McKennon Law Group, Author at McKennon Law Group

The McKennon Law Group is proud to announce that prominent insurance attorney Joe S. McMillen has joined the Firm. Like the other attorneys of the Firm, Mr. McMillen has a stellar academic background, graduating in the top 1% of his class at University of California at Los Angeles, before earning his juris doctorate at the University of San Diego, School of Law. He is admitted to all federal and state courts in California, and has been admitted pro hac vice in Hawaii, Kansas, Missouri, Nevada, South Carolina, Utah and Washington.

In addition to his academic credentials, Mr. McMillen brings two decades of experience litigating insurance coverage and bad faith claims, as well as complex business disputes, representing plaintiffs/insureds. Mr. McMillen has significant experience in every aspect of the litigation process, and over the course of his twenty-year career, he has taken hundreds of depositions, participated in numerous mediations, arbitrations and trials.

We are excited to welcome Mr. McMillen to the firm, and he is enthusiastic to use his vast experience and knowledge to assist the firm’s clients in obtaining the benefits/damages to which they are rightfully entitled.

Have you properly designated your intended beneficiaries for your retirement plan at work? What about for your savings plan, life insurance policy or other employee benefit plans you have through your employer? If you have not, the impact could be dire and life-changing for your loved ones after you pass. Make sure you follow the law so your family is properly taken care of when the inevitable happens.

The Ninth Circuit Court of Appeal recently addressed these issues in Becker v. Williams, 2015 U.S. App. LEXIS 1554 (9th Cir. Jan. 28, 2015). There, a 30 year employee of Xerox Corporation died in 2011, Asa Williams, Sr. Because Asa, Sr. did not follow through in changing his intended beneficiary with a written form after his telephone request to his employer, his son and ex-wife were left fighting each other over his retirement proceeds. The Court framed the issue as:

We must decide whether a decedent succeeded in his attempt to ensure that his son—and not his ex-wife—received the benefits to which his employer’s retirement plans entitled him.

Before his retirement, Asa, Sr. participated in Xerox’s retirement and savings plan (“Retirement Plans”). The Retirement Plans were subject to the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. 1001 et seq. (as are most employer sponsored employee benefit plans such as life insurance policies and disability insurance policies).

Asa, Sr. married Carmen Mays Williams and formally designated her as his beneficiary on his Retirement Plans. After their divorce, Asa, Sr. changed his designated beneficiary from his ex-wife to his son, Asa, Jr., by telephoning Xerox and instructing it to make the change three different times. Each time, following his phone conversation with Xerox, Asa, Sr. received, but did not sign and return, the beneficiary designation forms Xerox gave him to confirm the change.

After Asa, Sr. died, Carmen immediately wrote Xerox and claimed to be the beneficiary under the Retirement Plans. Asa, Jr. asserted the same claim. Rather than decide the family squabble, Xerox filed an interpleader action in federal district court and interpleaded the retirement proceeds.

Carmen moved for summary judgment, asserting that because Asa, Sr. failed to fill out and return the beneficiary designation forms, he did not properly designate Asa, Jr. as beneficiary in her place. Asa, Jr. argued that his father calling Xerox on the telephone and changing the beneficiary to himself from Carmen was enough. The district court sided with the ex-wife and granted her motion, despite that Asa, Sr. apparently intended his son to receive his retirement benefits. It reasoned the beneficiary forms were “plan documents” under ERISA and, therefore, Asa, Sr. was required to follow their instructions to legally complete the beneficiary change (they had language requiring the employee to sign and return the forms to validate a beneficiary change).

Asa, Jr. appealed. The Ninth Circuit Court of Appeal reversed, holding that the beneficiary designation forms were not “plan documents” under ERISA. Relying on another case that addressed a slightly different ERISA issue, Hughes Salaried Retirees Action Comm. v. Adm’r of the Hughes Non-Bargaining Ret. Plan, 72 F.3d 686 (9th Cir. 1995), the Court of Appeal found the beneficiary designation forms were not plan documents because:

only those [documents] that provide information as to where [the participant] stands with respect to the plan, such as [a] [summary plan description] or trust agreement might, could qualify as governing documents with which a plan administrator must comply in awarding benefits under [ERISA].

