McKennon Law Group, Author at McKennon Law Group

In pension and savings plan cases, it can often take several years before an employee realizes that there has been a breach of fiduciary duty. Typically, an employee’s financial loss triggers an investigation that later reveals the facts of the breach. But how long does an employee have to bring a claim in court? The answer depends on the employee’s “actual knowledge” of the facts of the breach or violation. There is a conflict among federal circuit courts of appeal on whether an employee should be deemed to have knowledge of 401(k) prospectuses and fund information simply because the employer makes this information available to the employee. In a recent decision by the Ninth Circuit, Sulyma v. Intel Corp. Investment Policy Comm., 909 F.3d 1069 (9th Cir. 2018), the court clarified that mere disclosure does not equate to actual knowledge of the employee sufficient to begin the statute of limitations. The employee must actually be aware of the facts constituting the breach more than three years before filing suit.

The Employee Retirement Income Security Act of 1974 (“ERISA”) governs pension plans, including employer sponsored 401(k) retirement plans. ERISA imposes duties of loyalty and care upon fiduciaries as well as liability for breach of those duties. See 29 U.S.C §§ 1104 (duties) and 1109 (liability of breach). Fiduciaries must act “solely in the interest of the participants and beneficiaries” and exercise “the care, skill, prudence, and diligence … that a prudent man acting in a like capacity and familiar with such matters would use.” Id. § 1104(a)(1). Employees bringing a claim for breach of fiduciary duty must do so within three years of the “earliest date on which the employee has actual knowledge of the breach or violation,” and no more than six years after the last action which constituted a part of the breach or violation. Id. § 1113.

In Sulyma, the Ninth Circuit clarified that an employee must be actually aware of the facts of the breach and not merely in possession of materials from which the employee could have discovered the breach. Sylyma, 909 F.3d at 1076. Like many employees, Plaintiff Christopher Sulyma did not pay too much attention to the lengthy disclosures and prospectuses associated with his employer’s 401(k) plan. Sulyma worked for Intel between 2010 and 2012, during which time he was automatically enrolled in Intel’s Target Date 2045 Fund (“the Fund”). The Fund was managed by an investment committee appointed by Intel’s Board of Directors. Intel provided Sulyma with various disclosures about the Fund’s investments, which were also available on two websites. These documents revealed that the Fund made allocations to alternative investments such as hedge funds and private equity funds, which charged higher than average fees and underperformed the market. Although Sulyma accessed some of the disclosures during his employment, Sulyma testified that he did not know Intel had allocated the Fund’s portfolio in alternative investments, or that this was the reason for the Fund’s poor performance.

In 2015, Sulyma eventually learned of the Fund’s poor performance and brought claims against Intel’s oversight committees under § 1104 of ERISA on the basis that Intel made imprudent investments, failed to disclose those investments, failed to monitor the performance of those investments, and failed to remedy other defendants’ ERISA violations despite knowing about them. What followed was a battle over whether Sulyma’s claims were barred by ERISA’s three-year statute of limitations.

Intel moved to dismiss Sulyma’s complaint, arguing before the U.S. District Court for the Northern District of California that ERISA’s three-year statute of limitations barred Sulyma’s claims. Sulyma filed his action against Intel on October 29, 2015, and Intel claimed Sulyma had actual knowledge of the alleged breach before October 2012 since he had access to the Fund documents as early as 2010. The district court sided with Intel and imputed the knowledge of the Fund’s portfolio allocation to Sulyma, reasoning that had Sulyma read the Fund literature more than three years prior to filing his complaint, he would have known about the allegedly imprudent investments. Construing Intel’s motion to dismiss as a motion for summary judgment, the district court granted summary judgment in favor of Intel holding that Sulyma’s claim was barred by ERISA’s three-year statute of limitations under 29 U.S.C. § 1113(2).

On appeal, the Ninth Circuit reviewed the district court’s grant of summary judgment de novo and employed a two-step process to determine whether Sulyma’s claim was barred by section 1113(2). First, the court isolated and defined the underlying violation on which plaintiff’s claim is founded. Second, the court inquired into whether plaintiff had “actual knowledge” of the alleged breach or violation. Sulyma, 909 F.3d at 1072-73. With respect to the first prong, the record showed that although the Fund did not always invest in alternative investments, the imprudent actions alleged by Sulyma occurred during his employment, as early as 2010. Id. at 1071. The primary issue on appeal was whether the district court correctly interpreted section 1113(2)’s requirement of “actual knowledge” sufficient to begin the three-year statute of limitations prior to October 2012.

