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Home > Blog > Blog > Health Insurance > ERISA Watch – Court Rules That Medical Plan Improperly Asserted Subrogation Lien to Deny Benefits

ERISA Watch – Court Rules That Medical Plan Improperly Asserted Subrogation Lien to Deny Benefits

This week’s notable decision is Sadowski v. Tuckpointers Local 52 Health & Welfare Trust, No. 16 C 11014, __F.Supp.3d__, 2017 WL 6549759 (N.D. Ill. Dec. 20, 2017), a case in which the plaintiff was represented by Michelle Roberts of Roberts Disability Law, P.C. and Adam Garner of The Garner Firm, Ltd.  In its opinion, the Court held that a union health plan abused its discretion by refusing to pay medical claims that it contended were related to a settled motor vehicle accident (“MVA”) case more than two years earlier.

Sadowski was a participant in a union health plan.  She had a longstanding history of chronic regional pain syndrome (“CRPS”).  In 2013, Sadowski was involved in a MVA that exacerbated her CRPS symptoms.  Her physicians recommended, and the Plan approved, the implantation of a spinal cord stimulator to treat her condition.   The Plan asserted a subrogation lien with respect to the medical bills arising from her MVA and was reimbursed for those charges when the MVA case resolved.  With respect to subrogation, the Plan’s formal plan document contained a provision that stated as follows:  “Once a settlement is reached, additional bills cannot be submitted with respect to the same injury.”

In September 2015, Sadowski fell down the stairs at home.  The fall caused a wound to develop on her buttock, which subsequently became infected.   The infection compromised the spinal cord stimulator’s battery pack, and her physician concluded that the device had to be removed.  The physician removed the spinal cord stimulator in an outpatient setting, but Sadowski experienced serious complications following the procedure that resulted in her being transferred by ambulance to a hospital where she was admitted for several days.  The Plan denied payment on all of the charges for the removal of the spinal cord stimulator and ensuing hospitalization by invoking the Plan’s subrogation provision.  It claimed that the charges were not payable because they “were directly related to the implant (covered by a settled third party claim).”

The Court rejected the Plan’s interpretation.  First, it noted that the subrogation provision cited above was clear and unambiguous that the charges, to be denied, had to result from the “same injury.”  The Court correctly found that Sadowski’s fall down the stairs at home in 2015 was a different injury than the exacerbation of her CRPS symptoms following her car accident in 2013.  The Plan’s attempt to construe the Plan’s language to tie the two incidents together as one was unreasonable as a matter of law as it controverted the plain language of the Plan.  The Court also found correctly that there was no rational factual basis in the record for determining that the infection in the area of the spinal cord stimulator’s battery pack was proximately caused by the 2013 MVA and the stimulator’s initial implantation other than an overly attenuated reliance on simple but for causation (i.e., but for the stimulator being implanted in the first place, the implantation site would not have developed an infection more than two years later).  Thus, judgment was entered in favor of the plaintiff and the Plan was ordered to pay the medical claims in question.

*The above summary was contributed to ERISA Watch by Adam Garner of The Garner Firm, Ltd.

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

Attorneys’ Fees

Ninth Circuit

Flaaen v. Principal Life Insurance Company, No. C15-5899 BHS, 2017 WL 6527144 (W.D. Wash. Dec. 21, 2017) (Judge Benjamin H. Settle).  In this long term disability dispute where the court previously found in favor of Plaintiff, the court awarded attorneys’ fees in the total amount of $137,294.  The court determined that the hourly rates of $500 and $450 for Plaintiff’s attorneys are reasonable.  The court awarded fees for 2/3 of the time requested for a total of 200 hours.

Board of Trustees of the Pacific Coast Roofers Pension Plan, et al., v. Fryer Roofing Co., Inc., No. 16-CV-02798-LHK, 2017 WL 6539868 (N.D. Cal. Dec. 21, 2017) (Judge Lucy H. Koh).  In this matter seeking default judgment on Defendant’s withdrawal liability, the court concluded that Plaintiffs have failed to justify the $30,784.00 in attorney’s fees that they seek.  “Specifically, a very substantial portion of the billed time for which Plaintiffs seek attorney’s fees appears to have been performed solely in connection with dismissed defendant Rosie—including billed time related to mediation and settlement with Rosie. Although Plaintiffs allege that Rosie is Defendant’s successor, Plaintiffs do not provide any authority to support awarding the fees incurred solely in connection with Rosie against Defendant where Plaintiffs ultimately dismissed Rosie.”  The court denied the fees without prejudice.

