Employee Relations Law Journal – From the Courts

March 2, 2018 | Norman L. Tolle | Employment & Labor | Insurance Coverage

Disability Policy Had to Provide Same Benefits for Mental Illness as for Physical Injury, Montana Federal Court Decides

The plaintiff in this case worked as a claims adjuster for Farmers Group, Inc. After she became disabled due to her bipolar disorder, she applied for long-term disability benefits under the company’s group disability income plan, issued by Liberty Life Assurance Company of Boston.

Liberty Life approved the plaintiff’s claim after determining that she had become disabled on December 6, 2014 and that she was eligible to receive long-term disability benefits beginning on June 15, 2015. In its letter approving the plaintiff’s claim, Liberty Life notified the plaintiff that the plan contained a mental illness provision that limited her long-term disability benefits to 24 months.

The plaintiff’s attorney subsequently sent Liberty Life a letter that claimed that the policy’s mental illness provision was void under Montana’s mental health parity law.

Liberty Life responded that the plaintiff’s long-term disability benefits were limited to 24 months due to the plan’s mental illness provision. Liberty Life further indicated that Montana’s mental health parity law did not apply because the plan was an employee welfare benefit plan governed by the Employee Retirement Income Security Act of 1974 (ERISA).

On December 6, 2016, Liberty Life sent the plaintiff a letter stating that her benefits would be terminated on June 14, 2017. Then, on May 22, 2017, Liberty Life sent the plaintiff’s attorney a letter stating that the plaintiff’s benefits would be terminated June 14, 2017.

The plaintiff sued Liberty Life, seeking a declaratory judgment that the policy’s mental illness provision was void under Montana law. The parties filed cross motions for summary judgment on the issue of whether Montana’s mental health parity law voided the mental illness limitation in the plan.

The District Court’s Decision

The district court granted the plaintiff’s motion, denied Liberty Life’s motion, and concluded that Montana’s mental health parity law voided the plan’s mental illness limitation.

In its decision, the district court explained that ERISA pre-empted “any and all” state laws “insofar as they may now or hereafter relate to any employee benefit plan.” The district court added, however, that ERISA saved from pre-emption “any law” of any state that “regulates insurance, banking, or securities.”

The district court then found that Montana’s mental health parity law was directed towards entities engaged in insurance because it specifically regulated health and disability insurance policies delivered in Montana. The district court added that the Montana law “substantially affected” the risk pooling arrangement between the insurer and the insured because it required health and disability insurance policies to provide a level of benefits for mental illness that was “no less favorable than that level provided for other physical illness generally.”

Therefore, the district court ruled, the Liberty Life policy incorporated Montana’s mental health parity law because the law was not pre-empted by ERISA.

The district court concluded that the mental illness limitation in the plan was void because it conflicted with Montana’s mental health parity law, and that Montana’s law required that Liberty Life provide the plaintiff the same benefits for her mental illness that it would have had her disability been physical. [Sand-Smith v. Liberty Life Assurance Co. of Boston, 2017 U.S. Dist. Lexis 153217 (D. Mont. Sep. 20, 2017).]

Seventh Circuit Affirms Jury Decision That Plaintiff Was “Qualified Person” Under the ADA

The plaintiff in this case worked as a water-services worker for the city of Evanston, Illinois, when he suffered a traumatic brain injury at home. The city placed him on a temporary leave of absence during his recovery and rehabilitation.

When he was medically cleared to return to work, the plaintiff resumed full-time employment with the city. For several weeks, the plaintiff appeared to do his job without much trouble.

The city subsequently noticed what it thought were worrisome developments. On one day, the plaintiff requested assistance to change out a water meter. The next day a city employee said that the plaintiff had driven through an intersection while looking down at his lap; the light had been green, no pedestrians had been present, and his momentary inattention had not resulted in an accident.

On another day, the plaintiff reportedly spent two hours at a job site installing a meter but had not been able to complete the task. The next work day, he mistakenly went to the wrong location for a job and he subsequently had another directional mishap.

Finally, on a different day, he tripped on a set of steps and hurt his toes.

Based on these incidents, the city again placed the plaintiff on administrative leave. The physician who had medically cleared the plaintiff’s return to work concluded that these incidents were related to the plaintiff’s brain injury and said that the incidents identified by the city rendered the plaintiff unable to perform the essential functions of his job.

After the city terminated his employment, the plaintiff sued for violation of the federal Americans with Disabilities Act (ADA), claiming that the city had discriminated against him based on his disability.

