ERISA Watch – Self-funded Medical Plan Can Enforce Subrogation Interest in Wrongful-Death Settlement

This week’s notable decision, Mackey v. Johnson, No. 16-1886, __F.3d__, 2017 WL 3595504 (8th Cir. Aug. 22, 2017), is a coup for self-funded medical plans and terrible precedent for the wrongful-death trustees those plans’ participants.  In this case, the deceased, Timothy Scherf, was a participant in the Minnesota Laborers Health and Welfare Fund.  The Fund paid for his medical treatment for lung cancer at the Duluth Clinic.  Following his death, his sister, Terri Johnson, brought a wrongful-death action against the Duluth Clinic for allegedly negligent treatment. Johnson settled her claim with the Clinic.  As part of the settlement agreement, Johnson denied that the Fund is entitled to any portion of the settlement proceeds.  The settlement agreement also provided that Johnson acknowledges that the Fund has asserted a lien and/or subrogation claim for certain medical expenses and she represents that she will satisfy the Fund’s subrogation rights, if any.  However, Johnson did not reimburse the Fund so it sued Johnson, her legal counsel, and the Clinic under ERISA § 1132(a)(3) seeking a right to a portion of the settlement attributable to medical expenses. The district court granted summary judgment for the Fund in the amount of $236,700.16 and Johnson and her attorney filed an appeal to the Eighth Circuit.

On appeal, Johnson and her counsel argued that under Minn. Stat. §§ 573.01 and 573.02, a wrongful-death trustee cannot recover medical expenses in a wrongful-death action.  The Eighth Circuit explained that this “is beside the point.”  First, a settlement agreement is a contract and the parties can contract to settle any claim, even if the claim has little support in the law.  Second, the Minnesota statute suggests that a wrongful-death trustee could bring an action that includes a claim for the decedent’s medical expenses.  Although the settlement agreement was ambiguous about whether the settlement included a claim for Scherf’s medical expenses, other evidence supported the conclusion that the agreement included Scherf’s medical expenses.  This other evidence included that Johnson sought damages permitted by Minn. Stat. § 573.02, her pre-settlement letter to the mediator asserted a large amount of damages for medical expenses, Johnson and her attorney represented to the district court that they settled the claim for medical expenses, and they also acknowledged that the settlement agreement included the claim for medical expenses though they claimed that it was settled for no money.

The appellants also argued that the Fund’s recovery should be limited to the expenses that were caused by the Clinic’s negligence but the court disagreed.  It explained that under the terms of the Plan, the Fund had a subrogation interest in “any … recovery” from the Clinic for Scherf’s medical expenses.  Thus, the Fund could recover whatever Johnson recovered for the medical expenses in her settlement, whether or not Johnson ultimately could have recovered those expenses at trial.

This decision is certainly going to cause a headache to personal injury attorneys.  On that note, enjoy the recap below of this past week’s notable ERISA decisions.

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

Attorneys’ Fees

Sixth Circuit

Myers v. Mutual Of Omaha Life Insurance Company, No. 4:14CV2421, 2017 WL 3621307 (N.D. Ohio Aug. 23, 2017) (Judge Benita Y. Pearson).  In this matter seeking long term disability benefits, the court previously remanded Plaintiff’s LTD claim to Mutual of Omaha for a full and fair review.  The court granted in part Plaintiff’s motion for attorneys’ fees and awarded a total of $21,217 at the hourly rates of $400 and $300.

Seventh Circuit

Mowery v. Metropolitan Life Insurance Company & Dignity Health’s Health And Welfare Plan, No. 16-CV-516-JDP, 2017 WL 3575857 (W.D. Wis. Aug. 18, 2017) (Judge James D. Peterson).  Following the court’s determination that MetLife acted arbitrarily and capriciously in denying Mowery long term disability benefits and remanding the case to Defendants for further administrative proceedings, the court awarded Plaintiff attorneys’ fees of $63,114.50 (based on hourly rates of $280 and $450) and costs of $480.41.  The court agreed that Plaintiff’s request for prejudgment and postjudgment interest is premature as she has not yet been awarded any money.

