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

Mitchell Sgro applied for disability benefits from MetLife, which decided benefit claims for his employer’s ERISA plan.  Sgro asserted that MetLife refused to evaluate­ his claim because he did not send copies of medical records.  Sgro eventually paid $412 for the copies.  MetLife denied his claim after receiving them.

Sgro sued his employer and MetLife in a California federal court, asserting a variety of state-law and federal causes of action.  He sought unpaid disability benefits, reimbursement of copy charges, an injunction ordering the defendants to pay copying charges in the future, and other relief.  The federal district court dismissed his state-law claims with prejudice and his federal claims without prejudice.  The parties then settled the claims for unpaid disability benefits, but Sgro pursued his other claims on appeal. 

Sgro argued that a California regulation (Cal. Code Regs. tit. 10, § 2695.11(g), implementing Cal. Ins. Code § 10123.131) required the defendants to reimburse him for copies of medical records.  The Ninth Circuit disagreed.  The Court held that ERISA preempted the California regulation, as it related to an employee benefit plan.  The Court ruled that the regulation was not “saved” from ERISA preemption under the test set forth in Kentucky Association of Health Plans, Inc. v. Miller, 538 U.S. 329 (2003).  While the regulation satisfied the first prong of the test (because it was “specifically directed toward” the insurance industry), the Court concluded that the regulation did not satisfy the second prong; that is, it did not substantially affect the risk pooling arrangement between the insurer and insured:

The regulation doesn't require insurers to insure against additional risks. Cf. Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 730, 758, 105 S. Ct. 2380, 85 L. Ed. 2d 728 (1985) (state law that requires health insurers to insure against mental health problems "regulates insurance").  Nor does the regulation require insurers to offer their insureds additional benefits in the event that the insureds take ill.  Cf. Kentucky Ass'n, 538 U.S. at 338 (state law that requires health insurers to permit their insureds to see "any willing provider" in the state "regulates insurance").  Nor does the regulation substantially affect the likelihood that a disputed claim will ultimately be deemed valid.  Cf. Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355, 361, 122 S. Ct. 2151, 153 L. Ed. 2d 375 (2002) (state law requiring HMOs to offer participants the option of having an independent physician review a denial of coverage "regulates insurance"); UNUM Life Ins. Co. of Am. v. Ward, 526 U.S. 358, 364, 119 S. Ct. 1380, 143 L. Ed. 2d 462 (1999) (state law requiring insurers to accept late-filed claims unless the delay prejudiced them "regulates insurance").

 

There is one way that the California regulation could affect insurers' risks: By requiring insurers to pay copying costs, the regulation does make it slightly easier for insureds to file claims.  If that causes more insureds to file claims, and if some of those additional claims are meritorious, then the regulation will cause insurers to pay more benefits than they otherwise would absent the regulation.  But this possibility is too remote and speculative to "substantially" affect the risk pooling arrangement between insurers and their insureds.  Kentucky Ass'n, 538 U.S. at 342. 

The Ninth Circuit also rejected the position that the defendants violated the ERISA claims procedures (29 C.F.R. § 2560.503-1) by “requir[ing] payment of a fee or cost as a condition to making a claim.”  The Court explained that the copy charges were not a “condition” of making a claim:

The plan merely required Sgro to provide documentation, which is quite different from "condition[ing]" his application on a payment. A "condition" is something that's required of every application; the cost of providing documents, by contrast, depends on decisions made by the beneficiary and could be zero in some cases. For example, if Sgro had copies of the documents on hand at the time he applied for benefits, he could have submitted those copies; or, if his doctors were willing to make copies for him for free, he could have submitted those. In either case, he would have avoided any additional cost. So photocopying costs weren't a "condition" for Sgro to make a claim.

