Employee Benefit Plan Review – From the Courts – October 2016

October 17, 2016 | Employment & Labor | Insurance Coverage

Video Surveillance Properly Led Claim Administrator to Terminate Long-Term Disability Benefits, Eleventh Circuit Rules

The plaintiff in this case worked for JPMorgan Chase Bank as a technical operations lead – a sedentary position that required sitting most of the day – and had long-term disability insurance coverage as a participant in an employee welfare benefit plan sponsored by Chase. The plan was funded by an insurance policy issued to Chase by Hartford Life and Accident Insurance Company, which served as claim administrator for the plan.

On August 5, 2009, the plaintiff stopped working due to back pain. On November 24, 2009, an orthopedic surgeon performed back surgery on him.

On January 14, 2010, the plaintiff applied for long-term disability benefits. Based on medical information that it received, Hartford found the plaintiff disabled under the policy and approved his long-term disability claim, with benefits effective February 3, 2010.

In 2012, the plaintiff applied for Social Security disability benefits, citing his back injuries as proof of disability. The Social Security Administration (SSA) approved the plaintiff’s request for disability benefits on January 13, 2012.

The plaintiff received long-term disability benefits under the Chase plan but, as of February 3, 2012, when the initial two-year benefit period expired, he had to prove that he was unable to perform the essential duties of any occupation, not just his occupation, to continue receiving benefits. Hartford received sufficient information from the plaintiff’s orthopedic surgeon to continue paying long-term disability benefits to the plaintiff past the initial two-year benefit period.

In January 2014, at Hartford’s request, an investigative firm conducted video surveillance of the plaintiff. According to Hartford, the surveillance, which was taken over two days, showed that the plaintiff spent 45 minutes and 55 minutes, respectively, in a gym located in his residential community clubhouse. Hartford said that the surveillance showed that, each day, the plaintiff walked to the clubhouse, displaying no visible impairment and without the use of any assistive devices. (Hartford acknowledged that the surveillance video did not depict the plaintiff in the gym.)

Hartford arranged for a physician who was board certified in orthopedic surgery to conduct an independent medical examination (IME) of the plaintiff. In addition to his examination of the plaintiff, this physician reviewed the plaintiff’s medical records and the surveillance video.

On April 18, 2014, the physician reported that the plaintiff was “capable of employment” that involved sitting for no greater than 20 minutes at a time, and for up to six hours total in an eight-hour workday with frequent positional changes. He also opined that the plaintiff could stand for an hour and walk for an hour in an eight-hour work day.

On June 6, 2014, Hartford conducted an employability analysis of the plaintiff using a computer program called the “Occupational Access System,” which it described as “a computerized job-matching program that cross-references an individual’s capabilities and qualifications with 12,791 occupations as classified by the United States Department of Labor’s Dictionary of Occupational Titles.” Hartford concluded that five sedentary managerial occupations were suitable for the plaintiff based on his qualifications and the physical capabilities described by the physician who had conducted the IME of the plaintiff.

Accordingly, Hartford terminated the plaintiff’s benefits effective June 17, 2014. It explained to him that it had concluded that he had become capable of performing an “occupation.” In the notice, Hartford specifically acknowledged the plaintiff’s receipt of Social Security disability benefits and noted that it was possible to qualify for such benefits without continuing to qualify for private long-term disability benefits from Hartford. The notice also explained why Hartford had reached a different conclusion than the Social Security Administration had reached regarding disability benefits.

The plaintiff appealed the benefits termination decision on August 25, 2014, stressing that his injury was “a chronic condition” that rendered him “totally and completely disabled.” Additionally, he emphasized his receipt of Social Security disability benefits as alleged evidence of his continuing eligibility for long-term disability benefits under the Hartford policy.

By letter dated November 25, 2014, Hartford notified the plaintiff of its decision to uphold on appeal the termination of benefits effective June 17, 2014.

On January 15, 2015, the plaintiff, through his counsel, provided Hartford with a report from his orthopedic surgeon dated January 9, 2015 and told Hartford that there were “significant new findings” that led the orthopedic surgeon to conclude that the plaintiff was “now disabled from any type of employment.”

