www.rivkinradler.com April 2008   Reprinted with permission from the April 2008 issue of the Employee Benefit Plan Review.   From The Courts Appellate Court Affirms District Court Finding That Plaintiffs Lacked Standing To Sue   By: Norman L. Tolle     [Author Bio: Norman L. Tolle, the "From the Courts" columnist for Employee Benefit Plan Review, is a partner in Rivkin Radler LLP's Insurance & Coverage Litigation and Litigation & Appeals Practice Groups. Prior to joining the firm, Mr. Tolle was Vice President and Associate General Counsel of The Equitable Life Assurance Society of the United States, where he was responsible for complex litigation, including class actions relating to sales of life insurance and ERISA pension and welfare benefits. Resident in the firm's office on Long Island, Mr. Tolle can be reached at norman.tolle@rivkin.com.]   The plaintiffs in this case alleged that they were participants in an ERISA plan that suffered losses due to fiduciary breaches committed by the defendants between December 31, 2002 and February 4, 2005 (the Class Period). The principal allegations of fiduciary breaches were that the defendants failed to disclose to plan participants the highly speculative and risky investment strategies of New York Community Bancorp (NYCB) and imprudently invested the plan's assets in NYCB stock. The district court held that neither plaintiff was a "participant" in the plans with statutory standing to sue and granted the defendants' motion to dismiss. The plaintiffs appealed. In its decision on appeal, the U.S. Court of Appeals for the Second Circuit explained that the rights of action that the plaintiffs sought to assert were available only to "participants, beneficiaries, or fiduciaries of an employee benefit plan." A "participant" is "any employee or former employee of an employer . . . who is or may become eligible to receive a benefit of any type from an employee benefit plan." One of the plaintiffs, the circuit court explained, was terminated from his position at the Roslyn Bank on the day of or the day before it merged with NYCB. This plaintiff conceded that had never been employed by NYCB but argued that he was a participant in the NYCB plan on the day of the merger, and that as a consequence of that merger his holdings of Roslyn Bancorp stock under that company's 401(k) plan were converted into NYCB stock. The Second Circuit rejected that argument, finding no evidence that this plaintiff had ever enrolled or participated in an ERISA plan administered by the NYCB defendants. Thus, it ruled, he lacked standing to sue these defendants. The other plaintiff's employment with NYCB terminated on June 6, 2002 - six months prior to the beginning of the proposed Class Period. The circuit court noted that when the plaintiff left NYCB, her Savings Plan account terminated and she transferred her entire interest in that account into an Individual Retirement Account, administered by a bank. Thus, in view of the fact that the plaintiff had taken a total distribution of her Savings Plan prior to the beginning of the Class Period, she had no claim for damages resulting from fiduciary breaches allegedly occurring during that period, the appellate court found. This plaintiff also participated in an Employee Stock Ownership Plan (ESOP). Unlike with her Savings Plan account, this plaintiff continued to hold her NYCB ESOP account after she left NYCB and through the end of the class period. The Second Circuit pointed out, however, that the plaintiffs' theory of fiduciary breaches had "no application to the actions of the ESOP administrators" because participants in the ESOP, unlike those in the Savings Plan, could not chose among a variety of investment options but were instead granted shares of NYCB by virtue of their employment. Thus, the "failure-to-disclose" and the "imprudent-investment" allegations had no possible application to the ESOP plan, because neither the administrators nor the participants had the power to choose their investments under this plan. Accordingly, the circuit court found that this plaintiff did not have a claim for benefits relating to her ESOP account, and it affirmed the district court's decision. [Caltagirone v. NY Community Bancorp, Inc., 2007 U.S. App. Lexis 29516 (2d Cir. Dec. 20, 2007).] Court Holds That Beneficiary's Right To Life Insurance Proceeds Vested Before Policy Was Amended To Contain A Service Waiting Period On June 10, 2003, about six months after the effective date of a group life insurance policy issued by the Reliance Standard Life Insurance Company to Duplin General Hospital, Verdie Blackshear began working at the hospital as a nurse. She died on December 14, 2003, and on January 8, 2004, her beneficiary filed a claim with Reliance Standard for the life insurance proceeds of $81,078.40. According to the language of both the summary plan description (SPD) and the policy itself, nonexempt employees such as Verdie Blackshear hired after the effective date of the policy were not subject to a service waiting period, meaning that the coverage provided by the policy took effect immediately upon her employment. Upon receiving the claim, Reliance Standard contacted the hospital's human resources department to verify Verdie Blackshear's nonexempt status and the