ERISA Watch – Discretionary Language in Summary Plan Description Does Not Confer Discretion Upon Long Term Disability Insurer

This week’s notable decision is a jewel out of the District of Arizona, Nieves v. Prudential Ins. Co. of Am., No. CV-16-00768-PHX-DGC, __F.Supp.3d__, 2017 WL 168039 (D. Ariz. Jan. 17, 2017).  Nieves was employed with Comtech Telecommunications for about 14 years before symptoms related to a spinal condition rendered him unable to perform his job duties.  In 2011, Plaintiff went on “light duty” to accommodate his sitting, standing, and lifting restrictions.  When he learned of a Reduction in Force (RIF), he inquired as to whether he would be laid off as part of the RIF and sought permission to file for disability instead.  His boss’s boss assured him:  “you’re good.”  The next day, on March 10, 2015, Plaintiff was fired.  When Plaintiff asked to file for disability, he was not provided with the paperwork and was escorted from the building.

Adding insult to injury, Prudential denied his claim for short-term disability benefits and long term disability benefits on the basis that he did not have coverage under the Plan at the time of his disability, which Prudential determined to be March 11, 2015.  Plaintiff provided Prudential with all of his medical records, but Prudential continued to deny his claims for lack of coverage.  Plaintiff filed suit.

On Prudential’s motion for summary judgment and Plaintiff’s motion for judgment, the court determined that discretionary language contained only in the Summary Plan Description (“SPD”) does not change the standard of review from de novo to abuse of discretion where the SPD is not a Plan document nor is it incorporated into the Plan. The SPD cover page states that “The Summary Plan Description is not part of the Group Insurance Certificate.”  The court rejected Prudential’s argument that the provisions limiting a participant’s benefits eligibility to “when Prudential determines,” and requiring proof of disability that is “satisfactory to Prudential,” is sufficient to confer discretionary authority.

On the issue of Plaintiff’s eligibility for disability benefits, the court concluded that Plaintiff’s claim for disability arose before he was terminated and Prudential erred when it found that Plaintiff’s claim arose after his coverage had lapsed.  Following Ninth Circuit precedent, Harlick v. Blue Shield of California, 686 F.3d 699 (9th Cir. 2012), the court found that by failing to assert during the administrative process that Plaintiff was not disabled under the Plan, Prudential has forfeited its ability to assert that defense in this litigation and Plaintiff is entitled to judgement in this case.

The outcome in Nieves is a fair result.  He submitted all of his records to Prudential to establish his disability, but Prudential chose to not consider the issue.  Remanding the claim to Prudential would have unnecessarily dragged out the process.  At Roberts Disability Law, P.C., we know the games insurers play to avoid paying meritorious disability benefit claims.  If you are in the Bay Area, including the East Bay, South Bay, or San Francisco, and have a denied long term disability benefit claim, contact us today.

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

Attorneys’ Fees

Sixth Circuit

Mendez v. FedEx Express, No. 15-CV-12301, 2017 WL 168168 (E.D. Mich. Jan. 17, 2017) (Judge Judith E. Levy).  Following victory in long term disability claim dispute, the court grants Plaintiff’s motion for attorneys’ fees and costs, including modest nontaxable costs of only $114 for research, $171.70 for copying, and $13.90 for postage.  Plaintiff sought $58,185 in attorney fees, for 129.3 hours of work at a rate of $450 per hour but the court awarded $44,456.25 in attorneys’ fees for 118.55 hours at a rate of $375 per hour.

Disability Benefit Claims

Fifth Circuit

Senegal v. Reliance Standard Life Ins. Co., No. CV 16-1961, 2017 WL 175768 (E.D. La. Jan. 17, 2017) (Judge Mary Ann Vial Lemmon).  The court granted Plaintiff’s request to include an FCE report as part of the administrative record since Plaintiff presented the FCE to Reliance requesting a reconsideration of the denial, and gave Reliance a reasonable amount of time to consider it before he filed suit.  Under Vega v. Nat’l Life Ins. Servs., Inc., 188 F.3d 287 (5th Cir. 1999), the FCE is deemed part of the administrative record.  The court denied Plaintiff’s request to strike from the record a medical review done after Plaintiff submitted his LTD appeal.  The court remanded the matter to Reliance Standard to consider the FCE, Plaintiff’s rebuttal to a ground for termination of benefits it raised in the final denial letter, the SSA’s and VA’s favorable determinations, and Plaintiff’s claim for an underpayment of benefits that he did not exhaust.

