ERISA Watch – Ninth Circuit Rules That MetLife Waived Evidence of Insurability Requirement in Life Insurance Dispute

Can an insurance company waive its requirement of evidence of insurability?  According to the Ninth Circuit Court of Appeals:  Yes.  In Salyers v. Metro. Life Ins. Co., No. 15-56371, __F.3d__, 2017 WL 4159189 (9th Cir. Sept. 20, 2017), the Ninth Circuit, applying agency law, determined that MetLife waived any requirement for evidence of insurability for dependent life insurance in the amount of $250,000 since its agent, the policyholder, represented to the employee that she had this amount of dependent coverage and paid the premiums for that coverage.

MetLife didn’t have actual notice of the representations the policyholder made to its employee about her coverage, so how did it get stuck with the $250k bill?  Well, this is what happened.  Susan Salyers, a nurse at Providence Health & Services, elected life insurance coverage in the amount of $20,000 for herself and her husband, Gary.  At this level of coverage no evidence of insurability was required.  Providence mistakenly entered $500,000 in its system (oops!) and started deducted premiums for this much larger amount.  Neither Providence nor MetLife asked Salyers to submit a statement of health or other evidence of insurability.  During the next open enrollment period, Salyers elected $250,000 in coverage for Gary to take effect on January 1, 2014.  Her premiums were adjusted accordingly and no one asked for evidence of insurability.  Providence also sent Salyers a letter confirming the coverage.  Ten days after the coverage took effect, Gary died.  Although MetLife was happy to accept Salyers’s premium payments, it balked at the idea of paying $250,000 for Gary’s death.  (Although one of its employees noted in the file that the benefit should be paid since it is what the employee thought she had.)  MetLife did pay a benefit, but only $30,000 (the initial $20k election plus a “one level” increase of $10k).  Salyers hired an attorney who unsuccessfully appealed the denial to MetLife.

Salyers filed suit against MetLife and the district court found in favor of MetLife.  Salyers took the dispute up to the Ninth Circuit Court of Appeals.  The three-judge panel of Pregerson, Paez, and Berzon reversed.  First, it explained that Congress authorized the development of federal common law under ERISA, and the federal common law of Agency furthers the policy goals of ERISA.  Second, the court determined that Providence acted as MetLife’s agent.  Providence had apparent authority, and perhaps even implied actual authority, to enforce the evidence of insurability requirement on MetLife’s behalf.  The court cautioned that its holding in this case is not that a policyholder employer is always an agent of the insurer in every aspect of plan administration in which it participates; it’s a case-by-case determination.  Lastly, because Providence was acting as MetLife’s agent for purposes of the evidence of insurability requirement, Providence’s knowledge and conduct with respect to this matter are attributed to MetLife.  MetLife and Providence’s failure to ask for a statement of health over a period of months and the representation to Salyers of the coverage were collectively so inconsistent with an intent to enforce the evidence of insurability requirement as to induce a reasonable belief that it had been relinquished.  The court remanded the case with instructions to enter judgment in favor of Salyers for the unpaid life insurance benefit.

There were lots of other notable decisions this past week.  Take a quick skim of the recaps below.

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

Attorneys’ Fees

Sixth Circuit

Van Loo v. Cajun Operating Co., No. 2:14-CV-10604, 2017 WL 4112339 (E.D. Mich. Sept. 18, 2017) (Judge Laurie J. Michelson).  Following the Sixth Circuit’s affirmation of the district court’s decision finding that Church breached a fiduciary duty to its employee by failing to inform her that an evidence of insurability form was required for the level of life insurance coverage she had selected, the court denied Plaintiff’s motion for attorneys’ fees related to the defense of the appeal.  The court found that two factors weigh heavily against granting fees:  the appeal had merit and the court does not wish to deter future meritorious appeals.

