ERISA Archives - Page 45 of 56 - McKennon Law Group

Insurers Do Not Have Discretionary Authority, Absent Clear Language in Official Plan Documents

In actions brought under the Employee Retirement Income Security Act of 1974 (“ERISA”), two roads diverge in federal court—and the court’s choice regarding the applicable standard of review can make all the difference in the scope of permissible evidence. If the court applies the abuse of discretion standard of review, the court more typically (but not always) only considers evidence received by the insurer in time for its decision and limits its review to the “administrative record” to determine whether the insurer’s denial was an abuse of discretion. Alternatively, the court may review a case “de novo,” and may consider documents not previously provided to the insurer to determine whether the insured is entitled to benefits.

Prior case law holds a district court must review a plan administrator’s decision de novo, “unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits.” Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989). The Ninth Circuit Court of Appeals expanded upon this holding, by defining what constitutes the “benefit plan.” The Ninth Circuit clarified that where a Summary Plan Description (“SPD”) which was not defined as an official plan document unambiguously granted discretionary authority to a plan administrator to decide claims, but an insurance certificate, an official plan document, did not grant discretionary authority, the official plan document governed. Because the governing plan document, the insurance certificate, did not grant the insurer discretionary authority, the district court was required to review the case de novo. Prichard v. Metropolitan Life Ins. Co., 2015 U.S. App. LEXIS 6553 (9th Cir. Apr. 21, 2015). Prichard is significant as the de novo standard is arguably more favorable to insureds, because it not only provides a less deferential standard of review, but insureds may be able to conduct discovery and supplement the administrative record to offer evidence that administrators acted with bias or to bring in additional medical evidence to support a disability.

Prichard involved a fairly standard ERISA claim by Matthew Prichard, an insured, against Metropolitan Life Insurance Company (“MetLife”) for his long-term disability insurance benefits. Prichard’s policy contained a 24-month benefits period for mental limitations. Prichard filed for, and received, benefits for his psychiatric disability for a period just shy of 24 months. Subsequently, MetLife requested additional information demonstrating Prichard was disabled due to non-limited conditions, received his updated medical records and decided there was insufficient medical evidence to support his claim. Prichard appealed unsuccessfully, then brought suit for a continuation of his ERISA benefits under 29 U.S.C. section 1132(a)(1)(B).

The district court addressed whether the applicable standard of review was de novo or abuse of discretion. MetLife pointed to unambiguous language in its SPD granting the plan fiduciary “discretionary authority to interpret the terms of the Plan,” and argued for the abuse of discretion standard of review. Prichard argued the Supreme Court holding in CIGNA Corp. v. Amara, 131 S. Ct. 1866 (2011) stating the terms of plan summaries may not be enforced as the plan itself precluded MetLife from asserting that the SPD language was the Plan language. Prichard further argued that no other plan documents conferred discretionary authority on MetLife, and therefore the district court should review the case de novo. The district court found the SPD was a governing plan document which unambiguously granted MetLife discretionary authority to determine claims and benefit eligibility. Applying an abuse of discretion standard of review, the district court held that MetLife did not abuse its discretion in denying Prichard disability benefits. Prichard timely appealed.

The Ninth Circuit Court of Appeals reversed, explaining that a district court must review a plan administrator’s denial of benefits de novo, unless the benefit plan gave the administrator discretionary duty to determine eligibility for benefits. The Court noted that Amara involved a dispute in which there was an SPD and a written plan instrument, and the plan administrator sought to enforce the SPD’s terms over those of the plan instrument. MetLife sought to enforce the SPD as the one and only formal plan document. It argued that previous federal court decisions have accepted the SPD as the formal plan document where the terms of the SPD did not add to, or contradict, the terms of existing Plan documents. In light of these decisions, the Court explained that the SPD terms do not govern if they conflict with governing plan documents, and similarly, the SPD cannot create terms beyond those in the governing plan documents. However, the Court rejected MetLife’s argument that the SPD and the plan “are one and the same.” The Court determined that the SPD clearly stated the only plan documents are 1) a Group Policy (including the certificate), 2) IBM’s application and 3) any amendments or endorsements to the Group Policy. The Court noted that while the insurance certificate was plainly listed as a plan document, “[c]onspicuously absent from this exclusive list was the SPD.” Further, MetLife carried the burden of providing other official plan documents, such as a document containing the discretionary language, but failed to do so. As such, the SPD was the only plan document provided to the Court, and it did not grant discretionary authority to MetLife. The court also noted that “the SPD itself declares ‘official plan documents. . . remain the final authority’ and ‘shall govern’” if the SPD terms conflict with official plan documents. Finally, the Court of Appeal stated:

Because the official insurance certificate contains no discretion-granting terms, we will not, consistent with Amara, hold that the SPD’s grant of discretion constitutes an additional term of the Plan.

Accordingly, the Court held the district court erred in reviewing MetLife’s denial under the abuse of discretion standard of review, and remanded for a de novo review.

