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Life, Health and Disability News

The newsletter of the DRI Life, Health and Disability Committee

continued on page 5

Fall 2006

©2006 DRI. All rights reserved.

In This Issue…ERISA Discovery in the Ninth

Circuit in the Wake of Abatiev. Alta Health and Life ......... 1

Life, Health and DisabilityCommittee ............................ 2

From the Chair:New Beginnings ...................... 4Texas Court Approves

Severance and Trial ofRescission Counterclaimbefore Benefit Claims ......... 11

ERISA Update:Can Assisting a Participant to

Obtain Social SecurityBenefits Prejudice aSubsequent ERISA DisabilityDetermination?................... 14

Network News ...................... 17California ........................... 17Massachussetts .................... 18Michigan ............................. 18First Circuit ........................ 18Fourth Circuit .................... 19Sixth Circuit ....................... 19Eighth Circuit ..................... 20Connecticut District Court 21Florida District Court ........ 22Illinois District Court ........ 22Louisiana District Court .... 23Maryland District Court .... 23Massachusetts District

Court ................................ 25Michigan District Court .... 26New York District Court .... 26South Carolina District

Court ................................ 28Virginia District Court ...... 29

ERISA Discovery in theNinth Circuit in the Wake ofAbatie v. Alta Health and LifeKatherine S. SomervellBullivant Houser Bailey, PCPortland, [email protected]

Since 1995, courts in the Ninth Cir-cuit have determined the standard ofreview in ERISA benefits cases accord-ing to the framework set forth inAtwood v. Newmont Gold, 45 F.3d1317 (9th Cir. 1995). Specifically,where the plan grants discretion to anadministrator operating under a struc-tural conflict of interest, the court willreview the administrator’s decision forabuse of discretion, unless the plaintiffis able to come forward with “materialprobative evidence, beyond the merefact of an apparent conflict, tendingto show that the fiduciary’s self-inter-est caused a breach of theadministrator’s fiduciary obligationsto the beneficiary,” in which case thecourt will review the administrator’sdecision de novo. 45 F3d at 1323.

That all changed on August 15,

2006, when an en banc Ninth Circuitoverruled Atwood and held that evi-dence of an administrator’s conflict ofinterest would no longer provide a ba-sis to strip the administrator of theabuse of discretion standard of review,but would instead be considered as afactor in evaluating whether the ad-ministrator abused its discretion.Abatie v. Alta Health & Life Ins. Co.,458 F.3d 955 (9th Cir. 2006). Thecourt also expressly noted that theoverruling of Atwood relieves plaintiffsof their burden of presenting materialprobative evidence that theadministrator’s conflict actually af-fected its decision.

This article examines whether, byeliminating the plaintiff ’s burden ofproof, the Ninth Circuit also elimi-nated any right to discovery plaintiffshad previously been allowed underAtwood. While this remains an openquestion simply because the decisionis so recent, there is a strong argumentthat conflict of interest discovery in

mailto:[email protected]

2 Life, Health, and Disability News Fall 2006

Committee Chair

Simeon D. RapoportStandard Insurance Co.900 SW 5th AveLaw Department C 14CPortland, OR 97204(503) 321-7223(503) 321-6407 – [email protected]

Committee Vice ChairBrooks R. MagrattenVetter & White20 Washington PlProvidence, RI 02903(401) 421-3060(401) 272-6803 – [email protected]

Membership/ AnnualMeeting

Daniel W. GerberGoldberg Segalla665 Main St Ste 400Buffalo, NY 14203-1425(716) 566-5425(716) 566-5401 – [email protected]/ AnnualMeeting Co-Vice ChairsSimon ManoucherianMeserve Mumper Hughes300 S Grand Ave 24th FlLos Angeles, CA 90071-3185(213) 620-0300(213) 625-1930 – [email protected]

Anthony H. PelleCarlton Fields100 SE 2nd St Ste 4000Miami, FL 33131(305) 530-0050(305) 530-0055 – [email protected]

Marketing Chair

Sheila J. CarpenterJorden Burt LLPSuite 400 East1025 Thomas Jefferson

Street, N.W.Washington, D.C. 20007202-965-8100202-965-8104 – [email protected]

Marketing Vice ChairE. Ford StephensChristian & Barton909 E Main St Ste 1200Richmond, VA 23219-

3095(804) 697-4124(804) 697-4112 – [email protected]

Publications Chair

H. Sanders Carter, Jr.Carter & Ansley LLP1180 W Peachtree St, Ste

2300Atlanta, GA 30309(404) 965-4950(404) 658-9726 – [email protected]

Publications Vice ChairKenton J. CoppageCarter & Ansley LLP1180 W Peachtree Street,

Suite 2300Atlanta, GA 30309(404) 965-4955(404) 658-9726 – [email protected]

Teleconference Chair

Jay P. SymondsSun Life Assurance Co of Canada1 Sun Life Executive PkWellesley Hills, MA 02481(781) 416-2229(781) 237-0707 – [email protected]

Teleconference Vice ChairByrne J. DeckerPierce AtwoodOne Monument SqPortland, ME 04101(207) 791-1152(207) 791-1350 – [email protected]

Program 2007

Gary SchumanAon Corporation1000 N Milwaukee AveGlenview, IL 60025(847) 953-1506(847) 953-2779 – [email protected]

Program Chair 2008

Ann AndrewsLewis and Roca40 N Central AvePhoenix, AZ 85004-4429(602) 262-5707(602) 734-3764 – [email protected]

Expert Witness Chair

Andrew I. HamelskyWhite & Williams80 E Rt 4Paramus, NJ 07652(201) 368-7206(201) [email protected]

Legislative/RulemakingLiaison

Stephanie W. KanwitAmerican Association of

Health Plans1129 20th St, NW, Ste 600Washington, DC 20037-

3421(202) 778-3200(202) 331-7487 – [email protected]

Diversity Liaison Chair

Cheryl A.C. BrownFunk & Bolton, P.A.36 South Charles Street, 12th

Fl.Baltimore, MD 21201410-659-7700410-659-7773 – [email protected]

LIFE, HEALTH AND DISABILITY COMMITTEE LEADERSHIP

Web Page Chair

Michael H. BernsteinSedgwick, Detert, Moran &

Arnold LLP125 Broad Street, 39th

FloorNew York, NY 10004-

2400(212) 422-0202(212) 422-0925 – [email protected]

Web Page Vice ChairRussell G. GommMeserve Mumper Hughes300 S Grand Ave Ste 2400Los Angeles, CA 90071-

3185(213) 620-0300(213) 625-1925 – [email protected]

Special Projects Chair

Erna A.P. WombleWomble, Carlyle, Sandridge

& RiceOne West Fourth StWinston-Salem, NC 27101(336) 721-3723(336) 733-8412 – [email protected]

Young Lawyer LiaisonChair

Catherine ShaghalianVetter & White20 Washington PlProvidence, RI 02903(401) 421-3060(401) 272-6803 – [email protected]





















3Life, Health, and Disability NewsFall 2006

Steering Committee

Ann-Martha AndrewsSheila J. CarpenterH. Sanders Carter, Jr.Brooks MagrattenSimeon D. RapoportDaniel W. Gerber

Erna A.P. WombleWomble, Carlyle, Sandridge

& RiceOne West Fourth StWinston-Salem, NC 27101(336) 721-3723(336) 733-8412 – [email protected]

Linda M. LawsonMeserve Mumper Hughes300 S Grand Ave Ste 2400Los Angeles, CA 90071-

3185(213) 620-0300(213) 625-1930 – [email protected]

Mark E. SchmidtkeSchmidtke Hoeppner

Consultants LLP103 East LincolnwayValparaiso, IN 46383 219-464-4961219-465-0603 – [email protected]

Thomas F. SegallaGoldberg Segalla665 Main Street Ste 400Buffalo, NY 14203(716) 566-5480(716) 566-5401 – [email protected]

Newsletter Editor

H. Sanders Carter, Jr.Kenton J. Coppage

Law Institute Liaison

Linda M. Lawson

“DRI MEMBERS CAN CHOOSE FROM A RANGE OF INSURANCE PROGRAMS INCLUDING LIFE, DISABILITY, MAJOR

MEDICAL, AND LONG TERM CARE INSURANCE ADMINISTERED BY MARSH AFFINITY GROUP SERVICES.”





https://www.personal-plans.com/dri/welcome.do


FROM THE CHAIR New BeginningsSimeonD.Rapoport

Standard Insurance CompanyPortland, [email protected]

As your new Committee Chair, I amhonored to follow in the footsteps ofMark Schmidtke. It is quite the un-derstatement to say that Mark did atremendous job as Chair. He will bea tough act to follow. Working withMark has been — and will be -- a joy.I include the future tense because werefuse to let Mark go. He is an in-valuable Committee resource who wewill continue to look to for counseland guidance.

I would be remiss in not also recog-nizing the great contributions ofLinda Lawson, our Committee’s DRILaw Institute Liaison. Linda served asCommittee Chair prior to Mark, andher extensive involvement with theCommittee goes back many years.She has been literally instrumental inthe Committee’s success, and we arethrilled that she will continue in herrole as Law Institute Liaison.

I am also privileged to be able towork with Brooks Magratten, theCommittee’s new Vice Chair. I sim-ply could not ask for a more capable,dedicated and affable Vice Chair.

Most recently, Brooks served as theCommittee’s TeleconferenceSubcommitee Chair and — with helpfrom Teleconference SubcommitteeVice-Chair Jay Symonds -- put to-gether some excellent programs, in-cluding the most recent

teleconference held on October 24,2006, entitled “Current and FutureERISA Issues Affecting Defense Law-yers.” This well-attended and well-re-ceived program included discussion ofrecent decisions and developmentspertaining to a variety of hot ERISAissues including discovery, standard ofreview, reimbursement actions andself-funded plans.

It has often been said that thisCommittee’s strong suit is education,and this observation is truer todaythan it has ever been. Not only do wepresent two teleconferences each year,the Committee presents a substantiveseminar every Spring and also pro-duces two different newsletters.

Our next annual seminar is sched-uled for March 28-30, 2007 in Chi-cago. As in 2005, the program willbe held at the Renaissance Hotel, avenue earning rave reviews from ourmembership. The Committee’s Pro-gram Subcommittee Chair, GarySchuman of Aon, has been doing anexcellent job in putting together whatpromises to be yet another great pro-gram that you will not want to miss.

These annual seminars consistentlyearn high marks, and attendance hascontinued to increase. Recent pro-grams have drawn an incredible 400to 500 attendees. Please be sure youhave marked the seminar date on yourcalendar, and look for a brochure andmore information in the near future.

For many years, one significantbenefit of committee membership hasbeen the high-quality quarterly publi-cation Life, Health and DisabilityNews. And, for many years, the suc-cess of this newsletter has been largely

due to the Committee’s PublicationsSubcommittee Chair Sanders Carter.Sanders is also responsible for periodi-cally co-ordinating articles from Com-mittee members for DRI’s monthlyFor the Defense magazine.

And, as if that was not enough,Sanders recently also agreed to assumethe role of Editor-in-Chief of theCommittee’s new ERISA newsletter.The first issue of this newsletter wasrecently distributed to all DRI mem-bers and has earned high praise.

In a recent development that tendsto prove that Sanders does indeedhave a need for sleep, his partner KentCoppage has taken over as Editor-in-Chief of Life, Health and DisabilityNews. Kent is already demonstratingthat he is a chip-off-the-old-block andcontinues to produce an excellentwork-product.

I have always considered myselfquite fortunate to be able to be ac-tively involved with the DRI Life,Health & Disability Committee. Notonly does the Committee offer the op-portunity for high-quality education,it has also allowed me to meet andwork with top-notch attorneys, manyof whom I now consider good friends.

A committee such as ours can onlybe as strong and successful as itsmembers. As such, much of the Life,Health & Disability Committee’s no-table and sustained success is directlyattributable to many of you. Keep upthe good work.



ERISA Discovery, from page 1

the Ninth Circuit after Abatie is nei-ther necessary nor consistent with thepurposes of ERISA.

The Facts

By way of background, the Abatie de-cision involved a claim for life insur-ance benefits under anERISA-governed group insurancepolicy issued by Home Life FinancialAssurance Company to the Santa Bar-bara Medical Foundation Clinic (theClinic) and under which Dr. JosephAbatie was a covered participant. De-fendant Alta Health & Life InsuranceCompany subsequently assumed thecoverage from Home Life as its succes-sor in interest.

In 1992, Dr. Abatie developednon-Hodgkin’s lymphoma and took aleave of absence from work duringwhich time he received long-term dis-ability benefits under the plan. Al-though Dr. Abatie’s condition wentinto partial remission between 1998and 2000, he died before he could re-turn to work.

Mrs. Abatie filed a claim for deathbenefits under the life insurance por-tion of the plan. The Clinic admittedto Alta that it had accidentally failedto submit a waiver of premium formfor Dr. Abatie and asked Alta to retro-actively reinstate the application. Altadeclined to reinstate the waiver of pre-mium request and denied Mrs.Abatie’s claim. Mrs. Abatie then filedan action in federal court underERISA.

Because Mrs. Abatie had failed toexhaust her administrative remedies,the parties agreed to conduct discov-ery in the course of the litigation as

part of Mrs. Abatie’s administrativeappeal. During discovery, the Clinicproduced documents that suggestedthat perhaps it had submitted awaiver of premium application toHome Life, Alta’s predecessor. Mrs.Abatie then relied on this informationin her appeal of Alta’s decision on herclaim.

Alta upheld its previous decision todeny Mrs. Abatie’s claim on the basisthat there was insufficient evidence toestablish that the Clinic had submit-ted a waiver of premium applicationon behalf of Dr. Abatie. In addition,Alta asserted that it was also denyingcoverage because there was insufficientevidence in the record to support thefact that Dr. Abatie had remained to-tally disabled from the time he leftwork until his death, as required bythe policy.

