Employee Wellness Program Did Not Violate ADA, Circuit Court Decides

November 30, 2012 | Appeals | Employment & Labor | Insurance Coverage

Several years ago, employees of Broward County, Florida, who enrolled in the county’s group health plan became eligible to participate in a new employee wellness program sponsored by Broward’s group health insurer, Coventry Healthcare. The employee wellness program consisted of two components: a biometric screening, which entailed a finger stick for glucose and cholesterol, and an online “Health Risk Assessment” questionnaire. Coventry used information gathered from the screening and questionnaire to identify Broward employees who had one of five disease states: asthma, hypertension, diabetes, congestive heart failure, or kidney disease. Employees suffering from any of the five disease states received the opportunity to participate in a disease management coaching program, after which they became eligible to receive co-pay waivers for certain medications.

Participation in the employee wellness program was not a condition for enrollment in the county’s group health plan. To increase participation in the employee wellness program, however, Broward imposed a $20 charge beginning in April 2010 on each biweekly paycheck issued to employees who enrolled in the group health insurance plan but who refused to participate in the employee wellness program; it suspended the charges on January 1, 2011.

A Broward employee who incurred the $20 charges on his paychecks from June 2010 until January 1, 2011, brought a class action lawsuit, alleging that the employee wellness program’s biometric screening and online Health Risk Assessment questionnaire violated the prohibition in the Americans with Disabilities Act of 1990 on non-voluntary medical examinations and disability-related inquiries. The district court granted Broward’s motion for summary judgment, finding that the ADA’s safe harbor provision for insurance plans exempted the employee wellness program from any potentially relevant ADA prohibitions, and the plaintiff appealed.

The U.S. Court of Appeals for the Eleventh Circuit affirmed the district court’s decision. The circuit court found that Coventry sponsored the employee wellness program as part of the contract to provide Broward with a group health plan, the program was only available to group plan enrollees, and Broward presented the program as part of its group plan in at least two employee handouts. In light of these facts, the circuit court concluded, the district court had not erred in finding as a matter of law that the employee wellness program was a “term” of Broward’s group health insurance plan, such that the employee wellness program fell within the ADA’s safe harbor provision. [Seff v. Broward County, Florida, 2012 U.S. App. Lexis 17501 (11th Cir. Aug. 20, 2012).]

EEOC Liable for Company’s Attorneys’ Fees for Continuing “Frivolous” Action

The Equal Employment Opportunity Commission sued TriCore Reference Laboratories, alleging that it violated the Americans with Disabilities Act of 1990 when it fired a particular employee. The district court awarded summary judgment to TriCore. The district court also ordered the EEOC to pay the company attorney’s fees – of over $140,000 – after it found that the EEOC should have stopped pursuing claims that were shown to be “frivolous, unreasonable, and without foundation.” The EEOC appealed.

The U.S. Court of Appeals for the Tenth Circuit affirmed, finding that the district court had not abused its discretion in deciding to award attorney’s fees to TriCore. The circuit court found that the EEOC had continued to litigate its claims “after it became clear there were no grounds upon which to proceed.” Moreover, the circuit court added, one of the EEOC’s primary claims had become “frivolous, unreasonable, and without foundation” after TriCore sent a letter to the EEOC setting out the legal and factual insufficiency of the claim, but the EEOC continued to press it.

Before concluding its decision, the circuit court also ruled that the EEOC had taken a “frivolous” appeal and it decided that TriCore was entitled to additional damages and costs for that, in an amount to be determined by the district court. [Equal Employment Opportunity Commission v. TriCore Reference Laboratories, 2012 U.S. App. Lexis 17200 (10th Cir. Aug. 16, 2012).]

Finding that Administrator Was a “Self-Dealing” Fiduciary that Violated Its Duties, Circuit Upholds Judgment against It

The plaintiffs in this case were companies that each established an employee benefit plan under the Employee Retirement Income Security Act of 1974 (ERISA) funded by a combination of employer contributions and covered employee payroll deductions. Each plaintiff entered into a Benefit Management Service Agreement (Agreement) with Professional Benefits Administrator (PBA) that specified that PBA would act as a claims administrator to pay medical providers for claims incurred under the plans.

