ERISA Watch – Court Rules That Disability Claimant Is Entitled to Discovery about Insurance Company’s Attorney-Client Communications

What do you get when you cross the band No Doubt, the singer Neil Young, and a financially conflicted disability insurance company?

Give up?

The answer:  An awesome discovery order.

Judge Jonathan Goodman must have just been jammin to his favorite tunes before he penned this week’s notable decision in Johnston v. Aetna Life Insurance Company, No. 17-20996-CIV, 2017 WL 4654431 (S.D. Fla. Oct. 16, 2017) and ruled in favor of Dr. Johnston in his quest for discovery outside of the administrative record.

The opinion starts:  “In their song ‘Don’t Speak,’ the rock band No Doubt sang the following lament about being rejected: ‘Don’t speak / I know what you’re thinking / I don’t need your reasons / Don’t tell me cause it hurts.’ But in the instant case, Plaintiff urges a completely contrary theme: he wants to know why he was rejected.”

Regarding Plaintiff’s distrust of Aetna to include all relevant information in the administrative record, the court recalled Neil Young’s song, “Revolution Blues”:  “I hope you get the connection, ‘cause I can’t take the rejection / I won’t deceive you, I just don’t believe you.”

Then the court articulated 12 observations and rulings about discovery in this case:

1. Blankenship v. Metropolitan Life Insurance Company, 644 F.3d 1350 (11th Cir. 2011) controls: a court’s review is generally limited to the material available to the administrator at the time it made the decision.
2. The material “made available” to the administrator may not always be limited to the administrative record prepared by the plan administrator.
3. The material “made available” may be oral. Thus, a plaintiff could ask the claims examiner if he or she was provided with any oral information concerning the claim.
4. When there is a structural conflict of interest, some discovery about the conflict or potential conflict is permitted.
5. To consider the structural conflict, a court may need to permit a plaintiff to obtain discovery beyond the written administrative record.
6. But, the mere fact that a structural conflict might exist does not have a plaintiff carte blanche rights to probe every aspect of the decision.
7. Any discovery must comply with the proportionality requirement of Rule 26(b)(1).
8. A plaintiff should be able to obtain discovery about the credentials of physicians who participated in the disability analysis.
9. Where there is a structural conflict, a plaintiff would be entitled to obtain discovery about whether anyone involved in the claims process could receive a bonus, commission, promotion, pay grade reassessment, or other compensation based on his or her track record for approving or rejecting ERISA claims.
10. A plaintiff should in most cases be entitled to relevant sections of the claims manual to determine whether an administrator complied with applicable rules and internal guidelines.
11. Post-record discovery about events after a decision was made is ordinarily not permitted.
12. A plaintiff would be entitled to obtain a copy of a surveillance report and discovery the reasons why surveillance was requested.

The court also considered the fiduciary exception to the attorney-client privilege.  Here, Plaintiff seeks communications between Aetna and its counsel made both before and after the lawsuit was filed.  Aetna did not conclusively decide the claim until after the lawsuit was filed.  The court concluded “that the fiduciary exception permits discovery of attorney-client communications between Aetna and its in-house counsel before the lawsuit was filed and might permit discovery of post-lawsuit communications before the final benefits decision was made.”  The court declined to determine whether the post-lawsuit communications between Aetna and its outside law firm are discoverable under the fiduciary exception to the attorney-client privilege because the work product doctrine precludes discovery of post-lawsuit communications between Aetna and its outside counsel in any event.  The court ordered Aetna to produce responsive documents and ESI for communications with its own in-house counsel before the lawsuit was filed and submit under seal for in camera review all post-lawsuit communications with its in-house counsel, up to the time the final decision to deny benefits was made.

No doubt this is an excellent discovery decision for ERISA claimants.  But if you don’t believe me, read it for yourself.  Enjoy!

