Archive for the ‘Healthcare Coverage’ Category

Insurers’ Antitrust Exemption in Crosshairs Again as Part of Potential Health Care Overhaul

Thursday, April 6th, 2017

Just when you thought the health insurance legal and regulatory landscape couldn’t get any more interesting, along comes the Competitive Health Insurance Reform Act of 2017 (the Act). The Act removes a longstanding antitrust exemption and places health insurers back under federal antitrust scrutiny. The House recently passed the Act overwhelmingly (416 – 7), and the Senate’s Judiciary Committee is now weighing it.

The Act amends the 1945 McCarran-Ferguson Act, which provides that federal antitrust laws, such as the Sherman Act and Clayton Act, do not apply to the “business of insurance.” McCarran-Ferguson allows states to regulate insurance, as state regulation of insurance was commonplace for much of American history. In 1944, however, the Supreme Court decided United States v. South-Eastern Underwriters Association, 322 U.S. 533 (1944), in which it determined that insurance was “commerce among the states,” making it subject to the Sherman Act. In response, Congress passed the McCarran-Ferguson Act, which was designed to legislatively repeal South-Eastern Underwriters and restore state prominence in insurance regulation.

Despite the history of state regulation of insurance, and the prompt nature of the McCarran-Ferguson Act’s passage after the Supreme Court’s decision in South-Eastern Underwriters, the insurance exemption from federal antitrust laws has been widely criticized.  Democrats have long supported a full repeal of McCarran-Ferguson with respect to all insurance, including health insurance. For instance, in the aftermath of Hurricane Katrina, perceived abuses by insurers led to calls by lawmakers to repeal the antitrust exemption. More recently, in 2010, a similar bill to repeal the exemption specific to health insurers stalled in the Senate after passing easily in the House.

The much-publicized focus on health insurance in recent years has again caused a reconsideration of the insurance antitrust exemption. The proposed Competitive Health Insurance Reform Act would prohibit price fixing, bid rigging and market allocation, which – according to the Act’s proponents – would unlock greater competition in the health insurance marketplace. This time, there is reason to believe that attempts to repeal the antitrust exemption may be different than prior unsuccessful attempts. While Democrats have long favored repeal, Republicans are also now behind the effort. The GOP sees repeal as part of the broader health insurance overhaul and hopes the potential increases in competition will lead to lower prices, increased choice and greater innovation in the health insurance industry. The White House also supports the Act, as Trump Administration advisers have stated they would recommend signing the Act into law if presented in its current form.

Keep your eye on this issue, as it may slip through the cracks in the news due to the flurry of activity related to health insurance and the Trump Administration, generally. If passed, health insurers would require additional compliance focus, as antitrust issues involving price fixing, bid rigging and market allocation have been outside health insurers’ wheelhouse for some time.

Avoiding Sticker Shock: A Look Into What Are Considered “Reasonable and Customary” Charges Under 28 CCR §1300.71(a)(3)(B)

Wednesday, June 25th, 2014

By Rynicia Wilson, Sedgwick Los Angeles

In the case Children’s Hospital Central Cal. v. Blue Cross of Cal. (Cal. Ct. App. 2014) ___Cal.App.4th ___ (No. F065603),
The Children’s Hospital Central California (“Hospital”) and Blue Cross of California (“Blue Cross”) disputed the reasonable value of medical services the Hospital provided to Medi-Cal beneficiaries enrolled in Blue Cross’s Medi-Cal managed care plan. The Court of Appeals held that the trial court incorrectly concluded that Code of Regulations, Title 28, Section 1300.71(a)(3)(B) provided the exclusive standard for determining the reasonable and customary value of medical services, because the factors enumerated in 1300.71 are not exhaustive as to what is considered when determining the “reasonable and customary” value for medical services, nor are the providers’ billed charges dispositive.    

