Employee Relations Law Journal – From the Courts

August 15, 2017 | Norman L. Tolle | Insurance Coverage

Claims Administrator Did Not Wrongly Deny Benefits to Ex-Employee, Seventh Circuit Rules

The plaintiff in this case was hired by General Motors as an electrical engineer in 1991. A year later, General Motors circulated a “summary plan description” detailing the disability benefits available to its employees. This document provided that employees who became disabled before accruing 10 years of service (when they would be eligible for long-term disability benefits through retirement age) could elect to receive an early payout of up to $100,000 from their General Motors-sponsored life insurance policies after exhausting their short-term disability benefits.

General Motors eliminated the early-payout option from its plan in 1994, although the plaintiff denied receiving notice of the change. In 2000, after the division of General Motors that employed the plaintiff was spun off as Delphi, the new company issued plan documents that also omitted the early-payout benefit. The plaintiff denied receiving a copy of Delphi’s plan, and he asserted that Delphi employees were told they should rely on their plan documents from General Motors.

In December 2000, after Delphi had issued its new plan documents and before the plaintiff had acquired 10 years of service, he became disabled and stopped working for Delphi. He began receiving short-term disability benefits in 2002, and two years later he requested the early-payout benefit pursuant to General Motors’ 1992 plan.

The claims administrator for the plan, Metropolitan Life Insurance Company (MetLife) responded by sending a form for the plaintiff to complete; he apparently did not return it.

MetLife did not take any action until the plaintiff again requested the early-payout benefit in March 2009. This time, MetLife denied his claim on the basis that the plan adopted by Delphi in 2000 (before the plaintiff had become disabled) excluded that benefit.

The plaintiff submitted an administrative appeal, which MetLife rejected in March 2010. Later that year, the plaintiff exhausted his short-term disability benefits and began receiving supplemental benefits based on unrelated coverage that he had purchased while working for Delphi.

Meanwhile, the plaintiff also was seeking to collect the early-payout benefit directly from Delphi, which had been in Chapter 11 bankruptcy in the Southern District of New York since 2005. In July 2009, the plaintiff filed a claim in the bankruptcy court for $98,000, the value he assigned to the early-payout benefit. The bankruptcy court disallowed this claim, and Delphi later emerged from bankruptcy as DPH Holdings Corporation.

The plaintiff then brought a lawsuit under the Employee Retirement Income Security Act (ERISA) in the U.S. District Court for the Southern District of Indiana against DPH, Delphi’s disability benefits program plan, and MetLife. The bankruptcy court enjoined the plaintiff from pursuing any claims against DPH or the plan, so the plaintiff amended his complaint to include only claims against MetLife.

In particular, the plaintiff alleged that MetLife had wrongfully refused to pay the early-payout benefit and had breached its fiduciary duties to him by, among other things, failing to alert him that General Motors had eliminated the early-payout benefit and by taking too long to process his administrative appeal. The plaintiff demanded $100,000 for the early-payout benefit plus hundreds of thousands of dollars in “equitable relief.”

In granting summary judgment for MetLife, the district court reasoned that when the plaintiff had become disabled, Delphi’s plan did not provide the benefit he sought and that he was not entitled to any relief.

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

In its decision, the circuit court ruled that the plaintiff’s lawsuit was “frivolous” because MetLife had no obligation to pay the benefit he sought. The circuit court observed that General Motors had eliminated the early-payout benefit from its plan in 1994 and that Delphi had not included a similar benefit in its 2000 plan.

The Seventh Circuit was not persuaded by the plaintiff’s contention that he was entitled to the early-payout benefit under General Motors’ 1992 plan because General Motors (and, later, Delphi) had not given him plan summaries. It explained that whether or not that was true, ERISA did not authorize a court to “reform” a plan by reading into it a benefit not provided by the plan’s terms – and Delphi’s plan from 2000 did not provide the early-payout benefit.

Moreover, the circuit court rejected the plaintiff’s argument that it should award him “appropriate equitable relief” because MetLife had breached its fiduciary duties to him. According to the circuit court, a denial of benefits, without more, did “not constitute a breach of fiduciary duty” that could be remedied under the “equitable-relief” provision of ERISA.

The plaintiff also was not entitled to recover because MetLife had not alerted him that General Motors had eliminated the insurance payout benefit in 1994, given that it was the plan administrator (General Motors or Delphi) and not the claims administrator (MetLife) that had the duty to distribute updated plan documents.

