ERISA Watch – New York Law Prohibits Insurance Company from Offsetting Personal Injury Settlement Against Long Term Disability Benefits

This week’s notable decision, Arnone v. Aetna Life Insurance Company, No. 15-2322, __F.3d__, 2017 WL 2675293 (2d Cir. June 22, 2017), is a great one regarding those pesky “offsets” common in long term disability policies.  Following an accident, Arnone became disabled and began collecting benefits under his employer’s long term disability plan, which was insured and administered by Aetna.  Arnone also sued the folks responsible for his injuries and settled his claim with them for payment of $850,000, from which Arnone netted $551,100 after payment of attorneys’ fees and repayment to the Workers’ Compensation carrier.  Aetna also wanted its share of the money pie.

Aetna claimed that it could pay Arnone $275,550 less in LTD benefits since 50% of the settlement counted as an “other income benefit” that reduces Aetna’s obligation to pay Arnone the maximum plan benefit.  Applying all of the alleged offsets, Aetna began paying Arnone the $114 monthly minimum benefit.  Arnone disagreed and appealed to Aetna, but Aetna declined to return the money.

Arnone filed suit for the unpaid benefits and Aetna counterclaimed for the alleged overpaid LTD benefits resulting from the settlement offset.  The district court dismissed Arnone’s complaint in its entirety and entered judgment for Aetna on its counterclaim.  Arnone appealed…and won.

On appeal, the parties’ arguments boils down to this:  Arnone argued that, because he is a New York resident who was employed in New York and injured in New York, N.Y. Gen. Oblig. Law § 5-335 applies to his settlement and prohibits Aetna from reducing his LTD benefit.  Section 5-335 provides in relevant part:

When a person settles a claim, whether in litigation or otherwise, against one or more other persons for personal injuries, … it shall be conclusively presumed that the settlement does not include any compensation for the cost of health care services, loss of earnings or other economic loss to the extent those losses or expenses have been or are obligated to be paid or reimbursed by an insurer. …

No person entering into such a settlement shall be subject to a subrogation claim or claim for reimbursement by an insurer and an insurer shall have no lien or right of subrogation or reimbursement against any such settling person or any other party to such a settlement, with respect to those losses or expenses that have been or are obligated to be paid or reimbursed by said insurer.

N.Y. Gen. Oblig. Law § 5-335(a).

Aetna argued that New York law has no bearing on the Plan which is governed by Connecticut law. And further, even if this law applies, ERISA preempts the statute’s application.  Lastly, Arnone forfeited his argument under section 5-335 because it did not raise this issue to Aetna during the claims administration process.

In response, the court found that:  (1) section 5-335 would prohibit Aetna’s offset action as a matter of law and, for that reason, would render its decision arbitrary and capricious; (2) section 5-335 is a law that regulates insurance and is saved from express preemption under ERISA; (3) the Plan’s choice of law provision sets forth only which jurisdiction’s law of contract interpretation and contract construction will be applied, it does not bind the court to apply the full breadth of Connecticut law; and (4) Arnone’s failure to raise section 5-335 does not implicate the concerns the court identified in Lauder v. First Unum Life Insurance Co., 284 F.3d 375, 381 (2d Cir. 2002), and thus, Arnon did not forfeit the ability to raise the NY law in litigation.  The court reversed the district court’s judgment in part and remanded for the entry of a revised judgment.

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., No. 3:15-CV-01006 (SRU), 2017 WL 2662191 (D. Conn. June 20, 2017) (Judge Stefan R. Underhill).  In a previous decision, the court ordered that Plaintiff’s long term disability claim be remanded to the claims administrator for a correct evaluation of the claim, in light of various inadequacies in the record.  Plaintiff moved for attorneys’ fees and costs under ERISA section 502(g)(1). The court ruled that Plaintiff is entitled to fees and costs, but the attorneys’ fee award should be reduced from the amount sought and the motion for costs was denied, in light of the equitable Chambless and Johnson factors.

Eighth Circuit

Nelson v. Frana Companies, Inc., No. 13-CV-2219 (PJS/SER), 2017 WL 2683957 (D. Minn. June 21, 2017) (Judge Patrick J. Schiltz).  Following a bench trial and judgment in favor of Plaintiffs on their claim for delinquent fringe-benefit contributions, Plaintiffs’ moved for attorneys’ fees under ERISA Section 502(g)(2).  The court denied the motion as untimely since Rule 54(d) requires that such a motion be filed “no later than 14 days after the entry of judgment” and Plaintiffs did not do so.  The court rejected Plaintiffs’ argument that they did not need to file a motion under Rule 54(d) because substantive law required their fees to be proved at trial as an element of damages.  The court found that Plaintiffs’ good-faith mistake of law does not constitute excusable neglect.