The Hospital provided emergency services to Blue Cross Medi-Cal beneficiaries for ten months without any contract in place. During this time, Blue Cross paid the Hospital $4.2 million based on the Medi-Cal rates paid by the government. However, the Hospital demanded its full billed charges of $10.8 million for the services provided. When Blue Cross refused to pay, the Hospital sued.  The trial court made discovery and evidentiary rulings before trial, including agreeing with the Hospital that Section 1300.71 provided the exclusive standard for determining the reasonable and customary value of the medical services in this action.  Thus, the trial court refused to allow Blue Cross to introduce any evidence that the rates accepted by other payors are reasonable and customary, and refused to allow any other evidence of “reasonable and customary” that did not fit within the six factors enumerated in Section 1300.71.  The case was tried and the jury found that there was an implied-in-fact contract between the Hospital and Blue Cross.  The jury awarded the Hospital $6.6 million.  

Blue Cross appealed and argued that the trial court erred in various discovery and evidentiary rulings, including the ruling that Section 1300.71 provided the exclusive standards for violating the reasonable and customary value of medical services. The Hospital contended that its billed charges were the “reasonable and customary” value. The Court of Appeals discussed the elements of Section 1300.71, that for non-contracted providers, reimbursement of a claim means: “the payment of the reasonable and customary value for the health care services rendered based upon statistically credible information that is updated at least annually and takes into consideration: (i) the provider’s training…; (ii) the nature of the services provided; (iii) the fees usually charged by the provider; (iv) prevailing provider rates charged…; (v) other aspects of the economics of the medical provider’s practice that are relevant; and (vi) any unusual circumstances in the case.” The Court of Appeals reversed the trial court’s judgment and remanded it for a new trial. The Court found that the trial court abused its discretion and prejudiced Blue Cross when it improperly limited the evidence of “reasonable and customary value” to the factors set out by Section 1300 .71. The Court held that Section 1300.71 does not provide the exclusive standard, and reasoned that “the facts and circumstances of the particular case dictate what evidence is relevant to show the reasonable market value of the services at issue, i.e., the price that would be agreed upon by a willing buyer and a willing seller negotiating at arm’s length [and that] [s]pecific criteria might or might not be appropriate for a given set of facts.”


Post-Heimeshoff Case Law Signifies Consistency in Applying ERISA Plan Limitations Provisions

Thursday, May 8th, 2014

As we reported back in December 2013, the U.S. Supreme Court recently ruled that a reasonable limitation of actions provision in an employee welfare benefit plan governed by the Employee Retirement Income Security Act of 1974 (“ERISA”) is enforceable even if the limitations period starts to run before the claim accrues.  Heimeshoff v. Hartford Life & Acc. Ins. Co., 134 S. Ct. 604 (2013).  Since Heimeshoff was decided, district courts throughout the county have dismissed claims for plan benefits under ERISA § 502(a) as time-barred based on such limitation of actions provisions.  These decisions include:

  • Freeman v. Am. Airlines, Inc. Long Term Disability Plan, No. CV13-05161-RSWL-AJWx, 2014 WL 690207 (C.D. Cal. Feb. 20, 2014) (dismissing plaintiff’s complaint after finding that a plan provision, requiring participants to commence actions for benefits “within two years of the date after the adverse benefit determination is made on final appeal,” was neither unreasonably short nor precluded from taking effect by any controlling statute);
  • Tuminello v. Aetna Life Ins. Co., No. 13 Civ. 938 (KBF), 2014 WL 572367 (S.D.N.Y. Feb. 14, 2014) (granting defendant summary judgment where plaintiff failed to commence action for plan benefits within the nine months permitted by the plan’s limitation of actions provision, which the court concluded was not “not an unreasonably short period of time within which to file suit”);
  • Kienstra v. Carpenters’ Health & Welfare Trust Fund of St. Louis, No. 4:12CV53 HEA, 2014 WL 562557 (E.D. Mo. Feb. 13, 2014) (concluding that a plan’s two-year limit to bring lawsuits controlled over Missouri’s ten-year statute of limitations);
  • Wilson v. Standard Ins. Co., No. 4:11-CV-02703-MHH, 2014 WL 358722 (N.D. Ala. Jan. 31, 2014) (declining to apply Alabama’s six-year statute of limitation for contract actions and dismissing plaintiff’s ERISA § 502(a)(1)(B) claim based on a three-year contractual limitations period that left plaintiff 18 months to bring suit after her claim accrued);
  • Simmers v. Hartford Life & Acc. Ins. Co., No. 11-C-1009, 2014 WL 107002 (E.D. Wis. Jan. 9, 2014) (refusing to apply Wisconsin’s six-year statute of limitations for breach of contract claims in an ERISA action, and noting that no circumstances were present which would require application of an alternative limitations period, such as the limitations period ending before the claim accrued or the claimant being prevented from timely filing suit due to a protracted appeals process); and
  • Barreiro v. NJ BAC Health Fund, No. 13-1501 (RBK/AMD), 2013 WL 6843478 (D.N.J. Dec. 27, 2013) (enforcing a limitations period requiring plan participants to bring action within three years after the end of the year in which medical services were received).