effective date of her coverage. The hospital replied that, contrary to the actual language of the policy and the SPD, the "policy should cover all employees for life insurance after six (6) months of employment" and that "[t]here should be no discrimination between exempt and nonexempt employees." Reliance Standard then reissued Duplin General's group policy on January 26, 2004, amending it to impose a six month service waiting period for all employees before coverage would take effect. The effective date for coverage then became the "first of the Policy month coinciding with or next following completion of the Waiting Period." Reliance Standard denied the beneficiary's claim on the grounds that Verdie Blackshear was not insured under Duplin General's group policy on December 12, 2003, the date of her death, for failure to satisfy the waiting period as defined in the amended policy: Verdie Blackshear was employed June 10, 2003. . . . [T]he applicable 6 month Waiting Period of Full-time employment would have been satisfied on December 10, 2003. The scheduled effective date of insurance for Ms. Blackshear was January 1, 2004. . . . As Verdie Blackshear died prior to the scheduled effective date of her coverage, January 1, 2004, she did not satisfy the eligibility requirements . . . and the life insurance coverage did not go into effect in accordance with the terms of the policy . . . . We are aware that due to a clerical error, booklets were printed that did not correctly state the applicable 6 month waiting period of employment. [Duplin General] confirmed in [a] telephone conversation [on] March 5, 2004 and in earlier conversations with our staff that all eligible employees of Duplin General Hospital are subject to the 6 month Waiting Period of Full-Time employment and that the original booklets contained an error regarding application of the Waiting Period for nonexempt employees. This error has now been corrected and new booklets have been forwarded to [Duplin General] for distribution to . . . eligible employees. The beneficiary sought review of the denial of her claim for benefits under Reliance Standard's appeal review procedure. Reliance Standard concluded that its original determination to deny benefits was proper and denied the appeal, acknowledging that "an error had occurred in the initial Policy and booklet printing with regard to the applicable 'WAITING PERIOD,'" and classifying the omission of the waiting period for nonexempt employees in the original policy and SPD as a "clerical error" that was inconsistent with "the original intention of the Policy." The beneficiary brought suit, arguing that the "clear and unambiguous language" originally set forth in the SPD and the policy controlled and afforded Verdie Blackshear insurance coverage immediately upon employment without a waiting period. The district court disagreed and granted Reliance Standard's motion for summary judgment dismissing the complaint. The Fourth Circuit Court of Appeals reversed the district court's ruling, finding that the beneficiary's right to the life insurance proceeds had vested at the moment Verdie Blackshear died, which was prior to the issuance of the amended policy containing a waiting period. The insertion of a waiting period had the effect of dispossessing Blackshear of rights that were already vested and was therefore impermissible, according to the court. The court also ruled that the result would not be different based on the policy's "clerical errors" provision, which stated that "[c]lerical errors in connection with the Policy or delays in keeping records for the Policy, whether by you, us, or the Plan Administrator . . . will not continue insurance that would otherwise have ceased or should not have been in effect." The court rejected the argument by Reliance Standard that the failure to include a waiting period in the original policy was a "clerical error" upon which the beneficiary could not rely to "continue insurance that . . . should not have been in effect." The court stated that, assuming such an omission would even qualify as a "clerical error," and assuming that this provision related in some way to the sponsor's general right to amend or eliminate the policy at any time, the language "in no way" authorized the administrator to divest a beneficiary of benefits that were already due by amending, modifying, or correcting the language of the policy itself. [Blackshear v. Reliance Standard Life Ins. Co., 509 F.3d 634 (4th Cir. 2007).] Employee's Failure To Pay Premiums Dooms Benefits Claim The plaintiff was enrolled in two employee benefit plans offered by his employer, the IBP Welfare Benefits Plan (the IBP Plan) and the Short Term Disability Plan (the STD Plan). The required fees for membership in these plans were automatically deducted from the plaintiff's paycheck. The plaintiff, however, applied for and was granted a medical leave of absence. Because the plaintiff was not receiving monthly paychecks during his leave of absence, his fees were not automatically deducted from his paychecks every month and the plaintiff did not pay his premiums while he was on medical leave. The plaintiff's employer was acquired by Tyson Foods, Inc., which replaced the IBP Plan with the Tyson Foods, Inc. Group Health Plan (the