Sgro's reading of the regulation would require plan administrators to pay for a number of other expenses that are typically borne by beneficiaries. To apply for benefits, a claimant must spend time putting together his application or pay someone else to do so; he may require additional medical tests; if he doesn't speak English, he'll need a translator; he may need postage to mail in his application. All these are costs incurred in claiming benefits, but none is a "condition" of making a claim. Nothing in this regulation forbids defendants from requiring Sgro to provide, at his own expense, the documents needed to prove his disability. We therefore affirm the dismissal of Sgro's claim that defendants violated this regulation. 

The Court also addressed Sgro’s claim under 29 U.S.C. § 1132(c)(1) for failure to provide claims materials that he requested.  He alleged that that the defendants did not provide a complete copy of his claim file (including “claim activity records and investigation notes”).  The Court upheld the dismissal of this claim as directed to MetLife, since MetLife was not the plan administrator.  As the Court held, “Even if Sgro did ask MetLife for the records, that company can’t be liable under section 1132(c)(1).  That section only gives Sgro a remedy against a plan ‘administrator,’ and MetLife isn’t the plan administrator.”  The court ruled that Sgro would be allowed to amend his complaint, if he could do so in good faith, to allege that he had requested the claims materials from the plan administrator (the employer). 

The case is Sgro v. Danone Waters of North America, Inc., 2008 U.S. App. LEXIS 13973 (9^th Cir. Jul. 2, 2008).

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In administering disability claims, ERISA plans often require claimants to undergo examination by doctors selected by the plans.  Even when a claimant’s treating physicians concur that he or she is totally disabled, the plans commonly seek opinions from an examining physicians regarding the claimant’s condition, prognosis, and impairment.  Many claims are denied based largely, if not exclusively, on the opinions of examining physicians.  It is common for claimants to challenge reliance on “independent medical evaluations” by plans and insurance carriers.  After all, examining physicians often spend very little time with a claimant, have not seen the affects of the claimant’s condition over time, and arguably have less ability to assess the claimant’s credibility.  What’s more, there are often allegations that the examining physician may be biased in favor of plans and carriers, which typically pay the examining physician’s bill. 

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In ERISA benefit litigation, the selection of the judicial standard of review is often a hotly contested issue.  Insurance carriers push for the abuse-of-discretion standard, arguing that it requires courts to give a significant degree of deference to their decisions to deny benefits.  Where possible, claimants argue for the de novo standard, which does not afford deference to the denials of benefits. 

In the seminal case of Firestone Tire & Rubber Co v. Bruch, 489 U.S. 101 (1989), the Supreme Court announced that lower courts should review ERISA denials under a de novo standard unless the plan conferred “discretionary authority” on the plan administrator.  If discretionary authority is properly conferred, then the courts are to pursue some version of the abuse-of-discretion approach.  Litigation has focused on whether plan language grants discretionary authority sufficient to trigger the abuse-of-discretion standard.

Language commonly used by Prudential in its disability policies is no stranger to dispute.  The language says that a claimant is entitled to benefits “when Prudential determines” that he or she is eligible.  Prudential asserts that this language meets the Firestone test for vesting discretionary authority. 

In the recent case of Woods v. Prudential Ins. Co. of America, 2008 U.S. LEXIS 12423 (4^th Cir. Jun. 11, 2008), the Fourth Circuit held otherwise.  Addressing the “when Prudential determines” language, the Court held that “[a]lthough the Plan’s language vests authority in Prudential, it does not create any discretionary authority, as required by Firestone.”  The Court added that “discretionary authority is not conferred ‘by the mere fact that a plan requires a determination of eligibility or entitlement by the administrator.’”  (quoting Gallagher v. Reliance Std. Life Ins. Co., 305 F.3d 264 (4^th Cir. 2002).  The Court continued: 