The Court of Appeal reasoned because an ERISA plan administrator must distribute employee benefits in accordance with the governing “plan documents,” Xerox was not required to follow the instructions on the beneficiary designation forms when distributing Asa, Sr.’s retirement proceeds. Instead, Xerox was required to follow the requirements of the plan documents, including the Retirement Plans’ Agreement and Summary Plan Description. Those documents permitted an unmarried employee like Asa, Sr. to change his beneficiary over the telephone simply by calling the Xerox Benefits Center. The plan documents did not require a written form. The Court of Appeal thus found the district court erred in determining that Asa, Sr. was required to abide by the language in the forms – but not in the governing plan documents – to change his beneficiary designation from Carmen to Asa, Jr.

The Court next addressed the issue of whether the evidence showed Asa, Sr. actually changed his beneficiary to Asa, Jr. in accordance with the plan documents. It held that, based on Xerox’s call logs which showed Asa, Sr. called Xerox to change his beneficiary from Carmen to Asa, Jr., a reasonable jury could find he intended to make the change and that his phone calls substantially complied with the plan documents. The Court therefore found summary judgment in Carmen’s favor was inappropriate. It reversed and remanded to the district court for a trial in accordance with the rules espoused in its opinion on the issue of Asa, Sr.’s intent.

The Court addressed one final matter, the proper standard of review. The issue was whether it should defer to the Retirement Plan administrator’s decisions in the matter or, instead, should decide “de novo” if Carmen or Asa, Jr. should receive the retirement benefits. It held that because the Retirement Plan administrator did not exercise any discretion in deciding whether Asa, Sr. telephonically designating his son was valid under the Plans, it must decide the case de novo. Stated another way, the Court found there was no discretion exercised by the Plan administrator to which it could defer.

It looks like this case will turn out fine for now deceased Asa, Sr. and his son, albeit at great expense and aggravation to Asa Jr. But it teaches an important lesson to employees with employer sponsored retirement plans, life insurance policies and disability policies. Make sure you carefully follow the plan documents whenever effectuating your rights. The consequence of being careless could cost you or your family hard earned employee benefits.

McKennon Law Group PC is proud to announce that its founding shareholder Robert J. McKennon has been recognized as one of Southern California’s “Super Lawyers” and appears in the 2015 edition of Southern California Super Lawyers magazine published today. Mr. McKennon has received this designation every year since 2011.

Each year, Super Lawyers magazine, which is published in all 50 states and reaches more than 14 million readers, names attorneys in each state who attain a high degree of peer recognition and professional achievement. The Super Lawyer designation is given to less than 5% of lawyers nationally after being nominated and voted on by their peers.

In addition, the American Society of Legal Advocates has recognized Mr. McKennon as one of the top 100 Insurance lawyers in the State of California for 2015. The American Society of Legal Advocates is an invitation-only, nationwide organization of top lawyers in practice today who combine excellent legal credentials with a proven commitment to community engagement and the highest professional standards.

Mr. McKennon was also awarded the designation of 2015 “Top Rated Lawyer in Insurance Law and Coverage” by American Lawyer Media and Martindale Hubbell, leading providers of news and rating information to the legal industry.

A universal part of the American medical experience is paperwork. Everyone is familiar with visiting a healthcare provider for the first time, filling out history forms and signing pages of documents that they either do not understand or do not care about. The Ninth Circuit recently grappled with a minimally explored legal issue surrounding one such document: whether a non-participant healthcare provider, as assignee of health plan beneficiaries under an assignment form, has Article III standing to bring a denial of benefits claim under ERISA.

Plaintiff Spinedex was a physical therapy clinic that had a number of patients covered by the defendant health plans although plaintiff was not a provider for plan participants. United Healthcare served as claims administrator for the defendant health plans and also insured many of those plans. New Spinedex patients were required to sign, among other things, an assignment of benefits form, an authorization of representation form, an enrollment form, and a financial policy form. The enrollment form included an acknowledgment that patients were liable for all costs of services provided; similarly, the financial policy explained patients would be responsible for any treatment costs not covered by their health plans.

