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ERISA Watch – Fiduciary Exception to Attorney-Client Privilege Applies to Insurance Companies

A la corporations are people, insurance companies are fiduciaries:  at least when it comes to the fiduciary exception to the attorney-client privilege.  In this week’s notable decision:  McFarlane v. First Unum Life Ins. Co., No. 16CV07806RAKHP, __F.Supp.3d__, 2017 WL 480500 (S.D.N.Y. Feb. 6, 2017), the court held that the fiduciary exception to attorney-client privilege applies to insurers in ERISA cases, rejecting the Third Circuit opinion in Wachtel v. Health Net, Inc., 482 F.3d 225 (3d Cir. 2007).  The court found no reasonable basis for applying the fiduciary exception to some, but not all, ERISA fiduciaries who decide benefit claims and appeals.  The application of the exception turns on whether the legal advice concerns a fiduciary function.  In this dispute involving a denied claim for long term disability benefits, the court held that in camera review of communications between the Lead Appeals Specialist and in-house attorneys from First Unum was warranted for a determination as to whether communications were discoverable within the meaning of attorney-client privilege’s fiduciary exception or were protected from disclosure by the work-product doctrine.

The weight of the authority falls in favor of applying the fiduciary exception equally to all fiduciaries, including to an insurance company acting as a claims fiduciary.  See Stephan v. Unum Life Ins. Co. of Am., 697 F.3d 917 (9th Cir. 2012); Krase v. Life Ins. Co. of N. Am., 962 F.Supp.2d 1033 (N.D. Ill. 2013); Harvey v. Standard Ins. Co., 275 F.R.D. 629 (N.D. Ala. 2011); Coffman v. Metropolitan Life Ins. Co., 204 F.R.D. 296 (S.D. W. Va. 2001).  But, whether an insurance company is acting like a fiduciary is a whole other ball of wax.  Enjoy this week’s case summaries!

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

Attorneys’ Fees

Second Circuit

Dimopoulou v. First Unum Life Ins. Co., No. 1:13-CV-7159 (ALC), 2017 WL 464430 (S.D.N.Y. Feb. 3, 2017) (Judge Andrew L. Carter, Jr.).  Because this long term disability case was remanded for further consideration, Plaintiff has achieved some success on the merits warranting an award of attorneys’ fees.  The court declined to consider the Chambless factors.  The court awarded an hourly rate of $660 for the lead attorney with over 25 years of experience.  The court awarded a total of $223,361 in fees and $5,868.08 in costs.

Ninth Circuit

Bunger v. Unum Life Ins. Co. of Am., No. 2:15-CV-01050-RAJ, 2017 WL 516246 (W.D. Wash. Feb. 8, 2017) (Judge Richard A. Jones).  The court previously remanded the case to Unum to further develop the long term disability claim record.  Specifically, the court instructed Unum to inform Plaintiff of what additional testing or diagnostics it required in order to make an informed decision as to whether he is able to perform his job functions.  The court found that Plaintiff established sufficient success to satisfy the Hardt threshold requirement.  The Hummell factors also weigh in favor of an attorneys’ fee award.  The court approved a rate of $500/hour for Plaintiff’s attorney and awarded a total of $72,500 in fees and $743.48 in costs.

Breach of Fiduciary Duty

Second Circuit

Fletcher v. Convergex Group, L.L.C., et al., No. 16-734-CV, __F.App’x__, 2017 WL 549025 (2d Cir. Feb. 10, 2017) (PRESENT: ROSEMARY S. POOLER, PETER W. HALL, RAYMOND J. LOHIER, JR., Circuit Judges).  The court found that allegations describing Convergex’s breach of fiduciary duties of prudence and loyalty under ERISA, its violation of ERISA’s prohibited transactions provision, and the resulting financial loss sustained by the Central States Plan are sufficient to confer Article III standing on Plaintiff in his representative capacity as a Plan participant.  The court vacated the district court’s ruling and remanded for the district court to determine in the first instance whether the conduct alleged by Fletcher relating to the Central States Plan “implicates the same set of concerns” as the conduct by Convergex that is “alleged to have caused injury” to putative class members who are not participants in that Plan.

