Employee Benefit Plan Review – From the Courts

Florida Court Upholds Denial of Long-Term Disability Benefits to Employee Who Worked Fewer Hours 

The plaintiff in this case was a financial sales professional with AXA Equitable Insurance Company who said that he experienced neck and back pains stemming from motor vehicle and snowboarding injuries that he had suffered in 2003. The plaintiff regularly worked 70 to 75 hours per week until July 2008, but, after citing continued pain from his earlier injuries, he reduced his workload to 60 hours per week through February 2009 and then 45 hours and below per week thereafter.

The plaintiff was considered a full-time employee during that time because he met his sales goals as a sales associate.

In the fall of 2008, the plaintiff applied for long-term disability benefits under AXA’s long term disability plan, which was governed by the Employee Retirement Income Security Act of 1974 (ERISA). Metropolitan Life Insurance Company (MetLife), as the claims administrator, denied the plaintiff’s claim in October 2009.

The plaintiff appealed a number of times and MetLife upheld its decision in a final denial in April 2014. MetLife concluded that the plaintiff did not have a qualifying disability because he had been “actively at work” from 2008 through 2012; he could perform the essential functions of his job; and he had not suffered from “any functional limitations on performing his job” to at least 80 percent of his pre-disability earnings, so any later decline in hours had been self-imposed.

The plaintiff sued MetLife, and the parties moved for summary judgment. The U.S. District Court for the Southern District of Florida granted MetLife’s motion. The district court found that MetLife had reasonably interpreted the plan’s provisions and that it had reasonably concluded that the plaintiff was not entitled to long term disability benefits.

In its decision, the district court pointed out that, under the plan, an employee was “disabled” if, due to sickness or as a direct result of accidental injury, the employee could not meet certain levels of pre-disability earnings over time. An employee was in “active work” when the employee executed “all of the usual and customary duties” of the employee’s job. The district court noted that the plan specifically stated that MetLife considered an employee “recovered” from a “disability” when the employee returned to “active work.” Because the plaintiff was considered to be actively at work, he could not be “disabled” under the terms of the plan.

The district court concluded by upholding MetLife’s determination that the plaintiff had not experienced functional limitations due to his injuries based on the “file” reviews conducted by independent physicians retained by MetLife, where none of these physicians thought that the plaintiff had been functionally limited in conducting his sales associate duties. [German v. Metropolitan Life Ins. Co., 2016 U.S. Dist. Lexis 135845 (S.D. Fla. Sept. 30, 2016).]

Illinois Court Rejects Insurer’s Bid for Attorneys’ Fees, But Awards It Litigation Costs – of $17.50 

In April 2010, Aetna Life Insurance Company approved the plaintiff’s claim for long-term disability benefits, concluding that she was disabled from her own occupation as an account executive. That same month, the Social Security Administration approved the plaintiff’s request for Social Security benefits for herself and her dependent minor son.

In August 2012, however, Aetna informed the plaintiff that she no longer met the plan’s disability definition. The plaintiff appealed and, in May 2013, Aetna overturned its decision. Aetna reinstated the plaintiff’s long-term disability benefits, concluding that she met the definition of being totally disabled from any gainful occupation.

Later, in May 2014, Aetna terminated the plaintiff’s long-term disability benefits for the second time. Aetna based this decision on a number of factors, including:

1. Video surveillance footage showing the plaintiff driving a car, climbing in and out of the driver’s seat of a sport utility vehicle, shopping and walking with a normal gait, and not demonstrating outward signs of pain;
2. Physician reviews of the plaintiff’s medical history;
3. A nurse’s clinical review of the plaintiff’s medical file; and
4. A “transferrable skills assessment” to determine if any reasonable occupation existed for which the plaintiff was suited.

In February 2015, after reviewing the plaintiff’s arguments and supporting materials, Aetna denied her appeal.

The plaintiff then sued Aetna under the Employee Retirement Income Security Act of 1974 (ERISA), seeking the long-term disability benefits to which she claimed she was entitled.

The district court ruled in Aetna’s favor, and Aetna asked the court to award it $40,000 in attorneys’ fees, and $17.50 in costs for postage.