Tyson Plan). Tyson only allowed employees whose payments were up-to-date in the IBP Plan to enroll in the Tyson Plan. The plaintiff completed the enrollment form and was allowed to enroll in the Tyson Plan. Tyson later realized that the plaintiff's premium payments were in arrears with respect to the IBP Plan and, thus, that his application for the Tyson Plan never should have been accepted. He was therefore "disenrolled" from the Tyson Plan. The plaintiff brought suit and the district court rejected his claim. On appeal, Tyson argued that its decision to retroactively discontinue the plaintiff's coverage because the plaintiff's payments to the IBP Plan were in arrears was consistent with the written policies of both the IBP Plan and the Tyson Plan, which stated that coverage will be discontinued for employees who fail to pay their premiums. The plaintiff claimed that the arrears were attributable to the defendants because IBP had failed to send a coupon book outlining the plaintiff's payment duties to his correct address. However, the court found, the plaintiff had at least constructive notice of his duty to pay his health care premiums while on leave given that an employee's duty to pay premiums was noted in the IBP Plan Summary Plan Description. As a result, the appellate court ruled, the plaintiff's non-payment could not be attributed to IBP, and the plaintiff's claims had to be rejected. [Jordan v. Tyson Foods, Inc., 2007 U.S. App. Lexis 29685 (6th Cir. Dec. 19, 2007).] Policyholder's Failure To Provide Proof Of Loss Bars Long Term Disability Claim This case involved an individual disability insurance policy purchased by the plaintiff from the Berkshire Life Insurance Company in December 1991. The plaintiff applied for total disability benefits under the policy on November 28, 1999, claiming that she was disabled due to a sleep disorder, post-traumatic stress disorder, and an adult attention deficient/hyperactivity disorder. Berkshire paid the plaintiff benefits through August 2003 under a reservation of rights. At that time, Berkshire ceased paying disability benefits to the plaintiff, asserting that she failed to comply with the "proof of loss" provisions in the policy, and the plaintiff brought suit. Plaintiff sued Berkshire in July 2004. In September 2007, during the pendency of the lawsuit, Berkshire paid plaintiff benefits from February 1, 2007 to October 1, 2007. Therefore, at issue before the court was the interim time period when benefits had not been paid. The court found that the plaintiff had not provided Berkshire with the requisite authorization forms to establish proof of loss, as necessitated by the circumstances of her claim, until February 2007. Moreover, it continued, that the plaintiff failed to appear or reschedule an independent medical exam (IME), as requested by Berkshire in December 2005, as was required by the policy, precluded any claim by the plaintiff of a breach by Berkshire in the claims process during the relevant time period. The court also found that the plaintiff's refusal to sign or her revocation of her various records authorizations, her health care providers' refusal to provide complete medical records, and her delay in submitting to an IME resulted in a failure to provide proof of loss before February 2007. Accordingly, the court concluded that not only was the plaintiff not entitled to summary judgment on her breach of contract claim but that Berkshire was entitled to judgment as a matter of law on the plaintiff's claim of breach of the insurance contract and plaintiff's bad faith claim, and it granted Berkshire's motion to dismiss the action. [Garcia v. Berkshire Life Ins. Co. of America, 2007 U.S. Dist. Lexis 94420 (D. Colo. Dec. 27, 2007).] Court Rules That Decision Denying Long Term Disability Benefits Was Arbitrary And Capricious The plaintiff was employed by Salomon Smith Barney as a financial consultant for several years prior to 2004. On June 5, 2004, the plaintiff stopped working, purportedly due to his coronary artery disease and job-related stress. His primary care physician stated that the plaintiff's job was "very stressful and I think may have even contributed to his medical problems. I will not allow him to return to his work site. It is the wrong decision and it will lead him to have another heart attack. He is totally restricted from confrontation or stressful situations." However, the physician indicated that the plaintiff could lift 10 pounds occasionally, could sit frequently, and could stand or walk occasionally. The plan administrator denied the plaintiff's claim for long term disability benefits, finding that the plaintiff's job was "sedentary work requiring minimal physical exertion." It based that conclusion on medical opinions that it obtained that indicated that "there was no significant primary physical impairment that is evident" and "that the secondary psychiatric impairment would not be of a severity to preclude all work capacity." Plaintiff then brought suit against the plan administrator and moved for summary judgment. The court ruled that the plan administrator's decision to deny benefits was arbitrary and capricious for several reasons. First, it said, the plan administrator incorrectly based its decision upon a finding that the plaintiff