Kentucky Employment Law Blog

Disability Insurance Claims and File Reviews by "Independent" Medical Experts

A "file review" by a medical professional labeled "independent" by the insurance company is often a part of disability insurance claims process.  The Sixth Circuit recently considered the strengths and weaknesses of such a "file review" in Okuno v. Reliance Standard Ins. Co. This opinion yielded a number of interesting points to consider:

• While there is "nothing inherently improper with relying on a file review," we have observed that "the failure to conduct a physical examination, where the Plan document gave the plan administrator the right to do so," as Reliance's Plan expressly does, "raises questions about the thoroughness and accuracy of the benefits determination."
  
  
• File reviews are particularly "questionable as a basis" for an administrator's determination to deny benefits where the claim, as here, involves a mental illness component. Evaluation of mental health necessarily involves "subjective symptoms," which are most accurately ascertained through "interviewing the patient and spending time with the patient," such that a purely record review will often be inadequate where a disability claim includes a mental component.
  
  
• Another deficiency in Reliance Standard's file review is its "failure to consult with medical professionals with relevant expertise. See 29 CFR § 2560.503-1(h)(3)(iii)(requiring plan administrators, "in deciding an appeal of an adverse benefit determination that is based in whole or in part on a medical judgment" to "consult with a health care professional who has appropriate training and experience in the field of medicine involved in the medical judgment.").
  
  
• While ERISA does not demand an examination by the narrowest of specialists, we have noted its requirement that administrators retain health care professionals in the specific field of medicine at issue. ... Reliance's failure to consult with a mental health expert -- particularly when it denied Okuno benefits on the basis that her disability included a psychiatric component -- indicates a lack of deliberate and reasoned decision-making.
  
  
• The record contains no indication that Reliance's reviewing health care professionals ever consulted with Okuno's treating physicians, the only doctors to actually examine her.  ... While Reliance was not required to accord special deference to the opinions of Okuno's own doctors, "by the same token, it may not arbitrarily repudiate or refuse to consider the opinions of a treating physician."

In sum, a file review is not per se inadequate but its use raises questions where the claim has a psychiatric component. The disability insurance company should use medical consultants with expertise in the relevant medical field. Finally, there should be some communication with the claimant's treating physicians and there should be some reasoned discussion of their opinions.

For further reading: Has Your Claim for Disability Insurance Benefits Been Denied Based on a Preexisting Condition? and Has Reliance Standard Denied Your Disability Insurance Benefits Claim Based on a Mental Disorder or Condition?

Robert L. Abell
www.RobertAbellLaw.com

 

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"But For" Causation in ERISA Disability Insurance Benefts

Reliance Standard, as do many disability insurers, has a mental and nervous disorders limitation that restricts payment of disability insurance benefits to 12 months where a claimant's disability is "caused by, " "contributed to by," or "resulting from" mental or nervous disorder.  This language imposes a "but for" causation standard the Sixth Circuit held recently in Okuno v. Reliance Standard Life Ins. Co., joining the Fifth, Ninth and Third Circuits in so ruling.

The claimant, Patti Okuno, was diagnosed with narcolepsy, Crohn's disease and Sjogren's syndrome, an autoimmune disorder, after struggling for years with fibromyalgia and degenerative disc disease.  Okuno went through a total of three administrative appeals, while the insurance company determined that her disability benefits would be limited to 12 months because of anxiety and depression diagnoses in addition to her physical maladies. The benefits limitation was based on Eventually she filed suit and the district court, Hon. Gregory L. Frost of the Southern District of Ohio, ruled on the administrative record for the insurance company.   

Okuno argued that the mental or nervous disorders limitation did not apply  where "the evidence establishes that a claimant is 'disabled by physical conditions alone, then the mere presence of a 'psychiatric component' does not justify application of the one-year mental health limitation." 

The Sixth Circuit accepted this argument noting the Fifth Circuit's recent observation "that every federal circuit to consider the meaning of phrase 'caused by or contributed to by,' in the Mental or Nervous Disorders Limitation, has read it 'to exclude coverage only when the claimant's physical disability was insufficient to render him totally disabled." This "but for" test led the Sixth Circuit to conclude that "an application is not appropriately denied on the basis that a mental or nervous disorder 'contributes to" a disabling condition; rather the effect of an applicant's physical ailments must be considered separately to satisfy the requirement that review be reasoned and deliberate." This standard joined rulings by the Fifth, George v. Reliance Standard Life Ins. Co., 776 F3d 349 (5th Cir 2015), Ninth, Maurer v. Reliance Standard Life Ins. Co., 500 Fed.Appx. 626 (9th Cir. 2012), and Third Circuits, Michaels v. The Equitable Life Assurance Long-Term Disability Plan, 305 Fed.Appx. 896 (3d Cir. 2009). 

