Employee Benefit Plan Review – From the Courts

Although Court Recognizes Claimant Has Burden to Show Exception to Limitation Applies, It Rejects Claim Administrator’s Determination and Awards Claimant Benefits

A federal district court in California has held that a plaintiff was eligible for additional long term disability benefits under a welfare benefit plan governed by the Employee Retirement Income Security Act of 1974 (ERISA).

The Case

After the plaintiff injured his neck, back, and shoulders while moving computers, monitors, servers, and other equipment at work, he applied for short term disability (STD) benefits under his employer’s disability plan. The plan’s claim administrator approved the claim for STD benefits from March 11, 2013 through September 2, 2013.

Around the time the claim administrator approved the STD claim, the plaintiff applied for long term disability (LTD) benefits under the plan.

The claim administrator sent the plaintiff for an independent medical examination (IME). The physician conducting the examination diagnosed the plaintiff with chronic cervical and lumbar strain, lumbar spondylosis, disc desiccation, annular tear L3 to S1, and possible cervical spondylosis. Nevertheless, the physician concluded that the plaintiff could work full-time in a light-capacity job according to the Dictionary of Occupational Titles.

The claim administrator requested a vocational consultant review to determine whether there were gainful occupations that met the physician’s job-capacity findings. The vocational consultant acknowledged that, in light of the physician’s restrictions, there were no gainful alternative occupations that the plaintiff could perform at that time.

Accordingly, the claim administrator approved LTD benefits for the plaintiff effective September 7, 2013. The claim administrator advised the plaintiff that the plan limited benefits to 24 months for neuromuscular, musculoskeletal, or soft tissue disorders (NMS) such as his, unless he could provide objective evidence of an exception to the limitation, including radiculopathies. A radiculopathy is a disease of the peripheral nerve roots supported by objective clinical findings of nerve pathology.

In August 2015, the claim administrator determined the plaintiff was eligible for no further benefits under the plan after September 6, 2015 because the plaintiff had not provided objective clinical evidence of radiculopathy, or any other exceptions, as defined by the plan.

Providing updated medical evidence, the plaintiff appealed.  The claim administrator upheld its original adverse determination, however, citing “a lack of clinical examination findings” to support radiculopathy.

The plaintiff sued the claim administrator and moved for judgment in his favor. The parties agreed that the plaintiff was disabled, but disagreed as to whether the radiculopathy exception to the plan’s NMS limitation applied.

The Court’s Decision

Reviewing de novo whether or not the claim administrator correctly determined that the plan limited plaintiff’s benefits to 24 months under the plan’s NMS limitation, the court granted the plaintiff’s motion for judgment.

In its decision, the court first considered the plaintiff’s argument that the plan’s limitation was an exclusion, which would have shifted the burden of proof to the claim administrator.  The court rejected this argument and held that just as the plaintiff had the burden of proving eligibility for benefits by a preponderance of the evidence, he had the burden to prove that an exception to the limitation, in this case the existence of objective clinical evidence of radiculopathy, applied.

The court then held that the plaintiff had satisfied his burden that the radiculopathy exception applied to prevent applicability of the NMS limitation.

The court noted that the plaintiff had presented, among other things, two electromyography studies that showed lumbar radiculopathy, a physician’s report diagnosing lumbar radiculopathy, and diagnoses from several medical professionals who conducted clinical examinations of the plaintiff, reviewed diagnostic tests, and diagnosed him with radiculopathy.

The court acknowledged that the claim administrator had introduced some contrary evidence in the record, such as one physician’s report concluding that the plaintiff did not have radiculopathy and two other physicians’ medical opinions.

The court determined, however, that, on balance, the claim administrator’s evidence did “not outweigh the ample evidence” provided by the plaintiff. It reasoned that one of the medical opinions relied on by the claim administrator was “suspect” because the physician had discounted a test that he stated previously was the “single most useful procedure diagnostically in cases of suspected radiculopathy.” The court also gave “limited weight” to another physician’s opinion relied on by the claim administrator, because the physician had not performed an independent medical evaluation of the plaintiff, but instead conducted a file-only review.