In other words, almost all ERISA plans designate an administrator who, in order to carry out its duties under the plan, must determine whether a participant is eligible for benefits.  Yet this authority to make determinations does not carry with it the requisite discretion under Firestone unless the plan so provides.  Firestone itself is based on this distinction.  That decision, grounded in common law trust principles, drew a contrast between trustees who had no discretion but who, of course, had authority to manage a trust, and trustees who had been granted discretion, in addition to their authority. See, e.g., Firestone, 489 U.S. at 111 ("where discretion is conferred upon the trustee," abuse-of-discretion review is appropriate); id. (abuse-of-discretion review is appropriate when "discretion [is] vested in [trustees] by the instrument under which they act"); see also Haley v. Paul Revere Life Ins. Co., 77 F.3d 84, 88 (4th Cir. 1996) (noting difference between authority/duty to pay benefits and grant of discretion over benefit determinations). This distinction is important because ERISA plans are to be construed "in accordance with the reasonable expectations of the insured" when ambiguous, Gallagher, 305 F.3d at 269, and are to "enable plan beneficiaries to learn their rights and obligations at any time" by "reliance on the face of written plan documents," Blackshear [v. Reliance Std. Life Ins. Co.], 509 F.3d at 643 (internal citations and alteration omitted).  A plan which simply conveys authority to an administrator creates the expectation only that such authority will be exercised, not that the administrator will enjoy wide discretion in wielding its authority as well as freedom from searching judicial scrutiny.

In reaching its conclusion, the Fourth Circuit agreed with the Seventh Circuit’s decision in Herzberger v. Standard Ins. Co., 205 F.3d 327, 332 (7^th Cir. 2000).  There, the Court held: 

We hold that the mere fact that a plan requires a determination of eligibility or entitlement by the administrator . . . does not give the employee adequate notice that the plan administrator is to make a judgment largely insulated from judicial review by reason of being discretionary. Obviously a plan will not—could not, consistent with its fiduciary obligation to the other participants—pay benefits without first making a determination that the applicant was entitled to them.  The statement of this truism in the  plan document implies nothing one way or the other about the scope of judicial review of his determination, any more than our statement that a district court "determined" this or that telegraphs the scope of our judicial review of that determination.

Accordingly, the Fourth Circuit reversed the district court, which had applied a modified abuse of discretion standard, and remanded the case for evaluation under the de novo standard.  Read the full opinion here.

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The plaintiff filed a complaint in Georgia state court after Reliance Standard denied his long-term disability claim.  In addition to compensatory damages for breach of contract, the plaintiff sought damages for statutory bad faith.  Reliance Standard filed a notice to remove the case to federal court, arguing that the claim fell exclusively within the purview of ERISA.  Reliance Standard moved to dismiss, arguing that ERISA preempted the state-law claims.  The Georgia federal court denied the motion to dismiss, holding as follows:

ERISA § 502(a)(1)(B) provides a federal cause of action for a plan participant or beneficiary to "recover benefits due to him," "enforce his rights," or "clarify his rights to future benefits" under the terms of the plan.  29 U.S.C. § 1132(a)(1)(B), ERISA § 502.  Although the substance of Plaintiff's asserted claim for benefits could have been brought as an ERISA cause of action under § 502, Plaintiff failed to cite ERISA in his state Court Complaint.  The well-pleaded complaint rule normally permits removal of cases from state court into federal court based on federal question jurisdiction under 28 U.S.C.A. § 1331 only when federal claims are explicitly raised in the plaintiff's complaint.  Metropolitan Life Ins. Co., 481 U.S. 58, 62, 107 S. Ct. 1542, 95 L. Ed. 2d 55 (1987) (citations omitted). However, under the  "complete preemption" exception to this rule, federal jurisdiction is permitted when Congress has so completely preempted an area of law that any claim within it is brought under federal law, and thus is removable to federal court.

In Metropolitan Life, the Supreme Court found that the "complete preemption" exception to the well pleaded complaint rule applied in situations such as the one at bar.  The Court held ERISA plans may remove into federal court claims that were brought in state courts but that could have been brought under ERISA § 502(a) in federal court.  Accordingly, federal question jurisdiction over Plaintiff's claim for denial of benefits is proper, despite Plaintiff's failure to assert a cause of action under ERISA § 502(a)(1)(B) in his Complaint.