The assignment form and authorization form, respectively, assigned Spinedex its patients “rights and benefits” under their respective health plans and authorized Spinedex to represent patients in administrative or civil proceedings that may arise in pursuit of benefits under their health plans. Most of the defendant health plans allowed written assignment of claims by their subscribers. Spinedex submitted claims to United after treating patients covered by the plans and United denied a number of such claims in whole or in part. Spinedex did not seek payment from its patients. These denials ultimately resulted in litigation when Spinedex sued United Healthcare and 44 health plans governed by ERISA for which United Healthcare was the claims administrator of the Plans. Under the Plans, for out-of-network care, Plan beneficiaries were required to request payment from their respective Plans. After defendants filed summary judgment based on lack of standing, the District Court granted summary judgment, holding, inter alia, that Spinedex lacked Article III standing to bring its denial of benefits and breach of fiduciary duty claims. Spinedex appealed.

The Ninth Circuit began by recognizing that, under ERISA’s civil enforcement provision, only participants, beneficiaries, fiduciaries, and the secretary of labor are empowered to bring a civil action. Spinedex was none of the above, thereby requiring it to “[bring a civil claim] derivatively, relying on its patients’ assignments of their benefits claims.” The defendants’ argument hinged on the first element of Article III standing: “[A] plaintiff must show (1) it has suffered an “injury in fact” that is (a) concrete and particularized and (b) actual or imminent, not conjectural or hypothetical.” Spinedex PT v. United Healthcare, citing Friends of the Earth, Inc. v. Laidlaw Envtl. Servs. (TOC), Inc., 528 U.S. 167, 180–81 (2000).

Specifically, the defendants argued that the assigning patients have not suffered an “injury in fact” because Spinedex had not sought payment from its assigning patients for any shortfall. Therefore, defendants argued that since Spinedex stands in the shoes of, and can have no greater injury than, its assignors, Spinedex did not suffer injury in fact.

The court thoroughly dismantled this argument. It relied on at least one case from the Eleventh Circuit directly on point (the only other federal court to directly address this issue): HCA Health Services of Georgia, Inc. v. Employers Health Insurance Co., 240 F.3d 982 (11th Cir. 2001) (“HCA”). In that case, the defendant argued that the plaintiff lacked Article III standing because it failed to bill its patient-assignor for the denied benefits and thus lacked standing. The court in HCA disagreed and held that an assignee healthcare provider had standing to sue for recovery of benefits.

The Ninth Circuit also compared the present case to the Supreme Court’s decision in Sprint Communications Co. v. APCC Services, Inc., 554 U.S. 269 (2008). In that case, payphone operators had assigned third party aggregator companies their right to sue long-distance carriers for money owed, with an agreement that the aggregators would pay the proceeds of the suits back to the operators, minus a small fee. Sprint Communications was decided in a five-four split, with the dissent raising concern that the assignee had no stake in the outcome of the litigation beyond their fee. Here, Spinedex had an interest because its “patients assigned the entirety of their claims against the Plans, and Spinedex, as assignee, is permitted to keep all amounts recovered in suits brought on those claims.”

The defendants in Spinedex insisted that the plaintiff’s choice to not seek payment from the patients meant that those patients, as assignors, suffered no injury in fact after they assigned their rights. The court disagreed, stating “the patients’ injury in fact after the assignment is irrelevant.” Spinedex only took the rights the assignors had at the time, which included the right to seek payment directly from the health plans for charges by non-participant health care providers. Spinedex’s decision to not pursue its legal rights against its patients for payment did not affect it’s right to recover from the defendants.

The Ninth Circuit did not agree with all of Spinedex’s arguments, however. The court affirmed that the anti-assignment clause in one of the health plans precluded an assignment of benefits from the plan’s beneficiaries to Spinedex. The court also rejected Spinedex’s argument that the “assignment of rights and benefits” included the right to bring claims for breach of fiduciary duty, citing that the context of the agreement appears limited to issues of payment.

