Written Request To Change Life Insurance Beneficiary Found Effective

Richard Smith was employed by Bonetti Company, Inc., and participated in the group life insurance plan that the company provided. Smith had basic life insurance coverage of $50,000 and supplemental life insurance coverage of $50,000, and he designated Alma, to whom he was married at the time his application for coverage was accepted, as the beneficiary. In February 2007, he requested a form from Bonetti to change the designated beneficiary of his life insurance benefits. He received a form entitled the “Humana Change Form,” on which he indicated he wanted to change the primary beneficiary to Alice Smith, his wife at that time. Both Richard and Alice signed this form, which Richard then sent to Johnson Insurance Services, LLC, which served as Bonetti’s agent for administration of the plan, as he had been instructed to do by Bonetti. Johnson forwarded the change form to Humana, Bonetti’s health and dental insurance underwriter, but did not send the form to The Principal Life Insurance Company, which had issued the life insurance policy.

Upon Richard’s death on April 12, 2007, Principal received competing claims from Alice and Alma. Principal told Alice that its records named another person as the beneficiary. Alice then sent Principal a copy of the Humana Change Form designating her as the beneficiary, which Richard had previously sent to Johnson. Thereafter, Principal informed both Alice and Alma of their competing claims and filed an action seeking a determination as to who was entitled to the death benefits. Both Alice and Alma filed motions for summary judgment in the district court. The district court granted Alice’s motion and denied Alma’s motion, and Alma appealed.

The appellate court affirmed the district court’s decision. It explained that, under the terms of the plan, a policyholder could “change a named beneficiary by sending a written request to The Principal.” The plan did “not require a specific form to be used in making a change of the beneficiary,” the appellate court pointed out. Instead, it continued, the plan required only a “written request,” and the Humana Change Form constituted such a “written request.” As the appellate court noted, that form contained a section entitled “Change Beneficiary,” and Richard indicated in that section that he wanted to change his primary beneficiary to “Alice Smith.” The fact that the form was not sent to Principal until after Richard died did not make it ineffective, the circuit court ruled, reasoning that although Alice had not forwarded the form to Principal until approximately one month after Richard’s death, the plan stated that “[o]nce recorded, the change will apply as of the date the request was signed.”  Thus, the appellate court ruled, the district court had correctly found that Alice was the beneficiary as the date she and Richard had signed the form.

The appellate court also rejected Alma’s contention that she was entitled to the insurance proceeds because the recorded beneficiary had not been changed on Principal’s records. As the appellate court pointed out, Principal filed the action for the court to determine whether it should accept the designation of a new beneficiary. “It should,” the appellate court concluded. [Principal Life Ins. Co. v. Smith, 2010 U.S. App. Lexis 13636 (11^th Cir. June 30, 2010).]

 Court Upholds Plan Administrator’s Decision To Offset VA Benefits Received By Former Employee Against His Long Term Disability Benefits

The plaintiff in this case worked for Sumaria Systems, Inc., until his multiple sclerosis precluded him from performing his job duties. He was a participant in Sumaria’s employee welfare benefit plan, which included group long term disability insurance under a plan insured through a company that later changed its name to Sun Life and Health Insurance Company. After the plaintiff began receiving disability payments from Sun Life, it began recalculating his benefits to offset the benefits he received from the Veterans Administration (VA). The plaintiff brought suit against Sun Life, arguing that the offset was improper. The parties moved for summary judgment.

Sun Life contended that, particularly under a deferential standard of review, the plan’s “sweeping language” justified its decision to classify the plaintiff’s VA benefits as “Other Income” that it was permitted to offset against the benefits due under the plan. For his part, the plaintiff contended that his VA benefits should not offset his disability payments under the plan, because nowhere in the plan documents were VA benefits specifically mentioned, and they were not mentioned in the Application for Long Term Disability Benefits form or the Reimbursement Agreement form that Sun Life had required him to complete when he had applied for disability benefits.

