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ERISA Watch – Court Applies California’s Ban on Discretion to Self-Funded Disability Plan

Hello, ERISA Watchers!  This was an exciting week on the topic of state bans on discretionary clauses.  Two recent decisions applied the protection afforded by California Insurance Code Section 10110.6 to render discretionary clauses in disability plans void and unenforceable.  In Lin v. Metro. Life Ins. Co., No. C 15-2126 SBA, 2016 WL 4373859 (N.D. Cal. Aug. 16, 2016), the court ruled in favor of the long term disability claimant with chronic renal failure, and found that Section 10110.6 renders the Plan’s grant of discretion unenforceable even though it was not part of an insurance policy or certificate.  The court noted that the Ninth Circuit has yet to reach this issue, but federal district courts, including numerous judges from the district, have consistently rejected Defendants’ argument that Section 10110.6 is inapplicable where the grant of discretion is in an integral part of the ERISA welfare benefit plan’s document.

In Thomas v. Aetna Life Ins. Co., No. 215CV01112JAMKJN, 2016 WL 4368110 (E.D. Cal. Aug. 15, 2016), the court concluded that Section 10110.6 applies to self-funded plans in the same way it applies to insured plans and effectively bars the court from applying the abuse of discretion standard of review.  By its plain language, Section 10110.6 applies to “contracts,” which would include self-funded ERISA plans.  The court noted that the legislative history of Section 10110.6 demonstrates that the California legislature was concerned over how a discretionary clause, even in a self-funded plan, “deprives California insureds of the benefits for which they bargained…”  The court applied de novo review to the claims decision but decided that there were genuine issues of material fact precluding summary judgment to either party.  To my knowledge, Thomas is the only decision applying Section 10110.6 to a self-funded plan.  If you know of other cases, please shoot me a note.  I’m happy to be corrected on this one.

Enjoy a de novo review of this week’s case summaries!  (I know, bad joke – but at least they’re free!).

Below is Roberts Disability Law, P.C.’s summary of this past week’s notable ERISA decisions.

Attorneys’ Fees

Seventh Circuit

  • After previously granting summary judgment in favor of Plaintiff Board of Trustees of the Health and Welfare Department of the Construction and General Laborers’ District Council of Chicago and Vicinity (the “Board”) in this matter seeking to recover certain ERISA plan assets tendered to, and withheld by, Defendants Allison Enterprises, Inc. d/b/a Mid America Vision and its president and sole shareholder, Lawrence Silver, awarding the Board costs of $7,896.29 and fees of $336,793.12. Bd. of Trustees of the Health v. Allison Enterprises, Inc., No. 12 C 4097, 2016 WL 4397972 (N.D. Ill. Aug. 18, 2016) (Judge Charles P Kocoras).

Breach of Fiduciary Duty

Third Circuit

  • Finding no error in the District Court’s conclusion that all contributions from employers to multiple employer welfare arrangement providing health benefits were “plan assets” within the meaning of ERISA; affirming conclusion that Doyle breached his duty of loyalty to the Fund because he knew that these monies were not used to benefit plan participants, but vacating and remanding the judgment regarding Holloway’s liability for factual findings as to when Holloway knew or should have known that the Fund was being mismanaged or underfunded. Secretary of Labor v. James Doyle, et al., __F.App’x__, 2016 WL 4395352 (3d Cir. Aug. 18, 2016) (Before: JORDAN, HARDIMAN, and GREENAWAY, JR., Circuit Judges).


  • Finding that successful plan-participant plaintiff in ESOP litigation, who obtained assignments from two defendant plan fiduciaries of any claims they may have had against two fiduciary liability insurers, could not assert viable breach of fiduciary duty and other claims against the insurers because the assigned claims were released by the assignors as part of a confidential settlement agreement. Sealey v. Beazley Ins. Co., Inc., No. 3:15CV768-DPJ-FKB, 2016 WL 4392624 (S.D. Miss. Aug. 16, 2016) (Judge Daniel P. Jordan).

Class Actions

Eleventh Circuit

  • Granting certification of class satisfying all of the requirements of Rule 23(a) and Rule 23(b)(1)(B), defined as follows: All persons, other than Defendants and members of their immediate families, who were participants in or beneficiaries of the SunTrust Banks, Inc. 401(k) Savings Plan (the “Plan”) at any time between May 15, 2007 and March 30, 2011, inclusive (the “Class Period”) and whose accounts included investments in SunTrust common stock (“SunTrust Stock”) during that time period and who sustained a loss to their account as a result of the investment in SunTrust Stock.  Appointed class representatives are Plaintiffs Erwin, Fish, Trau, and Smothermon. Co-lead Class Counsel are the law firms of Kessler Topaz Meltzer & Check, LLP, Stull, Stull & Brody and Squitieri & Fearon, LLP.  Liason Class Counsel is the law firm of Holzer & Holzer, LLC.  In re Suntrust Banks, Inc. ERISA Litig., No. 1:08-CV-03384-RWS, 2016 WL 4377131 (N.D. Ga. Aug. 17, 2016) (Judge Richard W. Story).

Disability Benefit Claims

First Circuit

  • In matter involving denied long term disability benefits, (1) finding that Plaintiff’s ERISA Section 502(a)(1)(B) claim naming Sedgwick (the plan administrator) and Dr. Matos (internal doctor employed by company who recommended denying benefits) survives Defendants’ motion to dismiss since taking all well pleaded facts in the complaint as true, Sedgwick and Dr. Matos evidenced control over the Committee’s decisions; (2) dismissing Section 502(a)(3) claim since Plaintiff can seek redress in Section 502(a)(1)(B); (3) finding that Section 510 claim survives motion to dismiss where Plaintiff alleged that Defendants specifically contracted with outside physicians to justify the denial of benefits and it can be inferred from the facts in the amended complaint that Defendants were trying to prevent Plaintiff from attaining his vested right to LTD benefits; (4) dismissing request for $500,000 in extra-contractual damages; and (5) finding no right to a jury trial on ERISA claims. Brown v. Sedgwick Claims Mgmt. Servs., Inc., No. 15-1435 (JAG), 2016 WL 4273193 (D.P.R. Aug. 11, 2016) (Judge Garcia-Gregory).

