LTD Plan Administrator Need Not Consider Social Security Administration Decided After Its Final Decision

January 31, 2013 | Appeals | Employment & Labor | Insurance Coverage

The plaintiff in this case, who worked for GKN North America Services until January 2009 when she stopped due to persistent pain from various medical conditions, filed a claim for disability benefits under an insurance policy issued by Hartford Life and Accident Insurance Company. The plaintiff received short term disability benefits through July 21, 2009, and Hartford awarded her long term disability (LTD) benefits from July 22, 2009 until August 3, 2010. On that date, Hartford informed the plaintiff that her LTD benefits were terminated because she did not meet the plan’s definition of disability. She appealed the denial of benefits, but Hartford issued a final decision in a letter dated May 16, 2011, maintaining the termination of LTD benefits.

On June 27, 2011, the plaintiff informed Hartford that she had received a favorable disability determination from the Social Security Administration (SSA) in a decision dated June 2, 2011. She requested that Hartford reopen her case to consider the SSA ruling, but Hartford refused to do so, stating that its denial of benefits was “based on a complete and final administrative record.” The plaintiff then sued Hartford and moved for an order requiring that the case be remanded to Hartford, the claims administrator, so that it could reconsider its claims determination in light of the SSA decision.

The court rejected the plaintiff’s motion for remand. The court explained that the general rule was that review of a plan administrator’s denial of benefits was limited to consideration of material available to the administrator at the time it made its decision.

As the court noted, although the SSA’s decision did not become available until shortly after Hartford had issued its final denial of benefits, the plaintiff could have alerted Hartford to the pending SSA determination before the process for her administratively appealing its initial ruling had closed, but “she did not.”

Moreover, the court continued, if a plan administrator had to continually consider new evidence even after the administrative process had concluded, “the process of deciding each claim for benefits under ERISA could continue ad infinitum, or as long as the plaintiff … chose to submit additional documents for consideration.” It concluded by noting that the decision to remand to a plan administrator was within its discretion, and it decided that remand before the court had considered the full record before the claims administrator was not called for simply because the plaintiff had decided that she wanted to submit additional evidence to the administrator. [Hooks v. The Hartford Life and Accident Ins. Co., 2012 U.S. Dist. Lexis 150536 (M.D. Ala. Oct. 19, 2012).]

Comment:  The court only determined that remand was not appropriate at this early stage of the lawsuit.  It is possible that after the court has considered the full administrative record, it would order that the case be remanded.

Failure to Follow Administrative Appeal Process Dooms Lawsuit against Plan Administrator

In this case, the plaintiff, a field agent for Liberty National Life Insurance Company, applied for short term disability benefits and went to court after her claim was denied. The defendants moved for summary judgment.

The court granted the motion. It explained that although the plaintiff had filed a short term disability claim that was denied, she never appealed the denial via the specific administrative procedures set forth in the plan. The court noted that in emails to a disability benefits examiner employed by the third party claims administrator, the plaintiff had “exhibited an understanding of the necessary steps for appeal.” For example, the court pointed out, the plaintiff wrote in one email, “[D]oes [sic] the appeal, the medical not reviewed and the letter all need to be sent at the same time?” The benefits examiner responded affirmatively, instructing the plaintiff to send her request-for-review letter accompanied by additional medical evidence.

In the court’s view, these emails supported an inference that the plaintiff intended to appeal the determination, but her intention did “not amount to an actual exhaustion of the available administrative remedies.” Simply put, the court explained, despite the examiner’s instructions and the policy’s consistent procedures as outlined in the Summary Plan Description (SPD), the plaintiff did not file an appeal with the administrator.