These decisions confirm the benefit conferred on plan administrators by Heimeshoff – namely, resolving a split among the circuit courts and ensuring greater consistency and predictability in the enforcement of ERISA plan limitation of actions provisions.  We expect future decisions will limit claims for benefits under ERISA to the time periods specified in benefits plans.

The U.S. Supreme Court Unanimously Holds that ERISA Plans’ Limitation of Actions Provisions Must be Enforced as Written – Heimeshoff v. Hartford Life Insurance Company

Tuesday, December 17th, 2013

Today, in Heimeshoff v. Hartford Life Insurance Company, 571 U.S. __ (2013), the U.S. Supreme Court unanimously affirmed a Circuit Court ruling that dismissed an action for benefits on the ground that the plaintiff failed to commence her action timely as required by her employee welfare benefit plan’s limitation of action provision. Unlike most statutes of limitations which start the clock on the date the claim accrues, the plan’s limitations period required that lawsuits concerning benefit claims be brought within three years from the date proof of loss is due. Justice Clarence Thomas delivered the opinion of the Court, reaffirming the importance of written plan terms in cases brought under the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. §1001, et seq.

The Supreme Court accepted certiorari in Heimeshoff to resolve a split between the majority of circuits – which have held that plan limitation of actions periods running from the date proof of loss is due are enforceable as written – and the Third, Fourth and Ninth Circuits – which have held that ERISA-plan limitations periods must be tolled until participants complete all internal claim review and appeal procedures, regardless of the plan terms. Notably, ERISA does not have a statute of limitations for benefit claims.

Julie Heimeshoff (“Heimeshoff”) was a participant whose lawsuit for benefits under ERISA § 502(a)(1)(B) was barred by her plan’s three-year limitation of actions period that ran from the date proof of loss was due. Heimeshoff actually had at least one year (from the date she exhausted her internal review and appeal remedies) to commence her lawsuit, but still failed to file her claim in a timely manner pursuant to the plan’s terms. On appeal to the Supreme Court, Heimeshoff argued that the plan’s three-year “clock” should not start until the internal claim and appeal process had been completed. Heimeshoff argued that the application of this rule would bring uniformity to limitations periods under ERISA, and enforcing plan limitation of action terms running from the date proof of loss is due leads to a lack of uniformity because the administrative review and appeal process takes varying amounts of time from case to case, leading to unequal time for participants to file their lawsuits depending on when the administrative process concludes. Heimeshoff argued that the Court can rectify this problem by ruling that no plan limitations period could start running before claimants had exhausted their internal administrative remedies. The Court resoundingly rejected Heimeshoff’s arguments, holding that ERISA plan terms must be enforced as written. The Court also analyzed the governing Department of Labor regulations providing for a full and fair review under ERISA, and noted that the time it takes for claimants to complete the plan’s internal review and appeal process generally will leave more than sufficient time for them to commence a lawsuit in compliance with the plan’s limitation provision. (Slip op., at 10-11).

