Another Circuit Applies the Moench Presumption in “Stock Drop” Cases

When a corporation makes its own stock available as an investment option in a retirement plan and the stock declines in val e the plan s d ciaries sometimes ace claims that the violated their d t to act pr dentl in the mana ement o the plan. Such “stock drop” cases illustrate the tension between two o S s primar oals

he protection o emplo ee retirement unds b imposin duciar duties on plan mana ers and

he encoura ement o emplo ee ownership throu h special status provided to eli ible individual account plans s includin emplo ee stock ownership plans S s .

S s are intended b de nition to encoura e investment in uali in emplo er securities. ourts reco ni e that as a result the “place emplo ee retirement assets at much reater risk than does the t pical diversi ed S plan.” Martin

v. Feilen . d th ir. .

®Attorneys at Law

ERISA and Life Insurance Newsoverin S and i e ealth and isabilit nsurance iti ation

INSIDE THIS ISSUE

No Conflict Analysis Is Necessary When ERISA Benefits Decision Is De Novo Correct Incontestable Clause Runs from Original Policy Date, Despite Misrepresentations in Renewal Applications Breach of Fiduciary Duty Claim Requires Proof of Causation, Not Merely Loss of Plan Value Second Injury during Continuous Total Disability Does Not Result in New Maximum Benefit Period Physician Totally Disabled Due to Sickness Cannot Reclassify Disability Based on Later Sustained Injury

Group Policies Issued to Out-of-State Corporations Valid and Enforceable without Prior DOI Approval Releases of ERISA Claims Entered into Knowingly and Voluntarily Are Binding on Former Employees Statutory Penalty Recoverable Only from Plan Administrator, Not from Claims Administrator

De Facto Plan Administrator Doctrine Does Not Apply to Claims Paying Insurer Treating Physician’s Opinion May Be Discounted When Inconsistent or Contradicted by Specialists

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on ress has ranted special status to retirement plans that o er investment in emplo er stock b creatin a uali ed e emption rom the prudence requirement imposed on plan duciaries. “ n the case o an

the diversi cation requirement … and the prudence requirement onl to the e tent that it requires

diversi cation … is not violated b acquisition or holdin o … quali in emplo er securities ….” .S. .

a .

ven so duciaries o S s ma ace alle ations that the acted imprudentl b not divestin plans o emplo er stock when the stock value declines or when the emplo er aces si ni cant nancial problems.

S requires duciaries to act “in accordance with the documents … overnin the plan inso ar as such

documents … are consistent with the provisions o S .” .S. . a . ut when a plan

requires investment in emplo er stock S does not sa when such a requirement mi ht become inconsistent with the ct s duciar requirements.

When or e ample mi ht a duciar be required to disobe the

requirements o the plan and halt the purchase o emplo er stock r required to sell emplo er stock

Presumption of Compliance with ERISA

Several circuit courts have addressed the standard b which S duciaries are to be ud ed in such

circumstances. e innin with the hird ircuit in Moench v. Robertson, . d d ir. , these

courts have adopted a presumption o compliance with S when a duciar invests retirement assets in

the emplo er s stock.

n Moench, the S duciar continued to invest in compan stock a ter the share price dropped rom

. to . over a two ear period. ppl in what has become

known as the Moench presumption, the hird ircuit held

n S duciar who invests the assets in emplo er stock is entitled to a presumption that it acted consistentl with S b virtue o that decision. owever, the plainti ma overcome that presumption b establishin that the duciar abused its discretion b investin in emplo er securities.

hat presumption was adopted b the Si th, i th, and inth ircuits in Kuper v. Iovenko, . d ,

th ir. “the purpose o S and the nature o S s requires that we review an S duciar s decision to invest in emplo er securities or an abuse o discretion” Kirschbaum v. Reliant Energy, Inc., 526 F.3d 243, 254 5th ir. 2 “ he Moench presumption … applies to an alle ations o duciar dut breach or ailure to divest an … S o compan stock.” and Quan v. Computer Scis. Corp., 623 F.3d , th ir. 2 the presumption “is consistent with the statutor lan ua e o S and the trust principles b which

S is interpreted” .

Second Circuit Applies Deferential Review

ore recentl in In re: Citigroup ERISA Litigation, 2 .S. pp.

