Employee Benefit Plan Review – From the Courts

November 21, 2016 | Employment & Labor | Insurance Coverage

Company’s COBRA Breach Justified Award of Premiums to Former Employee, Eighth Circuit Rules

When Health Resources of Arkansas, Inc. (HRA) reduced its work force in response to financial difficulties in 2012, the plaintiff in this case was 57 years old and had been working for HRA since 1987. She had worked her way up from secretary to the position of director of medical records, privacy officer for the Health Insurance Portability and Accountability Act (HIPAA), and patient payee.

On July 9, 2012, HRA notified the plaintiff that her position was being eliminated and that her last day of employment would be August 7.

Then, on July 13, 2012, HRA notified the plaintiff that it was immediately terminating her due to “insubordination.”

The plaintiff filed a grievance and, on October 17, 2012, HRA agreed to change the plaintiff’s termination of employment to “a lay-off due to elimination of [her] position.”

After the plaintiff left HRA, she elected to continue coverage under her employer-based group health plan. Despite the plaintiff’s having timely elected coverage and having made premium payments, the plan administrator for HRA failed to take the steps needed to continue the plaintiff’s coverage. As a result, the plaintiff was without coverage for over six months.

The plaintiff sued HRA under the federal Age Discrimination in Employment Act of 1967 (ADEA), the Consolidated Omnibus Reconciliation Act of 1985 (COBRA), and the Employee Retirement Income Security Act of 1974 (ERISA). A jury awarded $67,000 in damages to the plaintiff on her ADEA claim and found that HRA’s violation had been willful. On the basis of the jury’s willfulness finding, the district court awarded the plaintiff liquidated damages of $67,000 and front pay of $20,483.05.

The district court also awarded the plaintiff equitable relief under COBRA and ERISA. In particular, the district court awarded the plaintiff the amount of her group health plan premium payments for HRA’s violations of ERISA.

HRA appealed to the U.S. Court of Appeals for the Eighth Circuit, which affirmed the district court’s decision.

The circuit court first found that there was sufficient evidence for the jury’s verdict.

It then upheld the district court’s decision to award the plaintiff her premium payments.

The circuit court reasoned that, under the COBRA amendment to ERISA, HRA was under a duty to provide continuing coverage to the plaintiff after she left the company and requested that coverage. The circuit court upheld the district court’s finding that the plan administrator had failed to take steps necessary to continue coverage, and agreed with the district court that premium payments were an “appropriate equitable remedy for that violation.” [Smith v. Health Resources of Arkansas, Inc., 2016 U.S. App. Lexis 13630 (8th Cir. July 27, 2016).]

Sixth Circuit Upholds Decision Denying Long Term Disability Benefits to Nurse Who Could Work in a Sedentary Job

The plaintiff in this case, a nurse, contended that her divorce had led to emotional distress that had resulted in physical and medical manifestations. She left her job and sought disability benefits under her employer’s long term disability insurance plan. Unum Group, the plan payer and the plan administrator, paid the plaintiff benefits for two years under the plan.

Under the terms of the plan, to continue to receive benefits beyond that two-year point, the plaintiff had to show that she was incapable of engaging in even a purely sedentary occupation. Unum determined, however, that the plaintiff could perform a sedentary occupation.

According to Unum, the plaintiff’s file contained multiple MRIs that revealed no degenerative back problem that would explain or support her claims of a disabling back condition. Unum also said that a “neurological and movement disorder” specialist, acting on referral by the plaintiff’s treating physician because the plaintiff claimed an autonomic dysfunction, had diagnosed the plaintiff with conversion disorder – a mental health condition in which a person showed psychological stress in physical ways – and had prescribed psychotherapy, but that the plaintiff had refused psychiatric treatment.

Two of Unum’s medical consultants reviewed the plaintiff’s full medical record and, Unum said, agreed with the diagnosis of conversion disorder, concluding that, even if the plaintiff were disabled due to mental illness, she was not precluded from sedentary work as required to receive benefits under the plan.