Breach of Fiduciary Duty

Third Circuit

Sweda et al. v. The University of Pennsylvania, No. CV 16-4329, 2017 WL 4179752 (E.D. Pa. Sept. 21, 2017) (Judge Gene E.K. Pratter).  In this case University of Pennsylvania Matching Plan participants allege that Defendants enabled TIAA-CREF and Vanguard to collect excessive fees, increased costs by including duplicative investments in the Plan, and retained underperforming funds in the Plan.  The court granted Defendants’ motion to dismiss the breach of fiduciary duty and prohibited transaction claims.

Nicolas v. The Trustees of Princeton University, No. CV 17-3695, 2017 WL 4155369 (D.N.J. Sept. 19, 2017) (Judge Anne E. Thompson).  In this putative class action against the Trustees of Princeton University for allegedly breaching their fiduciary duties with respect to the excessive administrative and recordkeeping fees they caused the Princeton University Retirement Plan and the Princeton University Savings Plan (“the Plans”) to pay, the court granted in part and denied in part Defendant’s unopposed motion to dismiss.  The court dismissed the counts alleging breaches of the duty of loyalty, but gave Plaintiff leave to amend the Complaint.  The court did not dismiss the claims related to breaches of the duty of prudence regarding administrative and investment management fees and the failure to monitor and remove imprudent investments.  The court also denied summary judgment on the issue of statute of limitations since there is a genuine dispute of material fact as to when Plaintiff developed actual knowledge of the alleged breach.

Fourth Circuit

Spires v. Schools, No. CV 2: 16-616-RMG, __F.Supp.3d__, 2017 WL 4174774 (D.S.C. Sept. 19, 2017) (Judge Richard Mark Gergel).  The Court granted in part and denied in part the Piggly Wiggly Defendants’ motion to dismiss.  The court dismissed the claims alleging that the Fiduciary Defendants should have found a new company (or other asset) for the ESOP and the claims regarding above-market leases and excessive executive compensation asserted in count four of the complaint.

Eighth Circuit

IN RE: WELLS FARGO ERISA 401(k) LITIGATION, No. 16-CV-3405 (PJS/BRT), 2017 WL 4220439 (D. Minn. Sept. 21, 2017) (Judge Patrick J. Schiltz).  Plaintiffs, current and former employees of Wells Fargo who held the company’s stock in their 401(k) accounts, sued Wells Fargo following the sharp drop in the price of Wells Fargo stock after Wells Fargo and the United States government announced in September 2016 that thousands of Wells Fargo employees had engaged in unethical sales practices, including opening deposit accounts and issuing credit cards without the knowledge or consent of customers.  Plaintiffs allege that the fiduciaries of Wells Fargo’s 401(k) plan were corporate insiders who knew about the improper sales practices and they violated their duty of prudence under ERISA by not disclosing the improper sales practices prior to September 2016.  Had they done so, Plaintiffs allege that the value of the Wells Fargo stock in the 401(k) accounts would not have dropped as much as it did.  The court explained that this is not that “rare case” meeting the “very tough standard.”  The court held that “Plaintiffs have not plausibly alleged that defendants could not have concluded that an earlier disclosure of the unethical sales practices would have done more harm than good. The Court therefore dismisses plaintiffs’ amended complaint.”

Disability Benefit Claims

Second Circuit

Hafford v. Aetna Life Insurance Company, No. 16-CV-4425 (VEC)(SN), 2017 WL 4083580 (S.D.N.Y. Sept. 13, 2017) (Judge Valerie Caproni).  The court disagreed with the Magistrate Judge’s R&R finding that de novo review applies and Plaintiff prevails.  The court found that Aetna’s letter to Plaintiff explaining the circumstances necessitating a 45-day extension of the appeal process was adequate under the applicable Department of Labor regulation, 29 C.F.R. §§ 2560.503-1(i)(1)(i), (i)(3)(i) (if the plan administrator determines special circumstances warrant an extension it must “indicate the special circumstances requiring an extension of time and the date by which the plan expects to render the determination” in writing).  Under the arbitrary and capricious standard, the court found that Aetna’s denial of long term disability benefits was supported by substantial evidence.