S 2 463 2d ir. ct. , 2 , the Second ircuit came to the same conclusion, holdin that an S duciar s decision to continue

o erin retirement plan participants the opportunit to invest in iti roup stock should be reviewed or an abuse o discretion, and that no abuse o discretion was shown.

he case involved two retirement plans which o ered the iti roup ommon Stock Fund as an investment

option, amon 2 to 4 other options available to plan participants. ter a sharp drop in the price o iti roup stock, a class action lawsuit was led.

he plainti s alle ed that iti roup s participation in the subprime mort a e market caused the stock

drop, and that the plan duciaries breached their duties o prudence and lo alt b re usin to divest the plans o iti roup stock, even thou h the compan s “perilous operations tied to the subprime securities market” made it an imprudent investment option.

lainti s ar ued that a prudent duciar would have oreseen the

stock drop and either suspended the participants abilit to invest in the stock und or diversi ed the und so that it held less compan stock.

he plan documents, however, mandated that the iti roup ommon Stock Fund be included as

an investment option, alon with at least three other investment unds. here ore, the duciaries ar ued that

the had no discretion to eliminate iti roup stock as an investment

option.

he district court a reed and held that, even i the duciaries had been iven the discretion to eliminate the

compan stock und as an option, the were entitled to a presumption that investment in the und, as required b the plan s terms, was prudent. he court urther held that the acts alle ed b the plainti s were insu cient to overcome that presumption. 2009

.S. ist. S 055 S. . . . u . 3 , 2009 .

he Second ircuit also a reed and held that the duciaries “decisions not to divest the lans o iti roup stock or impose restrictions on participants’ investment in that stock are entitled to a presumption o prudence and should be reviewed or an abuse o discretion, as opposed to a stricter standard.”

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Sun i e had her le reviewed b an independent ph sician consultant, who concluded that a was capable o returnin to her own occupation. Sun i e terminated the pa ment o disabilit bene ts.

a administrativel appealed this determination, submittin her award o social securit disabilit bene ts. Sun i e had the le reviewed b another independent ph sician, who concluded that a was capable o li ht and sedentar work, and that she could return to her own occupation.

Sun i e ave the report to a , o erin her additional time to submit in ormation to counter the independent ph sician’s conclusion. a did not provide an additional

documents, and Sun i e upheld its decision to terminate the pa ment o bene ts.

n 2005, a submitted a claim to Sun i e or lon term disabilit bene ts

under an S plan, based on a heart condition. n support o the claim, a ’s treatin ph sician stated that her heart condition completel limited her abilit to work.

Sun i e approved a ’s claim, but said that it would seek periodic medical updates to veri her continued eli ibilit or bene ts.

s part o the continuin evaluation, a ’s treatin ph sician submitted

statements in 2006 and 200 , reiteratin that a remained totall disabled. Sun i e also reviewed a ’s medical records, which contradicted her claims and those o her treatin ph sician.

ter conductin surveillance that urther undermined a ’s claim,

o Con ict Anal sis s ecessar hen SA ene ts Decision s De Novo Correct

Ray v. Sun Life & Health Ins. Co., S App S th Cir ct

a led suit a ainst Sun i e, and the ederal district court upheld Sun i e’s decision that additional lon term disabilit bene ts were not pa able. 52 F. Supp. 2d 229 . . la.

20 0 . a appealed.

n appeal, the leventh ircuit a rmed the si step ramework it has established or evaluatin an S bene ts decision

determine whether the bene tsdenial decision is de novo wron

2 i the decision was wron , determine whether the administrator had discretion i not, reverse the decision

3 i there was discretion, determine whether the decision was reasonable

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Moench Presumption Applied to

EIAPs and ESOPs

“We now oin our sister circuits in adoptin the Moench presumption,” the court wrote, “and we do so with respect to both s and S s because, as those courts

have reco ni ed, it provides the best accommodation between the competin S values o protectin retirement assets and encoura in investment in emplo er stock.”