Each Agreement: (1) required PBA to establish a segregated bank account for each plan into which it would deposit the funds that it received from the corresponding plaintiff for paying the medical claims, and (2) authorized PBA to pay medical claims by writing checks from this account. Because these funds were to be used solely to pay claims under the plans, PBA agreed that it: (1) would not commingle the funds for each plan with PBA’s own assets, and (2) would not use these funds for its own purposes.

The plaintiffs alleged, however, that despite these promises, PBA not only failed to use funds supplied by the plaintiffs to pay the claims incurred under the corresponding plan, but commingled and misappropriated those plan funds for its own purposes. The plaintiffs alleged that when PBA received too many complaints from medical providers or plan participants, PBA would withdraw funds from its main, commingled account and put that money into the respective plaintiff’s separate account to pay the claim or claims in question.

The plaintiffs alleged that PBA did not pay all of the claims, despite receiving money for payment of those claims from the respective plaintiffs. In fact, the plaintiffs alleged, they paid over $1.3 million to PBA to fund claims that PBA did not pay.

The plaintiffs sued PBA and moved for summary judgment.  The district court granted the plaintiffs’ motion, finding that PBA was a fiduciary under ERISA, that PBA had breached its fiduciary duties, and that the plaintiffs and their plans had been damaged by this breach. The district court then awarded the plaintiffs monetary damages equal to the amount of claims that PBA had not paid.  PBA appealed, arguing that it was not a fiduciary under ERISA when it managed or disposed of plan assets.

In its decision affirming the district court’s ruling, the U.S. Court of Appeals for the Sixth Circuit found that PBA was a fiduciary under ERISA because it exercised authority or control over plan assets. As the circuit court observed, PBA had the authority to write checks on plan accounts and exercised that authority. Moreover, the circuit court added, PBA had control over where plan funds were deposited and how and when they were disbursed.

Having determined that PBA was a fiduciary under ERISA, the Sixth Circuit easily concluded that PBA had breached its fiduciary duty to the plaintiffs. The circuit court found that “PBA blatantly violated” its statutory obligations by using plan assets – money from the employers and the covered employees – for its own purposes. “This led to hundreds of thousands of dollars of unpaid claims and the concomitant harm” to plan participants, including collection actions and denials of medical service, the circuit court continued. This was a “classic case of self-dealing,” it added. [Guyan Intl., Inc. v. Professional Benefits Administrators, Inc., 689 F.3d 793 (6th Cir. 2012).]

Dismissal of Disability Benefits Suit is Upheld as Circuit Court Rejects “Tolling” Argument

The plaintiff in this case, an employee of Monarch Pharmaceuticals, Inc., left his job because of a mental disability. The company’s benefits plan covered “[m]ental or [n]ervous [d]isorder[s] or [d]isease[s],” and provided that disability benefits for those conditions were limited to 24 months, unless the disability resulted from, among other things, bipolar disorder. After the plaintiff became eligible for long term disability benefits, on December 16, 2001, Metropolitan Life Insurance Company, the claims administrator, provided monthly disability benefits to him until December 16, 2003, when the 24 month eligibility period expired.

The plaintiff asked MetLife to reconsider its decision to cease paying benefits, arguing that he suffered from bipolar disorder and that the 24 month cap on benefits therefore did not apply to him. MetLife denied his request for reconsideration on February 27, 2004.

On December 15, 2004, the plaintiff filed suit in a state court in Puerto Rico, seeking reinstatement of disability benefits; he voluntarily withdrew this complaint on June 15, 2005. Five years later, on May 28, 2010, he sued in federal district court in Puerto Rico, seeking to recover what he claimed was the accumulated balance of unpaid disability benefits and to reinstate the monthly payments to which he claimed he was entitled.

