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Home > Blog > Ninth Circuit Holds Self-Funded Long-Term Disability Plan Did Not Abuse Its Discretion in Applying Pre-existing Condition Exclusion

Ninth Circuit Holds Self-Funded Long-Term Disability Plan Did Not Abuse Its Discretion in Applying Pre-existing Condition Exclusion

In Sorger v. Novartis Corporation Death Benefit & Disability Plan, Metropolitan Life Insurance Company, No. 20-15224, __F.App’x__, 2021 WL 3758280 (9th Cir. Aug. 25, 2021), the Ninth Circuit affirmed the district court’s order that Defendants Novartis Corporation Death Benefit and Disability Plan (the “Plan”) and Metropolitan Life Insurance Company (“MetLife”) did not abuse their discretion in terminating Plaintiff-Appellant Neil Sorger’s supplemental long term disability (“LTD”) benefits pursuant to the Plan’s pre-existing condition clause in the Summary Plan Description. The Plan is self-funded and provides that plan participants are entitled to basic LTD benefits of 50% of a participant’s pay. Participants can purchase supplemental LTD benefits coverage to receive an additional 17% of total pay. The funds for the supplemental coverage are held in a Voluntary Employee Benefit Association (“VEBA”) Trust. MetLife as the Claims Administrator and Plan Administrator decides who is eligible to receive benefits. Novartis pays for the supplemental LTD benefits and is reimbursed from the VEBA Trust.

First, the court determined that the district court did not commit clear error when it found that there is only one ERISA plan at issue here, not two. The VEBA Trust was used just as a funding source for the supplemental LTD benefits, it did not constitute a separate ERISA plan. The Summary Plan Description (“SPD”) provides that MetLife makes the decisions and Novartis pays the benefits, thus there is no conflict of interest. The district court properly reviewed MetLife’s decision under an abuse of discretion standard.

Second, the court did not abuse its discretion in concluding that the pre-existing condition clause contained in the SPD was valid. The court rejected Sorger’s argument that the clause was invalid because the SPD states that MetLife will establish the pre-existing condition limitations, but it did not create the limitation at issue here. The court found that the plain language of the Plan and Task Orders (agreements between Novartis and MetLife) gave MetLife discretion and authority to construe the terms of the Plan, which includes the SPD.

Third, the district court properly found that MetLife did not abuse its discretion by interpreting the pre-existing condition clause as requiring 12 consecutive months as an active employee, by applying the pre-existing condition clause to Sorger even though he was not diagnosed with or specifically treated for his pre-existing condition during the look-back period, and determining that the clause did not expire on January 1, 2014, the date by when Sorger could seek supplemental LTD coverage for his pre-existing condition. The records here show that Sorger received treatment, consultation, care, or services for his pre-existing condition based on a family nurse practitioner note during the look-back period. The court explained that “it cannot be reasonably argued that ‘no one even suspected’ Sorger suffered from the condition with which he was ultimately diagnosed.” Because Sorger could seek coverage for his pre-existing condition starting on January 1, 2014, this did not otherwise negate the terms of the Plan which prevent Sorger from obtaining supplemental LTD coverage for a pre-existing condition.

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