Robert L. Abell
www.RobertAbellLaw.com

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Retiree Benefits "Are Not A Form of Deferred Compensation" Supreme Court Rules, They Are ....

On its face, the Supreme Court's decision in M&G Polymers USA LLC v. Tackett is routine enough: the very pro-business Roberts Court reverses a lower court ruling that a group of retirees were contractually entitled to health care benefits for life.  The majority opinion written by Justice Clarence Thomas is critical of a lower court precedent that it claims leans toward the vesting of retiree health care benefits.  What a shame.  

The Court's solution is traditional contract principles. Ok, fair enough. Let's start with the traditional contract principle of mutual consideration: the consideration provided by the employee is work, compensation is the consideration provided by the employer. Is there something else to the employer-employee relationship?  Is it possible to consider retirement benefits as anything other than deferred compensation?

It is, according to the Supreme Court, although its explanation, shall we say, makes no sense:

In ERISA, Congress specifically defined plans that "result in a deferral of income by employees" as pension plans, and plans that offer medical benefits as welfare plans. Thus, retiree health care benefits are not a form of deferred compensation.

This assertion both misreads ERISA and abuses common sense.  But if there are 5 votes for it on the Supreme Court, it just does not matter.  The moon, it could be, is made of Green Cheese. 

And so it goes.

Robert L. Abell
www.RobertAbellLaw.com

 

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ERISA Plans May Have Two Types of Administrators

The nine-year odyssey to get a health insurance claim paid – "as we enter the ninth year of the insurance company's failure to provide coverage to its insured" – in Butler v. United Healthcare, No 13-6466 (6th Cir., August 22, 2014), includes a helpful discussion, among other things, of the two different types of administrators that ERISA plans may have unfortunately, this distinction required the court to vacate a $99,000 statutory penalty against United Healthcare.

At the heart of the case is the effort of a husband to get United Healthcare to pay for his wife's inpatient rehabilitation for alcohol addiction. United resisted mightily including twice disregarding the district court's orders to undertake a "full and fair review" of the claim. Along the way, the insured had requested United to provide him a copy of its residential rehab guideline, a disclosure a plan administrator would be required to make.

But ERISA plans can have two types of administrators, and a convoluted way of determining whether there is one or two, and, if there are two, which is which, as the court explained. First, if the plan does not specify who its administrator is, the administrator by default is the plan sponsor, which is usually the employer. Second, ERISA plans can and often do have two types of administrators, a claims administrator and a plan administrator. A claims administrator is the entity that "administers claims for employee welfare benefit plans and has authority to grant or deny claims." The plan administrator is usually the "employer who adopted the benefit plan in question." And, as the court observed, "quite often, indeed, the claims administrator and the plan administrator are not the same."

The ERISA plan in question here did not specify who was the plan administrator, so by default the employer-purchaser of the plan became its "plan administrator." And since United was not the plan administrator, there was no requirement for it to disclose the requested guidelines at an earlier time and so the statutory penalties for the failure were vacated.

ERISA, specifically 29 U.S.C. 1022(b), requires that a summary plan description (SPD) be distributed to each participant in the plan and further that it identify "the name and address of the [plan] administrator[.]" But it is not at all unusual for an SPD to fail in this regard. Which can lead to confusion and to nine year odysseys to get a claim paid.

Robert L. Abell
www.RobertAbellLaw.com

 

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Suit Over SERP Cancellation Not Preempted by ERISA, Sixth Circuit Rules

The preemptive effects of ERISA are exceedingly broad, serving far too often to insulate bad-faith were egregious conduct from liability and to leave on remedied the injuries caused. But there are limits as shown by the Sixth Circuit's recent decision in Gardner v. Heartland Industrial Partners, LLP, No 11-2327 (May 10, 2013).

Heartland Industrial Partners, an investment firm, owned Metaldyne, an automotive supplier. Heartland agreed to sell Metaldyne to Ripplewood Holdings, another investment firm. The change of control of Metaldyne entailed by this sale triggered terms of a "Supplemental Executive Retirement Plan" (SERP), which required Metaldyne to have to pay the plaintiffs, who were Metaldyne executives, some $13 million dollars. When the snag arose, Ripplewood threatened to back out of the deal. The defendants, in response, canceled the SERP. Plaintiffs then filed suitpleading a single state law claim for tortious interference with contractual relations. The federal district court dismissed the case and ruled that plaintiffs' tortious interference claim was preempted by ERISA.