The parties resumed litigation, andthe district court held an ERISAbench trial under the abuse of discre-tion standard of review. At trial, Mrs.Abatie sought to introduce a declara-tion from Dr. Abatie’s treating physi-cian that he met the plan’s definitionof disability throughout the durationof his medical leave. The trial judgerefused to admit the declaration intoevidence, and ruled that Alta had notabused its discretion in denying Mrs.Abatie’s claim.

Mrs. Abatie appealed the decisionto the Ninth Circuit, asserting thatthe plan did not confer discretion onAlta or, in the alternative, that Alta’sdual role as decisionmaker and fund-ing source, in conjunction with evi-dence that the conflict affected Alta’sdecision, warranted de novo review.The original three-member Ninth

Circuit panel upheld the districtcourt’s decision. See Abatie v. AltaHealth & Life Insurance Company, 421F.3d 1053 (9th Cir. 2005). However,Mrs. Abatie sought en banc review ofthe decision, relying primarily on theargument that Alta had “sandbagged”Mrs. Abatie by asserting a new basisfor denial in its final decision on herclaim.

The Ninth Circuit granted en bancreview and, after the appeal briefs hadbeen filed, requested sua sponte thatthe parties submit supplemental brief-ing on the issue of whether the courtshould “overrule the decision ofAtwood v. Newmont Gold Co., 45 F.3d1317 (9th Cir. 1995), which heldthat the court applies an abuse of dis-cretion standard of review, and adopta less deferential standard, in order toaccount for the conflict of interestpresent whenever a fiduciary also actsas the plan administrator.” In its de-cision issued August 15, 2006, the enbanc Ninth Circuit did just that.

The En Banc Decision

Although the overruling of Atwood isthe linchpin of the en banc decision,the court made numerous ancillaryrulings and commentary on issuesranging from the type of abuse of dis-cretion review the court will apply(not a “sliding scale,” but somethingapparently similar), the scope of re-view, the effect of procedural errors onthe scope and standard of review, andeven the type of evidence the courtmight find interesting.

Explaining its decision to overruleAtwood, the Ninth Circuit held thatthe fact that it authorized courts to


review an administrator’s decision denovo even where the plan expresslycontained a grant of discretion wascontrary to the Supreme Court’s di-rective in Firestone that the conflict ofinterest should simply be a factor indetermining whether the administra-tor abused its discretion. Abatie, 458F3d at 966-67, citing Firestone v.Bruch, 489 US 101, 113 (1989). In-stead of stripping the administrator ofdiscretion, as authorized by Atwood,the Ninth Circuit held that, depend-ing on the severity of the conflict, thecourt should conduct discretionary re-view “informed by the nature, extent,and effect on the decision-makingprocess of any conflict of interest thatmay appear in the record.” Id. at 967.

The court also held that, in caseswhere the plan document properlyconferred discretion on the adminis-trator, any procedural errors wouldalso be factored into the determina-tion of whether the administratorabused its discretion, id. at 973, thatde novo review was appropriate onlywhere the administrator had so failedto comply with ERISA’s guidelinesthat it effectively did not exercise itsdiscretion, id. at 971-72, and that thescope of the court’s review on theadministrator’s substantive decisionwas limited to the administrativerecord, although the court, in its dis-cretion, could consider evidence out-side the administrative record forpurposes of evaluating the level of def-erence it should give to a conflictedadministrator. Id. at 970.

Although the court did not address(or even mention) discovery, it ex-pressly held that Atwood’s requirementthat the plaintiff come forward with“material probative evidence” that theadministrator’s conflict caused it to

breach its obligations imposed an “un-reasonable burden” on plaintiffs. Id. at969. Because most of the limited dis-covery authorized by district courts inthe Ninth Circuit has been geared to-ward allowing plaintiffs to meet thisburden, it follows that Abatie’s elimi-nation of the burden should corre-spondingly eliminate the plaintiff ’sneed for discovery.

ERISA Discovery Pre-Abatie

Prior to 1995, the Ninth Circuit gen-erally endorsed the “sliding scale”standard of review, in which the courtgave slightly stricter scrutiny to a de-cision made by an administrator whowas also the payor. See Kunin v. Ben-efit Trust Life Ins. Co., 910 F.2d 534(9th Cir. 1990); Bogue v. Ampex Corp,976 F.2d 1319 (9th Cir. 1992);Watkins v. Westinghouse Hanford Co.,12 F.3d 1517 (9th Cir. 1993). Anoccasional opinion suggested in pass-ing that the plaintiff had not shownthat the apparent conflict of interestresulted in harm, e.g. Taft v. EquitableLife Assur. Soc’y, 9 F.3d 1469 (9th Cir.1993), but none expressly imposed aburden upon the plaintiff – untilAtwood.

In Atwood, the Ninth Circuit aban-doned the sliding scale concept andreplaced it with a strict “abuse of dis-cretion v. de novo” dichotomy: if theplaintiff came forward with materialprobative evidence that theadministrator’s apparent conflict hadtainted its decision, and the adminis-trator was unable to rebut this evi-dence, then the administrator wouldlose its right to discretionary reviewand the court would review the deci-sion de novo.

Once this dichotomy was set in

place, the question then became ex-actly how the plaintiff was to obtain“material probative evidence” of a con-flict of interest in order to meet theburden imposed upon them byAtwood. Many courts determinedthat such evidence should be apparentfrom the face of the record and thatdiscovery on the conflict of interest is-sue was anomalous with the purposeof ERISA. See e.g. Newman v. Stan-dard Ins. Co., 997 F. Supp. 1276,1280-81 (C.D. Cal. 1998); Helsing v.Standard Ins. Co., 2000 WL 1877634(D. Or. 2000); Fisher v. The AndersonBehel Stevens Creek Porsche Audi Em-ployment Benefit Plan, 2006 WL1626622 (N.D. Cal. 2006). As onejudge in the District of Oregon putit:

Permitting such extensive discoverywould exponentially increase boththe complexity and cost of ERISAlitigation. Moreover, there almostalways would be a disputed issue ofmaterial fact to try, namely whetherthe fiduciary’s decision was taintedby the conflict of interest. Theparties could spend days or evenweeks putting on witnesses to tes-tify solely as to the motives of thedecision maker. That inquirywould overshadow the principal is-sue in the litigation – whether theclaimant was entitled to benefits.The sums expended on attorneyfees to conduct extensive discovery,litigate discovery disputes, and trythe action easily could exceed theamount in dispute. This vision ofthe future of ERISA litigation be-lies the Ninth Circuit’s admonitionthat a “primary goal of ERISA wasto provide a method for workersand beneficiaries to resolve disputes


over benefits inexpensively and ex-peditiously.”

Palmer v. University Medical Group,973 F. Supp. 1179 (D. Or. 1997),quoting Taft v. Equitable Life Assur.Soc’y, 9 F.3d 1469, 1472 (9th Cir.1993).

Other courts, however, reasonedthat placing a burden on plaintiffs toproduce evidence necessarily autho-rized limited discovery to uncover andobtain such evidence. Indeed, the ra-tionale put forth was that,“endow[ing] the beneficiary with theability to present evidence of conflictof interest, without allowing that ben-eficiary to conduct discovery on thoseissues, would amount to granting thebeneficiary a right without an effectiveremedy.” Klund v. High Technology So-lutions, Inc., 417 F. Supp.2d 1155,1160 (S.D. Cal. 2005). Accord, Aluisiv. Elliott Mfg. Co., 2006 WL1686400 (E.D. Cal. 2006)(“often theonly way for an ERISA plaintiff toshow a conflict of interest is to allowan ERISA plaintiff to discover suchevidence”).

Based on the foregoing rationale,most of the discovery allowed in the11 years since Atwood has been pre-mised on the fact that plaintiffsshould be allowed some limited dis-covery to give them a sporting chanceof meeting their burden of presenting“material probative evidence” that aconflict of interest “tainted” theadministrator’s decision. The stakeswere high: if the plaintiff was unableto meet this burden of proof, theadministrator’s decision was reviewedfor abuse of discretion without regardto the effect (if any) of the apparentconflict of interest.

Conflict of Interest Analysis under

Abatie

By overruling Atwood, however, theNinth Circuit eliminated the burdenit had previously placed on plaintiffs.Indeed, the Abatie court made it clearthat plaintiffs no longer need topresent any evidence, and the merefact of the conflict alone will heightenthe scrutiny given to theadministrator’s decision:

The careful, case-by-case approachthat we adopt also alleviates theunreasonable burden Atwood placedon ERISA plaintiffs. UnderAtwood, we would consider the in-fluence of the plan administrator’sconflict only if the plaintiffbrought forth evidence of a “seriousconflict of interest,” triggering denovo review. Gatti v. Reliance Stan-dard Life Ins. Co., 415 F.3d 978,985 (9th Cir. 2005)(as amended).If the plaintiff could not make thethreshold showing, we would up-hold an administrator’s decision solong as it was “grounded on anyreasonable basis.” Jordan v.Northrup Grumman Corp., 370F.3d 869, 875 (9th Cir. 2004).Going forward, plaintiffs will havethe benefit of an abuse of discretionreview that always considers the in-herent conflict when a plan admin-istrator is also the fiduciary, even inthe absence of “smoking gun” evi-dence of conflict.

Id. at 969.Not only did the Ninth Circuit

eliminate plaintiff ’s burden, it wentone further – suggesting that the ad-ministrator might now have a burdenof producing evidence of its goodfaith:

Moreover, a conflicted administra-

tor, facing closer scrutiny, may findit advisable to bring forth affirma-tive evidence that any conflict didnot influence its decisionmakingprocess, evidence that would behelpful to determining whether ornot it has abused its discretion.

Id.The court went on to elaborate:For example, the administratormight demonstrate that it usedtruly independent medical examin-ers or a neutral, independent reviewprocess; that its employees do nothave incentives to deny claims; thatits interpretations of the plan havebeen consistent among patients; orthat it has minimized any potentialfinancial gain through structure ofits business (for example, through aretroactive payment system).

Id. n. 7.In sum, the Ninth Circuit has in

effect turned the tables, removingfrom plaintiffs the burden of provingthat a conflict influenced theadministrator’s decision and insteadplacing upon administrators the bur-den of showing that the conflict didnot influence its decision.

Discovery Post-Abatie

In the weeks since Abatie, plaintiffs at-torneys have begun filing motions tocompel based on their assertion that,paradoxically, the Ninth Circuit’s de-cision somehow authorizes even morediscovery on the conflict of interestthan previously allowed underAtwood. Why would they think this?It likely has to do with the NinthCircuit’s apparent assumption thatconflicted administrators invariablystack the deck against claimants, andthat the court may consider the full


parade of horribles in analyzing theadministrator’s decision:

The level of skepticism with whicha court views a conflictedadministrator’s decision may below if a structural conflict of inter-est is unaccompanied, for example,by any evidence of malice, or self-dealing, or of a parsimoniousclaims-granting history. A courtmay weigh a conflict more heavilyif, for example, the administratorprovides inconsistent reasons fordenial, Lang, 125 F.3d at 799; failsadequately to investigate a claim orask the plaintiff for necessary evi-dence, Booton v. Lockheed Med. Ben-efit Plan, 110 F.3d 1461, 1463-64(9th Cir. 1997); fails to credit aclaimant’s reliable evidence, Black& Decker Disability Plan v. Nord,538 U.S. 822, 834 (2003); or hasrepeatedly denied benefits to de-serving participants by interpretingplan terms incorrectly or by mak-ing decisions against the weight ofevidence in the record.Abatie, 458 F.3d at 968-69.Suggesting that the district court

may consider the above types of evi-dence in determining the level ofscrutiny to give to an administrator’sdecision is a far cry from authorizingdiscovery to seek out such evidence,however. Indeed, each of the casescited by the court in the above para-graph involved conflicts apparent fromthe face of the record. Lang, 125 F.3dat 799 (conflict evidenced byadministrator’s inconsistent reasonsfor denying plaintiff ’s claim at initiallevel and then on appeal); Booton, 110F.3d at 1463 (administrator deniedplaintiff ’s claim for medical benefitswithout first obtaining or reviewingmedical records); Nord, 538 U.S. at

834 (noting that although an admin-istrator is not required to defer to theclaimant’s treating physician, it mustcredit a claimant’s reliable evidence).

That the court looks to the recordto determine the level of scrutiny isalso supported by the Ninth Circuit’sinterpretation of Firestone:

We read Firestone to require abuseof discretion review whenever anERISA plan grants discretion to theplan administrator, but a review in-formed by the nature, extent, andeffect on the decision-making pro-cess of any conflict of interest that ap-pears in the record.

Id. at 967 (emphasis added).Plaintiffs also argue that Abatie au-

thorizes discovery because it con-firmed that the court may considerevidence outside the administrativerecord in determining the nature andextent of the conflict of interest. Id.at 970. A closer look at the decision,however, does not support this inter-pretation.

Specifically, after confirming thatthe scope of the court’s review is gen-erally limited to the administrativerecord, the Ninth Circuit went on tostate:

A subtler question arises when acourt must decide how muchweight to give a conflict of interestunder the abuse of discretion stan-dard. In making that determina-tion, the court may considerevidence outside the record. Wehave held that the court may con-sider evidence beyond that con-tained in the administrative recordthat was before the plan adminis-trator, to determine whether a con-flict of interest exists that wouldaffect the appropriate level of judi-cial scrutiny. See Tremain, 196 F.

3d at 976-77 (holding that a courtmay consider extra-record evidenceto determine whether the adminis-trator was plagued by a conflict ofinterest); see also Kosiba v. Merck &Co., 384 F.3d 58, 67 n. 5 (3rd Cir.2004)(holding that a district courtmay supplement the record in or-der to decide whether a conflict ofinterest exists), cert denied, 544U.S. 1044 (2005).