Breach of Fiduciary Duty

Third Circuit

Nicolas v. The Trustees of Princeton University, No. CV 17-3695, 2017 WL 6514662 (D.N.J. Dec. 20, 2017) (Judge Anne E. Thompson).  In this putative class action alleging breaches of fiduciary duties related to excessive administrative and recordkeeping fees, the court previously granted in part and denied in part Defendant’s motion for summary judgment.  Defendant filed a motion for reconsideration and motion to stay in light of the docketed appeal to the Third Circuit in the matter of Sweda v. University of Pennsylvania, 2017 WL 4179752 (E.D. Pa. Sept. 21, 2017).  The court concluded that a stay is appropriate, and in light of Sweda, it denied the motion for reconsideration.

Fourth Circuit

Alexander Acosta v. Lopez, et al., No. 117CV330LMBIDD, 2017 WL 6541463 (E.D. Va. Dec. 21, 2017) (Judge Leonie M. Brinkema). The Secretary of Labor filed a partial objection to the R&R to the extent that it did not award the full relief sought in the motion for default. “Specifically, plaintiff objected to the Report’s recommendation that plaintiff not be awarded $5,808.03 in missing employee contributions to the 401(k) Plan; $3,799.52 in missing loan repayments to the 401(k) Plan; $1,295.50 in interest to the 401(k) Plan; $7,002.13 in interest to the Contractors Plan; and up to $7,550.00 to the Contractors Plan, $2,100.00 to the 401(k) Plan, and $3,900.00 to the Health Plan to cover the costs associated with appointing an independent fiduciary.”  The court sustained Plaintiff’s objections and granted his motion for default judgment.

Sixth Circuit

Yates v. Nichols, No. 3:17CV1389, __F.Supp.3d__, 2017 WL 6451888 (N.D. Ohio Dec. 18, 2017) (Judge James G. Carr, Sr.).  The court granted Defendant’s motion to dismiss and dismissed the breach-of-fiduciary duty and putative class-action case with prejudice.  “Plaintiff has not plausibly alleged that defendants breached their fiduciary duties to offer only prudent investments, conduct an adequate investigation, or diversify the plan’s assets. Absent such a claim, plaintiff’s claim for co-fiduciary liability fails as a matter of law.”

Eighth Circuit

In re: UnitedHealth Grp. PBM Litig. THIS ORDER RELATES TO: Nos. 16-CV-3352, 16-CV-3496, 16-CV-3914, 16-CV-3996, 16-CV-4119, 16-CV-4129, 16-CV-4130, & 16-CV-4136, No. 16-CV-3352, 2017 WL 6512222 (D. Minn. Dec. 19, 2017) (Judge Joan N. Ericksen).  In this lawsuit alleging ERISA and other violations related to deceptive trade practices for Defendants’ conduct in administrating pharmacy benefits that allegedly caused Plaintiffs to overpay for prescription drugs purchased at retail network pharmacies, the court granted Defendants’ motion to dismiss the Consolidated Class Action Complaint.

Disability Benefit Claims

Fourth Circuit

Stoddard v. First Unum Life Insurance Company, No. 16-2065, __F.App’x__, 2017 WL 6492641 (4th Cir. Dec. 19, 2017) (Before WILKINSON, KING, and FLOYD, Circuit Judges).  The court affirmed the judgment entered by the district court in favor of First Unum on its determination to terminate Plaintiff’s long term disability benefits after paying them for a decade.

Fifth Circuit

Jackson v. Aetna Life Insurance Company, No. CV 16-15837, 2017 WL 6501599 (E.D. La. Dec. 19, 2017) (Judge Martin L.C. Feldman).  The Texas Insurance Code permits Aetna to only offer Accelerated Debt Benefit coverage to terminally ill claimants.  The plan language of the policy permits Aetna’s denial of Plaintiff’s application for Accelerated Debt Benefit coverage and reduction of long term disability benefits due to Plaintiff’s receipt of SSDI benefits and his son’s receipt of family SSDI benefits.