First, looking to the statute itself, the Ninth Circuit acknowledged that neither “knowledge” nor “actual knowledge” is defined in ERISA. Sulyma, 909 F.3d at 1073. Examining the history of section 1104 and 1106 cases, the court noted that in 1987, Congress amended section 1113(2) to remove constructive knowledge from triggering the limitations period. Id. The Ninth Circuit found that the district court erred when it inferred that Sulyma had actual knowledge merely because he received Fund documents that disclosed its investment strategy. Id. Such an inference is akin to constructive not actual knowledge. Id. The court explained, “the statutory phrase ‘actual knowledge’ means what it says: knowledge that is actual, not merely a possible inference from ambiguous circumstances.” Id. at 1076 (quoting Ventura Content, Ltd. v. Motherless, Inc., 885 F.3d 597, 609 (9th Cir. 2018), cert. denied.). “Actual knowledge,” the court reasoned, “must mean something more than simply knowledge of the underlying transaction, which does not necessarily disclose the nature of the breach.” Id. at 1076. Therefore, Sulyma’s knowledge regarding the Fund’s allocations could not be inferred from Intel’s disclosures.

The court noted its split with the Sixth Circuit’s holding in Brown v. Owens Corning Investment Review Committee, 622 F.3d 564, 571 (6th Cir. 2010). In Brown, the Sixth Circuit held that “when a plan participant is given specific instructions on how to access plan documents, their failure to read the documents will not shield them from having actual knowledge of the documents’ terms.” Id. The Ninth Circuit disagreed with this reasoning, stating that plan participants under Brown are charged with constructive knowledge, not actual knowledge. Sulyma, 909 F.3d at 1076. Constructive knowledge is insufficient to trigger the statute of limitations because Congress specifically amended ERISA to repeal it from section 1113(2). Id.

Finally, the court rejected Intel’s argument that there are “strong policy reasons” to concluding that the actual knowledge standard has a broader meaning. Id. The court disagreed, positing that Sulyma could just as easily argue policy reasons favoring a narrow interpretation of the actual knowledge standard to “promote fiduciary accountability.” Id. The court declined to insert itself in the policy debate, instead leaving it to Congress to decide. Therefore, the Ninth Circuit held that for a defendant to prevail on a statute of limitations defense on a section 1104 claim, “[it]must show that there is no dispute of material fact that the plaintiff was actually aware that the defendant acted imprudently.” Id.

The Sulyma decision is significant because it prevents fiduciaries from prematurely starting the statute of limitations by inundating an employee with lengthy plan disclosures and later arguing that the employee was on notice of potential ERISA violations. While it is important to review documents impacting major financial decisions, employees may not know that a fiduciary has breached its duty of care until the consequences materialize. This decision provides further clarity to ERISA litigants and levels the playing field for employees who discover a breach of fiduciary duty years after receiving plan documentation.

Insurance companies often seek to exclude insureds from coverage through their long-term disability (“LTD”) plans by asserting the pre-existing condition exclusion. If an applicant for LTD benefits has a non-disabling condition or becomes disabled as a result of a condition that developed after corrective surgery for an unrelated condition, is the applicant excluded from receiving benefits? In a plaintiff-friendly decision, Hines v. Unum Life Ins. Co. of Am., 2018 WL 6599404 (N.D. Ohio Dec. 17, 2018), the court held that the plaintiff-disability claimant could not be excluded from coverage due to a vision disability on either the basis that she had received a diagnosis for a non-disabling condition before she became disabled or that she had developed a new condition after corrective surgery for an unrelated condition. The court held that the insurer, Unum Life Insurance Co. of America (“Unum”), had incorrectly denied LTD benefits to the plaintiff and had done so in bad faith, entitling the plaintiff to an award of attorneys’ fees.

Linda M. Hines had a slowly developing cataract condition. Ms. Hines underwent a September 2013 surgery to remove the cataract right-eye lens and replace it with a monovision intraocular lens. Her left eye remained uncorrected for reading and was able to be used for distance vision. After unremarkable and temporary post-surgical issues, Ms. Hines returned to work. Eight months after her surgery, Ms. Hines first complained about blurred vision and difficulty fusing the images from her two eyes. Her doctor diagnosed her with anisometropia (a neurological condition where the brain becomes unable to mesh the separate images given by each eye) in May 2014. Ms. Hines’ condition worsened and she applied for LTD benefits subsequent to her diagnosis.

Defendant Unum issued and administered an LTD group policy for Ms. Hines’ former employer (the “Plan”). Unum denied her benefits application and her subsequent appeal of their denial based on its finding that Ms. Hines was disabled from a left-eye cataract and anisometropia. Unum found that the Plan coverage excluded her left-eye cataract as a pre-existing condition because she received consultation or diagnostic services for it during the look-back period. See id. at *2.