Third Circuit

  • Fund did not abuse its discretion in denying Plaintiff’s claim for disability retirement benefits, where the Plan required that Plaintiff have “become totally and permanently disabled,” and must have accrued “at least [130] Pension Credits in the [60] consecutive months immediately preceding [the employee’s] date of disablement,” and the Trustees used the disability date on Plaintiff’s Social Security Award letter as the date of disablement rather than an earlier date advanced by Plaintiff. Aristone v. New Jersey Carpenter’s Pension Fund (Plan No. 001), No. CV 15-5709 (JBS/KMW), 2016 WL 4265718 (D.N.J. Aug. 11, 2016) (Judge Jerome B. Simandle).

Fifth Circuit


Seventh Circuit

Ninth Circuit

  • In ruling in favor of long term disability claimant disabled by chronic renal failure, finding that: (1) Cal. Ins. Code 10110.6 renders the Plan’s grant of discretion unenforceable even though it was not part of an insurance policy or certificate; (2) isolated and out-of-context medical notes cited by MetLife are insufficient to establish that it had a reasonable basis for concluding that Plaintiff was not disabled or in compliance with his treatment plan; (3) MetLife’s decision to forego an in-person examination of Plaintiff underscores the result-driven nature of MetLife’s decision to terminate Plaintiff’s benefits; (4) MetLife did not properly address SSA’s determination of Plaintiff’s disability and the reasons proffered in litigation are deemed waived; (5) Plan’s limitation of Chronic Fatigue Syndrome does not apply to Plaintiff’s claim and MetLife waived that argument since it did not articulate it in any of its denial letters; and (6) Plaintiff is entitled to reinstatement of his LTD benefitsLin v. Metro. Life Ins. Co., No. C 15-2126 SBA, 2016 WL 4373859 (N.D. Cal. Aug. 16, 2016) (Judge Saundra Brown Armstrong).


  • Concluding that Cal. Ins. Code Section 10110.6 applies to self-funded plans in the same way it applies to insured plans and effectively bars the court from applying the abuse of discretion standard of review; denying summary judgment to both parties because there is a genuine issue of material fact as to whether Plaintiff met her burden of proving with sufficient objective evidence that she was disabled and that resolution of competing facts should be reserved for a trier of fact. Thomas v. Aetna Life Ins. Co., No. 215CV01112JAMKJN, 2016 WL 4368110 (E.D. Cal. Aug. 15, 2016) (Judge John A. Mendez).

ERISA Preemption

Sixth Circuit

Life Insurance & AD&D Benefit Claims

Seventh Circuit

  • Finding that pursuant to ERISA and the terms of the supplemental life insurance policy, the designated beneficiary (decedent’s sister) is entitled to receive the death benefits for the policy, and rejecting contention by decedent’s former spouse that she has a constructive trust of the death benefits since she is currently seeking in state court to have the Judgment of Dissolution of Marriage vacated so that she can assert her interest in the supplemental policy (claiming that she did not know about the supplemental policy at the time of divorce). Dixneuf v. Wong, No. 15 C 8785, 2016 WL 4366596 (N.D. Ill. Aug. 16, 2016) (Judge Samuel Der-Yeghiayan).

Medical Benefit Claims

Eleventh Circuit

Plan Status

Third Circuit

  • Finding that Defendant has met its burden of proving that the Safe Harbor provision of ERISA does not apply to Plaintiff’s various long term disability policies and that the Policies satisfy the five factors for ERISA application; Plaintiff’s employer “contributed” to the Policies by getting a discount through participation in the Unum FlexBill program and by making some of the payments for Plaintiff’s premiums over the years. D’elia v. Unum Life Ins. Co. of Am., No. CV 15-3040, 2016 WL 4366979 (E.D. Pa. Aug. 15, 2016) (Judge Cynthia Rufe).

Provider Claims

Second Circuit

  • Concluding allegations are sufficient at this early pleading stage to establish an effective assignment that permits Plaintiffs to proceed on ERISA causes of action for payment of medical services, although to ultimately prevail Plaintiffs will have to set forth actual proof that patients in fact signed such assignments in exchange for provided health services; rejecting United’s argument that no private right of action exists under ERISA Section 502(a)(3) for violations of ERISA Section 503, but penalties under ERISA Section 502(c) are not available for violations of the claims-procedure regulation. Mbody Minimally Invasive Surgery, P.C. v. United Healthcare Ins. Co., No. 14 CIV. 2495 (ER), 2016 WL 4382709 (S.D.N.Y. Aug. 16, 2016) (Judge Ramos).


Seventh Circuit

Withdrawal Liability & Unpaid Contributions

Second Circuit

Sixth Circuit

Seventh Circuit

* Please note that these are only case summaries of decisions as they are reported and do not constitute legal advice.  These summaries are not updated to note any subsequent change in status, including whether a decision is reconsidered or vacated.  If you have questions about how the developing law impacts your ERISA benefit claim, contact an experienced ERISA attorney.  Case summaries authored by Michelle L. Roberts, Partner, Roberts Disability Law, P.C., 1050 Marina Village Pkwy., Ste. 105, Alameda, CA 94501; Tel:  510-230-2090. 



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