St. Alexius Medical Center v. Roofers’ Unions Welfare Trust Fund, No. 14 C 8890, 2017 WL 3584212 (N.D. Ill. Aug. 18, 2017) (Judge Ruben Castillo).  Although St. Alexius successfully defeated the Fund’s motion to dismiss and ultimately prevailed on certain issues, specifically, what constituted the governing plan and the related issue of timeliness of the complaint, these were purely procedural victories that do not warrant an award of attorneys’ fees.  Although the Fund did achieve some degree of success on the merits when the court granted its summary judgment motion, the court found that fees were not justified after considering the five-factor test.

Breach of Fiduciary Duty

Seventh Circuit

Dolins v. Continental Casualty Company, et al., No. 16 C 8898, 2017 WL 3581143 (N.D. Ill. Aug. 18, 2017) (Judge Gary Feinerman).  Plaintiff brought this putative class action alleging ERISA violations in connection with the cancellation of a group annuity contract.  Defendants moved to dismiss the Section 502(a)(2) and 502(a)(3) claims against them.  The court found that Plaintiff alleged that a Plan asset was transferred to a party in interest and properly pleaded the occurrence of a prohibited transaction under § 406(a)(1)(D).  Because there is no requirement in § 406(b)(2) that the defendant itself benefit from the transaction and the complaint alleges that “a party” other than the beneficiaries have benefitted, Plaintiff adequately alleged a violation by Northern Trust of § 406(b)(2).  The court denied the motions to dismiss, except for Continental Assurance Company’s motion to dismiss the complaint’s request for damages relief against it under § 502(a)(2).

Disability Benefit Claims

Sixth Circuit

Irwin v. Mutual of Omaha Insurance Company, No. 1:16-CV-982, 2017 WL 3599575 (W.D. Mich. Aug. 22, 2017) (Judge Paul L. Maloney).  The court granted summary judgment in favor of Mutual of Omaha.  The court found that Plaintiff has not exhausted the administrative review process for her long term disability claim, and she did exhaust the administrative review process for her short-term disability claim but she did not include her short-term disability claim in her federal complaint.  Even so, Plaintiff has failed to satisfy her burden by a preponderance of the evidence that she was entitled to short-term or long term disability benefits.

Toro v. Hartford Life and Accident Insurance Company, No. 16-12951, 2017 WL 3593328 (E.D. Mich. Aug. 21, 2017) (Judge Arthur J. Tarnow).  Plaintiff is a 45-year old who suffers from degenerative cervical disc disease, lumbar spondyloses, and rheumatoid arthritis.  On de novo review of Hartford’s decision to terminate Plaintiff’s long term disability benefits, the court found in favor of Hartford.  The court noted that Plaintiff did not explain how she is unqualified for the positions identified by the OASYS search Hartford conducted or how she is functionally limited from performing those jobs.  The court found that Hartford properly evaluated Plaintiff’s claim and its decision is supported by substantial evidence in the record.

Eighth Circuit

Price v. Tyson Long Term Disability Plan; & Unum Life Insurance Company of America, No. 5:16-CV-05075, 2017 WL 3567531 (W.D. Ark. Aug. 17, 2017) (Judge P.K. Holmes, III).  Unum did not abuse its discretion in denying Plaintiff’s long term disability claim after paying benefits for 12 months because it reasonably determined he could perform any occupation.  Unum relied on two reviewing physician opinions and its own vocational rehabilitation consultant.  Plaintiff contested the basis of the vocational assessment but the court determined that he was not precluded from occupations that require frequent or constant reaching simply because he had a restriction on overhead activity; he did not have any restrictions on reaching.  Also, the court did not consider Plaintiff’s SSDI award since it was obtained after Plaintiff’s claim was denied.