On February 16, 2015, Hartford advised the plaintiff that the decision to terminate his long-term disability benefits effective June 17, 2014 remained unchanged. Hartford emphasized that the plaintiff was able to perform full-time sedentary work between June 17, 2014, and January 9, 2015. Accordingly, it reasoned that the plaintiff had not met the definition of “disabled” during that period, and his benefits had been properly terminated. The plaintiff was no longer covered by the policy on January 10, 2015 because he was not employed by Chase at that time, and, therefore, he was not entitled to benefits even if he were disabled again at that time.

The plaintiff sued Hartford, challenging its decision to terminate his long-term disability benefits. The district court granted summary judgment to Hartford, and the plaintiff appealed to the U.S. Court of Appeals for the Eleventh Circuit.

The circuit court affirmed.

In its decision, it explained that, because the plaintiff’s coverage had been terminated in 2014, his reliance on his orthopedic surgeon’s January 2015 opinion could not help him reestablish disability benefits. The circuit court said that the fact that the plaintiff became disabled again as of January 9, 2015 did not change the fact that his disability coverage had previously terminated. Because the plaintiff’s benefits had been properly terminated in 2014, the circuit court concluded, he was not eligible under the plan in January 2015, when he became disabled again, given that he no longer was employed by Chase.

The Eleventh Circuit concluded by observing that the fact that the Social Security Administration had granted disability benefits to the plaintiff in 2012 was “of little consequence,” because, among other things, the determination of “disability” under the Hartford plan differed in “significant respects” from the framework that the Social Security Administration applied. [Sobh v. Hartford Life and Accident Ins. Co., 2016 U.S. App. Lexis 12144 (11th Cir. July 1, 2016).]

Employees Fired for Refusing to Be Interviewed as Part of Internal Investigation Were Not Entitled to Recover Benefits, Second Circuit Decides

In April 2004, the New York State Attorney General began investigating “contingent commission” arrangements by which insurance brokers were thought to be steering clients to particular insurance carriers. Marsh (that is, Marsh & McLennan Cos., Marsh Inc., Marsh USA Inc., and Marsh Global Broking Inc.), as one of the brokers under investigation, retained outside counsel to conduct an internal investigation of the Attorney General’s allegations. The internal investigation included interviews with two Marsh employees in the spring and summer of 2004.

The focus of the Attorney General’s investigation shifted, in September 2004, to an alleged bid-rigging scheme involving Marsh and several insurance carriers. On October 13, 2004, two individuals at American International Group, Inc. (AIG) pleaded guilty to felony complaints charging them with participation in a bid-rigging scheme with Marsh. In the allocution of one of the AIG employees, the same two Marsh employees were identified as co-conspirators.

The next day, the Attorney General filed a civil complaint against Marsh for alleged fraudulent business practices and antitrust violations.

Marsh’s stock price plunged, various private civil suits were filed, and Marsh’s directors, clients, and shareholders demanded answers to the bid-rigging allegations. Marsh responded by expanding its ongoing internal investigation and, on October 19, 2004, it suspended the two Marsh employees, with pay.

Around the same time, Marsh’s counsel asked the two Marsh employees to sit for interviews and warned them that failure to comply would result in termination.

Neither of the two Marsh employees complied with Marsh’s counsel’s requests that they sit for interviews by October 25. On October 27, 2004, the attorney for one of the two Marsh employees conveyed his refusal to Marsh’s law firm; Marsh fired him the next day.

On October 28, 2004, an attorney for the other of the two Marsh employees scheduled an interview for his client on November 2. On November 1, 2004, however, that employee submitted paperwork purporting to effectuate an early retirement; later that day, his attorney conveyed his refusal to be interviewed. Marsh fired that employee the next day, and did not accept his purported retirement.

Marsh took the position that it fired the two Marsh employees “for cause” and denied them unvested, deferred compensation under Marsh’s stock award plans as well as severance pay under its severance pay plan, which was governed by the Employee Retirement Income Security Act (ERISA).