“ his presumption ma be rebutted i an or S duciar abuses his discretion b continuin to o er plan participants the opportunit to invest in emplo er stock,” the court said. “We endorse the uidin principle’ endorsed in Quan that udicial scrutin should increase with the de ree o discretion a plan ives its duciaries to invest.”

ere, the iti roup plan required that the compan ’s stock und be included as an investment option. “ hus,” the court said, “a duciar ’s ailure to divest rom compan stock is less likel to constitute an abuse o discretion i the plan’s terms require rather than merel permit investment in compan stock.” he Second ircuit cited Moench or the proposition that duciaries

should override plan terms requirin investment in compan stock onl when “owin to circumstances not known to the plan settlor and not anticipated b him,” maintainin the investment “would de eat or substantiall impair the accomplishment o the purposes o the lan .” 62 F.3d at 5 .

“ W e believe that onl circumstances placin the emplo er in a dire situation’ that was ob ectivel un oreseeable b

the settlor could require duciaries to override plan terms,” the court said. “ he test o prudence is, as the dissent points out, one o conduct rather than results, and the abuse o discretion standard ensures that a duciar ’s conduct cannot be second uessed so lon as it is reasonable.” he court noted that durin the class

period, iti roup stock dropped in price rom 55. 0 to 2 . 4 per share, a loss o ust over 50 percent. “ ther courts have ound plainti s unable to overcome the oench presumption in the ace o similar declines,” the court said, citin Kirschbaum, 526 F.3d at 24 40 drop , Kuper, 66 F.3d at 45 0 drop , and Edgar v. Avaya, Inc., 503 F.3d 34 , 344 3d ir. 200 25 drop .

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ncontesta le Clause uns rom ri inal Polic DateDespite Misrepresentations in Renewal ApplicationsFlynt v. Life of the South Ins. Co.,

a App S o Fl nt, a crop duster, died when his plane crashed in 200 . t the time o his death, Fl nt had three outstandin loans with a bank. he bank made credit li e insurance available to its borrowers under a roup polic issued b i e o the South, and Fl nt obtained covera e under the roup polic in 2003 and 2004 when he took the loans.

n 2006, i e o the South revised the roup polic and the application or

covera e b includin in the application a statement that the borrower had not been dia nosed with or treated or various illnesses, includin diabetes. When Fl nt applied or covera e in 2003 and 2004, his application did not include a representation re ardin diabetes.

Fl nt renewed his loans in 2006 and 200 . e also renewed his credit li e insurance b si nin new applications, resultin in the issuance o new certi cates o insurance. n the new applications, Fl nt represented that he had not been dia nosed with diabetes, althou h his doctor had dia nosed him with pe diabetes in the late 990s.

ter Fl nt’s death, his widow submitted claims under his three certi cates o

credit li e insurance. i e o the South denied her claims and sou ht to rescind the covera e, contendin that Fl nt had misrepresented his health when he submitted applications to renew his covera e in 2006 and 200 .

he widow sued, contendin that i e o the South was precluded rom den in or rescindin covera e

b the incontestabilit clause in each certi cate, which provided “We cannot contest the insurance evidenced b the erti cate a ter it has been in orce two 2 ears durin our … li etime.”

he trial court ranted summar ud ment to i e o the South, concludin that each renewal certi cate was a separate and distinct contract o insurance and that the two ear contestabilit period be an to run anew upon the issuance o each new certi cate. ecause Fl nt’s death occurred within two ears a ter the renewal certi cates were issued, the court ruled that the covera e had not become incontestable.

he eor ia ourt o ppeals reversed, holdin that Fl nt’s covera e became incontestable two ears a ter his ori inal certi cates

were issued in 2003 and 2004, and

that a new contestabilit period did not be in to run each time the roup polic was revised or a new certi cate was issued.

he court concluded that the incontestabilit clause, when construed with another provision o the 2006 roup polic , was not intended to be in runnin anew each time the polic was revised. he other provision dealt with earl dischar e o the borrower’s indebtedness be ore the scheduled maturit date, and stated “ othin in this provision shall preclude the ncontestabilit lause.”

his lan ua e, the court said, showed the parties’ intent that the two ear contestabilit period would be in to run rom the time Fl nt rst obtained credit li e insurance rom i e o the South in 2003 and 2004.

“ t ollows,” the court said, “that the incontestabilit provision had become operative b the time o Fl nt’s death in 200 and precluded i e o the South rom den in or rescindin insurance covera e based upon his representations in 2006 and 200 concernin his health.”””””

