Plaintiff Who Took Part-Time Job Loses Long Term Disability Benefits

November 30, 2011 | Appeals | Insurance Coverage

The plaintiff in this case worked as a Sales Support Assistant for National City Corporation and participated in the National City Corporation Welfare Benefits Plan, which was administered by the Liberty Mutual Group. Under the terms of the plan, a participant was eligible for long term disability benefits when he or she became injured or ill while covered by the plan and the injury or illness prevented the participant from performing the functions of his or her position with National or a job with equivalent duties and responsibilities. However, the plan’s Termination Clause expressly stated that a participant was only entitled to benefits “until . . . the date the Participant becomes engaged in gainful employment other than . . . any approved by the Named Fiduciary as a Qualified Rehabilitation Program.”

On January 4, 2007, the plaintiff reported to National that she could no longer perform full time work due to her medical condition. She submitted a claim for short term disability benefits, which was granted on March 1, 2007, retroactive to February 5, 2007. Then, on March 18, 2007, the plaintiff sent a letter to Liberty stating that she was unable to work beyond July 4, 2007, and requesting long term disability benefits.

Liberty determined on October 10, 2007 that the plaintiff was eligible for long term disability benefits, and explained to the plaintiff that payment of future benefits depended on “certification of continuing disability, and on other applicable plan provisions.” About two weeks later, the plaintiff informed Liberty that she was working part-time for another company. At Liberty’s request, she faxed a handwritten paystub, which demonstrated that the plaintiff had worked for the other company beginning on September 15, 2007. Liberty then determined that the plaintiff’s work with the other company was not approved under the plan as a Qualified Rehabilitation Program and that her long term disability benefits were no longer payable.

The plaintiff sued both National and Liberty for wrongly terminating her long term disability benefits. The court rejected her claim, finding that her benefits had not been wrongly terminated by Liberty. The court stated that the plan’s Termination Clause was “unambiguous,” and concluded that the plaintiff’s part time work for the other company entitled Liberty to terminate her benefits under the National plan. [Blair v. National City Mortgage Corp. Welfare Benefits Plan, 2011 U.S. Dist. Lexis 99134 (D. Md. Sept. 2, 2011).]

Suit Against Plan Administrator Is Dismissed Where Circuit Court Rule Is That Only Plan Typically May Be Sued For Benefits

The plaintiff in this case brought suit against the plan administrator to recover both long term and short term disability benefits that she claimed had been improperly denied. The plan administrator moved to dismiss the lawsuit on the ground that it was not a proper defendant as a matter of law.

The court agreed with the plan administrator, explaining that the plaintiff sought to recover benefits under ERISA Section 502(a)(1)(B), which allows a beneficiary under an ERISA plan to bring a civil claim to recover benefits under the terms of the plan, to enforce rights under the plan, or to clarify rights to future benefits under the plan. The court pointed out that the U.S. Court of Appeals for the Seventh Circuit had determined that only a plan was the proper party to be sued under Section 502(a)(1)(B).

The court rejected the plaintiff’s contention that the plan and the plan administrator were “confusingly intertwined,” making the plan administrator an appropriate defendant in this case. Moreover, the court decided, the fact that the plan administrator was responsible for the denial of benefits was “not enough to make it a proper defendant under Seventh Circuit precedent.” Accordingly, the court dismissed the plaintiff’s complaint against the plan administrator. [Tatera v. The Prudential Ins. Co. of America, 2011 U.S. Dist. Lexis 98460 (N.D. Ill. Sept. 1, 2011).]

Comment: It should be noted that even in the Seventh Circuit, a claimant may be able to sue a party other than the plan, albeit only in limited circumstances. For example, the Seventh Circuit has held that an employer that served as the plan administrator was subject to suit where the plan documents referred to the employer and the plan interchangeably. Riordan v. Commonwealth Edison Co., 128 F.3d 549 (7th Cir. 1997). Similarly, an employer that served as plan administrator was a proper defendant when the employer and the plan were closely intertwined. Mein v. Carus Corp., 241 F.3d 581 (7th Cir. 2001). The underlying reasoning of these two cases was that a party other than the plan could be sued when the identity of the plan was not discernable because of the close relationship between the employer and the plan.