The two Marsh employees sued Marsh to obtain the lost employment benefits, alleging violations of ERISA, breach of contract, and breach of the implied covenant of good faith and fair dealing. The district court granted summary judgment in favor of Marsh, concluding that the interview requests had been reasonable, that the refusal of the two Marsh employees to sit for interviews had given Marsh cause for termination, that Marsh in fact had fired them for cause (and had not breached the implied covenant of good faith and fair dealing), and that the purported retirement of one of the two Marsh employees had been ineffective.

The two Marsh employees appealed to the U.S. Court of Appeals for the Second Circuit, which affirmed.

In its decision, the Second Circuit pointed out that, under Delaware law, which governed Marsh’s employment contracts with the two Marsh employees, “cause” for termination included the refusal to “obey a direct, unequivocal, reasonable order of the employer.” It then decided that the demand that the two Marsh employees submit to interviews was reasonable as a matter of law because, at the time they were made, the two Marsh employees had been implicated in an alleged criminal conspiracy for acts that were within the scope of their employment and that imperiled the company.

The circuit court recognized that Marsh’s demands placed the two Marsh employees in the difficult position of choosing between employment and incrimination (assuming, of course, the truth of the allegations). It then stated that although the two Marsh employees “may have possessed the personal rights to [not sit for interviews], that [did] not immunize [them] from all collateral consequences that [came] from [those] act[s],” including leaving Marsh “with no practical option other than to remove [them].”

The Second Circuit also decided that Marsh had fired them for cause. The circuit court rejected the argument that the two Marsh employees had been fired as part of a routine reduction in force. It also was not persuaded by the argument that one of them could not be fired because he had preemptively resigned, explaining that the definitions of “cause” in Marsh’s stock award and severance plans would be rendered “meaningless or illusory” if an employee could preempt a known, imminent, for-cause termination with a voluntary retirement, and thereby reap all of the benefits of being a faithful employee.

Accordingly, the circuit court concluded, Marsh had cause to fire the two employees, as it had done, and they were entitled to none of the employment benefits they sought. [Gilman v. Marsh & McLennan Cos., Inc., 2016 U.S. App. Lexis 10937 (2d Cir. June 16, 2016).]

Fifth Circuit Affirms Decision Denying Life Insurance Benefits to Spouse of Husband Killed in Motorcycle Accident While on Active Duty

The plaintiff in this case worked for United Parcel Service (UPS) and participated in the UPS flexible benefits plan, which provided group life insurance coverage to UPS employees. The plaintiff purchased $500,000 in dependent insurance for her husband, an active-duty soldier in the U.S. Army stationed at Fort Hood in Texas.

The plaintiff’s husband was killed in a motorcycle accident in Texas while off base and not on duty. The plaintiff filed a claim for the life insurance benefits with the insurer, Prudential Life Insurance Company of America.

Prudential denied the plaintiff’s claim, relying on an exclusion for active-duty servicemen in the plan that provided that a spouse or domestic partner was not a “Qualified Dependent” while “on active duty in the armed forces of any country.”

The plaintiff twice appealed to Prudential, making two principal arguments. First, she argued that the active-duty exclusion had not been disclosed to her and, therefore, was not enforceable. She claimed that the only document she had received was a summary plan description (SPD) that did not list that exclusion. She also asserted that other documents that did contain the exclusion, such as an “Enrollment Kit” and “Certificate of Coverage,” had not been sent to her.

Second, she argued that the exclusion was unenforceable because it was contrary to Louisiana law.

Prudential denied both appeals and the plaintiff sued in federal court, seeking to recover benefits allegedly due to her under the Employee Retirement Income Security Act (ERISA).

The district court granted summary judgment to UPS and Prudential, holding that Prudential had correctly denied the plaintiff’s claim pursuant to the active-duty exclusion and that the exclusion was enforceable.

The plaintiff appealed to the U.S. Court of Appeals for the Fifth Circuit, which affirmed.

In its decision, the Fifth Circuit agreed with the district court and decided that Prudential had correctly interpreted the active-duty exclusion as barring the plaintiff’s claim. The circuit court pointed out that the plan indicated that a spouse was not a qualified dependent when the spouse was on active-duty in the armed forces of any country. Moreover, the circuit court continued, Prudential had not abused its discretion by interpreting the exclusion to apply regardless of whether a spouse was on military duty at the time of an occurrence. It said that the “only evidence” was that the plaintiff’s husband was an active-soldier, which was “a continuous status, 24/7/365, during the period of duty enlistment.” Benefits were not owed, the Fifth Circuit ruled, because he was not a “qualified dependent.”