The claim administrator asserted that the plaintiff’s evidence was not “objective clinical evidence,” but the court noted that nothing in the plan defined clinical evidence and that the claim administrator had not explained why the plaintiff’s evidence did not qualify as such.

Accordingly, the court concluded that the plaintiff had shown that it was more likely than not that he had radiculopathy when his benefits were terminated; thus, it reversed the claim administrator’s benefit determination and reinstated plaintiff’s claim for LTD benefits under the plan. [Do v. Metropolitan Life Ins. Co., No. 16-cv-05097-CW (N.D. Cal. May 1, 2018).]

Federal Appellate Court Decides Against Retired Carpenter Who Lost His Medical Coverage Under Union’s Plan When He Violated the Plan

The U.S. Court of Appeals for the Third Circuit affirmed a district court’s decision upholding a union plan’s determination to terminate a retiree’s medical benefits after the retiree worked for a non-union employer post-retirement, in violation of the terms of the union plan, an employee benefit plan governed by the Employee Retirement Income Security Act of 1974 (ERISA).

The Case

The plaintiff, a carpenter, retired in 2007 and began receiving a monthly pension as well as medical benefits for himself and his wife under the plan. Section 3.04 of the plan restricted the plaintiff’s ability to keep his medical coverage if he worked post-retirement.

Among other things, the plan provided that medical benefits would terminate for a retiree who worked in certain construction jobs for more than 40 hours in a calendar month. In addition, Section 3.04 required retirees to report any post-retirement work to the plan. The section also authorized retirees to seek an advance determination of whether prospective employment would trigger termination of benefits. If the work in question would lead to termination, retirees could seek a limited waiver of the restriction.

In February 2008, the plaintiff petitioned the plan for a determination that his employment as a consultant for a construction company did not violate the work prohibition. In the alternative, the plaintiff requested a waiver to exceed the 40 hour per month limit. The plan denied plaintiff’s request.

In June 2015, a carpenters union agent observed the plaintiff working at a construction site for a non-union employer. Shortly thereafter, in a letter citing to Section 3.04, the plan notified the plaintiff that it was terminating his medical benefits. The letter also demanded reimbursement of more than $21,000 for claims paid by the plan since the plaintiff’s retirement and gave the plaintiff appeal rights.

The plaintiff appealed. He did not contest that he had violated the work prohibition. Instead, he pledged to “never engage in work in the construction industry again.”

The plan rejected the plaintiff’s appeal, and the plaintiff sued. The plaintiff sought reinstatement of his retiree medical benefits and monetary damages of at least $21,000 pursuant to several ERISA provisions: 29 U.S.C. § 1102 (lack of specificity in employee benefit plan), 29 U.S.C. § 1104 (breach of fiduciary duty), and 29 U.S.C. § 1132(a)(1)(B) (enforcement of right to benefits).

The U.S. District Court for the Eastern District of Pennsylvania granted the defendants’ motion for summary judgment, and the plaintiff appealed to the Third Circuit. There, he argued that he was entitled to his retiree medical benefits under 29 U.S.C. § 1132(a)(1)(B).

The Circuit Court’s Decision

In its decision affirming the district court’s decision, the Third Circuit first considered the appropriate standard of review to apply to the plan’s determination, and held that based on the plan’s clear grant of discretionary authority, the court was required to review the plan’s determination under an arbitrary and capricious standard.

Applying the deferential standard, the court held that the plan’s determination was supported not merely by substantial evidence, the minimum showing under the abuse of discretion standard, “but indeed overwhelming evidence.” In particular, the court observed, the plan had evidence that the plaintiff had been caught working for a non-union employer; it had requested and had received from the plaintiff his tax returns showing several years of disqualifying employment; and it had the plaintiff’s own admissions that he had been improperly working in the construction industry since his retirement.