The court also rejected the plaintiff’s assertion that she actually had requested an appeal via an email that requested a meeting “in person and not by phone.” As the court pointed out, the SPD provided that appeals had to be “sent to the address specified in [the] claim denial” within 180 days of receiving notice of the claim denial. This comported with the instructions the benefits examiner gave the plaintiff days after she had received her denial, the court noted. It then ruled that an emailed request for an in-person meeting – like the pre-denial emails requesting reconsideration – did not amount to an appeal under the policy’s specified procedures. Because the plaintiff failed to file a proper administrative appeal, the court granted the defendants’ motion for summary judgment, concluding that the plaintiff had not exhausted her remedies for the denial of her short term disability claim. [McClendon v. Liberty National Life Ins. Co., 2012 U.S. Dist. Lexis 148248 (M.D. Ala. Oct. 16, 2012).]

Child’s Social Security Disability Benefit Can Be Used to Offset Divorced Employee’s Long Term Disability Payments

The plaintiff, who was employed as an information technology specialist at ProSoft, a technical services company located in Mechanicsburg, Pennsylvania, was covered by a long term disability (LTD) policy purchased by ProSoft and issued by Reliance Standard Life Insurance Company.

After the plaintiff was rendered totally disabled by multiple sclerosis, he began receiving benefit checks from Reliance. Thereafter, Reliance advised the plaintiff that it was recalculating his benefit amount by taking into consideration his Social Security Disability Insurance (SSDI) benefits and an estimated SSDI dependent award. As a result, Reliance offset the plaintiff’s LTD benefit by his SSDI benefit in the amount of $1,783 and his estimated SSDI benefit for a dependent child in the amount of $891. After offsetting the actual and estimated SSDI benefits, the total benefit payable by Reliance resulted in a negative number, and the plaintiff therefore was entitled only to the minimum monthly benefit of $100.

The plaintiff appealed Reliance’s recalculation, explaining that N.H., the child for whom estimated SSDI benefits were deducted, was neither his natural child nor his dependent. He submitted an affidavit certifying that while the divorce decree signed by the plaintiff and his former wife identified N.H. as a child of the marriage, he actually had undergone a vasectomy prior to the marriage that had rendered him unable to father a child. The plaintiff also submitted tax returns establishing that he had never claimed N.H. as a dependent. Reliance denied the appeal because it was not persuaded that N.H. was not the plaintiff’s dependent, relying in large part on forms the plaintiff submitted to Reliance identifying N.H. as his minor child and the plaintiff’s divorce decree, which identified N.H. as a child of his marriage. The plaintiff sued, asserting that Reliance had wrongfully calculated his benefits.

The court remanded the case to Reliance, noting that the plaintiff’s affidavits and tax returns should “at the very least, prompt further investigation” into whether N.H. was a dependent for the purposes of Social Security benefits. It ordered Reliance to conduct an inquiry as to the minor’s status as a child and dependent of the plaintiff.

After conducting its inquiry, Reliance sent a second denial letter to the plaintiff, this time including discussion of the Social Security Act and applicable regulations and analyzing the plaintiff’s claims under Pennsylvania law. Reliance again concluded that N.H. was both the plaintiff’s child and his dependent. The plaintiff again challenged Reliance’s determination in court, asserting that Reliance had ignored undisputed record evidence supporting his contention that N.H. was neither his child nor his dependent. For its part, Reliance counterclaimed, asserting that it had a contractual right to a refund of payments it had made for the time during which the plaintiff had received both LTD benefits and SSDI benefits. Both parties moved for summary judgment.

In granting Reliance’s motion and denying the plaintiff’s motion, the court first observed that it was undisputed that the plaintiff treated N.H. as a child of the marriage for the duration of the marriage and accepted N.H. formally as his child by signing a divorce decree that identified N.H. as a child of the marriage. The court also noted that the plaintiff continued to have visitation rights with N.H. under the divorce decree, and that he admitted that he paid and continued to pay child support for N.H. Most importantly, however, the court emphasized that the plaintiff identified N.H. as his child on two separate forms he submitted to Reliance in connection with his claim for disability benefits, one of which was a Social Security questionnaire that stated that its purpose was to investigate potential deductions from the plaintiff’s monthly LTD payments. Thus, the court ruled, the evidence “quite weightily” supported Reliance’s determination that the plaintiff was N.H.’s parent “based on his holding himself out as such,”  adding that the plaintiff could not now disclaim N.H. as his child for the sole purpose of avoiding an estimated SSDI dependent deduction from his LTD benefit payments.