The Plan, which is governed by the Employee Retirement Income Security Act of 1974 (“ERISA”), provided that it “does not cover any disabilities caused by, contributed to by, or resulting from [the insured’s] . . . pre-existing condition.” Hines, at *1. The Plan excluded coverage for pre-existing conditions that met two criteria: (1) “[the insured] received medical treatment, consultation, or services . . . in the 3 months just prior to [the insured’s] effective date of coverage,” and (2) “the disability begins in the first 12 months after [the insured’s] effective date of coverage.” Unum’s denial stated that anisometropia was a pre-existing condition because “[t]he results of the [right-eye cataract surgery with monovision intraocular lens implantation] produced monovision resulting in the diagnosis of anisometropia.” Id. at *3.

The court reversed Unum’s denial of benefits to Ms. Hines on three distinct bases. Firstly, the court held that there was no evidence that Ms. Hines’s left-eye cataract diagnosis had ever been or was currently a disabling condition. Because Ms. Hines’s left-eye cataract did not disable her, it could not meet the terminology of “the disability” used in the second condition for the exclusion of coverage due to a pre-existing condition.

Secondly, the court ruled that Ms. Hines’s anisometropia, as the diagnostic terminology is used in the medical profession, was not diagnosed during the look-back period. Ms. Hines’s medical records showed that, during the look-back period, she had anisometropia-refractive differences between one’s eyes-in the literal sense, the definition which the Unum reviewer applied. However, the medical profession generally applies the “anisometropia” diagnosis only to those who have symptomatic anisometropia, where a patient’s brain cannot fuse the dissimilar images generated by the differently refractive eyes, and Ms. Hines did not report symptomatic anisometropia until well after the look-back period. After considering the literal and medical usage of “anisometropia,” the court held that Unum could not properly rely on the literal definition of anisometropia, but rather, Unum should have recognized the medical usage of the term which is only applied to symptomatic anisometropia. Thus, the court found that Unum could not exclude her from coverage based on the presence of anisometropia because there was no such diagnosis during that period.

Thirdly, the court held that the Unum was incorrect in finding that Ms. Hines’s “right-eye cataract surgery during the look-back period produced monovision that resulted in [her] anisometropia, and thus that the Plan excluded her anisometropia as a pre-existing condition.” Id. at 5. The court found that Unum could not provide a logical explanation for what pre-existing condition caused Ms. Hines’s anisometropia. As her right-eye cataract was successfully removed, it could not be a pre-existing condition that caused her anisometropia because her right-eye cataract condition had been properly remedied. The court recognized that Unum sought to argue that the right-eye cataract surgery was the pre-existing condition precipitating Ms. Hines’s anisometropia, but the court rejected the characterization of surgery itself as a “pre-existing condition,” since it was “at most a necessary consequence of the right-eye cataract pre-existing condition.” Id.

Moreover, the court distinguished the right-eye cataract surgery from the simultaneous lens replacement surgery that produced the refractive difference in her eyes leading to symptomatic anisometropia: “Replacing the bad lens with a monovision lens . . . was not . . . a necessary component of that [cataract] surgery.” Id. In so finding, the court held that there are limits to the chain of causation, and that the substantial evidence showed that the causal relationship between the right eye cataract (pre-existing condition) and the anisometropia (disabling condition) was too attenuated. Id.

The court also emphasized that “reasonably foreseeable consequence[s]” are significant to assessing whether a disability is caused by, contributed to by, or resulted from a pre-existing condition. Id. at *6. Since the anisometropia was not reasonably foreseeable from the pre-existing condition of her right-eye cataract because the right-eye cataract and the cataract surgery were unrelated to the lens replacement except for timing, those conditions could not be paired to justify Unum’s denial of benefits to Ms. Hines.

For these reasons, the court held that Unum had incorrectly denied Ms. Hines’s application for LTD benefits. The court also considered Ms. Hines’s request for attorney’s fees and costs and awarded them based on a finding that the insurer had acted in bad faith. The court wrote:

The record does not offer a smoking gun revealing Unum’s bad faith, but several factors add up to reveal Unum’s duty to pay fees. Unum inaccurately represented physician statements, omitted potentially relevant medical information, and followed up with reviewers in such a way as to suggest that they “try again.” The Unum reviewers’ ambiguous evaluation responses generate even more concern. They largely dance around the questions without providing a principled, reasonable answer and explanation. And yet Unum was still able to cherry-pick language and carry on with its preferred course of action.

Id. The court, concerned about such improper conduct by Unum and other insurance companies, held that Unum’s bad-faith behavior and other considerations merited attorney’s fees to be paid to Ms. Hines.