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4 i the bene ts decision was not reasonable, reverse it i it was reasonable, then determine i there was a con ict o interest

5 i there is no con ict, a rm the decision

6 i there was a con ict, consider it as merel one actor in determinin whether the bene ts denial was arbitrar and capricious.

ased on evidence in the record contradictin a ’s treatin ph sician, the district court determined that Sun i e’s decision was not de novo wron . he leventh ircuit a reed, statin

that an S bene ts administrator need not accord special wei ht to a treatin ph sician’s opinion, and that a social securit bene ts award is not determinative o a claimant’s entitlement to bene ts.

he leventh ircuit stated that its conclusion that Sun i e’s decision

was not de novo wron “should end the inquir under our multi step ramework.”

owever, both the leventh ircuit and the district court held that, even i the determination were de novo wron , it was reasonable, and an con ict o interest did not taint Sun i e’s decision so as to render the

decision arbitrar and capricious.

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reach o i uciar Dut Claim Re uires Proo o Causation ot Merel oss o Plan aluePlasterers’ Local Union No. 96 Pension Plan v. Pepper,

th Cir

he Fourth ircuit has oined other circuit courts in imposin a causation requirement in S breach o duciar dut cases based on the ailure o a pension plan’s trustees to investi ate and to diversi the plan’s investment options.

he de endants, ormer duciaries o the lasterers’ ocal nion pension plan, alle edl ailed to periodicall evaluate

the plan’s investments. From 995 throu h 2005, the plan’s assets were invested entirel in certi cates o deposit and in one to two ear reasur bills. he de endants testi ed that their ob ective had been “to avoid the risk o losin mone .”

he e pert witness or the current trustees, who brou ht the lawsuit, testi ed that a “prudent investment strate ” would have been a 50 50 mi o S 500 and arcla s apital re ate ond nde investments. tili in such

an investment and lookin at the period ecember 3 , 2002, to ecember 3 , 2005, would have resulted in an investment value o 432,9 6 more than the actual value.

he de endants’ e pert testi ed that their strate was prudent, “ iven the particular characteristics a ectin the lan, includin the declinin union membership, that it was

a de ned contribution plan, the uncertainties o the market in the earl and mid 2000s, and the oard’s conservative set o ob ectives.”

he ederal district court ound that the ormer trustees had breached the dut to investi ate and to review the investment options, as well as the dut o diversi cation, and entered ud ment a ainst the de endants in the amount o 432,9 6, plus attorne ’s ees and costs.

he Fourth ircuit, however, determined that there was a “noticeable ap” in the district court’s anal sis between its ndin o duciar breaches and its conclusion that the de endants were liable in dama es or the di erence between the plan’s actual per ormance and its h pothetical per ormance. “ S impl ndin a ailure to investi ate or diversi does not automaticall equate to causation o loss and there ore liabilit ,” the court held.

Speci call , the court elaborated, the ndin o duciar breaches “did not establish as a matter o law that the actual investments were imprudent and liabilit can onl attach i in act that is the case.” S “requires an

independent ndin o causation o loss be ore liabilit or a breach o a duciar dut is incurred,” the court continued.

he court also noted that the district court, on remand, would have to determine which part bore the burden o proo with respect to causation. “While the plainti bears the burden o at least makin a prima acie showin that there was a breach o duciar dut and that there was some loss to the lan, the circuit courts o appeal are split as to which part must demonstrate that the loss resulted rom the breach,” the court wrote. he Fourth ircuit declined to decide which o these approaches was

appropriate.

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Secon n ur urin Continuous otal Disa ilit Does ot Result in ew Ma imum ene t PerioBurnett v. Combined Ins. Co. of Am.,

S Dist S M D a Dec

urnett became totall disabled in Februar 200 as the result o a low back in ur sustained when he ell rom a tractor trailer truck. ombined

be an pa in bene ts in arch 200 under a disabilit polic that provided a ma imum bene t period o two ears “ or an one accident or sickness.”

n Februar 2009, while still totall disabled and receivin bene ts, urnett ell rom a step ladder and

in ured his back and shoulder. e submitted a second claim or disabilit bene ts, contendin that he was entitled to another two ear bene t period. ombined denied the claim because urnett had never recovered rom his ori inal disabilit .

he polic contained a recurrent disabilit provision, which stated that “ s uccessive periods o total disabilit will be considered one period o total disabilit unless such periods are separated b at least 0 da s or the disabilities resulted rom di erent or unrelated in uries or sickness.” urnett contended that this provision

applied, because his new disabilit was due to an unrelated in ur .