The court therefore ruled that it was “not unreasonable” for Reliance to have concluded that N.H. was the plaintiff’s child and it would not overturn Reliance’s decision on this issue. It also decided that it would not overturn Reliance’s determination that N.H. was the plaintiff’s dependent and thus eligible for SSDI dependency benefits, and it granted Reliance’s counterclaim for repayment of overpayments. [Hann v. Reliance Standard Life Ins. Co., 2012 U.S. Dist. Lexis 163145 (M.D. Pa. Nov. 15, 2012).]

Court Rules that EEOC Waited Too Long To Bring ADA Claims

A federal district court in New Jersey has determined that the Equal Employment Opportunity Commission (EEOC) could not seek relief for individuals whose claims under the Americans with Disabilities Act (ADA) were based on events that allegedly occurred more than 300 days before the EEOC notified the employer that it would be investigating possible ADA violations.

The court explained that the case began on July 31, 2007, when Suzanne F. Nydick filed a charge with the EEOC alleging that her employer, Princeton Healthcare System (PHCS), had unlawfully denied her request for a medically-necessary leave because she had not worked enough hours in the preceding 12 months to qualify for leave under the Family and Medical Leave Act (FMLA). On August 15, 2008, the EEOC notified PHCS that as a result of information arising out of its investigation of Ms. Nydick’s claim, it was expanding its investigation to include an examination of possible violations of the ADA.

On December 1, 2008, Scott Satow filed a charge with the EEOC alleging that PHCS had denied his request for leave to obtain treatment for his disability because he was ineligible under the FMLA. The EEOC investigated the Nydick and Satow claims together and determined that “credible documentary evidence” showed that PHCS’s leave policy did not make any exceptions for employees who were qualified individuals with a disability under the ADA.

The EEOC sued PHCS on August 11, 2010, under the ADA. PHCS moved for partial summary judgment on all claims related to PHCS’s leave policy that alleged an adverse employment action occurring more than 300 days before the EEOC had filed the Satow charge.

In granting PHCS’ motion, the court pointed out that under federal law, a litigant must first file a charge with the EEOC within either 180 or 300 days after the alleged unlawful practice occurred – and was barred if not filed within this statute of limitations.

The court then ruled that the statute of limitations applied to claims brought by the EEOC and not just to private litigants, explaining that just because the EEOC had a “unique role” compared to individual plaintiffs alleging unlawful employment practices, it was “not exempt” from the rules “plainly laid out in the controlling statutes.”

In determining when the statute of limitations had been triggered, the court decided to look back 300 days from August 15, 2008, the date that the EEOC had informed PHCS that it would be expanding its investigation from a focus on the allegations in Ms. Nydick’s July 31, 2007, charge to include possible violations of the ADA. In reaching this conclusion, the court acknowledged that other courts had ruled that the filing date for expanded charges was the date on which the EEOC notified defendants that it was expanding its investigation to encompass the additional charges. Therefore, it ruled the statute of limitations had begun to run on October 20, 2007, i.e. 300 days before August 15, 2008, when the EEOC notified PHCS that it would be investigating possible ADA violations. Accordingly, the court granted PHCS’ motion to the extent of holding that the EEOC could not seek relief for individuals whose claims were based on events that occurred before October 20, 2007, because they were time-barred. [EEOC v. Princeton Healthcare System, 2012 U.S. Dist. Lexis 150267 (D.N.J. Oct. 18, 2012).]

Circuit Court Upholds Jury Verdict that Employer Did Not Violate the FLSA

Mortgage banker Ryan Henry and 445 of his colleagues sued Quicken Loans, claiming that the company had failed to pay them overtime wages from 2003 to 2007 in violation of the Fair Labor Standards Act. They contended that they were “glorified salesmen” and pointed to letters and internal memos that identified them as a “sales force” and encouraged them to “SELL SELL SELL.”