Fifth Circuit

Chamber of Commerce of the United States of Am. v. Hugler, No. 3:16-CV-1476-M, __F.Supp.3d__, 2017 WL 514424 (N.D. Tex. Feb. 8, 2017) (Judge Barbara M.G. Lynn).  The DOL’s new rules modify the regulation of conflicts of interest in the market for retirement investment advice, and consist of: 1) a new definition of “fiduciary” under ERISA and the Code; 2) an amendment to, and partial revocation of, PTE 84–24; and 3) the creation of the Best Interest Contract Exemption (“BICE”).  Plaintiffs allege that financial professionals are improperly being treated as fiduciaries and should not have to comply with the heightened standards for one-time transactions.  The court denied Plaintiffs’ motion for summary judgment, finding that:  (1) the Fiduciary Rule does not exceed the DOL’s statutory authority under ERISA; (2) BICE does not exceed the DOL’s exemptive authority; (3) the written contract requirements in BICE and PTE 84–24 do not impermissibly create a private right of action; (4) the rulemaking process does not violate the Administrative Procedure Act; (5) VICE does meet the statutory requirements for granting exemptions from the prohibited transaction rules; (6) the new rules do not violate the First Amendment; and (7) the contractual provisions required by BICE do not violate the Federal Arbitration Act.

Ninth Circuit

In re: RICHARD ALAN SCHOENFELD, No. 15-56871, __F.App’x__, 2017 WL 491160 (9th Cir. Feb. 7, 2017) (Before: CALLAHAN, WATFORD, and OWENS, Circuit Judges).  The court affirmed the district court’s judgments permanently enjoining Richard Schoenfeld from serving as a fiduciary to ERISA plans.  The district court did not abuse its discretion when it determined that the law of the case doctrine precluded Schoenfeld from relitigating the court’s prior ruling that he breached his fiduciary duties and the satisfaction of his debt did not moot the injunctive relief designed to protect against future violations of ERISA.

Disability Benefit Claims

Third Circuit

Desue v. Aetna Life Ins. Co., No. 16CV1646, 2017 WL 528241 (W.D. Pa. Feb. 9, 2017).  Plaintiff may simultaneously pursue claims under Section 1132(a)(1)(B) for denial of benefits and Section 1132(a)(3) for breach of fiduciary duty.  Plaintiff made a request to recover for the “harm suffered for the delay in getting medical treatment, the loss of income and interest incurred on loans to pay for basic living expenses, the loss of retirement savings, loss of life insurance and payment of attorneys’ fees.”  Given the scope of Amara, such losses may be compensable under Section 1132(a)(3).  The court will allow the claim for breach of fiduciary duty to proceed, along with the claim for denial of benefits, but the court does not reach the particulars of what may and may not be compensated through equitable surcharge, as that inquiry is not properly before the court at this time.

Lambert v. ACE INA Holdings, Inc., et al., No. CV 15-3717, 2017 WL 508585 (E.D. Pa. Feb. 7, 2017) (Judge Gene E.K. Pratter).  The court denied LINA’s motion to stay an arbitration between Plaintiff and other defendants in this matter and for the court to decide the amount of long term disability benefits due to Plaintiff.  The arbitrator found that Plaintiff was entitled to long term disability benefits under the ACE LTD Plan.  LINA claimed to not be subject to the arbitrator’s jurisdiction but through a settlement with ACE, LINA ultimately accepted the obligation to pay the LTD benefits.  The court found that LINA could not prohibit the arbitrator from deciding the benefit amount when both ACE and Plaintiff agreed to arbitration.

