Employee Benefit Plan Review – From the CourtsApril 22, 2020 | Norman L. Tolle | |
U.S. Supreme Court Interprets “Actual Knowledge” Test for Suits Against ERISA Fiduciaries
The U.S. Supreme Court, in a unanimous decision, has ruled that a plaintiff in a lawsuit alleging a fiduciary breach under the Employee Retirement Income Security Act of 1974 (“ERISA”) did not have “actual knowledge” of the information contained in disclosures that the plaintiff received but did not read or could not recall reading.
The plaintiff worked at Intel Corporation from 2010 to 2012. He participated in two Intel retirement plans: the Intel Retirement Contribution Plan and the Intel 401(k) Savings Plan. Payments into these plans were invested in two funds, which mostly comprised stocks and bonds and which were managed by the Intel Investment Policy Committee.
After the stock market decline in 2008, the committee increased the funds’ shares of alternative assets, such as hedge funds, private equity and commodities. These assets carried relatively high fees. As the stock market rebounded, the plaintiff’s funds lagged behind other funds, such as index funds.
In October 2015, the plaintiff filed a lawsuit alleging primarily that the committee and other plan administrators had breached their fiduciary duties by overinvesting in alternative assets.
The defendants countered that the plaintiff’s lawsuit was untimely under ERISA Section 1113(2), which provides that a fiduciary breach lawsuit must be filed within three years of “the earliest date on which the plaintiff had actual knowledge of the breach or violation.” The defendants argued that the plaintiff had filed his lawsuit more than three years after they had disclosed their investment decisions to him, at which point he had “actual knowledge” of their alleged breach.
For example, the defendants asserted that the plaintiff received an e-mail in November 2011 informing him that a Qualified Default Investment Alternative (“QDIA”) notice was available on a website called NetBenefits that broke down the percentages at which his 401(k) fund was invested in stocks, bonds, hedge funds and commodities.
The defendants also said that the plaintiff received a summary plan description in 2012 explaining that the funds were invested in stocks and alternative assets and referring him to other documents – called fund fact sheets – with the percentages in graphical form.
Further, the defendants asserted that the plaintiff received e-mails in 2012 directing him to annual disclosures that they provided for both of his plans, which showed the underlying funds’ return rates and again directed him to the NetBenefits site for further information.
The defendants submitted records showing that the plaintiff visited the NetBenefits site repeatedly during his employment. The plaintiff, however, testified in his deposition that he did not “remember reviewing” the disclosures during his tenure. He also stated that he was “unaware” while working at Intel “that the monies that [he] had invested through the Intel retirement plans had been invested in hedge funds or private equity.” He only recalled reviewing account statements sent to him by mail, which directed him to the NetBenefits site and noted that his plans were invested in “short-term/other” assets but did not specify which assets.
The U.S. District Court for the Northern District of California granted summary judgment to the defendants under Section 1113(2), reasoning that “[i]t would be improper to allow [the plaintiff’s] claims to survive merely because he did not look further into the disclosures made to him.”
The U.S. Court of Appeals for the Ninth Circuit reversed. The circuit court construed the “actual knowledge” requirement of Section 1113(2) to mean “what it says: knowledge that is actual, not merely a possible inference from ambiguous circumstances.” The circuit court held that although the plaintiff “had sufficient information available to him to know about the allegedly imprudent investments” more than three years before filing suit, his testimony created a dispute as to when he actually had gained that knowledge.
The Supreme Court agreed to review the Ninth Circuit’s decision to resolve whether the phrase “actual knowledge” meant “what it says.”
The Supreme Court’s Decision
The Supreme Court affirmed.
In its decision, the Court explained that although ERISA did not define the phrase “actual knowledge,” its meaning was “plain.” The Court pointed out that a legal dictionary defined “actual knowledge” as “[r]eal knowledge as distinguished from presumed knowledge or knowledge imputed to one.”
The Court added that if a plaintiff were not aware of a fact, the plaintiff did not have “actual knowledge” of that fact “however close at hand the fact might be.”
The Court then ruled that Section §1113(2) required “more than evidence of disclosure alone.” According to the Court, the fact that all relevant information was disclosed to a plaintiff was “relevant” in judging whether the plaintiff gained knowledge of that information, but to meet Section §1113(2)’s “actual knowledge” requirement, the plaintiff “must in fact have become aware of that information.”