The plaintiff acknowledged that the group policy between the benefits plan and MetLife contained a three year limitations period on legal claims against MetLife. He argued, however, that the limitations period should not apply to him for two reasons: 1) it should be deemed tolled by the 2004 complaint he had filed, and 2) it would be unfair to subject his claim to a three year limitations period because of the difficulty of diagnosing bipolar disorder. The district court rejected both of these arguments, granted MetLife’s motion to dismiss, and the plaintiff appealed.

In affirming the district court’s decision, the U.S. Court of Appeals for the First Circuit first found that the plan’s three year limitations period was “reasonable” and that it applied to the plaintiff’s claim. It then found that the plaintiff’s federal court lawsuit had been filed after the period had expired, adding that it did not have to decide whether the period had begun to run in March 2002, when the plaintiff was required to file proof of disability (and MetLife did not recognize his disability as bipolar disorder), or on February 27, 2004, when MetLife rejected his request for reconsideration of its decision, because the limitations period had passed using either of these dates.

The appellate court then rejected the plaintiff’s tolling argument. It explained that even if the limitations period had been tolled by the plaintiff’s earlier state court filing, the period began to run again when he voluntarily withdrew the complaint and the case was dismissed without prejudice on June 20, 2005.

Finally, the appellate court also rejected the plaintiff’s contention that the nature of his bipolar disorder, and the inherent difficulty of diagnosing it, made it unjust to apply the three year limitations period, explaining that the plaintiff provided “no legal authority” for the proposition that this kind of exception to the limitations period applied. [Santaliz-Ríos v. Metropolitan Life Ins. Co., 2012 U.S. App. Lexis 18446 (1st Cir. Aug. 30, 2012).]

Circuit Upholds Decision Denying Disability Benefits Where Disability “Due To” Alleged DUI Offense

In this case, the plaintiff was seriously injured in a one car accident in Lafayette Parish, Louisiana, that left him disabled and unable to perform his job. The plaintiff received benefits under his employer’s short term disability plan and then applied for long term disability benefits after his short term benefits expired.

The policy expressly excluded from coverage losses “due to … committing or attempting to commit an assault, felony or other illegal act.” The claims administrator initially denied the plaintiff’s claim by letter, stating that its review of his medical records revealed that the plaintiff’s blood alcohol content (BAC) indicated that he had been operating a vehicle while under the influence at the time of the accident. The claims administrator then invoked the “illegal acts” exclusion in the policy, which stated that no long term disability benefit would be provided for any total or partial disability that was due to “committing or attempting to commit an assault, felony or other illegal act.”

The plaintiff  appealed the decision, arguing that he had not been charged with or convicted of a driving while intoxicated offense; that the claims administrator could not deny coverage under the “illegal acts” exclusion because the policy did not contain a specific “intoxication” exclusion; that “driving under the influence” did not constitute an “illegal act” under the exclusion; and that even if driving under the influence were an “illegal act” under the policy, the administrator could not establish causation because his accident occurred after he had swerved off the road to avoid a head-on collision with two cars racing down the street.

As part of its investigation of the appeal, the administrator engaged a medical expert to assess the plaintiff’s medical records. The expert concluded that based on the crime lab’s analysis of the plaintiff’s BAC, “[a]ssuming normal toxicokinetics, with a reasonable degree of medical certainty, it would be reasonable to conclude that at [the time of the accident], the claimant’s [BAC] was above 0.08%.” The expert’s report also included a chart listing the progressive effects of increased BAC levels, which indicated that the plaintiff’s BAC at the time of the accident would have impaired his reflexes, reaction time, and gross motor control.

Eventually, the plaintiff was indicted for driving while under the influence of an alcoholic beverage (“DUI”), a misdemeanor. The next week, the administrator denied the plaintiff’s administrative appeal under the policy pursuant to its “illegal acts” exclusion, finding: (1) that his medical records, his indictment for DUI, and the medical expert’s report all indicated that he was committing an illegal act at the time of his accident, and (2) that the expert report indicated that his level of intoxication and impairment contributed to the accident.