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

Attorneys’ Fees

Second Circuit

Schuman v. Aetna Life Ins. Co., et al., No. 3:15-CV-01006 (SRU), 2017 WL 4632428 (D. Conn. Oct. 16, 2017) (Judge Stefan R. Underhill).  The court denied Plaintiff’s motion for “additional fees for the time spent preparing and litigating his inflated attorneys’ fees application.”  The court found that the attorneys’ fees it previously awarded Plaintiff ($38,627.50) for achieving a remand to Aetna “adequately—even generously”—“compensate[d] Schuman for his limited success on the merits.”

Breach of Fiduciary Duty

Sixth Circuit

Chendes v. Xerox HR Solutions, LLC, No. 16-13980, 2017 WL 4698970 (E.D. Mich. Oct. 19, 2017) (Judge Robert H. Cleland).  The court granted Defendant’s motion to dismiss Plaintiffs’ First Amended Class Action Complaint.  The court found that Defendant did not have discretion over the amount of its own compensation as it relates to Plaintiffs; Defendant was not acting as a fiduciary in collecting fees from Financial Engines (“FE”).  Plaintiffs are given leave to replead facts demonstrating that Defendant “exercised de facto control” over the election of FE as a fiduciary for the Plans.  The Ford-FE agreement (a contract for services independently negotiated between third parties) is not an “asset” of the plan so Defendant was not a fiduciary based upon the proffered theory that it exercised control over the Ford-FE agreement.  The court declined to dismiss the claim that the fee-sharing arrangement is a violation of ERISA.  The court agreed with Defendant that the payments from FE to Defendant do not constitute “plan assets” and that there is nothing to suggest that FE was a fiduciary to the Ford Plans when it negotiated its own compensation with Ford.  Plaintiffs claim that Defendant is liable for its failure to disclose its fee sharing arrangement under 29 C.F.R. § 2550.408b–2(c) fails because there is no basis to conclude that this regulation provides a private right of action.

Ninth Circuit

Vyas v. Vyas, et al., No. CV1502152RSWLDFMX, 2017 WL 4621539 (C.D. Cal. Oct. 13, 2017) (Judge Ronald S.W. Lew).  The court determined that there is no genuine issue of material fact as to whether Schwab breached a fiduciary duty it owed to Plaintiff when it followed SCPMG Retirement Committee’s instruction to freeze Plaintiff’s 401(k) Plan account, and granted Schwab’s motion as to Plaintiff’s breach of fiduciary duty claims premised on the freezing of Plaintiff’s 401(k) Plan account.

Disability Benefit Claims

Tenth Circuit

Dardick v. Unum Life Insurance Company of America, et al., No. 16-CV-02838-LTB-KLM, 2017 WL 4697495 (D. Colo. Oct. 19, 2017) (Judge Lewis T. Babcock).  The court granted judgment to Unum after finding that its denial of Plaintiff’s claim for ongoing disability benefits was not arbitrary and capricious.  Even if it was a procedural irregularity to have the same registered nurse twice review Plaintiff’s file, assuming that Plaintiff was entitled to a second appeal, the fact that Unum also had another doctor review Plaintiff’s file in connection with the second appeal cures any irregularity resulting from the nurse’s second review.

Owings v. United of Omaha Life Ins. Co., No. 16-3128, __F.3d__, 2017 WL 4637928 (10th Cir. Oct. 17, 2017) (Before BRISCOE, MATHESON, and PHILLIPS, Circuit Judges).  The court reversed the judgment of the district court and remanded the matter with directions to enter summary judgment in favor of Plaintiff.  The court rejected United of Omaha’s interpretation of the policy that precluded recovery of long term disability benefits solely because Plaintiff was able to perform at least one job duty on the day that he sustained a disabling injury on the job.  The court found that Plaintiff’s disability occurred immediately after he sustained the injury and United of Omaha acted arbitrarily and capriciously when it determined that he was not disabled until the day after he sustained injury.

