the ability to perform either a class of jobs or a broad range of jobs in various classes as compared to the average person having comparable training, skills and abilities.” In addition, the court noted, the inability to perform “a single, particular job” did not constitute a substantial limitation in the major life activity of working.

The only impairment identified by the plaintiff, the court said, was his inability to perform heavy lifting from time to time. However, the court explained, “temporary impairments” were not sufficient to constitute “disabilities” under the ADA. Applying the protections of the ADA to temporary impairments would work a significant expansion of the ADA, the court said, because it was “not designed to protect the public from all adverse effects of ill-health and misfortune.” Rather, the ADA was designed to assure that truly disabled, but genuinely capable, individuals would not face discrimination in employment because of stereotypes about the insurmountability of their handicaps.

In any event, the court added, the plaintiff in this case had not produced anything more “than a scintilla of evidence at trial” that his 50 pound lifting restriction substantially limited his ability to work. Indeed, it said, there were many jobs that the plaintiff could have performed with a 50 pound lifting restriction for the company, including jobs that involved manual labor – and there were “numerous jobs” outside of the company that the plaintiff was qualified to perform with a 50 pound lifting restriction, “including lineman, hydraulic mechanic, electrician, plumber, driver, top-driver technician, carpenter, and iron worker.”

Accordingly, the court concluded that the plaintiff’s temporary restriction on heavy lifting did not “substantially limit” his ability to work, and it decided that he was not disabled for purposes of the ADA. [Chollett v. Patterson-Uti Drilling Services, LP, LLLP, 2011 U.S. Dist. Lexis 113113 (S.D. Tex. Sept. 30, 2011).]

Legitimate Reason For Sales Compensation Plan That Reduced Plaintiff’s Compensation Dooms ADEA Case

In this case, the 68 year old plaintiff brought an age discrimination claim against Offset Paperback Manufacturers, Inc., under the Age Discrimination in Employment Act (ADEA). He asserted that he had begun working for Offset in 1986 as a salesperson. He claimed that in 2006, Offset developed a discriminatory preference for youth that culminated in a drastic reduction in his compensation and several humiliating actions, such as temporarily moving him from an office to a cubicle.

Offset argued that it was entitled to summary judgment because it had a legitimate business reason for adopting a Sales Compensation Plan that modified the plaintiff’s compensation – and the compensation of all salespersons focused exclusively on sales work – that was not a pretext for discrimination. The plaintiff opposed the summary judgment motion, arguing that Offset lacked a legitimate explanation for its conduct.

To analyze the plaintiff’s age discrimination claim against Offset under the ADEA, the court applied the “burden-shifting framework” set forth by the U.S. Supreme Court. Under this framework, the plaintiff had the initial burden of establishing a prima facie case of discrimination. If the plaintiff did so, the burden shifted to the defendant to articulate “some legitimate, nondiscriminatory reason” for its action. If such a reason was provided, the plaintiff had to demonstrate that the proffered reason was a mere pretext for unlawful discrimination – and had to demonstrate, by a preponderance of the evidence, that age was the “but for” cause of the challenged adverse employment action and not just a contributing or motivating factor.

The court decided that the plaintiff had not presented a prima facie case, finding that there was not even a modicum of evidence that there was age discrimination.  Even if the plaintiff had presented a prima facie case, Offset had offered a legitimate explanation for introducing the Sales Compensation Plan. Specifically, Offset stated that it sought to tie employees’ compensation to business generation by implementing standardized, commission-based compensation. In light of Offset’s non-discriminatory business rationale for its Sales Compensation Plan, the court concluded that Offset had proffered a legitimate reason for its employment decisions affecting the plaintiff.

Therefore, the court found, the plaintiff had made “no showing whatever” that the non-discriminatory reason for the Sales Compensation Plan was a pretext. Also, it concluded, he had provided no basis for any conclusion that his age was the “but for” cause of the adoption of the plan. The court then dismissed the complaint. [Mickelsen v. Bertelsmann, 2011 U.S. Dist. Lexis 105953 (S.D.N.Y. Sept. 19, 2011).]