Id.As with the cases cited in the previ-

ous passage, neither Tremain norKosiba concerned evidence obtainedthrough conflict of interest discovery.In Tremain, the extra-record evidenceat issue consisted of plaintiff ’s paystubs, W-2 returns, and employmentcontract, all of which were inplaintiff ’s possession and which sheproffered to demonstrate that the ad-ministrator failed to consider relevantevidence in determining her ability tomeet the plan’s earnings requirement.In Kosiba, the court authorized theparties to submit details of the plan’sfunding arrangements in order to de-termine whether an apparent conflictexisted at all.

In sum, none of the cases cited bythe Abatie court support the need forplaintiff to have discovery on the na-ture and extent of a conflict of inter-est. Now that Atwood is gone, there isno reason for plaintiffs to have anydiscovery at all.

Responding to Plaintiffs’

Arguments

Of course, there is always FRCP 26 tocontend with, and plaintiffs will nodoubt argue that since the court nowhas discretion to look beyond the ad-ministrative record to evaluate the se-


riousness of the conflict of interest,they are entitled as a matter of courseto seek information from the adminis-trator likely to lead to the discovery ofrelevant admissible evidence. How-ever, just because the court has thediscretion to look beyond the admin-istrative record does not create a corre-sponding right to mine theadministrator’s records in search of ahypothetical smoking gun conflict, soto speak.

The belief by some plaintiffs’ attor-neys that Abatie allows discovery is ar-guably based on a misinterpretationof the above quoted portions from theopinion. They simply assume that ifthe court can look outside the recordat evidence in order to determine thelevel of judicial scrutiny to be given,they necessarily have the right to dis-cover all of the various potentiallybad, self-interested things the admin-istrator may be doing in order toratchet the level of review to an evermore stringent standard. Arguably,however, such discovery would runafoul of ERISA’s goal of providing “amethod for workers and beneficiariesto resolve disputes over benefits inex-pensively and expeditiously.” Taft v.Equitable Life Assur. Soc’y, 9 F.3d1469, 1472 (9th Cir. 1993).

In the absence of definitive guid-ance from the Ninth Circuit delineat-ing the appropriate scope of discovery(if any) in ERISA cases, it is helpful tolook at how other circuits seek to ef-fectuate the goals of ERISA. The Sev-enth Circuit recently confirmed therationale behind the general prohibi-tion on discovery in ERISA cases:

Congress has not provided ArticleIII courts with the statutory au-thority, nor the judicial resources,to engage in a full review of the

motivations behind every planadministrator’s discretionary deci-sions. To engage in such a reviewwould usurp plan administrators’discretionary authority and movetoward a costly system in which Ar-ticle III courts conduct wholesalereevaluations of ERISA claims. Im-posing onerous discovery before anERISA claim can be resolved wouldundermine one of the primary goalsof the ERISA program: providing“a method for workers and benefi-ciaries to resolve disputes over ben-efits inexpensively andexpeditiously.” … While claim-ants who believe they are the vic-tims of arbitrary and capriciousbenefits decisions should feel freeto seek relief in federal court, trialjudges must exercise their discre-tion and limit discovery to thosecases in which it appears likely thatthe plan administrator committedmisconduct or acted with bias.

Semien v. Life Ins. Co. of N. America,436 F.3d 805, 815-16 (7th Cir2006)(internal citation omitted).

Notwithstanding the foregoing,however, the Seventh Circuit did ac-knowledge that some limited discov-ery might be appropriate if theclaimant is able to make specific fac-tual allegations of misconduct or biasin a plan administrator’s review proce-dures:

Although discovery is normally dis-favored in the ERISA context, attimes additional discovery is appro-priate to ensure that plan adminis-trators have not acted arbitrarilyand that conflicts of interest havenot contributed to an unjustifiabledenial of benefits. In these excep-tional cases, where a district courtallows limited discovery based on

what appears to be a sustainable al-legation, the district court mustmonitor discovery closely. In thissupervisory role, the district courtshould employ all available tools,including the imposition of Rule11 sanctions against those whowould abuse the discovery process.

Id. at 814-15.The court held that the claimant

must first demonstrate two factors be-fore limited discovery becomes appro-priate:

First, a claimant must identify aspecific conflict of interest or in-stance of misconduct. Second, aclaimant must make a prima facieshowing that there is good cause tobelieve limited discovery will reveala procedural defect in the planadministrator’s determination.

Id. at 815.Although Seventh Circuit decisions

are not binding in the Ninth Circuit,the Semien case provides a persuasiveargument that plaintiffs should not beallowed conflict of interest discoveryabsent a showing that such discoverywill in fact lead to evidence of theadministrator’s bias.

In addition to the foregoing,though, not only did the Abatie courtremove the burden from the plaintiffsand repeatedly emphasize conflictsapparent from the face of the record,it expressly rejected the “sliding scale”metaphor which would support an ar-gument that plaintiffs should getmore and more discovery to makescrutiny even stricter:

A district court, when faced withall the facts and circumstances,must decide in each case how muchor how little to credit the planadministrator’s reason for denyinginsurance coverage. An egregious


conflict may weigh more heavily(that is, may cause the court tofind an abuse of discretion morereadily) than a minor, technicalconflict might. But in any givencase, all the facts and circumstancesmust be considered and nothing“slides,” so we find the metaphorunnecessary and potentially confus-ing.

Id. at 9.In other words, because the scale

does not “slide,” there is no need forplaintiffs to obtain more and more evi-dence of conflict to pile, like bricks, onthe scale of judicial scrutiny. Thecourt simply considers the facts andcircumstances apparent from therecord, or, “in the court’s discretion,”from outside the administrative record.

Plaintiffs may question how canthey make these arguments withoutdiscovery? Well, they do it all thetime.It is relatively common for plaintiffs tocite other cases in which the adminis-trator denied a fibromyalgia claim toassert that the administrator has a pat-tern and practice of denyingfibromyalgia claims. They cite othercases in which the same physician con-sultant was used in order to argue thatthe physician is clearly in theadministrator’s pocket. They assertthat the administrator required “objec-tive evidence” when the plan does nothave an objective evidence require-ment. They argue that the administra-tor denied the claim withoutconducting an IME. All of these argu-ments are routinely made, all of them(under Abatie) would be relevant to thecourt’s determination of whether theadministrator abused its discretion,and none of them requires discovery.

The trickier issue is the Ninth

Circuit’s suggestion that the adminis-trator may wish to come forward withexculpatory evidence. As an initialmatter, the Abatie court made it clearthat it is up to the administratorwhether it wishes to present such evi-dence or not. In that regard, there isno basis to assume that the plaintiffcan force the administrator’s hand byseeking such evidence in discovery.Before the administrator comes for-ward with evidence, the plaintiff ’s re-quest will be nothing more than afishing expedition.

If the administrator does come for-ward with evidence, what then? Well,it depends on what the evidence isand how that evidence comes beforethe court.

If, for example, plaintiff arguesfrom the record and other case lawthat the administrator always referscases to Dr. X, and Dr. X always de-termines that the claimant is not dis-abled, then the administrator maywish to submit a declaration showingthat in fact a review of Dr. X’s opin-ions shows that he supports theclaimant’s disability in 75% of thecases. Once such evidence is pre-sented, however, the door has beenopened and court may be hard-pressed to deny the plaintiff the op-portunity to depose Dr. X on theinformation contained in his declara-tion.

Conclusion

In sum, until the courts begin issuingdecisions delineating their interpreta-tion of discovery in a post-AbatieNinth Circuit, a fair reading of Abatiestrongly supports the conclusion thatthere is no longer any reason forplaintiffs to seek or obtain discovery

on an administrator’s conflict of inter-est unless and until the administratorplaces a fact in issue by presenting itas exculpatory evidence. Prior to theadministrator “opening the door,” nodiscovery should be allowed.

Of course, whether this positionwill prevail in the district courts re-mains to be seen, but for now thereseems to be no compelling reason toallow onerous or invasive discoverywithout first arguing that the right toconflict of interest discovery waseliminated along with the Atwoodburden of proof.


Texas Court Approves Severance and Trial ofRescission Counterclaim before Benefit ClaimsJAMES “J.R.” POTTS, JR.Christopher A. Neal and AssociatesBedford, [email protected]

It’s a familiar story: An insured visitshis physician. The physician’s officebills the insured’s health insurancecompany. The insurance companydenies the claim. The insured thenfiles a lawsuit claiming breach of con-tract and breach of the duty of goodfaith and fair dealing.

It then becomes the task of the de-fense attorney to investigate and dis-cover the following: Why did theinsurance company deny the claim?Was the claim payable? Did the in-surance company properly investigatethe claim prior to the denial? Did theinsurance company act in bad faith?And the ultimate question for the de-fense-minded attorney, “did the in-sured do anything wrong?”

Of course, the first billable hoursspent on any insurance defense caseare spent investigating the actions ofthe insured and the insurance com-pany and preparing the answer and, ifapplicable, the counterclaim. The lawin Texas has evolved to recognize thatan insurer has a powerful tool to de-fend against a plaintiff-insured whoclaims that the insurer improperly orgroundlessly refused to pay a claim.This new tool is a counterclaim for re-scission coupled with a request thatthe rescission issue be separated fromthe insured’s claims under the insur-ance contract and tried prior to those

claims. If the insurance contract isproperly rescindable, the contract be-comes null and void from the begin-ning and the plaintiff ’s claims arisingout of that insurance contract becomemoot. If used appropriately, this toolcan greatly reduce litigation costs andincrease judicial efficiency.

When a potential insured appliesfor health or life insurance, the appli-cation will contain a questionnaire re-garding the applicant’s medical andhealth history. The questionnaire willalso contain a certification, to besigned by the applicant, that the an-swers on the questionnaire are trueand correct to the best of theapplicant’s knowledge. This verifica-tion will usually contain a warning tothe applicant that a false, deceptive ormisleading answer on the question-naire may be grounds for the insur-ance company to refuse to issuecoverage or seek other civil or criminalremedies.

Once an application has been com-pleted and submitted to the insurancecompany, it is sent to underwritingfor review of the medical and healthhistory and a determination ofwhether to issue coverage. If coverageis to be issued, what qualificationsand/or exclusions will be made a partof the coverage, if any, is also deter-mined.

Under Texas law, the underwritingdepartment has the right to rely onthe responses on the application astrue. An applicant who has misrepre-sented information on the application

cannot later argue that the insurancecompany had a duty to discover theapplicant’s misrepresentations. KoralIndus., Inc. v. Security-Connecticut LifeIns. Co., 788 S.W.2d 136, 142(Tex.App.-Dallas 1990, writ denied),quoting Labbe v. Corbett, 69 Tex. 503,509, 6 S.W. 808, 811 (Tex. 1888).

If the misrepresentations on the ap-plication are not revealed or discov-ered by the underwriting department,coverage will issue based on those re-sponses. At this point, the option torescind the contract has not ripenedbecause the insurer is unaware thatthe application contains misrepresen-tations that, if the truth were knownto the insurer, would have changedthe type of coverage issued or causedthe insurer to decline to issue coveragealtogether. The option to rescind aninsurance contract does not arise untilthe insurer: (1) learns of the misrep-resentations and (2) determines that,had it known of the misrepresenta-tions, coverage would not have beenissued. Koral Indus., 788 S.W.2d at149-50.

Once the insurer learns that thereare material misrepresentations on theapplication and determines that itwould not have issued coverage if theapplicant’s true medical and healthhistory had been disclosed, in order torescind the insurance coverage the in-surer must timely notify the insuredof its intent to rescind and make avail-able for return the premiums paid bythe insured.

Under Tex. Ins. Code §21.17 (re-



pealed effective April 1, 2005), timelynotice to the insured of the intent torescind was considered to be within90 days of the insurer discovering thefalsity of the representations and de-termining that the misrepresentationswould have made a material differencein the insurer’s decision to extendcoverage. Under the current law, theinsurer may use an insured’s materialmisrepresentation on the applicationas a defense if the insurer gave noticeto the insured of its intent not to bebound by the policy before 91 daysafter the date the insurer discoveredthe misrepresentation. Tex. InsuranceCode §705.005.

Severance of Rescission

Counterclaim Approved

If the insured does file suit against theinsurer based on the denial of a claim,then what? At least one Texas appel-late court has recognized that litiga-tion costs will be reduced and judicialefficiency will be increased by allow-ing an insurer to proceed to trial on acounterclaim for rescission of the in-surance policy based on the materialmisrepresentations in the insuranceapplication. See In Re Myers, 07-06-0050-CV (Tex.App.-Amarillo [7th

Dist.] Feb. 9, 2006).In its opinion, the appellate court

also held that the trial court had dis-cretion in severing the rescissioncounterclaim from the plaintiff ’sbreach of contract and bad faithclaims and determining whether theunderlying insurance policy was prop-erly rescinded. In so holding, the ap-pellate court recognized that the trialcourt’s decision to sever and decidethe issue of rescission first was reason-able. It found that “[e]ver increasing

docket loads should stimulate theadoption of creative procedures forspeedily addressing disputes. And, wehesitate to interfere with the exerciseof those creative efforts so long as theycomport with lawful discretion.” In ReMyers, supra.

The rationale upon which the trialcourt based its decision to sever therescission counterclaim from the re-maining claims and allow the jury todecide the rescission issue first was thefact that if the underlying contract hasbeen properly rescinded there is nocontract.

If there is no contract, then therecan be no breach of that contract byeither party and there is no duty ofgood faith and fair dealing or duty toproperly investigate upon the insurer.In Re Myers, supra, citing In Re CertainUnderwriters, 18 S.W.3d 867, 873-74(Tex.App.-Beaumont 2000, orig. pro-ceeding) (noting that rescission of thecontract would moot those claimsfounded upon the contract); and KoralIndus., Inc. v. Security-Connecticut LifeIns. Co., 788 S.W.2d 136, 147-48(Tex.App.-Dallas 1990, writ denied)(observing that before one can succeedon claims involving the failure tosettle and in unreasonably denying aclaim, there must first be an enforce-able insurance policy).