Sixth Circuit

Tobin v. Hartford Life & Accident Ins. Co., No. 1:14-CV-187, 2017 WL 510438 (W.D. Mich. Feb. 8, 2017) (Judge Paul L. Maloney).  The court determined that Hartford’s denial of Plaintiff’s claim for disability benefits was arbitrary and capricious, where it found that the doctors who performed the file reviews misstated important evidence in the medical file and did not address the effects of fibromyalgia on Plaintiff’s functional abilities.  “Because the doctors failed to explain why the lack of evidence of neurological or rheumatological impairments were inconsistent with the conclusion that fibromyalgia rendered Tobin disabled, their opinions cannot be used by Hartford to made conclusions about the effect of fibromyalgia on Tobin’s functional abilities.”

Ninth Circuit

Randall v. Metro. Life Ins. Co., No. 15-CV-04343-JST, 2017 WL 476404 (N.D. Cal. Feb. 6, 2017) (Judge Jon S. Tigar).  On de novo review, the court determined that Plaintiff, a former facilities network engineer for Verizon, was not entitled to short-term disability or long term disability benefits.  “While it is clear that Randall was diagnosed with several conditions and was experiencing pain, she has not proven that she was disabled and unable to perform the essential functions of her job.”  The court also took into consideration her award of Social Security disability insurance benefits.


Second Circuit

McFarlane v. First Unum Life Ins. Co., No. 16CV07806RAKHP, __F.Supp.3d__, 2017 WL 480500 (S.D.N.Y. Feb. 6, 2017) (Judge Katharine H. Parker).  The fiduciary exception to attorney-client privilege applies to insurers in ERISA cases and the application of the exception turns on whether the legal advice concerns a fiduciary function. The court held that in camera review of communications between individual responsible for determining Plaintiff’s long term disability appeal and lawyer was warranted for a determination as to whether communications were discoverable within the meaning of attorney-client privilege’s fiduciary exception or were protected from disclosure by the work-product doctrine.

Ninth Circuit

Johnson v. Wyndham Vacation Ownership, Inc., No. C15-766RSL, 2017 WL 468580 (W.D. Wash. Feb. 3, 2017) (Judge Robert S. Lasnik).  In this lawsuit where the pro se plaintiff claimed that his employer had terminated his health benefits in retaliation for Plaintiff’s EEOC complaints about race discrimination at work, the court granted Defendant’s renewed motion to dismiss the case as a discovery sanction.

ERISA Preemption

Fourth Circuit

Kearney v. Blue Cross & Blue Shield of N. Carolina, No. 1:16-CV-191, 2017 WL 530521 (M.D.N.C. Feb. 9, 2017) (Judge Loretta C. Biggs).  In this lawsuit brought by a medical practice against an administrator of health plans, the court found that to the extent Plaintiff’s breach of contract claim involves health care plans governed by ERISA, the claim is completely preempted by Section 502(a) and arises under federal law.  The court has subject matter jurisdiction based on the presence of a federal question.

Eighth Circuit

Sake v. Prudential Ins. Co. of Am., No. 8:16CV423, 2017 WL 486927 (D. Neb. Feb. 6, 2017) (Judge Laurie Smith Camp).  In lawsuit for accidental death benefits, the court granted Prudential’s motion to dismiss Plaintiff’s claim for breach of good faith and fair dealing, and her request for “special” damages.  State-law claims for breach of contract and bad faith are preempted by ERISA.  Plaintiff cannot seek “special damages” beyond what is due under the policy.

Exhaustion of Administrative Remedies

Third Circuit

Stampone v. Walker, No. CV 15-6956 (JLL), 2017 WL 517791 (D.N.J. Feb. 8, 2017) (Judge Jose L. Linares).  The second amended complaint contains no additional allegations regarding futility and Plaintiff does not assert that he has attempted to even start the process nor has he pled that Defendants’ have a fixed policy denying benefits.  A bare assertion of futility is insufficient.  The court found that all claims relating to Plaintiff’s pension must be dismissed for failure to exhaust the appropriate administrative remedies under ERISA.

