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In Life Insurance Dispute, Tenth Circuit Declines to Adopt Blanket Duty of Investigation Rule for ERISA Claims Administrators

In Stachmus v. Guardian Life Ins. Co. of Am., No. 20-7019, __F.App’x__, 2021 WL 1590006 (10th Cir. Apr. 23, 2021), Plaintiff-Appellant, Michael Erick Stachmus, sought to overturn the district court’s determination that he and his son are not the rightful beneficiaries of an ERISA-governed life insurance policy issued to Stachmus’s father, the insured. Originally, the insured named Stachmus and his son each 50% beneficiaries. He then changed the designation in May 2012 to make Stachmus a 90% beneficiary and Stachmus’s stepsister, Andrea, a 10% beneficiary. The insured died on September 4, 2013 and Andrea submitted claims to Guardian on behalf of herself, Stachmus’s stepmother, and stepbrother. She sent Guardian a general power of attorney signed by the insured on July 27, 2011 designating Andrea as the insured’s attorney-in-fact. She also submitted a beneficiary-change form that Andrea executed on August 27, 2013, just before the insured died on September 4, which named her a 50% beneficiary and the others each 25% beneficiaries. Guardian asked Andrea whether the insured was incapacitated at the time she signed the August 27, 2013, beneficiary-change form and she replied that he was not. Guardian then paid Andrea’s claims. Less than two weeks later, Stachmus wrote to Guardian about what he believed were two separate policies, one in which he had been removed as beneficiary and another than made him a 90% beneficiary. Guardian replied that the beneficiary-change form did not distinguish between Basic Life and Optional Life coverages and thus Stachmus has no claim to benefits. Two years later, on January 26, 2016, Stachmus submitted a formal claim to Guardian through his attorney and then an appeal on May 13, 2016. On July 8, 2016 Guardian asked for Stachmus to provide additional information to support his claim, but he did not do so. He provided additional argument on August 26, 2016 and then Guardian denied his appeal on October 10, 2016.

Stachmus filed a lawsuit alleging that the beneficiary-change form was invalid because when Andrea signed it, the insured was receiving hospice care for cancer, had suffered a massive stroke, and was “completely incompetent.” Stachmus argued for a de novo standard of review since Guardian did not resolve his appeal on time. The district court applied abuse of discretion review based on discretionary language in the life policies. Stachmus then moved for judgment on the administrative record, arguing that the power of attorney was not valid as of the date she executed the beneficiary-change form. Also, her self-dealing shifted the burden to Guardian to ensure that it paid the proper beneficiaries. Guardian’s single question posed to Andrea was insufficient to satisfy its burden to conduct an adequate investigation into potential fraud. Lastly, he argued that the beneficiary-change form was invalid because the insured’s employer did not have notice of it as required under the policy. The district court found in favor of Guardian because Stachmus did not provide support for his claim.

On appeal, the Tenth Circuit considered Stachmus’s various arguments. On the standard of review, the court found that Guardian made a timely decision on the appeal. It had 60 days from May 13, 2016 to decide the appeal, but it could get a 60-day extension if it notified him of special circumstances for requiring more time. 29 C.F.R. § 2560.503-1(i)(1)(i). The court found that Guardian did this when, after receiving no documentation, it wrote to him on July 8, 2016 asking him to submit supporting documentation so that it could provide him with a full and fair review. Stachmus responded on August 26, 2016 but only with more argument. He did not provide documentation. The court found that under 29 C.F.R. § 2560.503-1(i)(4), the period between July 8, 2016 and August 26, 2016 would not count against Guardian’s deadline. In other words, their deadline was tolled while they waited for Stachmus to provide supporting documentation. Crediting this time, Guardian’s October 10, 2016 decision was timely.

On the merits of the benefit designation dispute, the court found that Stachmus bore the burden to show he was a beneficiary, and he did not meet that burden. Stachmus argued that as a fiduciary Guardian should have conducted a more rigorous investigation into Andrea’s claims. Here, unlike in Gaither v. Aetna Life Insurance Co., 394 F.3d 792 (10th Cir. 2004), there is “no similar policy language authorizing Guardian to order and collect information in furtherance of its administrative role in processing claims.” The court declined to adopt a broad reading of Gaither to impose upon administrators a blanket duty of investigation. The court found that there was no evidence supporting Stachmus’s theory of entitlement. Guardian asked for that information and Stachmus did not provide it. The court “cannot say Guardian ignored readily available information.”

The court did grant Stachmus’s unopposed motion to seal the administrative record because it includes personally identifying information subject to the court’s protective order. Lastly, the court denied Guardian’s request for fees and costs because Stachmus did not bring this appeal in bad faith, there is no indication Stachmus could satisfy any fee award, nor does the court think a fee award would deter other potential ERISA claimants from pursuing similar claims. There was no significant benefit sought or legal question resolved by this appeal though the merits do weigh in favor of Guardian. The balance of their factors weigh in Stachmus’s favor.


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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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