The Sixth Circuit reversed. Whether plaintiffs' claim was preempted was determined by a two-part test: (1) whether the complaint is about a denial of benefits to which the plaintiffs are entitled "only because of the terms of an ERISA-regulated employee benefit plan"; and, (2) whether the plaintiffs have alleged a violation of any "legal duty (state or federal) independent of ERISA or the plan terms [.]" The court ruled that the plaintiffs' claim was not preempted under the second prong:

Defendants'duty not to interfere with Plaintiffs' SERP agreement with Metaldyne arises under Michigan tort law, not the terms of the SERP itself. And more to the point Defendants' duty is not derived from, or conditioned upon, the terms of the SERP. Nobody needs to interpret the plan to determine whether that duty exists. Thus, Plaintiffs' claim is based on a duty that is "independent of ERISA [and] the plan terms [.]"

Robert L. Abell
www.RobertAbellLaw.com 

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ERISA: The Anti-Cutback Rule for Accrued Benefits

Where an employee accrues benefits under a pension plan based on his or her years of service, ERISA's anti-kickback rule prohibits the reduction of an employee's benefits through or because of an amendment of the plan.  The Sixth Circuit's recent decision in Fallin v. Commonwealth Industries, Inc. Cash Balance Plan, N0 09-5139 (August 23, 2012).

Donald Curley had worked for Commonwealth Industries for more than five years but was not yet 55 when Commonwealth converted in 1998 its pension plan from from a defined-benefit pension plan to a cash-balance plan.  Under Commonwealth's defined-benefit plan employees that retired early having completed five years of service and reached 55 would receive subsidized benefits, nearly the same as if they were 65.  After the plan's conversion, Corley retired and received a lump-sum payout of benefits. Curley claimed he was not paid the full amount of benefits due him, but the district court disagreed and granted judgment for Commonwealth Industries.

The Sixth Circuit ruled that any reduction in Corley's benefits would violate ERISA's anti-kickback rule at 29 U.S.C. 1054(g).  While Corley was not yet 55 when the plan was changed, he had met the five years of service requirement. The anti-kickback rule barred reduction of Corley's benefits even if he reached the minimum age (55) requirement after the plan was converted.  Accordingly, the Sixth Circuit reversed and remanded the case for a determination of how much benefits was owed Corley.

Robert L. Abell
www.RobertAbellLaw.com 

Fiduciary Communications By ERISA Trustee

ERISA fiduciaries owe a fiduciary duty to tell the truth to plan participants.  This "duty to inform is a constant thread in the relationship between beneficiary and trustee; it entails not only a negative duty not to misinform, but also an affirmative duty to inform when the trustee knows that silence might be harmful."  A fiduciary breaches his duty "by materially misleading plan participants, regardless of whether the fiduciary's statements or omissions were made negligently or intentionally."  

Dudenhofer v. Fifth Third Bancorp presented yet another installment of the floundering mess caused by the foray in this case of Fifth Third Bancorp into the subprime lending field.  The plaintiffs were employees and participants in Fifth Third's profit sharing plan. The participants can direct portions of their pay into the plan, and the bank matched up to 4% of those contributions, the matching contributions being invested initially in Fifth Third stock.  But the subprime mess caused Fifth Third stock to decline 74% from July 2007 to September 2009 costing the plan tens of millions of dollars.  

The plaintiffs sued claiming that the trustees' had breached their fiduciary duties.  One cited example were false or incorrect statements made in filings with the SEC that were expressly incorporated into the Plan's summary plan description (SPD).  The district court ruled that the SEC filings were not fiduciary communications.  

The Sixth Circuit reversed and framed the issue as "whether the express incorporation of SEC filings into an ERISA-mandated SPD is a fiduciary communication."  The SPD is "a document ERISA requires to be sent to plan participants to provide specified information about the plan [and] is unquestionably a fiduciary communication."  Since ERISA plan participants must be told the truth, SEC filings that are incorporated into the SPD must likewise be truthful and accurate:

The SPD is a fiduciary communication to plan participants and selecting the information to convey trough the SPD is a fiduciary activity.  Moreover, whether the fiduciary states information in the SPD itself or incorporates by reference another document containing that information is of no moment.  To hold otherwise would authorize fiduciaries to convey misleading or patently untrue information through documents incorporated by reference, all while safely insulated from ERISA's governing reach.  Such a result is inconsistent with the intent and stated purposes of ERISA -- to impose fiduciary duties 'which are the highest known to the law" -- and would create a loophole in ERISA large enough to devour all its protections.

Robert L. Abell
www.RobertAbellLaw.com

 

Fiduciary Duties of An ERISA Trustee

ERISA is "a comprehensive statute designed to promote the interests of employees and their beneficiaries in employee benefit plans." And so the trustees and administrators of ERISA plans have fiduciary duties. The Sixth Circuit recently in Dudenhofer v. Fifth Third Bancorp described these duties as three parts:

1. A fiduciary owes a duty of loyalty "pursuant to which all decisions regarding an ERISA plan must be made with an eye single to the interests of the participants and beneficiaries." 
   
   
2. ERISA imposes "an unwavering duty to act both as a prudent person would in a similar situation and with single-minded devotion to [the] plan participants and beneficiaries."
   