This holding is entirely consistent with the Court’s recent rulings, which emphasize the importance of the “written plan rule” in ERISA cases. Relying on its recent prior precedents in U.S. Airways, Inc. v. McCutchen, 569 U.S. __ (2013), Conkright v. Frommert, 559 U.S. 506 (2010) and Kennedy v. Plan Administrators for DuPont Sav. and Investment Plan, 555 U.S. 285 (2009), the Court again held that courts must enforce ERISA plan terms as written. (Slip op., at 8).

The Court also reaffirmed the importance of the internal claim and appeal review process, noting that the reviewing court must defer to the determination of the ERISA plan’s claim fiduciary when the fiduciary has discretionary authority to make such decisions under the terms of the plan. The Court explained that it is important for claimants to participate fully in the plan’s internal claim and appeal process in order to “develop evidence during internal review, [or] they risk forfeiting the use of that evidence in district court.” 571 U.S. at __ (slip op., at 11). The Court also encouraged claimants to focus their effort on the internal claims and appeal procedure, stating “[i]n short, participants have much to lose and little to gain by giving up the full measure of internal review in favor of marginal extra time to seek judicial review.” Id. (slip op., at 12).

The Court recognized only a few exceptions to enforcing an ERISA plan’s limitation of actions provision: first, where a controlling statute does not allow for a contractual limitations period (571 U.S. at __ (slip op., at 9)); second, if the plan’s prescribed period is unreasonably short (id.); and third, when the administrator’s conduct causes a participant’s untimely filing (slip op., at 15). In these circumstances, the Court found that a reviewing court may fashion a remedy, noting that equitable tolling also would apply if the administrator chooses to offer another level of review after the mandatory administrative appeal has been exhausted, which is required by ERISA’s regulations. None of these exceptions were present in Heimeshoff.

The Supreme Court’s decision undoubtedly will be welcomed by plans and plan administrators. The decision brings uniformity and predictability when writing ERISA plans. It now also brings the minority of circuits into harmony with those other circuits that had enforced plan limitation of actions provisions as written.

U.S. District Court Denies Motion to Dismiss Insurer’s Claims of Overpayment Resulting From Provider’s Waiver of Out-of-Pocket Expenses

Tuesday, October 1st, 2013

In Connecticut General Life Insurance Co. v. Roseland Ambulatory Ctr., LLC, No. 2:12-cv-05941, (D.N.J. Sept. 23, 2013), the United States District Court denied a healthcare provider’s motion to dismiss a claim of overpayments due to the provider’s routine waiver of the patient’s cost-sharing obligations.  The insurance company alleged that the defendant, an out-of-network ambulatory center, submitted 990 claims for services as an assignee of the patients’ healthcare benefits over a three-year period during which the provider received over five million dollars from the insurance company.  The insurer also alleged that the provider waived the cost-sharing obligations that the patients were required to pay.  These allegations demonstrated that the provider was willing to accept the amount that the insurance company paid for the claim.  As a result, the insurance company had overpaid by the amount of applicable deductibles and co-insurance which should have been paid by the patients.  The District Court found that the insurance company sufficiently pled a claim for fraudulent misstatements of its billed charges.

Interestingly, the insurance company also alleged a claim for relief under ERISA, 29 U.S.C. §1132(a)(3), seeking to recoup its overpayments.  The insurance company alleged that an equitable lien by agreement existed for the return of the overpayments to the provider.  The provider sought to dismiss this claim on the grounds that ERISA does not provide for this type of relief.  The District Court rejected the provider’s argument relying on Funk v. CIGNA Group Insurance, 648 F.3d 182 (3d Cir. 2011), wherein the insurer was able to recoup an overpayment of long-term disability benefits from a participant.

The District Court’s decision demonstrates the burgeoning relief available under ERISA based on equitable liens by agreement.  Although claims for fraudulent overpayments are not preempted by ERISA, the District Court’s recognition of the ability to enforce equitable liens by agreement as an available remedy makes concerns of ERISA preemption less likely in these disputes.