The Court then specifically rejected the defendants’ contention that once a plaintiff received a disclosure, the plaintiff had the knowledge that Section 1113(2) required because the plaintiff “effectively h[eld] it” in his or her hand and could acquire the requisite knowledge “with reasonable effort.” In the Court’s view, that argument turned Section 1113(2) into a “constructive-knowledge requirement,” which it was not.
Finally, the Court also was not persuaded by the defendants’ contention that once plan administrators satisfied their obligations to impart knowledge, Section 1113(2)’s actual knowledge requirement was satisfied. The Court concluded that the limitations period in Section 1113(2) began only when a plaintiff “actually” was aware of the relevant facts, not when the plaintiff “should” have been aware. [Intel Corp. Investment Policy Committee v. Sulyma, No. 18-1116 (U.S. Feb. 26, 2020).]
Plan Administrator Did Not Abuse Its Discretion in Denying Short-Term and Long-Term Disability Benefits to Claimant, Third Circuit Says
The U.S. Court of Appeals for the Third Circuit has affirmed a district court’s decision in favor of the administrator of an employee benefit plan governed by the Employee Retirement Income Security Act of 1974 (“ERISA”) denying claims under short-term disability (“STD”) and long-term disability (“LTD”) plans, concluding that the plan administrator’s determinations were not an abuse of its discretion.
The plaintiff, a mortgage loan officer who participated in her employer’s short-term disability (“STD”) and long-term disability (“LTD”) plans, which were subject to ERISA, filed a claim for STD benefits on October 18, 2013. In support of her application, the plaintiff’s primary care physician submitted an office visit note from October 3, 2013 stating that the plaintiff had been suffering headaches for the preceding two or three months. The plaintiff also submitted an October 11, 2013 letter from another physician who noted that the plaintiff suffered from headaches that were not of sinonasal etiology and whose symptoms were relieved by various over-the-counter medications.
The plan administrator denied the plaintiff’s application for STD benefits, concluding that she had not presented sufficient clinical evidence to demonstrate her inability to work.
Appealing that decision, the plaintiff provided an office visit note from another physician who diagnosed her with chronic daily headaches but stated that her condition had been improving. He recommended that she take Topamax. He also reported that she had a “marked limitation of functional capacity/capable of sedentary work,” and that she was “unable to engage in stress of interpersonal relationships.”
The plan administrator referred the plaintiff’s claim to its reviewing physician for independent peer review. This physician reviewed the plaintiff’s medical records, spoke to two of her physicians over the telephone, and concluded that “[a]lthough the claimant presented with chronic daily headaches of several months’ duration, nevertheless, the medical records do not describe those headaches as sufficiently severe or intense as to preclude work.”
On December 27, 2013, the plan administrator upheld its decision denying STD benefits.
About one year later, on December 18, 2014, the plaintiff applied for LTD benefits. She presented additional medical evidence in support of her application, but the plan administrator denied the plaintiff’s application for LTD benefits.
The plaintiff appealed this decision and the plan administrator referred the case to a neurologist and a psychologist. After reviewing the plaintiff’s medical records, they both concluded that the plaintiff was not disabled.
The plan administrator upheld its initial denial, ruling that “there remains a lack of medical evidence to support [the plaintiff’s] claim for disability from October 21, 2013 through April 20, 2014 (elimination period) and from April 21, 2014 forward.”
Through counsel, the plaintiff filed suit in the U.S. District Court for the Eastern District of Pennsylvania.
After recounting the evidence and discussing the parties’ arguments, the district court concluded that the plan administrator had not abused its discretion in denying the plaintiff’s claims.
The plaintiff appealed to the Third Circuit. Among other things, she argued that it was inappropriate for the plan administrator to rely on the opinion of its reviewing physician rather than her treating physicians.
The Third Circuit’s Decision
The Third Circuit affirmed.
In its decision, the circuit court explained that because the plans granted the plan administrator discretionary authority to determine eligibility for benefits, it would review its decisions for abuse of discretion. Under that standard, the circuit court continued, it would reject the plan administrator’s determinations only if they were “without reason, unsupported by substantial evidence or erroneous as a matter of law.”