   
3. ERISA fiduciaries must act for the exclusive purpose of providing benefits to plan beneficiaries.

Robert L. Abell
www.RobertAbellLaw.com 

The Perils of the Pension Protection Act

The Pension Protection Act sounds like it is supposed to protect employees' retirement and pension funds.  But as illustrated by the Sixth Circuit's recent decision in Bidwell v University Medical Center, No 11-5493 (June 29, 2012), what it actually does is something else.

James Christopher Bidwell and Susan Wilson were employees of University Medical Center (UMC), where they participated in UMC's retirement contribution plans.  Bidwell and Wilson were conservative investors, and they both "elected to locate one hundred percent of their investment" in a stable value fund.  Along comes the so-called Pension Protection Act in 2006 followed by Bush Administration DOL regulations in 2007 and UMC decides to move Bidwell's and Wilson's retirement money into a different and far riskier investment fund.

UMC claimed that it had notice mailed to Bidwell and Wilson telling them that their retirement money would be moved into a riskier investment fund unless told specifically by Bidwell and Wilson, who had already elected to have their money in a stable value fund, not to move their retirement money. Bidwell and Wilson never got the notices that UMC claimed it had sent, so neither told UMC not to move their retirement monies, so UMC moved their retirement monies and caused Bidwell to lose $85,000 and Wilson to lose $16,900.

Bidwell and Wilson seem to have a pretty good case: they have both made a clear, affirmative election to have their retirement money in a stable value fund, they have never indicated to UMC that they wanted their retirement monies moved, and there is no proof that either Bidwell or Wilson actually received any notice from UMC that it was going to move their retirement monies unless told otherwise.  But the district court granted summary judgment for UMC and the Sixth Circuit affirmed. 

It is possible to read the Court's opinion and wonder what is going on. The Sixth Circuit explains that the purpose of the Pension Protection Act was to limit "employer liability for investments made pursuant to automatic-enrollment plans" and it goes on to explain how regulations issued by the Department of Labor run by George W. Bush's Administration create a "safe harbor" to insulate employers further from fiduciary liability. That so-called safe harbor here completely protected UMC, although it could do no more than claim not prove that it sent notice to Bidwell and Wilson that it was going to move their money (notwithstanding that both had already long before indicated exactly where they wanted their money) unless they were told specifically not to. Who is being protected here? Certainly not Bidwell and Wilson and certainly not their retirement monies.

Robert L. Abell
www.RobertAbellLaw.com 

Plan Administrator's Written Representations Support Equitable Estoppel on Employee's Claim for Pension Benefits

What effect do a plan administrator's written representations to an employee have when the administrator later attempts to change and reduce the employee's pension benefits?  The plan administrator's written representations coupled with extraordinary circumstances can give rise to equitable estoppel on behalf of the employee the Sixth Circuit ruled in Bloemker v. Laborers' Local 265 Pension Fund, No 09-3536 (May 19, 2010).

Bloemker was a participant in Laborers' Local 265 Pension Plan.  Bloemker applied for early retirement benefits and was advised in writing that he would receive $2,339.47 per month for life and his wife would receive $1,169.75 per month if she survived him.  Based on this information Bloemker proceeded to retire and began receiving benefits.  Subsequently, Bloemker was advised that a "computer programming error" had caused an incorrect calculation in his early retirement benefits, that his monthly benefit payment would be reduced to $1,829.71 per month and that he would be required to repay $11,215.16 in benefits previously overpaid him.  Bloemker filed suit, claiming, among other things, that the pension plan was equitably estopped from reducing his benefits.

The Sixth Circuit ruled in Bloemker's favor, ruling as follows:

We hold that a plaintiff can invoke equitable estoppel in the case of unambiguous pension plan provisions where the plaintiff can demonstrate the traditional elements of estoppel, including that the defendant engaged in intended deception or such gross negligence as to amount to constructive fraud, plus (1) a written representation; (2) plan provisions which, although unambiguous, did not allow for individual calculation of benefits; and (3) extraordinary circumstances in the the balance of equities strongly favors the application of estoppel.

The Sixth Circuit, in this ruling, joined a number of other circuits in holding that estoppel principles applied in ERISA pension cases where the plan administrator made written representations regarding the employee's benefits and extraordinary circumstances were demonstrated.  See Kannapien v. Quaker Oats Company, 507 F.3d 629 (7th Cir. 2007); Bonovich v. Knights of Columbus, 146 F.3d 57 (2nd Cir. 1998); Pell v. E.I. DuPont de Nemours & Co., 539 F.3d 292 (3d Cir. 2008); Mello v. Sara Lee Corp., 431 F.3d 440 (5th Cir 2005); Spink v Lockheed Corp, 125 F3d 1257 (9th Cir 1997). 

Robert L. Abell
www.RobertAbellLaw.com