Conclusion

When insurance companies deny LTD benefits, they often resort to connecting an insured’s disabling condition with some other, unrelated condition. As Hines shows, there must be substantial evidence linking the causal relationship between pre-existing conditions and disabling conditions. Further, when insurers deny coverage due to pre-existing conditions, they must do so in good faith and provide cogent, reasonable explanations. Unequivocally inaccurate findings and manipulation of language and rationales by insurance companies will likely result in reversal of the benefits denial and awarding of attorney’s fees and costs to the insured.

Discovery Disputes in ERISA Breach of Fiduciary Duty Cases: Do the Usual Limitations Apply?

The Employee Retirement Income Security Act of 1974 (“ERISA”) manages many of the benefits people receive from their employers. These benefits include short-term and long-term disability insurance, health insurance, life insurance, accidental death and dismemberment insurance and pension plans. When a claim under an ERISA plan is denied, the beneficiary usually must file an administrative appeal with the Claims Administrator for the benefits. If, after filing an administrative appeal, the Claims Administrator still denies the claim, the beneficiary may sue the Claims Administrator to obtain the benefits in question. ERISA claims differ from more traditional law suits. A judge, not a jury, determines whether the beneficiary is entitled to damages and/or equitable relief. The parties generally cannot pursue written discovery or depose people with relevant information. The court typically decides the claim based on a review of the documents contained in the Administrative Record that had previously been submitted to the Claims Administrator during the administrative process.

Whereas the administrative process may be an effective method of channeling evidence and streamlining court proceedings, for certain types of claims, the process simply does not work well. All Claims Administrators have basic obligations to the beneficiaries under their plans. The Claims Administrator cannot put its own interests above those of the plan’s beneficiaries. When a Claims Administrator breaches that obligation, a beneficiary may bring a claim for a Breach of Fiduciary Duty under ERISA Section 502(a)(3). For example, a Claims Administrator may have misled a beneficiary into thinking they had $300,000 in life insurance benefits when, in fact, they only had $50,000 in benefits. This situation could arise for a variety of different reasons such as eligibility under applicable plan documents because of a beneficiary’s salary. The Claim Administrator’s misstatements may even be unintentional. The beneficiary has still been misled. In such a scenario, the beneficiary may bring a claim for a Breach of Fiduciary Duty. Depending on the nature of the deception, however, the beneficiary may not be able to obtain all needed evidence during the administrative review of the denial. The powerful tools of the discovery process may be required.

Thankfully for beneficiaries, courts reasonably acknowledge that such a limitation should not apply in the context of breach of fiduciary duty claims. For example, in Friemon v. Nat’l Carriers’ Conference Comm., 2018 WL 6171439 (E.D. Mo. 2018), Matheson Friemon sought discovery in a dispute with his former employer Union Pacific Railroad Company (“UPRR”). The underlying dispute arose out of whether Mr. Friemon was eligible for Supplemental Sickness Benefits (“SSB”) under UPRR’s employee benefit plans. Mr. Friemon alleged that UPRR maintained complete control over the application process for SSB, failed to inform him of the deadline to apply for those benefits and failed to provide him with the relevant paperwork for the application.

UPRR disputed its status as a fiduciary under the plan. Mr. Friemon sought discovery on the issue of UPRR’s status as a fiduciary. UPRR challenged Friemon’s right to obtain the discovery. The court ruled that Friemon could propound the discovery in question. The court reasoned that the restrictions to discovery in matters arising under ERISA do not apply to claims of an equitable nature. Claims that are equitable in nature “do not benefit from the administrative process.” Id. at *2 (internal quotations omitted). The court permitted Friemon to conduct his discovery.

Other courts have come to similar conclusions. One such example is Jensen v. Solvay Chemicals, Inc., 520 F. Supp. 2d 1349 (D. Wyo. 2007). In Jensen, plaintiffs worked for Solvay Chemicals, Inc. They accrued benefits under Solvay Chemical’s pension plan. Solvay Chemicals restructured its pension plan. Plaintiffs alleged that the restructuring of the pension plan froze their retirement benefits and lowered the rate of benefit accrual for older employees and employees who had worked for Solvay Chemicals for longer periods of time.

After bringing suit, Plaintiffs sought to propound discovery. Plaintiff filed a motion for permission to seek discovery as an exception to the general rule that ERISA plaintiffs can seek only very limited discovery. The motion went before a magistrate judge, who denied it. The plaintiffs appealed the decision to the district court judge, who overturned the magistrate’s decision. The magistrate had reasoned that “judicial review is limited to the administrative record and any outside discovery is not allowed, except in unusual circumstances.” Id. at 1352. The district court held that plaintiffs could propound their discovery because one of plaintiffs’ claims was for a breach of fiduciary duty. As the district court explained:

Case law does not constrain discovery under ERISA § 502(a)(3) actions. Id. The limited discovery ordered by [the magistrate] and proscribed by [the Tenth Circuit] is limited to claims arising under ERISA § 502(a)(1)(B). This is logical as these actions do not benefit from the administrative process. Courts are not required to give deference to plan committees or fiduciaries in § 502(a3) actions and therefore limitations to the administrative record are not required. Section 502(a)(3) actions are to enforce rights not arising under ERISA plans, but rather arising from ERISA itself. Therefore, a finding that claims arise from ERISA § 502(a)(3) reverts discovery into the traditional realm and is governed under traditional federal, circuit, and local procedure.