Sixth Circuit

Wagner v. American United Life Insurance Company, No. 2:16-CV-084, 2017 WL 4099216 (S.D. Ohio Sept. 15, 2017) (Judge Algenon L. Marbley).  De novo review applies since the plan grants discretion to American United Life, not to DRMS, the entity that held itself out to Plaintiff as the administrator for the plan.  The court found that Plaintiff failed to meet his burden to establish disability from his own sedentary occupation.  Here, Plaintiff was rendered paraplegic in a motorcycle accident as a teenager and went to school and worked for much of his adult life.  In his fifties, he was involved in another motorcycle accident and broke his right femur.  He stopped working and received long term disability benefits after that time but Defendant terminated his claim in reliance on surveillance video showing Plaintiff active and not in pain as well as medical reviewers’ opinions of non-disability.  Plaintiff claimed moderate narcotics-induced cognitive impairment that makes him groggy and tired, but the court found that the surveillance video showed a different reality.  The court also rejected Plaintiff’s argument that Defendant must prove that he can do the thinking required for his job.

Seventh Circuit

Hennen v. Metropolitan Life Insurance Company, No. 15 C 9452, 2017 WL 4164027 (N.D. Ill. Sept. 20, 2017) (Judge Thomas M. Durkin).  In a section titled “Limitation For Disabilities Due to Particular Conditions,” the Disability Plan explains that “Monthly Benefits are limited to 24 months during your lifetime if you are Disabled due to a…Neuromusculoskeletal and soft tissue disorder . . . unless the Disability has objective evidence of…radiculopathies.”  The court held that MetLife reasonably construed the Plan to require proof of active, current, or ongoing radiculopathy at the end of the 24-month period to support continuing benefits.  MetLife also reasonably determined that Plaintiff here did not have active radiculopathy.  The court granted summary judgment to MetLife but denied its motion for attorneys’ fees.

Eighth Circuit

Thiry v. United of Omaha Life Insurance Company, et al., No. CV 15-3544 (JRT/KMM), 2017 WL 4156998 (D. Minn. Sept. 19, 2017) (Judge John R. Tunheim).  The court overruled Plaintiff’s objections to the Magistrate Judge’s R&R granting judgment in favor of United of Omaha on Plaintiff’s long term disability claim.  The court explained that a plan administrator’s denial of long term disability benefits is based on substantial evidence where the claimant has diagnosed fibromyalgia, but fails to set forth objective medical evidence to support the limitations caused by the disease.

Ninth Circuit

Curran v. United of Omaha Life Insurance Company, No. 15-56599, __F.App’x__, 2017 WL 4217453 (9th Cir. Sept. 22, 2017) (Before: W. FLETCHER and IKUTA, Circuit Judges, and BARKER, District Judge).  The court held that the district court did not clearly err in determining that United had properly limited disability payments to 24 months under the Plan’s Self-Reported Symptoms (“SRS”) limitation.  Here, the record did not include objective evidence supporting Plaintiff’s claimed disability from her fibromyalgia diagnosis, Lyme disease or chronic fatigue syndrome.  The court declined to address whether United was required to plead the SRS limitation as an affirmative defense or whether it in fact did so since the parties briefed and argued the SRS limitation before the district court; it was tried by implied consent.

Sand-Smith v. Liberty Life Assurance Company Of Boston, No. CV 17-0004-BLG-SPW, 2017 WL 4169430 (D. Mont. Sept. 20, 2017) (Judge Susan P. Watters).  The court held that Montana’s mental health parity law (Montana Code Annotated § 33-22-706) requires the long term disability policy in this case to provide Plaintiff the same benefits for her mental illness (bipolar disorder) that it would have had her disability been physical.  Because it does not, the policy’s mental illness limitation is voided because it conflicts with Montana’s mental health parity law.

Tenth Circuit

Johnson v. Life Insurance Company of North America, No. 16-CV-0159-WJM-MEH, 2017 WL 4180328 (D. Colo. Sept. 21, 2017) (Judge William J. Martinez).  The court determined that LINA’s termination of Plaintiff’s long term disability benefits was arbitrary and capricious because when the “evidence is actually examined, the amount of reliable, probative evidence detracting from Johnson’s credibility is essentially zero.”  The court awarded past-due benefits and reinstatement of the claim.