In its decision, the court explained that, in ERISA actions by a participant, beneficiary, or fiduciary, the court in its discretion may allow a reasonable attorneys’ fee and costs of action “to either party.” Moreover, the court observed, as long as a fee claimant had achieved some degree of success on the merits, a court’s discretion to award that claimant fees was “considerable.”

It then denied Aetna’s request for attorneys’ fees.

The court acknowledged that Aetna had achieved some “degree of success on the merits” when the court granted its motion for summary judgment. However, the court decided, the plaintiff’s position in the litigation had been “substantially justified and taken in good faith” and not for purposes of harassment.

The court said that she had faced an “uphill battle to prevail in her claim for benefits” but, that her position had not lacked a “solid basis.”  The court pointed out that Aetna had twice approved the plaintiff’s disability claim, adding that this bolstered the “reasonableness” of her litigation position. Moreover, the court noted, the Social Security Administration had approved the plaintiff’s claim, “further suggesting that her medical conditions were serious.”

In short, the court decided, the plaintiff’s litigation position was not so lacking in merit as to justify awarding attorneys’ fees to Aetna.

The court reached a different result with respect to Aetna’s motion for $17.50 in costs. It explained that postage was a recoverable cost under the federal rules, and that the plaintiff had not made an argument to the contrary. Therefore, it granted Aetna’s motion to recover $17.50 in costs. [Geiger v. Aetna Life Ins. Co., 2016 U.S. Dist. Lexis 131807 (N.D. Ill. Sept. 27, 2016).

Ballpark’s Concession Workers Were Not Entitled to Overtime under the FLSA, Second Circuit Decides 

The plaintiffs in this case worked concessions at Oriole Park, the home field of the Baltimore Orioles professional baseball team. They sued Delaware North Companies Sportservice Inc. (DNC Sportservice), seeking overtime compensation to which they contended they were entitled under the federal Fair Labor Standards Act (FLSA).

According to the plaintiffs, Maryland Sportservice, Inc., a wholly-owned subsidiary of DNC Sportservice, had entered into a concession agreement with the Baltimore Orioles Limited Partnership that granted Maryland Sportservice the right to operate the food, beverage, and merchandise sales concessions at Oriole Park.

Maryland Sportservice operated entirely within Oriole Park. On game days, Maryland Sportservice operated dozens of stands throughout the ballpark, selling food and beverages, or souvenirs and merchandise. Television monitors in the concourses showed the baseball game live so that baseball fans did not have to miss any of the action on the field when purchasing concessions at a stand.

Maryland Sportservice also operated numerous portable concession carts throughout the ballpark, and its vendors walked through the seating areas of the ballpark, selling food and beverages. These services were available only in connection with home baseball games being played at Oriole Park, and only to ticket holders who were at Oriole Park to watch a Major League Baseball game.

Other parts of Maryland Sportservice’s operations at Oriole Park occurred on non-game days. For one thing, it operated a number of clubs and lounges in the ballpark, which on game days were available only to ticket holders but also were available for rental on other days with food that it catered. In addition, it operated the Orioles Team Store, which sold Orioles apparel and team souvenirs, and Dempsey’s Brew Pub and Restaurant; both of these venues were in a separate section at Oriole Park and were open only to ticket holders on game days as well as to the public on non-game days and during the off-season.

The plaintiffs worked primarily as retail supervisors primarily at the Orioles Team Store but also did some work at the mini-gift and souvenir stands in Oriole Park. They said that they regularly worked in excess of 40 hours per week but that Maryland Sportservice classified them as exempt from the FLSA’s overtime provision pursuant to the FLSA’s “amusement or recreational establishment” exemption and paid them only their regular hourly rate for the excess hours.

The U.S. District Court for the Western District of New York rejected the plaintiffs’ arguments, and they appealed to the U.S. Court of Appeals for the Second Circuit.

The Second Circuit affirmed the district court.

In its decision, the circuit court pointed out that the food, drink, and merchandise sold by Maryland Sportservice at Oriole Park were “predominately for baseball game attendees’ use and consumption” as they watched the game, and that they enhanced the amusement or recreational value of watching the game. For this reason, it ruled, Maryland Sportservice’s operations had an “amusement or recreational” character because they provided a measure of amusement or recreation that otherwise would be absent from the stadium. Therefore, it found that these operations qualified for the FLSA’s “amusement or recreational establishment” exemption.

