Employee Benefit Plan Review – From the Courts – July 2016

Court Upholds Administrator’s Ruling That New Plan Did Not Include Claimed Benefit

The plaintiff in this case was hired as an electrical engineer for Delco Electronics, a division of General Motors (GM), in 1991. The plaintiff was enrolled in an insurance plan covered by GM (the 1992 GM Plan) and was made aware of the benefits available to him by a summary plan description (SPD).

On January 1, 1999, Delco Electronics was spun off as a part of Delphi Automotive Systems. Upon the spin off to Delphi, the plaintiff became a participant in the 2000 Delphi Life and Disability Benefits Plan (the 2000 Delphi Plan).

On December 8, 2000, the plaintiff became disabled and stopped working. On July 1, 2002, he retired on permanent long-term disability.

On January 10, 2004, the plaintiff submitted a formal request for the payout of what he claimed was his disability life insurance benefit. In doing so, the plaintiff relied on the 1992 GM Plan and what he said was the only SPD that had been issued to him prior to the onset of his disability. According to the plaintiff, the first and only SPD he received from Delphi came in early 2002, more than a year after he had become disabled.

On March 12, 2009, the plaintiff resubmitted his request for the benefit.

On June 3, 2009, the Delphi benefit administrator, Metropolitan Life Insurance Company, denied the request on the basis that the 2000 Delphi Plan did not contain the claimed benefit. The plaintiff appealed the denial of his request. MetLife denied the plaintiff’s appeal, explaining that the life benefit the plaintiff sought had been eliminated in the 1994 enrollment documents and the 1996 SPD.

The plaintiff sued MetLife, claiming that MetLife had acted arbitrarily and capriciously when it had denied his request for disability life insurance payments.

He asserted that he had been told at various times that his Delphi benefits plan was substantially the same as the 1992 GM Plan. He contended that he had not received any materials indicating that the benefit had been eliminated and that, in any event, any such materials had not been widely distributed.

The plaintiff and MetLife each moved for summary judgment.

The court granted MetLife’s motion and denied the plaintiff’s motion. In its decision, the court found that the provision from the 1992 GM Plan, upon which the plaintiff based his claim for payment, had been eliminated on January 1, 1994 and had not been replaced by a similar provision in the 2000 Delphi Plan, which was the plan that was in effect when the plaintiff made his claim. The plaintiff could “not base an ERISA claim for benefits on a superseded plan,” the court said.

The court was not persuaded by the plaintiff’s argument that he had only received the 1992 GM Plan and SPD and, therefore, that the 1992 GM Plan was the governing document because the 1992 GM Plan conflicted with the subsequent 2000 Delphi Plan. The court said that although it was true that an SPD controlled if there was a direct conflict between the underlying plan documents and the SPD, this only applied to the SPD in effect at the time the plaintiff had become entitled to benefits.  The 2000 Delphi Plan was in effect at the time of the plaintiff’s claim for benefits, the court observed, adding that even if he could prove that a conflict existed between that plan and the 1992 GM Plan, the conflict was “irrelevant.”

Accordingly, because the disability life insurance benefit sought by the plaintiff was not in the 2000 Delphi Plan when the plaintiff became disabled, the court upheld MetLife’s decision to deny that benefit to the plaintiff. [Sumpter v. Metropolitan Life Ins. Co., 2016 U.S. Dist. Lexis 43844 (S.D. Ind. March 31, 2016).]

ERISA Preempted Beneficiary’s Negligence Case Alleging Faulty Plan Advice

The plaintiff’s husband was the chief fiduciary officer of a wholly-owned subsidiary of SunTrust Banks, Inc.  SunTrust offered to its employees an employee welfare benefit plan governed by the Employee Retirement Income Security Act of 1974 (ERISA). SunTrust was the plan administrator and Metropolitan Life Insurance Company underwrote the coverage and was the claims administrator.