ombined contended, however, that the recurrent disabilit provision, b its e press lan ua e, applied to

successive periods o total disabilit , not to successive in uries. ombined relied on the polic ’s concurrent disabilit provision, which stated that “ i the insured is disabled as the result o one in ur or sickness or both an in ur and a sickness, then the bene ts will be paid as i the disabilit were the result o onl one in ur or sickness.”

urnett sued, and the district court ranted summar ud ment to ombined, concludin that urnett’s

second in ur , even i totall disablin , resulted in a concurrent disabilit , not a recurrent disabilit .

n the absence o an eor ia case on point, the court relied on cases rom other urisdictions and concluded that “the lainti did not have successive periods o disabilit due to di erent in uries, but rather, the lainti had

one sin le and uninterrupted period o disabilit .”

When he ell rom the step ladder in 2009, urnett “was still totall disabled and had not at an point been classi ed as an thin other than totall disabled b his doctors,” the court said. “ new, successive, disabilit period could not be in while the lainti was still disabled rom his rst in ur .”

he court concluded “ he act that there was a second in ur durin the lainti ’s period o complete disabilit does not chan e the act that the lainti onl had one period o disabilit and not two successive periods. he lainti ’s in ur could onl be a recurrent disabilit , entitlin him to a new disabilit period, i the unrelated in ur had been a ter the end o his rst disabilit period.”

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r. aun, a sur eon, was covered b a disabilit income insurance polic issued b quitable. he polic provided bene ts or two t pes o total disabilit “accident total disabilit ,” de ned as total disabilit resultin rom in ur , and 2 “sickness total disabilit ,” de ned as

total disabilit caused or contributed to b sickness or b medical or sur ical treatment o an sickness or disease.

he polic provided li etime bene ts or accident total disabilit , but provided bene ts onl to a e 65 or sickness total disabilit .

n 2003, r. aun was dia nosed with bilateral basal osteoarthritis o his thumbs, a de enerative oint condition that caused pain in the base o his thumbs a ter he per ormed sur er . n ovember 2003, r. aun stopped per ormin sur er and submitted a claim or total disabilit caused b sickness. is claim was approved.

While recoverin rom sur er to correct the condition in his thumbs, r. aun ell and sprained his wrist. r. aun wrote to quitable, describin his wrist in ur

and requestin that the status o his claim be chan ed to accident total disabilit , or which li etime bene ts could be paid.

n independent ph sician consultant determined that r. aun’s disabilit was due 35 to his wrist in ur and

65 to his thumb condition and the subsequent sur er . quitable concluded that r. aun was not eli ible or

reclassi cation because, at the time o his accident, he was alread receivin total disabilit bene ts or a sickness rom which he had not recovered.

r. aun sued, and quitable moved or summar ud ment, ar uin that the disabilit could not be reclassi ed because it was caused and contributed to b his thumb illness, and because r. aun was not en a ed in his occupation when he reportedl became disabled due to his wrist in ur . he trial court ranted quitable’s motion or summar ud ment.

n appeal, r. aun ar ued that his disabilit should have been reclassi ed because the polic did not state that reclassi cation was prohibited, because his wrist bothered him more than his thumbs, and because he had hoped to return to his sur ical practice until he in ured his wrist.

he eor ia ourt o ppeals held that r. aun was not entitled to accident disabilit bene ts, because the polic unambi uousl provided that “total disabilit caused or contributed to b sickness or disease will not be considered accident total disabilit ,” but must be considered sickness disabilit .

r. aun contended that an issue o act e isted as to whether his disabilit resulted solel rom his wrist in ur .

owever, r. aun’s testimon showed that, while he perceived his wrist in ur to be “more disablin ” than his thumb condition, this characteri ation implied that his thumbs still contributed to his disabilit . hus, the court o appeals a rmed the trial court’s rant o summar ud ment.