Davis v. Aetna Life Ins. Co., No. CV 16-4263, 2017 WL 175779 (E.D. La. Jan. 17, 2017) (Judge Eldon E. Fallon).  The court granted Aetna’s unopposed motion for summary judgment seeking affirmation of its decision to deny Plaintiff’s long term disability benefit claim.  Despite multiple requests from the plan administrator, Plaintiff failed to submit any medical documentation indicating she suffered from a disability that would prevent her from completing any of her job responsibilities, Plaintiff failed to exhaust her administrative remedies, and Plaintiff provided no evidence either to support her claim or rebut Defendants’ arguments.

Sixth Circuit

Wallace v. Beaumont Healthcare Employee Welfare Benefit Plan, No. CV 16-10625, 2017 WL 193551 (E.D. Mich. Jan. 18, 2017) (Judge Linda V. Parker).  Although Plaintiff may allege a stand-alone Section 1133 claim, the claim must be dismissed because Plaintiff’s allegations to support her Section 1133 claim do not violate any of the provisions of the statute or the Secretary’s regulations.  The court dismissed Plaintiff’s breach of fiduciary duties claim since it was based on the claim that she did not pursue further administrative review because of Reliance’s alleged omissions.  The court found that she suffered no independent injury since the court excused exhaustion and she can make whatever arguments she would have made during the administrative review in this civil action.

Ninth Circuit

Nieves v. Prudential Ins. Co. of Am., No. CV-16-00768-PHX-DGC, __F.Supp.3d__, 2017 WL 168039 (D. Ariz. Jan. 17, 2017) (Judge David G. Campbell).  Discretionary language contained only in the SPD does not change the standard of review from de novo to abuse of discretion where the SPD is not a Plan document nor is it incorporated into the Plan. The SPD cover page states that “The Summary Plan Description is not part of the Group Insurance Certificate.  On the issue of Plaintiff’s eligibility for disability benefits, the court concluded that Plaintiff’s claim for disability arose before he was terminated and Prudential erred when it found that Plaintiff’s claim arose after his coverage had lapsed.  Following Ninth Circuit precedent, by failing to assert during the administrative process that Plaintiff was not disabled under the Plan, Prudential has forfeited its ability to assert that defense in this litigation and Plaintiff is entitled to judgement in this case.

DeLancey v. Liberty Life Assurance Co. of Boston, No. SACV1502022CJCKESX, 2017 WL 132832 (C.D. Cal. Jan. 13, 2017).  Abuse of discretion review applies because the policy grants Liberty Life with discretionary authority.  The court determined that there is no evidence that Liberty Life’s conflict of interest impacted its decision despite Plaintiff’s attempt to set forth multiple instances of procedural irregularities.  Liberty Life’s decision to deny Plaintiff LTD benefits was sufficiently supported by substantial evidence and not an abuse of discretion.

Eleventh Circuit

Otero v. Unum Life Ins. Co. of Am., No. CV-7:14-BE-2253-W, 2017 WL 131568 (N.D. Ala. Jan. 13, 2017) (Judge Karon Owen Bowdre).  The de novo standard of review applies in this case because Unum did not exercise the discretion granted it by the plan and Plaintiff’s claim is “deemed exhausted.”  Unum accepted premium payments on behalf of Dr. Otero while knowing that he was working part-time and ineligible for coverage.  The court determined that Unum has waived its right to assert the defense that Dr. Otero was not eligible for coverage after the termination of disability benefits in March of 2010 because Dr. Otero was not working the minimum number of hours per week.  The court remanded the claim to Unum directing it to obtain the relevant documents to make the appropriate benefit calculations.