Discovery

Tenth Circuit

Med Flight Air Ambulance, Inc. v. MGM Resorts Int’l, No. 1:17-CV-00246-WJ-KRS, 2017 WL 4142573 (D.N.M. Sept. 18, 2017) (Magistrate Judge Kevin R. Sweazea).  In this dispute concerning the payment of air ambulance services, the court granted in part Plaintiff Med Flight Air Ambulance, Inc.’s motion to compel responses to court authorized discovery on the issue of personal jurisdiction.

ERISA Preemption

Ninth Circuit

Healthcare Ally Mgmt. of California, LLC v. DIRECTV, LLC, No. CV1705981SJOMRWX, 2017 WL 4083142 (C.D. Cal. Sept. 14, 2017) (Judge S. James Otero).  The court granted Plaintiff’s motion to remand to state court in this matter where Plaintiff, as the assignee of La Peer Surgery Center, brought various state law claims against the Defendant insurance company for failing to make proper payment for the use of facilities at which surgical care and treatment were provided to insured patients.  The court found that Defendant’s obligation to pay stems from the alleged oral contract between Medical and Provider and Defendant, not from the ERISA plan, and the claims were not brought and could not be brought under ERISA.

Life Insurance & AD&D Benefit Claims

Sixth Circuit

Walton v. Unum Life Ins. Co. of Am., No. 16-12518, 2017 WL 4161109 (E.D. Mich. Sept. 20, 2017) (Judge Sean F. Cox).  The court granted Unum’s motion for judgment on Plaintiff’s claim for $25,000 in life insurance benefits for her deceased spouse.  The court held that the policy unambiguously supports Unum’s decision to deny benefits because the insured had a life-threatening condition on July 1, 2015 (the policy effective date), and that condition persisted until his death in August of 2015.

Ninth Circuit

Goetz v. Life Insurance Company of North America, No. 2:16-CV-0441-SMJ, 2017 WL 4185473 (E.D. Wash. Sept. 21, 2017) (Judge Salvador Mendoza, Jr.).  In this AD&D case, the court denied the parties’ motions for summary judgment but granted LINA’s motion for judgment on the administrative record.  Here, the death certificate notes causes of death as “drowning” caused by “presumed epileptic seizure.”  A covered accident under the policy is one that is not contributed to by disease, sickness, mental or bodily infirmity.  The court found that the loss was more likely than not the result of an epileptic seizure that caused the insured to fall into his mother’s pool and rendered him unable to remove himself from the water.

Salyers v. Metro. Life Ins. Co., No. 15-56371, __F.3d__, 2017 WL 4159189 (9th Cir. Sept. 20, 2017) (Before: Harry Pregerson, Richard A. Paez, and Marsha S. Berzon, Circuit Judges).  The Ninth Circuit reversed the district court’s judgment in favor of MetLife, finding that MetLife waived the evidence of insurability requirement because MetLife and Providence’s (the employer) failure to ask for a statement of health over a period of months, and Providence’s representation to Salyers that she had $250,000 in coverage were collectively “so inconsistent with an intent to enforce” the evidence of insurability requirement as to “induce a reasonable belief that [it] ha[d] been relinquished.”  Here, MetLife and Providence (the employer) created a system in which Providence was responsible for interacting with plan participants and MetLife remained largely ignorant of individual plan participants’ coverage elections.  Under agency law, Providence’s knowledge and conduct may be attributed to MetLife.

Eleventh Circuit

Morris v. Southern Intermodal Xpress, et al., No. CV 16-0632-CG-N, 2017 WL 4079265 (S.D. Ala. Sept. 14, 2017) (Judge Callie V.S. Granade).  Where Plaintiff had dependent life insurance coverage for his wife but she died two months after they divorced, the court found that Union Security’s denial of Plaintiff’s claim for payment of life insurance benefits was correct because the deceased former spouse was an ineligible beneficiary under the Plan at the time of her death.