Seventh Circuit: Insurer Was Proper Defendant to an ERISA Benefits Claim, but Setting High Co-Payment Not a Fiduciary Act or De Facto Denial of Coverage

Tuesday, July 30th, 2013

In Larson v. United Healthcare Ins. Co., __ F.3d __, 2013 WL 3836236 (7th Cir. 2013), the Seventh Circuit upheld the dismissal of plaintiffs’ putative class action claims that health insurers violated Wisconsin state law (WIS. STAT. § 632.87(3)), requiring coverage for chiropractic services when diagnosis and treatment of the same condition is covered if performed by a physician or osteopath.  The plaintiffs argued that the insurers set unreasonably high co-payment amounts such that the result was that the insurance company did not provide coverage.  The plaintiffs alleged several health benefit plans set co-payments at $50.00 to $60.00 per visit, which was basically the cost of the visit.  The district court dismissed the action on the grounds that the insurance companies were not the proper parties to a benefits claim under Section 502(a)(1)(B) of the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1132(a)(1)(B), and the plaintiffs failed to state a claim for breach of fiduciary duty under ERISA.

The Seventh Circuit affirmed the grant of dismissal of the action, but on slightly different grounds.  Initially, the Seventh Circuit ruled that in certain circumstances an insurance company may be a proper party to an ERISA claim for benefits.  The Seventh Circuit ruled that, “[b]y necessary implication[,] a cause of action for ‘benefits due’ must be brought against the party having the obligation to pay” the benefits due.  Larson, 2013 WL 3836236, at *6.  The Seventh Circuit then reviewed its precedent and concluded that, “[a]lthough a claim for benefits ordinarily should be brought against the plan (because the plan normally owes the benefits), where the plaintiff alleges that she is a participant or beneficiary under an insurance-based ERISA plan and the insurance company decides all eligibility questions and owes the benefits, the insurer is a proper defendant in a suit for benefits due under §1132(a)(1)(B).”  Id. at *9; see also Cyr v. Reliance Standard Ins. Co., 642 F.3d 1202 (9th Cir. 2011) (en banc).

The Seventh Circuit went on to determine the merits of plaintiffs’ claims against the defendants and uphold the dismissal of the action.  First, the Seventh Circuit agreed with the district court ruling that the setting of co-payment amounts is not a fiduciary act under ERISA and, therefore, there was no breach of an ERISA fiduciary duty.  Larson, 2013 WL 3836236, at *10.

Second, the Seventh Circuit considered whether the plan terms violated Wisconsin state law.  The Seventh Circuit ruled that the insurance policies complied with the law because they provided coverage for chiropractic services.  The Seventh Circuit rejected the plaintiffs’ argument that the setting of co-payments at high amounts effectively carved-back the coverage, ruling that the statute “does not mandate a particular amount or level of coverage” and it does not prohibit the amount of co-payments.   Id. at *11.

In the end, the Seventh Circuit focused on the merits of the plaintiffs’ claims.  Over the years, the defense that the insurance company is not the proper party for an ERISA § 502(a)(1)(B) claim has become the subject of a circuit split.  Therefore, it is important not to rely solely on this defense, and to consider substantive defenses on the merits of the allegations of any complaint.

The Sixth Circuit Reminds Claim Administrators of the Dangers of a Breach of Fiduciary Duty When Handling Plan Assets

Tuesday, July 23rd, 2013

The Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1001, et seq., was passed with the goal of protecting plan assets so that those assets would be available for plan participants and beneficiaries.  See Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 510-11 (1981).   Under ERISA § 3(21)(A), 29 U.S.C. § 1002(21)(A), any person who “exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets” is a fiduciary under ERISA.  It is a breach of ERISA fiduciary duty to use plan assets for the fiduciary’s own purposes.  ERISA § 504(a)(1), 29 U.S.C. § 1104(a)(1); and ERISA § 506(b)(1), 29 U.S.C. § 1106(b)(1).