The plaintiff asserted more than a dozen arguments in favor of his claim for benefits, several of which the Third Circuit called “petty” and “absurd.” The court addressed many of them. The plaintiff conflated the initial determination and the determination on appeal and the court explained that the courts deciding ERISA cases must review the final determination. In response to the plaintiff’s argument that the plan used the wrong version of Section 3.04, the court noted that the version the plan used was more favorable to the plaintiff; thus, under either version, the plan was justified in terminating the plaintiff’s medical coverage. The plaintiff raised several of what he described as procedural irregularities. The court said even though the plaintiff had “not demonstrated any such irregularities,” when a benefits determination is so amply supported by the evidence, the existence of procedural irregularities “cannot normally render an administrator’s decision arbitrary and capricious.”

The court concluded that the “abundance of evidence in this case” foreclosed a finding that the plan’s decision was arbitrary and capricious. The plaintiff also asserted a claim for breach of fiduciary duty. But because “[a]t its core, this claim is indistinguishable from the entitlement to benefits claim,” indeed, “it alleges nearly identical misconduct,” the plaintiff had no individual cause of action for breach of fiduciary duties under ERISA. [Bickhart v. Carpenters Health and Welfare Fund of Philadelphia and Vicinity, No. 17-2834 (3d Cir. May 7, 2018).]

When Is a Letter an Appeal of an Adverse Benefit Determination? A Federal Court Offers Some Guidance.

It is not always apparent to a claim administrator of a benefit plan governed by the Employee Retirement Income Security Act of 1974 (ERISA) when a claimant’s communication following an adverse benefit determination constitutes an administrative appeal. A recent decision by a federal district court in Idaho provides factors to consider when addressing that issue.

The Case

In April 2015 and again in May 2015, the plaintiff was transported by air ambulance service from Mercy Medical Center in Williston, North Dakota, to Sanford Hospital in Bismarck, North Dakota.

The company providing the air transportation on both occasions, Valley Med Flight (VMF), obtained written authorization from the plaintiff to submit claims for payment under the plaintiff’s employer’s ERISA-governed health and welfare plan and to appeal adverse benefit determinations on his behalf.

Accordingly, VMF submitted a claim to Blue Cross of Idaho Health Service, Inc. (BCI), the plan’s claim administrator and entity that funds benefits payable under the plan, for $43,648 for the April air ambulance transportation. BCI processed the claim and sent the plaintiff a check for $10,747.76 and an explanation of benefits (EOB) stating that VMF’s charges exceeded the allowable amount for the service.

VMF also submitted a claim to BCI for $43,092 for the May air transportation. BCI processed the claim and sent the plaintiff a check for $10,670.72 and an EOB stating that VMF’s charges exceeded the allowable amount for the service.

On July 24, 2015, VMF sent a letter to the Blue Cross of Idaho Appeals and Grievance Coordinator stating that “we are APPEALING your decision. We disagree and dispute your payment of $10,670.72.” The letter stated the alleged grounds for the appeal – that the transport was medically necessary and constituted “pre-emergent services” under the Affordable Care Act – and that “your member should not be penalized for receiving the necessary medical services.” The letter did not reference the April flight or payment.

In August 2015, VMF received a letter from BCI in response stating that BCI processed the claim correctly.

About 18 months later, on February 23, 2017, counsel for the plaintiff notified BCI that he was representing the plaintiff in “continuing his appeal of BCI’s claim determinations” related to the April and May 2015 air transportation services.

On April 19, 2017, BCI denied the plaintiff’s appeal as untimely and, on October 3, 2017, the plaintiff sued under 29 U.S.C. § 1132(a)(1)(B).