In Myers, the application for healthinsurance of the plaintiff ’s husband(“Mr. Long”) contained a number ofmisrepresentations regarding hismedical and health history. Amongthose misrepresentations was the de-nial that the applicant had ever had ahistory of, or received treatment for,kidney stones. Further, the applica-tion failed to disclose that Mr. Longcurrently had hemiplegia (a conditionwhere one limb is paralyzed).

While the application was in un-derwriting, and before coverage wasissued, the insurer, Mega Life beganreceiving medical bills for the appli-cant for treatment he was receiving forcancer. However, due to the fact thatcoverage had not yet been issued, theclaims were denied. Coverage was ul-timately issued based on the informa-tion contained in the application.

Approximately two months afterapplying for insurance, Mr. Longpassed away. His widow thenbrought an action against Mega Life,including claims, inter alia, for failureto properly investigate whether theclaims were covered, for breach ofcontract, and for breach of the duty ofgood faith and fair dealing. Duringthe course of discovery, Mega Lifelearned that Mr. Long had a history ofrecurrent kidney stones and had un-dergone numerous treatments andhospitalizations for that condition.Mega Life further learned that Mr.Long had been seen by numerousphysicians for a spot on his lung, andhad recently been seen and treated forhemiplegia of his right foot.

Upon learning of these conditionsthat were omitted from the insuranceapplication, Mega Life requested thatits underwriting department re-evalu-ate the application based on thisnewly-discovered information. Un-derwriting determined that, had theseconditions been disclosed on the ap-plication, Mega Life would not haveextended health insurance coverage.Based on underwriting’s determina-tion, Mega Life rescinded the policyby filing its counterclaim for rescissionagainst the plaintiff. Such notice ofrescission, by including it in thepleadings, is appropriate. See PermianBasin Life Ins. Co. v. Stuart, 357


S.W.2d 615, 616 (Tex.Civ.App.-Houston 1962, writ dism’d).

Rescission Counterclaim Tried

before Benefit Claim

Mega Life subsequently moved for thetrial court to sever the rescission coun-terclaim and abate the plaintiff ’s con-tractual and extra-contractual claimsat the time of trial, in order that therescission counterclaim could be triedfirst. The trial court granted MegaLife’s motion and severed the rescis-sion counterclaim from the other con-tractual and extracontractual claimsand ordered that it be heard first andprior to the remaining claims.

Plaintiff petitioned the appellatecourt for a writ of mandamus. In de-nying the writ the appellate court rec-ognized that severance of therescission counterclaim was not an

abuse of discretion. This determina-tion was due to the fact that theplaintiff ’s claims against Mega Lifewere based on the presence of a validcontract and that if there were novalid contract, Plaintiff would have noclaims resulting therefrom.

The appellate court also held thatthe plaintiff ’s claims were not so in-terwoven with the rescission counter-claim as to involve the same operativefacts, issues, or causes of action. Fur-ther the appellate court recognizedthat the allegations upon which MegaLife was seeking relief were differentcauses of action than the allegationsupon which the plaintiff was seekingrelief. In Re Myers, supra.

After the appellate court’s decisionon mandamus, the issue of rescissionwas tried to a jury. The jury foundthat Mr. Long’s application containedmisrepresentations and that the mis-

representations were material to MegaLife’s decision to issue coverage.Therefore, Mega Life had the right, ifnot the duty, to rescind the coveragebased on these material misrepresen-tations that affected Mega Life’s deci-sion.

In conclusion, rescission as a coun-terclaim and severance of that coun-terclaim from the underlyingcontractual and extra-contractualclaims are tools now available to aninsurer in order to avoid an insurancepolicy when it learns that the policywas procured due to a misrepresenta-tion by an insured or potential in-sured. By so pleading, the insurer cangreatly decrease the litigation timeand expense and move the lawsuitalong to a favorable conclusion fasterand with less judicial time expended.

FOR PREVIOUS ISSUES OF THIS NEWSLETTER . . .

Previous issues of Life, Health and Disability News are available via the internet at the home page of the Life, Health andDisability Committee. To access every issue since Winter 1999, go to DRI’s web site at www.dri.org.

http://www.dri.org


ERISA UPDATE

Can Assisting a Participant to Obtain SocialSecurity Benefits Prejudice a SubsequentERISA Disability Determination?

KENTON J. COPPAGE

Carter & Ansley LLPAtlanta, [email protected] E. SCHMIDTKE

Schmidtke Hoeppner Consultants LLPValparaiso, [email protected]

Courts generally have recognized thatthe award of disability benefits by theSocial Security Administration is notbinding on a plan administrator’s de-cision under the terms of an ERISA-governed disability plan. See, e.g.,Paese v. Hartford Life and Accident Ins.Co., 449 F.3d 435 (2d Cir. 2006);Marciniak v. Prudential Fin. Ins. Co. ofAm., 184 Fed. Appx. 266 (3d Cir.2006); Whatley v. CNA Ins. Cos., 189F.3d 1310 (11th Cir. 1999).

Indeed, as the Supreme Court hasexplained, there are “critical differ-ences between the Social Security dis-ability program and ERISA benefitplans.” Black & Decker Disability Planv. Nord, 538 U.S. 822, 832 (2003).“In determining entitlement to SocialSecurity benefits, the adjudicatormeasures the claimant’s conditionagainst a uniform set of federal crite-ria.” Id. at 833. “‘[T]he validity of aclaim to benefits under an ERISAplan,’ on the other hand, ‘is likely toturn,’ in large part, ‘on the interpreta-

tions of terms in the plan at issue.’”Id., quoting Firestone Tire & RubberCo. v. Bruch, 489 U.S. 101, 115(1989).

Moreover, unlike the Social Secu-rity decision maker, a plan administra-tor is under no obligation to defer tothe opinion of the claimant’s treatingphysicians. See, e.g., Nord, 538 U.S.at 822-23 (rejecting the treating phy-sician rule in ERISA cases); Jett v. BlueCross and Blue Shield of Ala., Inc., 890F.2d 1137, 1140 (11th Cir. 1989).Rather, an ERISA fiduciary shouldweigh all of the evidence presented.Halpin v. W.W. Grainger, Inc., 962F.2d 685, 695 (7th Cir. 1992). Con-sequently, as some courts have noted,the fact that the Social Security Ad-ministration “reached a different con-clusion, under a different standard,does not mean that the decision of[the plan] was incorrect or ill-consid-ered under the standard which hereapplies.” Freeman v. Sickness & Acc.Disability Plan, 823 F. Supp. 404,416 (S.D. Miss. 1993).

Nonetheless, courts also generallyhold that an award of Social Securitydisability benefits may be consideredin determining the propriety of a ben-efits denial under the terms of anERISA plan. See, e.g., Marciniak, 184Fed. Appx. at 269 (Social Security de-cision “may be considered as a factor

in evaluating whether a plan adminis-trator has acted arbitrarily and capri-ciously in reviewing a plaintiff ’sclaim”); Paese, 449 F.3d at 442 (“Thecourt acted well within its discretionwhen it considered the SSA’s findingsas some evidence of total disability . .. .”); Kirwan v. Marriott Corp., 10F.3d 784, 790 n.32 (11th Cir. 1994)(“A district court may consider theSocial Security Administration’s deter-mination of disability in reviewing aplan administrator’s determination ofbenefits.”).

Insurer Has an Incentive to Assist

with SSDI Claim

A potentially thorny issue arises whenthe plan administrator or claims ad-ministrator, in the case of an insurer,has assisted the participant in securingSocial Security disability benefits.The receipt of such benefits typicallyacts as an offset to benefits due underthe terms of the plan, and the termsof the plan generally require some at-tempt on the part of a participant tosecure such government benefits.

Insurers and employers, where theplan is self-funded, have an incentiveto facilitate the receipt of Social Secu-rity disability benefits by a participantwho has a claim for benefits under theplan. As a result, it is not uncommon




for insurers to refer participants tovendors who aid participants in apply-ing for Social Security disability ben-efits and in seeking reconsideration ofdenied claims. Sometimes, the feesfor such services are paid by the in-surer.

What happens when a participanthas succeeded in obtaining SSDI ben-efits with the assistance of theinsurer’s vendor, only to have his orher ERISA disability claim subse-quently denied by the insurer? Justsuch a scenario was addressed inGlenn v. MetLife, 461 F.3d 660 (6thCir. 2006).

Glenn was a sales manager for SearsRoebuck until April 2000, when shewas diagnosed with “severe dilatedcardiomyopathy” and took a medicalleave of absence. She submitted aclaim for disability benefits to theplan’s insurer, and her claim was ap-proved under the “own occupation”definition applicable to the first 24months of disability.

Thereafter, Glenn sought SSDIbenefits, according to the court, “atthe direction of plan administrators,who steered Glenn to Kennedy & As-sociates, a law firm specializing in ob-taining such benefits.” The claim wasinitially denied by the Social SecurityAdministration, but eventually wasapproved after an administrative lawjudge found in Glenn’s favor. Glennreceived retroactive benefits, andMetLife requested and received reim-bursement of an overpayment createdby the Social Security award.

As Glenn approached the “any oc-cupation” period, MetLife evaluatedher claim again and ultimately con-cluded that the evidence did not “sup-port cardiovascular impairment thatwould prevent [her] from performing

full time sedentary work.” Glenn wasadvised that her benefits would terminateeffective September 16, 2002.

The decision was affirmed on adminis-trative review after an independent medi-cal review of the claim, which the courtlabeled “equivocal.” The district courtgranted judgment in favor of MetLife onthe administrative record.

The Sixth Circuit agreed that the dis-trict court had appropriately reviewedMetLife’s decision under the arbitraryand capricious standard since the plancontained a grant of discretion. However,the court concluded that the districtcourt had erred in its review under thatstandard.

After concluding that the districtcourt failed to weigh the insurer’s conflictof interest, the Sixth Circuit then ad-dressed Glenn’s argument that MetLifewas arbitrary in failing to consider theSSDI award. Specifically, Glenn assertedthat the insurer “took blatantly inconsis-tent positions – relying on the finding bythe Social Security administrative lawjudge that she was totally disabled butcontending that she was capable of per-forming sedentary work in denying herERISA benefits.”

The Sixth Circuit concluded thatthere were “two ramifications” for the ap-peal arising out of the Social Security de-cision. In addition to the insurer’s failureto address the contrary determination bySocial Security, the court concluded that“MetLife assisted Glenn in obtaining So-cial Security benefits and reaped a finan-cial benefit of its own when thatassistance was successful.”

According to the court, it was “obvi-ous that both factors are relevant in de-termining whether MetLife’s decisionwas arbitrary and capricious.”

Sixth Circuit Looks to “Penumbra”

of Judicial Estoppel

The court was influenced by the Sev-enth Circuit’s decision in Ladd v. ITTCorp., 148 F.3d 753 (7th Cir. 1998),in which that court found a similarsituation “within the penumbra of ju-dicial estoppel.” Concluding that theconcept of judicial estoppel was “tech-nically not applicable,” the SeventhCircuit nonetheless concluded that its“spirit” may be applied in some cir-cumstances:

To lighten the cost to the . . . planof Ladd’s disability the defendantsencouraged and supported her ef-fort to demonstrate total disabilityto the Social Security Administra-tion, going so far as to provide herwith legal representation. To fur-ther lighten that cost, it thenturned around and denied thatLadd was totally disabled, eventhough her condition had mean-while deteriorated. In effect, hav-ing won once the defendantsrepudiated the basis of their firstvictory in order to win a second vic-tory. This sequence casts additionaldoubt on the adequacy of theirevaluation of Ladd’s claim, even ifit does not provide an independentbasis for rejecting that evaluation.

The “penumbra” rationale of Ladd,the Sixth Circuit noted, had beenadopted in one of its own subsequentopinions, Darland v. Fortis Benefits Ins.Co., 317 F.3d 516 (6th Cir. 2003),overruled on other grounds by Nord, 538U.S. 822.

According to the court’s opinion inGlenn, the district court had foundthe claim distinguishable from Laddbecause the record before the adminis-trative law judge had not included a


report from one of Glenn’s treatingphysicians in which he indicated thatGlenn could perform a sedentary oc-cupation. Moreover, the district courthad concluded that it was unclearwhether MetLife had benefitted fromGlenn’s award of Social Security ben-efits.

Neither explanation was satisfactoryto the Sixth Circuit. The treatingphysician had later clarified his re-port, and there was “no indication inthe record that Glenn’s governmentbenefits [had] ever been discontin-ued,” the court wrote. Moreover, thecourt continued, it was “abundantlyclear on the record that Glenn reim-bursed MetLife for overpayment ofbenefits, based on her receipt of SocialSecurity benefits.”

The court concluded that “[h]avingbenefitted financially from thegovernment’s determination thatGlenn was totally disabled, MetLifeobviously should have given appropri-ate weight to that determination.”While the failure to do so did not“render the decision arbitrary per se,”the court wrote, “it is obviously a sig-nificant factor to be considered uponreview.”

Conclusion

Decisions such as Glenn are sure to befrustrating to plan administrators be-cause they arguably ignore the reality

of the Social Security disability sys-tem. As one court has recognized,“[t]he Social Security Act was in-tended to be liberally construed, em-phasizing inclusion rather thanexclusion.” Pokol v. E.I. duPont deNemours and Co., Inc., 963 F.Supp.1361, 1380 (D.N.J. 1997) (citationsomitted).

Attorneys and others familiar withthe Social Security disability programrecognize, at least anecdotally, thatthe persistence of the claimant is oftenas important as the merits of theclaim in ultimately obtaining anaward of benefits. Moreover, once anaward of Social Security benefits hasbeen made, the claim is unlikely to besubject to ongoing evaluation or scru-tiny. Thus, as a practical matter, thefact that a claimant’s government ben-efits have not been “discontinued” ishardly a reliable indicator that theclaimant remains disabled under theterms of any particular employee ben-efit plan.