Id. at 1355-56; see also Kostecki v. Prudential Ins. Co. of Am., 2014 WL 5094004 (E.D. Mo. 2014) (granting a motion for leave to conduct discovery due to Plaintiff’s claims seeking equitable relief).

Making certain that the administrative record contains all relevant documents and information is very important to litigation of ERISA claims. However, sometimes, a beneficiary simply cannot obtain all needed evidence through the traditional administrative process. During these circumstances, a beneficiary can potentially seek discovery, depending on the nature of the claims brought before the court and the wrongs inflicted upon the beneficiary. Many claims are simply for the wrongful termination of benefits. Under those circumstances, a beneficiary may only be able to obtain limited discovery. See Jensen, 520 F.Supp.2d at 1352. However, a beneficiary can sometimes circumvent the traditional ERISA process in order to obtain the information needed and convince the judge that they are entitled to benefits. This is especially true in breach of fiduciary duty cases.

If your ERISA claim has been denied, knowing when to sue for breach of fiduciary duty in ERISA cases may be integral to the success of your claim. It is important to have experienced and highly qualified disability, health and life insurance attorneys, like those at the McKennon Law Group PC. Fill out our free consultation form today to set a time to discuss your claim with one of our attorneys, several of whom previously represented insurance companies and are exceptionally experienced in handling ERISA and Non-ERISA insurance claims.

Facing a long-term disability (“LTD”) claim, ERISA plan participants under LTD policies can count on the fact that insurance companies will search for ways to escape payment of the monthly LTD benefits they promised their insureds. These insurers often point out that insureds continue to work in their occupation between their initial diagnosis and the claim date, or that an insured’s job is sedentary and thus he or she is not precluded from performing light physical activities, or that an insured’s disabling condition is episodic and the symptoms do not render the insureds continuously disabled. Most disability claimants have days where symptoms are better than others and therefore they cannot work continuously in any given month, missing several days of work during the month. Most LTD policies contain a provision that after a certain amount of time (typically 24 months), the definition of “disabled” changes to an “any occupation” standard (e.g., must be unable to work in any occupation for which the insured is capable of performing given the insured’s education, training and experience). Insurers routinely deny LTD claims under the “any occupation” standard even when insureds cannot work with reasonable continuity during any given month. If an insured must miss work two or three times per month because of a medical condition, does the insured qualify for LTD benefits under the “any occupation” standard? As discussed below, the answer is “yes.”

This distinction was discussed in Delaney v. Prudential Insurance. Co. of America, 68 F.Supp.3d 1214 (D. Or. 2014) (“Delaney”). In Delaney, the District Court ruled that regular attendance at a job is requirement of virtually all jobs, and that being absent for at least two days of work precludes employment in any occupation. The plaintiff, Patricia Delaney, was an employee of Jeld-Wen Holding, Inc., and a participant in an employee benefits plan administered by Prudential Insurance Company of America (“Prudential”). Ms. Delaney worked as an escrow officer, involved in complex and sensitive real estate transactions on behalf of her employer.

In 2010, Ms. Delaney was diagnosed with Meniere’s disease in her left ear. Meniere’s disease creates problems in the inner ear that leads to bouts of dizziness, vertigo, nausea, vomiting and hearing problems. The affliction manifests itself in sudden attacks, of which Ms. Delaney had began to suffer. In the aftermath of the attacks, she was left exhausted, requiring tranquilizers to sleep for 4-6 hours before feeling better. The attacks themselves last for about an hour, and occur randomly.

After attempting to work around her attacks for almost two years, Ms. Delaney stopped working on March 12, 2012, as her attacks had become more frequent and debilitating. She reported 19 episodes in the month prior to her last day at work. With the problem diagnosed at “progressive and intractable” by her physician, she underwent surgery designed to stabilize her condition. Although she initially experienced some improvement, the episodes continued, leaving her, in her own words “pretty much house bound”; afraid to drive by herself, and suffering from unpredictable attacks with a distressing frequency. Id. at 1224.