In its decision, the court concluded that Sun Life’s decision to offset the plaintiff’s disability benefits by his VA benefits was “not an abuse of discretion, arbitrary and capricious, or unreasonable.” The court found that the plaintiff had an opportunity to demonstrate that his VA benefits were unrelated to the disability that led to the loss of his stream of income from Sumaria and his receipt of disability benefits under the plan, and it determined that he did not provide such evidence to Sun Life for its administrative record. Because the plaintiff failed to submit such documentation, the court ruled it was reasonable for Sun Life to infer that the plaintiff’s VA benefits were related to the same disability that caused him to be unable to work at Sumaria and that led to his receipt of disability benefits under the plan. Accordingly, it concluded, Sun Life’s interpretation of the “Other Income” language of the plan document, resulting in the offset of the VA benefits, was not unreasonable and had to be upheld. [Riley v. Sun Life and Health Ins. Co., 2010 U.S. Dist. Lexis 61881 (D. Neb. June 18, 2010).]

Comment:  The court distinguished between VA benefits that were disability related and those, such as a retirement pension, that were not.  Had the plaintiff submitted evidence that his benefits were in the latter category, the court would not have permitted the offset.

Circuit Court Rules That ERISA’s Anti-Retaliation Provision Does Not Protect Former HR Director’s Unsolicited Internal Complaints To Management

The plaintiff, who was the Director of Human Resources for A.H. Cornell and Son, Inc., for about three years, filed suit against A.H. Cornell, claiming that she had been terminated in violation of ERISA §510 after complaining to management about alleged ERISA violations. The plaintiff contended that she discovered, during the last weeks of her employment, that A.H. Cornell was administering its group health plan on a discriminatory basis, was misrepresenting to some employees the cost of group health coverage in an effort to dissuade employees from opting into benefits, and was enrolling non-citizens in its ERISA plans by providing false Social Security numbers and other fraudulent information to insurance carriers. The plaintiff alleged that she “objected to and/or complained to” Cornell’s management about these alleged ERISA violations, and was terminated as a result.

The defendants moved to dismiss the plaintiff’s complaint, and the district court granted the motion, holding that the plaintiff’s complaints to management were not part of an “inquiry or proceeding” and thus were not protected under ERISA. The plaintiff appealed, arguing that ERISA’s anti-retaliation provision protected an employee’s unsolicited internal complaints to management. The U.S. Court of Appeals for the Third Circuit affirmed the district court’s decision, ruling that such complaints are not protected.

The circuit court explained that Section 510 of ERISA provides that, “It shall be unlawful for any person to discharge, fine, suspend, expel, or discriminate against any person because he has given information or has testified or is about to testify in any inquiry or proceeding relating to this chapter or the Welfare and Pension Plans Disclosure Act.” It acknowledged that the plaintiff  had “given information” by objecting and/or complaining to management, but then pointed out that the plaintiff did not allege that anyone approached her requesting information regarding a potential ERISA violation. Rather, she made her complaints voluntarily, of her own accord. Under these circumstances, the circuit court ruled, the information that the plaintiff relayed to management “was not part of an inquiry under the term’s plain meaning.”

Additionally, the circuit court rejected the plaintiff’s contention that her conduct was encompassed by the term “proceeding,” concluding there was “no suggestion” that any formal action had occurred. [Edwards v. A.H. Cornell and Son, Inc., 2010 U.S. App. Lexis 12962 (3^rd Cir. June 24, 2010).]

Comment: The federal courts of appeals are split on whether ERISA §510 encompasses unsolicited internal complaints. The Fifth and Ninth Circuits have held in the affirmative, see Anderson v. Elec. Data Sys. Corp., 11 F.3d 1311 (5th Cir. 1994), and Hashimoto v. Bank of Hawaii, 999 F.2d 408 (9th Cir. 1993), while the Second and Fourth Circuits have held in the negative, see Nicolaou v. Horizon Media, Inc., 402 F.3d 325 (2d Cir. 2005) (per curiam), and King v. Marriott Int’l Inc., 337 F.3d 421 (4th Cir. 2003).