Decisions such as Glenn also ignorethe fact that Social Security and pri-vate disability decisions are made bydifferent people under different cir-cumstances, most often applying dif-ferent presumptions, frequently basedon different disability definitions, andmore often than not, applying differ-ent evidence. It is the rare private dis-ability file that will contain all of theevidence presented in the Social Secu-

rity proceeding. Moreover, it is theexperience of these authors that whena private disability plan does have ac-cess to the Social Security evidence,there are substantial differences. Inmost cases, evidence in the privatedisability file that supports denial isnowhere to be found in the Social Se-curity file.

Yet, it is not difficult to understandthe superficial appeal of the judicialestoppel “penumbra” rationale ad-vanced by these courts. Insurers andplan administrators who affirmativelyassist a participant in obtaining SocialSecurity benefits should be preparedto explain why a future denial of planbenefits is justified notwithstandingthe Social Security award. Ignoringthe award altogether under such cir-cumstances may ultimately undercutthe credibility of the plan’s claim de-cision once it reaches the courts.

EDITORIAL INFORMATION

Life, Health and Disability News is published quarterly by the DRI’s Life, Health and Disability Committee. Articles andcase summaries should be submitted for publication via e-mail to Newsletter Editor Kenton J. Coppage of Carter &Ansley LLP in Atlanta (see p. 2). Submissions are encouraged and welcomed. The deadline to submit articles and casesummaries for the next issue is January 16, 2007.


Network News

KENTON J. COPPAGE

Carter & Ansley LLPAtlanta, [email protected]

California

Assignees of Insurance Bad FaithClaims May Recover Attorneys’FeesIn Essex Ins. Co. v. Five Star Dye House,Inc., 38 Cal.4th 1252, 137 P.3d 192(2006), the California Supreme Courtrecently upheld an assignee’s right torecover “Brandt fees” from an insurerunder an assigned claim for “badfaith.”

“Brandt fees” refers to Brandt v. Su-perior Court, 37 Cal.3d 813, 693 P.2d796 (1985), in which the court heldthat an insured may recover the attor-neys’ fees that are attributable to hisor her efforts to recover policy benefitsthat were found to be unreasonablywithheld by the insurer. This is a ju-dicially created exception to the“American rule” that parties must paytheir own attorneys’ fees.

Under Brandt, attorneys’ fees are re-coverable by insureds seeking contrac-tual benefits because they are anelement of economic loss proximatelycaused by the insurer’s tort – i.e., thebad faith denial of benefits – as dis-tinguished from the fees incurred inbringing an action. For this reason,both Brandt and its progeny are clearthat attorneys’ fees related to obtain-ing extra-contractual damages (such asemotional distress damages and puni-tive damages) are not recoverable.

In Five Star, Luis Sanchez was the

owner of a trucking company. FiveStar sued Sanchez for negligence afterhe allegedly damaged a clothes dryerduring shipment. Sanchez tendereddefense of the action to his liabilityinsurance carrier, Essex, but Essex de-nied coverage and refused to defendSanchez.

After Five Star obtained a $1.3 mil-lion judgment against Sanchez,Sanchez assigned his claims againstEssex, including his bad faith claim,to Five Star. As part of that agreement,Five Star agreed to defer collection ofthe judgment against Sanchez while itpursued the assigned claims againstEssex.

The trial court found that Essexacted in bad faith by refusing to de-fend Sanchez and awarded Five Star$1.6 million in damages, but thecourt denied Five Star’s request forBrandt fees. The Court of Appeal lateraffirmed the judgment against Essexbut reversed on the issue of Brandtfees, holding that the assignment pro-vided Five Star the right to recover thepolicy benefits in full, includingBrandt fees. In doing so, the Court ofAppeal for the Second Appellate Dis-trict expressly disagreed with a con-trary appellate decision, XebecDevelopment Partners, Ltd. v. NationalUnion Fire Ins. Co., 12 Cal. App. 4th501 (1993).

On review, the California SupremeCourt agreed with the Court of Ap-peal for the Second Appellate Districtthat Brandt fees are recoverable by anassignee suing for unreasonably de-nied policy benefits. The court beganby reviewing general principles of as-signability. In California, causes of ac-tion are freely assignable unless theyare of a “purely personal nature.” Thecourt found that under current court

decisions, a claim for bad faith is as-signable, but certain types of damages– such as emotional distress damagesand punitive damages – are personalto the insured and therefore may notbe recovered by an assignee.

Turning to the facts before it, thecourt noted that Five Star sued Essexonly for the monetary value of thepolicy benefits wrongfully withheldby Essex. Five Star did not sue Essexfor tort damages or punitive damages.Therefore, the rule against assigningthe right to recover “personal” dam-ages did not prevent Five Star from re-covering Brandt fees, since those feeswere necessarily incurred to obtainthe benefits due under the policy andnothing more. According to the court,“[t]hose attorney fees do not possessany of the personal aspects that pre-clude assignment of other tort dam-ages, such as damages for emotionaldistress. They are not damages arising‘from the personal tort aspect of thebad faith cause of action.’”

In a footnote, the court specificallydisapproved Xebec to the extent it wasinconsistent with the court’s opinion.

In clarifying one aspect of the lawon assigning claims for bad faith, thisdecision potentially enlarges the li-ability of insurers. In California, in-surers now may be liable for attorneys’fees related to an unreasonable denialof benefits asserted by an insured oran insured’s assignee.Joseph E. LaskaManatt, Phelps & Phillips, LLPLos Angeles, [email protected]




Massachussetts

Court Upholds Life Policy’sTermination Provision asUnambiguousIn Sullivan v. Southland Life Ins. Co.,67 Mass. App. Ct. 439 (2006), theinsured had made a one sum paymentof premiums when he purchased a lifeinsurance policy and believed that thepremiums had been paid in full. Thepolicy, however, provided under“Planned Periodic Premium” as fol-lows: “Note: It is possible that cover-age will terminate prior to age 100 ifno premiums are paid following pay-ment of the first year premium or ifthe planned premiums are insuffi-cient.”

The policy further provided“$0.00” under the column header“Monthly Premium.”

The court ruled that the above pro-vision was not ambiguous. The courtwrote: “The policy provided [the in-sured] with flexible coverage initiatedby a single premium payment thatcould lapse should his paid premiumsbecome insufficient.”

The premiums became insufficientand the policy lapsed. The courtgranted summary judgment to the in-surer.PHILIP M. HOWE

Lecomte, Emanuelson and DoyleQuincy, [email protected]

Michigan

Death by Autoerotic AsphyxiationIs Self-inflicted InjuryIn Book v. Monumental Life Ins., ___N.W.2d ___, 2006 WL 1996407(Mich. App. 2006), the court heldthat death by autoerotic asphyxiation

is self-inflicted injury. As a result, thecourt held that the decedent’s life in-surer was not required to pay benefits.

In this case, the decedent hangedhimself in his basement, using a pad-locked chain. He was standing on histiptoes on a stool when the stoolbroke. Plaintiff argued that the bro-ken stool, not the act of autoerotic as-phyxiation, caused decedent’s death.

The court noted that jurisdictionsare split over whether death by auto-erotic asphyxiation is a self-inflictedinjury. The court adopted the reason-ing of the Maryland Supreme Courtin MAMSI Life & Health Ins. v.Callaway, 825 A.2d 995 (Md. 2003),which distinguished autoerotic as-phyxiation from other self-destructive,thrill-seeking behaviors. The courtnoted that in autoerotic asphyxiation,the individual is not seeking tochange the brain’s perception from anexternal or internal intoxicant, but istrying to suffocate it in controlled,measured doses.D. ANDREW PORTINGA

Miller JohnsonGrand Rapids, [email protected].

First Circuit

Increase of Disability CoverageVoid for Failure to SatisfyCondition PrecedentIn Massachusetts Mut. Life Ins. Co. v.Fraidowitz, 443 F.3d 128 (1st Cir.2006), the court upheld the decisionof the district court which rescindedsupplemental disability insurancebased upon the insured’s representa-tion that he was not disabled. ( Thedistrict court case was reported in theWinter 2006 edition of this newslet-ter.) However, the First Circuit af-

firmed the district court not on thegrounds that the insured had made amisrepresentation, but because hefailed to meet a condition precedentfor obtaining the supplemental cover-age.

The insured, Fraidowitz, had a dis-ability policy from MassMutual. Un-der the provisions of the policy,Fraidowitz could purchase additionalbenefits during defined option peri-ods, provided he was not disabled atthe time of the application.

In February 2000, Fraidowitz sub-mitted a claim for disability benefitsdue to depression. MassMutual de-nied the claim in May 2000.

In August 2000, Fraidowitz sub-mitted an application for additionalcoverage. In response to the questionasked on the application whether hewas currently disabled, he answered“no,” adding a comment that he re-served the right to challenge the de-nial of his claim for benefits. Hisapplication for additional coveragewas approved resulting in a doublingof his maximum benefit amount.

Subsequently, MassMutual re-opened the claim and in January2001 approved it, finding Fraidowitzwas disabled as of February 2000, thedate of his original claim.MassMutual, however, refused to paysupplemental benefits on the groundsthat Fraidowitz was ineligible to pur-chase those benefits because he wasdisabled at the time he completed theform and misrepresented his answeron the application.

Litigation ensued and MassMutualbrought a motion for summary judg-ment. The district court allowed themotion. Applying Massachusetts Gen-eral Law Chapter 175, §186, the dis-trict court held that Fraidowitz’s




answer as to whether he was currentlydisabled was false, thereby increasingMassMutual’s risk of loss.

On appeal, the First Circuit statedthat it was not obvious thatFraidowitz’s answer to the questionwas a misrepresentation within themeaning of Chapter 175, §186. Thecourt, however, did find that sum-mary judgment was appropriate be-cause Fraidowitz failed to meet acondition precedent for obtaining ad-ditional coverage.

The court held that the conditionof not being disabled when applyingfor the additional coverage was a con-dition precedent. Citing Massachu-setts law, the court held that where aninsured fails to satisfy a condition pre-cedent, the coverage is void regardlessof whether there was an intent to de-ceive or an increased risk of loss.

While noting that the policy didnot use the words “condition prece-dent” to describe the no-disability re-quirement, the court observed thatMassachusetts law does not impose a“magic words requirement.” The courtlooked to the policy which stated thatif Fraidowitz were disabled, then theperiod for purchasing additional cov-erage was “postponed” until the dis-ability abated. The court held thatthe “natural meaning” of the post-ponement clause was to makeFraidowitz’s ability to buy additionalcoverage conditional on not being dis-abled. Since he did not satisfy thiscondition, the policy was void.

The court also rejected Fraidowitz’sargument that MassMutual waived itsright to enforce a condition precedentbecause it had the information neces-sary to know that he was disabledwhen it decided to issue the addi-tional coverage. The court, while

questioning whether waiver even ap-plies under Massachusetts law wherethe insured has failed to satisfy a con-dition precedent, held thatMassMutual lacked sufficient knowl-edge of Fraidowitz’s condition to ap-ply waiver.Joseph M. HamiltonJoan O. VorsterMirick O’ConnellWorcester, [email protected]@modl.com

Fourth Circuit

Participant Could Not SeekDamages for Failure to ImplementInvestment StrategyIn LaRue v. DeWolff, Boberg & Assocs.,Inc., 450 F.3d 570 (4th Cir. 2006),the plaintiff alleged that defendant fi-duciaries breached their duty to himby failing to implement the invest-ment strategy he had selected for hisemployee retirement account. Relyingon ERISA §§ 1132(a)(2) and1132(a)(3), the plaintiff sought recov-ery of the amount by which his ac-count would have appreciated had thefiduciaries followed his instructions.

The district court concluded thatthe Complaint did not request a formof relief available under ERISA, andgranted defendants’ motion for judg-ment on the pleadings under Rule12(c). The Fourth Circuit affirmed,holding that § 1132(a)(2) providesremedies only for entire plans, not forindividuals.

Following Mertens v. Hewitt Assocs.,508 U.S. 248 (1993), and Great WestLife & Annuity Ins. Co. v. Knudson,534 U.S. 204 (2002), the Fourth Cir-cuit further concluded that §1132(a)(3) does not furnish an indi-

vidualized remedy in this case, as theremedy sought by the plaintiff felloutside the scope of the “equitable re-lief ” authorized by § 1132(a)(3).

The Fourth Circuit reviewed thedistrict court’s decision de novo. As tothe plaintiff ’s argument regarding theapplicability of § 1132(a)(2), thecourt concluded that recovery mustinure to the benefit of the plan as awhole, not to particular persons withrights under the plan. The courtfound it difficult to characterize theremedy sought by the plaintiff as any-thing other than personal.

As to the plaintiff ’s argument re-garding the applicability of §1132(a)(3), the court found thatwhat the plaintiff sought was nothingother than compensatory damages(monetary relief ) which is the classicform of legal relief, and is outside therealm of traditional equitable remediesavailable under § 1132(a)(3). Thecourt found it “impossible” to con-clude that the relief sought by theplaintiff was available in equity courtsand cited with approval a Sixth Cir-cuit case involving nearly identicalfacts, Helfrich v. PNC Bank, Kentucky,Inc., 267 F.3d 477 (6th Cir. 2001).SCOTT M. TRAGER

Semmes Bowen & SemmesBaltimore, [email protected]

Sixth Circuit

ERISA Allows Award of Fees Evenafter Determination that Plaintiffis Not a “Participant”In Moore v. Lafayette Life Ins. Co., 458F.3d 416 (6th Cir. 2006), the courtaffirmed an attorneys’ fee awardagainst the plaintiff, even though thecourt determined that the plaintiff





was not a “participant” under 29U.S.C. § 1132(g).

The plaintiff filed a claim for long-term disability benefits. The insurerdenied benefits because, at the time ofthe alleged disability, the plaintiff wasan independent contractor and not anemployee. Plaintiff ’s independentcontractor status rendered him ineli-gible for benefits.