Ninth Circuit

Sand-Smith v. Liberty Life Assurance Company of Boston, No. CV 17-0004-BLG-SPW, 2017 WL 6501862 (D. Mont. Dec. 19, 2017) (Judge Susan P. Watters).  In this case where the court previously determined that Liberty Life’s mental illness provision is void because it conflicted with Montana’s mental health parity law, the court denied Plaintiff’s motion for contempt. The court granted Liberty Life’s motion to stay the judgment with respect to the attorneys’ fees and costs portion upon Liberty Life posting bond in the amount of $28,633.47, plus interest. The court denied Liberty Life’s motion to stay the judgment with respect to the summary judgment portion.

Nelson v. Standard Insurance Company, et al., No. 16-55227, __F.App’x__, 2017 WL 6420993 (9th Cir. Dec. 18, 2017) (Before: KOZINSKI, HAWKINS, and PARKER, Circuit Judges).  The court affirmed the district court’s decision that Standard did not abuse its discretion by determining that Nelson was not entitled to disability benefits payments under the Policy for a non-limited condition after December 31, 2009.  “The record on which the administrator relied included the results of extensive examinations by Nelson’s physicians, medical records from treating physicians, and the opinions of other physicians establishing that mental disability was the substantial component of Nelson’s illness. Standard was not required to assess the cause of Nelson’s depression because Standard’s plan explicitly addressed combined or concurrent causation. Thus, the state law doctrine of proximate cause was inapplicable. Cf. Winters v. Costco Wholesale Corp., 49 F.3d 550, 554 (9th Cir. 1995).”

Pagendarm v. Life Ins. Co. of N. Am., No. 5:17-CV-04131-EJD, 2017 WL 6405617 (N.D. Cal. Dec. 15, 2017) (Judge Edward J. Davila).  The court granted Defendant’s motion to dismiss for lack of subject matter jurisdiction on the basis that Plaintiff has not met the “injury in fact” requirement for standing.  Here, Plaintiff was awarded long term disability benefits upon the finding that he was disabled due to a condition subject to a 24-month mental illness limitation.  This determination came after Plaintiff appealed an initial denial of long term disability benefits on the grounds that he did not meet the definition of disability.  In the award letter, Plaintiff was advised that “payment of future benefits will depend on confirmation of continuing disability status…”  Within two weeks of receiving the award letter, Plaintiff filed a lawsuit seeking clarification that Plaintiff’s disability was “physical” and not subject to the Plan’s mental illness limitation.  Although the award letter stated that “benefits will cease” at the end of the 24-month mental illness limitation period, since it did not mention or address Plaintiff’s claim for benefits based upon a physical impairment, it was not reasonable for Plaintiff to interpret the letter as a denial of benefits for his claimed physical impairment.  The court determined that the possibility that Defendant might terminate benefits in the future is “too conjectural to establish an ‘injury in fact’ at present.”

ERISA Preemption

Fifth Circuit

Cluck v. Metrocare Svcs-Austin, L.P., et al., No. A-16-CV-1216-RP, 2017 WL 6459809 (W.D. Tex. Dec. 15, 2017) (Magistrate Judge Andrew W. Austin).  Plaintiff alleges that MetroCare and its alleged conspirators concealed from her one or more insurance policies that might have provided MetroCare coverage for her claims related to a slip and fall at work.  The court held that the claims for negligent misrepresentation, breach of contract, civil conspiracy, and fraudulent concealment “relate to” the ERISA plan and are therefore preempted.

Ninth Circuit

Abrams v. Peppermill Casinos, Inc., No. 316CV00454MMDVPC, 2017 WL 6418897 (D. Nev. Dec. 15, 2017) (Judge Miranda M. Du).  “Because the FAC’s allegations imply that Defendant offers health care benefits through use of the term ‘proffered benefits’ but alleges that these benefits do not meet the requirements of NRS Chapters 689A and 689B—hence the FAC’s request for a declaration of such—Plaintiffs’ second claim clearly could have been brought under § 502(a)(1)(B) to clarify rights under an ERISA plan.  The Court was correct in denying Plaintiffs’ motion to remand. Therefore, Plaintiffs’ Motion to Reconsider is denied.”

