Waiver and equitable estoppel serve as some of the legal systems’ fundamental checks on the fairness of a party’s actions. Both doctrines serve to prevent an individuals and insurers from performing actions contradictory to what they have previously guaranteed or established via their conduct. “A waiver occurs when a party intentionally relinquishes a right or when that party’s acts are so inconsistent with an intent to enforce the right as to induce a reasonable belief that such right has been relinquished.” Salyers v. Metro. Life Ins. Co., 871 F.3d 934, 938 (9th Cir. 2017) (internal quotations omitted). Equitable estoppel “holds the [individual] to what it had promised and operates to place the person entitled to its benefit in the same position he would have been in had the representations been true.” Gabriel v. Alaska Elec. Pension Fund, 773 F.3d 945, 955 (9th Cir. 2014) (internal quotations omitted). Often times, an insurer makes a declaration to an insured only for the insurer to then change its position to the insured’s detriment. This occurs in a variety of contexts such as life insurance, accidental death or dismemberment insurance and disability insurance. In Salyers v. Metro. Life Ins. Co., 871 F.3d 934 (9th Cir. 2017), the Ninth Circuit Court of Appeals addressed waiver in the context of the Employee Retirement Income Security Act of 1974 (“ERISA”) and it has become one of the most important cases dealing with waiver and estoppel issues in ERISA employee benefit area.
In Salyers, the Ninth Circuit found an insurer liable for a $250,000 life insurance policy, despite the insured’s failure to provide evidence of insurability to the insurer, as required by the policy. Susan Salyers worked as a nurse at Providence Health & Services. Providence provided life insurance to its employees through a plan sponsored by MetLife. The insurance was governed by ERISA. MetLife’s Summary Plan Description provided that, for a dependent to be eligible for life insurance coverage, the dependent must submit evidence of insurability in the form of a “Statement of Health” for elected coverage over $50,000. In 2013, Ms. Salyers elected a total of $40,000 in coverage, $20,000 for herself and $20,000 for her dependent. As the result of an administrative error, Providence’s internal records showed Ms. Salyers and her dependent as having coverage of $500,000. Neither Metlife nor Providence corrected the error or requested a statement of health. Providence deducted premiums for $500,000 in coverage. In the 2014 open enrollment period, Ms. Salyers elected $250,000 in coverage for her dependent, and, again, neither Providence nor MetLife requested a Statement of Health.
Ms. Salyers’ dependent passed away. MetLife processed the claim but issued only $30,000 in death benefits. It asserted that Ms. Salyers never submitted a “Statement of Health” and, therefore, Ms. Salyers could only receive the lesser amount. On administrative appeal, MetLife continued to deny coverage asserting that “its receipt of premiums did not create coverage” under the plan. Id. at 937.
Ms. Salyers filed suit arguing that MetLife was estopped from contesting coverage and, in the alternative, had waived the evidence of insurability requirement. The district court found in favor of MetLife, determining that Ms. Salyers had failed to meet the burden of establishing coverage via evidence of insurability. Ms. Salyers appealed and the Ninth Circuit reversed based on MetLife’s waiver through acceptance of premium payments by Providence, acting as MetLife’s agent in “collecting, tracking and identifying inconsistencies with the evidence of insurability requirement.” Id. at 941. The Ninth Circuit explained that “Courts have applied the waiver doctrine in ERISA cases when an insurer accepted premium payments with knowledge that the insured did not meet certain requirements of the insurance policy.” Id. at 939. MetLife was liable because of Providence’s apparent and implied authority to collect evidence of insurability on MetLife’s behalf. Because Providence failed to properly collect evidence of insurability for Ms. Salyers’ dependent, MetLife waived the right to enforce the Statement of Health requirement. Id. at 938-41. In footnote 5, the Salyers court noted that:
Generally, “[t]he doctrine of waiver looks to the act, or the consequences of the act, of one side only, in contrast to the doctrine of estoppel, which is applicable where the conduct of one side has induced the other to take such a position that it would be injured if the first should be permitted to repudiate its acts.” Intel Corp. v. Hartford Accident & Indem. Co., 952 F.2d 1551, 1559 (9th Cir. 1991)(internal citations and quotation marks omitted). We are mindful, however, of our previous statement that “in the insurance context, the distinction between waiver and estoppel has been blurred . . . . [I]t is consistent with ERISA to require an element of detrimental reliance or some misconduct on the part of the insurance plan before finding that it has affirmatively waived a limitation defense.” Gordon v. Deloitte & Touche, LLP Grp. Long Term Disability Plan, 749 F.3d 746, 752-53 (9th Cir. 2014)(internal citations and quotation marks omitted). Assuming, without deciding, that our holding inGordonapplies beyond the waiver of a statute of limitations defense at issue in that case, the record reflects that Salyers detrimentally relied on Providence and MetLife’s conduct, presumably by not buying other insurance. In a letter to Salyers, MetLife admits that “it appears that Ms. Salyers detrimentally relied on having Dependent Life Insurance great[er] than $30,000.”