Following a weeklong trial, the jury found the city liable and the plaintiff was awarded $579,000 in damages. The U.S. District Court for the Northern District of Illinois entered judgment for the plaintiff, and the city appealed to the U.S. Court of Appeals for the Seventh Circuit.

The city argued, among other things, that the plaintiff was not a qualified person under the ADA because he was unable to perform the essential functions of his job. It did not point to any particular function that the plaintiff was incapable of performing but, instead, argued that he was unable to do the job in general.

Alternatively, the city argued that even if the plaintiff was qualified, he posed a direct threat to himself and to others, which was a statutory defense to liability under the ADA.

The Seventh Circuit’s Decision

The Seventh Circuit affirmed.

In its decision, the circuit court first found that it was not irrational for the jury to find that the plaintiff was qualified for his job within the meaning of the ADA.

According to the circuit court, the medical and objective evidence in this case – including testimony about the incident in which the plaintiff had taken his eyes off the road while driving through an intersection and the incidents in which he mistakenly had reported to the wrong location – “was mixed.”

The Seventh Circuit also was not persuaded by the city’s contention that it was permitted to discharge the plaintiff because it thought that he was a direct threat to the health or safety of other individuals in the workplace. It ruled that the “direct threat” defense had to be based “solely” on “medical or other objective evidence,” and that the city’s belief that a significant risk existed, even if it had maintained that belief in good faith, did not relieve the city from liability.

The Seventh Circuit noted that the plaintiff had testified in general terms that he had followed safety protocols and that the intersection incident had occurred only because he had been reaching to grab a clipboard that had bounced off the seat and fallen. “Reasonable jurors could accept this explanation” and reject the city’s argument that the incident supported an inference that the plaintiff was a safety threat, the Seventh Circuit said. Moreover, it added, the jury might reasonably have concluded that the two directional mishaps were not a safety issue at all.

The circuit court acknowledged that the city had asserted that “not just anyone” could do the plaintiff’s job. The question, it said, was whether the plaintiff could do it without significant risk to health or safety, and it ruled that it was “reasonable for the jury to conclude that he could.” [Stragapede v. City of Evanston, Illinois, 865 F.3d 861 (7th Cir. 2017).]

Partially Successful ERISA Plaintiff Awarded Prejudgment Interest at the Rate of 10 Percent and Over $100,000 in Legal Fees by California Federal Court

In this case, the plaintiff sued Metropolitan Life Insurance Company (MetLife) to recover long-term disability benefits that he claimed he was entitled to under the Employee Retirement Income Security Act of 1974 (ERISA).

The U.S. District Court for the Northern District of California conducted a bench trial and found that MetLife owed the plaintiff some, but not all, of the benefits he sought. The plaintiff then asked the district court to award him his legal fees and prejudgment interest on the award of benefits.

The District Court’s Decision

The district court granted the plaintiff’s motion.

In its decision, the district court explained that, absent special circumstances, a prevailing ERISA plaintiff ordinarily should receive legal fees from the defendant. The district court pointed out that the plaintiff had “undoubtedly achieved” some degree of success on the merits, adding that that was sufficient to establish his eligibility for legal fees.

The district court noted that the plaintiff’s attorney claimed that he had expended 166.9 hours in prosecuting the action and requested what he asserted was “the prevailing market rate of $650.00 per hour.” The district court found that the plaintiff’s attorney had provided “detailed time records documenting the time expended on specific tasks during this litigation,” had provided the declarations of three “experienced ERISA litigators in the San Francisco Bay Area,” and had identified several recent California federal court decisions awarding legal fees to corroborate the reasonableness of his requested hourly rate.

The district court then ruled that the hourly rate of $650 per hour requested by the plaintiff’s counsel was “reasonable.” It also decided that the hours expended on the litigation were, for the most part, reasonable under the circumstances and “amply supported by counsel’s detailed time records,” except for three hours of estimated travel time and five hours for a request concerning the amount of benefits due that counsel had drafted but had never filed.

Accordingly, the district court concluded that the plaintiff was entitled to legal fees for 158.9 hours at $650 per hour, or $103,285, plus an additional $1,820 for the plaintiff’s reply brief in support of his motion for legal fees (less estimated travel time for the very brief hearing), plus interest.