Unum also said that it contacted the treating physicians from the plaintiff’s medical records as well as some others whom the plaintiff had named. Five of those physicians told Unum that the plaintiff was capable of working full time in a sedentary job while five others declined to comment because they were not actually treating the plaintiff.

Unum additionally had a vocational rehabilitation specialist review the plaintiff’s file. The specialist identified several sedentary jobs suitable to the plaintiff and available in her geographic area, Unum said.

Finally, Unum obtained video surveillance of the plaintiff in her daily activities of driving, walking, smoking, using her cell phone, and doing other routine activities, all without assistance and showing no obvious symptoms of dizziness, tremors, or pain.

Based on these findings, Unum denied the plaintiff’s claim and discontinued her benefits. Unum later denied her administrative appeal. The plaintiff sued Unum in federal court, pursuant to the Employee Retirement Income Security Act of 1974 (ERISA).

Among other things, the plaintiff argued that Unum’s decision denying her benefits should be overturned because Unum had not ordered an independent medical exam (IME) of the plaintiff. She also argued that she was disabled and entitled to benefits under the plan because the Social Security Administration (SSA) had declared her disabled.

The district court concluded that Unum’s decision to deny benefits to the plaintiff had been reasonable, and not arbitrary and capricious. She appealed to the U.S. Court of Appeals for the Sixth Circuit.

The circuit court affirmed the district court.

In its decision, the circuit court first explained that neither the plan nor ERISA mandated an IME and that the plaintiff had pointed to nothing that indicated that an IME had been required in this case.

The circuit court then declared that the SSA’s disability determination was “not controlling.” It concluded that an ERISA plan administrator was “not bound by an SSA disability determination when reviewing a claim for benefits under an ERISA plan.” [Crox v. Unum Group, Corp., 2016 U.S. App. Lexis 13451 (6th Cir. July 21, 2016).]

Evidence Suggested Disability Had Begun Before Plaintiff Saw a Doctor, Seventh Circuit Decides

In this case, the plaintiff was a long-time pit broker at the Chicago Mercantile Exchange who purchased two disability income insurance policies in 1991 and 1994 that were underwritten by New York Life Insurance Company.  In 2005, the plaintiff started to experience a tremor in his arms and hands that interfered with his ability to write quickly and legibly and, in September 2007, the tremor forced him to leave his job. The plaintiff apparently did not see a physician for this condition until February 2010, when a neurologist diagnosed the plaintiff with an “essential tremor,” and he applied for total disability benefits under his policies.

In July 2010, the plan administrator approved the plaintiff’s claim, designating his disability onset date as February 3, 2010 rather than as September 2007 based on a policy provision that required that the injury or sickness “must be one which requires and receives regular care by a physician.” Because the plaintiff had not received such care until February 2010, the plan administrator used that date as the onset date of disability.

Then, in April 2012, the plan administrator discontinued the plaintiff’s total disability benefits. It asserted that he was eligible only for residual-disability benefits because, when he had applied in February 2010, his regular occupation had been that of an “unemployed person” because he had not been employed as a pit broker after September 2007.

The plaintiff sued, seeking a designation of “total disability” for the purpose of future benefits. The district court granted summary judgment to the defendants, and the plaintiff appealed to the U.S. Court of Appeals for the Seventh Circuit.

The circuit court reversed the district court’s decision.

The circuit court explained that the policies defined “regular job” as “[t]he occupation, or occupations if more than one, in which the Insured is engaged when a disability starts.” Therefore, the circuit court said, the issue was when the plaintiff’s disability had begun.

The Seventh Circuit was not persuaded by the insurers’ contention that the plaintiff had become totally disabled in February 2010, when he first had received care from a physician for his tremor. In the circuit court’s view, the “regular care of a physician” policy provision was ambiguous in that it had no temporal requirement. Therefore, the plaintiff could satisfy that policy provision and be adjudged totally disabled as of September 2007, even though he was not first under the care of a physician until February 2010.

The circuit court remanded the case to the district court for further proceedings. [Berg v. New York Life Ins. Co., 2016 U.S. App. Lexis 13656 (7th Cir. July 27, 2016).]

