Employee Benefit Plan Review – From the Courts

Agreement That Settled Arbitrations Also Barred Former Employee’s ERISA Action, Ninth Circuit Says

In December 2010, the plaintiff in this case, a physician, filed wrongful termination lawsuits against Kaiser Foundation Hospitals (Kaiser) and The Permanente Medical Group, Inc. (TPMG). Both of those lawsuits were consolidated in arbitration. The plaintiff, Kaiser, and TPMG settled those arbitrations in November 2011 and, under the settlement agreement, the plaintiff signed a broad release of claims and expressly waived his right to bring any and all claims and causes of action arising under the Employee Retirement Income Security Act of 1974 (ERISA) against TPMG and its related persons and entities.

In particular, in that document, the plaintiff released TPMG and its agents and related companies and facilities – including the TPMG Plan – “of and from any and all claims, charges, demands, actions, obligations, liabilities, and causes of action . . . which [the plaintiff] now owns or holds or has at any time owned or held arising under . . . the Employee Retirement Income Security Act.”

In March 2011, several months before the settlement agreement was finalized, the plaintiff filed a lawsuit in the U.S. District Court for the Northern District of California against TPMG and The Permanente Medical Group, Inc. Long Term Disability Plan for Physicians (the TPMG Plan) after his long-term disability (LTD) benefits were terminated, alleging claims under ERISA and seeking LTD benefits from the TPMG Plan.

The plaintiff, TPMG, and the TPMG Plan agreed early on in the plaintiff’s ERISA case to allow the plaintiff to pursue his internal administrative appeals with the Life Insurance Company of North America (LINA), which provided LTD insurance coverage for the TPMG Plan and which was responsible for administering the claims review process. The parties also entered into joint stipulations requesting that the California district court stay the plaintiff’s ERISA action pending the action of those administrative appeals.

After the plaintiff, Kaiser, and TPMG settled the arbitrations and the plaintiff signed his release, the district court decided that the release barred the plaintiff’s ERISA action against TPMG and the TPMG Plan.

The plaintiff appealed that decision to the U.S. Court of Appeals for the Ninth Circuit, which affirmed.

In its decision, the circuit court found that neither the agreement by TPMG and the TPMG Plan to allow the plaintiff to pursue appeals with LINA nor the joint stipulations requesting that the district court stay the plaintiff’s ERISA action rendered the November 2011 settlement agreement ambiguous or altered or superseded the settlement agreement to preclude TPMG and the TPMG Plan from enforcing their rights under the waiver signed by the plaintiff.

Once the district court lifted the stay, the Ninth Circuit found, TPMG and the TPMG Plan permissibly raised the settlement agreement as an affirmative defense and also properly asserted the release and waiver of any ERISA claims in their motion for summary judgment. Despite their willingness to allow the plaintiff to complete the administrative process with LINA, which could have granted him benefits, there was “no indication” that TPMG or the TPMG Plan had surrendered their rights to enforce the settlement agreement, the Ninth Circuit said. Rather, the “explicit language of the agreement controlled,” the circuit court concluded, and the district court had correctly determined that the settlement agreement had “clearly and expressly waived any and all ERISA claims against TPMG and related parties.” [Gonda v. Permanente Medical Group, Inc., 2017 U.S. App. Lexis 8888 (9th Cir. May 22, 2017).]

Anti-Assignment Clause Barred Healthcare Provider’s ERISA Suit Against Health Benefit Plan’s Administrator

IGEA Brain and Spine, P.A., a New Jersey healthcare provider, rendered medical services to a participant in a health benefit plan administered by BCBSM, Inc., d/b/a Blue Cross and Blue Shield of Minnesota. IGEA alleged that BCBSM failed to fully reimburse it for these services, resulting in an underpayment of $181,200.

IGEA obtained an assignment of benefits from its patient and sued BCBSM under the Employee Retirement Income Security Act of 1974 (ERISA). BCBSM moved to dismiss.

The U.S. District Court for the District of New Jersey granted the motion.

In its decision, the district court explained that ERISA permits actions to be brought “by a participant or beneficiary…to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan.” By its terms, the district court said, only participants and beneficiaries may bring lawsuits to recover benefits – although, it noted, in the U.S. Court of Appeals for the Third Circuit, a healthcare provider that was neither a participant nor a beneficiary in its own right may bring a lawsuit if it received an assignment of benefits from a plan participant or beneficiary.