Ph sician otall Disa le Due to Sickness CannotReclassi Disa ilit ase on ater Sustaine n urLaun v. AXA Equitable Life Ins. Co.,

a App S

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roup Policies ssue to ut o State Corporations ali an n orcea le without Prior D Appro al

Youngblood v. Metropolitan Life Ins. Co., S Dist S D C ct

oun blood was a participant in an S plan that provided li e and

accidental death insurance bene ts to emplo ees and their dependents. oun blood’s dependent husband died rom in uries sustained while pilotin

an aircra t that crashed.

et i e paid oun blood’s li e insurance claim but denied her claim or accidental death bene ts, based on the plan’s e clusion “ or an loss caused or contributed to b … an incident related to … travel in an aircra t as a pilot ….”

lthou h the acts surroundin the death o oun blood’s husband were not in dispute, oun blood led suit in ederal court, alle in that the e clusion was void and unen orceable.

oun blood claimed that the e clusion was not in e ect, and thus could not e clude covera e, because it was on a orm that had not been approved b the orth arolina epartment o nsurance at the time o the atal plane crash.

n support o her claim, oun blood relied on a orth arolina statute that provides in pertinent part

a t is unlaw ul or an insurance compan licensed and admitted to

do business in this State to issue … an polic , contract, or certi cate … until the orms o the same have been submitted to and approved b the ommissioner, and copies led in the epartment ….

b With respect to roup and blanket accident and health insurance, roup li e insurance, and roup annuit policies issued and delivered to a trust or to an association outside of this State and coverin persons resident in this State, the roup certi cates to be delivered or issued or deliver in this State shall be led with and approved b the ommissioner pursuant to subsection a o this section.

. . en. Stat. 5 3 50 emphasis added .

itin subsection b o this statute, oun blood ar ued that the e clusion

was required to be approved in orth arolina be ore the roup certi cate

could be issued to participants and bene ciaries in the state.

he court disa reed, notin “that b its terms subsection b applies onl to a trust or … association outside o this State,’” and the emplo er here was neither. ather, the emplo er

was an hio corporation, and the roup polic was issued in hio.

lainti also ar ued that the lan ua e o subsection a required orth arolina approval whenever an

insurance certi cate is issued to a orth arolina resident. “ he problem

with this ar ument,” accordin to the court, “is that et i e issued its polic . . . in hio, not to lainti in orth arolina.”

oun blood’s broad interpretation would appl to all certi cates issued to a orth arolina resident or all roup policies. onstruin the statute so broadl , however, “would completel swallow subsection b and thus make it a useless nullit ,” the court said. “ the eneral ssembl had intended that subsection b appl to corporations, it would have included the word ‘corporations’ in the lan ua e thereo .”

he court ranted et i e’s motion or summar ud ment, holdin that “ et i e ull complied with all procedural and substantive requirements o S in reachin the decision to den accidental death bene ts .”

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Releases o R SA Claims ntere into nowin lAn oluntaril Are in in on ormer mplo eesBacon v. Stiefel Laboratories, Inc.,

S Dist S S D la ct hree ormer emplo ees o Stie el aboratories alakovich, eller, and

Finnert sued or breach o duciar dut and securities raud. ach o them previousl had si ned a eneral release o all claims a ainst their emplo er when receivin either a bonus or severance bene ts.

s ramed b the ederal district court, “ he issue be ore the ourt was whether the eneral eleases si ned b lainti s alakovich, eller, and Finnert were en orceable to release the claims asserted b them in this case.”

he court anal ed the en orceabilit o the releases si ned b two o the plainti s, alakovich and eller, under the knowin and voluntar standard applied to releases o S claims. s the court e plained,

ourts in the leventh ircuit consider si actors in

determinin whether a release o ederal statutor claims was knowin and voluntar the plainti ’s education and business e perience 2 the amount o time the plainti had to consider the a reement be ore si nin it 3 the clarit o the a reement 4 the plainti ’s opportunit to

consult with an attorne 5 the emplo er’s encoura ement or discoura ement o consultation with an attorne and 6 the consideration iven in e chan e or the waiver when compared with the bene ts to which the emplo ee was alread entitled.

he court ound that all si actors wei hed in avor o en orcin the alakovich and eller releases.

oth alakovich and eller were educated, e perienced business persons the had 45 da s to consider their respective releases and consult

with an attorne the were advised in writin to consult with an attorne and, in act, were represented when the si ned their respective releases both releases were clear and unambi uous re ardin the eneral nature o the release both plainti s acknowled ed in writin that the knowin l and voluntaril released all claims and both plainti s received valuable consideration to which the were not otherwise entitled.

alakovich and eller ar ued that their releases were not en orceable as a result o S ’s e culpation clause, 2 due to application o S ’s anti

alienation clause, and 3 because the were not separatel ne otiated or supported b separate consideration. he court re ected each o these

ar uments.

