Actress Hurt While Bicycling Is Entitled To Workers’ Compensation Benefits

The plaintiff in this case was hired by the Gateway Playhouse in the Long Island village of Bellport to perform in two musicals during the summer of 2008. During that time, she lived in free housing provided by Gateway on its premises. On the morning of July 15, 2008, as was her practice throughout the summer, the plaintiff warmed up for a rehearsal by riding her bicycle. Approximately one mile from Gateway’s grounds, the plaintiff fell off her bicycle while attempting to avoid a car and broke her leg.

The plaintiff subsequently filed an application for workers’ compensation benefits based on the incident. Following a hearing, a Workers’ Compensation Law Judge ruled that the plaintiff’s injury was compensable and awarded benefits. Upon review, the Workers’ Compensation Board upheld that determination. Gateway and its workers’ compensation carrier then appealed to the courts, contending that the plaintiff had not been acting within the scope of her employment when the accident had occurred.

In a recent decision, a New York appellate court explained that the test for determining whether specific activities were within the scope of employment or were purely personal was whether the activities were both “reasonable and work related under the circumstances.” Moreover, it noted, the Workers’ Compensation Board’s factual determination with respect to this issue would be upheld when “supported by substantial evidence.” In this case, the court noted, the plaintiff had testified that professional actors, particularly those performing in musicals, must warm up – both physically and vocally. That testimony was supported by Gateway’s manager, who had stated that warming up was a customary industry practice. Indeed, the court noted, according to the manager, the warm up served to prevent on-stage injuries and enhance performances, thus benefitting the theater company. The manager also had acknowledged that actors warm up in a variety of ways.

The court pointed out that the plaintiff also had testified that she was expressly prohibited from warming up in the house she shared with other performers due to facility rules governing early morning noise. She likewise stated that a rehearsal studio on the grounds was too small for multiple performers to warm up in at the same time. Both of these observations were supported by testimony from Gateway’s manager, according to the court. Given these restrictions, the plaintiff elected to warm up vocally while riding her bicycle, a “two for one” routine practice that Gateway had approved, according to the plaintiff.

Under these circumstances, the court concluded that there was no basis to disturb the board’s decision that the plaintiff had been engaged in a reasonable and work-related activity when she was injured, and therefore was entitled to receive workers’ compensation benefits. [Matter of Claim of Bigelow v. WPAC Productions, Inc., 2010 NY Slip Op. 8665 (App. Div. 3rd Dep’t Nov. 24, 2010).]

No Breach Of Fiduciary Duty When Non-Employee Wife Decided To Retire In Alleged Reliance Upon Employee’s Pension Plan Statements

In this case, a husband and wife filed suit against Avaya, Inc., the husband’s former employer, contending that Avaya had breached the fiduciary duty it owed to them as participant and beneficiary under the company’s pension plan through a series of what they characterized as misleading letters regarding the husband’s pension benefits. According to the plaintiffs, the husband had been employed by Avaya and its predecessor companies, including Octel Communications Corporation. Lucent Technologies purchased Octel in 1997. At that point, Avaya was a telecommunications unit of Lucent. Lucent and Octel subsequently entered into a Memorandum of Understanding that addressed the integration of the two companies and the effect of prior service in determining pension benefits. As provided in this agreement, Octel service prior to September 1, 1998 “shall count toward eligibility under the Pension Plan,” but that “[f]or pension calculation purposes, a . . . pension service date shall be no earlier than September 1, 1998.”

On October 18, 1999, the Lucent pension service center sent the plaintiff husband a letter stating that because Octel was not a participant in the Lucent management pension plan (LTMPP), his Octel service “will not be included in your Net Credited Service date. Accordingly, your Net Credited Service date will be 9/1/98.”