Ninth Circuit

H.N. by & through Doe v. Regence Blueshield, No. C15-1374 RAJ, 2017 WL 2603587 (W.D. Wash. June 15, 2017) (Judge Richard A Jones).  Following the court’s finding in favor of Plaintiff on a disputed medical coverage claim, the court awarded Plaintiff attorneys’ fees and costs.  Plaintiff argued, but the court rejected, that Plaintiff is entitled to pre-litigation fees and costs.  The court declined to overrule Cann v. Carpenter’s Pension Trust Fund, 989 F.2d 313 (9th Cir. 1993).  The court found that the proper prejudgment interest rate is 6.94%, which is the average annual return reported by Vanguard for the Windsor II Fund from December 2013 to December 2016.  The court also permitted Plaintiffs to recover the cost of mediation.

Lifecare Management Services, LLC v. Zenith American Solutions, Inc. et al., No. 315CV00307RCJVPC, 2017 WL 2587602 (D. Nev. June 14, 2017) (Judge Robert C. Jones).  In this matter where the court held that Lifecare could not pursue an ERISA claim as the Patient’s assignee because the Patient herself was not eligible for coverage under the unambiguous terms of the Plan, the court denied Zenith’s motion for attorneys’ fees.  Under the circumstances of the case, including that Zenith had confirmed and reconfirmed on several occasions that the Patient was covered, the court cannot conclude that Lifefare was culpable in bringing this action or that an award of fees would serve a deterrent purpose.

Breach of Fiduciary Duty

First Circuit

Ellis v. Fid. Mgmt. Trust Co., No. CV 15-14128-WGY, 2017 WL 2636042 (D. Mass. June 19, 2017) (Judge William G. Young). In this lawsuit brought by the Plaintiffs against Fidelity for breach of fiduciary duties pursuant to ERISA section 404(a) for allegedly mismanaging their Portfolio, the court granted Fidelity’s motion for summary judgment, holding that the Plaintiffs did not carry their burden to set forth evidence to establish a fiduciary breach of either the duty of loyalty or the duty of prudence. The court held that the Plaintiffs failed to explain how Fidelity’s obtaining replacement wrap coverage would put Fidelity’s interests ahead of the Plaintiffs and failed to show that the wrap guidelines Fidelity entered into were unreasonable. The court also granted summary judgment in favor Fidelity on the issue of whether the Portfolio’s benchmark and performance violated the duty of prudence, as the parties did not dispute the analytical process Fidelity utilized in continually assessing the Portfolio’s benchmark and the Plaintiffs failed to marshal sufficient evidence to suggest that Fidelity acted unreasonably.

Brotherston v. Putnam Investments, LLC, No. CV 15-13825-WGY, 2017 WL 2634361 (D. Mass. June 19, 2017) (Judge William G. Young).  Plaintiffs brought this class action suit against Defendants for claims of breach of the fiduciary duties of loyalty and prudence in violation of 29 U.S.C. § 1104(a)(1)(A)–(B), failure to monitor in violation of 29 U.S.C. § 1109(a), and other equitable relief based on ill-gotten proceeds under 29 U.S.C. § 1132(a)(3).  Defendant moved for judgment on partial findings pursuant to Rule 52(c) of the Federal Rules of Civil Procedure. The court entered judgment for the Defendants on all counts.  The court held that the Plaintiffs failed to point to specific circumstances in which the Defendants have actually put their own interests ahead of the interests of the Plan participants, thus not satisfying Plaintiffs’ burden for the duty of loyalty claims. The court did not make conclusive findings and rulings on whether the Defendants breached their duty of prudence as the Defendants have not yet presented the entirety of their case.  Given that Plaintiffs have failed to establish a prima facie case of loss, the court held that Plaintiffs’ first two claims failed as a matter of law.  In light of the Plaintiff’s failure to establish loss, the court further declined to grant other declaratory or injunctive relief under section 1132(a)(3).