Therefore, the Seventh Circuit concluded that the district court had properly ruled in favor of MetLife. [Sumpter v. Metropolitan Life Ins. Co., 2017 U.S. App. Lexis 6552 (7th Cir. April 13, 2017).]
Failure to Exhaust Administrative Remedies Doomed Claim for Long-Term Disability Benefits

The plaintiff in this case worked for Appalachian Regional Healthcare, Inc. (ARH) as a registered nurse for approximately 30 years, until February 24, 2014, when she became disabled.

Initially, the plaintiff applied for and received short-term disability benefits from Reliance Standard Life Insurance Company. After receiving short-term disability benefits “for the maximum duration allowable,” the plaintiff said, she “began the process of transitioning her claim into” a long-term disability (LTD) claim. At the same time, the plaintiff made a claim for and pursued disability retirement benefits under ARH’s retirement plan.

On August 21, 2014, before receiving a decision from Reliance regarding her LTD claim, the plaintiff advised Reliance via email that she no longer wished to pursue that claim.  According to the plaintiff, she withdrew her LTD benefits claim with Reliance because ARH had informed her that the “application for and approval of LTD benefits with Reliance … would prevent her from receiving her retirement benefits” under ARH’s plan.

Ultimately, ARH denied the plaintiff’s claim for disability retirement benefits.

On August 25, 2014, Reliance sent the plaintiff a denial letter regarding her claim for LTD benefits, informing her that she was “not entitled to disability benefits under” the LTD policy. In this letter, Reliance acknowledged that the plaintiff did not want to pursue her claim and explained that it was unable to complete its LTD claim evaluation because the plaintiff had failed to respond to requests for additional information. The letter also advised the plaintiff that a “written request for review must be submitted within 180 days” if she intended to appeal Reliance’s benefit determination.

Over one year and eight months later – on May 18, 2016 – the plaintiff appealed the denial of her LTD benefits.

By letter dated May 25, 2016, Reliance informed the plaintiff that it would not accept her untimely appeal.

The plaintiff sued, contending that she was “entitled to LTD benefits” and that Reliance “should be required to perform under the contract and pay LTD benefits” to her.

Reliance asked the district court to dismiss the plaintiff’s complaint for failure to exhaust her administrative remedies, as required by ERISA. It argued that the plaintiff had failed to appeal the denial of her LTD benefits claim within the prescribed 180-day time period provided by the plan and, instead, had waited approximately 632 days before filing her appeal.

For her part, the plaintiff argued that the district court should excuse her failure to exhaust all administrative remedies because it would have been “futile” to do so, given that Reliance had in its possession “all of the documents relevant to [her] claim” due to her previous short-term disability claim, and an “appeal likely would have involved much of the same information that [she] had already … submitted.”

The plaintiff also argued that Reliance should be “estopped” from seeking to rely on her failure to exhaust administrative remedies because she had relied on ARH’s misrepresentation that pursuing her claim with Reliance would prevent her from receiving benefits under ARH’s plan.

The district court granted Reliance’s motion.

In its decision, the district court found “no clear and positive indication” that pursuing administrative remedies would have been a futile act for the plaintiff. In fact, the district court stated, pursuing an appeal and providing the information that the plaintiff had not provided in response to Reliance’s requests “may have very well been a successful and worthwhile appeal.”

Therefore, the district court ruled, the plaintiff failed to satisfy “the high burden for futility” and the futility doctrine did not excuse her failure to exhaust her administrative remedies.

The district court also rejected the plaintiff’s argument that Reliance should be estopped from relying on her failure to exhaust all administrative remedies as a reason for denying her claim. The district court pointed out that the plaintiff contended that ARH had made a misrepresentation that had induced her to withdraw her LTD benefits claim, not Reliance. There also were no facts, the district court added, that would permit it to attribute ARH’s alleged misrepresentation to Reliance. Therefore, the district court ruled, estoppel did not preclude Reliance from relying on the plaintiff’s failure to exhaust her administrative remedies as a defense to her claim.

The district court concluded that the plaintiff had been aware that Reliance had denied her claim and that she had 180 days to appeal that denial, but that she had made “no effort” to seek a timely review of Reliance’s decision. Accordingly, it concluded, her claims against Reliance had to be dismissed. [Stacy v. Appalachian Regional Healthcare, Inc., 2017 U.S. Dist. Lexis 57953 (E.D. Ky. April 17, 2017).]

Appeals Court Reverses $1.8 Million Judgment for Pharmacist with “Needle Phobia”

In 2011, Rite Aid Corporation and other large pharmacy chains started requiring pharmacists to perform immunizations in order to fill an unmet need for vaccinations in the healthcare market. In April 2011, Rite Aid revised its job description to require pharmacists to hold a valid immunization certificate and included a reference to immunizations in the list of “essential duties and responsibilities” for pharmacists.