As a full-time employee at an annual salary of $300,000, the plaintiff’s husband was entitled to a group life insurance policy that would pay his beneficiary – the plaintiff – $450,000 upon his death.

On April 1, 2011, the plaintiff’s husband became a part-time employee and, as a result, became entitled to no more than a basic life insurance plan that carried $10,000 of coverage. He nevertheless had an option to convert the excess of his $10,000 policy into a private individual policy. He was interested in doing so, in part because he had cancer at the time.

The plaintiff alleged that:

• On April 8, 2011, her husband received an email from SunTrust’s human resources department stating that he had 31 days to convert his life insurance policy;
• On April 18, 2011, her husband consulted with a financial services representative with Barnum Financial Group, who informed him that he had 31 days from April 18to convert his policy;
• On April 27, 2011, her husband and the Barnum representative further discussed converting the policy; and
• Her husband died on May 13, 2011 without having converted his life insurance policy.

The plaintiff sued Barnum and its representative for negligence, negligent misrepresentation, and breach of fiduciary duty.

The district court dismissed the lawsuit as preempted by ERISA. It noted that Barnum was not an independent legal entity but an office and trade name of MetLife, so that in reality the plaintiff actually sued MetLife d/b/a Barnum. Because the plaintiff sued MetLife d/b/a Barnum and a Barnum employee for advice they allegedly gave to her husband about the plan’s conversion requirement, the district court concluded that the plaintiff’s claims arose out of the defendants’ operation and management of a benefit plan covered by ERISA and, therefore, were preempted.

The plaintiff appealed to the U.S. Court of Appeals for the Second Circuit, arguing that her claims were not preempted because they were for damages under state law and were brought against defendants who effectively were strangers to the plan.

The Second Circuit affirmed the district court’s decision, deciding that ERISA preempted the plaintiff’s claims. It explained that the plaintiff was a beneficiary of the plan and that her claims arose out of purported oral misrepresentations by MetLife d/b/a Barnum and a Barnum employee about the process for converting a group life insurance policy under the plan.

The circuit court explained that, as the insurer and claims administrator of the plan, MetLife was a fiduciary and a “core ERISA entit[y]” and that the plaintiff’s claims concerned her husband’s right under the plan to convert his policy and the process for doing so – “central ERISA functions.” The circuit court pointed out that the alleged breach concerned the plan itself and not an agreement separate and independent from the plan, and it concluded that the district court had correctly decided in favor of the defendants. [Varela v. Barnum Financial Group, 2016 U.S. App. Lexis 5185 (2d Cir. March 22, 2016).]

“Infrequent Inability” to Perform Job’s Essential Functions Meant Plaintiff Was Not a “Qualified Individual” under the ADA, Eleventh Circuit Rules

The plaintiff in this case was a probationary police officer with the police department in Union City, Georgia. He chose to resign under threat of firing following an event on duty during which he experienced heightened levels of anxiety, causing another officer to believe that the plaintiff needed immediate medical attention.

Following his termination, the plaintiff, who had been diagnosed with generalized anxiety disorder, cyclothymic disorder (a mood disorder), and panic disorder, filed a lawsuit under the Americans with Disabilities Act (ADA), alleging that he had been wrongly fired on the basis of disability.

The district court granted summary judgment to Union City, concluding that the plaintiff was not a “qualified individual” under the ADA because he had failed to show that he could perform the essential functions of the police officer position, such as handling high stress and emergency situations in a cool, calm, and collected manner, while attempting to mitigate the effects of an anxiety attack.

The plaintiff appealed to the U.S. Court of Appeals for the Eleventh Circuit, arguing that summary judgment was inappropriate because evidence of his qualifications and of the effects of his anxiety were in dispute.

The Eleventh Circuit affirmed the district court’s decision.

The circuit court found that the plaintiff’s own testimony regarding his condition established that his condition affected his ability to process and manage stress. In addition, the Eleventh Circuit added, the plaintiff had testified that his condition could and did impact his breathing, blood pressure, and heart rate.