Second Circuit

Patrico v. Voya Fin., Inc., No. 16 CIV. 7070 (LGS), 2017 WL 2684065 (S.D.N.Y. June 20, 2017) (Judge Lorna G. Schofield).  In this matter alleging breach of fiduciary duties and self-interested transactions for charging excessive fees for investment advisory services offered to 401(k) plan participants, the court granted Defendants’ motion to dismiss as to both the breach of fiduciary duty claim and the prohibited transaction claim.  Defendants are not ERISA fiduciaries with respect to the fees charged for the investment advice service so they cannot be held liable under ERISA for breach of fiduciary duty with respect to those fees and because the Complaint fails to allege that any ERISA fiduciary had actual or constructive knowledge that the fees paid to VRA are excessive, Plaintiff’s prohibited transaction claim is dismissed.

Seventh Circuit

Kauffman v. General Electric Company, No. 14-CV-1358, 2017 WL 2599884 (E.D. Wis. June 15, 2017) (Judge Lynn Adelman).  In this putative class action, Plaintiffs alleged that GE breached its fiduciary duties under ERISA with respect to Medicare supplement insurance plans by misrepresenting its intent to continue the plans indefinitely absent a compelling reason to substantially amend or terminate them.  The court held that Plaintiffs have not shown that they were cognizably harmed by GE’s fiduciary conduct with respect to the plans, so they lack standing to sue GE for breach of its fiduciary duties under ERISA. The court granted GE’s motion for summary judgment.

Class Actions

Ninth Circuit

Roches v. California Physicians’ Serv., No. 16-CV-02848-LHK, 2017 WL 2591874 (N.D. Cal. June 15, 2017) (Judge Lucy H. Koh).  The court granted the following class under FRCP 23(b)(1)(A) and 23(b)(2):

All participants or beneficiaries of a health benefit plan administered by either Blue Shield defendant and governed by ERISA whose request for coverage (whether pre-authorization, concurrent, post-service, or retrospective) was denied, in whole or in part, between January 1, 2012 and the present, based upon the Magellan Medical Necessity Criteria Guidelines for any of the following levels of care: (i) Residential Treatment, Psychiatric; (ii) Residential Treatment, Substance Use Disorders, Rehabilitation; (iii) Intensive Outpatient Treatment, Psychiatric; or (iv) Intensive Outpatient Treatment, Substance Use Disorders, Rehabilitation.

Excluded from the Class are Defendants, their parents, subsidiaries, and affiliates, their directors and officers and members of their immediate families; also excluded are any federal, state, or local governmental entities, any judicial officers presiding over this action and the members of their immediate families, and judicial staff.

The Court appointed Charles Des Roches, Sylvia Meyer, and Gayle Tamler Greco as representatives of the class, and Psych-Appeal, Inc., Zuckerman Spaeder LLP, and Grant & Eisenhofer P.A. as class counsel.

Disability Benefit Claims

Third Circuit

Hilbert v. Lincoln Nat’l Life Ins. Co., No. 1:15-CV-0471, 2017 WL 2633503 (M.D. Pa. June 19, 2017) (Judge Sylvia H. Rambo).  In this lawsuit regarding Lincoln’s denial of Plaintiff’s claim for long term disability benefits, the court granted Lincoln’s motion for summary judgment and denied Plaintiff’s because Lincoln’s denial was not arbitrary and capricious.  It held that the two vocational consultants properly gave consideration to the description of job duties Lincoln obtained from Delta Dental as well as the DOT job description and properly concluded that the physical demands of Plaintiff’s occupation were sedentary.  It held that the Plaintiff was not totally disabled from an independent physical condition other than depression, since the medical records indicated the Plaintiff’s physical examinations were normal, Plaintiff’s physicians did not support the claim, and the only disability support was from a physician’s assistant not qualified to opine on functionality, and that post-hoc disability certifications inconsistent with contemporaneous medical records did not carry weight.  Lincoln did not abuse its discretion in denying Plaintiff’s LTD claim even though it approved Plaintiff’s STD claim, since they were governed by separate insurance policies.  Nor did Lincoln abuse its discretion in reaching a different conclusion from the SSA, as the LTD Policy excluded coverage for a disability resulting from a pre-existing condition such as Plaintiff’s depression whereas the SSA did not, and given that Plaintiff provided incomplete file thus there was no basis to evaluate the SSA determination.  Thus, the court held that Lincoln’s denial was supported by substantial evidence in record and granted summary judgment in favor of the Defendant.