In Pipefitters Local 636 Ins. Fund v. Blue Cross and Blue Shield of Mich., __ F.3d __, 2013 WL 3746217 (6th Cir. July18, 2013), the Sixth Circuit ruled that Blue Cross and Blue Shield of Michigan (“BCBSM”) breached its ERISA fiduciary duty because it paid certain state fees from the self-funded plan assets without being authorized to do so by the plan.  Since 1996, BCBSM has been required by the State of Michigan to pay one percent of its revenues as a “Medigap” fee for defraying senior citizen medical care costs.  BCBSM entered into an administrative services agreement with the plaintiff to administer claims and allow access to its network, which would allow for payment of medical services at the discounted negotiated rates.  The agreement did not address the payment of the Medigap fee.  BCBSM, however, added the Medigap fee to the discounted fee owed to providers and collected the fee from the plan assets, and passed that Medigap fee on to the state.  As a result, the Medigap fee was being collected from the plaintiff’s ERISA plan assets.  The district court granted summary judgment and awarded plaintiff $284,970.84 after it found that BCBSM collected the Medigap fee between June 2002 and January 2004, which was a breach of its fiduciary duty.

On appeal, the Sixth Circuit affirmed the district court ruling, finding that the act of applying the Medigap fee to the payments was a discretionary act, and BCBSM was not authorized under the administrative services agreement to charge those fees.  The Sixth Circuit ruled “[w]here a fiduciary uses a plan’s funds for its own purposes, as is the case here with Defendant using the [Medigap] fees it discretionarily charged to satisfy the Medigap obligation it owed to the state of Michigan, such a fiduciary is liable under § 1104(a)(1) and § 1106(b)(1).”  2013 WL 3746217, at * 7.

The Sixth Circuit’s ruling demonstrates the dangers of handling plan assets and the importance of having the administrative services agreement set forth the parties’ obligations.  If BCBSM had reached an agreement that the Medigap fees were part of the administrative fee charged by BCBSM, then plaintiff could not allege breach of fiduciary duty because the fees would not have been plan assets.  If the administrative services agreement stated that BCBSM could add the Medigap fees to the discounted payments for covered services, then plaintiff similarly could not allege a breach of fiduciary duty because BCBSM would have been administering the plan in accord with the plan terms.

Seventh Circuit Demonstrates The Dangers Of Not Having Sufficient Written Procedures In Place To Confirm Coverage – Money Damages Are Available For a Breach of ERISA Fiduciary Duty

Tuesday, July 16th, 2013

In Kenseth v. Dean Health Plan, Inc., __ F.3d __, 2013 WL 29991466 (7th Cir. 2013), the U.S. Court of Appeals for the Seventh Circuit changed course in the wake of the U.S. Supreme Court decision in CIGNA v. Amara, __ U.S. __, 131 S.Ct. 1866 (2011), finding that monetary damages may be available as “other appropriate equitable relief” under the Employee Retirement Income Security Act of 1974 (“ERISA”) § 502(a)(3), 29 U.S.C. § 1132(a)(3).  The Seventh Circuit’s opinion follows other recent Circuit Courts’ opinions interpreting AmaraSee Gearlds v. Entergy Servs., Inc., 709 F.3d 448 (5th Cir. 2013); McCravy v. Metropolitan Life Ins. Co., 690 F.3d 176 (4th Cir. 2012).  But the Seventh Circuit went further under ERISA § 502(a)(3) and charted a new tack for future claimants to obtain monetary damages as “make-whole relief” – which is in the amount equivalent to the benefits otherwise not available under the plan – because of poorly worded plan language.

Ordinarily, a claim under ERISA § 502(a)(3) seeking the equivalent of benefits is ineffectual for several reasons.  The ERISA plan language controls whether a claimant is entitled to benefits and thus, if claimants cannot prove their entitlement to benefits under the plan, they will not prevail under section 502(a)(3).  See ERISA § 402, 29 U.S.C. § 1102; Curtiss-Wright Corp. v. Schoonejongen, 514 U.S. 73, 83 (1995). Also, claimants previously faced the unyielding hurdle that the relief sought could not be money damages.  See Mertens v. Hewitt Assocs., 508 U.S. 248 (1993).  But in Kenseth, the Seventh Circuit ruled that an oral communication in connection with claims administration could provide a basis to award “make-whole relief” in the form of money damages.