The circuit court continued its analysis by explaining that operating as an amusement or recreational establishment was not sufficient in and of itself to qualify for the FLSA exemption from overtime compensation. Rather, it said, the FLSA exempted such an establishment only “if (A) it does not operate for more than seven months in any calendar year, or (B) during the preceding calendar year, its average receipts for any six months of such year were not more than 33 1/3 per centum of its average receipts for the other six months of such year.”

It then concluded that the concession operations, which were primarily a seasonal business, satisfied the receipts test, and that the plaintiffs were not entitled to overtime under the FLSA. [Hill v. Delaware North Companies Sportservice, Inc., 2016 U.S. App. Lexis 17763 (2d Cir. Oct. 3, 2016).]

Coverage Ended Before Plaintiff Became Disabled and Could Not Work, Sixth Circuit Finds

The plaintiff in this case suffered from multiple chronic illnesses for many years. He was diagnosed with Crohn’s disease in 1990 and received regular treatment and two bowel resections. Over the years, he also was diagnosed with diabetes, hypertension, acid reflux disease, gall bladder disease, degenerative herniated disk disease, arthritis, anemia, depression, and anxiety.

The plaintiff worked as a staff attorney for Community Legal Aid Services (“CLAS”) in Ohio from 1998 through 2011. In April 2011, the plaintiff’s mother became seriously ill and, the plaintiff said, this led him to experience untreated depression, which coincided with the worsening of his Crohn’s symptoms. According to the plaintiff, he began to miss work to care for her and for himself in the months leading to the loss of his job. CLAS terminated the plaintiff’s employment on July 26, 2011. The plaintiff subsequently worked part-time as a delivery person for his sister’s flower shop.

At CLAS, the plaintiff participated in an employee benefit welfare plan subject to the Employee Retirement Income Security Act of 1974 (ERISA) that was insured and administrated by Standard Insurance Company. The plan provided long-term disability benefits to plan participants who became disabled according to the plan’s definition during their employment. The plaintiff’s coverage ended on July 26, 2011, the date his job ended.

On September 17, 2012, the plaintiff sought disability benefits from Standard, claiming that he had become unable to work at his occupation as a result of disability on July 25, 2011, and listing all the conditions noted above as contributing illnesses.

Standard denied the plaintiff’s claim, finding no evidence of work limitations prior to February 2012. After his appeals were denied, the plaintiff sued Standard.

The U.S. District Court for the Northern District of Ohio ruled in favor of Standard, and the plaintiff appealed to the U.S. Court of Appeals for the Sixth Circuit.

The Sixth Circuit affirmed.

In its decision, the circuit court explained that the evidence indicated that the plaintiff had not become unable to work until after his coverage had ended in July 2011. It pointed out that the medical records contemporaneous with the loss of the plaintiff’s job did not indicate a Crohn’s flare-up or other conditions suggesting an inability to work and that his CT scan and colonoscopy in April 2011 had raised no significant concerns.

The Sixth Circuit also pointed out that the timing of the medicines the plaintiff was prescribed suggested that the plaintiff had not been treated for severe Crohn’s disease in July.

In addition, the circuit court found that Standard’s denial had “resulted from a principled decision making process,” noting that Standard had consulted three physicians, including a psychiatrist, each of whom had conducted an independent review of the plaintiff’s medical records and claims. Standard’s letter of denial had “thoroughly documented the evidence in the record, explained the bases for Standard’s decision, and notified [the plaintiff] of his opportunities to appeal, including the deadline for seeking initial review.”

In this case, the Sixth Circuit said, the only question was whether the plaintiff had been disabled before his coverage had ended in July 2011. It concluded that the contemporaneous medical records did “not indicate that a combination of physical and mental conditions” had prevented the plaintiff from working in July 2011. [Connelly v. Standard Ins. Co., 2016 U.S. App. Lexis 18214 (6th Cir. Oct. 4, 2016).]

Employer’s Misrepresentations Regarding Employee’s Pension Credit Violated Its Fiduciary Duty, Sixth Circuit Rules 

On August 8, 1983, the plaintiff in this case began working as a maintenance manager in Canada for Firestone, which was acquired by Bridgestone in 1988. In late 1992, the plaintiff’s plant manager made him aware of a job opportunity at one of Bridgestone’s plants in Wilson, North Carolina. In early 1993, the plaintiff began discussing the prospect of employment at the Wilson plant with the plant manager there.