The Third Circuit then agreed with the district court that the plan administrator had not abused its discretion in denying the plaintiff’s STD claim.
The circuit court was not persuaded by the plaintiff’s contention that it was inappropriate for the plan administrator to rely on the opinion of its reviewing physician rather than the plaintiff’s treating physicians. The Third Circuit reasoned that plan administrators were “not obliged to defer to the treating physician’s opinion.” It added that although it was “problematic” for an administrator to credit a report from its retained doctor over evidence from treating physicians where the administrator’s physician failed to analyze an entire diagnosis, “that did not happen here.”
Rather, the circuit court continued, the reviewing physician had discussed the plaintiff’s condition with two of her physicians, reviewed the entirety of her records, and concluded that her condition did not render her unable “to perform [her] essential occupation functions.”
The Third Circuit said that it could not say that the plan administrator’s reliance on the reviewing physician’s opinion, and its concomitant denial of STD benefits, was “without reason [or] unsupported by substantial evidence.” As the circuit court observed, giving more weight to the opinions of some experts than to the opinions of other experts was not an “arbitrary or capricious practice.”
The Third Circuit reached the same conclusion concerning the plaintiff’s claim for LTD benefits.
It noted that the LTD plan provided that benefits were payable if a claimant remained “disabled” through the “elimination period” of 180 days, that the plan administrator had determined that the elimination period ran from October 21, 2013 through April 20, 2014, and that the plaintiff had not shown that she had been unable to perform the duties of her occupation during that period.
In the circuit court’s opinion, that determination was not an abuse of discretion. The Third Circuit concluded that “[m]ultiple experts,” including both treating physicians and physicians employed by the plan administrator, had determined that Topamax had helped bring the plaintiff’s headaches under control in early 2014 (that is, during the elimination period). [Ackaway v. Aetna Life Ins. Co., No. 16-3969 (3d Cir. Feb. 18, 2020).]
Third Circuit Upholds Decision Dismissing Plaintiff’s ERISA Suit for Failure to Exhaust Remedies
The U.S. Court of Appeals for the Third Circuit has affirmed a district court’s decision dismissing a plaintiff’s claim for benefits due under the Employee Retirement Income Security Act of 1974 (“ERISA”) because the plaintiff failed to exhaust his administrative remedies before he filed his lawsuit.
The plaintiff participated in an ERISA-governed employee benefit plan provided by his New Jersey-based employer. The plan offered members a “dual contract” of health insurance policies: a New Jersey policy provided out-of-network health care benefits for plan members, and a separate state-specific policy provided benefits for in-network and emergency services through a health maintenance organization (“HMO”) in each member’s state of residence. Because the plaintiff resided in Pennsylvania, his in-network and emergency services were covered by a Pennsylvania HMO policy, which included a provision giving the insurer a right of subrogation, as well as a right to reimbursement for benefits paid, if the plaintiff were injured by a third party and recovered monies from the third party.
The plaintiff was injured in a motorcycle accident, and the health insurer paid for emergency services provided to the plaintiff pursuant to its obligations under the Pennsylvania HMO policy.
The health insurer subsequently notified the plaintiff’s attorney that it had a “lien/claim for medical benefits” that it had provided in connection with the plaintiff’s motorcycle accident, and that he would need to repay those benefits if he recovered money from a third-party tortfeasor.
The plaintiff filed a personal injury lawsuit against an alleged third-party tortfeasor and ultimately recovered a judgment. Through his attorney, the plaintiff sent the health insurer a check to satisfy its demand.
The plaintiff did not pursue any administrative remedies to contest the health insurer’s demand for repayment. Rather, approximately two weeks later, the plaintiff filed a putative class action against the health insurer, claiming that the health insurer had violated a New Jersey regulation that forbids insurers from seeking subrogation and reimbursement. The plaintiff alleged that he was entitled to a refund of the reimbursement he paid to the health insurer under ERISA because that money was a benefit due to him.
The U.S. District Court for the District of New Jersey granted summary judgment to the health insurer, finding that the plaintiff had failed to exhaust his pre-litigation administrative remedies.
The plaintiff appealed to the Third Circuit. He argued that he was not required to exhaust his administrative remedies for two reasons.