Under the Plan with Prudential, a participant is considered “disabled” if she is “unable to perform the material and substantial duties of [her] regular occupation due to [her] sickness or injury. . . .” After 24 months of disability, a participant is “disabled” if “due to the same sickness or injury, [she is] unable to perform the duties of any gainful occupation for which [she is] reasonably fitted by education, training, or experience….” Id. at 1219.

In May of 2012, with no end to the attacks she was having in sight, Ms. Delaney applied for LTD benefits under her employer’s Plan with Prudential. After a denial of her claim for benefits, Ms. Delaney appealed Prudential’s decision twice, and sent updated medical records and witness statements attesting to the severity and frequency of her Meniere’s disease symptoms. Prudential denied both appeals, necessitating a lawsuit pursuant to the Employee Retirement Income Security Act of 1974 (“ERISA”) for the denial of her LTD benefit claim.

Reviewing the evidence on the record, the court found that the only reasonable conclusion was that Ms. Delaney was an unfortunate sufferer of Meniere’s disease’s persistent and intense symptoms. The court noted that Prudential steadfastly focused on the fact that Ms. Delaney’s job was not physically strenuous and that her symptoms affected her episodically, rather than continuously. The court found that Prudential applied the wrong standard under her Plan, as Ms. Delaney’s job required 40 hours of work per week and regular attendance. Since Ms. Delaney had already begun to exhaust her sick leave, this was a factor in the court’s finding that she was unable to perform her job duties despite her symptoms.

The court stated:

Regular job attendance is a requirement of virtually all jobs, and certainly a requirement of those jobs which would provide the requisite income to disentitle Delaney to LTD benefits under the Plan if she could otherwise perform them. In the social security context, legions of cases rest in whole or in part on vocational expert testimony that missing two or more days of work per month renders a claimant unemployable. See, e.g., Ghanim v. Colvin, 763 F.3d 1154, 1159 (9th Cir. 2014) (missing two or more days per month would preclude work as a kitchen helper or commercial cleaner); Brewes v. Comm’r of Social Sec. Admin., 682 F.3d 1157, 1163 (9th Cir. 2012) (missing two or more days per month would make claimant unemployable as a photocopying machine operator, laundry worker, or janitor); Yurt v. Colvin, 758 F.3d 850, 855 (7th Cir.2014) (vocational expert testimony that “in competitive employment workers were expected to be on task 80 to 85 percent of the time and could not miss more than one or two days per month and up to approximately ten per year”); Garcia v. Colvin, 741 F.3d 758, 760 (7th Cir. 2013) (vocational expert testimony that “a worker who misses work more than one day a month (beyond sick days, vacation days, and other authorized leave) would ‘have difficulty sustaining competitive employment’ ”); Douglas v. Bowen, 836 F.2d 392, 396 (8th Cir. 1987) (vocational expert testimony that if the claimant “had more than two absences a month due to his impairments, he could not find work in the national economy”). Id. at 1229-1230.

Accordingly, the court held that the record conclusively established that Ms. Delaney would miss more than two days of work per month due to the severe attacks she regularly and unpredictably suffered. Importantly, the court also addressed the debilitating fatigue that accompanied her attacks: “Even assuming that Delaney could perform her job as an escrow officer in the days after such an attack, the episodes and their immediate aftermath are sufficiently severe and occur with sufficient regularity that she would be absent from work at least to days per month, which in and of itself precludes employment.” Id. at 1231 (emphasis added). The court also found that Ms. Delaney was unable, after the first 24 months of disability benefit payments, to perform the duties of any gainful occupation for which she was reasonably fitted and awarded her LTD benefits under both the “regular occupation” and the “any gainful occupation” provisions of Prudential’s policy. Id.

Conclusion

All too often we see cases where an insurer denies LTD benefits based on the reasoning that episodic disabling conditions do not preclude sedentary work. However, as any employee knows, regular, consistent job performance and attendance is a necessary requirement for all employment. Delaney stands for the reasoning that when a disability claimant suffers from disease or illness and is incapacitated on at least two days a month, but is non-episodic on others, a claimant is still entitled to LTD benefits.

Under many long-term disability insurance policies, the insured is considered disabled if he or she is unable to perform “with reasonable continuity” the important tasks, functions, and operations of his or her occupation for a specified period of time. If a plaintiff seeks long-term disability benefits based on a claim that the insured was disabled as a result of a condition that existed before the insured stopped working, must the plaintiff demonstrate a change in the insured’s circumstances, such as a significant worsening of the preexisting condition? In Lyttle v. United of Omaha Insurance Co., No. 17-cv-01361-WHO, 2018 WL 4519949 (N.D. Cal. Sept. 19, 2018) (“Lyttle”), the court held that the plaintiff, who was the insured’s surviving spouse, did not have to demonstrate a change in the insured’s circumstances; she only needed to demonstrate that, because of the insured’s condition, he could no longer continue in his occupation. The court also held that, based on the evidence in the administrative record, the insurer, United of Omaha Insurance Co. (“United”), had incorrectly denied long-term disability benefits.