Feeling that it was in his best interest to negotiate his benefits during the hiring process, the plaintiff said that he discussed his pension benefits with the plant manager. Specifically, he said that he communicated to his interviewers his concern that his service date for those benefits would be set as August 8, 1983, his start date at the Canadian facility, so that he would not lose his pension credit for his 10 years of work there.

According to the plaintiff, a few weeks later, the plant manager contacted him to assure him that he would be given pension credit back to August 8, 1983. The plaintiff then took the job in North Carolina.

Through his years of employment at Bridgestone, the plaintiff’s belief regarding the service date for his pension benefits was confirmed by written materials such as benefit summaries and materials made available online. Many of these documents included a disclaimer warning that the document was “only an estimate of your pension benefits” and that the pension plan documents governed “all benefits.”

In either 2009 or 2010, Bridgestone investigated and corrected errors in the service dates of various employees who had been employed by Bridgestone abroad and had later transferred to a facility in the United States. Around August 2010, the plaintiff discovered that his service date had changed from 1983 to 1993, causing him not to receive pension credit for his 10 years of employment in Canada.

The plaintiff sued, contending, among other things, that Bridgestone had breached its fiduciary duty to him. The plaintiff claimed that, as a result, Bridgestone should be barred from arguing that he was not entitled to receive credit for the years he had worked in Canada.

The parties moved for summary judgment. The U.S. District Court for the Middle District of Tennessee granted the plaintiff’s motion, and Bridgestone appealed to the U.S. Court of Appeals for the Sixth Circuit.

The circuit court affirmed.

In its decision, the circuit court explained that, to succeed on his breach of fiduciary duty claim against Bridgestone, the plaintiff had to show that:

1. Bridgestone had acted in a fiduciary capacity in making misrepresentations to him;
2. Those misrepresentations had been material; and (3) The plaintiff had detrimentally relied on the misrepresentations.

The Sixth Circuit noted that there was no dispute about the second element, and it then examined whether Bridgestone had acted as a fiduciary to the plaintiff. It decided that it had.

The circuit court explained that ERISA defined a fiduciary to include a corporation that “exercises any discretionary authority or discretionary control respecting management of [a] plan” or “has any discretionary authority or discretionary responsibility in the administration of such plan.”

Therefore, the circuit court continued, an employer may “act[] in a fiduciary capacity when making misrepresentations to its employees about their benefit plan.” (Purely “ministerial functions” such as processing claims, applying plan eligibility rules, communicating with employees, and calculating benefits, are not fiduciary functions.)

The Sixth Circuit pointed out that, in response to a direct inquiry from the plaintiff, Bridgestone, through its agents, had confirmed that the plaintiff’s service date would be August 8, 1983, allowing him to receive pension credit for his years of employment at Bridgestone. This act, the circuit court ruled, was a “discretionary one within the meaning of ERISA” because it involved conveying information about the plan’s terms and the likely benefits that the plaintiff would receive in the future, thus purportedly allowing him to make an informed choice about his continued participation in the plan. Accordingly, it decided, Bridgestone had acted as a fiduciary when, through its agents, it had misrepresented to the plaintiff the status of his pension benefits.

The circuit court also found that the plaintiff had reasonably relied on Bridgestone’s misrepresentations to his detriment: he had not decided not to take a job at a more competitive salary than he was receiving at Bridgestone because of what he thought his pension benefits were at Bridgestone. Because Bridgestone had acted in its fiduciary capacity in misrepresenting the plaintiff’s pension benefits, the Sixth Circuit concluded that the district court had not erred in granting summary judgment for the plaintiff on his breach of fiduciary duty claim. [Deschamps v. Bridgestone Americas, Inc. Salaried Employees Retirement Plan, 2016 U.S. App. Lexis 16839 (6th Cir. Sept. 12, 2016).]

Employee’s Death One Week Before Retirement Date Doomed Children’s Claim for Annuity, First Circuit Says

Brian O’Shea worked for United Parcel Service of America, Inc. (UPS) for 37 years. As an employee of UPS, he participated in the UPS retirement plan.

In 2008, O’Shea was diagnosed with cancer. He became eligible for retirement in 2009, and decided to retire at the end of that year.