It also should be noted that there is a circuit split on the issue of whether internal complaints are protected under the Fair Labor Standards Act. The First, Fifth, Sixth, Eighth, Ninth, Tenth, and Eleventh Circuits have held that internal complaints are protected under the FLSA. See Hagan v. Echostar Satellite, L.L.C., 529 F.3d 617 (5th Cir. 2008); Lambert v. Ackerley, 180 F.3d 997 (9th Cir. 1999) (en banc); Valerio v. Putnam Assocs. Inc., 173 F.3d 35 (1st Cir. 1999); E.E.O.C. v. Romeo Cmty. Sch., 976 F.2d 985 (6th Cir. 1992); E.E.O.C. v. White & Son Enters., 881 F.2d 1006 (11th Cir. 1989); Love v. RE/MAX of Am., Inc., 738 F.2d 383 (10th Cir. 1984); Brennan v. Maxey’s Yamaha, Inc., 513 F.2d 179 (8th Cir. 1975). The Second and Fourth Circuits have held to the contrary. See Ball v. Memphis Bar-B-Q Co., Inc., 228 F.3d 360 (4th Cir. 2000); Lambert v. Genesee Hosp., 10 F.3d 46 (2d Cir. 1993).  Finally, the Seventh Circuit has taken a middle approach. See Kasten v. Saint-Gobain Performance Plastics Corp., 570 F.3d 834 (7th Cir. 2009) (holding that written, but not oral, internal complaints are protected based on the inclusion of the verb “filed”), cert. granted, 130 S. Ct. 1890 (U.S. 2010) (No. 09-834).

 Plan’s Decision To Place Plavix In Formulary’s Tier 3 Is Upheld

The plaintiffs in this case sought to recover benefits in the form of prescription drug copayment charges. Through their employers, they each subscribed to medical insurance plans, specifically the Select Drug Program, sold by Independence Blue Cross (IBC) through two subsidiaries, QCC Insurance Company and Keystone Health Plan East.  Their claims focused on the open formulary in the plan that placed prescription medication into three different tiers, with each different tier having a different copayment. Both plaintiffs were subject to the following coverage: Tier 1 – individuals paid the lowest ($10.00) copayment for generic drugs; Tier 2 – individuals paid a greater ($20.00) copayment for brand-name drugs listed in the formulary; Tier 3 – individuals paid the highest ($35.00) copayment for brand-name drugs not listed in the formulary.

The plans of both plaintiffs consisted of two parts: the “parent contract” and the Prescription Drug Rider. The “parent contract” for both provided information regarding the availability of prescription drug coverage, noted that the insurer may set a higher copayment for certain drugs, and indicated that the insurer may amend the terms of the plan. The Prescription Drug Rider similarly established the right to prescription drug coverage and indicated that the insurer retained the discretion to set higher copayments for certain drugs. The formulary identified certain FDA-approved, prescription medications, and described how to identify which listed drugs were assigned to which copayment, based on whether the drug was “formulary generic,” “formulary brand,” or “non-formulary brand.”

Both plaintiffs took the prescription drug Plavix for their medical conditions. Plavix is an antiplatelet prescription drug indicated for individuals with a high risk of heart attack, stroke, and circulation problems as a result of medical conditions. There is no generic equivalent of Plavix on the market, although a six month supply of a generic version was released in August 2006; the production of this generic version, however, was later enjoined for patent infringement. Before the generic version was released, the plans characterized Plavix as a Tier 2 drug, subject to a $20 copayment. After the generic drug’s release, the plans re-characterized Plavix as a Tier 3 drug and maintained it as such even after the generic version of Plavix was no longer produced. The plaintiffs argued that Plavix should have been returned to Tier 2 after the generic drug was no longer produced and asserted that, because it was not, they overpaid for the drug. Therefore, they asserted claims under ERISA, arguing that the continued classification of Plavix as a Tier 3 drug amounted to a denial of benefits due under the terms of their plan.

The defendants moved to dismiss plaintiff’s complaint.  The district court granted the motion, finding that the defendants had discretion under the plan to determine what copayment would apply to which drugs, and that their decision to place Plavix in Tier 3 and keep it there even after the generic version of Plavix was no longer produced was not an abuse of discretion. The plaintiffs appealed.