This decision is well reasoned and allows providers who have performed valuable services for plan participants to be paid directly from the ERISA plans that insure their patients and does not force the often needless action of actually seeking payment from them. Limiting physicians’ first recourse to their patients would have chilling effects both on providers and plan participants. Participants may forgo or delay vital healthcare because they cannot finance or they cannot pay for their care, and providers may limit their care to those participants whose health plans have previously paid properly assigned healthcare claims or participants who are able to first to pay for the care. But, these providers must first check the plans’ terms to assure themselves that they do not contain anti-assignment clauses

The January 8, 2015 edition of the Los Angeles Daily Journal featured Robert McKennon and Scott Calvert’s article entitled: “Expanding Equitable Remedies in ERISA Cases.” In it, Mr. McKennon and Mr. Calvert discuss a new case, Gabriel v. Alaska Electrical Pension Fund, 2014 DJDAR 16590 (9th Cir. 2014) and also discuss equitable remedies generally in ERISA cases and, in particular, how the Ninth Circuit Court of Appeals has joined other circuits in allowing certain equitable remedies, most especially the surcharge remedy. Mr. McKennon and Mr. Calvert also explain how insurance claimants should go about proving equitable remedies. The article is posted below with the permission of the Daily Journal.

Case highlights importance of agent-broker distinction

Expanding equitable remedies in ERISA cases

One of the biggest changes in the ever-fluid law that is the Employee Retirement Income Security Act of 1974 was the expansion in the availability of claims for equitable remedies. In 2011, the U.S. Supreme Court, in Cigna Corp. v. Amara, opened the door to allowing claimants to seek monetary relief through equitable remedies in ERISA cases. With a recent ruling, the 9th U.S. Circuit Court of Appeals has expanded the available equitable remedies and set forth a road map for claimants when asserting the equitable remedies of reformation, equitable estoppel and surcharge.

Following the Supreme Court’s 1985 decision in Massachusetts Mutual Life Insurance Co. v. Russell, courts across the country grappled with the extent to which equitable remedies are available under ERISA. While equitable remedies were always technically available to ERISA claimants through Section 502(a)(3)(B), which allows an ERISA claimant “to obtain other appropriate equitable relief,” such relief was only available in some circuits, and even then only under “extraordinary circumstances.” Prior to Amara, the lower courts interpreted the Supreme Court’s 1993 ruling in Mertens v. Hewitt Assocs. as precluding the recovery of any monetary relief under Section 502(a)(3) because monetary relief was not considered to be equitable relief.

However, following Amara, courts expanded the availability of equitable remedies. Consistent with that trend, recently, the 9th Circuit withdrew an earlier decision denying the availability of the equitable remedy of surcharge in ERISA cases, and issued a new ruling consistent with the holdings of other circuit courts. The new ruling, Gabriel v. Alaska Electrical Pension Fund, 2014 DJDAR 16590 (9th Cir. 2014), is much more favorable to ERISA claimants and clarifies that surcharge, a form of equitable relief, is available to claimants under ERISA Section 502(a)(3).

While the 9th Circuit ruled that the district court was correct in holding that the plaintiff was not entitled to the payment of the pension funds he sought because his rights to those funds never vested, it also remanded one aspect of the case to the district court, but virtually instructed the lower court to deny that claim. However, the ruling is important because, by providing the equitable remedy of surcharge to ERISA claimants, the 9th Circuit aligned itself with the 4th, 5th, 7th and 8th Circuits in expanding the rights of ERISA claimants.

In the ruling, the 9th Circuit explained that Amara clarified that because ERISA Section 502(a)(3) allows a claimant to seek “appropriate equitable relief,” those remedies traditionally viewed as equitable were available.

For example, a claim of “appropriate equitable relief” may include “the reformation of the terms of the plan, in order to remedy the false or misleading information” provided by a plan fiduciary. The court explained:

“A plaintiff may obtain reformation based on mistake in two circumstances: ‘if there is evidence that a mistake of fact or law affected the terms of [a trust] instrument and if there is evidence of the settlor’s true intent’; or (2) ‘if both parties [to a contract] were mistaken about the content or effect of the contract’ and the contract must be reformed ‘to capture the terms upon which the parties had a meeting of the minds.’ Under a fraud theory, a plaintiff may obtain reformation when either (1) ‘[a trust] was procured by wrongful conduct, such as undue influence, duress, or fraud,’ or (2) a ‘party’s assent [to a contract] was induced by the other party’s misrepresentations as to the terms or effect of the contract’ and he “was justified in relying on the other party’s misrepresentations.” (Internal citations omitted).