For 34 years before his termination in August 2011, the plaintiff in this case worked in upstate New York as a full-time pharmacist for Rite Aid and its predecessor pharmacies. He was responsible for handling medications and counseling customers regarding their medications.

In March 2011, the plaintiff received an email from his district manager informing him that Rite Aid was going to require all pharmacists to give immunization injections to customers.

The plaintiff obtained a note from his physician stating that the plaintiff was “needle phobic” and that he could “not administer immunization by injection.” The plaintiff wrote a letter to his district manager explaining that his fear of needles – his “trypanophobia” – caused him to experience “lightheadedness, paleness, and a feeling that I may faint” and that, as a result he “would never even consider trying to become an immunizing pharmacist.”

The plaintiff also stated that he believed that his condition was a covered disability under the Americans with Disabilities Act (ADA), and requested that Rite Aid provide him with a reasonable accommodation.

In May, a Rite Aid human resources manager faxed the plaintiff a list of questions for his doctor to answer regarding the plaintiff’s needle phobia, including how the phobia would manifest itself if the plaintiff were to administer immunizations by injection and whether there were any accommodations that would enable the plaintiff to perform injections. The physician’s response stated that if the plaintiff were to administer an injection, “[h]e would become diaphoretic, hypotensive and probably faint. Vagal response.” The physician further advised that the plaintiff could not safely administer an injection, since the likelihood that he would faint would be “unsafe for the patient and [the plaintiff].”

In August, Rite Aid officials told the plaintiff that the ADA did not apply to trypanophobia, that Rite Aid was not required to accommodate the plaintiff, and that the plaintiff would lose his job unless he successfully completed immunization training. The plaintiff later told the company that he would not be able to complete the training.

On August 23, a Rite Aid official gave the plaintiff a termination letter, informing him that he was being terminated for refusing to perform customer immunizations, which were an essential function of his job.

The plaintiff sued Rite Aid under the ADA.

A jury in the U.S. District Court for the Northern District of New York awarded the plaintiff “back pay” damages of $485,633, “front pay” damages of $1,227,188 to cover a period of 4.75 years, and non-pecuniary damages of $900,000 (which the district court later reduced to $125,000).

Rite Aid appealed to the U.S. Court of Appeals for the Second Circuit, which reversed.

In its decision, the circuit court explained that the ADA prohibits discrimination in employment against “a qualified individual on the basis of disability.” A “qualified individual,” the circuit court continued, was one who, “with or without reasonable accommodation, can perform the essential functions of the employment position that such individual holds or desires.” In other words, the Second Circuit said, employers may not discriminate against people with disabilities that do not prevent job performance, but when a disability renders a person unable to perform the essential functions of the job, that disability renders the person unqualified. Accordingly, it added, one of the elements of a claim under the ADA is that an employee was “qualified to perform the essential functions of his job, with or without reasonable accommodation.”

The circuit court then decided that immunization injections were an essential job requirement for Rite Aid pharmacists at the time of the plaintiff’s termination. The circuit court noted that the company had made a business decision to start requiring pharmacists to perform immunizations in 2011. Rite Aid carried out this policy, the circuit court continued, by revising its job description for pharmacists to require immunization certification and licensure, as necessary depending on the state where the pharmacy was located, and by including immunizations in the list of “essential duties and responsibilities” for Rite Aid pharmacists. Moreover, the Second Circuit pointed out, Rite Aid had terminated another pharmacist with needle phobia because he failed to undergo Rite Aid’s immunization training program, “further demonstrating that the company deemed administering immunizations to be an essential function of its pharmacists.”

The Second Circuit said that it was “understandable” that the jury had sympathy for the plaintiff, afflicted as he was with an unusual phobia. Nevertheless, it ruled, his inability to perform an essential function of his job as a pharmacist was “the only reasonable conclusion that could be drawn from the evidence.”

The circuit court next considered whether there was a reasonable accommodation that would have enabled the plaintiff to perform the essential job function of administering immunization injections, and ruled that there was not.

It explained that a reasonable accommodation could include “job restructuring, part-time or modified work schedules, reassignment to a vacant position, acquisition or modification of equipment or devices, appropriate adjustment or modification of examinations, training materials or policies, the provision of qualified readers or interpreters, and other similar accommodations for individuals with disabilities.”

The circuit court noted that Rite Aid’s vice president of labor relations and employment had testified that Rite Aid had offered the plaintiff another position, such as a pharmacy technician position, that did not require administering immunizations, but that the plaintiff had offered no evidence that he had requested, considered, or was open to a position as a pharmacy technician.