The defendants moved to dismiss on the grounds that the plaintiff failed to exhaust the plan’s administrative remedies by timely appealing the claim determination. In particular, the defendants argued that VMF’s July 24, 2015 letter did not constitute an appeal because it did not explicitly state that the appeal was being taken on behalf of the plaintiff, and that the 180-day window to appeal the plaintiff’s claims had closed on December 12, 2015.

The Court’s Decision

In its decision denying the defendants’ motion to dismiss, the court noted that the July 24 letter was timely because it “was sent well within the 180-day window.”

The court considered the “totality of the circumstances” to determine whether the July 24 letter constituted an appeal of the May claim determination on behalf of the plaintiff. The court held the July 24 letter was an appeal, because although the letter did not specifically state that the plaintiff was exercising his right to appeal, it also did not expressly state or imply that an appeal was brought on behalf of VMF. Moreover, the court found significant that the letter was carbon copied to the plaintiff and stated that “we” are in receipt of your partial payment, “we” disagree with your reimbursement, and “we” are “APPEALING your decision.”

The court also observed that because VMF had no independent right to appeal BCI’s claim determination, it was unreasonable for BCI to infer that the letter represented the individual interests of VMF.

Accordingly, the court stated that the “most natural reading of the letter” was that it constituted an appeal of the May claim determination on behalf of the plaintiff. Therefore, the court determined that the plaintiff had timely appealed the May claim.

The court also decided that the July 24 letter did not constitute an appeal of BCI’s determination on the plaintiff’s April claim because it contained no mention of or reference to that claim. However, the court concluded that the plaintiff should be excused on futility grounds from failing to timely appeal the April claim determination because there was “no reason to believe that BCI would have responded differently had the July 24 letter also incorporated the April 3 claim.” [Abdilnour v. Blue Cross of Idaho Health Service Inc., No. 1:17-cv-00412-BLW (D. Idaho May 4, 2018).]

Plaintiff Injured in Automobile Accident May Recover Accidental Dismemberment Benefits Because His Diabetes Was Not a Substantial Cause of His Leg Amputation

The U.S. Court of Appeals for the Ninth Circuit recently held that a dependent covered under a benefit plan governed by the Employee Retirement Income Security Act of 1974 (ERISA) could recover accidental dismemberment benefits when his leg was amputated after injuries suffered in an automobile accident developed persistent infections and would not heal properly, because the claim administrator failed to show that the dependent’s diabetes substantially caused or contributed to the loss.

The Case

The plaintiff spouse had accidental death and dismemberment coverage for both her and her dependent husband through her employer’s ERISA-governed benefit plan. According to the plan, accidental death and dismemberment benefits are payable if an accident is the “direct and sole cause” of a covered loss, and if the loss is “a direct result of the accidental injury, independent of other causes” and none of the plan’s exclusions applies. Relevant here is the plan’s illness exclusion, which states that MetLife will not pay benefits for “any loss caused or contributed to by . . . illness or infirmity.”

On the morning of September 13, 2014, the plaintiff dependent was driving his car on a California road when he lost control of his car and it struck a metal sign post, rolled onto its right side, and traveled down a dirt embankment. The officer who arrived at the scene noted that the plaintiff dependent had suffered serious injuries, including a “semi-amputated left ankle.”

The plaintiff dependent was hospitalized until October 11, 2014, when he was discharged to a skilled nursing facility. At that time, he was “nonweightbearing” due to his leg injury.

Three months later, the plaintiff dependent was transferred back to the hospital for treatment of a persistent infection in his injured left leg. The plaintiffs then filed a claim for accidental dismemberment benefits under the plan, submitting information both in writing and through several telephone calls.

On February 16, 2015, the claim administrator sent a letter denying coverage. The letter stated that “[i]n general, dismemberment benefits are paid for severing injuries, which did not happen here.”

On February 13, 2015, the plaintiff’s left leg was amputated below the knee, five months to the day following the accident.