Medical Benefit Claims

Seventh Circuit

Gruss v. Kraft Heinz Foods Company, Inc., No. 15-CV-788-WMC, 2017 WL 4119658 (W.D. Wis. Sept. 15, 2017) (Judge William M. Conley).  “[T]he court finds as a matter of binding caselaw interpreting ERISA that the plaintiffs have no vested right to health care benefits upon retirement. Reluctantly, therefore, the court must enter summary judgment in defendant’s favor.”

Pension Benefit Claims

Second Circuit

In re: AVAYA INC., et al. Debtors., No. 17-10089 (SMB), __B.R.__, 2017 WL 4119034 (Bankr. S.D.N.Y. Sept. 18, 2017) (Bankruptcy Judge Stuart M. Bernstein).  Clark is the surviving spouse of a former employee/retiree of the Debtors.  Her deceased spouse was receiving deferred compensation in the form of monthly pension benefits under a supplemental pension plan, and after his death, those benefits became payable to Clark.  Clark sought a determination that these payments are “retiree benefits” within the meaning of 11 U.S.C. § 1114.  The court denied the motion concluding that the benefits payable to Clark are not “retiree benefits” under this section.  Section 1114 does not protect pension benefits and the nature of those benefits was not transformed simply because upon death they became payable to a surviving spouse.

Pleading Issues & Procedure

Second Circuit

Massimino v. Fidelity Workplace Services, LLC, No. 16-4122, __F.App’x__, 2017 WL 4117338 (2d Cir. Sept. 18, 2017) (PRESENT: DENNIS JACOBS, JOSÉ A. CABRANES, RICHARD C. WESLEY, Circuit Judges).  The court held that the law-of-the-case doctrine did not bar the district court from reconsidering whether Massimino had statutory standing, where the district court initially denied Fidelity’s motion to dismiss without prejudice to renew its challenge to his standing.

Eleventh Circuit

Gould v. University of Miami, No. 16-25233-CIV, 2017 WL 4155479 (S.D. Fla. Sept. 19, 2017) (Magistrate Judge Andrea M. Simonton).  In this putative class action alleging that the University failed to provide ERISA plan benefits to Plaintiff and similarly situated faculty members, the court determined sua sponte to direct Plaintiff to file a more definite statement. “To that end, the Plaintiff shall file an Amended Complaint which identifies which ERISA and other benefit plans offered by the University Plaintiff Gould alleges that he was eligible to participate; describes other similarly-situated University employees and the ERISA and other benefit plans that those persons claim they are entitled to participate; and provides a clear recitation of the relief Plaintiff seeks including whether the Plaintiff and other potential class members seek to receive specific benefits under the plans at issue, seek to be enrolled in particular plans, and/or seek to restore losses to the relevant plans.”

Provider Claims

Third Circuit

Emami v. Quinteles IMS, No. CV 17-3069 (JLL), 2017 WL 4220329 (D.N.J. Sept. 21, 2017) (Judge Jose L. Linares).  The court granted the Plan’s motion to dismiss the complaint with prejudice based upon the existence of the Anti-Assignment Clause and the supplemental Waiver Clause.

Shah v. Blue Cross Blue Shield of Alabama, No. CV 17-700 (JBS/JS), 2017 WL 4182043 (D.N.J. Sept. 21, 2017) (Judge Jerome B. Simandle).  The court granted Defendant’s motion to dismiss the complaint, finding that the Anti–Assignment Clause is valid and enforceable, and BCBSAL did not waive its right to enforce the Anti–Assignment Clause.

Kayal Orthopaedic Center, P.C. v. Empire Blue Cross Blue Shield, No. CV1609059CCCSCM, 2017 WL 4179813 (D.N.J. Sept. 21, 2017) (Judge Claire C. Cecchi).  The court dismissed the Complaint without prejudice for failing to set forth sufficient facts showing the anti-assignment provision in Patient’s health benefits plan is unenforceable and, consequently, Plaintiff lacks standing to bring its ERISA claims against Defendant.