Fourth Circuit

Solomon v. Bert Bell/Pete Rozelle NFL Player Retirement Plan; NFL Player Supplemental Disability Plan, No. 16-1730, __F.3d__, 2017 WL 2695191 (4th Cir. June 23, 2017) (Before MOTZ, SHEDD, and DUNCAN, Circuit Judges).  The court affirmed the district court’s decision that Plaintiff is entitled to disability benefits because the Board failed to follow a reasoned process or explain the basis of its determination–neither addressing nor even acknowledging new and uncontradicted evidence supporting Plaintiff’s application, including that of the Plan’s own expert.  Because the court agreed that the Board abused its discretion by classifying Plaintiff as “Inactive,” it did not reach the question of whether the SSA determination binds the Board.  The court agreed with Plaintiff “that (1) the Board’s 2009 denial found only that Solomon was not TPD [totally and permanently disabled] as a result of orthopedic impairments, and thus, the Board was not entitled to rely on the 2009 denial in reviewing his 2010 Application seeking benefits for his brain injuries; and (2) Solomon was not required to produce contemporaneous medical evidence that he became TPD as a result of brain injury between November 19, 2009, and March 31, 2010.”

Sixth Circuit

Holmes v. Aetna Life Ins. Co., No. 16-CV-11538, 2017 WL 2645784 (E.D. Mich. June 20, 2017) (Judge George Caram Steeh).  The court held that Aetna’s denial of Plaintiff’s claim for disability benefits should be affirmed, since Plaintiff’s claim was time-barred and Aetna’s decision was not arbitrary and capricious where Plaintiff failed to submit objective clinical medical information in support of his claim.  The court found that the Aetna’s decision that Plaintiff was not disabled was supported by the independent doctors’ opinions which were rational under the circumstances.  The court also held that defendant cannot be held liable for failing to produce Plan documents.  The court also denied Aetna’s request that the court strike Plaintiff’s exhibits as moot as any consideration of those exhibits does not alter the court’s decision.

Seventh Circuit

Mesker v. Reliance Standard Life Ins. Co., No. 117CV00085LJMTAB, 2017 WL 2687421 (S.D. Ind. June 22, 2017) (Judge Larry J. McKinney).  Reliance’s determination upholding the denial of long term disability benefits, which it made only 15 days after the expiration of the original maximum 90-day period allowed for its decision, constitutes substantial compliance with the procedural requirements of 29 C.F.R. § 2560.503-1, and Reliance is entitled to an arbitrary and capricious standard of review.  The court analyzed and declined to follow the Second Circuit decision in Halo v. Yale Health Plan, Dir. of Benefits & Records Yale Univ., 819 F.3d 42, 56-57 (2nd Cir. 2016).

ERISA Preemption

Second Circuit

Arnone v. Aetna Life Insurance Company, No. 15-2322, __F.3d__, 2017 WL 2675293 (2d Cir. June 22, 2017) (Before: POOLER, LYNCH, and CARNEY, Circuit Judges).  New York General Obligations Law § 5-335, which provides, “When a person settles a claim … for personal injuries … it shall be conclusively presumed that the settlement does not include any compensation for … cost[s] … obligated to be paid or reimbursed by an insurer.” N.Y. Gen. Oblig. Law § 5-335(a), is not preempted by ERISA and prohibits Aetna from offsetting Plaintiff’s personal injury settlement against Plaintiff’s long term disability benefits.  The Plan’s choice of law provision, which identifies Connecticut law as controlling the Plan’s construction, does not block application of section 5-335.  The district court’s judgment is reversed in part as to this issue.

Exhaustion of Administrative Remedies

Fifth Circuit

Walker v. Regence Blue Cross Blue Shield of Oregon, et al., No. CV G-15-064, 2017 WL 2619341 (S.D. Tex. June 16, 2017) (Magistrate Judge John R. Froeschner).  Although Plaintiff did not utilize the Plan’s available levels of administrative appeals before suing Regence, the court found that there is no evidence in the record that Regence ever communicated to Plaintiff the specific reasoning behind its determination of the disputed claim for air ambulance benefits. The court found that Plaintiff “makes a persuasive argument that Regence’s procedural defense” should fail but even assuming Plaintiff were deemed to have exhausted the available administrative remedies, the administrative record supports the conclusion that the plan administrator correctly interpreted the Plan in refusing to cover a higher amount of the air ambulance costs.