The trial court affirmed the denialof benefits, agreeing that the plaintiffwas an independent contractor. Thetrial court further held that becausehe was not an employee, the plaintiffwas not a “participant” under ERISAand therefore lacked standing to asserta claim for benefits. The trial courtawarded the defendants’ one-half oftheir attorneys’ fees in the case, notingthat some of plaintiff ’s legal theorieswere not pursued in good faith.

On appeal, the plaintiff arguedthat the trial court lacked the author-ity to award attorneys’ fees underERISA. The plaintiff noted that under§ 1132(g), a trial court may award at-torneys’ fees “[i]n any action . . . by aparticipant, beneficiary, or fiduciary.”The plaintiff reasoned that becausethe trial court ruled that the plaintiffwas not a “participant,” section1132(g) did not authorize an awardof attorneys’ fees.

In a split decision, the Sixth Circuitrejected this argument. The court re-lied on the Supreme Court’s decisionin Firestone Tire and Rubber Co. v.Bruch, 489 U.S. 101 (1989), whichheld that the term “participant” in-cludes those who have a colorableclaim to benefits. The court furthernoted that under Bell v. Hood, 327U.S. 678 (1945), a federal courtshould assume subject matter jurisdic-tion when statutory standing and

merits questions converge. The courtheld that plaintiff ’s claim was not soinsubstantial that it failed to present afederal controversy. The court there-fore held that the trial court had juris-diction to award attorneys’ fees underERISA, and it affirmed the award ofattorneys’ fees.

A dissenting judge concluded thatthe trial court lacked subject matterjurisdiction over the case and there-fore, lacked the authority to award at-torneys’ fees. The dissent reasonedthat the trial court’s finding that theplaintiff was not an employee, andtherefore not a participant, deprivedthe plaintiff of statutory standing un-der ERISA. The dissent also con-cluded that statutory standing is ajurisdictional issue, and that the lackof statutory standing deprived thefederal court of subject matter juris-diction over the dispute.D. Andrews PortingaMiller JohnsonGrand Rapids, [email protected].

Eighth Circuit

Insurer Did Not Waive Right toDeny Claim for Non-Payment ofPremiumsIn Osborn v. The Prudential Ins. Co. ofAm., 2005 WL 2464206 (W.D. Mo.Oct. 4, 2005), aff ’d, 453 F.3d 1077(8th Cir. 2006), rehearing denied,Sheryl Osborn, the beneficiary of apolicy issued to her brother, BradDraper, sued Prudential for its denialof her benefits claim.

In 1998, Prudential issued the $1million term life insurance policy,which required Draper to make quar-terly premium payments. BetweenMay 1999 and May 2002, Draper

submitted six premium paymentswithin the policy’s 31-day grace pe-riod and five premium payments dur-ing periods of Prudential’s offers toreinstate.

Each offer to reinstate notifiedDraper that the policy had lapsed butcould be reinstated subject to variousconditions, including payments of allpremiums “before the death of the in-sured.” Draper failed to timely makehis premium payment for August2002 and he committed suicide onSeptember 10, 2002 without havingmade that premium payment.

Shortly after Draper’s death,Osborn’s husband called Prudential tomake a claim under the policy andwas advised by two representativesthat the policy was in force and thatPrudential would send him a claimform. The next day, Osborn’s husbandagain called Prudential and was toldthat Draper had died nine days beforethe policy lapsed and that Prudentialwould honor the policy. Osborn sentPrudential a completed claim formand, on October 1, 2002, Prudentialdenied the claim because the policyhad lapsed for failure to pay the pre-miums.

Osborn sued Prudential for denialof the claim, asserting breach of con-tract, waiver, and estoppel claims un-der Missouri law. The district courtgranted summary judgment in favorof Prudential on all counts and deniedOsborn’s cross-motion on the waiverand estoppel claims. 2005 WL2464206.

In doing so, the district court ex-amined the current status of waiverand estoppel under Missouri insur-ance law. Among other things, thecourt noted that Missouri law prefersestoppel over waiver as a basis to bar



an insurer’s forfeiture defense, id. at *3(citing Brown v. State Farm Mut. Auto.Ins. Co., 776 S.W.2d 384 (Mo.1989)), and that although the prin-ciple that “equity abhors forfeitures”might apply with regards to estoppel,recent decisions showed that Missouricourts would not apply that principle“to find waiver in the absence of fullknowledge of the facts giving rise tothe forfeiture defense and an un-equivocal intention to relinquish thedefense.” Id. at *3.

As to Osborn’s claim that Pruden-tial waived its defense of forfeiture,the court found that Prudential’s con-duct did not establish an intentionalrelinquishment of a known right be-cause the evidence did not “demon-strate either that Defendant was fullyaware of the facts giving rise to thelapse defense, or that Defendant madean unequivocal expression of an intentto honor the policy and pay the ben-efit to Plaintiff in spite of the availabil-ity of such a defense.” Id. at *5(emphasis in the original). The courtthen rejected Osborn’s argument thatignorance or mistake is no defense towaiver, finding that principle appliedto claims based on estoppel and notwaiver. Id. at *3.

Finally, the court also rejectedOsborn’s argument that Prudentialimpliedly waived its forfeiture defenseby sending Osborn the forms neces-sary to make a claim, explaining that“[i]n the insurance society we live in,the mere distribution of forms to es-tablish proof of death of the insured,even while the policy was lapsed andnot in effect, cannot reasonably be in-ferred that the insurer intended towaive payment of the premium andthe lapsing of the policy.” Id. at *5.

On Osborn’s estoppel theory, the

district court first noted that the Mis-souri Supreme Court has “reaffirmedthat reliance is the key when plaintiffsseek to bar an insurer’s assertion of theforfeiture defense under a theory of es-toppel.” Id. at *6 (citing Brown, su-pra.).

Two types of reliance have emergedin Missouri: “(1) reliance from mis-leading or deceptive acts or conduct;or (2) expense or trouble incurred bythe third party deriving from the actsor conduct of the insurer,” and in ei-ther case “the reliance must be actual… and reasonable.” Id. (internal cita-tions omitted). The district courtfound that Osborn had not advancedany facts to show she was misled ordeceived by Prudential’s conduct. Thecourt then rejected her argument thatpayment of $19.95 to submit theclaim form, insurance policy, anddeath certificate satisfied the “expenseor trouble” category of reliance.

Although the Missouri courts hadnot clearly defined “how muchtrouble or expense” is required, thecase law did establish that it must be“significant.” Id. at *6. The court con-cluded that Osborn’s effort in submit-ting the claim was “simply notsignificant under any standard andthat no other facts exist in the recordto support a determination that sherelied to her detriment or otherwisechanged her position ‘on the faith’ ofthe statements by the defendant’s rep-resentatives.” Id.

Finally, the court also rejectedOsborn’s argument that Prudentialwas estopped from denying the claimbecause it had accepted late premiumpayments from Draper, finding thatwhile Prudential had accepted severalpremium payments Draper made afterthe policy’s 31-day grace period, such

payments were accepted as part of of-fers to reinstate, which allowed for re-instatement of the policy if all duepremiums were paid and the insuredwas alive. The court concluded that atall times, Prudential had acted in con-formity with its written policy ongrace periods and reinstatements, anddid not allow the reinstatement of thepolicy without strict adherence to therequirements specified. Id. at *7.

Osborn appealed the districtcourt’s summary judgment rulingonly as to her waiver claim. TheEighth Circuit held that the districtcourt correctly determined that thefacts did not establish waiver. 453F.3d at 1079. The court also foundthat the lower court had properly re-fused to apply the “equity abhors for-feitures” principle to her waiver claim,explaining that recent Missouri casesillustrate that although the principlemay apply to estoppel, it has beenabandoned with respect to waiver. Id.(citing Brown, 776 S.W.2d at 388).Daniel J. McMahonJason M. KuzniarCINTHIA G. MOTLEY

Wilson, Elser, Moskowitz, Edelman &Dicker LLP

Chicago, [email protected]@[email protected]

Connecticut District Court

Court Upholds Insurer’sCalculation of Life InsuranceBenefitsIn Fritz v. Standard Ins. Co. 2006 WL2475243 (D. Ct. Aug. 25, 2006),the court upheld Standard’s calcula-tion of benefits under an arbitrary andcapricious standard.





Plaintiffs Mary Doyle Fritz andRani Fritz, co-equal beneficiaries un-der a life insurance policy, sued Stan-dard alleging that the company usedthe wrong base salary in its calculationof benefits, diminishing the amountof benefits payable to the beneficia-ries. The decedent, a professor of psy-chology at Quinnipiac University, hadearned $88,158 in his last semester ofactive teaching. The semester immedi-ately prior to his death, decedent tooka sabbatical, and his salary was re-duced to $70,829, but a letter fromthe university stated that his salarywas to increase to $97,743 upon hisreturn to active teaching in the fall.The decedent underwent elective sur-gery in August before his return toteaching and subsequently died.

Standard moved for summary judg-ment, asserting that its determinationwas reasonable under the arbitrary andcapricious standard of review. In deter-mining the life insurance benefits avail-able, Standard relied upon the $70,829salary earned by the decedent at the timeof his death. Plaintiffs argued that the de-cedent was eligible for the $97,743 sal-ary, because he was preparing for the fallsemester at the time of his death, andthus had completed the sabbatical.

However, there was evidence in therecord to indicate that the new salary wasnot to take effect until September 1, afterdecedent’s death. Because Standard wasable to demonstrate a reasonable explana-tion for its benefits determination, thecourt held that the benefits calculationbased upon the lower salary was valid.Lisa A. CoppolaRupp, Baase, Pfalzgraf, Cunningham &

CoppolaBuffalo, [email protected]

Florida District Court

Court Rejects Mandatory Dual Track STD andLTD Claims AdjudicationIn Snider v. Cingular Wireless Health andWelfare Benefits Plan, 2006 WL2400952 (M.D. Fla. Aug. 18, 2006),the court upheld and enforced a provi-sion in an employer’s ERISA plandocument that requires the approval andfull payment of Short Term Disability(STD) benefits before a claimfor LongTerm Disability (LTD) benefits can befiled. This allows an employer to savethe expense of processing an LTD claim fordisability when the STD disabilityclaim has already been denied.

This “condition precedent” type ofclaim adjudication practice isstrenuously opposed by plaintiffs’ at-torneys, who point out that if a claimfor STD benefits is denied, then aclaim for the usually more difficultto prove LTD benefits must also bedenied. For this reason, they seekto require employers to consider STDand LTD claims together, what iscalled a “dual track” approach. Thisalso allows plaintiffs to file suit forboth STD and LTD benefits, if andwhen claims are denied.

This “dual track” practice, which in thepast was the typical practice of most em-ployers and administrators, significantlyincreases the amount of benefits at issue ina case. This is because LTD benefits areusually payable to age 65, whereas STDbenefits are of short duration. By allowingboth claims at once, not only is the cost of administering the benefits program in-creased, litigation is encouraged bygreatly increasing the amount of a contin-gency fee available to the plaintiff ’s at-torney in a win, or, more often, asettlement. Plaintiff in Snider went so

far as to argue that if plaintiffs are notpermitted to sue for both STD andLTD benefits together, they will notbe able to find competent legal coun-sel to take their small STDdenial cases.

In Snider, the defendants at firstapproved and paid the STD claim,but later terminated Snider’s STDbenefits when she failed to provideadequate proof of continuing disabil-ity. The defendants then refused toaccept or consider Snider’s claim forLTD benefits, citing theeligibility language in the employerplan document. The court agreedwith the defendants, and held thatthe plan document was clear and un-ambiguous on these issues. Further,the court held that the defendantscorrectly determined that Snider hadfailed to carry her burden of proof ofdisability, and upheld the STD de-nial.RALPH C. LOSEY

Akerman Senterfitt, LLPOrlando, [email protected]

Illinois District Court

Judgment for Insurer onRestitution Claim under§502(a)(3)Insurers traditionally have been pre-cluded from relying on §502(a)(3) asa basis for recovering overpaid benefitsunless the funds are specifically trace-able. In Gutta v. Standard Select TrustIns. Plans, 2006 WL 2644955 (N.D.Ill. Sept. 14, 2006), however, thecourt not only entered summaryjudgment against the plaintiff on his§502(a)(1)(B) claim for disabilitybenefits, but also entered judgmentfor the defendant in the amount of




$73,996.75 on its counterclaim forrestitution under §502(a)(3).

This is one of the few publisheddistrict court opinions that recognizesan insurer’s right to recover overpaidbenefits under §502(a)(3) in the wakeof Sereboff v. Mid Atlantic Medical Ser-vices, Inc., 126 S.Ct. 1869 (2006).

The plaintiff, Dr. Gutta (a sur-geon), claimed that he was unable toperform surgery due to vision prob-lems and various orthopedic condi-tions. Standard paid his claim for twoyears under the “own occupation”definition of disability.

During the “any occupation” cover-age period, however, Standard deter-mined that Gutta had the physicalability, educational background andwork experience to perform the dutiesof a medical administrator. Standard,thus, determined that Gutta was notdisabled from “any occupation.”

The court held that Standard’s de-cision was “sensible” and “easily satis-fies” the applicable arbitrary andcapricious standard of review. Id. at*23.

In addition, the court rejectedGutta’s argument that he would beunable to find employment as a medi-cal administrator due to his advancedage, history of medical problems, andlack of basic computer skills. Thecourt held that each of these consider-ations was “irrelevant” under thepolicy’s terms: “[t]he plain languageof the policy does not require Stan-dard Select to pay disability benefitsunless it can demonstrate that Dr.Gutta can find a job.” Id. at *21.

Finally, the court entered judgmentfor Standard on its counterclaim un-der §502(a)(3). Standard sought torecover overpaid “own occupation”benefits pursuant to §502(a)(3) and

the policy’s offset provision, based onGutta’s receipt of group disabilitybenefits from another insurer.