Id. at 941, n.5.
Since Salyers, district courts do not appear to have placed much emphasis on footnote 5. For example, in Cohorst v. Anthem Health Plans of Kentucky, Inc., 2017 WL 6343592 (C.D. Cal. Dec. 12, 2017), a case which cited to Salyers, Aubrey Cohorst brought an action under ERISA against Anthem Health Plans of Kentucky, Inc. (“Anthem”). The underlying dispute involved Anthem’s denial of coverage for Ms. Cohorst’s artificial disc replacement surgery, which required the use of a “Mobi-C” device. Ms. Cohorst’s doctor determined that the surgery was medically necessary and sought Anthem’s prior approval. In the initial approval process, Anthem confirmed its approval of the surgery, but did not specify the medical device that would be used. Anthem’s internal documents mirrored its initial approval, describing the surgery as “medical necessary” and meeting “criteria guidelines.” See id. at *1-3.
When Ms. Cohorst’s physician contacted Anthem to confirm which medical device had been approved for surgery, Anthem told the doctor it approved the “Pro Disc-C” and not the “Mobi-C.” Shortly after this conversation, Anthem created a new reference number allegedly based on the request to use the “Mobi-C” device and overturned its original approval, finding the procedure to be “Experimental” or “Investigative” and thus not medically necessary under the terms of the plan. Ultimately, Ms. Cohorst underwent the surgery and Anthem refused to cover its costs.
Ms. Cohorst sued Anthem. Under a de novo standard of review, the court evaluated the plan and the relevant exclusionary language. The court determined that the procedure fell within the exclusion. Despite this, the District Court still found in favor of Ms. Cohorst based on a theory of waiver. Id. at *10. Emphasizing Anthem’s inconsistent behavior, the court held that Anthem waived its right to assert the exclusion when it first approved the surgery as medically necessary. Id. The court explained that Anthem had waived its right to deny Ms. Cohort’s claim because it initially approved her surgery, albeit with a “Pro Disc-C” device. The court explained that waiver occurs when “a party intentionally relinquishes a right” or “when that party’s acts are so inconsistent with an intent to enforce the right as to induce a reasonable belief that such right has been relinquished.” Id. (citing Salyers, 871 F.3d at 938). The court reasoned that Anthem was fully aware of Ms. Cohorst’s medical condition when it initially approved the surgery and it was only after Dr. Bray appealed Anthem’s decision regarding the type of device to be used in the surgery that Anthem suddenly decided to completely reverse its prior authorization and deny Ms. Cohorst’s entire claim. The court found that because there was no new information regarding Plaintiff’s prior condition or any change in its medical policy, Anthem waived its right to rely on the exclusion that was available to it when it provided its initial approval. Id. at 10.
Of interest, the court did not analyze the case in terms of detrimental reliance. Instead, the court performed a standard waiver analysis, like it would for a case not involving ERISA.
Footnote 5 of Salyers raises another question. Has there been any change in how courts apply promissory estoppel in the ERISA context? Salyers is only a year old, but it appears that Salyers has not significantly altered how district courts in the Ninth Circuit apply the doctrine of promissory estoppel.