Moreover, other circuit courts have allowed suits to proceed against parties other than the plan. For example, the U.S. Court of Appeals for the Ninth Circuit, in Cyr v. Reliance Standard Life Ins. Co., 642 F.3d 1202 (9th Cir. 2011), held that an insurer was a proper defendant in a suit for disability benefits because it, and not the plan administrator, was the entity that denied the claimant’s request for increased benefits and that was responsible for paying the benefits.  The Ninth Circuit reasoned that the relevant statutory language did not appear to limit the identity of the parties to be sued, and found that it was logical for the party that made the coverage decision to be named as the defendant. See, also, North Cypress Med. Center Operating Co. v. CIGNA Healthcare, 2011 U.S. Dist. Lexis 20444 (S.D. Tex. March 2, 2011) (noting that several circuits allow benefit claims against the party that controls plan administration).

Courts Says ERISA Does Not Preempt Invasion Of Privacy Claim Asserted By Claimant Who Had Been Denied Disability Benefits

The plaintiff in this case was a participant in an employee benefit plan whose claims were administered by Hartford Life & Accident Insurance Company. The plaintiff alleged that she had been totally disabled as defined by the plan since September 12, 2006, that she had filed for disability insurance benefits, and, on March 12, 2007, that she had been found to be eligible for these benefits. The plaintiff contended that Hartford subsequently terminated her disability insurance benefits on the ground that she was “no longer disabled under the terms of the policy,” but that it did so “without any medical basis.” In addition, the plaintiff claimed that “at various times since March 2007, Hartford, through its agents, have [sic], without permission to do so, violated and invaded plaintiff’s privacy by videotaping her while she was on her own property.” She also alleged that on several occasions in 2009, Hartford’s agents secretly videotaped and followed her, including by vehicle.

The plaintiff asserted a variety of claims against Hartford, including claims under Ohio law for (1) breach of contract, (2) bad faith, (3) misrepresentation, and (4) invasion of privacy. Hartford moved to dismiss all of these state law claims, arguing that they were preempted by ERISA.

In its decision, the court explained that ERISA’s preemption clause provides that ERISA “shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan.” (emphasis added). It added that the express preemption provisions of ERISA were “deliberately expansive and designed to establish pension plan regulation as exclusively a federal concern.” The court noted that it generally was recognized that virtually all state law claims relating to an employee benefit plan were preempted by ERISA, and that only those state laws and state law claims whose effect on employee benefit plans was merely tenuous, remote or peripheral were not preempted.

In this case, the court said, the plaintiff essentially contended that she had been improperly denied ERISA benefits and that the denial of benefits amounted to a breach of contract and bad faith. For example, the court noted, the plaintiff alleged that Hartford had breached the ERISA plan because Hartford allegedly had “arbitrarily and wrongfully denied disability benefits to plaintiff since July, 2010 and has refused to pay any benefits to plaintiff since July, 2010”; that “Hartford had a duty to act in good faith in the handling and payment of plaintiff’s claim”; and that “Hartford has conducted itself in bad faith throughout the multi-year administration of plaintiff’s disability claim including the wrongful refusal to continue to pay plaintiff’s benefits.”

The court then ruled that these state law claims for breach of contract and bad faith were preempted by ERISA because they plainly related to the administration of the plan and the denial of benefits.

The court also found that the plaintiff’s misrepresentation claim was preempted by ERISA. The court noted that the plaintiff alleged that “Hartford intentionally misrepresented what it intended to do regarding its policy and made representations in the adjustment of plaintiff’s claim, which were relied upon by the plaintiff, to her detriment.” The court ruled that because the alleged representations were made in connection with the adjustment of plaintiff’s claim for disability benefits, the misrepresentation claim related to the employee benefit plan and was preempted by ERISA.

The court, however, reached a different result with respect to the plaintiff’s invasion of privacy claim. It pointed out that the plan indicated that Hartford could “detect, investigate, deter and prosecute those who commit Insurance Fraud.” The court continued by noting that Ohio law provided that it was not unreasonable for an employer to conduct an investigation into a person’s injury while the person was receiving worker’s compensation benefits, as long as the investigation did not amount to an invasion of privacy. The court then stated that although it was a “close issue” as to whether the plaintiff’s invasion of privacy claim was so connected to her claim of denial of ERISA benefits as to be preempted, her allegations, taken as true, alleged conduct that might be “beyond the bounds of a reasonable investigation.” Tortious conduct that amounted to an invasion of privacy would not “relate to” the administration of the plan for purposes of preemption, according to the court. Accordingly, it concluded that the plaintiff’s claim for invasion of privacy survived dismissal on the basis of preemption at this stage of the proceedings. [Vaught v. The Hartford Life & Accident Ins. Co., 2011 U.S. Dist. Lexis 98945 (S.D. Ohio Sept. 1, 2011).]