Medical Benefit Claims

Second Circuit

Kelly v. Honeywell Int’l, Inc., No. 3:16-CV-00543 (VLB), 2017 WL 522163 (D. Conn. Feb. 8, 2017) (Judge Vanessa L. Bryant).  At issue is whether provisions of a CBA and incorporated documents create a vested right for retirees to obtain lifetime medical coverage benefits.  The court found that the language, “for the life of the retiree or surviving spouse” unambiguously indicates a contractually vested right to lifetime full medical coverage benefits.  But, for employees who retired after the agreements expired are not unambiguously entitled to contractually vested lifetime full medical coverage benefits.

Pension Benefit Claims

First Circuit

Earl T. Sydney & Sydney Sheet Metal, Inc. v. Sheet Metal Workers’ Pension Fund, No. CV 15-10786-LTS, 2017 WL 507210 (D. Mass. Feb. 7, 2017) (Judge Leo T. Sorokin).  For years, the Fund sent Plaintiff statements showing that he was accruing pension credits based on contributions his company made to the Fund.  But, under the plan’s provisions, the statements were wrong, and Plaintiff was not accruing those credits. The Fund informed him of the error after he suffered a stroke and requested his pension.  The court found that Plaintiff is not entitled to the credits that he was told he was accruing or, in the alternative, for the company to get a refund of its contributions to the Fund.  The court was sympathetic to Plaintiff but found no remedy under ERISA.

Ninth Circuit

Norris v. Mazzola, No. 15-CV-04962-JSC, 2017 WL 505970 (N.D. Cal. Feb. 7, 2017) (Magistrate Judge Jacqueline Scott Corley).  On behalf of a putative class, Plaintiff seeks to recover reciprocity contributions and the earnings thereon which were allegedly improperly withheld by Defendants.  The court determined that as a matter of law that any failure to exhaust is excused based on Defendants’ refusal to consider Plaintiff’s appeal and because pursuing internal plan remedies would be futile.  Plaintiff has Article III standing and is a plan participant with a colorable claim to benefits.  The court found that Defendants abused their discretion by withholding contributions which the Plan required to be transferred to Plaintiff’s Home Fund and that they violated their fiduciary duties in doing the same.

Plan Status

Sixth Circuit

Taylor v. Univ. of the Cumberlands, No. 6:16-CV-109-GFVT, 2017 WL 512643 (E.D. Ky. Feb. 7, 2017) (Judge Gregory F. Van Tatenhove).  The court found that an agreement between the University and its former President, which provided a number of retirement benefits, was not an ERISA plan.  The court explained that when looking to the surrounding circumstances and text of the disputed agreement, it is clear that the procedures for receiving benefits provided by the agreement are not sufficiently ascertainable.

Provider Claims

Fifth Circuit

Cypress Med. Ctr. Operating Co. v. Cigna Healthcare, No. 4:09-CV-2556, 2017 WL 484108 (S.D. Tex. Feb. 6, 2017) (Judge Keith P. Ellison). The court denied the parties’ motions for reconsideration of its September 28, 2016 Memorandum and Order that Cigna had violated ERISA § 502(a)(1)(B), but that North Cypress could not recover for any claims for which North Cypress failed to exhaust administrative remedies.


Ninth Circuit

Burgess v. HP, Inc., No. 16-CV-04784-LHK, 2017 WL 467845 (N.D. Cal. Feb. 3, 2017) (Judge Lucy H. Koh).  In this putative class action involving allegations of mismanagement of 401(k) employee benefit plans, the court granted Fidelity’s motion to transfer venue to the District of Massachusetts.  The instant suit could have been brought in the District of Massachusetts.  Because Plaintiffs do not reside in the Northern District of California, most of the events giving rise to liability occurred outside of the Northern District of California, the instant case involves two putative nationwide classes, and Plaintiffs’ counsel has engaged in forum shopping, the court finds that Plaintiffs’ choice of forum is owed minimal deference.  The balance of convenience of the parties and witnesses and the interest of justice also support transfer.

* 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. 



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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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