could perform the exertional requirements of sedentary work generally, rather than on a finding that he could perform "all the essential duties of his occupation." In that regard, the court continued, even assuming that the plaintiff's occupation was sedentary with regard to exertional requirements, the plan administrator did not consider "all the essential duties" of the plaintiff's occupation, such as the need to concentrate and handle stress while managing large sums of money. Additionally, the court noted that although the plaintiff's treating physicians "uniformly concluded" that a return to a high stress work environment would be harmful to the plaintiff's cardiac health, one of the plan administrator's medical experts offered no opinion on that point. The plan administrator's "failure to address that issue was arbitrary and capricious." It added that another medical opinion, indicating that the plaintiff was capable of working, "was based on the mistaken view" that the plaintiff had "no significant primary physical impairment." To the contrary, the court declared, it was "undisputed" that the plaintiff suffered from coronary artery disease, which was made more difficult to manage by his inability to take cholesterol-lowering drugs. Finally, although the plaintiff was required to take numerous medications that apparently affected his ability to remain alert, concentrate, and drive a car, neither of the plan administrator's medical expert opinions discussed the possible effects of those medications on his ability to perform the essential duties of his occupation. Accordingly, the court granted the plaintiff's motion for summary judgment and remanded the matter to the plan administrator for another review consistent with the court's decision. [Chapman v. The Plan Administration Committee of Citigroup, Inc., 2008 U.S. Dist. Lexis 2654 (W.D.N.Y. Jan. 14, 2008).] Failure To Promote Pregnant Employee Results In Award Against Company The plaintiff began work at Chrysler as a fire security officer in 2000. In early 2004, Chrysler outsourced its fire security operations to the Wackenhut Corporation and proceeded to transition its various facilities. The plaintiff only continued working through the transition as a Wackenhut employee in the same position she had occupied with Chrysler, helping to train new personnel because of the promise of a promotion to a supervisor position. On April 26, 2004, the plaintiff filled out forms notifying Wackenhut that she was pregnant, and requesting a new uniform that would fit her. Wackenhut then offered plaintiff a promotion allegedly inferior to the one she had been promised. She began maternity leave on June 21, which was to extend until September 20. Wackenhut requested that she return to work after September 20, but the plaintiff never responded and never returned to work. She then filed suit against Wackenhut, alleging that she had remained with Wackenhut only because of the alleged promise of a promotion to a supervisor position at a different facility and that without the promise of that promotion, she would not have stayed. A jury returned a verdict for the plaintiff, finding that she had been denied promotion because of her pregnancy. Wackenhut appealed, arguing that the plaintiff had not made out a case for discrimination. The appellate court explained that it was undisputed that the plaintiff was a member of a protected class (pregnant women) and that she was qualified for the supervisor job. It then considered whether she had suffered any adverse action and whether there was any nexus to discrimination. Although denial of a promotion is an adverse employment action, Wackenhut argued that the plaintiff had not suffered any adverse employment action because it offered her a promotion that included higher pay and more responsibility than her current position (but less than the supervisor position she sought). The appellate court ruled, however, that for the purposes of determining whether the plaintiff had suffered any adverse action, it was "irrelevant" that the plaintiff had been offered a lesser promotion, noting that she had been denied a promotion that carried better pay and benefits than what she had and what she was ultimately offered. "A company cannot shield itself from liability for discrimination by offering an inferior promotion," the appellate court stated, concluding that there was "sufficient evidence" for the jury to find adverse employment action in this case. The appellate court then examined whether the adverse action gave rise to an inference of unlawful discrimination. Wackenhut argued that there was no nexus between the plaintiff's pregnancy and the promotion decision, pointing to the fact that the plaintiff informed the company of her pregnancy only four days before the promotion decisions were completed and claiming that its promotion decisions could not therefore have been tainted. The plaintiff, however, alleged that (1) company managers were aware of her pregnancy long before she officially informed them, (2) the timing of the events suggested discrimination, and (3) when offered the promotion, her superior "looked at me and he looked at my stomach, and he said you should consider this position considering your position." In response to this