In response, the plaintiff husband filed a grievance with Avaya contending that his Recognition of Prior Service (RPS) date had been calculated improperly and that the mistake detrimentally affected his eligibility for benefits. Subsequently, on April 7, 2000, the Lucent pension service center sent the plaintiff husband a follow up letter regarding his RPS date. The letter noted that there was confusion regarding when prior service would be recognized for purposes of vacation and benefits. As such, the letter clarified that his RPS date was October 30, 1980 and his Net Credited Service (NCS) date was December 19, 1988. The letter further explained that “your NCS date will remain the same until you complete three years of continuous employment with Lucent from the Acquisition Date. At that time, your NCS date will be adjusted to reflect your previous employment with Lucent.”

The plaintiff husband received another letter, on November 21, 2000, from the Lucent pension service center stating that his NCS date had “been established and updated in the Payroll and Personnel Systems.” The letter provided that his “Adjusted NCS Date” was October 30, 1980, and it stated that his supervisor would need the document for purposes of disability and vacation benefits.

The plaintiffs contended that, based on the November 21, 2000 letter, they calculated the husband’s expected monthly pension using the October 30, 1980 NCS date. They believed that he had 23 years of service that would be credited towards his pension. As a result, he thought he would be able to retire in 2005 with 25 years of service and receive a full pension. They did not confirm this calculation with anyone at Avaya, however. In late 2003, the plaintiffs alleged that they jointly made the decision that the plaintiff wife would retire from her job at another company. They said they based their decision on their combined income, the likelihood of layoffs at Avaya, and her husband’s expected pension benefit.

After the plaintiff wife retired, her husband learned he was going to be laid off and requested a pension calculation from Avaya. On December 14, 2004, he received a pension plan worksheet calculating his monthly benefit to be $1,469.25 based on 24 years and four months of service. On December 27, 2004, Avaya sent him a new worksheet correcting its prior calculation and stating that his monthly benefit would be $880.54 based on 14 years and seven months of service. The plaintiff husband took no action based on these calculations during this 13 day period, and he was laid off from Avaya in January 2005. He unsuccessfully appealed the pension benefit calculation through Avaya’s administrative procedures, and then the couple brought suit.

The district court granted Avaya’s motion for summary judgment, deciding that the plaintiffs could not establish a breach of fiduciary duty claim because Avaya had not made a material misrepresentation regarding its pension plan. The district court concluded that the Memorandum of Understanding made clear that an employer’s pension service date would be no earlier than September 1, 1998 and that the letters relied on by the plaintiffs provided a date of October 30, 1980 for the purpose of vacation and disability benefits only. The plaintiffs appealed to the U.S. Court of Appeals for the Third Circuit.

The Appellate Ruling

In its decision, the appellate court pointed out that, to prevail on a breach of fiduciary duty claim under ERISA, a plaintiff must establish, among other things, that he or she detrimentally relied on a misrepresentation or inadequate disclosure. It then held that the decision for the plaintiff wife to retire did “not constitute the type of detrimental reliance necessary to establish a breach of fiduciary duty claim,” and that it therefore did not need to address whether any of the correspondence had amounted to a material misrepresentation.

The appellate court noted that the plaintiffs contended that based on Avaya’s misrepresentation of the plaintiff husband’s NCS date, he had calculated his expected pension benefit and the couple had made the joint decision that the plaintiff wife should retire from her job, and they urged that the appellate court rule that this was an “important financial decision pertaining to retirement” such that it satisfied the element of detrimental reliance. The appellate court rejected that argument.

As the appellate court explained, in prior decisions where it had found detrimental reliance in the context of a breach of fiduciary duty claim, the common thread was that the alleged misrepresentation caused an employee participant or beneficiary to make a decision regarding benefits or retirement that was related to the employee’s plan. It noted that it had never held that a decision, whether by a participant or beneficiary, that affected a non-employee’s benefits or retirement – separate and apart from the plan – was the type of injury for which a fiduciary should be responsible.

The appellate court explained that the plaintiff wife’s decision to retire “did not have an effect” on the plaintiff husband’s pension, benefits, or retirement. Avaya’s communications as to his NCS date did not prompt him to change or forego benefits, or to retire. Moreover, her retirement did not alter the amount she could potentially receive from his pension.

