Employee Relations Law Journal – From the Courts

July 29, 2019 | Employment & Labor | Insurance Coverage

Third Circuit Affirms Denial of Disability Benefits Under ‘Any Occupation’ Standard

The U.S. Court of Appeals for the Third Circuit has upheld a decision denying disability benefits to a claimant under the “any occupation” standard of an employee benefit plan governed by the Employee Retirement Income Security Act of 1974 (ERISA) where the plaintiff failed to meet his burden that he was disabled from any occupation.

The Case

The plaintiff injured his spine in a car accident in November 2005. About six months later, the plaintiff applied for disability benefits under an employee benefit plan governed by ERISA that was sponsored by his employer, Penn Mutual Life Insurance Company, and that was funded and administered by Reliance Standard Life Insurance Company.

To receive benefits for the first 24 months of disability under the plan, the plaintiff had to show that he could not perform his “regular occupation.” To be eligible for benefits after the first 24 months, the plaintiff had to show that he could not perform “any occupation . . . that [his] education, training[,] or experience will reasonably allow.”

Reliance denied the plaintiff’s initial claim after determining that he was capable of performing his regular occupation. He appealed and the U.S. District Court for the District of New Jersey remanded the case to Reliance, suggesting the plaintiff should offer more information supporting his claim because Reliance’s administrative record was deficient.

The plaintiff then provided supporting information, but he also claimed for the first time that he was disabled under the plan’s “any occupation” definition.

Reliance denied the plaintiff’s claim a second time, the plaintiff appealed, and the district court held that Reliance had been arbitrary and capricious in reviewing medical evidence and analyzing the plaintiff’s regular occupation. The court awarded the plaintiff benefits for 24 months, but because Reliance had never evaluated whether the plaintiff was entitled to benefits under the plan’s “any occupation” definition, the district court remanded the claim for further review.

On this second remand, the plaintiff sought benefits for more than 60 months.

Reliance conceded it owed the plaintiff 24 months of benefits under the “regular occupation” definition, but asserted that it still needed to investigate whether the plaintiff satisfied the “any occupation” standard.

The plaintiff again appealed to the district court, arguing that it had already determined that Reliance owed him benefits under the “any occupation” standard. The court disagreed, stating that it had not found the plaintiff eligible for any occupation benefits and that, in any case, it could not have made such a determination because Reliance had not adjudicated the plaintiff’s claim under the any occupation definition. Accordingly, the court remanded the plaintiff’s claim to Reliance for a third time.

During this remand review, Reliance denied the plaintiff’s claim for more than 24 months of benefits under the “any occupation” standard. The plaintiff appealed to the district court, which granted summary judgment to Reliance and held that Reliance’s decision was not arbitrary and capricious because the record before Reliance supported the finding that the plaintiff could perform at least full-time sedentary work.

The plaintiff appealed to the Third Circuit. He argued that once the district court held that he could not perform his “regular occupation,” it followed that he could not perform “any occupation” through the date of its order and, therefore, that the district court should have awarded him 55 months’ benefits instead of remanding to Reliance. He also contended that, on remand, Reliance should have granted him benefits under the “any occupation” definition through the maximum duration under the plan.

The Third Circuit’s Decision

In its decision affirming the district court’s decision, the circuit court first found that the plaintiff’s argument suffered from a “logical flaw.” The court explained that just because the plaintiff could not perform his regular occupation did not mean that the plaintiff could not perform any occupation. The court explained that the plaintiff’s regular job was “merely one of many jobs” that his “education, training[,] or experience [would] reasonably allow.”

The court then rejected the plaintiff’s contention that Reliance should have awarded him benefits under the “any occupation” standard. Reviewing the benefit determination under the deferential arbitrary and capricious standard because the plan granted Reliance discretionary authority, the court found no reason to reject Reliance’s assessment of the plaintiff’s medical condition.

In fact, the court found “ample evidence” in the record that the plaintiff could perform an occupation allowed by his education, training, or experience. The court noted that four independent doctors conducting three separate reviews of the plaintiff’s file had concluded that he was not totally disabled. Indeed, the court said, records showed that the plaintiff “earned admission to the New Jersey bar and co-founded a law firm during his time of purported total disability.”

Thus, the court ruled, Reliance was not arbitrary and capricious in declining to find the plaintiff disabled under the plan’s “any occupation” definition.