Not only that, the circuit court said, the plaintiff had explained that his anxiety episodes were unpredictable. The Eleventh Circuit noted that the plaintiff had testified that about once a month, he would experience a couple of episodes together, then none for a while, and that the episodes were not necessarily triggered by events, although events could stimulate his anxiety.

The circuit court decided that, in light of this undisputed evidence, the district court had properly found no genuine issue of material fact regarding the plaintiff’s ability to react quickly and calmly in high stress and potentially life threatening situations while experiencing and trying to mitigate the effects of an anxiety episode. The circuit court acknowledged that there was evidence that the plaintiff was “fully capable of performing the duties of his position much of the time,” but it concluded that “even an infrequent inability to perform the essential functions of the position” was enough to render the plaintiff not a “qualified individual” under the ADA. [Jordan v. City of Union City, Georgia, 2016 U.S. App. Lexis 5342 (11th Cir. March 23, 2016).]

Circuit Rejects Former Employee’s Bid for Unrecorded Overtime That Employer Did Not Know About

In December 2011, the plaintiff was hired by All American Check Cashing, Inc., a Mississippi-based loan and check cashing company. After a brief training period, the plaintiff started work as a manager trainee at All American’s store in Hattiesburg, Mississippi. She was paid hourly, and her responsibilities included cashing checks, issuing loans, and making reminder and “past due” phone calls to assist with debt collection.

All American promoted the plaintiff in March 2012 to manager, a salaried position. Her duties largely stayed the same, although she also became responsible for training other employees. In late September 2012, All American demoted the plaintiff back to the manager trainee position. On January 23, 2013, All American terminated her.

The plaintiff subsequently sued All American, alleging that it had violated the federal Fair Labor Standards Act (FLSA) by failing to pay her overtime for the two periods in which she had worked as a manager trainee – December 2011 through March 2012 and September 2012 through January 2013. During these time periods, the plaintiff was paid for the overtime hours she reported through All American’s timekeeping system but she sought payment for the overtime hours that she allegedly had worked but had not reported to All American.

The district court ruled in favor of All American, rejecting the plaintiff’s assertions that All American had actual or constructive knowledge that she had worked overtime for which she had not been paid. The plaintiff appealed to the U.S. Court of Appeals for the Fifth Circuit, which affirmed.

In its decision, the circuit court noted that All American’s overtime policy prohibited hourly employees from working overtime without prior approval from a manager or supervisor. The company’s policy, the circuit court added, also required that all employees accurately report their hours in its designated timekeeping system.

The circuit court ruled that, with respect to the plaintiff’s first period as manager trainee, the plaintiff had “ignored her employer’s policy and procedures” and had neither sought authorization to work overtime nor reported the alleged hours through All American’s timekeeping system. Indeed, the Eleventh Circuit observed, the plaintiff had testified that she had intentionally failed to report her unauthorized overtime specifically because it was prohibited by All American. The circuit court declared that, to find that she was entitled “to deliberately evade All American’s policy” would improperly deny All American’s “right to require an employee to adhere to its procedures for claiming overtime.”

The circuit court was not persuaded by the plaintiff’s contention that her computer usage reports, which allegedly showed that she was working after “clocking out,” proved that All American had constructive knowledge that she was working overtime. According to the circuit court, although All American potentially could have discovered that she was working overtime based on the usage reports, the question was whether it “should have known.” In the circuit court’s view, mere “access” to this information was “insufficient for imputing constructive knowledge.”

The circuit court then said that, with respect to the plaintiff’s second period as manager trainee, the plaintiff’s only evidence was “her unsubstantiated testimony that she worked approximately [10] hours of overtime a week and was not paid overtime for this period.” The Eleventh Circuit concluded that the plaintiff had failed to prove that she in fact had worked overtime during this period and had not been paid for it. [Fairchild v. All American Check Cashing, Inc., 815 F.3d 959 (5th Cir. 2016).]