The district court then ruled, however, that the assignment of benefits under which IGEA brought its lawsuit was ineffective to permit IGEA to sue because the BCBSM plan contained “anti-assignment clauses” that prohibited the assignment.

For example, the district court noted, the BCBSM plan explicitly prohibited claimants from assigning “to any other person or entity his or her right to legally challenge any decision, action, or inaction of the Claims Administrator.” In addition, in a section entitled “No Third Party Beneficiaries,” the plan specified that “[n]o person who is not a Plan participant or dependent of a Plan participant may bring a legal or equitable claim or cause of action pursuant to this Summary Plan Description as a third party beneficiary or assignee hereof.” The district court also pointed out that the “Enforce Your Rights” section of the plan provided:

If you have a claim for benefits which is denied or ignored, in whole or in part, you may file suit in a state or federal court… however, you may not assign, convey, or in any way transfer your right to bring a lawsuit to anyone else.

The district court concluded that the anti-assignment provisions in the BCBSM health care plan were “clear and unambiguous” and thus were “valid and enforceable” under ERISA, and barred IGEA’s action against BCBSM. [IGEA Brain and Spine, P.A. v. Blue Cross and Blue Shield of Minnesota, 2017 U.S. Dist. Lexis 72663 (D.N.J. May 12, 2017).]

Insurer Could Reduce Attorney’s Long-Term Disability Benefits by Amount of His Consulting Income

After a business litigation attorney was diagnosed with Parkinson’s disease, he applied for benefits under the long-term disability insurance policy his firm had with Lincoln National Life Insurance Company. Lincoln National approved the claim.

Thereafter, Lincoln National asked the attorney about any other sources of income he had. The attorney informed the insurer that he was working and being paid as an independent contractor for a political campaign. Lincoln National then began reducing the attorney’s monthly benefit due to this other source of income.

The attorney requested that Lincoln National reverse its decision to offset his monthly benefit, but Lincoln National denied that request.

The attorney sued Lincoln National under the Employee Retirement Income Security Act of 1974 (ERISA), seeking to recover the funds he claimed Lincoln National owed to him.

Lincoln National moved to dismiss. It argued that the attorney was not owed any benefits under the policy because the policy clearly entitled Lincoln National to offset the attorney’s monthly benefit with his outside income earned as a political consultant.

The district court granted the insurer’s motion.

In its decision, the district court rejected the attorney’s argument that his income as a political consultant was not “Other Income Benefits” as defined in the policy that could be deducted from his monthly benefit. The district court reasoned that “Other Income Benefits” was defined in the policy as “benefits, awards, settlements or Earnings” and that “Earnings” was defined as “pay the Insured Employee earns or receives from any occupation or form of employment,” including “salaried or hourly Employee’s gross earnings.” In the district court’s opinion, this definition “clearly” encompassed any compensation the attorney received from his political consulting, because that was an “occupation or form of employment.”

Thus, the district court concluded, the plain text of the policy demonstrated that Lincoln National was permitted to deduct the amount of the attorney’s consulting income from his long-term disability benefits. [Barber v. Lincoln National Life Ins. Co., 2017 U.S. Dist. Lexis 74005 (W.D. Ky. May 16, 2017).]

Attorney Who Fell Down Steps While in Highly-Intoxicated State Could Not Recover Long-Term Disability Benefits

The plaintiff in this case, an attorney, fell down a flight of 20 stairs in the home where he was staying while on a ski vacation in Aspen, Colorado. There were no witnesses to the fall.

At some point after the fall, the plaintiff’s son found him. When paramedics arrived, the plaintiff did not have a pulse. The paramedics performed CPR and then took the plaintiff to the hospital.

He was admitted to Aspen Valley Hospital, where he was intubated and diagnosed with bilateral subdural hematomas associated with a midline shift and skull fracture.

That evening, a blood-alcohol test was performed. The test showed that the plaintiff’s blood-alcohol level was 281 mg/dL (equaling a blood-alcohol concentration (BAC) of .281 percent).

The following day, the plaintiff was transferred to St. Mary’s Hospital in Grand Junction, Colorado, where a craniectomy was performed. He subsequently was transferred to a long-term rehabilitation facility.

Nine months after his injury, the attorney’s condition had improved but he still was unable to return to work due to continuing cognitive deficits and word-finding problems.

The plaintiff applied to Greater Georgia Life Insurance Company, which had issued a long-term disability benefits plan to his firm, for benefits. Greater Georgia denied the plaintiff’s claim, citing the policy’s intoxication exclusion and the attorney’s BAC as tested at the hospital after the fall.