However, while the Gabriel court reiterated the availability of the equitable remedy of reformation in ERISA cases, the court also clarified that the plan documents themselves must actually contain an error for reformation to be properly applied. It is not enough that the administrative record contains misinformation about the plan. The mistake must be in the plan itself, not in its administration. Absent an actual mistake in the plan documents, reformation is likely not available.

Next, the 9th Circuit held that equitable estoppel is another form of equitable relief available under ERISA. With respect to equitable estoppel, a fiduciary is held to what it promised and the claimant is entitled to the benefit consistent with that promise. However, in ERISA cases, enforcing equitable estoppel is not as simple as demonstrating that a promise for certain benefits was made; other conditions apply. As with a claim for reformation, the 9th Circuit explained that “a federal equitable estoppel claim in the ERISA context [cannot] contradict written plan provisions.”

This principle is consistent with the primacy that plan documents hold in ERISA cases. Given the important role that plan documents play in ERISA, the Court stated:

“Accordingly, a plaintiff may not bring an equitable estoppel claim that ‘would result in a payment of benefits that would be inconsistent with the written plan,’ or would, as a practical matter, result in an amendment or modification of a plan, because such a result ‘would contradict the writing and amendment requirements of 29 U.S.C. [Sections] 1102(a)(1) and (b)(3).’ … For the same reason, ‘oral agreements or modifications cannot be used to contradict or supersede the written terms of an ERISA plan.’” (Internal citations omitted).

However, the court did explain there was a difference “between oral statements that contradict or supersede the terms of an ERISA plan,” which are not enforceable, and “oral interpretations of a plan’s provisions that are not contrary to the plan’s written provisions,” and could be enforced if they offer interpretations of ambiguous plan provisions.

In addition, the court explained that to meet traditional equitable estoppel requirements, an ERISA claimant must demonstrate: “(1) extraordinary circumstances; (2) that the provisions of the plan at issue were ambiguous such that reasonable persons could disagree as to their meaning or effect; and (3) that the representations made about the plan were an interpretation of the plan, not an amendment or modification of the plan.” (Internal quotations and citations omitted.)

Finally, regarding the equitable remedy of surcharge, in which the claimant is placed in the position he or she would have been in but for the fiduciary’s breach of duty, the 9th Circuit reversed its previous, now-withdrawn, decision and noted that Amara allows a claimant to obtain surcharge relief. The 9th Circuit explained that to prevail on a surcharge claim, consistent with Amara, the claimant must establish a breach of fiduciary duty that caused his harm and is not necessarily required to show detrimental reliance. The court held:

“‘[A] plan participant or beneficiary must show that the violation injured him or her,’ but ‘need only show harm and causation,’ not detrimental reliance … [S]urcharge may be an appropriate form of equitable relief to redress losses of value or lost profits to the trust estate and to require a fiduciary to disgorge profits from unjust enrichment.”

The court then remanded the case to the district court to determine whether the surcharge remedy is “appropriate equitable relief” as it pertained to the plaintiff.

As Gabriel demonstrates, courts are using Amara to expand the ability of plan participants and beneficiaries to bring claims for equitable relief under ERISA, even to obtain monetary relief, not previously available to them.By confirming that surcharge is an available equitable remedy in ERISA cases, and providing a road map for obtaining monetary relief through reformation, equitable estoppel, and most especially surcharge, the 9th Circuit issued another plaintiff-friendly ruling.

The January 8, 2015 edition of the Los Angeles Daily Journal featured Robert McKennon and Scott Calvert’s article entitled: “Expanding Equitable Remedies in ERISA Cases.” In it, Mr. McKennon and Mr. Calvert discuss a new case, Gabriel v. Alaska Electrical Pension Fund, 2014 DJDAR 16590 (9th Cir. 2014), which discusses equitable remedies in ERISA cases and in particular how the Ninth Circuit Court of Appeals has joined other circuits in allowing various equitable remedies, most especially the surcharge remedy which may allow ERISA claimants to obtain monetary relief.

Prominent Insurance Attorney Joe S. McMillen Joins McKennon Law Group PC

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