The plaintiff’s late husband, Matthew Lyttle (“Lyttle”), had been a Vice-President of Chemistry, with job duties that included lifting and walking. In 2011, Lyttle was diagnosed with liver cancer. And, in 2014, it was confirmed that the cancer had spread outside his liver.

In 2014, one of the medications prescribed for Lyttle had an unfortunate side effect known as hand-foot syndrome. Lyttle’s hand-foot syndrome caused him to have persistent pain in his feet and blisters caused by walking around at work. Lyttle tried to manage the pain by taking Norco, an opioid pain medication, but that medication impaired his ability to perform the rigorous intellectual tasks his job required.

In 2015, Lyttle was absent from work 17% of the time. And, in an e-mail dated December 28, 2015, Lyttle told his doctor that “he would like to take disability starting in 2016 because his condition had not changed and he had persistent pain in his feet and blisters caused by walking around at work.” Id. at *3. Lyttle’s doctor placed him off work from January 5, 2016 through June 5, 2016.

Under the United long-term disability policy, Lyttle was considered totally disabled if he was “unable to perform with reasonable continuity the Substantial and Material Acts necessary to pursue [his] Usual Occupation.” Id. at *6. The policy also provided that Lyttle would receive benefits after an “Elimination Period” of 90 days of disability. Id. at *6.

In March 2016, Lyttle filed a claim for long-term disability benefits. United denied Lyttle’s claim, and Lyttle appealed. After United denied Lyttle’s appeal, his widow filed a lawsuit seeking review of United’s denial of benefits.

Before the court, United pointed out that there was “no evidence . . . that Lyttle’s hand-foot syndrome became significantly worse or that that there was a sudden impairment in his intellectual functioning that necessitated his going on disability as of January 2016.” Id. at *8. And United argued that, “[a]bsent a change in circumstances, such as a significant worsening of his conditions, . . . its determination that Lyttle was not totally disabled during the Elimination Period and after must be upheld.” Id.

The court disagreed with United. It stated that the determinative question was whether, during and after the Elimination Period, Lyttle could “perform his job with ‘reasonable continuity.’” Id. at *9.

The plaintiff argued “that Lyttle was essentially barely performing his job and could not continue his actual occupation with ‘reasonable continuity’ given the record and the subjective evidence from Lyttle that his pain conditions had become worse during 2015, that his employer could not provide further accommodations for him, and that he used extensive vacation and sick leave in 2015.” Id. at *10.

In its ruling on cross-motions for summary judgment, the court noted the following language from Hawkins v. First Union Corp. Long-Term Disability Plan, 326 F.3d 914, 918 (7th Cir. 2003):

A desperate person might force himself to work despite an illness that everyone agreed was totally disabling . . . . Yet even a desperate person might not be able to maintain the necessary level of effort indefinitely. Hawkins may have forced himself to continue in his job for years despite severe pain and fatigue and finally have found it too much and given it up even though his condition had not worsened. A disabled person should not be punished for heroic efforts to work by being held to have forfeited his entitlement to disability benefits should he stop working.

The court determined that United had not asked its reviewers and examiners the proper question, which was “whether as of the end of December 2015 Lyttle was able to continue in his high-demands job with ‘reasonable continuity.’” Lyttle at *11. The court also noted that United had failed to: (a) analyze the significant subjective evidence of Lyttle’s pain and cognitive impairments; and (b) “consider that Lyttle was only able to continue in his job for as long as he did with the pain level he had through using leave time and, in the end, was not able to continue given his chronic, ongoing pain despite the lack of evidence of a ‘significant change’ in [Lyttle’s] condition.” Id.

Conclusion

Too many courts forget to apply the “reasonable continuity” standard when addressing whether an ERISA plan participant can collect his or her disability insurance benefits. This Court did so correctly, explaining that after working for a while despite suffering from a chronic condition, an insured who is ultimately unable to continue performing his or her job with “reasonable continuity” is entitled to disability benefits, even if his or her chronic condition does not significantly worsen.

In a previous blog, we addressed the doctrines of equitable estoppel and waiver when the Employee Retirement Income Security Act of 1974 (“ERISA”) governs their insurance or pension plan. As we explained, both doctrines provide an insured with methods of forcing an insurance company to honor its word and previous conduct. However, insureds often have difficulty invoking the doctrines. ERISA governs a wide variety of plans that provide life insurance, disability insurance, accidental death and dismemberment insurance and pension benefits. Given the challenges of invoking equitable estoppel and waiver in the ERISA context, do plan participants and their beneficiaries have other ERISA specific tools to force insurers to honor their word and previous conduct? Luckily, they do. A lawsuit for breach of fiduciary duty can sometimes achieve nearly identical results as waiver and equitable estoppel, but with less difficulty.