Finally, although the district court noted that generally the interest rate prescribed for post-judgment interest under 28 U.S.C. §1961 was appropriate for fixing the rate of prejudgment interest, the district court noted that it could find that a particular case required a different rate. It then concluded that the plaintiff’s declaration detailing how the denial of his claim had contributed to financial difficulties provided sufficient evidence to award prejudgment interest to the plaintiff at the rate of 10 percent. [Bosley v. Metropolitan Life Ins. Co., 2017 U.S. Dist. Lexis 149453 (N.D. Cal. Sep. 14, 2017).]

Inadequate Assignment Doomed Health Care Provider’s Ability to Sue Insurer for Patient’s Benefits, Second Circuit Decides

After Professional Orthopaedic Associates (POA) and one of its physicians sued a patient’s insurance company for benefits due to the patient under the health insurance plan covering the patient, the U.S. District Court for the Southern District of New York dismissed their complaint. POA and the physician appealed to the U.S. Court of Appeals for the Second Circuit, which affirmed.

In its decision, the circuit court explained that the patient had executed an “Authorization of Designated Representative to Appeal a Determination” (DAR) that authorized POA, as the patient’s designated representative, to appeal to the patient’s insurance company on the patient’s behalf in connection with benefits due from the insurer to the patient for services rendered by POA and its physician.

The Second Circuit found, however, that the DAR had not assigned to POA or its physician any other rights that the patient might have under the health insurance plan.

According to the circuit court, this “less-than-partial assignment” was fatal to the ability of POA and its physician to sue for benefits due the patient under the plan. It reasoned that the DAR simply authorized POA to appeal to the insurer “in the determination of services rendered by” its physician and permitted the insurer to share the information contained in the patient’s medical file with POA. There was “no assignment of the right to sue for benefits,” the circuit court pointed out.

Accordingly, the circuit court concluded, POA and its physician could not sue the insurer on the patient’s behalf. [Professional Orthopaedic Associates, PA v. 1199SEIU National Benefit Fund, 2017 U.S. App. Lexis 17167 (2d Cir. Sep. 6, 2017).]

To Avoid Disclosing In-Vitro Fertilization and Gestational Surrogacy, Plaintiff Could Litigate Long-Term Disability Benefits Case Anonymously

The plaintiff in this case sued her former employer for terminating her long-term disability benefits. The plaintiff asked the U.S. District Court for the Eastern District of California to allow her to proceed under the fictitious “Jane Doe” name.

The plaintiff said she sought anonymity because her case would publicize private medical details about the conception and gestation of her minor son. According to the plaintiff, she previously had a medically necessary hysterectomy, which she alleged had obliged her and her husband to have their son through in-vitro fertilization and gestational surrogacy. The plaintiff asserted that her lawsuit would expose her private medical records related to these intimate subjects.

The District Court’s Decision

The district court granted the plaintiff’s motion.

In its decision, the district court explained that, when assessing a plaintiff’s request to proceed anonymously, courts weighed the plaintiff’s need for anonymity against any prejudice that anonymity would pose to the defendant and to the public interest.

Anonymity was allowed, the district court said, when necessary “to preserve privacy.”

It then ruled that this case warranted anonymity. In the district court’s opinion, shielding the plaintiff’s identity would prevent “unwarranted publication of details related to a woman’s infertility and a minor child’s conception and gestation.” The district court added that anonymity would not prejudice the defendants because they knew the plaintiff’s identity.

Moreover, the district court said, tying the plaintiff’s identity to the facts of this case advanced no compelling public interest. The public had a greater interest in this case proceeding to the merits, and denying anonymity could drive the plaintiff to abandon this case to protect her family’s privacy, thus hindering the public interest, according to the district court.

Therefore, the district court concluded, based on the “intensely private facts at issue” and the “absence of a compelling interest in exposing plaintiff’s identity,” there was sufficient cause to grant the plaintiff’s request. [Doe v. Hartford Fire Ins. Co. Employee Income Protection Plan, 2017 U.S. Dist. Lexis 147786 (E.D. Cal. Sep. 12, 2017).]

Company President’s Diminished Ability to Generate New Business Did Not Mean That He Was “Totally Disabled,” Illinois Federal Court Says

The plaintiff in this case founded Panatech Computer Management, Inc., which provided customized accounting software to small businesses and bundled hardware maintenance contracts with the software. In September 1988, the plaintiff submitted an application for disability insurance to Paul Revere Life Insurance Company and listed his occupation as president and owner of Panatech. The next month, Paul Revere issued a disability policy to the plaintiff.