The attorney appealed, but Greater Georgia upheld its denial of his claim for long-term disability benefits.

He then sued Greater Georgia, challenging its denial of his claim.

The U.S. District Court for the Northern District of Georgia granted summary judgment in favor of the attorney. It found that he had been “intoxicated at the time of his fall” but found that the evidence did not support “a causal link” between his intoxication and his fall. Therefore, the district court concluded, Greater Georgia’s benefits-denial decision had been “wrong.”

Greater Georgia appealed to the U.S. Court of Appeals for the Eleventh Circuit, which reversed.

In its decision, the circuit court noted that the attorney had not challenged the district court’s finding that he had been intoxicated at the time of his fall. It then noted that, for the policy’s intoxication exclusion to apply, the attorney’s injury must have been “caused by, result[ed] from, or related to” his intoxication.

The Eleventh Circuit observed that Greater Georgia had reviewed the complete medical record history of the attorney’s brain injury. Moreover, the circuit court added, the records contained “undisputed toxicological evidence” that, at the time the attorney fell, his BAC was .281 percent – which the physicians who treated the attorney had diagnosed as “[a]cute alcohol intoxication.”

The Eleventh Circuit added that although the treating physicians had never expressly determined that the attorney’s intoxication had caused his fall, the fact that they said he “[h]ad drank heavily this evening” directly before noting that he “f[e]ll 20 carpeted steps” indicated that the doctors believed the attorney’s intoxication was “an important aspect of the circumstances of his fall and provided important context for understanding the nature of his fall.”

The circuit court also reasoned that the causal link between the attorney’s intoxication and his injury was “especially strong” because his medical records showed that, aside from the extreme intoxication, he was a perfectly healthy middle-aged man, who was “[i]ndependent in all ways” and had no condition that would make him prone to fall.

Given other steps that Greater Georgia had taken in reviewing the attorney’s claim, the circuit court concluded that Greater Georgia had a “reasonable basis” to conclude that the attorney’s injury was, at a minimum, “related to” his intoxication. [Prelutsky v. Greater Georgia Life Ins. Co., 2017 U.S. App. Lexis 9759 (11th Cir. June 2, 2017).]

Fifth Circuit Rules That Former Employee Was Entitled to Severance Benefits

The plaintiff in this case sued Howard Hughes Management Company, L.L.C. Separation Benefits Plan alleging that he was owed $255,000 in severance benefits under the plan, asserting claims under the Employee Retirement Income Security Act of 1974 (ERISA).

The plan contended that the plaintiff was not entitled to severance pay, asserting that he was not an “employee” as defined in the plan because he had been “compensated by special fees or employed pursuant to a special . . . arrangement.”

The U.S. District Court for the Southern District of Texas ruled in favor of the plan, and the plaintiff appealed to the U.S. Court of Appeals for the Fifth Circuit.

The circuit court reversed, and ruled in favor of the plaintiff.

In its decision, the circuit court explained that the plan provided that a person was ineligible for benefits if he or she was “compensated by special fees or employed pursuant to a special . . . arrangement.” (Emphases added.) It then found that the plaintiff had not been employed pursuant to a special arrangement but, rather, that he had been “an ordinary at-will employee.”

Accordingly, the circuit court found, the “employed pursuant to a special . . . arrangement” prong of the plan’s “employee” eligibility exclusion did not bar the plaintiff from receiving severance benefits.

The Fifth Circuit also ruled that the plaintiff had not been “compensated by special fees.” It reasoned that under the plan administrator’s interpretation of “special fees,” a “broad range of employee benefits, including bonuses and commissions,” would constitute “special fees” and, thus, result in an employee’s exclusion from the plan. The circuit court decided that an employee’s receipt of bonuses and commissions did “not furnish a basis for excluding him or her” from the plan and, therefore, that the plan administrator’s interpretation of “special fees” was not correct.

Accordingly, the Fifth Circuit reversed the district court and rendered judgment in favor of the plaintiff in the amount of $255,000, plus attorneys’ fees of $18,970. [Langley v. Howard Hughes Management Co., L.L.C., 2017 U.S. App. Lexis 9724 (5th Cir. June 1, 2017).]

Widow’s Suit Seeking Increased Benefits Was Filed Years Too Late, Second Circuit Rules

The plaintiff’s husband, a longtime employee of Revlon Inc., became disabled in 1987 and took a medical leave. He died in 1989 at age 50, never having returned to work. Thereafter, the plaintiff received benefits from her husband’s disability pension, but she expected to begin receiving increased benefits under a retirement pension in 2004, when her husband would have turned 65.