ERISA provides for various equitable remedies, including surcharge. See CIGNA Corp. v. Amara, 563 U.S. 421, 441 (2011). Section 502(a)(3) of ERISA authorizes plan participants and beneficiaries to seek equitable relief for ERISA violations. The Supreme Court examined this provision in Amara, supra. The Amara court’s interpretation of Section 502(a)(3) provides courts with broad powers to help insureds with problematic plan and claims administrators (normally employers and insurers).

In Amara, several CIGNA employees sued CIGNA for altering the CIGNA Pension Plan. Before the alteration, the pension plan had provided employees with a calculated annuity based on preretirement salary and length of service. The new pension plan provided a lump sum cash balance based on a defined annual contribution from CIGNA. The employees claimed that the new plan provided them with less generous benefits. They also asserted that CIGNA had not given them proper notice of the changes.

CIGNA first notified the employees of the change to the pension plan in a November 1997 newsletter. In the newsletter, CIGNA explained that the new plan would be an account balance system. The newsletter stated that CIGNA would explain the new plan at some undetermined date in 1998, but that the new plan would take effect on January 1, 1998. To employees who were already entitled to pension benefits, the new plan gave the employees a lump sum value for their years of service, discounted to its present value.

The employees sued CIGNA. The district court determined that the initial descriptions of the new plan misled CIGNA’s employees and was incomplete. The November 1997 statement claimed that the new plan would “significantly enhance” the retirement benefits program and would improve retirement benefits. The plan was to provide the “same benefit security” but with “steadier benefit growth.” Id. at 428. CIGNA also claimed that it would not benefit from any savings by implementing the new plan. The district court found all of these statements to be false and violations of provisions of ERISA that require a plan administrator to provide accurate and comprehensive statements such that the average plan participant understands their rights under a plan.

The district court held that ERISA Section 502(a)(1)(B) provided it with the legal authority to reform the plan for the benefit of the employees. Section 502(a)(1)(B) provides that a plan participant can bring an action to recover benefits due under an ERISA plan. The district court modified various portions of CIGNA’s new pension plan to provide the employees with the benefits to which it held they were entitled.

The court considered relying upon ERISA Section 502(a)(3) for its authority to modify the pension plan, but concluded that, under then Supreme Court precedent, Section 502(a)(3) did not provide the necessary authority. Section 502(a)(3) explains that a claim may be brought:

by a participant, beneficiary, or fiduciary (A) to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan.

CIGNA appealed the district court’s ruling. The Second Circuit affirmed the ruling in a summary opinion. CIGNA petitioned the Supreme Court, and the Supreme Court agreed to hear the petition.

The Supreme Court first analyzed Section 502(a)(1)(B). It determined that, in fact, Section 502(a)(1)(B) did not provide a district court with the authority to alter a plan. However, the Supreme Court determined that section 502(a)(3) provided the necessary authority. The Supreme Court explained that, “appropriate equitable relief” means the traditional equitable powers of a court. Courts’ traditional equitable powers included special remedies against trust fiduciaries who fail to properly administer a trust. ERISA plans are treated as trusts. As such, the current matter before the Supreme Court was one that traditionally involved an equitable suit against a trust’s administrator. A court’s equitable powers include such remedies as injunctions, reformation of contracts, equitable estoppel and equitable surcharge. Surcharge is the “power to provide relief in the form of monetary ‘compensation’ for a loss resulting from a trustee’s breach of duty, or to prevent the trustee’s unjust enrichment.” Id. at 441. The Supreme Court concluded that section 502(a)(3) provided the necessary authority for the district court’s actions. See id. at 441-42.

The Supreme Court then addressed what standard would apply to a district court’s invocation of its equitable powers. ERISA does not provide a standard. The Supreme Court noted that only certain remedies traditionally required detrimental reliance, the reliance on a party’s assertions to the suing party’s detriment. For example, detrimental reliance is an element of equitable estoppel, but not the reformation of a contract or surcharge.

The Supreme Court determined that to establish surcharge, a party need establish, by a preponderance of the evidence, that the plan beneficiary suffered actual harm due to a fiduciary’s breach of their duties. The Supreme Court remanded the matter for further proceedings.

As we previously noted, insureds have difficulty invoking the doctrines of equitable estoppel and waiver. However, that does not mean that insureds lack recourse against an insurer’s misconduct. An insurer’s actions may constitute a breach of fiduciary duty. If so, the insured may have a much simpler time establishing the insurer’s impropriety in court via a breach of fiduciary duty claim.