Moreover, the appellate court continued, an employer, even when acting in a fiduciary capacity, was not responsible for harm that was not reasonably foreseeable. The type of injury alleged by the plaintiffs in this case was “not foreseeable” and therefore was “insufficient to establish detrimental reliance,” the Third Circuit concluded. [Shook v. Avaya, Inc., 2010 U.S. App. Lexis 22681 (3rd Cir. Nov. 2, 2010).]

Disability Benefits Beginning At Retirement Date Upheld By Second Circuit

Upon becoming disabled in 2006, the plaintiff in this case retired and sought disability benefits under his pension plan. The plan administrator agreed that the plaintiff was eligible for disability benefits but stated that in accordance with its terms, the plan would not begin to pay him until 2011, when he reached his retirement date at age 65. The plaintiff sued the plan and its administrator for breach of contract, equitable estoppel, reformation, and wrongful denial of benefits under ERISA. The district court granted the defendants’ motion for summary judgment and the plaintiff appealed to the U.S. Court of Appeals for the Second Circuit. The plaintiff argued there that a “disability benefit” was meaningless if it did not trigger at the time of disability or otherwise differ from the regular retirement benefit under the plan, and that the summary plan description (SPD) for his pension plan at the very least left some ambiguity about when disability benefits would begin.

The appellate court first found that the plaintiff’s disability benefit was “not meaningless,” because he had qualified for real payments under the plan, albeit not ones he would receive as soon as he would prefer. The appellate court indicated that it “share[d]” the plaintiff’s intuition that it was “strange” for a plan to provide “disability” benefits that did not differ in timing or amount from regular retirement benefits. In this case, however, the Second Circuit explained that the apparent anomaly was explained by history. Prior to 1989, the normal retirement benefit required 10 years of service to vest, while the disability benefit required only five years. In that year, however, the plan was amended to require five years for both types of benefits, in accordance with a change in federal law. The circuit court stated that it might have been better to respond to the change in law by merging the disability and retirement benefits and eliminating the no-longer meaningful distinction between the two, but it added that that was not required. The law only obligated the plan to pay the plaintiff what it promised to pay him, and, the Second Circuit said, it would do so in this case.

Next, the appellate court found that both the plan and the SPD clearly stated when the plaintiff would receive his disability benefit. It noted that the plan explicitly stated that disability benefits would begin on the plaintiff’s retirement date, and that the SPD did so more generally in a section that included both the “Disability Benefit” and “Normal Form of Retirement Benefits,” stating that “benefits” begin on the retirement date, thereby implying that the start date was the same for both. Finding no ambiguity, the circuit court affirmed the district court’s grant of summary judgment. [Weber v. AVX Pension Plan, 2010 U.S. App. Lexis 22066 (2d Cir. Oct. 26, 2010).]

Surveillance Video Dooms Claim For Disability Benefits

In this case, the plaintiff brought an action against the Hartford Life & Accident Insurance Company for terminating her benefits under Boston Financial’s Group Long Term Disability Plan. The plaintiff claimed to have constant disabling pain in her hands, arms, shoulders, mid to upper back, and neck that increased with mild physical activities, such as normal household chores, shopping, and holding a telephone. Video of the plaintiff, however, showed her vigorously pulling weeds in kneeling and squatting positions, lifting and carrying objects using both her arms, raising her arms over her head to point and carry objects, and using tools to scrape, push, and pull without any apparent difficulty. The video also showed that the following day, the plaintiff left her house to walk her dogs with a purse strapped over her shoulder and the dogs’ leashes in her hand. The plaintiff drove to a walking trail, walked the dogs for over an hour, and then brushed them down before driving home.

After having the plaintiff’s medical history reviewed by multiple doctors, the insurance company concluded that she was capable of performing sedentary work and terminated her disability benefits. On review of the insurer’s decision, the district court found evidence of bias in the reviewing physicians’ reliance on the surveillance video, certain inferences that the reviewing physicians drew in favor of the insurer, the fact that none of the insurer’s physicians had physically evaluated the plaintiff and that the insurer had rendered a biased decision in another case. The district court thus “accorded significant weight” to the insurer’s alleged conflict of interest (as the administrator making the decision regarding the plaintiff’s eligibility for benefits and the entity making such payments) and held that the insurer had abused its discretion.

