Employee Relations Law Journal – From the Courts

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

Tenth Circuit Upholds Pension Trust’s Decision to Honor IRS Levies

When the plaintiffs in this case retired, they began receiving monthly benefits from the Boilermaker-Blacksmith National Pension Trust, a pension plan in which they participated. However, after the trust received notices of levy for both of them from the Internal Revenue Service (IRS), the trust informed the plaintiffs by letter that their benefits would be withheld if they did not complete and return the forms provided. Neither plaintiff did so. The trust, therefore, honored the notices of levy and began sending the plaintiffs’ benefits to the IRS.

The plaintiffs ultimately filed appeals with the trust. The trust denied the appeals on the grounds that the appeals were untimely and that the trust was obligated to honor the notices of levy from the IRS. In its denial letters, the trust cited its governing provisions pertaining to its appeals procedure, including the 60-day deadline for filing an appeal. The denial letters also cited a provision requiring the trust to comply with the Employee Retirement Income Security Act of 1974 (ERISA) and federal tax law.

After their administrative appeals were denied, the plaintiffs sued the trust. The U.S. District Court for the District of Kansas granted summary judgment in favor of the trust, concluding that it had not acted arbitrarily or capriciously by denying the appeals.

The plaintiffs appealed the district court’s ruling to the U.S. Court of Appeals for the Tenth Circuit. They conceded that they had not met the 60-day deadline set forth in the trust’s appeals procedure, but they argued that the deadline applied only to decisions on eligibility for benefits. Their appeals were not subject to the deadline, they argued, because the trust, having already determined that they were eligible to receive benefits, subsequently began sending those benefits to the IRS.

The Tenth Circuit affirmed the district court’s ruling.

In its decision, the Tenth Circuit explained that the trust’s appeals procedure applied to “[a]ny claimant . . . who believes he or she did not receive the full amount of benefits to which he or she is entitled, or who is otherwise subject to an adverse benefit determination.” The circuit court noted that the provision also stated that “[a]ll appeals must be made in writing” and that “[t]he written notice of appeal must be sent to the [t]rustees within 60 days after notification of the denial of the application for benefits (or claim).”

The Tenth Circuit decided that nothing in these provisions suggested that the plaintiffs had not been subject to an adverse benefit determination or that any exception to the 60-day deadline applied to them. Indeed, the circuit court continued, the use of “[a]ny,” “otherwise,” and “[a]ll” in the trust provisions pointed “in the opposite direction,” suggesting that the trust was acting reasonably when it denied the appeals by invoking the 60-day deadline.

The Tenth Circuit then ruled that the plaintiffs had not shown that the trust’s application of the 60-day deadline to their appeals should be struck down as arbitrary or capricious.

Finally, the circuit court rejected the plaintiffs’ challenge to the trust’s decision to honor the notices of levy.  It pointed out that the trust stated that its provisions were to be interpreted and applied “to comply with [ERISA] and with the requirements for tax qualification under the [IRS] Code.” Moreover, the Tenth Circuit added, federal law permitted the IRS to collect ERISA benefits to satisfy outstanding tax liabilities.

In light of federal law and the governing provisions of the trust, the circuit court concluded, the plaintiffs had failed to demonstrate that the trust had acted unreasonably or in bad faith by honoring the notices of levy from the IRS. [Amador v. Boilermaker-Blacksmith National Pension Trust, 2016 U.S. App. Lexis 22353 (10th Cir. Dec. 16, 2016).]

Fifth Circuit Upholds Dismissal of Untimely Lawsuit Seeking Disability Benefits

On August 11, 2014, the plaintiff in this case sued Provident Life & Accident Insurance Company for disability benefits to which he claimed he was entitled.

The U.S. District Court for the Middle District of Louisiana dismissed the plaintiff’s lawsuit against Provident as untimely, and he appealed to the U.S. Court of Appeals for the Fifth Circuit.

The circuit court affirmed.

In its decision, the circuit court explained that the Provident insurance policy imposed certain deadlines on insureds making claims.  First, the circuit court noted, a policyholder had to provide Provident with “[w]ritten notice of a claim . . . within 20 days after a covered loss starts or as soon as reasonably possible.” Second, a policyholder had to provide Provident with “written proof of loss within 90 days after the end of” the first benefit period for which Provident was liable. Third, if a policyholder were going to sue to collect under the policy, he or she had to do so within three years of the date that “proof of loss [was] required.”