Ninth Circuit

Haddad v. SMG Long Term Disability Plan & Hartford Life and Accident Insurance Company, No. 16-CV-01700-WHO, 2017 WL 3620143 (E.D. Cal. Aug. 23, 2017) (Judge William H. Orrick).  The court granted judgment in favor of Hartford on the issue of whether disabling symptoms caused by a surgery to treat a pre-existing condition falls under a limitation of benefits for disabling symptoms “that result[ ] from, or [are] caused or contributed to by, a Pre-existing Condition.”  The court concluded that under the plain language of the Plan, the pre-existing condition exclusion applies because his new left side disabling neck symptoms were “caused or contributed to” by the surgical treatment for the pre-existing degenerative disk disease.

ERISA Preemption

Second Circuit

Estate of Allan Pilson & John Pilson v. Pilson, No. 17-CV-5311 (PKC), 2017 WL 3588784 (S.D.N.Y. Aug. 18, 2017) (Judge P. Kevin Castel).  In this matter where Plaintiffs contend that Defendant breached agreements in which she promised to waive her beneficiary rights to a 401(k) account, the court granted Plaintiffs’ motion to remand since their causes of action are directed toward Defendants’ obligations under a prenuptial agreement and the so-called “quid pro quo” arrangement.  The court found that these collateral agreements do not implicate the terms or administration of the 401(k) plan or any other federal interest under ERISA.  The court denied Plaintiffs’ motion for attorneys’ fees.

Fifth Circuit

Weiner v. Blue Cross and Blue Shield of Louisiana, No. 3:17-CV-949-BN, 2017 WL 3582158 (N.D. Tex. Aug. 18, 2017) (Magistrate Judge David L. Horan).  Health care provider sought to recover for “theft of money involving recoupment for medical services” based on his position as an assignee of his patient’s benefits under an employer-sponsored benefit plan administered by BCBSLa.  The court determined that because his claim to recover payments allegedly owed to him under the Plan is dependent on his status as an assignee of a Plan enrollee’s benefits and relates to an ERISA plan, it is preempted.

Medical Benefit Claims

Second Circuit

Tedesco v. I.B.E.W. Local 1249 Insurance Fund, et al., No. 14-CV-3367 (KBF), 2017 WL 3608246 (S.D.N.Y. Aug. 21, 2017) (Judge Katherine B. Forrest).  Following the Second Circuit’s Mandate, the court determined that under Halo v. Yale Health Plan, Dir. of Benefits & Records Yale Univ., 819 F.3d 42 (2d Cir. 2016), the Fund’s adverse-benefit decision at issue here is entitled to de novo review.  The court found in favor of Defendants on treatment provided by one doctor but it determined that with regard to treatment by a social worker, there are genuine disputes of material facts regarding whether plaintiff was improperly denied coverage under the Plan.  Because there are competing expert opinions, the matter will proceed to trial so the court can assess the credibility of the relevant medical experts.

Sixth Circuit

Brunelle v. Mid-Am. Assocs., Inc., & Liberty Union Life Assurance Co., No. 16-CV-13446, 2017 WL 3588055 (E.D. Mich. Aug. 21, 2017) (Judge Judith E. Levy).  The court found that Defendants failed to adequately consider and explain the conflicting evidence in the record, and as such, the adverse determinations are not the result of a deliberate principled reasoning process, and Defendants acted arbitrarily and capriciously in denying Plaintiff’s claim for air ambulance services.  Given the amount of evidence potentially favorable to Plaintiff, Defendants’ decision is not supported by substantial evidence.  Case remanded to administrator for further consideration.