In 1998, the plaintiff was diagnosed with an invasive basal cell carcinoma of the right ear. On July 9, 2008, the plaintiff underwent major surgery (the Surgery) that resulted in the removal of his entire right ear and a portion of the right side of his head. Over the course of the following 12 months, the plaintiff underwent radiation treatment and had several more surgeries.

During these additional surgeries, the plaintiff had three metal posts installed in the right side of his head for the purpose of mounting a prosthetic ear.

By the end of his radiation treatment in 2009, there was “no evidence” that the cancer had returned. He also began wearing a prosthetic ear, which he admitted was “virtually indistinguishable” from his left ear, leaving him “free of significant disfiguration.”

The plaintiff said, however, that following his surgeries and treatment he was affected by various ailments, including complete hearing loss in the right ear, difficulty in localizing sounds, tinnitus, fatigue, dry mouth, and migraines.

On November 6, 2008, the plaintiff submitted a claim to Paul Revere for payment of total disability benefits under the policy it had issued in 1988. The plaintiff’s claim included a written job description that identified the plaintiff’s job title as “President, Panatech Computers Management, Inc.,” and that listed four duties of his occupation: “Sales, 6-8 hours per week; Consulting/meetings, 7-10 hours per week; Programming, 15-25 hours per week; and Administrative, 2-3 hours per week.”

In February 2009, Paul Revere began paying total disability benefits to the plaintiff and continued monitoring his condition though annual medical updates and claim statements.

From 2010 to 2013, the plaintiff reported to Paul Revere that his condition was “unchanged” or “worse,” and he was “not sure how long he will continue to work.”

In February 2013, the plaintiff reported to Paul Revere that he was working 10 to 20 hours per week and that he was “working to keep migraines under control.”

In December, 2013, the plaintiff reported to Paul Revere that he was continuing to work 10 to 20 hours per week and that he spent his day “calling clients, programming, and [working on] related paperwork.” In 2013-2014, he billed clients an average of 15.35 hours per week for programming work, as compared to 15.63 hours per week prior to the Surgery.

After the Surgery and treatment, the plaintiff was able to communicate with clients via text, email, phone, and face-to-face meetings. He also was able to visit client job sites on a weekly basis to discuss and resolve computer problems.

Panatech, however, had not acquired any new clients since 2008 and billed fewer clients since that time. Panatech’s 2013-2014 federal income tax returns showed an average gross profit of $256,094, down approximately 20 percent from its 2006-2007 average gross profit of $322,202.

Although the plaintiff continued to report to Paul Revere that he was totally disabled, he was able to partake in a number of extracurricular activities. In 2013, the plaintiff renewed his pilot’s license, originally obtained in the mid-1980s, and purchased an airplane. He spent between 75 to 80 hours per year flying his plane, mostly to have breakfast with other flying enthusiasts.

In May 2013, the plaintiff presented a 90 minute speaking seminar on an iPad application used by pilots. The next month, he published a book about that application.

In December 2013, the plaintiff reported to Paul Revere that he was playing in an adult ice hockey league once per week.

In 2013, a new claims representative for Paul Revere, Mary Kate Thorpe, reviewed the plaintiff’s file. Ms. Thorpe ordered surveillance, spoke with the plaintiff on the telephone, and sent a representative to conduct an on-site meeting with the plaintiff in December 2013. Thereafter, Paul Revere decided to cease payment of the plaintiff’s total disability benefits.

In a letter from Paul Revere to the plaintiff dated March 4, 2014, Paul Revere stated:

Based on the information in your claim file you are able to perform important duties of your occupation as President of Panatech Computer Management, Inc. Accordingly, we find you do not satisfy the policy definition for Total Disability.

The plaintiff disagreed with Paul Revere’s determination that he was not totally disabled. He argued that he satisfied the policy’s definition of “Total Disability” because his ailments rendered him completely unable to perform his sales duty as he did prior to the Surgery. More specifically, the plaintiff contended that he was unable to solicit and develop new business through in person presentations, meetings, sales pitches, and attending seminars.

The plaintiff sued Paul Revere, which moved for summary judgment.

The District Court’s Decision

The U.S. District Court for the Northern District of Illinois granted Paul Revere’s motion, finding that the plaintiff did not satisfy the policy’s definition of Total Disability.

In its decision, the district court explained that the policy defined Total Disability to mean that “because of Injury or Sickness,” the insured was “unable to perform the important duties of Your Occupation; and You are under the regular and personal care of a Physician.” The district court observed that the plaintiff’s duties prior to the Surgery were sales, consulting/meetings, programming, and administrative work.