While Prichard turned on a technical distinction—what constitutes an official plan document, it affirms the idea that an insurer does not have discretionary authority absent clear language in official plan documents. Therefore, unless an insurer establishes it has discretionary authority under such documents, a court must apply a de novo standard of review. This de novo standard can be outcome determinative.

Ninth Circuit Affirms MLG’s Six-Figure Judgment in a Disability Suit Filed Against Sun Life

On April 22, 2015, the United States Court of Appeals for the Ninth Circuit issued a decision affirming the district court’s decision to award McKennon Law Group PC’s client, an attorney (“insured”), his past-due ERISA plan benefits, as well as attorneys’ fees, costs and interest against Sun Life & Health Insurance Company in connection with his short-term and long-term disability insurance claim.

In reaching this unpublished decision, the Ninth Circuit ruled that the district court correctly found that Sun Life “abused its discretion” in denying the insured’s claim for long-term disability benefits, because the record established he became disabled prior to the termination of his employment, and although his symptoms improved, it was not by enough for him to be able to return to work. The brief holding also noted that Sun Life acted with bias, as evidenced by its failure to correct an error caused when another patient’s record was mixed with the insured’s, its reliance on a purely paper review, its failure to reconcile its findings with those of the insured’s physicians and its own psychiatrist’s earlier contrary determination and its demand for objective evidence despite the psychiatric nature of the disability. Finally, while, post-trial, Sun Life attempted to introduce evidence not contained in the Administrative Record to support its decision, the Ninth Circuit stated that the district court did not abuse its discretion by not expanding the record.

For the McKennon Law Group PC’s client, the Ninth Court’s holding signals the end of every insured’s worst nightmare. For the insured, this nightmare began over seven years ago, when he became disabled following a nervous breakdown in December 2007. While Sun Life paid his claim for short-term disability benefits, Sun Life subsequently denied the insured’s claim for long-term disability benefits in December 2008 and upheld that decision in March 2010. The McKennon Law Group argued, and both the district court and Ninth Circuit agreed, that Sun Life’s denial decision was flawed for many reasons, including that it was based in part on a defective report by a physician reviewer who never spoke with the insured and considered medical records for another, younger female patient mistakenly provided to the reviewer. Further, Sun Life improperly imposed an impossible requirement that the insured provide “objective” evidence of his psychiatric conditions, even though such a requirement was not included in the Plan. Sun Life also failed to explain to the insured what medical evidence was needed to establish his disability, as is required under ERISA.

After Sun Life denied the insured’s claim, the McKennon Law Group filed suit against Sun Life in September 2011. The parties scheduled a mediation in October 2012, but negotiations were fruitless, as Sun Life only offered the insured a trivial amount to end the litigation. After discovery and extensive trial briefing, the district court conducted a bench trial in November 2012 and in its Memorandum of Decision, District Judge Cormac J. Carney explained:

[Sun Life’s] decisions that Mr. Evans was not disabled until December 13, 2007 and that Mr. Evans was not disabled throughout the elimination period were illogical, implausible, and without support in inferences that could reasonably be drawn from facts in the record because: (1) every doctor who personally examined Mr. Evans concluded that he was disabled and unable to return to his regular work; (2) Sun Life did not subject Mr. Evans to an in-person medical evaluation; (3) Sun Life relied almost exclusively on the deeply flawed assessment by Dr. Himber; (4) and Sun Life failed to engage in a “meaningful dialogue” with Mr. Evans. (Emphasis added.)

Moreover, Judge Carney also identified flaws in Sun Life’s review and commented that they “raise[] serious questions about the quality of the process Sun Life used in making its determination.” Accordingly, in April 2013, the court ruled in favor of the insured and awarded him $480,682.52 – $217,068.00 in past due benefits plus $20,882.69 in pre-judgment interest, $212,400.00 in attorneys’ fees and $2,355.69 in costs. The Ninth Circuit affirmed this Judgment, and the McKennon Law Group expects to be awarded attorneys’ fees and costs associated with the appeal.

The Ninth Circuit’s decision serves as both a cautionary tale and a beacon of hope for insureds – insurers may fight tooth and nail to avoid paying claims, but tenacious insureds with strong, aggressive legal representation can prevail – and may even receive their full benefits and attorneys’ fees and costs paid by the insurer causing this hardship.

Multi-Million Dollar Disgorgement Award Struck Down in Rochow – But the Disgorgement Remedy May Still Be Alive