In Kenseth, Deborah Kenseth (“Kenseth”) was enrolled in an employee welfare group health benefit plan governed by ERISA.   The ERISA plan provided in-network coverage subject to certain limitations and exclusions, including an exclusion for medical services related to the treatment of morbid obesity and any medical services to treat a non-covered service.  On its face, the plan did not provide coverage for Kenseth’s gastric bypass and surgery to treat severe acid reflux associated with a previous gastric banding surgery that she received years ago.  But the ERISA plan invited plan members to call the claim administrator to find out if services were covered.  Kenseth, without reviewing the plan, called the claims administrator, who purportedly misinformed Kenseth that the services would be covered.  In the initial appeal, the Seventh Circuit found that an ambiguity existed in the plan regarding whether treatment for complications associated with Kenseth’s original gastric banding surgery was covered, and whether there was an authoritative process for confirming whether a particular service was included in the plan.  See Kenseth v. Dean Health Plan, Inc., 610 F.3d 452 (7th Cir. 2010).  Nevertheless, the Seventh Circuit presaged the futility of Kenseth’s claim, stating “[t]he relief that Kenseth truly seems to seek is relief that is legal rather than equitable in nature,” and “this is the sort of make-whole relief that is not typically equitable in nature and is thus beyond the scope of relief that a court may award pursuant to section 1132(a)(3).”  Id. at 481.

But after Amara, on the second appeal, the Seventh Circuit ruled that: “We can now comfortably say that if Kenseth is able to demonstrate a breach of fiduciary duty as we set forth in our first opinion, and if she can show that the breach caused her damages, she may seek appropriate equitable relief including make-whole relief in the form of money damages.”  Kenseth, 2013 WL 2991466, at *14.

The ruling in Kenseth should serve as a warning to all ERISA plan administrators to review their plan language regarding who has the final authority to advise whether a particular service is covered.  Equivocal or ambiguous plan language may open the door to a potential breach of ERISA fiduciary duty claim designed at getting the equivalent of benefits that are not covered under the plan.  The best practice to protect against these claims is to make sure the plan expressly provides that oral communications are not sufficient to confirm coverage for a particular service.

Second Circuit Holds That Insurers May Recover Overpayments of Benefits Under ERISA

Wednesday, March 20th, 2013

On March 13, the Second Circuit issued a significant opinion interpreting key provisions of the Employee Retirement Income Security Act (“ERISA”).  In Thurber v. Aetna Life Ins. Co., Case No. 12-370-cv, 2013 WL 950704 (2d Cir. Mar. 13, 2013), the court affirmed the order of the District Court for the Western District of New York to the extent it dismissed the plaintiff’s ERISA § 502(a)(1)(B) claim, but reversed the District Court’s denial of Aetna’s counterclaim pursuant to ERISA § 502(a)(3) to recover overpayment of short-term disability (“STD”) benefits.  In reaching its decision, the court held that ERISA plan administrators are not required to provide actual notice to participants and beneficiaries of a plan’s grant of discretionary authority to an insurer or other claim fiduciary, and that Aetna’s counterclaim to recover its overpayment of STD benefits constituted equitable – not legal – relief, and was permissible under ERISA § 502(a)(3).

On appeal, the Second Circuit disagreed with the Seventh Circuit to the extent that its holding in Herzberger v. Standard Ins. Co. interpreted ERISA as requiring actual notice to plan participants of a reservation of discretionary authority, reasoning that “unless ERISA requires the SPD [summary plan description] to contain language setting the standard of review, we see no reason why a plan administrator must actually notify a participant of its reservation of discretion.  ERISA contains no such edict.”  Affirming the district court’s summary judgment in favor of Aetna on its denial of Thurber’s long-term disability benefit claim, the court agreed that Aetna did not act arbitrarily and capriciously and its determination was supported by substantial evidence.