Masri v. Horizon Healthcare Servs., Inc., No. CV166961KMJBC, 2017 WL 4122434 (D.N.J. Sept. 18, 2017) (Judge Kevin McNulty).  The court found that the broad language in the assignment of benefits that Plaintiff obtained from its patients includes the right to pursue claims beyond the collection of insurance benefits, and thus, it has obtained derivative statutory standing to pursue the claims in the Amended Complaint.  The court denied Defendant’s motion to dismiss the ERISA claims for benefits (Count I) and breach of fiduciary duty (Count II), as well as the state-law claims of breach of contract, breach of the implied covenant of good faith and fair dealing, and quantum meruit (Counts VI, VII, and X).  The court did grant the motion to dismiss the claim of violations of claims processing regulations (Count III).

Remedies

Fifth Circuit

Whitley v. Dr. Pepper Snapple Group, Inc., et al., No. 4:17-CV-0047, 2017 WL 4155257 (E.D. Tex. Sept. 19, 2017) (Judge Amos Mazzant).  This matter involves a challenge to the denial of medical treatment for autism spectrum disorder under 29 U.S.C. § 1132(a)(1)(B) and 29 U.S.C. § 1132(a)(3).  The court declined to dismiss the latter claim since Plaintiff alleges Defendants breached their fiduciary duties in responding to Plaintiff’s inquiries regarding her sons’ ABA therapy and she seeks reformation, disgorgement, and surcharge under 29 U.S.C. § 1132(a)(3).  The court noted that this relief is unavailable for benefit claims under 29 U.S.C. § 1132(a)(1)(B) or any another provision of 29 U.S.C. § 1132.  The court found that Plaintiff pleaded enough facts that her fiduciary claims are not disguised benefit claims.

Manuel v. Turner Industries Group LLC and The Prudential Insurance Company of America, No. CV 14-599-SDD-RLB, 2017 WL 4150945 (M.D. La. Sept. 19, 2017) (Judge Shelly D. Dick).  The court denied Plaintiff’s motion for reconsideration of the court’s earlier determination that, under Bratton, the Plaintiff could not bring both Section 502(a)(3) and Section 502(a)(1)(B) claims against Prudential and dismissed all of Plaintiff’s Section 502(a)(3) claims against Prudential.

Statute of Limitations

Second Circuit

Arkun v. Unum Group, Unumprovident Corporation, & Provident Life And Accident Insurance Company, No. 15 CIV. 8425 (PAE), 2017 WL 4084050 (S.D.N.Y. Sept. 14, 2017) (Judge Paul A. Engelmayer).  Plaintiff’s lawsuit for long term disability benefits is time-barred.  Defendant terminated Plaintiff’s LTD claim on July 14, 2004.  Plaintiff timely appealed but her claim was closed pending additional medical documentation.  Plaintiff submitted the documentation more than four years later on October 6, 2008.  Defendant denied the appeal on March 20, 2009.  Plaintiff filed her lawsuit on October 22, 2015.  Based on the Plan’s contractual limitations period, Plaintiff had to bring suit within three years of the date proof of loss was due.  The court determined that the three years ran from October 6, 2008, the date she submitted proof of loss.

Fifth Circuit

Whitley v. Dr. Pepper Snapple Group, Inc., et al., No. 4:17-CV-0047, 2017 WL 4155257 (E.D. Tex. Sept. 19, 2017) (Judge Amos Mazzant).  The court found that the three-year limitations period in the 2016 Summary Plan Description governs L.K.W.’s first claim for benefits since it was incurred in January 2016.  Because the 2016 SPD applies, Plaintiff’s claim is not time-barred under the 2013 SPD containing a ninety-day limitations period.

Statutory Penalties

Third Circuit

Bergamatto v. Board of Trustees of the NYSA-ILA Pension Trust Fund & Charles Ward, Plan Adm’r, No. CV 16-5484 (KM), 2017 WL 4155225 (D.N.J. Sept. 18, 2017) (Judge Kevin McNulty).  At the motion to dismiss stage, the court declined to dismiss Plaintiff’s claim for statutory penalties under 29 U.S.C. § 1132(c)(1) since the dispute revolves around the issue of Ward’s alleged status as a de facto plan administrator, which requires consideration of facts outside the scope of the complaint.