ERISA and Disability Benefits Law Blog : ERISA and Disability Benefits Lawyer & Attorney : John Wood Law Firm : Employee Retirement Income Security Act : Seattle, Washington

Steven Alfano won his ERISA claim for long-term disability benefits against CIGNA. The district court had previously ruled that there was “no sound basis in the record to support CIGNA’s finding that plaintiff’s back condition … had in fact improved.” Alfano sought attorney’s fees from CIGNA under 29 U.S.C. § 1132(g)(1). In its analysis, the court considered the following factors under Second Circuit jurisprudence:

(1) defendant's culpability or bad faith, (2) defendant's ability to withstand payment, (3) the extent to which an award would deter others from similar conduct, (4) the relative merits of the parties' positions, and (5) whether the action confers a common benefit on a class.

The court applied these factors and awarded attorney’s fees of $105,840 to Alfano.

As to the first factor, the court found that “CIGNA may not have acted outrageously or in subjective bad faith, but the Court's finding that plaintiff was clearly entitled to long-term disability benefits, and that there was no sound basis for CIGNA's termination of such benefits, renders CIGNA culpable.  While this factor might weigh more heavily in plaintiff's favor had CIGNA acted in bad faith, it nevertheless counsels in favor of an award of attorney's fees.”  

As to the second factor, the court pointed to Second Circuit precedent holding that the ability to pay does not weigh heavily in favor of an attorney’s fee award. Interestingly, the court noted that a defendant’s [and presumably plaintiff’s] inability to pay does weigh against such an award. 

The court likewise reasoned that the third factor (deterrent effect) favored Alfano, stating: “It is undisputed that the costs of litigating a denial of benefits under ERISA can be high, even when the benefits themselves may not be generous. Not only must losing plaintiffs pay their own fees, but all plaintiffs assume a risk of an award of fees against them.”

The court ruled that the relative positions of the parties militated in favor of Alfano (the fourth factor), but that Alfano’s case did not confer a common benefit on a group (the fifth factor), since the case did not challenge any across-the-board rule of practice but instead dealt with the facts of his situation.

In arriving at the fee amount, the court approved 235.20 hours (reduced from the 272.20 hours expended by counsel) at the “reasonable hourly rate of $450.”  The court also awarded prejudgment interest and costs.

The case is Alfano v. CIGNA Life Ins. Co. of New York, 2009 U.S. Dist. LEXIS 28118 (S.D.N.Y. Apr. 2, 2009).

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Sherry DeLisle continued working after her car crashes in 1998 and 2000. She suffered spinal and closed head injuries.  Her employer, Krandall & Sons, fired her on April 17, 2002, stating that “she was not doing her job.”  Eight months later, DeLisle filed for long-term disability benefits with Sun Life, the insurer of Krandall's disability plan. She submitted medical records and statements of five treating physicians. She listed April 17, 2002, as her date of disability.

The Social Security Administration determined that DeLisle was eligible for disability benefits effective April 17, 2002.  Nonetheless, Sun Life denied her claim and upheld its decision in an internal appeal.  The company found that she was no “actively at work” under the policy when her claimed disability started.  DeLisle filed suit in federal court.  The district judge found that Sun Life’s decision was arbitrary and capricious and ordered the company to determine whether DeLisle was in fact disabled on April 17, 2002.

On remand, Sun Life reviewed DeLisle’s extensive medical evidence. Sun Life sent DeLisle’s records out for review by a clinical neuropsychologist, a psychiatrist, an orthopedist, and a rehabilitation counselor. It denied her claim again, stating that the medical evidence did “not document the presence of conditions physical, psychological, or cognitive in nature of such severity that [DeLisle] could not continue to perform her occupation on April 17, 2002 or thereafter…” 

DeLisle appealed again, and Sun Life sent her records to three more records-reviewers (another neuropsychologist, another psychiatrist, and an orthopedic surgeon).  Sun Life upheld its denial of

benefits.

DeLisle again sued Sun Life.  The district court granted her motion for judgment on the administrative record, finding that Sun Life’s denial of benefits was arbitrary and capricious. The district court sent DeLisle’s claim back to Sun Life to determine the amount of her benefits and ordered Sun Life to pay DeLisle's attorney’s fees.

On appeal, the Sixth Circuit upheld the judgment of the lower court. The Sixth Circuit ruled that:

-Sun Life acted under a conflict of interest as claims decision-maker and payor of benefits. As such, the company had a “clear incentive” to find consultants who are “inclined to find” that claimants are not disabled. The Court pointed out that nearly all of the records-reviewers chosen by Sun Life were under regular contract with the company. 

-Sun Life’s in-house attorney told at least some of the records-reviewers that DeLisle had been “terminated for cause.” However, the only information communicated to Sun Life by Krandall was that DeLisle was fired “because she was not doing her job.” The assertion that DeLisle was terminated “for cause” gave the records-reviewers incomplete and potentially prejudicial information. The improper communications justified the court “giving more weight” to the conflict of interest.