Pension Benefit Claims

Ninth Circuit

Low-Iacovino v. The Benefit Plan Committee of The Nonbargained Program of the AT&T Pension Benefit Plan, No. CV 16-6614-AB (GJSX), 2017 WL 6541772 (C.D. Cal. Dec. 20, 2017) (Judge Honorable Andre Birotte Jr.).  The Plan abused its discretion when it denied Plaintiff’s claim for survivor benefits and the waiver of benefits allegedly executed by Plaintiff and her husband. The court also found that Defendant is not entitled to offset the $47,064.21 it overpaid the deceased participant during his lifetime, but is entitled to recover the $5,082.14 it overpaid him based on the failure to terminate his 10% increase after he reached age 62.

Dresel v. Pension Plan of The Pacific Northwest Laboratories, No. 15-35643, __F.App’x__, 2017 WL 6420974 (9th Cir. Dec. 18, 2017) (Before: HAWKINS, McKEOWN, and CHRISTEN, Circuit Judges).  The court determined that the district court properly held that the Plan abused its discretion in denying Plaintiff Early Retirement Benefits since he met the requirements:  He was a fifty-seven-year-old former employee with over seventeen years of credited service when he elected to receive ERB.  The Plan abused its discretion by requiring Plaintiff to be an “active employee” when he elected the commencement of benefits.

Premera Blue Cross v. Winz, No. 2:17-CV-695-BAT, 2017 WL 6451802 (W.D. Wash. Dec. 18, 2017) (Magistrate Judge Brian A. Tsuchida).  The court granted Premera’s interpleader action concerning distribution of benefits under its 401(k) Savings Plan and the Premera Pension Equity Plan.  The court enjoined Defendants from instituting further proceedings against Premera or its agents with regard to the benefits.

Plan Status

Tenth Circuit

Medina v. Catholic Health Initiatives, No. 16-1005, __F.3d__, 2017 WL 6459961 (10th Cir. Dec. 19, 2017) (Before TYMKOVICH, Chief Judge, BACHARACH, and MORITZ, Circuit Judges).  “The district court held that CHI’s plan was a church plan that qualified for the ERISA exemption. On appeal, we agree, concluding that CHI’s plan satisfies the statutory requirements for the church-plan exemption: CHI is a tax-exempt organization associated with a church, and the Subcommittee is a proper principal-purpose organization that is also associated with a church. The ERISA exemption, moreover, does not run afoul of the United States Constitution’s Establishment Clause.”

Pleading Issues & Procedure

Sixth Circuit

Bradshaw v. Principal Financial Group, No. 2:17-CV-02174-SHM, 2017 WL 6520921 (W.D. Tenn. Dec. 20, 2017) (Judge Samuel H. Mays, Jr.).  In this dispute over long term disability benefits, the court granted Principal’s motion to dismiss.  Plaintiff’s breach of contract claim is preempted by ERISA and Plaintiff is not entitled to a jury trial on her ERISA claim.

Provider Claims

Fifth Circuit

Connecticut Gen. Life Ins. Co. v. Humble Surgical Hosp., L.L.C., No. 16-20398, __F.3d__, 2017 WL 6460150 (5th Cir. Dec. 19, 2017) (Before BARKSDALE, DENNIS, and CLEMENT, Circuit Judges).  The court held that the district court erred when it granted judgment for Humble on its claims for damages against Cigna under ERISA §§ 502(a)(1)(B) and 502(a)(3). “The district court failed to apply the required abuse of discretion analysis; other courts have upheld Cigna’s interpretation of its insurance plans; and there was substantial evidence supporting Cigna’s interpretation. Accordingly, we reverse the district court. Moreover, as Cigna is not a named plan administrator, we reverse the district court’s award of ERISA penalties against Cigna. We vacate in part the district court’s dismissal of Cigna’s claims against Humble. Finally, we vacate the district court’s award of attorneys’ fees and remand for further consideration.”