Comment: The court’s decision in this case did not mean that Hartford had to pay damages to the plaintiff, only that the plaintiff could proceed with her invasion of privacy claim.

Circuit Court Rejects USERRA Claim Where Plaintiff Violated Employer’s Policies For Reporting Absences

From March 2007 to August 2008, the plaintiff in this case worked for U.S. Bank as a Senior Research Clerk. In October 2007, the plaintiff enlisted in the Minnesota National Guard; he received orders to attend training in Fort Benning, Georgia, early the next year. The training began on April 20, 2008, and initially was scheduled to end on July 10, 2008. While stationed at Fort Benning, the plaintiff missed a significant amount of training due to illness. Because he missed so much training, the plaintiff’s orders were amended, extending his training period until August 1, 2008. The plaintiff apparently did not contact anyone at the bank to inform them that he had become ill during his military duty.

On July 29, 2008, the plaintiff sent an email to the person who had been his direct supervisor at the time he left for training that said that the plaintiff still was at training and that he was not sure when he would return to Minnesota; he did not mention that he had been ill. The email was forwarded to the bank’s human resource department.

On Monday, August 4, the plaintiff participated in a conference call with his manager and his manager’s boss. The plaintiff stated that he was back from military leave and wished to return to work at the bank, but that he was not feeling well and needed time to recuperate. According to the plaintiff, he was told that he would need to provide a doctor’s note if he were going to miss work.

From August 5 to August 8, 2008, the plaintiff called his manager each day and left a voicemail stating that he was not feeling well and would not be reporting to work. On August 6, the plaintiff saw a doctor who gave him a return-to-work slip saying that he would be absent until August 11.

The plaintiff, however, did not report to work on Monday, August 11, because he said he still was ill. Although he said that he would be back on Monday, August 18, he did not show up for work then. In fact, he did not show up for work on August 19 or August 20, and he did not call any supervisor or manager at the bank to notify the bank that he would not be coming to work on those days.

On August 20, the bank’s human resource officials determined that the plaintiff had abandoned his job. The next day, the bank mailed a termination letter to the plaintiff, which he received on August 22. The plaintiff subsequently brought a wrongful termination suit against the bank pursuant to the Uniformed Services Employment and Reemployment Rights Act (USERRA). The bank moved for summary judgment, contending that the plaintiff had not complied with the bank’s policies for reporting absences. The court granted the bank’s motion, and the plaintiff appealed.

In affirming the district court’s ruling, the U.S. Court of Appeals for the Eighth Circuit explained that USERRA temporarily changes the at-will employment status of returning veterans depending on length of service. If an employee’s military service was longer than 30 days but less than 181 days, the employee cannot be discharged except for “cause” within the first 180 days after reemployment. The circuit court pointed out that USERRA does not define the term “cause,” but that the Secretary of Labor has prescribed regulations that state that to prove the “cause” needed to discharge an employee covered by USERRA based on that employee’s conduct, an employer must show that the employer’s decision was reasonable and that the employee had notice that his or her conduct would be a ground for discharge.

In this case, the circuit court found that the bank’s decision to fire the plaintiff was reasonable as a matter of law because the plaintiff had violated a “clear written company policy” by failing to properly report his absences. As the circuit court pointed out, the bank’s job abandonment policy expressly stated that an employee forfeited his or her job if the employee neither appeared for work nor properly reported his or her absences for two days in row to his or her manager or supervisor. According to the circuit court, the bank acted reasonably in enforcing these policies.

In addition, the circuit court noted that the record contained no indication that the bank’s decision to terminate the plaintiff because of his violations of company policy was pretextual. The circuit court also decided that the plaintiff had failed to raise a question of material fact about whether he had notice that he was likely to be fired for his conduct. The circuit court stated that for USERRA purposes, notice could be either express or fairly implied. In the circuit court’s view, the bank’s decision to terminate the plaintiff was based on two policies spelled out in advance and published in the employee handbook. The plaintiff received a copy of the employee handbook, which also was available to him via the bank’s intranet. As the circuit court noted, the policies specifically stated that the consequence for two consecutive, unreported absences was termination. The plaintiff’s knowledge of policies clearly outlined in the handbook was “fairly implied,” the Eighth Circuit decided. This was especially true where, for the first two weeks of his absence, the plaintiff did directly report his absence to his supervisor.

Finally, the circuit court rejected the plaintiff’s argument that he did not have adequate notice because the bank had not forewarned him that failure to report his absence directly to his supervisor the week of August 18 would result in his termination. The circuit court concluded that “forewarning” was not required under USERRA. [To v. US Bancorp, 2011 U.S. App. Lexis 17740 (8th Cir. Aug. 25, 2011).]