The Fifth Circuit then pointed out that the plaintiff had alleged in his complaint that he was “totally disabled” as defined by the policy and was “entitled to benefits under the [p]olicy from October 13, 2008, the date of his first treatment for his knee condition and the time from which [he] was unable to perform the substantial and material duties of his occupation.”

The plaintiff similarly had alleged in his amended complaint that he was “totally disabled” as defined by the policy and was “entitled to disability benefits under the [p]olicy from October 13, 2008, the date of his first treatment for his knee condition and the time from which [he] was unable to perform the substantial and material duties of his occupation.”

The circuit court found that the plaintiff, therefore, had admitted that his covered loss had begun on October 13, 2008.

Therefore, the circuit court reasoned, the plaintiff had to:

  • provide Provident with written notice of his claim on or before November 2, 2008 – 20 days after his covered loss had started on October 13, 2008;
  • provide Provident with “written proof of loss” on or before May 13, 2009 – 90 days after the relevant benefits period ended on February 13, 2009; and
  • file his lawsuit on or before May 13, 2012 – three years after the May 13, 2009 deadline to provide Provident with “written proof of loss.”

The plaintiff had not met any of these deadlines, the Fifth Circuit pointed out. Therefore, it agreed with the district court that his lawsuit was untimely and barred by the terms of the Provident policy. [Wilson v. Provident Life & Accident Ins. Co., 2016 U.S. App. Lexis 22143 (5th Cir. Dec. 13, 2016).]

Sixth Circuit Rejects Agency’s Effort to Preclude Review of Employment Decision Due to National Security

Since the plaintiff in this case began working for the Tennessee Valley Authority (TVA) in 2009, he always had maintained the level of medical clearance necessary for his position. In 2013, however, the TVA made a pulmonary function test (PFT) a requirement to obtain this clearance.

The plaintiff failed the PFT test because of his chronic obstructive pulmonary disorder, and the TVA terminated him as a result.

The plaintiff then sued the TVA in the U.S. District Court for the Eastern District of Tennessee, asserting claims for disability discrimination and for failure to accommodate under the federal Americans with Disabilities Act (ADA) and the federal Rehabilitation Act.

In response, the TVA moved for summary judgment, arguing that:

(1) the national security exemption in Title VII of the Civil Rights Act of 1964, as amended, applied to the Rehabilitation Act and precluded the district court from reviewing the physical fitness requirements imposed by the Nuclear Regulatory Commission (NRC) in the interests of national security; and

(2) the so-called “Egan doctrine,” announced by the U.S. Supreme Court in Department of the Navy v. Egan, 484 U.S. 518 (1988), precluded the judiciary from reviewing the TVA’s determination that the plaintiff lacked the physical capacity to fulfill his job duties because this decision was one of national security.

The district court rejected both of the TVA’s arguments, and the TVA appealed to the U.S. Court of Appeals for the Sixth Circuit.

The circuit court denied the TVA’s appeal.

In its decision, the circuit court first found that the Rehabilitation Act did not contain any express reference to the national security exemption in Title VII. The Sixth Circuit also explained that the Rehabilitation Act’s legislative history did not establish that the exemption was applicable. Therefore, the Sixth Circuit ruled, Title VII’s national security exemption did not apply to the plaintiff’s Rehabilitation Act claim.

Next, the Sixth Circuit rejected the TVA’s contention that the Egan doctrine precluded judicial review of its security clearance decision involving the plaintiff.

The circuit court explained that Egan involved a person who worked for the Navy and who was fired after the director of the Naval Civilian Personnel Command denied a security clearance necessary for his position based on his criminal record and history of drinking problems. The case required the Supreme Court to resolve the “narrow question” of whether the Merit Systems Protection Board, which had declined to review the propriety of the Navy’s denial of the security clearance, had “authority by statute to review the substance of an underlying decision to deny or revoke a security clearance in the course of reviewing an adverse action.” Emphasizing the role of executive agencies to protect information bearing on national security and the president’s authority to control access to that information, the Supreme Court concluded that the “sensitive and inherently discretionary judgment call” required to make predictive judgments about an individual’s likelihood of compromising sensitive information was best left to those with an expertise in rendering judgments based on this “inexact science.”