The plaintiff sued the administrator. The trial court granted the plaintiff’s motion for summary judgment stating that it found the application of the “illegal acts” exclusion to the plaintiff to be inequitable. The administrator appealed.

The U.S. Court of Appeals for the Fifth Circuit reversed. As an initial matter, the circuit court explained that the administrator had discretion to interpret the policy’s terms, and it ruled that it had reasonably interpreted the phrase “illegal acts” to include misdemeanors.

In addition, the Fifth Circuit decided, substantial evidence supported the administrator’s determination that the plaintiff was committing a DUI offense at the time of the accident, noting that the crime lab reported that he had a BAC of nearly twice the legal limit – 0.15 – when his blood was drawn at the hospital, that the police officer who arrived at the scene suspected that alcohol was involved in the accident, and that hospital staff recorded that he was “intoxicated” when he was admitted. Moreover, it continued, the administrator’s medical expert examined the plaintiff’s medical records and opined that it was reasonable to conclude that he had a BAC over the legal limit at the time of the accident. Lastly, the circuit court pointed out, the plaintiff had been indicted for DUI and for careless operation of a motor vehicle, and even though he had not been convicted of the DUI offense when the administrator had denied his claim, it still based its decision on evidence that “a reasonable mind might accept as adequate to support” its conclusion that he had been committing a DUI offense at the time of the accident.

The Fifth Circuit also decided that substantial evidence supported the administrator’s determination that the plaintiff’s disability was “due to” his alleged DUI offense. It decided that even if, as the plaintiff asserted, there were two racing cars that forced him off the road, thereby proximately causing the accident, the administrator had discretion to interpret the policy’s terms not to require the plaintiff’s illegal act to be the sole cause of his injuries. Put another way, it stated, in order for a disability to be “due to” the commission of an “illegal act,” the “illegal act” did not necessarily have to be the sole cause of the disability.

The Fifth Circuit then concluded that the administrator had based its decision on relevant evidence that a reasonable mind might accept as adequate to support its conclusion that Jimenez’s alleged DUI offense “contributed” to the accident that caused his disability. Accordingly, it concluded that the administrator had not abused its discretion by denying the plaintiff’s claim for disability benefits under the policy. [Jimenez v. Sun Life Assurance Co. of Canada, 2012 U.S. App. Lexis 17108 (5th Cir. Aug. 15, 2012).]

Employer’s Willingness to Accommodate Worker Dooms Her Claim for Short Term Disability Benefits

On August 4, 2008, the plaintiff, a branch manager for Citizens Bank, had surgery to treat severe chronic back pain and left leg radiculopathy. Liberty Mutual Group, Inc., the administrator for the bank’s short term disability benefits plan, approved her claim for short term disability benefits under the plan because her surgeon indicated that she would be unable to return to work until at least mid-September 2008.

The surgeon’s reports of the plaintiff’s continued debilitating pain resulted in Liberty extending benefits in the months after surgery until her surgeon’s office reported to Liberty in a November 19, 2008, “return to work slip” that she would be able to return to her job the next day if the bank permitted her to change positions between sitting and standing at least every 15 minutes and did not require her to lift any object over 20 pounds.

Liberty stopped the plaintiff’s short term disability benefits after the bank indicated that it would accommodate the plaintiff’s physical limitations and there was no evidence that she would have been unable to perform the responsibilities of her job with those limitations. The plaintiff then sued Liberty, seeking the benefits.

The trial court ruled against her, deciding that, as of November 20, 2008, she was no longer disabled within the meaning of the plan. The plaintiff appealed, arguing that the trial court had erred in interpreting the plan’s definition of “disabled” to permit a finding that she ceased to be disabled when her employer stated a willingness to accommodate certain limitations on her return to work.