As explained in Gabriel v. Alaska Electrical Pension Fund, 773 F.3d 945, 955 (9th Cir. 2014), a Ninth Circuit case that predates Salyers, to establish equitable estoppel, a party must establish “(1) the party to be estopped must know the facts; (2) he must intend that his conduct shall be acted on or must so act that the party asserting the estoppel has a right to believe it is so intended; (3) the latter must be ignorant of the true facts; and (4) he must rely on the former’s conduct to his injury.” To assert a claim for equitable estoppel under ERISA, additional requirements must be met. “Accordingly, to maintain a federal equitable estoppel claim in the ERISA context, the party asserting estoppel must not only meet the traditional equitable estoppel requirements, but must also allege: (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.” Id. at 956 (internal quotations omitted).
Post Salyers, some district courts in the Ninth Circuit still use this same test listed in Gabriel. See Spies v. Life Ins. Co. of N.A., 312 F.Supp.3d 805, 812-13 (N.D. Cal. 2018); Meakin v. California Field Ironworkers Pension Trust, 2018 WL 405009, at *7 (N.D. Cal. Jan. 12, 2018); O’Rouke v. Northern California Elec. Workers Pension Plan, 2017 WL 5000335, at *15 (N.D. Cal. Nov. 2, 2017); Polevich v. Tokio Marine Pac. Ins. Ltd., 2018 WL 4356583, at *9-10 (D. Guam Sept. 13, 2018); Berman v. Microchip Tech. Inc., 2018 WL 732667, at *14 (N.D. Cal. Feb. 6, 2018).
Berman v. Microchip Technology Inc., 2018 WL 732667 (N.D. Cal. Feb. 6, 2018), provides a good example of how estoppel can apply in the ERISA context. In Berman, a group of former Atmel employees sued their employer over alleged violations of a severance benefits plan arising under ERISA. The employer created the severance benefits plan due to uncertainty surrounding the employer’s future and its attempts to secure a merger partner. The plan was outlined in a series of letters to the employees. The letters explained that the plan would terminate on November 1, 2015 “unless an Initial Triggering Event . . . occurred prior to November 1, 2015, in which event the [Atmel Plan] will remain in effect for 18 (eighteen) months following that Initial Triggering Event.” Id. at *1. Initial triggering event was defined as “enter[ing] into a definitive agreement . . . on or before November 1, 2015, that will result in a Change of Control of the Company.” The plan benefits would only be provided if a change of control occurred and the employees were terminated without cause within 18 months of the triggering event.
Atmel and a company called Dialog Semiconductor PLC executed and announced a formal merger agreement before November 1, 2015. Before the closing date of the Dialog merger, Atmel and Microchip entered into merger negotiations. Atmel withdrew from the agreement with Dialog and entered into an agreement with and became a wholly owned subsidiary of Microchip. When communicating with its employees, Atmel and Microchip explained that the plan would still apply even if the deal with Microchip, as opposed to Dialog, was completed.
Subsequently, Microchip failed to honor the plan. Several terminated employees sued to obtain their severance benefits under the plan. Microchip moved to dismiss the complaint. One of the plaintiffs’ arguments relied on equitable estoppel. The court relied on the standard Gabriel test. See id. at *14. Defendants argued that the plan was not ambiguous and the circumstances failed the extraordinary circumstances prong of the test. The court did not agree with the defendants. It stated:
First, the Court is satisfied, notwithstanding Plaintiffs’ assertions that the provisions of the Atmel Plan are unambiguous, that reasonable parties could disagree as to whether the Plan required the Initial Triggering Event and the Change of Control to involve the same merger partner—particularly at the motion to dismiss stage, and particularly since that interpretation is one of the primary disputes in this case. Second, Plaintiffs sufficiently allege detrimental reliance on an oral, material misrepresentation of that ambiguity by Defendants.
Id. at *15. The court denied Microchip’s motion insofar as it related to the employees’ claim for equitable estoppel. See id.
In the ERISA context, the doctrines of waiver and estoppel can be difficult to invoke. However, sometimes, an insurer makes a critical mistake and must honor its word. Whereas Salyers may be an indication of a gradual change in the doctrine, the change has not yet been firmly established. District courts still rely on the traditional forms of waiver and equitable estoppel. It is quite possible that the foundation for a shift in the doctrines is being laid, but only time will tell if that is the case.
In the next article, we will discuss the similar claims for breach of fiduciary duty and surcharge, which are often easier to prove and prove similar and very satisfying remedies for an ERISA plaintiff/claimant.