The circuit court affirmed. It found that the terms of the plans were unambiguous with respect to the plaintiffs’ prescription drug coverage and relevant copayment amounts. Although IBC was required to provide prescription drug benefits for both plaintiffs, the plaintiffs were required to contribute to the cost of the prescription drug purchase with a copay. The circuit court also stated that in addition to setting the requirements for copayments by participants, the plans unambiguously granted to IBC the discretion to interpret and amend the terms of the plan, including the terms found in the formulary. Therefore, the circuit court decided, although it was clear that the plaintiffs had a right to prescription coverage based on the terms of the plan, they did “not have a vested right as to the amount of the copayments.” Indeed, and to the contrary, the circuit court ruled, the plan documents “unambiguously” granted to the administrator the discretion to select the terms of the plan, including the placement of drugs in the formulary. It then concluded that the defendants had the authority to determine benefits, and the decision to categorize Plavix as a Tier 3 drug was an exercise of discretion that did not elsewhere conflict with the unambiguous terms of the plans and that, therefore, was not arbitrary and capricious. [Saltzman v. Independence Blue Cross, 2010 U.S. App. Lexis 11917 (3^rd Cir. June 10, 2010).]

 Plaintiff With Sickle Cell Anemia Did Not Demonstrate That He Was An Individual With A Disability Under The ADA

While the plaintiff was employed with Verizon New York, Inc., he requested leave to treat ulcers and wounds on his feet and ankles that resulted from sickle cell anemia. Verizon granted the leave but subsequently obtained video footage of the plaintiff engaging in activities during his leave that, it claimed, were inconsistent with representations the plaintiff and his doctor made regarding the plaintiff’s health status. After reviewing the video, Verizon told the plaintiff, who was still on leave, that if he did not return to work he would face “separation from payroll.” Ultimately, Verizon fired the plaintiff based on his alleged misrepresentation of health status.

The plaintiff brought suit against Verizon alleging violations of various state and federal statutes, including the Americans with Disabilities Act. He alleged that Verizon had violated the ADA by interfering with his leave and denying him leave because he was disabled; by failing to provide a reasonable accommodation after ordering him to return to work; and by firing him because he was disabled. Both parties moved for summary judgment.

In its decision granting Verizon’s motion for summary judgment on plaintiff’s ADA cause of action, the court pointed out that, to succeed on any of his ADA theories of liability, the plaintiff had to demonstrate that he was an individual with a disability. The ADA defines “disability” as:

(A) a physical or mental impairment that substantially limits one or more of the major life activities of such individual;
(B) a record of such an impairment; or
(C) being regarded as having such an impairment.

The plaintiff argued that he fell within categories (A) and (B), but the court found that the plaintiff’s impairment did not meet the ADA definition of disability.

The court explained that a plaintiff is not “substantially limited” in a major life activity if the impairment causes only episodic or temporary restrictions. It then found that in this case, even viewing the facts in a light most favorable to the plaintiff, no reasonable jury could find that the ulcers and wounds caused by his sickle cell anemia substantially limited him in any major life activity. The court recognized that one of the plaintiff’s physicians stated that the plaintiff’s vascular crises could be severe and, at times, could make it extremely painful to bend, drive, walk, or stand.  The court noted, however, that not every vascular crisis experienced by the plaintiff was this severe and that, even during a particular crisis, his symptoms varied greatly in intensity. Moreover, the court noted, this physician indicated that the crises were relatively infrequent and that the plaintiff was able to function without substantial limitation most of the time. The court then ruled that although the plaintiff’s sickle cell anemia was apparently permanent, it was asymptomatic for long periods, its symptoms varied in intensity, and he could go for years without significant symptoms. Accordingly, the court decided, although the vascular crises resulting from sickle cell anemia might, at times, limit his ability to, among other things, work and walk, no reasonable jury could find that the plaintiff was substantially limited in any major life activity as defined under the ADA.

The court also concluded that the plaintiff could not, as a matter of law, show that he had a “record of” a disability. To establish that he fit within this prong of the definition of disability, he had to show that Verizon had a record of him as having “an impairment that would substantially limit one or more of [his] major life activities.” The court explained that although there was evidence in the record that Verizon knew that the plaintiff had sickle cell anemia, there was no evidence from which a jury could find that Verizon had a record indicating that the plaintiff was substantially limited in any major life activity.

Accordingly, the court found that no reasonable jury could find that the plaintiff was an “individual with a disability,” and it decided that Verizon was entitled to summary judgment on the plaintiff’s ADA claims. [Casseus v. Verizon New York, Inc., 2010 U.S. Dist. Lexis 68910 (E.D.N.Y. July 9, 2010).]

 Reprinted with permission from the October 2010 issue of the Employee Benefit Plan Review – From the Courts.  All rights reserved.