Sixth Circuit Upholds Equal Pay Act Decision in Favor of Employer That Argued It Had Legitimate Reason for Paying Female Employee Less Than Male Employee

The plaintiff in this case sued Federal Express Corporation and FedEx Customer Information Services, Inc., under the federal Equal Pay Act (the EPA), alleging that FedEx had violated the EPA by paying her less than it had paid a male employee for performing the same duties.

Following a four-day bench trial, the district court entered judgment in favor of FedEx on all of the plaintiff’s claims.

The district court first found that the plaintiff had carried her burden of establishing a prima facie case under the EPA, as she was paid less than the male employee for performing the same duties.

Then, the district court found that FedEx had established its affirmative defense that a factor other than sex, i.e., the reorganization of its staff, had caused it to pay different salaries to the plaintiff and the male employee, and that that factor had been adopted for a legitimate business reason.

The plaintiff appealed to the U.S. Court of Appeals for the Sixth Circuit, arguing that the district court’s factual findings with respect to her EPA claim were clearly erroneous.

The circuit court affirmed the district court’s decision, finding that it was “amply supported” by the evidence. The circuit court observed that there was testimony that FedEx’s reclassification of the plaintiff’s position had been done for a legitimate reason, and that the plaintiff had presented “no persuasive evidence” to dispute that. Moreover, the circuit court continued, there was no evidence that FedEx’s decision to reclassify the plaintiff had been motivated by gender bias.

The Sixth Circuit concluded by rejecting the plaintiff’s challenge to the credibility of FedEx’s witnesses – namely, by arguing that they had lied during discovery and at trial. It explained that this aspect of the plaintiff’s argument would require the circuit court to determine the credibility of the witnesses who had appeared at the trial, which was the responsibility of the district court. [Boaz v. FedEx Customer Information Services, Inc., 2016 U.S. App. Lexis 15145 (6th Cir. Aug. 15, 2016).]

Pension Plan Consultant Was Not a Fiduciary, Dooming Plaintiff’s ERISA Suit, Tenth Circuit Rules

Hoping to retire, the plaintiff in this case contacted a consultant hired by his company’s pension plan to ask what his monthly pension payment would be. The plaintiff alleged that the consultant told him that if he retired soon, he would be entitled to $8,444.18 per month. The plaintiff said that he asked the consultant to check her calculations and that she assured him that the figure she had quoted was correct.

The plaintiff retired and soon began receiving monthly checks of $8,444.18.

After the plaintiff had retired, a representative of the pension plan contacted him and told him that he was being overpaid by almost $5,000 per month. An attorney for the pension plan then told the plaintiff that he would need to return over $43,000 in overpayments that he had received.

The plaintiff said that he was unable to retire on his true pension benefit of $3,653.78 per month, that he tried to go back to work, but that he was unable to find a suitable job.

The plaintiff filed a lawsuit under the Employee Retirement Income Security Act of 1974 (ERISA), alleging that in incorrectly representing his benefits and failing to pay him in accordance with those representations, the pension plan had incurred ERISA liability for breach of the fiduciary duty it owed to him.

The district court dismissed the complaint for failure to state a valid claim, and the plaintiff appealed to the U.S. Court of Appeals for the Tenth Circuit.

The circuit court affirmed the dismissal of the plaintiff’s claim for breach of fiduciary duty. The circuit court found that the consultant had not been acting as an ERISA fiduciary when she had calculated the plaintiff’s pension benefits. According to the circuit court, merely calculating benefits, without more, did not establish fiduciary status under ERISA.

Because the consultant “lacked discretionary authority in administering the pension plan, she lacked fiduciary status,” the Tenth Circuit explained. In the absence of the fiduciary status of the alleged wrongdoer, the plaintiff’s claim for breach of fiduciary duty had been properly dismissed, the circuit court concluded. [Lebahn v. National Farmers Union Uniform Pension Plan, 2016 U.S. App. Lexis 12708 (10th Cir. July 11, 2016).]