The circuit court also rejected the plaintiff’s contention that the exclusion was not enforceable as to her claim because she had not been put on notice of it. The circuit court concluded that even if the SPD had not mentioned the exclusion, as Prudential had conceded, the plaintiff had only brought her claim to enforce the terms of the plan, not to seek equitable relief from it. The plaintiff’s claim that she was entitled to benefits under the plan required interpretation only of the terms of the plan – and the plan did “not allow benefits for a spouse who was on active military duty.” [Singletary v. United Parcel Service, Inc., 2016 U.S. App. Lexis 12475 (5th Cir. July 6, 2016).]

Tractor-Trailer Driver Who Did Not Meet DOT Standards Was Not Qualified for His Job under the ADA, Fifth Circuit Finds

On May 19, 2010, the plaintiff in this case – a tractor-trailer driver for J.B. Hunt Transport, Inc. – fainted at his home and was diagnosed with syncope, a temporary loss of consciousness and posture. The plaintiff went on medical leave the next day.

The physician who made this diagnosis recommended a diagnostic workup and advised that the plaintiff could return to work on June 1, 2010. He later extended the plaintiff’s return-to-work date to July 15, 2010. He also diagnosed the plaintiff with ventricular tachycardia (a rapid and irregular heartbeat).

On July 16, 2010, J.B. Hunt received a report from the physician noting the syncope and ventricular tachycardia diagnoses. J.B. Hunt forwarded that report to another physician, who wrote a letter to J.B. Hunt stating: “I have reviewed the Medical Condition Report you faxed to me. . . . At this time [the plaintiff’s] DOT Certification is rescinded until further clarification is received in regard to his medical problem.”

At some point after his medical leave expired, J.B. Hunt terminated the plaintiff. It said that it did so because he had not been medically certified to return to work.

The plaintiff sued J.B. Hunt, contending that he had been fired in violation of the Americans with Disabilities Act (ADA). The district court ruled in favor of the company, and the plaintiff appealed to the U.S. Court of Appeals for the Fifth Circuit, which affirmed.

In its decision, the circuit court decided that the plaintiff had failed to establish that he was qualified to be a tractor-trailer driver, which, it said, was an “essential element of his ADA claim.” The circuit court noted that a physician had rescinded the plaintiff’s DOT certification months before J.B. Hunt terminated him, and that he had never sought review under the DOT’s regulations. Because the plaintiff was not certified under the DOT’s medical standards at the time he was terminated, he was not qualified for his job under the ADA, and J.B. Hunt’s termination of the plaintiff had not violated the ADA, the circuit court concluded. [Williams v. J.B. Hunt Transport, Inc., 2016 U.S. App. Lexis 11170 (5th Cir. June 20, 2016).]

Willful Violation of FLSA Leads to Three-Year Statute of Limitations for Lawsuit, South Carolina Federal Court Says

In this case, current and former employees of Hymans Seafood Company, Inc., sued Hymans seeking, among other things, unpaid overtime compensation and minimum wages allegedly owed pursuant to the federal Fair Labor Standards Act (FLSA).

According to the plaintiffs, Hymans charged servers and bartenders a breakage fee to compensate for broken or missing plates, glasses and silverware. At the end of their shifts, the plaintiffs participated in what was called “tip-out.” At that time, the plaintiffs went to a manager and paid certain fees out of the tips they had earned during their shift. Although the categories of tip-out varied depending on whether the employee was a server or bartender, the plaintiffs were required to use the tips they earned during their shift to pay for a number of different things, including fees for breakage.

The parties sought summary judgment on the question of whether Hymans’ breakage fees constituted a willful violation of the FLSA. That was important because, if the plaintiffs could prove that Hymans had willfully violated the FLSA, their FLSA lawsuit would be subject to a three-year statute of limitations. On the other hand, if Hymans had not willfully violated the FLSA, their action would be subject to a two-year statute of limitations.