Equitable Estoppel Did Not Require That Plaintiff Receive Higher Pension Payment, Circuit Decides

For many years, the plaintiff in this case had been a member of the International Union of Elevator Constructors of New York and New Jersey, Local One, and had participated in its pension plan. The plaintiff eventually took a non-union job that required that he resign from Local One.

The plaintiff said that he called Local One to inform it of his decision to resign, and that he spoke with Local One’s secretary-treasurer. According to the plaintiff, the secretary-treasurer informed him that, if he retired, he would receive “two thousand eight hundred something dollars” per month in pension benefits. The plaintiff said that the secretary-treasurer also gave him the telephone number for the pension plan’s benefits office.

The plaintiff applied for a pension and, despite receiving forms that said “Pension Type: EARLY VESTED” and that listed “Type Reduc.” of 50 percent or more with corresponding calculated amounts, he said that he believed that he would be receiving the “Normal Benefit” of over $2,800 (listed at the top of the forms). After his application was complete, the plaintiff was sent a more explicit form showing that his monthly benefit with “straight life” calculation would be $1,468.30, minus health insurance deductions, for a total of $672.30 per month.

The plaintiff acknowledged receiving this form, but said that he still believed he would be getting over $2,800 per month (that is, the “normal benefit” listed at the top of the form).

He requested direct deposit of the checks, and said that he did not receive bank statements or check his bank balance until months later when he had trouble paying his mortgage.

After unsuccessful administrative appeals, the plaintiff sued Local One, its secretary-treasurer, and the pension plan and its administrator. The plaintiff did not claim that the benefits he had received had been improperly calculated under the plan but that the defendants should be equitably estopped from denying him the “normal benefit.” He contended that:

• The defendants had “materially misrepresented his status with respect to the amount of his monthly pension benefit”;
• The misrepresentations had been made by fiduciaries;
• He had “relied upon this advice in making the decision to retire when he did”; and
• There were “extraordinary circumstances” warranting relief.

The district court granted summary judgment in favor of the defendants, and the plaintiff appealed to the U.S. Court of Appeals for the Third Circuit, which affirmed.

In its decision, the Third Circuit explained that a plaintiff seeking equitable relief in an ERISA case must establish:

• A material misrepresentation or fraudulent concealment;
• Reasonable and detrimental reliance upon the misrepresentation or concealment; and
• Extraordinary circumstances.

It then said that, even assuming for the sake of argument that the secretary-treasurer had made a material misrepresentation to the plaintiff regarding what the amount of his pension would be, the plaintiff could not show “reasonable reliance” on that misrepresentation.

First, the circuit court said, the plaintiff had no reason to believe that the secretary-treasurer had the authority to bind the pension plan – and the fact that he had given the plaintiff the phone number for the pension plan’s benefit office implied that the plaintiff needed to contact someone else.

Second, it continued, the plan sent the plaintiff two “calculation/option” sheets reflecting that the plaintiff would receive a reduced pension, followed by a third document that informed him of the exact amount that he would receive monthly. Although the plaintiff might have misread the forms or misunderstood the forms, the circuit court said it could not find that he had been “reasonable” in relying on the one line on those forms that stated the “normal benefit” where the rest of each form went into detail about his reduced pension.

The circuit court concluded that because the plaintiff had not raised a material issue of fact regarding his reasonable reliance, summary judgment on his equitable estoppel claim had been properly entered in favor of the defendants. [O’Blenis v. National Elevator Industry Pension Plan, 2016 U.S. App. Lexis 5598 (3d Cir. March 25, 2016).

Ninth Circuit Decides That Plan Administrator Did Not Waive Plan’s Contractual Limitations Period

The long term disability benefit plan for employees of Symmetricom, Inc., which was governed by the Employee Retirement Income Security Act of 1974 (ERISA), contained a provision that stated, “No legal action can be brought to recover under any benefit after 3 years from the deadline for filing claims.”