O’Shea met with a UPS human resources (HR) supervisor to discuss the logistics of his retirement in December 2009. The HR supervisor informed him that he could maximize his time on payroll by taking his seven weeks of accrued vacation and personal time and, thus, delaying his official retirement date. It apparently was standard practice for UPS to advise its employees that they could redeem their vacation time before officially retiring. The HR supervisor, however, was not aware at the time that O’Shea was terminally ill.

O’Shea took the HR supervisor’s advice. He submitted his retirement application on January 7, 2010, his last day of work, and indicated that his annuity starting date would be March 1, 2010, the day after his official retirement date of February 28, 2010. He chose the “Single Life Annuity with 120-Month Guarantee” from a host of annuity payment plan options available under the plan, and named his four children as his beneficiaries. Under his selected annuity, “a reduced benefit [would] be paid to [O’Shea] for his lifetime, with a guarantee of 120 monthly payments.”

The application for retirement benefits, executed by O’Shea, provided:

I will receive a monthly benefit for my lifetime with a guarantee of monthly payments for a period of 10 years. If I die within the 10-year guarantee period, my beneficiar[ies] will continue to receive my monthly benefit amount for the remainder of the guarantee period.

The section of the application where O’Shea listed his beneficiaries’ information provided:

If you die before the guarantee period ends, your designated beneficiar[ies] will receive payments for the remainder of the guarantee period.

The retirement benefits application did not specifically indicate that surviving to the annuity starting date (i.e., March 1, 2010, the day after his official retirement date) was a prerequisite to the 10-year payment guarantee.

The retirement benefits application did explain, however, that the summarized benefit plan designations would be paid “subject to the terms” of the plan.” The plan, describing the “Single Life Annuity with 120-Payment Guarantee” selected by O’Shea, clarified that:

If the Participant dies after the Annuity Starting Date but before receiving 120 monthly payments, the monthly payments shall be paid to the Participant’s Beneficiary….

The only provision of the plan that explicitly provided for a retirement benefit if a participant died prior to their annuity starting date, Section 5.6, stated:

If a vested Participant dies prior to his Annuity Starting Date, his Spouse or Domestic Partner will be entitled to receive a Preretirement Survivor Annuity….

O’Shea died on February 21, 2010, one week before his official retirement date, and eight days before his annuity starting date. About a month later, the UPS Retirement Plan Administrative Committee – the plan’s claims administrator – sent O’Shea’s children a letter denying them payments under the annuity plan. The committee explained that only O’Shea’s spouse, if he had one, would be able to recover under the plan.

The children appealed this decision, believing that the 10 years of annuity payments were guaranteed to them regardless of when their father died. In particular, they argued that nothing in the plan explained what happened “if you select the ‘Single Life Certain Annuity With 10-Year Payment Guarantee’ … and you die before you retire (without a spouse or partner).”

The committee denied the appeal, explaining that annuity payments only were guaranteed if O’Shea survived to his annuity starting date. The children sued, seeking recovery of the 10 years of annuity payments they alleged had been “guaranteed” under the plan.

The U.S. District Court for the District of Massachusetts ruled in favor of the plan, and the children appealed to the U.S. Court of Appeals for the First Circuit.

The circuit court affirmed.

In its decision, the circuit court noted that Section 5.6 of the plan, which provided for payments to a participant’s spouse or domestic partner if the participant died before the annuity starting date, was “the only provision” in the entire plan that provided for a benefit when a participant died before the annuity starting date. The First Circuit said that because no other term in the plan provided a benefit in that circumstance, UPS’s interpretation – that Section 5.6 provided the exclusive benefit when a participant died before the annuity starting date – certainly was within “the bounds of reasonableness.”

The First Circuit concluded that because O’Shea had passed away before his annuity start date, UPS had reasonably determined that his spouse (or domestic partner) was entitled to the “Preretirement Survivor Annuity,” but that his children were not entitled to the “Single Life Annuity with 120-Month Guarantee.” [O’Shea v. UPS Retirement Plan, 2016 U.S. App. Lexis 16734 (1st Cir. Sept. 13, 2016).]

Reprinted with permission from the January 2017 issue of the Employee Benefit Plan Review – From the Courts.  All rights reserved.