Finally, the court was not persuaded by the plaintiff’s contention that his receipt of Social Security Disability Insurance (SSDI) benefits proved that he was disabled, concluding that although an SSDI benefits decision might be relevant to an ERISA plan administrator, SSDI decisions did not bind Reliance because Reliance had not incorporated SSDI policies into its plan. [Kelly v. Penn Mutual Life Ins. Co., No. 18-1162 (3d Cir. Feb. 28, 2019).]

First Circuit Finds Administrative Appeal Was Late and Untimeliness Was Inexcusable

The U.S. Court of Appeals for the First Circuit has affirmed a district court’s decision dismissing a participant’s lawsuit against a claim administrator for long-term disability (LTD) benefits under her employer’s welfare benefit plan, which was governed by the Employee Retirement Income Security Act of 1974 (ERISA) for failing to exhaust the plan’s administrative remedies by filing an appeal of a denial of benefits after the 180 day deadline.

The Case

The plan’s claim administrator notified the plaintiff, a physician, by letter that she was no longer eligible for LTD benefits under the plan’s mental illness benefit limitation. The letter informed the plaintiff that she had to file any appeal within 180 days of receiving the letter.

The plaintiff missed that deadline, filing her appeal about two months late. The claim administrator responded that it would not consider the plaintiff’s appeal because it was untimely.

About two years later, the plaintiff sued the claim administrator. The plaintiff sought reinstatement of LTD benefits under 29 U.S.C. § 1132(a) and attorneys’ fees and costs under 29 U.S.C. § 1132(g)(1).

The U.S. District Court for the District of New Hampshire granted the claim administrator’s motion for judgment on the administrative record on the grounds that the plaintiff failed to exhaust the plan’s administrative remedies.

The plaintiff appealed to the First Circuit. She argued that she timely appealed the claim administrator’s adverse benefit determinations because under Department of Labor regulations the 180-day time limit began at the date of termination of benefits and not from the date she received notice of the determination. She also argued that even if her appeal was untimely, the untimeliness should be excused under the ERISA substantial compliance doctrine or under New Hampshire’s notice-prejudice rule.

The First Circuit’s Decision

In its decision affirming the district court’s decision, the circuit court first rejected the plaintiff’s reading of the ERISA regulation, explaining that it does not define an “adverse benefit determination” as a “contemporary cessation of benefits,” as the plaintiff contended. Rather, the court said, the regulation concerning notice of an adverse benefit determination states in part that a benefit plan must “[p]rovide claimants at least 180 days following receipt of a notification of an adverse benefit determination within which to appeal the determination.” 29 C.F.R. § 2560.503-1(h)(3)(i). Thus, the court stated, “Notice is the key event.” The regulation does “not require that the time limit for an administrative appeal run from the date of termination of benefits.”

The court then found that the doctrine of “substantial compliance” did not apply and thus, did not excuse the plaintiff’s late appeal. That doctrine, the court explained, has been applied to excuse a claim administrator’s failure to comply precisely with ERISA’s notice requirements, as long as the covered person was “supplied with a statement of reasons that, under the circumstances of the case, permitted a sufficiently clear understanding of the administrator’s position to permit effective review.”

The court concluded that the substantial compliance doctrine did not apply to a claimant’s late appeal from a denial of benefits. In the court’s view, the harm that would result from applying the substantial compliance doctrine to excuse a claimant’s failure to meet the exhaustion requirement would reduce the incentive for employers to set up benefit plans.

The court similarly rejected the plaintiff’s argument that New Hampshire’s notice-prejudice rule (where an insurer must show prejudice to deny certain limited types of untimely insurance claims) should apply to her situation. According to the court, the exhaustion requirement – and several of its underlying policy goals – “would be undercut by an extension of a state law notice-prejudice rule to ERISA appeals.” [Fortier v. Hartford Life and Accident Ins. Co., No. 18-1752 (1st Cir. Feb. 20, 2019).]

11th Circuit Affirms That Plaintiff’s Claim for Declaration of Future Eligibility for Benefits Was Not Ripe

The U.S. Court of Appeals for the Eleventh Circuit has affirmed a district court’s decision rejecting a beneficiary’s efforts to obtain a judgment regarding how the claim administrator of her employee welfare benefit plan, which was governed by the Employee Retirement Income Security Act of 1974 (ERISA), should handle her claim for waiver of life insurance premiums for total disability in the future.

The Case

The plaintiff filed a lawsuit against the plan’s claim administrator. She sought a declaration from the court that she would be eligible in the future for the plan’s waiver of premium benefit, where a covered person who becomes totally disabled while covered for life insurance under the plan is eligible for continuing coverage without paying premiums.

After the plaintiff filed suit, the claim administrator reversed its earlier adverse determination of her waiver of premium benefit. The claim administrator approved the waiver and reinstated the plaintiff’s coverage retroactively, so that there was no gap in coverage.