On March 5, 2015, the plaintiff’s physician wrote in a letter that the plaintiff dependent had:

sustained significant injuries to his left lower extremity with an open grade III B pilon fracture. He had significant multiple other comorbidities and traumatic injuries. . . . He had wound issues, which were complicated by his diabetes. The wound healing as well as his fracture itself was slow to heal and never had any significant healing in spite of being stabilized with the external fixator. He ended up developing deep infection . . . consistent with osteomyelitis and sequestrum, which was related to original injury. Eventually, due to his comorbidities as well as type of injury he ended up proceeding to an amputation. On 2/13/15, he underwent elective left below-the-knee amputation for treatment of this infected nonunion of the left pilon fracture.

The physician’s surgical report similarly stated that “[o]ver the past several months, [the plaintiff] has had very poor signs of healing. . . . Attempts at soft tissue coverage have been unsuccessful. Due to his multiple comorbidities as well as nonhealing wounds to his left leg and osteomyelitis, it was elected to undergo a left below-the-knee amputation.”

In a letter dated April 2, 2015, the claim administrator again determined that dismemberment benefits were not payable under the plan. The letter cited the plan’s illness exclusion, which excluded coverage for any loss “caused or contributed to by . . . physical or mental illness or infirmity, or the diagnosis or treatment of such illness or infirmity.” The letter stated that because the plaintiff’s “amputation was contributed [to] and complicated by diabetes” as indicated in the plaintiff’s physician’s letter, the loss was “caused or contributed [to] by an illness or treatment for that illness”; thus, it was excluded from coverage under the plan.

After the plaintiffs appealed, the claim administrator upheld its initial determination, concluding that the accident was not the “direct and sole cause” of the amputation “independent of other causes,” and that the plan’s illness exclusion applied because the plaintiff’s diabetes contributed to the loss, i.e., the amputation.

The plaintiffs sued the claim administrator in the U.S. District Court for the Northern District of California. The district court agreed with the administrator that diabetes had caused or contributed to the loss, and affirmed the denial of benefits.

The plaintiffs appealed to the Ninth Circuit.

The Circuit Court’s Decision

The Ninth Circuit reviewed the district court and the benefit determination de novo.  In its decision reversing the district court, the court explained that it typically applies federal common law to questions of ERISA-plan interpretation.  In developing such law, the courts must adopt rules that “best comport[] with the interests served by ERISA’s regulatory scheme.” The court quoted from the statute and stated that “Congress specifically stated that it is ‘the policy of [ERISA] to protect . . . the interests of participants in employee benefit plans and their beneficiaries’ and to ‘increase the likelihood that participants and beneficiaries . . . receive their full benefits.”

Creating federal common law, the court determined that a pre-existing condition needs to be more than merely “a” contributing factor in order to restrict coverage to “direct and sole causes” of injury. Rather, the court continued, there has to be some evidence of “a significant magnitude of causation” demonstrating that a causal or contributing factor “was more than merely related to the injury, and was instead a substantial catalyst.”

The court determined that the claim administrator had not demonstrated that the plaintiff dependent’s diabetes was a “substantial contributing factor” to the loss, even though the court agreed with the district court that the plaintiff dependent’s diabetes contributed to the loss. In fact, the court acknowledged that the dependent’s physician opined that the dependent’s “wound issues” post-surgery were “complicated by his diabetes.” The court nevertheless discounted the opinion because the physician had not elaborated on how much of a role the dependent’s diabetes played in his failure to recover.

The Ninth Circuit also held that the same standard applied to the illness exclusion. According to the court, for the exclusion to apply, an illness or infirmity needed to substantially contribute to the loss, notwithstanding the plan language merely requiring a contribution. Given that the record with respect to the role of diabetes in the plaintiff’s recovery was “notably thin,” the court concluded that the exclusion did not bar coverage. [Dowdy v. Metropolitan Life Ins. Co., No. 16-15824 (9th Cir. May 16, 2018).