Ninth Circuit

Reg’l Med. Ctr. of San Jose v. WH Administrators, Inc., No. 5:17-CV-03357-EJD, 2017 WL 6513441 (N.D. Cal. Dec. 20, 2017) (Judge Edward J. Davila).  “The Court finds that the Plan’s anti-assignment provision is valid and enforceable.  Accordingly, RMC’s first two causes of action under ERISA § 502(a)(1)(B) must be dismissed under Rule 12(b)(6) because RMC lacks derivative standing.”

Brand Tarzana Surgical Institute, Inc. v. International Longshore And Warehouse Union-Pacific Maritime Association Welfare Plan, No. 16-55503, 2017 WL 6420447 (9th Cir. Dec. 18, 2017) (Before: D.W. NELSON and REINHARDT, Circuit Judges, and STEEH, District Judge).  The court affirmed the district court’s decision partially dismissing the case on the basis of an anti-assignment clause.  The court determined that the Plan’s clauses regarding the direction to pay benefits directly to the provider do not contradict the anti-assignment of benefits clause; the Plan is not estopped from asserting the anti-assignment provision; and the Plan did not waive the anti-assignment provision.

Retaliation Claims

Fifth Circuit

Hayes v. Brink’s Incorporated, No. 1:16CV314-LG-RHW, 2017 WL 6407877 (S.D. Miss. Dec. 15, 2017) (Judge Louis Guirola, Jr.).  The court determined that the employer has shown there are no facts surrounding the pro se plaintiff’s termination that show more than an incidental loss of benefits, which is insufficient to establish a prima facie Section 510 case.

Statute of Limitations

Fourth Circuit

Prince v. Sears Holdings Corporation, et al., No. 1:17CV142, 2017 WL 6540493 (N.D.W. Va. Dec. 21, 2017) (Judge Irene M. Keeley).  In this life insurance dispute alleging breach of fiduciary duty for the failure to provide accurate information concerning life insurance coverage, the court determined that Plaintiff had actual knowledge of the alleged breach on September 26, 2013, when Sears sent him a notice informing him that his wife’s coverage had been reduced, but he did not file suit before the end of the three-year statute of limitations.  The court declined to find that the statute of limitations was tolled pending his exhaustion of administrative remedies, nor by the removal of his initial lawsuit to the Northern District.  The court held that his complaint is time barred by ERISA’s statute of limitations for breach of fiduciary duty claims.

Statutory Penalties

Third Circuit

Askew v. R.L. Reppert Inc., et al., No. 16-3924, __F.App’x__, 2017 WL 6523345 (3d Cir. Dec. 21, 2017) (Before: CHAGARES, GREENAWAY JR., and VANASKIE, Circuit Judges). On the claim regarding the level of penalties to be assessed for the failure to provide 401(k) Plan documents on a timely basis, the Third Circuit affirmed the district court’s trial verdict that assessed penalties of $50 per day for the period of December 6, 2008 to October 2, 2009, for nonproduction of documents relating to Reppert’s 401(k) Plan documents, and $1 per day for the period of May 17, 2012 to January 1, 2015, for the nonproduction of the Nationwide agreement that Askew had obtained through subpoena, totaling $15,959.00.

Venue

Sixth Circuit

Alexander Acosta v. Wilmington Trust, N.A., et al., No. 1:17-CV-1755, 2017 WL 6505812 (N.D. Ohio Dec. 20, 2017) (Judge James S. Gwin). In this matter where the U.S. Department of Labor alleges that Defendant violated ERISA by improperly approving the Graphite Sales, Inc. Employee Stock Ownership Plan’s purchase of the outstanding stock of Graphite Sales, Inc., the court denied Defendant’s motion to transfer venue to the District of Delaware because Defendant has not shown that either convenience or the interests of justice strongly favor transfer.

 

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*Please note that this blog is a summary of a reported legal decision and does not constitute legal advice. This blog has not been updated to note any subsequent change in status, including whether a decision is reconsidered or vacated. The case above was handled by other law firms, but if you have questions about how the developing law impacts your ERISA benefit claim, the attorneys at Roberts Disability Law, P.C. may be able to advise you so please contact us.

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