Life Insurance & AD&D Benefit Claims

Fifth Circuit

Hendrix v. Prudential Insurance Company of America, No. 16-20750, __F.App’x__, 2017 WL 2703672 (5th Cir. June 21, 2017) (Before REAVLEY, HAYNES, and COSTA, Circuit Judges).  The court affirmed the district court’s dismissal of Plaintiff’s claim for life insurance benefits where Prudential received no response to its notice of conversion and because the insured passed away outside of a thirty-one-day conversion period and had failed to convert his insurance to individual coverage.  The evidence showed that Prudential provided the insured with written notice of his right to convert twelve days after he ceased to be insured.

Seventh Circuit

Black v. Lincoln Nat’l Life Ins., No. 16 C 5614, 2017 WL 2683685 (N.D. Ill. June 21, 2017) (Judge Thomas M. Durkin).  The court granted Lincoln National’s motion to dismiss Plaintiff’s claim for life insurance benefits that he brought on the theory that the beneficiary, his stepmother, fraudulently obtained the proceeds by forging his father’s signature.  The court found that Lincoln National paid out the proceeds pursuant to the policy documents and that there was no allegation that Lincoln National had any notice of suspicious circumstances regarding the allegedly forged signature on the enrollment form, and there is nothing suspicious on its face.

Medical Benefit Claims

Fifth Circuit

Walker v. Regence Blue Cross Blue Shield of Oregon, et al., No. CV G-15-064, 2017 WL 2619341 (S.D. Tex. June 16, 2017) (Magistrate Judge John R. Froeschner).  In this dispute over the coverage of air ambulance charges, the Court found that Regence’s determination to treat the air ambulance provider as a non-participating provider and to decline to apply the Plan’s “Exception” provision is a correct interpretation of the Plan.  The court dismissed Plaintiff’s first amended complaint.

Tenth Circuit

Renaissance Ranch Outpatient Treatment, Inc., v. Golden Rule Insurance Company, No. 2:16-CV-00872-DN, 2017 WL 2684006 (D. Utah June 21, 2017) (Judge David Nuffer).  In this lawsuit brought by a medical provider as an assignee of many of its patients who were treated for drug and alcohol addictions, the court found that the provider’s state-law causes of action, for patients having plans that are governed by ERISA, are preempted by ERISA, the court has no jurisdiction of state-law causes of action for patients having plans not governed by ERISA, Claims 8-9 fail to state a claim for the provider’s patients having plans not subject to ERISA, the breach of fiduciary duty claim under ERISA fails as a matter of law, the provider sufficiently alleges its standing to sue under ERISA for its patients having plans governed by ERISA and who it provided a written assignment of benefits.

Severance Benefit Claims

Third Circuit

Felker v. USW LOCAL 10-901, No. 16-3064, __F.App’x__, 2017 WL 2684010 (3d Cir. June 21, 2017) (Before: CHAGARES, VANASKIE, and FUENTES, Circuit Judges).  The court affirmed the district court’s grant of summary judgment in favor of the Plan, finding that it was not an abuse of discretion for the Plan to determine that the MWF Employees were not terminated in connection with the idling of Sunoco’s Marcus Hook Refinery.  “Here, the MWF Employees had a smooth transition to [Philadelphia Energy Solutions, LLC] employment, and they did not experience any period of unemployment. They thus suffered no financial hardship in connection with the idling of the Marcus Hook Refinery and were awarded the same or better compensation as a result of the transfer to PES employment. Under these circumstances, payment of severance benefits to the MWF Employees would, in fact, be inconsistent with the Plan’s goal because it would provide a windfall to employees who had never changed their jobs, were never out of work, and were provided benefits and salary by PES.”

Subrogation/Reimbursement Claims

Sixth Circuit

Key v. UniCare, No. 3:15-CV-00851-TBR, 2017 WL 2609043 (W.D. Ky. June 15, 2017) (Judge Thomas B. Russell).  Plaintiff received a SSDI award and was required to repay temporary disability retirement benefits that were extended to her while her appeal was SSDI appeal was pending.  After she received a retroactive payment from the SSA, Plaintiff filed a hardship appeal with Defendant to avoid repayment but it denied the appeal.  The Plan started offsetting part of Plaintiff’s benefit in order to recoup the overpayment.  The court granted Plaintiff’s motion for summary judgment.