Voluntary Payment To FMLA Plaintiff Dooms Plaintiff’s Claims For Costs And Attorney’s Fees

The plaintiff in this case brought suit against Motorola, Inc., contending that she was denied a tuition reimbursement benefit in retaliation for taking leave under the Family and Medical Leave Act (FMLA). While that suit was pending, Motorola tendered to the plaintiff a check for twice the amount she claimed she was owed. The plaintiff accepted the tender and moved to convert it to a judgment so that she could petition the court for recovery of costs and attorney’s fees. The court denied her petition and granted Motorola’s motion to dismiss, finding that the plaintiff’s claim had been made moot by virtue of the tender. The plaintiff appealed to the U.S. Court of Appeals for the Seventh Circuit.

The circuit court explained that a case was moot when there was no live “controversy” between the parties on the merits of the underlying claim. Here, the plaintiff contended that her demand for attorney’s fees kept the case alive, but the circuit court did not agree. According to the circuit court, it was “well-settled” that an interest in attorney’s fees was insufficient to create a case or controversy when none existed on the merits.

The circuit court noted that the plaintiff conceded that the FMLA required a judgment to trigger the recovery of costs and attorney’s fees. According to the circuit court, costs and fees therefore were “ancillary to the merits of a claim, not part of the claim itself.”

Finally, the Seventh Circuit rejected the plaintiff’s arguments that the result was manifestly unjust and contrary to public policy, concluding that the voluntary tender of sums allegedly owed to the plaintiff lacked the requisite “judicial imprimatur” to allow the plaintiff to recover attorney’s fees and costs. It then ruled that the district court had appropriately dismissed the plaintiff’s claim. [Breneisen v. Motorola, Inc., 2011 U.S. App. Lexis 18301 (7th Cir. Sept. 2, 2011).]

 Court Orders Arbitration Of Employees’ Wage Claims

This case arose when current and former employees alleged that their employers had violated the Fair Labor Standards Act (FLSA) and New York Labor Laws (NYLL) by failing to pay minimum wage and overtime compensation and failing to maintain payroll records. In response, the defendants moved to compel arbitration of the plaintiffs’ claims based on the arbitration clause contained in the plaintiffs’ employment contracts. The clause stated that any “controversy or claim” arising out of the plaintiffs’ employment or termination of their employment “shall be resolved through final and binding arbitration in accordance with the National Rules for the Resolution of Employment Disputes or other applicable rules of the American Arbitration Association then in effect. Such controversies and claims include, but are not limited to, those arising under this Agreement and those arising under any federal, state, or local statute relating to employment.”

In its decision granting the defendants’ motion to compel arbitration, the court explained that the Federal Arbitration Act established a strong federal policy in favor of the resolution of disputes through arbitration. The court added that to determine whether a party may be compelled to arbitrate, it had to determine whether there was a valid agreement to arbitrate between the parties and, if so, whether the dispute in question fell within the scope of that valid agreement.

With respect to the first issue, the plaintiffs argued the arbitration agreements were not valid because they were procedurally unconscionable as they had no “meaningful choice” but to accept them. They contended that the defendants had “significantly greater bargaining power” and that the arbitration agreements had been presented on a “take-it-or-leave-it basis.”

The court rejected this argument, explaining that unequal bargaining power was “insufficient on its own” to find an arbitration agreement procedurally unconscionable. It also found that the plaintiffs had been “fully apprised” of this condition before they began their employment and had “ample time to consult legal counsel if they so desired.” The court stated that, considering the totality of the facts, it was “unconvinced” that the plaintiffs lacked “a meaningful choice in accepting the agreement.”

Therefore, the court ruled that the plaintiffs had executed a valid and enforceable arbitration agreement when they signed their employment contracts, and that it was not procedurally unconscionable.

In addition, the court decided that the plaintiffs’ claims for unpaid wages pursuant to the FLSA and NYLL made their lawsuit “unequivocally a case or controversy ‘arising out of . . . employment’ and under “federal, state, or local statute[s] relating to employment.” Accordingly, it granted the defendants’ motion to compel arbitration. [Gokhberg v. Sovereign Bancorp, Inc., 2011 U.S. Dist. Lexis 98930 (E.D. Pa. Sept. 1, 2011).]

Reprinted with permission from the December 2011 issue of the Employee Benefit Plan Review – From the Courts.  All rights reserved.

Share this article:

Related Publications


Get legal updates and news delivered to your inbox