Ninth Circuit

B.R & W.R. v. Beacon Health Options, et al., No. 16-CV-04576-MEJ, 2017 WL 3602541 (N.D. Cal. Aug. 21, 2017) (Magistrate Judge Maria-Elena James).  The court previously granted Plaintiffs leave to amend the ERISA claim if they could allege W.R.’s admissions to the two non-network treatment facilities were for emergency treatment under the terms of the SAG Plan.  The court granted Defendants’ motion to dismiss Plaintiff’s second amended complaint because the Plan’s definition of “emergency treatment” is unambiguous, Plaintiff’s admissions did not meet the definition, and Plaintiffs have failed to state a claim under ERISA.

Tenth Circuit

Lynn R. v. Valueoptions, et al., No. 215CV00362RJSPMW, 2017 WL 3610477 (D. Utah Aug. 22, 2017) (Judge Robert J. Shelby).  The court granted Plaintiff’s motion for summary judgment, finding that Defendants ValueOptions (VO), AT&T, and SBC Umbrella Benefit Plan No. 1 wrongfully denied her benefits claim for her daughter’s stay at Equine Journeys, a residential mental health treatment center.  VO cannot assert precertification as a basis for denial during litigation since it did not assert this reason as a denial pre-litigation.  VO acted arbitrarily and capriciously in denying the claim on the basis that Equine Journeys was not nationally accredited through The Commission on Accreditation of Rehabilitation Facilities (CARF) or The Joint Commission on Accreditation of Healthcare Organizations (JCAHO).  Remand would be inappropriate; judgment awarded to Lynn R.

Pension Benefit Claims

D.C. Circuit

White v. Hilton Hotels Ret. Plan, No. CV 16-856 (CKK), 2017 WL 3588929 (D.D.C. Aug. 18, 2017) (Judge Colleen Kollar-Kotelly).  In this putative class action alleging violations of ERISA with respect to vesting determinations made by the Defendant Plan, the court granted-in-part and denied-in-part Defendants’ motion to dismiss.  Plaintiff White contends that it was improper for the Plan to use the “elapsed time method” for pre–1976 service, and consequently, that the denial of her benefits was in error.  Plaintiff White alleges that Defendants made inconsistent determinations regarding vesting credit for non-participating properties.  The court permitted these claims, and those of the putative subclasses associated with those claims, to proceed under both ERISA Section 502(a)(1)(B) and 502(a)(3).  The other claims were dismissed.

Pleading Issues & Procedure

Eighth Circuit

Larson v. Securiguard, Inc. Health and Welfare Benefit Plan; FCE Benefit Administrators Inc., No. 8:17CV52, 2017 WL 3601228 (D. Neb. Aug. 18, 2017) (Judge Laurie Smith Camp).  In this case where Plaintiff alleged denial of ERISA benefits due to misclassification of employee status, the court set aside the default judgment against the Plan.  The court found that the length of delay was moderate and that the Plan bore some, but not all, culpability for it; that Plaintiff would not suffer prejudice from setting aside the default; and that the Plan has raised meritorious defenses to all of Plaintiff’s claims.  The court found these factors demonstrate good cause for setting aside the clerk’s entry of default and rescinding the default judgment.

Provider Claims

Third Circuit

University Spine Center v. Horizon Blue Cross Blue Shield Of New Jersey, et al., No. CV 16-9253, 2017 WL 3610486 (D.N.J. Aug. 22, 2017).  On Defendants’ motion to dismiss, the court cannot conclude that the anti-assignment clause is unambiguous as a matter of law and did not dismiss due to a lack of standing at this juncture.  The court could also not determine whether Anthem actually violated 29 C.F.R. § 2560.503-1(g)(1)(iv) and did not dismiss USC’s claims due to a failure to exhaust administrative remedies at this time.   Also at this early stage, the court cannot state with certainty the precise nature of USC’s injuries or the appropriateness of any particular remedy to warrant dismissal of its claim under Section 502(a)(3) for being coterminous with its claim under Section 502(a)(1)(B).  Count Four is dismissed because 29 C.F.R. 2560.503-1 does not contain a private right of action and the request for a jury trial is stricken.