The Sixth Circuit stated that nothing in the language of the Supreme Court’s opinion in Egan suggested that even if its reasoning could extend beyond security clearances, it could reach the scope the TVA desired. The circuit court noted that the Supreme Court had explicitly narrowed its holding to address the review of decisions to revoke or deny security clearances, which were “not at issue in this case.” Then, the circuit court continued, the Supreme Court proceeded to analyze the importance of executive control over access to national security information, not general national security concerns such as those applicable in determining whether an individual had the physical capacity to guard a nuclear plant.

In the TVA case, the Sixth Circuit said, the determination of an individual’s physical capability to perform a job was based on “hard science” and historically has been reviewed by courts and administrative agencies. The circuit court said that it was unnecessary to create a per se rule that Egan could never apply outside of the context of security clearances. It then ruled that nothing in Egan suggested that its holding applied to physical fitness judgments, even if purportedly based on the interest of national security.

The Sixth Circuit concluded that it would not interpret Egan to lead it into an “untenable position” precluding it from reviewing any federal agency’s employment decision so long as it was made in the name of national security. [Hale v. Johnson, 845 F.3d 224 (6th Cir. 2016).]

Federal District Court in Washington Refuses to Endorse “Discretionary Clause” in Long-Term Disability Insurance Plan

The plaintiff in this case filed a complaint against McLane Company, Inc., and Principal Life Insurance Company, Inc., seeking to recover long-term disability (LTD) income benefits. Among other things, he argued that the “discretionary clause” in the LTD plan, which provided that the insurer’s interpretation of the policy and its coverage decisions were binding, was invalid and unenforceable as a matter of law.

In particular, the clause stated:

The Principal has complete discretion to construe or interpret the provisions of this group insurance policy, to determine eligibility for benefits, and to determine the type and extent of benefits, if any, to be provided. The decisions of The Principal in such matters shall be as between The Principal and persons covered by this Group Policy, subject to the Claims Procedures in PART IV, Section Q of this Group Policy.

Principal contended that the Washington law prohibiting discretionary laws applied only to contracts issued and delivered in Washington and did not apply to the policy because it had been negotiated, issued, and delivered in Texas, which at that time allowed discretionary clauses.

The U.S. District Court for the District of Washington ruled that the discretionary clause was unenforceable.

In its decision, it acknowledged that when the plan was issued, Texas allowed discretionary clauses. The district court also said that there should be national uniformity when determining rights under the plan.

The district court added, however, that Texas banned discretionary clauses in December 2010, and it noted that the legislative history of Washington’s ban on discretionary clauses stated that the ban was consistent with the National Association of Insurance Commissioners’ endorsement of a ban on these clauses “as well as similar prohibitions adopted by other state insurance regulators.”

The district court observed that the “national trend” was to ban discretionary clauses, and that the Washington Insurance Commissioner had stated that the clauses were “prohibited . . . because they unreasonably or deceptively affect the risk purported to be assumed in the general coverage of the agreement.” The district court concluded that it would not enforce a clause that was “unreasonable and deceptive” and would violate a strong public policy in Washington.  [Flaaen v. Principal Life Ins. Co., Inc., 2016 U.S. Dist. Lexis 177638 (W.D. Wash. Dec. 22, 2016).]

Because Insurer Failed to Show That Surgery Had Contributed to Insured’s Death, Seventh Circuit Orders It to Pay AD&D Benefits to Widow

The plaintiff in this case, Jeremy Prather’s widow, alleged that Prather tore his left Achilles tendon playing basketball on July 16, 2013, met with an orthopedic surgeon to discuss treatment, and chose surgery. His operation was scheduled for July 22.

According to the plaintiff, Prather called his surgeon’s office on July 21 complaining of a swelling in the lower part of his left leg, and that an area of the left calf was both sensitive and warm to the touch. The surgeon allegedly told him to elevate the leg.

The surgery next day to repair his torn Achilles tendon was uneventful and he was discharged from the hospital the same day. He returned to work and was reported as doing well in a follow-up visit to his surgeon on August 2.

Four days later, however, he collapsed at work, went into cardiopulmonary arrest, and died the same day as a result of a deep vein thrombosis (blood clot) in the injured leg that had broken loose and traveled through the bloodstream to a lung, thus becoming a blood clot in the lung – that is, a pulmonary embolism – that caused cardiac arrest and sudden death.