Notably, the Second Circuit reversed the District Court’s dismissal of Aetna’s counterclaim to recover its overpayment of STD benefits based on Thurber’s receipt of other income benefits in the form of no-fault insurance payments.  Discussing Supreme Court decisions analyzing the issue, the Second Circuit held that Aetna’s counterclaim was equitable in nature because the insurer sought specific funds (overpayments resulting from Thurber’s simultaneous receipt of no-fault insurance benefits and STD benefits) in a specific amount (the total overpayment) as authorized by the plan, that had been entrusted to Thurber.  Acknowledging a Circuit split on the issue, the court determined that a different result was not warranted because either (1) Aetna sought to recover a specific portion of benefits rendered overpayments rather than the actual third-party income Thurber received, or (2) the overpayments made had since been dissipated.  The plan clearly provides Aetna the right to recover benefits rendered overpayments, giving Thurber adequate notice that she was holding the money in a constructive trust, and the funds were under her control but belonged to the insurer.

In issuing this precedential opinion, the Second Circuit specifically rejected the Ninth Circuit’s recent decision in Bilyeu v. Morgan Stanley Long Term Disability Plan, 683 F.3d 1083 (9th Cir. 2012), which denied insurers the right to pursue recovery of overpayment under ERISA.  It seems likely that there will be significant court activity regarding this issue as courts continue to struggle with interpreting what claims constitute “equitable” relief permissibly sought under ERISA § 502(a)(3).

Disability Policy’s Mental Illness Limitation Upheld by Ninth Circuit in Fibromyalgia Case

Tuesday, January 22nd, 2013

In Maurer v. Reliance Standard Life Insurance Co., No. 11-16044, 2012 WL 6101903 (9th Cir. Dec. 10, 2012), the Ninth Circuit interpreted a policy provision favorably for insurers, holding that a policy’s mental nervous limitation may permissibly limit long-term disability (“LTD”) benefits where the beneficiary would otherwise be capable of working, but for the mental or nervous disorder.

Sara Maurer (“Maurer”) ceased working as an attorney and filed a claim for disability benefits based on chronic neck and back pain, and fibromyalgia.  Maurer’s insurer, Reliance Standard Life Insurance Company (“RSL”), determined that Maurer was disabled by fibromyalgia “with a significant psych component to chronic pain” and paid twenty-four months of benefits.  In connection with its concurrent review of Maurer’s benefit claim, RSL received updated treatment records indicating that Maurer suffered from depression, anxiety and “bi-polar diathesis,” indicating Maurer’s predisposition to the condition when stressed.  After paying LTD benefits for three years, RSL performed another review and concluded that without the contribution of mental nervous illness, Maurer’s medical records indicated that she was capable of performing full time sedentary work. RSL therefore notified Maurer that it was terminating her benefits.

On administrative appeal, Maurer argued that she was completely disabled by psoriatic arthritis.  RSL obtained an independent medical evaluation by a board-certified rheumatologist, who could not confirm that diagnosis and opined that Maurer’s alleged symptoms were primarily related to chronic pain and psychiatric dysfunction rather than inflammatory disease.  RSL’s administrative appeals process resulted in the conclusion that the prior termination of benefits was appropriate.  The U.S. District Court granted summary judgment to RSL, finding that RSL’s coverage determination was not an abuse of discretion.

On appeal, the Ninth Circuit considered whether Maurer’s claim for LTD benefits was limited to the twenty-four month period applicable to mental nervous disorders.  The employee welfare benefit plan provided benefits for policyholders who become “totally disabled.” The policy also included a “Mental/Nervous Limitation,” which provided that benefits for total disability “caused or contributed to by mental nervous disorders . . . will not be payable beyond an aggregate lifetime maximum duration of twenty-four (24) months. . . .”  Maurer argued that the mental nervous limitation should not apply unless RSL could demonstrate that the mental nervous condition was the sole cause of the disability.  The Ninth Circuit rejected Maurer’s argument and ruled that the insurer “permissibly interpreted the ‘mental/nervous’ limitation to preclude coverage when, in the absence of a mental or nervous disorder, a beneficiary would be physically capable of working.”

While this decision may result in other courts following the Ninth Circuit’s lead, insurers should carefully consider whether to apply a mental illness limitation in cases involving both physical and mental conditions – under Maurer, insurers must be able to show that, but for the mental illness, the claimant would be capable of working.


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