Archive for the ‘Life, Health & Disability’ Category

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

By Michael H. Bernstein & John T. Seybert, Sedgwick New York

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

By John T. Seybert, Sedgwick New York

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.

SDNY Refuses to Find Exceptions to the Firestone Deference Rule

Wednesday, September 25th, 2013

By Julie Y. Kim, Sedgwick New York

In Wedge v. Shawmut Design & Construction Group Long Term Disability Ins. Plan, No. 12 Civ. 5645 (KPF) (S.D.N.Y. Sept. 10, 2013), the court declined to recognize an exception to the rule established in Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989), where the Supreme Court held that, for ERISA welfare benefit plans, judicial review of an administrator’s claim determination is to be reviewed under a deferential arbitrary and capricious standard when the plan vests the administrator with discretionary authority to determine a claimant’s eligibility for benefits.

In Wedge, the plaintiff (“Wedge”) received long-term disability benefits as a participant in an ERISA plan established and maintained by his employer (the “Plan”).  The Plan’s administrator, Reliance Standard Life Insurance Company (“RSLI”), had discretionary authority to determine Wedge’s eligibility to receive benefits, and terminated Wedge’s long-term disability benefits based on its determination that he no longer was disabled.  Wedge appealed RSLI’s decision and then sought judicial review.  Both parties agreed that the court ordinarily would apply a deferential arbitrary and capricious standard of review pursuant to Firestone, but Wedge argued that the court should apply a de novo standard of review in his case because RSLI issued its final determination on Wedge’s claim 79 days late and 13 days after Wedge commenced his lawsuit to recover long-term disability benefits.  In making this argument, Wedge relied heavily on the Second Circuit’s decision in Nichols v. Prudential Ins. Co. of America, 406 F.3d 98 (2d Cir. 2005), arguing that an exception to the Firestone discretionary review standard applies in cases where the administrator fails to exercise its discretionary authority.  RSLI countered that the arbitrary and capricious review standard should apply because the Supreme Court has not recognized any exceptions to Firestone.

The court rejected Wedge’s arguments, including his reliance on Nichols.  The court noted that Nichols presented distinguishable facts, including the administrator’s general failure to engage in communications with the claimant, as opposed to RSLI’s consistent communications with Wedge during the administrative process.  Notably, RSLI’s delay in issuing its final benefit determination was attributable, in part, to Wedge’s effort to negotiate conditions precedent to appearing for an Independent Medical Examination (“IME”) requested by RSLI, and RSLI’s attempts to accommodate Wedge’s request for an opportunity to review and respond to the report prepared by the IME physician.  Moreover, the Nichols court determined that the plan language did not vest discretionary authority in the administrator. Finally, and “most importantly,” RSLI did, in fact, exercise its discretion when it issued a final appeal decision a few days after the litigation commenced.

The Wedge court further reasoned that Nichols should not determine or influence the applicable standard of review because “[t]he continuing vitality of the Second Circuit’s decision in Nichols is far from clear.”  In particular, pre-2002 ERISA regulations applicable in Nichols provided that an administrator’s failure to issue a determination on a claim for benefits within the time specified would render the claim “deemed denied,” but did not address the claimant’s right to seek judicial review.  Thus, the Nichols court was concerned that an administrator could obstruct the claimant’s access to judicial review by delaying rendering its claim determination.  However, under the revised regulations, which applied to the Plan, claimants are deemed to have exhausted the administrative remedies and may bring civil actions seeking plan benefits if administrators fail to follow claim procedures.

The Wedge court also recognized that precedential, post-Firestone Supreme Court decisions have not recognized any exceptions to the Firestone rule.  For example, in Conkright v. Frommert, 559 U.S. 506 (2010), the Supreme Court reversed a Second Circuit decision that, like Nichols, crafted an exception to the Firestone deference rule.  Accordingly, the Wedge court declined to interpret Nichols as requiring de novo review where an administrator did not exercise its discretion in the time or matter required by ERISA, as doing so would “turn Firestone on its head.”

 

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

By John T. Seybert, Sedgwick New York

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.

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

Wednesday, March 20th, 2013

By Julie Y. Kim, Sedgwick New York

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

By John T. Seybert and Julie Kim

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.

Welcome to Our New Partners

Monday, December 3rd, 2012

We are pleased to announce that three of the editors of the Insurance Law Blog have been elected to the firm’s partnership, effective January 1, 2013.  Alex Potente, David Dolendi and Maria Cousineau are longstanding members of Sedgwick’s editorial team and helped transition our insurance and property coverage newsletters to a blog format.  A few other of our insurance attorneys were promoted, including Valerie Rojas (LA – Fidelity/Bond and D&O) and John Seybert (NY – Healthcare).  Congratulations to all!

Please click here for more information.

 

Affordable Care Act

Friday, June 29th, 2012

Yesterday was a historic day as the US Supreme Court ruled 5-4 to uphold the Affordable Care Act.  As political pundits and news outlets continue to parse through the opinion and  dissents, we wanted to share this link to an annotated version of the decision that highlights various sections from the majority opinions and dissents.

Click here to see more of an inside look at the health care ruling.

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