In its decision on the parties’ summary judgment motions, the district court explained that an FLSA violation was willful if the defendant “either knew or showed reckless disregard for the matter of whether its conduct was prohibited by the FLSA.” Hymans admitted liability as to the breakage fee that servers and bartenders were required to remit, but asserted that its violation had not been willful.

The district court disagreed with the company, and found that the plaintiffs had made a sufficient showing that the breakage fee was a willful violation of the FLSA.

According to the district court, the plaintiffs presented evidence that members of Hymans’ management team had been made aware that the tip-out policy was illegal. Moreover, the district court added, there was deposition testimony in which Mr. Hyman had admitted that he had not sought a legal opinion on his restaurant’s tip-pooling practices. The district court reasoned that those actions were sufficient to constitute reckless disregard for whether the policy violated the FLSA. [Alshehabi v. Hymans Seafood Co., Inc., 2016 U.S. Dist. Lexis 85177 (D.S.C. June 30, 2016).]

Circuit Court Upholds Denial of Severance Pay to Former Employee Who Erased Work Files on Company Laptop

The plaintiff in this case sold telecommunications services for Ericsson, Inc., for about three years before being laid off. Shortly after his termination, Ericsson presented him with a release and severance agreement. Under its terms, the plaintiff was required to waive certain claims against Ericsson and return Ericsson property in his possession. In exchange, Ericsson promised the plaintiff severance pay pursuant to the terms of both its Standard Severance Plan and its Top Contributor Enhanced Severance Plan, both of which were governed by ERISA and both of which gave the plan administrator complete “discretion and authority” to interpret their terms. Eligibility under both plans was conditioned on the plaintiff’s execution and nonrevocation of a “satisfactory waiver and release of claims in favor of Ericsson.”

Before the plaintiff returned his company laptop, he wiped the hard drive of all files, including ones related to work. He contended that he did this because of safety concerns about the storage of unspecified personal information and confidential Ericsson data on the unencrypted laptop.

Ericsson asserted that the erased work files were important because they were the only copies of the raw data supporting the plaintiff’s final deliverables. Because of the erased files, Ericsson determined that the plaintiff had not complied with the provision in the severance agreement requiring the return of all Ericsson property and it denied him any severance benefits.

The plaintiff sued Ericsson. The district court granted summary judgment in favor of Ericsson, ruling that the company had not abused its discretion in denying severance pay to the plaintiff.

The plaintiff appealed to the U.S. Court of Appeals for the Fifth Circuit, contending that the plans only conditioned severance pay on the signing of a “satisfactory waiver and release of claims” and did not mention a return of company property. In other words, the plaintiff argued that the “return of property provision” in the severance agreement went beyond the mere release of legal claims contemplated by the plans.

The circuit court affirmed the district court’s decision.

The circuit court conceded that there was “some force” to the plaintiff’s argument, but decided that there was “sufficient ambiguity” in the plans to support Ericsson’s interpretation that the return of property condition in the severance agreement was not inconsistent with the plans’ terms.

The Fifth Circuit pointed out that release agreements often contain provisions beyond the mere release of legal claims. It then said that even if the “waiver and release of claims” provisions in the plans were as limited as the plaintiff claimed, the standard plan stated only that releasing claims was a necessary condition of receiving severance pay – it did not state that it was a sufficient one.

In the circuit court’s view, given the absence of language entitling the plaintiff to severance pay based solely on the release of legal claims, the severance agreement was not inconsistent with the plans when it imposed other conditions “reasonably related to the termination of the employment relationship.” The Fifth Circuit added that a provision requiring the return of property at the end of one’s employment was (i) “reasonable and common”; (ii) an “expected part of a satisfactory departure from one’s employer”; and in line with the overall terms of the plans that were “aimed at providing severance to those who depart[ed] the company on good terms through no fault of their own.”

Accordingly, the circuit court concluded, the district court had not erred in ruling as a matter of law that Ericsson could deny severance benefits to the plaintiff where he failed to meet the return of property condition in the severance agreement. [Gomez v. Ericsson, Inc., 2016 U.S. App. Lexis 12604 (5th Cir. July 8, 2016).]

Reprinted with permission from the October 2016 issue of the Employee Benefit Plan Review – From the Courts.  All rights reserved.

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