The court concluded that the plaintiff's statutory bad faith claims were likewise preempted by ERISA.  The case is Green v. Reliance Standard Life Ins. Co., 2008 U.S. Dist. LEXIS 43319 (S.D. Ga. Jun. 3, 2008).

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In Kirsch v. Jefferson Pilot Financial Ins. Co., 2008 U.S. Dist. LEXIS 43876 (D. Wis. Jun. 3, 2008), the ERISA defendants filed a motion for summary judgment, arguing that the plaintiff's claims for long-term disability benefits had been appropriately denied.  In support, the defendants filed only portions of the ERISA record.  The plaintiff opposed the motion, arguing that the failure to file the complete ERISA record precluded summary judgment.  She asserted that the defendants should be required to re-file their motion after submitting the complete ERISA record, so that she would have a fair chance to respond.  The defendants then moved to file the full record with the court.    

The Wisconsin federal court agreed with the plaintiff on the need to file the full ERISA record, reasoning as follows:  

Although [the plaintiff] does not cite, and the court is unaware of, any binding authority explicitly requiring that the full administrative record be submitted prior to judicial review of a denial of benefits under ERISA, other district courts to address the issue have held that such a submission is necessary.  See e.g. Tinkler v. Level 3 Communications, LLC, 2008 U.S. Dist. LEXIS 4953, 2008 WL 199901, at *11 (N.D. Oka. 2008) ("Regardless of the level of deference given to the Plan's decision, the Court must consider the entire administrative record . . . ."); Gentile v. John Hancock Mut. Life Ins. Co., 951 F. Supp. 284, 287 (D. Mass 1997) ("[T]hose cases which discuss judicial review of a denied benefit under ERISA uniformly assume that the full administrative record forms the basis of such a review, regardless of the standard of review applied. . . .  In the absence of the full record which is a prerequisite for this Court's review of the determination, summary judgment for [the defendant] will be denied.").  I find these cases persuasive and conclude that the entire administrative record should be submitted to the court to facilitate the review of the defendants' denial of benefits.

Accordingly, the court granted the defendants' motion to file the full ERISA record.  The court refused to force the defendants to re-file their motion, however, finding that the plaintiff had not submitted an affidavit indicating why she could not respond to the motion.  Indeed, the court noted that the plaintiff had actually responded to the motion on the merits and had submitted documents to validate her position.  The court also found it important that the defendants had already provided the full record to the plaintiff.  For these reasons, the court held that additional briefing would not be permitted after the filing of the full record.    

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Hoskins v. Metro. Life Ins. Co., 2008 U.S. Dist. LEXIS 44008 (D. Ariz. June 3, 2008)

The plaintiff, Kathleen Hoskins, filed suit under ERISA against MetLife.  She contended that MetLife had wrongly denied her benefits and withheld certain documents.  The federal district court in Arizona denied MetLife's summary judgment motion on the merits, remanded the claim back to MetLife for further review, and assessed statutory penalties against MetLife's for its failure to provide the documents.

Hoskins then sought an award of attorney's fees and costs under 29 U.S.C. § 1132(g)(1).  MetLife objected, arguing that Hoskins was not entitled to that relief because she had not established her entitlement to benefits.  The court disagreed, finding in part as follows:

ERISA plaintiffs "should be entitled to a reasonable attorney's fee if they succeed on any significant issue in litigation which achieves some of the benefit the parties sought in bringing suit."  Smith v. CMTA-IAM Pension Trust, 746 F.2d 587, 589 (9th Cir. 1984).  Plaintiff brought this action to reopen her long-term disability claim and for statutory penalties. She succeeded on both counts.  We concluded that MetLife erred in terminating her claim before she was provided plan documents and remanded for redetermination, and we assessed statutory penalties against Travelers for withholding those documents in violation of ERISA.

As a result, the court went on to analyze the particulars of Hoskins's fee request.  In the end, the court awarded fees of $10,000 and allowed Hoskins extra time to file a petition for costs. 

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