The court rejected Gutta’s argu-ment that Standard was seekingpurely legal relief. The court held thatStandard’s claim properly sought eq-uitable relief in the form of an equi-table lien, even though theoverpayments were not traceable andthe funds had been commingled withGutta’s general assets. The courtstated that Sereboff “significantly ex-panded the reach of §502(a)(3)” incases involving an equitable lien byagreement. Id. at *24.Michael J. SmithWarren Von SchleicherMichael J. Smith & AssociatesChicago, [email protected]@mjs-law.com

Louisiana District Court

Intoxication Exclusion Applicableas a Matter of LawIn Carrier v. Veterans Life Ins. Co.,2006 WL 1896067 (W.D. La. July 7,2006), summary judgment wasgranted to an insurer applying an in-toxication exclusion in an accidentaldeath policy under Louisiana law.

The incident occurred when the in-sured fell down a flight of stairs at1:00 a.m., ultimately resulting in hisdeath. Tests revealed that his blood al-cohol level was 0.26 gm% and hisblood serum level was 0.31 gm%.

The plaintiff argued that the acci-dent was caused by the fact that theinsured was legally blind, and was inan unfamiliar apartment, when hefell. The plaintiff further relied oncandid admissions by the insurer’s ex-pert, in which he stated that “alcohol

did not cause the fall,” and that alco-hol “did not push him down thestairs.” Instead, the expert opined atone point that alcohol was the “proxi-mate cause” of the death, and at an-other point that alcohol was at aminimum a “contributing cause” ofthe death.

The policy excluded from coveragedeath “caused by or resulting from . .. a blood alcohol level of 0.10% orhigher. . . .” The court noted that inorder for the exclusion to apply underLouisiana law, intoxication need onlybe a “contributing cause” of thedeath, and not necessarily the solecause.

The decision is noteworthy becauseproof of causation of intoxication isusually an issue for trial. In this case,Louisiana’s long line of jurisprudenceupholding intoxication defenses in ac-cident policies, combined with astrong expert opinion and the applica-tion of the standard under Rule 56 ofthe Federal Rules of Civil Procedure,were sufficient for the court to grantsummary judgment upholding thedefense.Covert J. GearyJones WalkerNew Orleans, [email protected]

Maryland District Court

ERISA Preempts “Wal-Mart”Insurance Mandate in MarylandIn Retail Indus. Leaders Ass’n v. Fielder,435 F. Supp. 2d 481 (D. Md. 2006),the Retail Industry Leaders Associa-tion (“RILA”), a trade association ofwhich Wal-Mart Stores, Inc. was amember, brought an action for de-claratory and injunctive relief, chal-lenging the validity of the Maryland





Fair Share Health Care Act. This bill,also called “The Walmart Bill”, wasvetoed by the Governor, then enactedon an override vote and was scheduledto become effective January 1, 2007.

The Act required employers with10,000 or more employees that spendless than 8% of total wages on healthinsurance to pay the difference to thestate. The Act also required an em-ployer to annually report its totalnumber of employees in the state, theamount spent by the employer onhealth insurance costs, and the per-centage of payroll spent by the em-ployer on health insurance costs. Inenacting the statute, the MarylandGeneral Assembly understood thatonly Wal-Mart would be affected bythe Act’s spending requirement.

After finding that RILA had asso-ciational standing to bring its action,that the action was ripe for judicial re-view, and that the Tax Injunction Actdid not bar exercise of federal jurisdic-tion, the court next addressed whetherthe Act was preempted by ERISA.The court stated that the main objec-tive of ERISA’s preemption clause isto avoid a multiplicity of regulation inorder to permit the uniform adminis-tration of employee benefit plans on anationwide basis. The court foundthat the Act created health carespending requirements that were notapplicable in most other jurisdictions,and that its requirements were in di-rect conflict with the requirements ofat least two other jurisdictions.

Moreover, the Act would requireWal-Mart to segregate a separate poolof expenditures for its Maryland em-ployees and structure its contributionsfor that pool separately. The court ac-knowledged that the intended and ac-tual effect of the Act was to coerce

Wal-Mart to increase its contributionto its ERISA health benefit plan forMaryland employees.

Based upon established SupremeCourt law and state laws holding thatemployee health or welfare mandatesare invalid under ERISA, the courtconcluded that the Act was pre-empted by ERISA. The court foundno basis for upholding a statute man-dating an employer to provide a cer-tain type or monetary level of welfarebenefits under an ERISA plan.

The economic effect of the Actupon Wal-Mart’s ERISA plan wouldbe direct, requiring it to increase itshealth care benefits for Maryland em-ployees and to administer its plan soas to ensure that the statutory spend-ing required by the Act was met.Therefore, the Act was found to vio-late ERISA’s fundamental purpose ofpermitting multi-state employers tomaintain nationwide health and wel-fare plans, providing uniform nation-wide benefits and permitting uniformnational administration.

As an alternative defense to RILA’spreemption claim, the Secretary ar-gued that the Act did not “mandate”than an employer of 10,000 or moreemployees must contribute anamount equal to 8% or more of itspayroll to its ERISA plan. Specifically,the Secretary suggested that an em-ployer could comply with the Act bycontributing to Health Savings Ac-counts (“HSAs”) for its employees.

However, the court found thatHSAs fall outside the definition ofERISA plans only if their establish-ment was completely voluntary.Therefore, an employer could not en-sure its compliance with the Act bycontributing to HSAs.

The Secretary next contended that

an employee could comply with theAct by spending an amount equal tothe requisite percentage of its payrollon first aid facilities under 29 C.F.R.§ 2510.3-1(c)(2). The court, however,found that this argument was “utterlyout of line with reality.”

The Secretary next argued that theAct did not require an employer tospend a certain amount on health carecosts, but rather provided that if theemployer did not do so, it shall pay tothe Secretary an amount equal to thedifference between its actual healthcare expenditures and the requiredamount. The court rejected this argu-ment as it was akin to a “Hobson’schoice.”

Finally, since the Act related to eco-nomic and social policy that did notcreate a suspect classification or in-fringe upon fundamental interests,the court held that the Act did notviolate the Equal Protection Clause ofthe United States Constitution.

The Maryland Attorney Generalhas filed an appeal of this decision tothe Fourth Circuit.Scott M. TragerSemmes Bowen & SemmesBaltimore, [email protected]

No Federal Jurisdiction wherePlaintiffs Were Not ERISAParticipants or BeneficiariesIn Chesters v. Welles-Snowden, 444 F.Supp. 2d 342 (D. Md. 2006), theplaintiffs, citizens and residents of theUnited Kingdom, paid money to amental health clinic that was treatingtheir relative, Martin Snowden. Theyfiled suit in state court seeking to re-cover the payments from defendantAlison Welles-Snowden, Martin’s es-tranged wife, or from the two health



insurance companies, CIGNA Behav-ioral Health, Inc. (“CIGNA”) andUnited Healthcare Insurance Com-pany (“United”), that insured Martinunder Alison’s health plan.

The defendants removed the case tofederal court on the grounds thatERISA completely preempted theplaintiffs’ state law claims and thatthere was federal question jurisdic-tion. However, the district court con-cluded, sua sponte, that ERISA did notcompletely preempt the plaintiffs’state law claims. Accordingly, thecourt remanded the case to the statecourt because the court lacked subjectmatter jurisdiction.

The court stated that where federallaw gives rise to complete preemptionof a plaintiff ’s state law claims, thoseclaims are automatically convertedinto federal claims and, therefore, thecase may be removed to federal court.However, not every instance of ERISApreemption gives rise to removal juris-diction if there is merely conflict, orordinary, preemption. In such a case,the state law claims are not convertedto federal claims that give rise to fed-eral question jurisdiction.

Thus, in the ERISA context, “[t]heonly state law claims properly remov-able to federal court are those that arecompletely preempted by ERISA’scivil enforcement provision, § 502(a)[29 U.S.C. § 1132(a)(3)].”

The court noted that there arethree essential requirements for com-plete preemption under ERISA: (1)the plaintiff must have standing un-der § 502(a) to pursue its claim; (2)the claim must fall within the scopeof an ERISA provision that can be en-forced via § 502(a); and (3) the claimmust not be capable of resolutionwithout an interpretation of the con-

tract governed by federal law, i.e., anERISA-governed employee benefitplan.

Applying these requirements, thecourt found, and CIGNA and Unitedconceded, that the plaintiffs were nei-ther participants in nor beneficiariesof an ERISA plan; consequently, theyhad no standing. As such, the courtdetermined that it did not possesssubject matter jurisdiction on the ba-sis of the plaintiffs’ claims, as theywere not completely preempted byERISA.

The court also rejected CIGNA andUnited’s argument that the plaintiffscould have standing under ERISA as as-signees of a participant in an ERISAplan. Although various courts have heldthat assignees of participants and benefi-ciaries may have derivative standing un-der ERISA, they have only done so incases involving health care providers towhom a participant or beneficiary as-signed their claims under an ERISAplan in exchange for health care. Be-cause the plaintiffs were not health careproviders to whom Welles-Snowden as-signed her claims under a plan in ex-change for health care, she lackedderivative standing to sue under ERISA.As such, the claims were not completelypreempted by ERISA and the courtlacked subject matter jurisdiction.SCOTT M. TRAGER


Massachusetts District Court

No Benefits for Disability Arisingafter Termination of EmploymentIn Bard v. Boston Shipping Ass’n, 425F.Supp.2d 167 (D.Mass. 2006), the

court upheld the Plan’s denial of dis-ability benefits in an ERISA case.

Bard worked as a crane operator forthe Boston Shipping Association(BSA) and was a member of the em-ployee welfare benefit plan. Whileemployed by the BSA, Bard failed topass drug and alcohol tests in 1998and 1999. In 2001, the BSA termi-nated Bard’s employment after hefailed a third drug and alcohol test.

After his employment was termi-nated, Bard was diagnosed with psy-chological disorders. Bard filed aclaim for total disability benefits un-der the Plan, claiming that he was to-tally disabled as of the date of histermination. Bard was later awardedSocial Security disability benefits. ThePlan determined that while Bard waseligible to apply for disability ben-efits, he was not entitled to benefitsbecause he had not been totally dis-abled while employed by the BSA.

Bard filed suit, claiming he was to-tally disabled and that the plan docu-ments should be interpreted to afforddisability benefits even to former em-ployees whose disability arose aftertheir employment. First, the courtfound the Plan need not have conclu-sively relied on the Social Security Ad-ministration (SSA) disabilitydetermination because the SSA didnot consider whether Bard’s disabilitywas total, nor did it establish the dateof disability.

Secondly, the court found thePlan’s denial was reasonable. AlthoughBard provided medical documenta-tion of his disability after the date oftermination, he did not produce con-vincing evidence of total disabilityprior to that date. Furthermore, Bardwas working full time at BSA up untilthe date he was terminated. Unsub-



stantiated statements from physiciansthat Bard’s disability began in 2000were not sufficient to establish thisearlier date of disability, especiallygiven the fact that these physicianswere not treating him until after hisdate of termination.

Therefore, the court concludedthat the Plan acted reasonably in dis-counting the competency of suchmedical evidence and the court agreedthat the Plan was entitled to view thatevidence “with a jaundiced eye.”

Finally, the court found that thePlan does not provide disability ben-efits to former employees whose dis-ability arose after the termination ofemployment.Joseph M. HamiltonJOAN O. VORSTER

Mirick O’ConnellWorcester, [email protected]@modl.com

Michigan District Court

ERISA Allows Fees Incurred forPost-Suit Remand to PlanAdministratorIn Seal v. John Alden Life Ins. Co., 437F.Supp.2d 674 (E.D. Mich. 2006),the court held that ERISA allows re-covery of attorneys’ fees incurred dur-ing a post-suit, court-ordered remandto the plan administrator. This opin-ion builds on a prior Sixth Circuitopinion, Anderson v. Proctor &Gamble, 220 F.3d 449 (6th Cir.2000), which held that ERISA doesnot allow an award for attorneys’ feesincurred during pre-suit administra-tive proceedings.

In Seal, the plaintiff suffered fromleukemia and incurred substantialmedical expenses. Although covered

under his employer’s health plan, theplaintiff also applied for Medicaidbenefits, which were granted. Plaintiffmistakenly told his employer that hisfederal benefits were retroactive to Au-gust 1, 2001. In fact, coverage underMedicaid was not effective until May2, 2002.

After erroneously being told thatthe plaintiff was eligible for Medicaidas of August 1, 2001, the employerasked the insurer to retroactively ter-minate coverage to August 1, 2001,and to refund the premiums paid afterthat date. The insurer did so, and itthen demanded repayment of moniespaid on plaintiff ’s behalf to varioushealthcare providers.

Plaintiff filed suit, alleging that theinsurer improperly terminated cover-age. After conducting discovery fromthe employer on plaintiff ’s eligibilityfor coverage after August 1, 2001, theparties stipulated to have the matterremanded to the plan administratorfor review of information that was notpreviously included in the administra-tive record. On remand, the insurerreinstated plaintiff ’s benefits.

Plaintiff then sought his attorneys’fees incurred during the court-orderedremand. The court noted that underAnderson, a party cannot recover attor-neys’ fees incurred during pre-suit ad-ministrative proceedings. The courtnoted, however, that the Sixth Circuithas not addressed whether attorneys’fees incurred during a post-suit re-mand are recoverable under ERISA.

The court further noted that it didnot remand the case to allow theplaintiff to do something that heshould have done pre-suit; rather, thecourt remanded the case in order toallow the plan administrator to con-sider information obtained in discov-

ery. The court reasoned that the re-mand proceedings were “intimatelyconnected” to the litigation, andtherefore that attorneys’ fees wereavailable under ERISA.D. ANDREW PORTINGA

Miller JohnsonGrand Rapids, [email protected].

New York District Court

Administrator Reasonably Reliedon Documents Supplied byPlaintiff to Establish AgeIn Zdzienicki v. Consolidated EdisonCo., 2006 WL 2482668 (S.D.N.Y.Aug. 29, 2006), the court was facedwith a novel dilemma – whether awoman’s dishonesty about her ageprecluded the pension plan adminis-trator from exercising discretion inmaking a benefits determination.