Quicken countered that the mortgage bankers fell within an exemption to the FLSA as the “quarterback[s]” of the lending process who performed a variety of roles: “collecting and analyzing the relevant information from our Clients concerning their financial status”; “understanding our Clients’ objectives, goals and needs”; “educating and advising our Clients on the entire financing process”; and closing loans. Quicken also distinguished mortgage bankers from “front line” employees who assessed whether customers had any “interest in pursuing a mortgage loan with Quicken.”

After a five week trial, a jury ruled for Quicken, and the mortgage bankers appealed to the U.S. Court of Appeals for the Sixth Circuit.

In its decision affirming the jury’s verdict, the circuit court explained that the FLSA set forth a general rule that employees must be compensated one and one-half times their regular hourly pay for each hour worked in excess of 40 hours per week, subject to a number of exemptions. One of the exemptions covered employees:

  1.  Compensated . . . at a rate of not less than $455 per week . . . ;
  2. Whose primary duty is the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and
  3. Whose primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

The parties agreed that the mortgage bankers’ salaries satisfied the compensation prong of this exemption. They disagreed, however, over application of the management-related prong and the discretion-and-independent-judgment prong. As the circuit court observed, the jury sided with Quicken on the last two questions, and it then reviewed that decision.

To satisfy the management-related prong, the Sixth Circuit explained that an employee’s “primary duty” must involve “work directly related to the management or general business operations” of the company or its customers. Primary duty, the circuit court continued, did not mean the most time-consuming duty, but instead the principal or most important duty performed by the employee. The appellate court then pointed out that the U.S. Department of Labor offered the following guidance for determining whether a financial-services employee fit within the exemption:

Employees in the financial services industry generally meet the duties requirements for the administrative exemption if their duties include work such as collecting and analyzing information regarding the customer’s income, assets, investments or debts; determining which financial products best meet the customer’s needs and financial circumstances; advising the customer regarding the advantages and disadvantages of different financial products; and marketing, servicing, or promoting the employer’s financial products. However, an employee whose primary duty is selling financial products does not qualify for the administrative exemption.

The circuit court ruled that the evidence supported the jury’s finding that the first sentence of this statement more aptly described the mortgage bankers’ “primary duty” than the second. As the circuit court observed, none of the 40 witnesses who testified at trial seemed to contest the fact that mortgage bankers performed every one of the tasks listed in the first sentence, though the parties’ witnesses diverged as to the issue presented by the last sentence: whether the mortgage bankers’ primary duty was selling financial products. In the circuit court’s view, given the competing evidence, the jury acted “well within its bounds” in deciding that it was not.

To satisfy the discretion-and-independent-judgment prong, the circuit court noted, Quicken had to show that the mortgage bankers’ primary duty included the exercise of discretion and independent judgment with respect to matters of significance. The Sixth Circuit then explained that numerous witnesses had professed that they exercised discretion and independent judgment on the job. Indeed, the circuit court noted, Ryan Henry, the lead plaintiff, acknowledged that there were “plenty of things” that required him to exercise discretion and judgment, including “assist[ing] clients in selecting the proper mortgage loan.” Another mortgage banker explained that he had relied on his own judgment in making recommendations to clients about the products that would fit their needs and that “pick[ing] the actual loan for [a] client” was “all up to [him].”

The circuit court acknowledged the mortgage bankers’ argument that Quicken’s 10 step guidelines for mortgage lending and the supervisory checks Quicken had in place were evidence that their discretion was circumscribed, but explained that these factors were “not dispositive.” As the circuit court stated, that Quicken used various methods to channel the mortgage bankers’ discretion did “not eliminate the existence of that discretion.”

Accordingly, the Sixth Circuit upheld the jury verdict in favor of Quicken. [Henry v. Quicken Loans, Inc., 698 F.3d 897 (6th Cir. 2012).]

Reprinted with permission from the February 2013 issue of the Employee Benefit Plan Review – From the Courts.  All rights reserved.

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