Truck Driver Without Mountain-Driving Experience Was Not a Qualified Individual Under the ADA, Tenth Circuit Concludes

The plaintiff was a commercial truck driver who temporarily had been unable to work due to the effects of cancer. After his cancer went into remission, the plaintiff applied for a truck driving position with Domenico Transportation Company.

Domenico rejected the plaintiff’s application and he filed a lawsuit against the company, alleging discrimination in violation of the Americans with Disabilities Act (ADA).

In response, Domenico asserted that it had rejected the plaintiff’s application not because of any preexisting medical condition, as the plaintiff alleged, but because the plaintiff lacked three years of recent verifiable mountain-driving experience – a requirement that, the company said, it had explained to the plaintiff was required by Domenico’s insurance underwriter. Domenico contended, therefore, that the plaintiff was not a “qualified individual” under the ADA and that it was entitled to summary judgment.

The district court granted summary judgment to Domenico. It agreed with the company that the plaintiff had less than three years of mountain-driving experience as defined by Domenico and ruled, as a result, that he was not a “qualified individual” under the ADA.

The plaintiff appealed to the U.S. Court of Appeals for the Tenth Circuit, which affirmed the district court’s decision.

The circuit court reasoned that, with respect to the plaintiff’s discrimination claim, the plaintiff had failed to demonstrate that he was a qualified individual within the meaning of the ADA and, therefore, that he could not establish a prima facie case of discrimination.

The mountain-driving requirement, the circuit court found, was an “essential function” or requirement of the job for which the plaintiff had applied – even though it was an unwritten company policy. The plaintiff did not meet this requirement, the circuit court said, noting that he had conceded that he had only a year and a half of mountain-driving experience. Because the plaintiff had not shown that he was a qualified individual, the circuit court concluded, summary judgment had been properly awarded to Domenico on the plaintiff’s ADA discrimination claim. [Kilcrease v. Domenico Transportation Co., 2016 U.S. App. Lexis 12777 (10th Cir. July 12, 2016).]

Unpaid Volunteer Was Not an Employee, Connecticut Supreme Court Rules

A complaint filed with the Connecticut Commission on Human Rights and Opportunities alleged that Echo Hose Ambulance and the city of Shelton, Connecticut, had discriminated and retaliated against a young African-American woman on the basis of her race and color in violation of the Connecticut Fair Employment Practices Act (the CFEPA) and Title VII of the federal Civil Rights Act of 1964.

According to the complaint, Echo Hose, which provided ambulance transport and other services to the city, had accepted the woman into a “precepting program,” which was a probationary training program that, if satisfactorily completed, allowed a participant to become a regular member of Echo Hose upon a majority vote of all of the regular members. The program required that the woman ride in an ambulance for one shift each week and participate in other activities.

While taking part in that program, and after completing it, the woman allegedly “was treated differently due to her race and color and … was subject to discipline that other individuals … were not.” Specifically, the woman allegedly was subjected to comments about Africa and the “ghetto,” was suspended without good cause, and was terminated without good cause. The complaint added that although her termination had been overruled, so that she was able to complete the precepting program, members of Echo Hose had voted against making her a member.

The commission’s human rights referee struck the complaint on the ground that the woman was a volunteer and not an Echo Hose employee, which was a factual predicate to an action under both the CFEPA and Title VII. The referee reasoned that the woman was not an employee because she had not received any compensation, such as a salary or wages, while volunteering in the precepting program.

A Connecticut trial court upheld that decision and an intermediate appellate court affirmed.

The woman appealed to the Connecticut Supreme Court, which affirmed the appellate court’s decision.

The Connecticut Supreme Court explained in its decision that the CFEPA and Title VII applied to employees and that a volunteer could be considered an employee only if the volunteer received remuneration. The court noted that a volunteer might be able to meet the remuneration test by proof of benefits in lieu of wages, but concluded that the woman in this case had not alleged that she could meet the test at all. [Commission on Human Rights and Opportunities v. Echo Hose Ambulance, 140 A.3d 190 (Conn. 2016).]

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

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