The plaintiff’s suggestions that Rite Aid either could have hired a nurse to give immunization injections for him or assigned him to a dual-pharmacist location did “not propose true accommodations,” according to the circuit court, because those steps “would be exemptions that would have involved other employees performing [the plaintiff’s] essential immunization duties” and Rite Aid was not required to grant him these exemptions. In any event, the circuit court added, the plaintiff had not shown that a vacant position at a dual-pharmacist store existed at the time of his termination.

The Second Circuit concluded that because performing immunization injections was an essential job requirement and the plaintiff had presented no evidence of a reasonable accommodation that would have allowed him to perform immunizations at the time of his dismissal, Rite Aid was entitled to judgment in its favor. [Stevens v. Rite Aid Corp., 851 F.3d 224 (2d Cir. 2017).]

Amazon Did Not Have to Pay Workers for Time Spent in “Theft-Prevention Security Screenings,” Sixth Circuit Decides

Online retailer Amazon.com operates a warehouse fulfillment center in Shepherdsville, Kentucky, where hourly workers fill orders, track merchandise, and process returns. The two plaintiffs in this case began working at the center in 2012, one as an employee of Amazon and one as a joint employee of Amazon and staffing agency Kelly Services.  Both regularly worked at least 40 hours per week. Amazon tracked the plaintiffs’ hours with a “time clock” system; employees “clocked in” at the beginning of their shifts, and “clocked out” at the end of the workday.

Before permitting “clocked out” employees to leave, however, Amazon required them to – in the plaintiffs’ words – “proceed through a lengthy theft-prevention security screening operation.” Workers passed through a metal detector while security guards “inspect[ed] any bags or personal items” they intended to take home. If an employee set off the metal detector, the guard “search[ed]” the employee “using a metal detecting wand.” “This mandatory, post-shift theft-prevention screening” took anywhere from 10 to 30 minutes, according to the plaintiffs.

The plaintiffs said that Amazon never paid them overtime compensation for the time they spent undergoing the post-shift security screening – “a required job activity” designed “solely to benefit [Amazon].”

The plaintiffs sued Amazon and Kelly Services, alleging that such nonpayment violated the federal Fair Labor Standards Act (FLSA) and its state-law counterpart, the Kentucky Wages and Hours Act (KWHA). The two plaintiffs were not the only employees who disputed Amazon’s practices. By early 2014, the plaintiffs’ case was one of five similar actions pending in federal district courts across the country. Each involved similar allegations: “that Amazon.com and various staffing agencies violate federal and state wage and hour laws by requiring workers … to pass through lengthy anti-theft security screening after clocking out … without compensation for that time.”

The actions were transferred to the U.S. District Court for the Western District of Kentucky. While the actions were pending, the U.S. Supreme Court ruled, in Integrity Staffing Solutions, Inc. v. Busk, that post-shift security screening was a non-compensable postliminary activity under the FLSA as amended by the Portal-to-Portal Act. The Portal-to-Portal Act narrowed the coverage of the FLSA by excluding certain “preliminary” and “postliminary” activities from the FLSA’s compensation requirements.

In view of the Supreme Court’s ruling in Integrity Staffing, the plaintiffs in this case withdrew their FLSA claims against Amazon. They maintained, however, that Integrity Staffing did not foreclose their claim to overtime under the KWHA because Kentucky law did not contain exclusions from coverage comparable to the exclusions in the Portal-to-Portal Act.

The Kentucky district court rejected the plaintiffs’ arguments. It reasoned that because Kentucky courts look to federal law to determine what is work under its wage and hour laws, Kentucky courts also would look to federal law to explain what is “not work.”

Accordingly, the district court applied Integrity Staffing to the plaintiffs’ Kentucky law claims, and granted judgment in favor of Amazon and Kelly Services.

The plaintiffs appealed to the U.S. Court of Appeals for the Sixth Circuit, which affirmed.

In its decision, the Sixth Circuit explained that Kentucky’s Commissioner of Workplace Standards has concluded that, despite the absence of “preliminary” and “postliminary” language in the KWHA, the Portal-to-Portal Act’s exemptions were part of that framework.

The Sixth Circuit added that the KWHA’s regulations were “substantially similar to” the federal regulations under the FLSA, as amended by the Portal-to-Portal Act, and it ruled that the KWHA incorporated the Portal-to-Portal Act’s compensation limits on preliminary and postliminary activities. Therefore, it concluded, Integrity Staffing governed, and Amazon and Kelly Services “clearly” had been entitled to judgment in their favor. [In re Amazon.com, Inc., Fulfillment Center Fair Labor Standards Act (FLSA) and Wage and Hour Litigation, 2017 U.S. App. Lexis 5622 (6th Cir. March 31, 2017).]