In December 2013, we published an article highlighting the Sixth Circuit Court of Appeals’ bold decision to award the plaintiff disability benefits plus $2.8 million in disgorged earnings, as a potential “game-changer” in Employee Retirement Income Security Act of 1974 (“ERISA”) litigation—that is, if it survived review. Rochow v. Life Ins. Co. of N. Am., 737 F.3d 415 (6th Cir. 2013) (“Rochow I”). Alas, the Sixth Circuit Court of Appeals vacated the decision in February 2014 and stayed the case. Rochow v. Life Ins. Co., 2014 U.S. App. LEXIS 3158 (6th Cir. Feb. 19, 2014) (“Rochow II”). Finally, in March 2015, the Court of Appeals issued an en banc decision vacating the disgorgement award and remanding the case for a review of prejudgment interest. Rochow v. Life Ins. Co. of N. Am., 2015 U.S. App. LEXIS 3532 (6th Cir. 2015) (“Rochow III”). The Court held that because the plaintiff was adequately compensated by an award of the insurance benefits, attorneys’ fees and possible prejudgment interest, that in this case, disgorgement was not necessary to make the plaintiff whole. Although this decision is disheartening to claimant’s attorneys eager to test the limits of ERISA remedies, a careful reading of Rochow III reveals that the Sixth Circuit does not entirely foreclose disgorgement as an appropriate remedy under ERISA. Moreover, the concurring and dissenting opinions provide additional guidance for future ERISA claimants who suffer injuries and seek equitable remedies beyond their policy benefits.

Briefly, the original suit involved Daniel Rochow, an executive who applied for, and was denied, long-term disability benefits after being diagnosed with a severely debilitating brain infection. He brought suit under ERISA for the insurer’s failure to pay benefits and breach of fiduciary duty. The district court held the insurer’s denial was arbitrary and capricious, and on appeal, awarded $3.78 million to the estate, $910,629 for Rochow’s disability benefits and $2.8 million to disgorge the insurer’s profits based on return on equity as “appropriate equitable relief” under 29 U.S.C. section 1132(a)(3) (Rochow I). This award was upheld by the Court of Appeals under the theory of unjust enrichment in Rochow I, but vacated in Rochow II. Thus, the stage was set for Rochow III.

Rochow III addressed whether Rochow was entitled to recover benefits under both ERISA section 502(a)(1)(B) and equitable relief under section 502(a)(3). The Court explained:

A claimant can pursue a breach-of-fiduciary-duty claim under § 502(a)(3), irrespective of the degree of success obtained on a claim for recovery of benefits under § 502(a)(1)(B), only where the breach of fiduciary duty claim is based on an injury separate and distinct from the denial of benefits or where the remedy afforded by Congress under § 502(a)(1)(B) is otherwise shown to be inadequate.

The court noted that both of Rochow’s claims were based on the same underlying “injury” (the insurer’s failure to pay benefits), and an award granting him these benefits plus attorneys’ fees did make him whole. Accordingly, the court vacated the disgorgement award under section 502(a)(3).

Of note, the Rochow III dissent sends a strong signal that the disgorgement issue is far from settled, and offers insureds guidance for future ERISA claims. First, Circuit Judge Helene White notes that although she agrees with the majority decision that disgorgement was not adequately supported, she would allow consideration of a refashioned disgorgement remedy on remand. Significantly, Judge White points out that the justices “all appear to agree disgorgement of profits is a potential remedy under ERISA.” Moreover, Judge White disagrees that disgorgement requires two separate injuries—the inquiry should be whether other equitable relief is appropriate under the circumstances, and the extent to which disgorgement duplicates the benefits-denial claim is one factor in this inquiry. Indeed, even if Rochow recovered his benefits and attorneys’ fees, other equitable relief may be appropriate—as evidenced by the fact that the majority permitted an interest award. Judge White underscores the Court of Appeal did not discern why one equitable remedy (interest) was appropriate, but another (disgorged profits) was not. Finally, Judge White suggested that disgorgement may be appropriate where an insurer’s denial was based on “impermissible considerations” such as “an organizational policy to delay paying valid claims for as long as possible” or if disgorgement was necessary to ensure proper claims processing in the future.

The dissent by Circuit Judge Jane Stranch held disgorgement was appropriate because Rochow brought two distinct claims (to recover plan benefits and for an accounting and disgorgement of profits wrongfully earned through the insurer’s breach of its fiduciary duty) and suffered two distinct injuries (the insurer’s denial of his disability benefits, and breach of its fiduciary duties). Specifically, the insurer engaged in “deliberate and willful wrongful acts” to deny Rochow’s claim. This denial allowed the insurer to retain substantial funds rightfully due to Rochow in its corporate account and earn millions in profits during a seven-year period. Ultimately, the dissent held that the majority mischaracterized the Rochow’s injuries and disgorgement was a proper remedy.

Although Rochow III is undeniably a victory for insurance companies, the strong concurring and dissenting opinions reveal that the Court did not foreclose the possibility of a disgorgement award. However, insureds may have to show a distinct injury or “impermissible considerations” at the hands of the insurance company such that payment of their claim is insufficient to make them whole. Indeed, the takeaway from Rochow III appears to be the Sixth Circuit reassuring insureds, better luck next time. This issue has not been resolved in the Ninth Circuit. Maybe there will be better luck next time.

Employees Must Follow ERISA Plan Documents in Designating Retirement Plan Beneficiaries or Risk Losing Critical Rights

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.

Standing Spine(dex) Adjustment – Ninth Circuit Finds Healthcare Providers Have Article III Standing in Denial of Benefit Claims Under ERISA

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

Robert McKennon and Scott Calvert Publish Article: “Expanding Equitable Remedies in ERISA Cases”

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.

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