-The Social Security disability determination was “far from meaningless.” The failure of Sun Life to mention DeLisle’s Social Security award, especially when the policy required her to apply for Social Security disability benefits, was not lost on the court: “Sun Life’s silence here does not make its denial arbitrary per se, but is among those ‘serious concerns’ that, ‘taken with some degree of conflicting interests,’ provide a proper basis for concluding that the administrator abused its discretion.”

-After reviewing the quality and quantity of the medical evidence, the court found that “the entirety of the medical evidence available to Sun Life was not reviewed in a ‘deliberate’ or ‘principled’ fashion, which is a factor suggesting that Sun Life’s ultimate determination was arbitary.”

-The fact that DeLisle worked for two weeks after leaving her employer and listed “lack of work” as her reason for leaving her employer did not amount to persuasive evidence that she was able to complete the duties of her job on April 17, 2002.

For these and other reasons, the Sixth Circuit agreed with the district court and concluded that Sun Life had acted arbitrarily and capriciously.

The case is DeLisle v. Sun Life Assurance Co. of Canada, 2009 U.S. App. LEXIS 4251 (6^th Cir. March 4, 2009).

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The plaintiff, Simcha-Yitzchak Lerner, participated in the long-term disability plan of his employer, SDRC.  After EDS acquired SDRC, Lerner continued to participate in the EDS disability plan.  Continental Casualty Co. insured the EDS plan.  Lerner contended that EDS officials told him that its plan and the SDRC plan provided the same benefits. 

After having stroke-like episodes and chronic headaches, Lerner applied for disability benefits under the EDS plan. After failing to receive them, he filed suit against EDS and Continental. He asserted a claim against Continental for unpaid ERISA benefits and state-law claims against EDS for breach of contract for failing to pay the same benefits available under the SDRC plan; fraudulent misrepresentation by telling him that he would not lose coverage afforded by the SDRC plan; and innocent misrepresentation by telling him that his benefits would not be affected by the EDS acquisition.

The district court dismissed the three state-law claim against EDS, holding that those claims essentially sought “recovery of an ERISA plan benefit.”  The district court thus dismissed EDS as a defendant.  Lerner voluntarily dismissed his ERISA claim against Continental after settling his claim for disability benefits and appealed the dismissal of the state-law claims against EDS. 

The Sixth Circuit affirmed the dismissal of the state-law claims. The Court set forth its framework for evaluating ERISA preemption:

ERISA broadly preempts "any and all State laws insofar as they may now or hereafter relate to any employee benefit plan."  29 U.S.C. § 1144(a).  However, as we noted in Penny/Ohlmann/Nieman, Inc. (PONI) v. Miami Valley Pension Corp., 399 F.3d 692, 697 (6th Cir. 2005), "[T]he Supreme Court has narrowed the preemptive scope of ERISA, moving away from the broadest meaning of the provision."  Instead, the Court now looks "to the objectives of ERISA to guide its preemption decisions."  Id. at 698.  "Thus, ERISA preempts state laws that (1) 'mandate employee benefit structures or their administration:' (2) provide 'alternate enforcement mechanisms;' or (3) 'bind employers or plan administrators to particular choices or preclude uniform administrative practice, thereby functioning as a regulation of an ERISA plan itself.'"  Id.  ERISA does not, however, preempt "traditional state-based laws of general applicability that do not implicate the relations among the traditional ERISA plan entities, including the principals, the employer, the plan, the plan fiduciaries, and the beneficiaries."  Id. (quoting LeBlanc v. Cahill, 153 F.3d 134, 147 (4th Cir. 1998)).

 

Phrased differently, "[i]t is not the label placed on a state law claim that determines whether it is preempted, but whether in essence such a claim is for the recovery of an ERISA plan benefit." Id. (quoting Cromwell v. Equicor-Equitable HCA Corp., 944 F.2d 1272, 1276 (6th Cir. 1991)).  Because "virtually all state law claims relating to [*6] an employee benefit plan are preempted by ERISA," Cromwell, 944 F.2d at 1276 (emphasis added), we must determine whether Lerner's claims against EDS "relate to" the employee benefit plan.  See Ramsey v. Formica Corp., 398 F.3d 421, 424 (6th Cir. 2005).  "To do that, we consider the kind of relief that [the plaintiff] seek[s], and its relation to the . . . plan."  Id.

The Sixth Circuit rejected Lerner’s arguments that his state-law claims against EDS were based not on Continental’s denial of long-term disability benefits, but on EDS’s alleged failure to make sure that his SDRC benefits were not diminished in the corporate transition. The Court pointed out that Lerner had specifically pled in his state-law claims that his damages included “the loss of disability insurance benefits (monthly benefit payments, return to work benefits, and rehabilitation benefits.)” In the view of the Court, “Lerner has thus chosen to seek payment of the disability insurance benefits themselves, not merely damages in an amount equal to those benefits.”  Therefore, the Court said, “the state-law claims against EDS for breach of contract, fraudulent misrepresentation, and innocent misrepresentation ‘relate to’ an ERISA benefit plan and are preempted by that federal statute.” 

The case is Lerner v. Electronic Data Systems Corp., 2009 U.S. App. LEXIS 4922 (6^th Cir. March 9, 2009).

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