Sliwinski v. Aetna Life Insurance Company, No. 17-CV-01528-RM-MEH, 2017 WL 4616599 (D. Colo. Oct. 16, 2017) (Magistrate Judge Michael E. Hegarty).  The court recommended dismissal of Plaintiff’s breach of fiduciary duty claim since the complaint makes clear that the only damages she has incurred (dwindling savings, increased reliance on credit cards) are a result of the alleged wrongful denial of benefits.  If Plaintiff’s ERISA Section 502(a)(1)(B) claim fails, she has no alternative grounds for recovery.

Discovery

Second Circuit

Metzgar v. U.A. Plumbers & Steamfitters Local No. 22 Pension Fund, No. 13-CV-85V(F), 2017 WL 4639715 (W.D.N.Y. Oct. 17, 2017) (Magistrate Judge Leslie G. Foschio).  The court granted Defendants’ request for attorney’s fees incurred in connection with its motion to compel discovery.  Plaintiffs failed to establish that an award of Defendants’ expenses pursuant to Rules 37(b)(2) and 37(d)(3) is not warranted.  Since Plaintiffs do not offer any information as to how such expenses should be allocated pursuant to Rules 37(b)(2)(C) and 37(d)(3), the court found that Plaintiffs’ refusals resulted primarily from decisions by Plaintiffs’ counsel.

McFarlane v. First Unum Life Insurance Company, No. 16-CV-7806 (RA), 2017 WL 4564928 (S.D.N.Y. Oct. 12, 2017) (Judge Ronnie Abrams).  In this long term disability matter, the court overruled Plaintiff’s objections to the Magistrate Judge’s denial of Plaintiff’s motion to compel discovery.  The court found that the denial of the motion to compel the production of statistics regarding First Unum’s liability acceptance rates was not clearly erroneous or contrary to law.  Although two courts in this district have ordered Defendants to produce statistics of claim determination rates in ERISA cases, the Magistrate Judge did not err in finding that Plaintiff’s request for similar statistics was not proportional to her needs.

Eleventh Circuit

Johnston v. Aetna Life Insurance Company, No. 17-20996-CIV, 2017 WL 4654431 (S.D. Fla. Oct. 16, 2017) (Judge Jonathan Goodman).  The court granted Plaintiff’s request for discovery outside of the administrative record, including a Rule 30(b)(6) deposition and other discovery aimed at discovering oral communications concerning the claim decision, employee financial incentive information, and relevant portions of the claims manual and guidelines.

ERISA Preemption

Sixth Circuit

Keyes Fibre Corp. v. Pace Industry Union- Management Pension Fund, No. 3:17-CV-0613, 2017 WL 4641798 (M.D. Tenn. Oct. 17, 2017) (Judge Trauger).  ERISA does not provide a cause of action for an employer to challenge an amendment to a rehabilitation plan that has been adopted, updated and complied with by the Fund.  Employers are not enumerated parties under ERISA.  The court has no subject matter jurisdiction over Plaintiff’s ERISA claims, thus those claims are dismissed.

Pension Benefit Claims

Ninth Circuit

United States of America v. John Yin, No. C17-1284JLR, 2017 WL 4676834 (W.D. Wash. Oct. 16, 2017) (Judge James L. Robart).  The court held that ERISA’s anti-alienation provision does not protect Mr. Yin’s IRA from collection to pay restitution on a criminal matter.  The court granted the United States’ motion to issue a continuing garnishee order.

Statutory Penalties

Eleventh Circuit

Sanders v. Temenos USA, Inc., No. 16-CV-63040, 2017 WL 4577235 (S.D. Fla. Oct. 13, 2017) (Judge Beth Bloom).  The Court declined to impose a civil penalty on the employer for not providing Plaintiff notice of his COBRA rights since the employer provided Plaintiff with free health insurance for over ten months and Plaintiff suffered no real prejudice as a result of the COBRA violation.  Imposing a civil penalty under these circumstances would not serve the purposes of COBRA.