Under the plan’s provisions, the plaintiff in this case was required to file a claim for benefits by July 1, 2007, and the three-year contractual limitations period ended on July 1, 2010.

The plaintiff, however, did not file her claim for benefits until December 13, 2010 and she did not file her lawsuit against the plan administrator, Aetna Life Insurance Company, until March 4, 2013.

Aetna moved for summary judgment and the district court granted the motion. The plaintiff asked the district court to reconsider its decision, but it denied her request. The plaintiff then appealed to the U.S. Court of Appeals for the Ninth Circuit, which affirmed.

After finding that the plaintiff’s action was clearly untimely under the provisions of the Symmetricom plan, the circuit court considered whether Aetna had waived its contractual limitations defense by allegedly failing to inform the plaintiff, in its letters denying her claims, of the plan’s contractual limitations period for filing suit under ERISA.

The Ninth Circuit ruled that Aetna had not waived its contractual limitations defense because the plan’s contractual limitations period already had run by the time Aetna had sent its denial letters to the plaintiff. As the circuit court pointed out, the plaintiff had submitted her benefits application “three-and-a-half years late.”

Finally, the Ninth Circuit decided that Aetna did not have to show that it had been prejudiced by the late filing of the plaintiff’s lawsuit, concluding that there was “no authority requiring a showing of prejudice in order to prevail on a limitations defense challenging the timing of the ERISA action itself.” [Upadhyay v. Aetna Life Ins. Co., 2016 U.S. App. Lexis 5418 (9th Cir. March 23, 2016).]

Long-Term Disability Benefit Claim Was Properly Denied Where Claimant No Longer Worked for Plan Sponsor, Ninth Circuit Decides

In this case, the plaintiff brought suit under the Employee Retirement Income Security Act of 1974 (ERISA) to challenge Liberty Life Assurance Company of Boston’s discontinuation of her long-term disability benefits. The district court ruled in favor of Liberty Life and the plaintiff appealed to the U.S. Court of Appeals for the Ninth Circuit.

The circuit court affirmed. In its decision, it explained that the plaintiff was not a “participant” in the plan entitled to bring an ERISA claim. The circuit court pointed out that “participants” included only “employees in, or reasonably expected to be in, currently covered employment, or former employees who have . . . a reasonable expectation of returning to covered employment or who have a colorable claim to vested benefits.”

The plaintiff, however, no longer worked for the plan’s sponsor at the time she sought long-term disability benefits because she already had signed a severance agreement and had terminated her employment. Her coverage under the long-term disability plan terminated with her employment and she was not a “Covered Person” under the terms of the plan entitled to claim benefits, the Ninth Circuit ruled.

The circuit court also decided that the fact that the plaintiff previously had received long-term disability benefits did not make her a “participant” in the long-term-disability plan notwithstanding plan provisions specifying that “insurance will be continued for an Employee absent due to Disability during . . . the period during which premium is being waived” and that premiums were waived “during any period for which benefits are payable.” The Ninth Circuit observed that at the time the plaintiff filed her long-term disability claim, she was neither absent from employment due to disability nor receiving long-term disability benefits. To the contrary, she had to return to work from disability status to receive a severance package, her doctor had cleared her to return to work, and she did, in fact, return to work. Moreover, the circuit court stated, the plan’s provision for “successive periods of disability” did not give the plaintiff a claim to vested benefits because that provision extended only to “Covered Persons,” and she was no longer a “Covered Person” after she terminated her employment.

Finally, the Ninth Circuit decided that the plaintiff was not a “participant” in the plan by virtue of her misunderstanding of the plan’s terms, even if Liberty Life or her then-employer had misinformed her as to the effect of the severance agreement on her ability to claim long-term disability benefits. “An ERISA plan is governed by its written terms,” the circuit court concluded, and the plan did “not cover those who have terminated their employment with the plan’s sponsor.” [Perez-Jones v. Liberty Life Assurance Company of Boston, 2016 U.S. App. Lexis 6233 (9th Cir. April 5, 2016).]

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