preliminary showing of discrimination, Wackenhut offered two legitimate, non-discriminatory reasons for its decision to promote someone else to the supervisor position at the other facility, namely that all of the supervisors there had additional fire specialist certifications and had personal knowledge of that particular facility, while the plaintiff had neither. As the appellate court explained, after Wackenhut articulated a non-discriminatory reason for its actions, the plaintiff had to produce evidence to raise a triable question of fact that the adverse action was motivated by gender discrimination and not the proffered legitimate reason. The appellate court pointed out that, during trial, the plaintiff offered two pieces of testimony that supported a finding by the jury of discrimination. First, the plaintiff was aware that her own supervisor did not have fire specialist training, and she believed that others had been promoted without specialist training. Second, she pointed to the fact that nothing had changed in her circumstances or the company's to justify reneging on the promised supervisor position - the only intervening circumstance of which she was aware was her pregnancy. This evidence, the appellate court concluded, if believed by the jury, undermined the legitimacy of the reasons offered by Wackenhut for promoting others and suggested that discrimination was the real motivation. The appellate court therefore concluded that the plaintiff had raised sufficient evidence to support a claim of discrimination, and it affirmed the lower court's ruling. [Lulaj v. The Wackenhut Corp., 2008 U.S. App. Lexis 485; (6th Cir. Jan. 11, 2008).] ADA Claim Fails When Plaintiff Cannot Show Prove She Had Sought A "Reasonable Accommodation" The plaintiff worked as a patient care technician at two of Fresenius Medical Care North America's kidney dialysis clinics in Minnesota. Following a series of disciplinary and attendance problems, Fresenius terminated her employment when she failed to come to work on May 28, 2004. The plaintiff apparently had a long history of depression, and she filed an action claiming that her depression was a disability and that termination of her employment constituted discrimination under the Americans with Disabilities Act (ADA). The district court rejected plaintiff's claim and granted summary judgment in favor of Fresenius. Plaintiff appealed and the appellate court affirmed the district court's decision. The appellate court first noted that the ADA prohibits employees from discriminating against a "qualified individual with a disability," whom it defined as "an individual with a disability who, with or without reasonable accommodation, can perform the essential functions of the employment position that such individual holds or desires." The appellate court concluded that the plaintiff's claim had to fail because she could not show that she was qualified to perform the essential functions of her job. The plaintiff was unable to come to work on a regular and reliable basis. While there was evidence that Fresenius had sufficient manpower to staff its operations without the plaintiff, she made no showing that Fresenius would be able to do so on short notice at times when Fresenius expected her to be at work. The court added that the plaintiff did not have the type of job that could be performed from another site or put off until another time: she cared for seriously ill patients in need of dialysis. It therefore then ruled that the plaintiff had failed to show that she was qualified to perform the essential functions of her job without an accommodation. With respect to accommodation, the court held that Fresenius had no duty to accommodate the plaintiff because she had failed to provide sufficient notice of her need. The court said the standard was clear: where, as here, the disability, resulting limitations, and necessary reasonable accommodations, were not open, obvious, and apparent to the employer, as was often the case when mental disabilities were involved, the initial burden rested primarily upon the employee to specifically identify the disability and resulting limitations, and to suggest the reasonable accommodations. Here, the court found, the plaintiff had not informed Fresenius of the specific limitations that her depression gave rise to, and thus Fresenius had no duty to find an accommodation for her. Moreover, the court continued, even if what the plaintiff told her employer put it on notice that she was disabled, she did not, in fact, suggest accommodations that were "reasonable." The court stated that allowing her to be absent "cannot as a matter of law be a reasonable accommodation" given the circumstances of the plaintiff's employment. In summary, the court stated, the plaintiff did not give proper notice to Fresenius that she needed an accommodation; nor did she show that being permitted to miss work on short notice was a "reasonable accommodation" that would have allowed her to perform her job. The court concluded that the plaintiff failed to offer sufficient evidence to support a finding that she was a "qualified individual," and Fresenius therefore was entitled to judgment on her ADA claim. [Rask v. Fresenius Medical Care North America, 509 F.3d 466 (8th Cir. 2007).] - top -