The plaintiff filed a claim for accidental death and dismemberment (AD&D) benefits under the group insurance policy that Prather’s employer had obtained from Sun Life and Health Insurance Company (U.S.).

Sun Life denied the claim, reasoning that the pulmonary embolism and ensuing death were consequences not of – at least not entirely of – the accident to Prather’s Achilles tendon, but of the surgery. In other words, Sun Life contended that Prather’s death had not been the exclusive result of an accident but also had been the result of “complications from surgical treatment.”

The plaintiff sued and the U.S. District Court for the Central District of Illinois ruled in favor of Sun Life. The plaintiff appealed to the U.S. Court of Appeals for the Seventh Circuit.

In its decision, the Seventh Circuit explained that the Sun Life policy limited coverage to “bodily injuries … that result directly from an accident and independently of all other causes.” The circuit court then observed that because the accident alone – the rupturing of the tendon – may well have caused the blood clot that killed Prather, Sun Life had to present at least some evidence that the surgery had been a cause of Prather’s death, but it had “presented none.” In the Seventh Circuit’s opinion, all that Sun Life had proven was that the surgery might have been a cause of Prather’s death; it made “no effort . . . to quantify the added risk created by the surgery.”

The Seventh Circuit concluded that Sun Life had provided no evidence that Prather’s surgical treatment had contributed to his death – only that his death had followed both the surgery and the accident that preceded the surgery. Accordingly, it reversed the judgment in favor of Sun Life and instructed the district court to enter judgment in favor of the plaintiff. [Prather v. Sun Life and Health Ins. Co. (U.S.), 843 F.3d 733 (7th Cir. 2016).]

ERISA Preempted Plaintiff’s Negligence Claim Against Third-Party Reviewer, Sixth Circuit Decides

The plaintiff in this case worked as a nurse at the University of Louisville Hospital in Kentucky. Through her employment, the plaintiff was covered by a long-term disability insurance policy.

In April 2011, the plaintiff’s health made her unable to work. She applied for and received disability benefits through her insurance policy for approximately 17 months.

As part of a subsequent eligibility review, the plan engaged MCMC LLC, a Massachusetts-based third-party reviewer, to go through the plaintiff’s medical documents and provide an opinion as to whether the medical evidence supported her work restrictions.

MCMC and its agent opined that the plaintiff was able to work, stating:

The opinions of [the plaintiff’s treating physicians that she could not work] are not supported by the available medical documentation as there are no objective findings which would support the claimant’s inability to stand and move for more than just a few minutes, as well as repetitively bend, squat, kneel, and crouch. The claimant would have the capacity to perform sustained full time work without restrictions as of 2/22/2013 forward.

Neither MCMC nor its agent was licensed to practice medicine in the Commonwealth of Kentucky at the time they rendered the medical opinion on the plaintiff. Based in part on MCMC’s recommendation, the plan terminated the plaintiff’s benefits effective February 21, 2013.

The plaintiff then sued MCMC for negligence for practicing medicine in Kentucky without the appropriate license. The U.S. States District Court for the Western District of Kentucky ruled in favor of MCMC and the plaintiff appealed to the U.S. Court of Appeals for the Sixth Circuit.

The Sixth Circuit affirmed.

In its decision, it explained that the Employee Retirement Income Security Act of 1974 (ERISA) completely preempted “any state-law cause of action that duplicates, supplements, or supplants the ERISA civil enforcement remedy.” The circuit court added that a claim fell in the category of complete preemption when a claim satisfied both prongs of the following test:

(1) The plaintiff complained about the denial of benefits to which he or she was entitled only because of the terms of an ERISA-regulated employee benefit plan; and

(2) The plaintiff did not allege the violation of any legal duty (state or federal) independent of ERISA or the plan terms.

The Sixth Circuit first found that the plaintiff’s claim against MCMC met the first prong of the test because it was based on the terms of her ERISA-regulated plan. MCMC’s conduct, the circuit court decided, was “indisputably part of the process used to assess a participant’s claim for a benefit payment under the plan.”

It then ruled that the plaintiff also had not alleged the violation of any independent legal duty within the meaning of the second prong of the test. The Sixth Circuit said that medical professionals reviewing documents without making determinations regarding medical necessity were not practicing medicine within the meaning of the Kentucky licensing law. As a result, the circuit court continued, the Kentucky licensing law did not create a duty that flowed from those professionals to claimants. As such, MCMC – which the plaintiff’s complaint did not allege was involved in any determinations regarding medical necessity of treatments – was not practicing medicine and did not have an independent duty to the plaintiff under the Kentucky medical licensing law she had invoked.