Discovery

Sixth Circuit

Durand v. Hanover Ins. Grp., Inc., No. 3:07-CV-00130-HBB, 2017 WL 151399 (W.D. Ky. Jan. 13, 2017).  The court denied Defendant’s motion for reconsideration of the court’s application of the fiduciary exception to the attorney-client privilege to documents memorializing legal advice from in-house and/or outside counsel regarding potential amendments to the plan.  The court considered the context and content of the documents as well as the persons who were present for the meetings in determining that the documents were subject to the fiduciary exception.

ERISA Preemption

Tenth Circuit

Roberts v. Scarcello, No. 16-2720-JWL, 2017 WL 169035 (D. Kan. Jan. 17, 2017) (Judge John W. Lungstrum).  In this matter where Plaintiff’s claim for injunctive relief seeks to preclude Defendants from taking any action that would jeopardize the favorable tax treatment of the ESOP under the Internal Revenue Code, the Court granted Plaintiff’s motion to remand since Defendants fail to explain how Plaintiff could have brought this claim under § 502(a) when the claim does not seek a determination of benefits and which seeks to enjoin not a violation of the terms of the Plan but a violation of the tax code.  The Tenth Circuit has held that this kind of claim is not a violation of ERISA and does not give rise to a private right of action under ERISA.

Exhaustion of Administrative Remedies

Sixth Circuit

Wallace v. Beaumont Healthcare Employee Welfare Benefit Plan, No. CV 16-10625, 2017 WL 193551 (E.D. Mich. Jan. 18, 2017) (Judge Linda V. Parker).  Plaintiff was not required to exhaust any administrative remedies prior to filing this lawsuit where the insurance policy does not require exhaustion and the letters to the claimant only stated that Plaintiff “may” request a review of Reliance’s determination.

Pension Benefit Claims

Second Circuit

Madden v. Bewley, No. 1:16-CV-00571 EAW, 2017 WL 222245 (W.D.N.Y. Jan. 18, 2017) (Judge Elizabeth A. Wolford).  The court granted Plaintiff’s motion for default judgment against Defendant.  Plaintiff is the widower and administrator of Ms. Madden’s estate.  When Ms. Madden and Defendant were married, she had signed up for the TIAA plan, indicating that Defendant was the primary beneficiary, and her Estate was the contingent beneficiary.  When Ms. Madden and Defendant divorced, he signed a Property and Separation Agreement relinquishing his right to her TIAA plan benefits.  Defendant ignored Plaintiff’s request to sign the waiver of retirement benefits.  The court found a breach of contract and enjoined and prohibited Defendant from applying for Ms. Madden’s retirement benefits or accepting any of Ms. Madden’s retirement benefits.

Third Circuit

Pfeifer v. Wawa, Inc., No. CV 16-497, __F.Supp.3d__, 2017 WL 132851 (E.D. Pa. Jan. 11, 2017) (Judge Paul S. Diamond).  In this matter challenging a 2015 amendment to Wawa’s Employee Stock Ownership Plan that eliminated Plaintiffs’ right to hold Wawa stock through age 68, the court denied Defendants’ motion to reconsider its refusal to dismiss Counts V and VI of the First Amended Complaint, or to certify those decisions for interlocutory review.  Plaintiffs stated a claim to the extent that they base their anti-cutback claim on the liquidation of their accounts and not the forced sale of Wawa stock.  Plaintiffs also stated a claim by seeking to invalidate the Plan Amendment under unilateral contract principles since the pre-Amendment Plan was ambiguous as to whether the Plan Amendment was permitted.

* Please note that these are only case summaries of decisions 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 a knowledgeable ERISA attorney.  Case summaries authored by Michelle Roberts, Partner, Roberts Disability Law, P.C., 1050 Marina Village Pkwy., Ste. 105, Alameda, CA 94501; Tel:  510-230-2090.