It then found that although the plaintiff had been affected by various ailments since the Surgery, he was not totally disabled.

The district court first reasoned that the plaintiff had not demonstrated that he was unable to undertake the same sales activities post-Surgery as he had beforehand. The district court pointed out that the plaintiff had testified at his deposition that, prior to the Surgery, he would engage in selling to existing clients by fielding questions while on site so he “could write a little program that would automatically suck up whatever [the issue was] and [this] would generate new business.” The district court decided that the plaintiff “undisputedly” maintained the ability to perform this portion of his sales duties, noting that he had testified at his deposition that he was able to make on site visits with clients on a weekly basis, have face-to-face meetings with clients, and engage in computer programming.

The district court also found that although Panatech had not gained any new clients since 2008, its 2013-2014 average gross profit was nearly 80 percent of its 2006-2007 average gross profit. Thus, the district court said, the survival of Panatech, and the plaintiff’s position as president, had not depended on the plaintiff’s ability to bring in new clients through in person presentations, meetings, sales pitches, and attending seminars.

The district court stated that the plaintiff’s argument attempted to “narrowly redefine his occupation as something akin to a traveling salesman, rather than president of a small company.” It then ruled that the plaintiff’s sales duty, as he “narrowly define[d] it,” was not a core and essential aspect of his occupation, “such that his purported inability to perform this duty” precluded him from serving as president of Panatech.

Finally, the district court ruled that the plaintiff’s argument was undermined by his own admissions regarding his ability to undertake mentally and physically demanding activities, including flying an airplane, writing and publishing a book, and presenting a 90 minute seminar.

Accordingly, the district court concluded that the plaintiff’s diminished ability to generate new business did not satisfy the policy’s definition of Total Disability. [Fiorentini v. Paul Revere Life Ins. Co., 2017 U.S. Dist. Lexis 149392 (N.D. Ill. Sep. 14, 2017).]

Seventh Circuit Affirms Dismissal of Job Applicant’s FCRA Claims

Over the course of a year and a half, the plaintiff in this case submitted 562 job applications to various employers, including Time Warner Cable, Inc., and Great Lakes Higher Education Corporation. The job applications that the companies provided to the plaintiff included a disclosure and authorization form informing him that a consumer report might be procured in making the employment decision; the form also contained other information, such as a liability release.

After the plaintiff submitted the job applications, along with the signed disclosure and authorization forms, to Time Warner and Great Lakes, the companies requested and obtained consumer reports on him.

Shortly thereafter, the plaintiff filed a class action lawsuit against Time Warner and Great Lakes under the federal Fair Credit Reporting Act (FCRA), seeking statutory and punitive damages for their alleged violation of FCRA Section 1681b(b)(2)(A). That section of FCRA prohibits a prospective employer from procuring a consumer report for employment purposes unless:

  1. A clear and conspicuous disclosure has been made in writing to the job applicant at any time before the report is procured, in a document that consists solely of the disclosure, that a consumer report may be obtained for employment purposes (which is commonly known as the standalone disclosure requirement); and,
  2. The job applicant has authorized in writing the procurement of the report.

In essence, the plaintiff contended that the companies had not complied with this section of FCRA because the disclosure form they provided contained more information than permitted under the law and did not comply with the standalone disclosure requirement.

The U.S. District Court for the Eastern District of Wisconsin granted the companies’ motions to dismiss for lack of subject matter jurisdiction, agreeing with the companies that the plaintiff lacked standing because he had not suffered a concrete injury, and the plaintiff appealed to the U.S. Court of Appeals for the Seventh Circuit.

The Seventh Circuit’s Decision

The Seventh Circuit affirmed.

In its decision, the circuit court observed that the plaintiff had not alleged that the companies had failed to provide him with a disclosure that informed him that a consumer report might be obtained for employment purposes.

Moreover, the Seventh Circuit continued, the plaintiff’s complaint contained no allegation that any of the additional information in the forms the companies had provided to the plaintiff had caused him to not understand the consent he was giving; no allegation that he would not have provided consent but for the extraneous information on the forms; no allegation that additional information had caused him to be confused; and, no allegation that he had been unaware that a consumer report would be procured.

The circuit court concluded that the plaintiff had not alleged facts demonstrating that he had suffered a “concrete injury” and, as a result, his complaints against Time Warner and Great Lakes had been properly dismissed. [Groshek v. Time Warner Cable, Inc., 865 F.3d 884 (7th Cir. 2017).]

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