In 2015, the plaintiff sued Revlon under Section 502(a)(1)(B) of the Employee Retirement Income Security Act of 1974 (ERISA) seeking spousal pension benefits after she had never received any increased benefits.

Revlon moved to dismiss. The U.S. District Court for the Southern District of New York granted Revlon’s motion. It concluded that the plaintiff’s claim was barred by New York’s six-year statute of limitations for contract actions because that statute of limitations had begun to run in 2004, when the plaintiff should have known that she was not receiving the increased benefits she allegedly was due.

The plaintiff appealed to the U.S. Court of Appeals for the Second Circuit.

The circuit court affirmed.

In its decision, the Second Circuit explained that the statute of limitations for ERISA Section § 502(a)(1)(B) claims was the limitations period “specified in the most nearly analogous state limitations statute.” Here, it added, New York’s six-year limitations period for contract actions applied. That period began to run when there was “enough information available to the pensioner” to assure that she knew or reasonably should have known of a miscalculation of benefits.

The Second Circuit pointed out that the plaintiff in this case had alleged that she should have begun receiving increased benefits under a pension belonging to her late husband in 2004, when he would have turned 65, because he had elected that pension in addition to his disability pension prior to his death. The circuit court found that the plaintiff had “sufficient information that she should have known of the miscalculation when it initially occurred in 2004.” It noted that, in addition to knowing about the pension from the outset, the plaintiff had possessed the relevant documents the entire time.

Thus, the circuit court found that the plaintiff’s complaint itself made clear that the six-year statute of limitation had begun running in 2004 but that the plaintiff had failed to bring suit until 2015, “long after the statute of limitation had expired.” It concluded that the district court had correctly ruled that her suit was untimely. [Moses v. Revlon Inc., 2017 U.S. App. Lexis 9005 (2d Cir. May 24, 2017).]

Seventh Circuit Rejects Employee’s ADA Claim Over Exposure to Electromagnetic Voltage

The plaintiff, a front-desk clerk at a Travelodge Hotel, was fired after being caught on video sleeping in the hotel lobby while a fight broke out among several guests. He sued the hotel under the Americans with Disabilities Act (ADA).

The plaintiff claimed that his employer had failed to accommodate a malady that he had contracted as a result of long-term exposure to high levels of electromagnetic voltage at the hotel, had discriminated against him because of his disorder, and finally had fired him in retaliation for his having complained about the hotel’s voltage levels to the federal Occupational Safety and Health Administration.

The U.S. District Court for the Northern District of Illinois granted summary judgment in favor of the hotel, reasoning that the plaintiff had failed to present evidence that he was disabled within the meaning of the ADA, that he had engaged in any protected activity before his termination (an essential element of his ADA retaliation claim), or that the complaint he had filed with OSHA had played any role in his termination.

The plaintiff appealed to the U.S. Court of Appeals for the Seventh Circuit, which affirmed.

In its decision, the circuit court noted that there is debate in the medical community over whether sensitivity to electromagnetic voltage is a physical disorder or a psychological one. If it is psychological, the Seventh Circuit said, symptoms might not constitute a disorder that would entitle the plaintiff to the protections of the ADA. The circuit court pointed out that a “great deal of psychological distress,” such as fear of black cats, is trivial.

The circuit court then observed that the plaintiff had provided no evidence – medical or otherwise – that he suffered from any “impairment” that “substantially” limited any of his “major life activities,” as required to prove the existence of a disability under the ADA. Moreover, the circuit court pointed out, the plaintiff had not even tried to prove that he fit either of the other definitions of “disability” in the ADA: that he had a “record” of such an impairment or that he was “regarded as having” one by his employer.

The Seventh Circuit then rejected the plaintiff’s claim that his discharge had been retaliatory, reasoning that the plaintiff had neither sought an accommodation nor filed a discrimination charge with the Equal Employment Opportunity Commission until after he had been fired.

Finally, the circuit court concluded that there was no causal link between his OSHA complaint and his termination, that OSHA had found the hotel’s electromagnetic voltage levels to be normal, and that the hotel had provided valid reasons, unrelated to the plaintiff’s alleged disability, for firing him (such as sleeping on the job). [Hirmiz v. New Harrison Hotel Corp., 2017 U.S. App. Lexis 5978 (7th Cir. April 6, 2017).]