Instead, the Sixth Circuit concluded, the allegations in the complaint implicitly relied on ERISA to establish the duty required for her negligence claim. The plaintiff’s state-law negligence claim, therefore, fit in the category of claims completely preempted by ERISA. [Milby v. MCMC LLC, 844 F.3d 605 (6th Cir. 2016).]

Video Surveillance Helps Doom Claim for Continuation of Long-Term Disability Insurance Benefits

As an account executive for Sprint Nextel, the plaintiff received group long-term disability insurance coverage under an employee welfare benefit plan issued and underwritten by Aetna Life Insurance Company.

On October 6, 2009, the plaintiff stopped working at Sprint and claimed short-term disability precipitated by lumbar back pain and an L5-S1 discectomy from 2007, as well as bilateral ankle pain caused by avascular necrosis of the talar bones.

Sprint approved the plaintiff’s disability claim later that same month.

The plaintiff had surgery on both ankles in January 2010 and underwent a left ankle arthroscopy and full ankle replacement in December 2010. During that time, Aetna determined that the plaintiff was disabled from her occupation as an account executive under the plan and approved her claim for long-term disability benefits. Aetna reasoned that the plaintiff was disabled from her own occupation “due to bilateral avascular necrosis in ankles, which caused [the plaintiff] severe pain,” and she was “unable to perform occupational duties as an account executive” because she was “unable to do the required walking and driving for this occupation.”

The plaintiff received benefits in the amount of $4,012 per month, equal to 50 percent of her pre-disability earnings. Upon her approval for Social Security disability benefits, this amount was reduced to $784.

The plan provided the plaintiff with benefits for up to 24 months if she continued to be disabled from her own occupation. After 24 months, the plan required a claimant to be unable to work at any reasonable occupation.

Aetna reviewed the plaintiff’s claim as the end of the initial 24-month period approached and investigated whether she met the more stringent “any reasonable occupation” definition of disability.

As part of the investigation, Aetna invoked its right under the plan to have the plaintiff examined by a physician of its choice. A physician examined the plaintiff and found her capable of performing sedentary work with minimal walking or standing.

Aetna also placed the plaintiff under surveillance on two occasions, where she was observed driving and visiting multiple stores.

Thereafter, Aetna informed the plaintiff that she no longer met the plan’s definition of disability and terminated her benefits. The plaintiff appealed and Aetna reinstated her benefits, finding that she met the standard of “being totally disabled from any gainful occupation” necessary to continue benefits beyond the 24-month period.

Because the plan required proof of continued disability, Aetna began a subsequent review of the plaintiff’s disability claim in December 2013 and January 2014 by conducting physical activity surveillance on four occasions. The surveillance videos showed the plaintiff climbing into and driving an SUV, shopping at multiple stores, and carrying a bag.

Aetna reviewed an “Attending Physician Statement” (APS) and its in-house vocation consultant conducted a “Transferrable Skills Assessment” (TSA) that determined that reasonable sedentary occupations existed for the plaintiff.

Aetna then informed the plaintiff that it had again decided to terminate her long-term disability benefits. The insurer rejected her appeal, and she sued Aetna in the U.S. District Court for the Northern District of Illinois.

The district court granted summary judgment for Aetna. It found, among other things, that Aetna had presented sufficient evidence supporting its decision to terminate benefits and had properly considered the surveillance video as part of its decision.

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

In its decision, the Seventh Circuit pointed out that although the plaintiff had characterized her ankle as “non-weightbearing or at least partial weightbearing with cane or assistive devices,” surveillance indicated that she had not used an assistive device and had been able to enter and exit an SUV, shop at multiple locations for extended periods of time, and carry a shopping bag and purse.

It ruled that Aetna’s termination and appeal review had articulated “specific reasons for denial” and had afforded the plaintiff “an opportunity for full and fair review by the administrator.” The circuit court then concluded that Aetna’s decision had “rational support in the record” and was not arbitrary and capricious. [Geiger v. Aetna Life Ins. Co., 845 F.3d 357 (7th Cir. 2017).]

Related Publications


Legal updates and news delivered to your inbox