First, with respect to S ’s e culpation clause, 29 .S. . 0, neither release purported to a ect uture claims under S . “ hus,” the court said, “this ar ument was not relevant to an release in this case.”

Second, re ardin the ar ument that the releases should not be en orced due to S ’s anti alienation clause, 29 .S. . 056 d , the court noted that this ar ument was precluded b Kennedy v. Plan Admin. for DuPont Savings & Investment Plan, 555 .S. 2 5 2009 . “ n enned ,” the court said, “the Supreme ourt held that S ’s anti alienation provision does not appl to the waiver or release o ri hts to vested bene ts under an S overned plan rather, it prevents the trans er or assi nment to a third part o an en orceable ri ht a ainst the S plan or the pa ment o bene ts to that third part .”

hird, the court re ected the ar ument that S releases must

be separatel ne otiated or supported b separate consideration in order to be en orceable. nstead, the court noted that a “number o courts” have re ected those ar uments and “have held that a eneral release o all claims enerall includes all S claims, even i S is not speci call mentioned and 2 a release o

S claims which is included as part o a eneral release need not be separatel bar ained or or supported b separate consideration.”

oreover, the court was persuaded b the act that alakovich and eller had not returned or tendered back the consideration the received or their releases, which in turn rati ed the releases. ven i the plain lan ua e o the contracts had not required return o consideration, which each release e pressl did, the court ound that “ eneral contract law provides that lainti s’ ailure to return all monies

paid to them or the releases prevents them rom attemptin to invalidate the release a reements.”

he third plainti , Finnert , si ned his eneral release be ore his claims or

breach o duciar dut and securities raud arose. s a result, the court held that Finnert ’s claims were not barred because “ t he law is clear that eneral releases cannot bar breach o duciar dut claims that arise a ter

the e ective date o the release,” and “b its terms, the Finnert elease is not a de ense to his securities raud claims.”

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Statutor Penalt Reco era le nl rom Plan A ministrator ot rom Claims A ministrator

Sa lors sou ht to recover lon term disabilit bene ts under the ver ennison on erm isabilit lan and brou ht claims a ainst the plan, ver ennison orporation, and art ord. Sa lors alle ed that art ord

was the administrator o the plan, and that art ord ailed to provide certain plan documents that she had requested. Sa lors sou ht to recover statutor penalties under S , 29 .S. . 32 c .

n rulin on the de endants’ motions to dismiss, the court noted that plan administrators “have a dut to provide a plan summar and other documents to each participant upon request.” Sa lors claimed that art ord breached this obli ation b ailin to provide a complete cop o the materials used b the de endants to evaluate and den her claim.

owever, 29 .S. . 32 c onl applies to administrators desi nated b the plan. he court pointed out that not all entities providin emplo ee bene ts are “administrators”

under the statute. no person is desi nated in the plan documents as the plan administrator, then the plan sponsor is deemed to be the administrator. n that event, and absent a speci c declaration in the plan documents, the court cannot in er that an insurance compan pa in bene ts under the plan occupies co administrator status.

ecause the plan did not desi nate art ord as the plan administrator, and because Sa lors onl alle ed that “ art ord is the insurer and claims administrator o the

lan,” the court ound that art ord was not the “administrator” sub ect to statutor penalties pursuant to 29 .S. . 32 c .

art ord’s motion to dismiss was there ore ranted. oreover, because Sa lors did not alle e that she had

requested or ailed to receive in ormation rom the plan or rom ver ennison, the court ound she had ailed to state a claim or violation o 29 .S. . 32 c as to the remainin de endants.