The U.S. District Court for the Southern District of Florida then dismissed as moot the plaintiff’s waiver of premium claim.

The plaintiff filed an amended complaint seeking a declaration of future waiver of premium benefits under 29 U.S.C. § 1132(a)(1)(B), which provides that a beneficiary may bring a civil action to clarify the beneficiary’s right to future benefits. In particular, the plaintiff sought an “adjudication as to whether and how [the claim administrator] will handle her waiver of premium requests in the future.”

The district court granted judgment in favor of the claim administrator. It held that the plaintiff’s request for declaratory relief regarding a future benefits determination did not present a live case or controversy that could be resolved in federal court.

The plaintiff appealed to the Eleventh Circuit.

The Eleventh Circuit’s Decision

In its decision affirming the district court’s decision, the circuit court agreed with the district court’s decision dismissing the plaintiff’s request for a declaration of future benefits. The court reasoned that before the plaintiff could seek a declaration as to her future eligibility for benefits, the claim administrator would first have to determine she was not totally disabled and thus, ineligible for the waiver of premium benefit. Absent an adverse benefits determination, the court ruled, the plaintiff did not have a “ripe claim.” The court concluded that it could not adjudicate the plaintiff’s “disability status in the future.” [Peer v. Liberty Life Assurance Co., No. 18-13173 (11th Cir. Feb. 8, 2019).]

District Court Decides That Commissions and Bonuses Had to Be Included in Calculation of Long-Term Disability Benefits

A federal district court in California recently held that the term “monthly earnings,” utilized to calculate the amount of long-term disability benefits under a group long-term disability plan governed by the Employee Retirement Income Security Act of 1974 (ERISA), was ambiguous and, therefore, that the plan’s claim administrator should have included in monthly earnings commissions and monthly and quarterly bonuses.

The Case

The plaintiff, a salesperson, injured her back and applied for disability benefits under her employer’s group long-term disability plan. The claim administrator approved the plaintiff’s claim for disability benefits in the monthly amount of $3,125.01.

The plaintiff questioned the claim administrator’s calculation of her benefits. Under the plan, the plaintiff’s monthly disability benefit was 50 percent of the plaintiff’s “monthly earnings.” The plaintiff contended that her monthly earnings included her commissions and monthly and quarterly bonuses.

The claim administrator took the position that the plaintiff was receiving all of the benefits to which she was entitled because, for a commissioned employee such as the plaintiff, only her base salary and certain eligible commissions should be included in her monthly earnings.

The plaintiff appealed, but the claim administrator upheld its LTD benefit calculation.

The plaintiff sued, and the parties moved for summary judgment.

The Court’s Decision

The court reversed the claim administrator’s decision.

The court explained that the plan was internally inconsistent; thus, it was ambiguous.  The court noted that one definition of monthly income in the plan limited monthly earnings to some, but not all commissions, but that at least two other places where the plan defined monthly income defined it to include all commissions. This inconsistency rendered the plan ambiguous as to how to calculate monthly earnings with respect to commissions, the court ruled.

Here, the court continued, the plaintiff “reasonably understood” the plan to include all of her commissions in her monthly earnings, and it found the plaintiff’s understanding “reasonable and consistent” with the text of the plan.

Accordingly, because the plaintiff was a commissioned employee, a significant portion of her pre-tax income was based on her commissions, the plan provided textual support for her expectation that her commissions would be included in her monthly earnings, and the plan was ambiguous as to what constituted monthly earnings, the court held that the plan’s claim administrator should have included commissions in its calculation of plaintiff’s monthly earnings, consistent with her reasonable expectations.

The court also agreed with the plaintiff that the clam administrator should have included her monthly and quarterly bonuses in monthly earnings, as well. It noted that the plan excluded only “annual bonuses” from monthly earnings but was silent as to monthly and quarterly bonuses, rendering the plan ambiguous as to whether monthly and quarterly bonuses should be included. The court held that it was required to construe the ambiguity in favor of the plaintiff.

Accordingly, because the claim administrator had not included the plaintiff’s commissions, monthly bonuses, or quarterly bonuses in its monthly earnings calculation, and because the court determined that the plan should be construed to include commissions and monthly and quarterly bonuses, the court remanded the matter to the claim administrator to make an administrative determination as to the amount of benefits payable to the plaintiff. [Renault v. UNUM Life Ins. Co. of America, No. CV 16-7078 FMO (KSx) (C.D. Cal. Feb. 1, 2019).]

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