Severance Benefit Claims

Eleventh Circuit

Stephens v. Time Customer Service, Inc., Severance Plan & Henry Lescaille, No. 8:17-CV-1338-T-33AEP, 2017 WL 3608275 (M.D. Fla. Aug. 22, 2017).  In this lawsuit seeking severance benefits, the court made the following determinations in denying Defendants’ motion to dismiss:  (1) it’s not clear that Plaintiff released any claim under ERISA for additional severance benefits; (2) Plaintiff has standing as a participant under ERISA; (3) Plaintiff may be eligible for equitable relief under ERISA § 502(a)(3) for Defendant’s failure to provide her with certain information and documents because ERISA § 502(c)(1) does not cover requests for information outside of ERISA § 104(b)(4); and (4) it’s not clear that Plaintiff failed to exhaust her administrative remedies under the Plan with respect to such claims as required.

State Bans on Discretion

Sixth Circuit

Brunelle v. Mid-Am. Assocs., Inc., & Liberty Union Life Assurance Co., No. 16-CV-13446, 2017 WL 3588055 (E.D. Mich. Aug. 21, 2017) (Judge Judith E. Levy).  MICH. ADMIN. CODE R. 500.2201-2202 – which defines and prohibits a discretionary clause as “a provision in a form that,” among other things, “[p]rovides that the insurer’s decision to deny policy coverage is binding upon a policyholder” or “[p]rovides that or gives rise to a standard of review on appeal other than a de novo review” – does not apply to ERISA plan documents and summary plan descriptions.  The court held that the Michigan regulation does not apply to this case because the discretionary clause at issue is contained in the ERISA plan, not a policy document.

Statutory Penalties

Second Circuit

Brown v. Rawlings Fin. Servs., LLC, No. 16-3748, __F.3d__, 2017 WL 3596997 (2d Cir. Aug. 22, 2017) (Before: JACOBS, LEVAL, and RAGGI, Circuit Judges).  The court affirmed the district court’s dismissal of Plaintiff’s suit seeking Section 502(c)(1) penalties concluding that it was time-barred under Connecticut’s one-year statute of limitations for actions to recover civil forfeitures.  The court rejected Plaintiff’s argument that the proper statute of limitations is either Connecticut’s six-year statute of limitations for breach of contract, or the three-year statute of limitations for violations of the Connecticut Unfair Trade Practices Act and the Connecticut Unfair Insurance Practices Act.  The court held that the most analogous state statute of limitations in Connecticut is the one-year statute of limitations for actions to recover civil forfeitures.

Sixth Circuit

Butler v. FCA US, LLC, No. 16-2726, __F.App’x__, 2017 WL 3601275 (6th Cir. Aug. 22, 2017) (Before: GUY, ROGERS, and KETHLEDGE, Circuit Judges).  Plaintiff argued that Chrysler violated § 1024(b)(4) because they took three months to produce the MetLife Certificate.  The court expressed doubt that his letters to MetLife and Benefits Express triggered Chrysler’s duty to produce, which arises only when a plan participant writes to the employer itself.  Moreover, the district court properly considered whether the delay prejudiced Butler and it properly found that there was no evidence of prejudice.

Subrogation/Reimbursement Claims

Eighth Circuit

Mackey v. Johnson, No. 16-1886, __F.3d__, 2017 WL 3595504 (8th Cir. Aug. 22, 2017) (Before LOKEN, COLLOTON, and KELLY, Circuit Judges).  The court affirmed the judgment for the Fund in the amount of $236,700.16 which covers the portion of a settlement in a wrongful-death action attributable to the medical expenses that the Fund paid.  The terms of the Plan gave the Fund a subrogation interest in “any … recovery” from the Clinic for the insured’s medical expenses even if Johnson (the sister of the insured) ultimately could not have recovered those expenses at trial.