First, the plaintiff argued that the Pennsylvania HMO policy was not an ERISA plan document that governed his benefits because his employer had not incorporated the policy into a document labeled as its ERISA plan, and because insurance policies were not plan documents.
Second, he asserted that he had never received a copy of the Pennsylvania HMO policy and, therefore, he was not bound by its terms.
The Third Circuit’s Decision
The Third Circuit affirmed.
In its decision, the circuit court ruled that the plaintiff’s first argument rested on the “incorrect premise” that, under ERISA, the plaintiff’s employer needed to incorporate into a single document the terms of its employee benefit plan, and that it had to label that document as its “Employee Health Care Plan” because that was the name it had given its plan on its Form 5500.
As the Third Circuit pointed out, multiple documents may “collectively form” an employee benefit plan, and those documents need not be “formally labelled” as comprising the plan. Therefore, the circuit court ruled, the plaintiff’s contention that his employer had never adopted the Pennsylvania HMO policy as part of its employee benefit plan because it had never incorporated it into a document labeled as such was “without merit.”
The Third Circuit also was not persuaded by the plaintiff’s assertion that the Pennsylvania HMO policy was not a plan document because it was an insurance policy. The circuit court found that the plaintiff’s employer had purchased the Pennsylvania HMO policy and that it was a plan document that set out elements of the employer’s ERISA-governed employee benefit plan. Indeed, the circuit court continued, the Pennsylvania HMO policy contained “[r]ules governing collection of premiums, definition of benefits, submission of claims, and resolution of disagreements over entitlement to services,” which were “the sorts of provisions” that constituted a plan.
The circuit court also rejected the plaintiff’s next argument that even if the Pennsylvania HMO policy were a plan document, it could not be applied to him because he had not received it upon his request, in violation of an ERISA disclosure regulation. The circuit court pointed out that the ERISA regulation that the plaintiff relied on provided “[g]eneral disclosure requirements” for “[t]he administrator of an employee benefit plan.” The regulation was “immaterial” to the plaintiff’s claims against the health insurer, the circuit court concluded, because the health insurer was not the plan administrator. [Minerley v. Aetna, Inc., No. 19-2730 (3d Cir. Feb. 13, 2020).]
Ex-Employee Was No Longer Eligible for Short-Term Disability Benefits, District Court Rules
A federal district court in Alabama has ruled that a former employee was not entitled to recover short-term disability (“STD”) benefits under a disability benefits program governed by the Employee Retirement Income Security Act of 1974 (“ERISA”).
The plaintiff participated in his employer’s disability benefits program, which was governed by ERISA.
On May 24, 2016, the plaintiff filed a claim for short-term disability benefits after he suffered a stroke. On June 6, 2016, the claims administrator gave initial approval of the plaintiff’s short-term disability claim for May 25, 2016 through June 13, 2016. His benefits were extended several times and eventually approved through May 22, 2017.
On September 15, 2016, the plaintiff’s employer announced that it planned to close the center in Birmingham, Alabama, where the plaintiff was employed. The Birmingham center was closed and the plaintiff was removed from his employer’s payroll on April 30, 2017.
When the plaintiff was removed from his employer’s payroll on April 30, 2017, his short-term disability benefits were terminated.
The plaintiff appealed, and the claims administrator informed the plaintiff that his appeal was denied because as of April 30, 2017, he no longer met the program’s definition of “eligible employee,” required for benefits.
The plaintiff sued, and the parties moved for judgment in their favor.
The District Court’s Decision
The district court granted the defendants’ motion.
In its decision, the district court explained that the program required that the plaintiff remain an “eligible employee” to remain eligible to receive short-term disability benefits. In other words, the district court continued, the plaintiff had to be “on active payroll.” When he was removed from payroll on April 30, 2017, he no longer met the definition of eligible employee.
The district court added that because the program’s terms were “clear” that short-term disability benefits ended when employment was terminated “for any reason,” the claims administrator’s decision to terminate the plaintiff’s STD benefits was “correct.”
Indeed, the district court concluded, it would have reached the same decision as the claims administrator, based on the explicit terms of the plan and the formal plan documents. [Washburn v. AT&T Umbrella Benefit Plan # 1, No. 4:18-CV-00647-CLM (N.D. Ala. Feb. 12, 2020).]
- Norman L. Tolle