The U.S. Court of Appeals for the Ninth Circuit reversed that decision. It found that the district court had erred in assigning “controlling weight” to the conflict of interest factor because the evidence did not indicate that the conflict “tainted the entire administrative decisionmaking process.” The circuit court added that the insurer had not distorted the content of the video or overemphasized its importance when requesting medical reviews. Nor had the insurer’s doctors mischaracterized the plaintiff’s activities or relied on the videos to the exclusion of all other evidence. The circuit court added that the insurer had provided the reviewing physicians guidance to consider the videos, directing them not to rely too heavily (or too little) on them. These instructions “were an appropriate effort to reduce bias and consider all available evidence.”

The circuit court continued by declaring that this did not mean that the insurer’s decision was entitled to unmitigated deference. According to the circuit court, the district court should have reviewed the insurer’s termination decision with a “moderate degree of skepticism.”

Viewing the medical and documentary evidence underlying the insurer’s decision with what it stated was a moderate degree of skepticism, the circuit court ruled that it was not an abuse of discretion for the insurer to conclude that the plaintiff lacked credibility and therefore to discount the value of her self-reported pain incidence, the heart of her claim and her doctor’s assessments of her health, and to place more weight on the surveillance video. There was sufficient objective evidence that the plaintiff’s condition “did not cause pain rising to the disabling level.” Instead, the videos showed the plaintiff “performing vigorous yard work requiring the use of her arms in a way that far exceeded her reported abilities.” The insurer’s physicians watched the videos and all concluded that her activities evidenced an ability to work at a level greater than she admitted. They also agreed that the activities she performed were too strenuous to simply have been the result of a temporary improvement in her condition.

In contrast, the circuit court found, the plaintiff’s physicians did not adequately explain how her activities in the videos were consistent with their conclusion that she could not work. While they explained that mild physical activity helped to alleviate the plaintiff’s symptoms, that explanation contradicted her own description of her pain, which she repeatedly said increased with even mild physical activity. Moreover, the Ninth Circuit added, the plaintiff’s rheumatologist provided no individualized basis for his conclusion that she could not work, relying exclusively on his diagnosis of ankylosing spondylitis to reach that conclusion.

The circuit court ruled that when considered together with the plaintiff’s self-reported limitations, the surveillance video severely damaged her credibility. Immediately before the plaintiff saw the video, it observed, she had signed a statement attesting that she had been unable to perform even mild physical activity for the preceding six months. After seeing the video, she gave several contradictory explanations for her activities. The circuit court said that she first said that she was in severe pain while performing the activities, but then later said that she was able to do them because she was in a period of feeling better. She also stated that it took her two weeks to recover from the gardening, despite the fact that she walked her dogs for over an hour and brushed them down the next day.

Given the plaintiff’s “lack of credibility” and her doctors’ “unsupported assertions that she could not work,” the circuit court concluded that it was not unreasonable for the insurer to disbelieve the plaintiff’s claim that any use of her upper extremities caused her disabling pain. The insurer accordingly had not abused its discretion in ultimately concluding that the plaintiff was capable of sedentary work and terminating her benefits, according to the circuit court. [Finley v. Hartford Life And Accident Ins. Co., 2010 U.S. App. Lexis 21509 (9th Cir. Oct. 19, 2010).]

Denial-Of-Benefits Claim Sent Back To State Court Where Amount In Controversy Is Under $75,000

The plaintiff in this case was a participant in a long term disability benefit plan provided by his employer and administered by the Life Insurance Company of North America (LINA). He claimed that he had become eligible for benefits under the plan in December 2009 and had remained so ever since. The plaintiff argued that LINA had wrongly denied him benefits based on an exclusion in the plan for pre-existing conditions. Had the plaintiff been awarded benefits, the policy would have paid him 50 percent of his gross earnings each month, for a total monthly payment of $589.34.