Plaintiff Maria Zdzienicki was em-ployed by Con Ed for more than a de-cade beginning in 1980. During thattime, she repeatedly represented heryear of birth as 1939, even signing acertification of date of birth attestingthat she was born on July 30, 1939.Plaintiff also submitted her diplomafrom Warsaw University of Technol-ogy, a certificate of naturalization andan employment authorization, alldocumenting 1939 as the year of herbirth.

Con Ed’s pension plan calculatedbenefits based upon the employee’sbirth date; thus plaintiff was informedthat the year of her birth was signifi-cant in determining her pension.

In 1990, plaintiff was terminatedfor insubordination. Upon her termi-nation, Con Ed sent plaintiff a pack-age of information explaining how herpension benefits would be calculated





and indicated that based upon herage, she would not be eligible for ben-efits until January 1, 2004. In 2003,one year before she was to begin re-ceiving benefits, plaintiff sent a fax tothe human resources department en-closing a copy and English translationof her Polish birth certificate, and acopy of her Polish marriage certificate,both of which listed July 30, 1934 asher date of birth, a full five years ear-lier than previously documented. Noexplanation was provided for this sig-nificant discrepancy.

Plaintiff requested that her pensionbenefits be recalculated based uponthese newly-submitted documents.The plan administrator declined to doso, citing the numerous documentssupplied by the plaintiff listing 1939as her date of birth.

Plaintiff ’s complaint sought reversalof Con Ed’s denial of enhanced ben-efits under ERISA. In her motion forsummary judgment, plaintiff allegedthat Con Ed failed to investigate theauthenticity of the potentially disposi-tive Polish documents and that suchfailure was arbitrary and capricious.Plaintiff argued that “complete disre-gard of very persuasive evidence tend-ing to support [entitlement to abenefit], notwithstanding substantialevidence supporting denial of benefits,constitutes arbitrary and capriciousaction.” Zdzienicki, 2006 WL2482668, *6, quoting Cutignola v.New York Tele. Co., 1984 WL 1324(S.D.N.Y. Dec. 11, 1984).

The court disagreed. It was entirelyreasonable for the administrator torely on documents supplied and at-tested to by the plaintiff over a ten-year period in rendering its benefitsdetermination. Even if the plan ad-ministrator had contacted Polish au-

thorities and found that the most re-cently-submitted documents were au-thentic, it still would be reasonable todeny plaintiff ’s request for enhancedbenefits based on other evidence inthe record.Lisa A. CoppolaRupp, Baase, Pfalzgraf, Cunningham

& CoppolaBuffalo, [email protected]

Court Rejects Denial of ERISAClaim Based on VideoSurveillanceIn Glockson v. First Unum Life Ins.Co., 2006 WL 1877140 (N.D.N.Y.July 6, 2006), the court held that aninsurer’s reliance on video surveillancematerial was insufficient to deny longterm disability benefits.

Plaintiff, an office manager, leftwork in September 1999 due to backproblems, pain related tofibromyalgia, and lack of stamina. Fol-lowing the short-term disability ben-efit period, long-term disabilitybenefits were payable only if plaintiffwas disabled from working at anygainful occupation for which she wasreasonably fitted by education, train-ing, or experience.

Plaintiff initially was found totallydisabled by a variety of medical ex-perts, including First Unum’s inde-pendent medical examiner.Specifically, he opined that plaintiffcould only work two hours per day ina sedentary capacity.

First Unum thereafter conductedthree days of video surveillance in Oc-tober 2002, which recorded plaintiffriding in a car, carrying small pack-ages, and going out to lunch for fourand five hour stretches of time. A sec-ond period of surveillance was con-

ducted in May 2003 revealing similarhigher-than-reported activity.

First Unum submitted the surveil-lance footage to its IME physicianand asked him to reevaluate. Predict-ably, he changed his opinion ofplaintiff ’s capacity to work and re-ported that she could now work fourhours per day in a sedentary position.Thereafter, First Unum’s vocationalspecialist determined that work wasavailable for plaintiff within her re-strictions, and First Unum discontin-ued plaintiff ’s long-term disabilitybenefits.

The court reviewed First Unum’sbenefits determination pursuant tothe arbitrary and capricious standardset forth in Firestone Tire & RubberCo. v. Bruch, 489 U.S. 101, 115(1989). The issue was whether thepost-medical surveillance opinioncomprised substantial evidence tosupport First Unum’s denial of ben-efits.

The court held that First Unum’sdecision was arbitrary and capriciousbecause “[r]eliance on snapshot evalu-ations like surveillance, is logicallysuspect in assessing conditions whichresult in debilitating pain and/or fa-tigue following periods of activity.”Glockson, 2006 WL 1877140, * 7,quoting Soron v. Liberty Life Assur. Co.,2005 WL 1173076, *11 (N.D.N.Y.May 2, 2005). The court held thatreliance on the surveillance material tosubstantially change a medical opin-ion was too conclusory.Lisa A. CoppolaRupp, Baase, Pfalzgraf, Cunningham

& CoppolaBuffalo, [email protected]




South Carolina District Court

Court Finds No Jurisdictionunder ERISA for Plaintiff ’sSeverance Pay Claim.In Koren v. Cigna Severance Pay Plan,434 F. Supp. 2d 361 (D. S.C. 2006),James Koren was employed as a physi-cian by CIGNA beginning in 1994,and became a medical director in1995. In July 2000, he accepted theposition of medical director forCIGNA in South Carolina.

In December 2002, Koren learnedthat his position was going to beeliminated. CIGNA offered him thejob of Senior Medical Director in Ra-leigh, North Carolina. He acceptedand began working in Raleigh inMarch 2003. This position was alsoeliminated in October 2003, butCIGNA offered Koren another posi-tion in Raleigh which he accepted.

After a time, Koren became dissat-isfied with this new position and ap-plied for and was accepted for aposition with CIGNA in Florida. InJune 2004, he voluntarily resignedfrom CIGNA after approximately 10years to take a job with Blue CrossBlue Shield.

Koren applied for severance benefitsunder CIGNA’s Severance Pay Plan.Under the terms of the Plan, any “par-ticipant” whose job was eliminatedand who was not, at the same time,offered an alternative “suitable posi-tion” was entitled to receive severancebenefits. The Plan provided that aclaimant could not be “eligible” forseverance pay if the claimant resignedor if his resignation was effective “be-fore or during the notification pe-riod.”

Koren applied for the severancebenefits based on the elimination of

his position in Raleigh, North Caro-lina in October 2003. The claim wasdenied on May 21, 2004, and the de-nial was affirmed on appeal.

The Plan based its denial on theground that the alternative positionoffered to Koren when his positionwas eliminated in October 2003 was“suitable” under the Plan’s terms. Inits denial letter, CIGNA advisedKoren of his right to bring an actionunder § 502(a) of ERISA.

Koren filed a complaint in districtcourt and CIGNA moved to dismisson two bases. First, CIGNA con-tended that because Koren was not a“participant” or “beneficiary” underthe statutory definition of thoseterms, he lacked standing underERISA to bring the claim. Second,CIGNA argued that the court did nothave subject matter jurisdiction overthe action. The court grantedCIGNA’s motion to dismiss on bothbases.

The court held that Koren did notmeet the statutory definition of “par-ticipant” or “beneficiary” because hewas ineligible to receive benefits. Un-der the ERISA statute, “participants”are “employees in, or reasonably ex-pected to be in, currently covered em-ployment, or former employees who‘have . . . a reasonable expectation ofreturning to covered employment’ orwho have a ‘colorable claim’ to vestedbenefits.” Koren v. Cigna Severance PayPlan, 434 F. Supp. 2d at 361, 365(quoting Firestone Tire and Rubber Co.,v. Bruch, 489 U.S. 101, 117 (1989)).To be “eligible” to receive benefits,there must be a colorable claim that aclaimant will prevail in a suit to re-cover benefits or will fulfill eligibilityrequirements at some point in the fu-ture. Id., citing Firestone at 1177-118.

Koren contended that the Plan hadwaived the requirement by failing toaddress eligibility as a basis for denialunder the Plan document. Hence,Koren argued, the Plan was estoppedfrom denying his eligibility. Absentthis challenge to his eligibility, Korenclaimed that he could prevail andthus, had a “colorable claim,” qualify-ing him as a “participant.”

One must qualify as a participantin order to have standing to bring aclaim in federal court. Koren at 365,citing Miller v. Rite Aid Corp., 334F.3d 335, 343 (3d Cir. 2003). Therequirement of standing is jurisdic-tional and not subject to waiver by ei-ther party. Thus, the court ruled, thePlan could not waive the eligibility re-quirement by neglecting to raise it inthe denial letter.

Because Koren voluntarily resignedfrom employment with CIGNA,Koren was ineligible for severance payand could not qualify as a “partici-pant” under the terms of the Plan,which provides that an employee isnot eligible for severance pay if he orshe resigns. Therefore, the court held,Koren lacked standing to bring theaction.

Koren also contended that the Planwas precluded from raising the issueof his status as a “participant,” for thefirst time on judicial review. Korencited as authority for this contentionthe unreported opinion of Thompsonv. Life Ins. Co. of N. Am. 30 Fed. Appx.160 (4th Cir. 1993). Thompson con-cerned the court’s denial of defendant’smotion for summary judgment basedon a new basis for the denial of a claimwhich was never raised on administra-tive review.

Koren argued that CIGNA had notasserted and had therefore waived the is-


sue of his qualification as a “participant”at the administrative level and thuscould not now raise the issue as a basisto challenge subject matter jurisdiction.He also claimed that CIGNA’s admis-sion in its answer that Koren’s cause ofaction arose under ERISA prohibited itfrom now challenging the court’s sub-ject matter jurisdiction.

The court rejected the analogy to Th-ompson, indicating that a challenge tosubject matter jurisdiction under FRCP12 (h)(3) may be raised at any time bythe parties or even sua sponte by thecourt. Koren at 336 (citing BrickwoodContractors, Inc. v. Datanet Engineering,369 F.3d 385, 390 (4th) Cir. 2004)). Italso rebuffed Koren’s other arguments,citing Brickwood for the propositionthat “[s]ubject-matter jurisdiction can-not be conferred by the parties, nor cana defect in subject-matter jurisdictionbe waived by the parties.” Koren at 366,(citing Brickwood, 369 F.3d at 390).

Finally, the court also rejectedKoren’s argument that the court wasprohibited from considering evidencethat was not before the Plan administra-tor to determine whether subject matterjurisdiction is proper. Koren at 366, (cit-ing Hold v. U.S., 46 F.3d 1000 (10thCir. 1995).KATHLEEN M. MAYNARD

Semmes, Bowen & SemmesBaltimore, [email protected]

Virginia District Court

Administrator’s Failure to ProvideSPD Constituted Violation ofFiduciary DutyIn Haynes v. K-VA-T Food Stores, Inc.,2006 WL 1933313 (W. D. Va., July 13,2006), the plaintiff, Richard Haynes,sought to enforce his rights as a beneficiary

of his wife’s group life insurance policy is-sued by UNUM Life Insurance Companyof America to her former employer, K-VA-T Food Stores, Inc. The court held thatthe plan administrator violated its fidu-ciary duty to Mrs. Haynes by failing toprovide her with a summary plan descrip-tion.

Upon Mrs. Haynes’s retirement,KVAT informed her that if she wished tocontinue her life insurance coverage, sheneeded to contact the employee benefitoffice to obtain a group life insurance con-version form. Apparently, Mrs. Hayneswas advised by KVAT that she needed tofill out and mail to UNUM a waiver ofpremium form if she wanted to continueher life insurance coverage. KVAT’s ben-efits manager told Mr. Haynes that hiswife’s life insurance coverage would notlapse because her coverage would continueunder the waiver of premium form.

After Mrs. Haynes’s death, Mr.Haynes’s claim for life insurance in theamount of $34,000 was denied, and hissubsequent appeal was also denied.UNUM stated that since Mrs. Haynesdid not apply for the conversion withinthe allotted time period, she was no longercovered under the policy on the day of herdeath.

Mr. Haynes first argued that KVATviolated its fiduciary duty, as plan admin-istrator, to Mrs. Haynes by not providingthe SPD to her. Specifically, Haynes con-tended that if Mrs. Haynes had beengiven the SPD by KVAT, she would havehad the necessary information to ensurethat her group policy was converted to anindividual policy.

The court found that KVAT was a planfiduciary for purposes of ERISA and that,under ERISA, group life insurance planparticipants have a right to convert theirgroup life insurance plan to an individualpolicy when they retire. ERISA further ex-

pressly states that a plan administrator isrequired to provide plan participants withSPD within 90 days of becoming a planparticipant. Therefore, the court held thatKVAT violated its statutorily created fidu-ciary duty by not providing Mrs. Hayneswith an SPD.

In fashioning a remedy for this viola-tion, the court looked at 29 U.S.C. §1132(c)(1). However, since Mrs. Haynesdid not make a written request for theSPD, the $110 per day penalty did notapply. Therefore, relying upon § 1132(c)(stating that “the court may in its discre-tion order such other relief as it deemsproper”), the court ordered that Mr.Haynes be returned to his prior positionas beneficiary of Mrs. Haynes’s policy, andthat KVAT pay him benefits in theamount of $34,000.

The court rejected Mr. Haynes’s argu-ment that the post termination notice re-quirement under the ConsolidatedOmnibus Budget Reconciliation Act(“COBRA”), 29 U.S.C. § 1166(a),should apply to ERISA because Haynes’sclaim involved a group life insurance plan,not a group health insurance plan. Finally,the court found that KVAT’s human re-sources officers were not plan adminis-trators for ERISA purposes because theirjobs were ministerial rather than discre-tionary and, therefore, they had no fidu-ciary duty to plan participants.SCOTT M. TRAGER