Court Rejects Long-Term Disability Claim Filed Six Years Late

The plaintiff in this case alleged that, while working at a Home Depot store on behalf of Emerson Electric Co. in June 2003, several ladders fell and struck him on the back of his head, causing severe injury and exacerbating certain pre-existing conditions. The plaintiff contended that this incident rendered him disabled and that the resulting disability caused him to resign from his job six months later, on December 9, 2003. At the time of the plaintiff’s resignation, Emerson maintained long-term disability (LTD) insurance coverage for its employees, provided by UNUM. The plaintiff had received a benefits sheet when he was hired in January 2003 that included a description of the LTD plan.

Following his resignation, the plaintiff sought benefits under the North Carolina Workers’ Compensation Act. The plaintiff and Emerson settled his claim and the plaintiff signed the agreement on November 30, 2004.

Six years later, in November 2010, the plaintiff contacted Emerson requesting reevaluation of his prior workers’ compensation claim; that request was denied. The plaintiff contended that around that same time, he happened to be reviewing his personal file of job-related documents and discovered the benefits sheet.

On November 27, 2010, the plaintiff sent a letter to Emerson asserting that he was eligible for benefits under the plan at the time of his resignation in December 2003.

Emerson reviewed the plaintiff’s file and informed him by letter on January 20, 2011 that he was “not offered LTD at the time of [his] resignation,” that he was “entitled to apply for LTD benefits and may do so at this time,” and that UNUM Group would “make the final determination,” not Emerson.

Thereafter, the plaintiff submitted his application for benefits to Emerson, and included medical records and other materials he wanted considered. Emerson forwarded the plaintiff’s application to UNUM for review, but later informed the plaintiff that UNUM would not review his application because “UNUM insurance policies contain a provision requiring notification of a disability within one year of occurrence in order to be eligible for benefits.”

Despite UNUM’s denial, Emerson subsequently retained GENEX Services, Inc., a medical review firm, to review the plaintiff’s claim as an independent consultant “before making any final determination on [the plaintiff’s] request for benefits.” GENEX concluded that there was “no evidence submitted that would indicate [that the plaintiff] had impairments that would render him disabled as of 12/09/03.”

Emerson informed the plaintiff of this denial in a letter dated August 31, 2011. In the same letter, it stated, “[W]e have fulfilled our obligation to allow you to apply for Long Term Disability benefits. Your claim unfortunately has been denied.”

The plaintiff sued Emerson, and the parties moved for summary judgment.

Emerson argued that UNUM possessed sole discretionary authority to determine eligibility for benefits under the plan, and that it had no role in making the decision to deny the plaintiff’s claim for benefits.

For his part, the plaintiff contended that other evidence suggested that Emerson played a more direct role in the denial of his claim for benefits. Most notably, he pointed out, after UNUM initially had denied his claim as untimely, Emerson informed him that it would submit his claim to GENEX for review “before making any final determination on your request for benefits.”

The district court granted Emerson’s motion for summary judgment.

In its decision, the district court explained that the plaintiff alleged a disability onset date of December 9, 2003 and that the 90 day “elimination period” – 90 days of continual disability – ran from December 9, 2003 to March 8, 2004. Therefore, the district court continued, the plan required that the plaintiff provide UNUM with written proof of his claim by June 7, 2004 (90 days after his elimination period). If it was not possible to have provided proof of his claim by that time, the plan allowed the plaintiff, at the very latest, to submit the required proof of claim by June 7, 2005 (one year after the time proof otherwise was required).

The district court noted that the plaintiff first applied for benefits under the plan on June 22, 2011 – more than six years “after the latest conceivable date” the plan would have allowed him to submit proof of his claim. Thus, the district court ruled, the plaintiff failed to timely comply with the plan’s proof of claim requirement.

The district court was not persuaded by the plaintiff’s argument that Emerson should be “estopped” from asserting a timeliness defense because it invited the plaintiff to apply for benefits in 2011 and “also aided him in doing so.” The district court explained that the plaintiff’s time for presenting proof of his claim under the plan “had passed six years earlier,” and Emerson’s actions in 2011 had not caused the plaintiff to miss that deadline. In addition, the district court noted, the plaintiff admitted that he had information regarding the plan in his possession from the time he was hired in 2003, and he failed to “discover” that information until he was going through his own papers several years after his resignation.

Accordingly, the district court concluded, the plaintiff had not acted with reasonable diligence, and he had not presented a sufficient basis for equitable relief from the plan requirements. [Hartquist v. Emerson Electric Co., 2017 U.S. Dist. Lexis 47611 (M.D.N.C. March 30, 2017).]

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