In April 2010, the plaintiff filed suit against LINA in a Kentucky state court for breach of contract, among other claims. LINA removed the case to federal court on the basis of diversity jurisdiction. The plaintiff then asked the federal court to remand the case to state court because the “amount in controversy” did not exceed the statutory minimum of $75,000 sufficient to satisfy the federal court’s jurisdiction.

In remanding the case to state court, the federal court explained that a case may be removed from state to federal court if the case could have originally been brought in the federal court. Federal district courts have original jurisdiction over civil actions between citizens of different states where the amount in controversy exceeds $75,000, exclusive of interest and costs. A defendant seeking removal has the burden of proving that jurisdiction in the district court is proper. Where plaintiffs seek to recover some unspecified amount that is not evidently greater or less than the federal amount-in-controversy requirement, the defendant satisfies its burden when it proves that the amount in controversy “more likely than not” exceeds $75,000.

LINA claimed it met its burden because the value of the plaintiff’s case – by its own calculation – totaled at least $90,000. According to LINA, the plaintiff could potentially recover $2,982.11 in past benefits for the period between December 2009 and May 2010. He could also potentially recover future benefits in the amount of $90,117. (LINA asserted that these future benefits had a present value of $66,066.15.) This amount, combined with the value of the attorneys’ fees and punitive damages sought by the plaintiff, would more than satisfy the amount in controversy requirement, LINA argued. The plaintiff contended, however, that the amount of future disability benefits was speculative only and that it was not certain that the plaintiff would “remain disabled or live for the entire duration of potential benefits.” Thus, the plaintiff argued that only the $2,982.11 in past benefits should be included in the jurisdictional calculation.

The court first explained that where a plaintiff was suing an insurer under a breach of contract theory, as in this case, future benefits may not be included in the amount in controversy unless the validity of the entire policy was in question. Where the matter pertained only to the extent of the insurer’s obligation under the policy, as in this case, future benefits could not be counted toward the jurisdictional requirement. Therefore, the court decided, the plaintiff’s future benefits could not be counted toward the amount in controversy with respect to his claim for breach of contract.

The court also found that LINA had not pointed to any other specific facts – beyond the limits of the policy – that would render it more likely than not that the plaintiff’s claim satisfied the amount in controversy requirement. In fact, the court ruled, the facts weighed in favor of remand. First, it said, the amount of each monthly payment at issue in this case – just shy of $600 – was relatively small. For LINA to reach the policy limits it alleged, it would have to pay the plaintiff this benefit for slightly more than nine years. Without additional evidence of the likelihood of LINA’s continuing obligation, the court said, it was “reluctant to assume that these small payments would, over the course of nearly a decade, accrue to an amount sufficient to reach the jurisdictional minimum.”

Second, the court found, LINA had provided “no evidence” about the nature or extent of the plaintiff’s disability. The only information available from the pleadings provided that the plaintiff had been disabled since December 2009 and remained so; this, without more, rendered it impossible to draw any conclusions about the possibility of LINA’s long term obligations under the policy.

Finally, the court ruled that LINA had not shown that including punitive damages or attorneys’ fees in the calculation would meet the amount in controversy requirement. LINA provided no proof as to the potential amounts of damages available nor provided any explanation as to how these damages might help bridge the gap between the certain damages sought by the plaintiff (approximately $3,000 in past due benefits) and the $75,000 jurisdictional requirement. Similarly, the court found, LINA had provided no evidence about the potential value of attorneys’ fees the plaintiff might receive, only that the plaintiff sought them and that they might be included in the amount in controversy calculation.

Concluding that LINA had not carried its burden to show that the amount in controversy was more likely than not to exceed $75,000, the court granted the plaintiff’s motion to remand the case to state court. [Jones v. Life Ins. Co. of North America, 2010 U.S. Dist. Lexis 113385 (W.D. Ky. Oct. 25, 2010).] 

Reprinted with permission from the February 2011 issue of the Employee Benefit Plan Review – From the Courts.  All rights reserved.