De Facto Plan A ministrator Doctrine Does ot Appl to Claims Pa in nsurer

ter her claim or S lon term disabilit bene ts was denied, astro sued art ord, seekin bene ts and an administrative penalt or the ailure to provide certain requested documents, includin copies o art ord’s internal claims uidelines, trainin manuals, and other procedures.

art ord sou ht dismissal o the penalt claim, assertin that the penalties authori ed b 29 .S. . 32 c did not appl to the requested documents, and that it was not the “plan administrator” and thus was not sub ect to penalties under the statute.

he ederal district court a reed that astro’s “requests were or materials not re erenced in section 024, and there ore the do not all within the scope o penalties under section 32 c or ailin to suppl them to plainti .” Speci call , the court held that the documents did not constitute “other instruments under which the plan is established or operated.” he “plain te t o section 024,” the court wrote, “re ers onl to the ormal le al documents overnin a plan, and does not re er to claims related

documents.”

he court also a reed that art ord was not liable or penalties, because it was not the “plan administrator.” n that re ard, the plan speci call desi ned the emplo er, ubli , as the plan administrator.

oreover, the court re ected the claim that art ord was nonetheless liable as the “de acto plan administrator” because it was the decision maker on disabilit claims and because it possessed discretionar authorit under the plan. “ he leventh ircuit has onl ‘applied the de acto plan administrator doctrine to emplo ers,’” the court noted, quotin Oliver v. Coca Cola Co., 49 F.3d , 94 th ir. 200 .

hus, or e ample, the leventh ircuit’s earlier decision in Rosen v. TRW, Inc., 9 9 F.2d 9 th ir. 992 , o ten cited in support o the de facto administrator doctrine, actuall stood “ or the proposition that an emplo er that establishes a plan and acts as the ‘de acto plan administrator’ ma not shield itsel rom liabilit as plan administrator b desi natin a sham entit in the plan document,” the court wrote. ere, the court noted, there was “no evidence that ubli and art ord i e are ‘alter e os’ and there ore Rosen does not appl .”

Saylors v. Hartford, S Dist S D S C Au

Castro v. Hartford Life and Accident Ins. Co., S Dist S M D la ct

11

We continue to welcome our eedback concernin ERISA and Life Insurance News. revious issues o this newsletter are archived on the rm’s website, www.smithmoorelaw.com. he ma be accessed b selectin the “Services” tab on the openin webpa e, ollowed b “ i e, ealth, isabilit and S ” and “ ublications.”

Heather Whiteharlotte,

Nikole Crowtlanta,

Matt Creechreensboro,

Dorothy Cornwelltlanta,

reatin Ph sician s pinion Ma e Discounte hen nconsistent or Contra icte Specialists

Scott’s claim or disabilit bene ts under an S plan sponsored b her emplo er was approved in 99 .

n 2004, a ter Scott had sur er to address the medical issue that ormed the ori inal basis o her claim, aton terminated the pa ment o

disabilit bene ts or “insu cient documentation o a unctional impairment that would preclude her rom the ob duties o an occupation.”

Scott appealed the termination, and aton reinstated the bene ts a ter

an independent medical evaluation revealed a possible other basis or disabilit secondar to the sur er .

ver the ne t several ears, durin periodic reviews o Scott’s eli ibilit or continued bene ts, she was

dia nosed with di erent potentiall disablin conditions each o which involved con ictin evidence. octors disa reed as to dia noses o re e s mpathetic d stroph and mental illness.

ter submittin the con ictin in ormation to an independent ph sician reviewer, aton concluded that Scott could per orm sedentar work, and the pa ment o bene ts was terminated in 200 .

urin the administrative appeal process, which involved two sta es, si di erent ph sicians reviewed the claim. he each concluded that Scott could work, and the termination o disabilit bene ts was upheld.

Scott then led suit in ederal court seekin reinstatement o bene ts. he district court reversed aton’s

decision to terminate bene ts, ndin that the compan abused its discretion b ivin inadequate wei ht to Scott’s treatin ph sician, and b ailin to adequatel consider the impact o Scott’s medication re imen on her abilit to work.

aton appealed, and the Fourth ircuit reversed, emphasi in the de erential nature o the abuse o discretion

standard o review and holdin that aton’s decision makin process was

sound and its ultimate decision was supported b substantial evidence.

he appellate court concluded that aton adequatel considered the

opinions o Scott’s treatin ph sician, but ave them little wei ht because o their inconsistenc and because man o the opinions were not based on ob ective evidence.

oreover, the opinions o the treatin ph sician characteri ed b the appellate court as “a well meanin amil doctor” were contradicted b several specialists.

he appellate court also ruled that the district court incorrectl concluded that aton had i nored Scott’s medication in concludin that she was able work.

Sanders arter ent oppa e aron ohlmann

A Message from the editors

Contributors to this Issue

Scott v. Eaton Corp. Long Term Disability Plan, S App S th Cir o

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