Courts Rejects Contention That “Plan Supervisor” Was De Facto Fiduciary; Dismisses Claims For Benefits

Throughout 2005 and 2008, the plaintiff was an employee of Jane Phillips Medical Center (JPMC) and a participant in JPMC’s group health plan. In April 2005, the plaintiff underwent a gastric bypass weight loss surgery to treat obesity. The 2005 bypass surgery was covered by the plan and benefits were paid to the extent of the plan’s maximum lifetime treatment coverage of $15,000 for morbid obesity. In 2008, the plaintiff experienced health problems including depression, lack of appetite, acid reflux, inability to keep solid foods down, and weight loss. The plaintiff sought treatment for these symptoms from her doctors and ultimately underwent two diagnostic/dilation procedures and surgery to repair an area of gastric stricture. The operative note from the surgery stated that the operation performed was a “[t]akedown of the gastrojejunostomy with reconstruction.”

The plaintiff sought coverage of these 2008 doctor visits and medical procedures by submitting health insurance claims to the plan, but the plan denied coverage for the vast majority of the monetary value of these claims. BMI HealthPlans, Inc. (“BMI”), the third party “Plan Supervisor,” and JPMC, the plan administrator, premised the denial of coverage on the plan’s $15,000 lifetime limit for medical services connected with morbid obesity and the determination that the 2008 procedures resulted from a complication of the original 2005 gastric bypass. The plaintiff disagreed, arguing instead that the gastric obstruction was caused by stress and resulting chronic acid reflux. After the plaintiff’s administrative remedies were exhausted, she sued BMI and JPMC.

BMI moved for summary judgment, arguing that it was not a proper party to the lawsuit as a matter of law because ERISA does not allow plan participants to sue non-fiduciary third party administrators. In response, the plaintiff argued that even though the plan stated that “At no time will the Plan Supervisor act as a fiduciary of the plan . . .,” BMI had acted outside its authority granted by the plan language and therefore was a de facto fiduciary of the plan.

The plaintiff contended that BMI was a fiduciary because it had discretionary authority or responsibility in the administration of the plan. The court, however, found nothing to support this allegation. The court said that it did not appear that BMI exercised any discretionary authority or responsibility, although it did appear that BMI undertook many “non-fiduciary” actions. The court pointed out that, for example, the claims forms submitted by the plaintiff demonstrated that BMI participated in processing claims, which was a non-fiduciary function. In addition, the claims payment printouts demonstrated that BMI undertook the non-fiduciary functions of calculating services and benefits, preparing reports regarding plan benefits, and processing claims.

Moreover, the court continued, the “explanation of benefits” letters provided to the plaintiff and the plaintiff’s initial request for review by BMI did not show that any fiduciary functions were undertaken by BMI. Although these documents demonstrated that BMI was granted authority to apply the plan rules to determine eligibility for benefits and the processing of claims, the court decided that that authority was “insufficient to demonstrate that BMI had any discretionary authority or control over plan administration.” As the court noted, even tasks that might otherwise require discretion but that were performed within the confines of plan policies and procedures were ministerial and non-fiduciary functions. Simply put, whether or not the explanation of benefits forms and initial appeal to BMI were completed in strict accordance with ERISA requirements, there was no evidence in these documents that BMI exercised any fiduciary authority over the plan, the court found.

The court therefore concluded that there was no evidence that BMI was a de facto fiduciary but rather found that it was a non-fiduciary third party administrator of the plan acting as agent for JPMC, the undisputed fiduciary administrator of the plan.  Accordingly, BMI could not be sued for the recovery of benefits under ERISA and the court granted judgment in its favor. [Wesson v. Jane Phillips Medical Center & Affiliates Employee Group Healthcare Plan, Premium Plan, 2011 U.S. Dist. Lexis 113155 (N.D. Okla. Sept. 30, 2011).]

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

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