The U.S. Court of Appeals for the Second Circuit affirmed. It explained that the plan defined “Disability” and “Disabled” to mean that “the Covered Person, as a result of Injury or Sickness, is unable to perform the Material and Substantial Duties of his Own Job.” The circuit court continued by noting that “Material and Substantial Duties” were those “responsibilities that are normally required to perform the Covered Person’s Own Job and cannot be reasonably eliminated or modified.” Thus, it concluded, although the bank initially indicated that the plaintiff’s job required her to perform certain substantive duties and possess certain physical abilities, its subsequent determination that those requirements could be “reasonably eliminated or modified” to accommodate her physical limitations “clearly permitted” the trial court to find that she had failed to carry her burden of proving that she was “unable to perform the Material and Substantial Duties” of her job as of November 20, 2008. [Matisi v. Liberty Mutual Group, Inc., 2012 U.S. App. Lexis 18181 (2d Cir. Aug. 28, 2012).] 

Stepsons Not Entitled to Deceased Stepfather’s Pension Plan Benefits

When John Wayne Hunter worked for Marathon Oil Company, he participated in Marathon’s pension plan. In 1990 and again in 2001, Mr. Hunter designated his wife, Joyce Mae Hunter, as his primary beneficiary; he designated no secondary beneficiary. After her death in 2004, he did not designate a new plan beneficiary. Mr. Hunter passed away in October 2005.

The Marathon plan provided that when a participant died without designating a valid beneficiary, the decedent’s benefits would be distributed to one of five classes in the following order of priority:

  • The participant’s surviving spouse;
  • The participant’s surviving children;
  • The participant’s surviving parents;
  • The participant’s surviving brothers and sisters;
  • The executor or administrator of the participant’s estate.

After Mr. Hunter passed away, the plan administrator considered, and rejected, the possibility that his stepsons might be entitled to his benefits. Because Mr. Hunter’s spouse had predeceased him and he had no surviving parents and no biological or legally adopted children, the plan administrator distributed the benefits, which totaled more than $300,000, to Mr. Hunter’s six siblings.

About two years later, the stepsons challenged the distribution, arguing that they were Mr. Hunter’s “children” and should have been given priority over his siblings. Citing their close relationship with Mr. Hunter, the fact that he left his estate to them, and the fact that he referred to them as his “beloved sons” in his will, the stepsons suggested that they were entitled to his benefits. After the plan administrator rejected their argument, they brought suit.

After a bench trial, the district court found for the stepsons and the plan administrator appealed. The U.S. Court of Appeals for the Fifth Circuit reversed, finding “no error” in the plan administrator’s interpretation of the plan.

As the circuit court explained, during her initial review, the plan administrator found that the plan had not previously determined whether the term “children” as used in the plan included stepchildren who had not been legally adopted. The circuit court pointed out that she concluded that the term “children” meant biological or legally adopted children based on: (1) the need for a uniform standard for determining who were “children” under the plan; (2) the administrative need for a practical and objective mechanism to avoid potentially burdensome and expensive investigations into a claimant’s status; and (3) her conclusion that the exclusion of stepchildren from the definition was most likely to align with the expectations of the majority of plan participants. According to the circuit court, the plan administrator was “particularly concerned” that many plan participants would not necessarily expect stepchildren to benefit from the plan absent affirmative designation by the participant because, in many cases, stepparents and stepchildren might not have a close relationship and participants with both biological and stepchildren might not expect both to benefit.

The Fifth Circuit decided that the plan administrator had “properly focused on providing a uniform interpretation” and considered that the definition urged by the stepsons would result in unanticipated costs. In the circuit court’s opinion, the stepsons had not shown that the plan administrator’s interpretation was in any way inconsistent with a “fair reading” of the plan. [Herring v. Campbell, 2012 U.S. App. Lexis 16397 (5th Cir. Aug. 7, 2012).]

Reprinted with permission from the December 2012 issue of the Employee Benefit Plan Review – From the Courts.  All rights reserved.

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