This month’s one Friday five covers cases relating to: (1) whether a state law prohibiting discretion in disability benefit plans applies to non-state residents; (2) how a court can weigh multiple denials and denial reversals to determine whether a claims administrator acted in an arbitrary and capricious manner; (3) whether a plan can be penalized for procedural conduct after referral for a benefit determination review; (4) how benefit payments are calculated under the terms of a benefit plan; and (5) whether the demand from the plaintiff’s lawyer satisfies or excuses the requirement to exhaust administrative remedies.
- When does state law overrule a regime’s discretionary power provision? The California Insurance Code § 10110.6 (a) states that if a policy provides disability insurance coverage “for any resident of California”, any provision conferring discretion is “void and unenforceable”. The claimant for disability benefits in Mayer vs. Ringler Assocs. Inc. argued that the exclusionary language in California law applied because the plan was executed in California. The Seventh Circuit Court of Appeals disagreed and ruled that the law only applied to residents of California. The court recognized that because the law focuses on “residents of California[s]”, It is possible to read the provision to void all discretionary grants in any group policy, such as the one at issue here, which provides benefits to a single California resident, even if the claimant himself is not a California resident and not otherwise connected to California. However, the court found that such an interpretation would raise concerns under the commerce clause of the United States Constitution, as it would allow “the application of a state law to the commerce that takes place. entirely outside the borders of the state, whether or not the trade has effects within the state. In the present case, it was not disputed that the Applicant resided in New York at all material times. He sold annuities, became disabled, and applied for long-term disability benefits in New York City. The court ruled that setting aside the grant of discretion to the Claims Administrator in respect of a New York resident’s disability claim arising from an activity in New York would have the effect inadmissible “to require that out-of-state commerce be conducted under the direction of the state.” Mayer vs. Ringler Assocs. Inc., n ° 20-1281, __, F.4th __, 2021 WL 3556473 (2d Cir. 12 Aug 2021).
- Do denials and reversals of multiple claims indicate arbitrary and capricious determination? While the denial of a benefit claim and the subsequent reversal of the denial is not unusual, a claimant may argue that multiple denials and cancellations demonstrate arbitrary and capricious decision-making on the part of a claims administrator in the process. processing of the complaint. However, the District Court for the Western District of Wisconsin rejected this argument in Crista v. Wisconsin Physicians Serv. Ins. Corp., noting that although he was “troubled by some of the [the claim administrator’s] actions during its multi-year review process, ”denials were appropriate after a review of complete medical records. Among other things, the claimants criticized the administrator for his “reversal of course,” having granted some of the claimants’ benefit claims and denied others. The court, however, determined that the medical evidence and conflicting questions the administrator had received from the plaintiffs “provided a legitimate basis” for the administrator to request further external examinations. Moreover, the final denial was not “unexpected” because the administrator had initially rejected the claimants’ claims for benefits, only approving them on appeal. Consequently, the prior granting of advantages was neither for nor against one or the other of the parties. The court also recognized that “an ERISA benefit cannot be a moving target when the plan administrator continues to add preconditions to the granting of benefits.” Applying this reasoning, the court ruled in an earlier case that the claims administrator acted arbitrarily and capriciously in part because he requested additional evidence to establish invalidity, but when the plaintiff provided it, the Administrator has repeatedly concluded that the new evidence was not sufficient under new standards or expectations that were not communicated to the claimant. But this was not the case in Crista. The court found that the claims administrator never admitted that the alleged medical diagnosis had been made, and when the requested medical records were provided, the administrator ultimately determined that they did not support the advanced diagnosis. by the applicant. The court concluded that “[r]asking for historical medical documents, and then taking those documents into account to obtain a final result, cannot reasonably be considered to “move the target”, ”and therefore the court did not find a whim on this basis. Crista v. Wisconsin Physicians Serv. Ins. Corp., n ° 18-CV-365, 2021 WL 3511092 (WD Wis. 10 August 2021).
- Can a plan administrator be penalized for procedural conduct after pre-trial detention? Plan administrators often send numerous communications to applicants during the application and appeal process. The Ninth Circuit Court of Appeal recently clarified that this coherent communication must continue during the litigation phase. In Dimry v. Bert Bell / Pete Rozelle Retired NFL Player. Plan, the plaintiff obtained two favorable judgments from the Federal Court against the NFL pension and disability plan in its action to recover long-term group disability benefits. Finding an abuse of discretion in denying her claims for disability benefits, the district court referred her case back to the plan administrator for a reassessment of the case. The Court of Appeal later concluded that the plan had committed a procedural error during the pre-trial detention. The court explained that under ERISA, when a plan administrator rejects a claim, they must provide the claimant with a “full and fair consideration.” In the Ninth Circuit, a “full and fair review” requires a “constructive dialogue” with the beneficiaries of the scheme, including asking for more information when needed. The court concluded that the administrator of Dimry failed to fulfill this obligation because the applicant and his lawyer were “in the dark throughout the removal process”. Specifically, the plan did not inform the applicant that the pre-trial detention process had started or how the process would unfold, nor did it inform the applicant of their intention to reopen the file for medical reports, or to give the requestor the opportunity to respond to these reports. Finding that the regime had committed a procedural error in excluding the claimant from the process after the pre-trial detention, the Court of Appeal referred the instructions to the district court to determine whether the claimant was entitled to benefits. Dimry v. Bert Bell / Pete Rozelle Retired NFL Player. Plan, n ° 20-17049, __ Fed. NS. __, 2021 WL 3509349 (9th Cir. Aug 10, 2021).
- How should monthly income be calculated for the purpose of paying disability benefits? Claims administrators and applicants typically look to the language of a plan and the claimant’s pre-disability salary to determine the amount of benefit on an approved disability claim. Litigation can arise when a scenario arises that is not addressed in the terms of the plan and a claimant is not satisfied with the amount of their disability benefit. In Morris v. Aetna Life Ins. Co., the Plaintiff brought an ERISA action against her employer’s Disability Claims Administrator after seeking to recover $ 56,478.17 in overpayment of disability benefits she paid over the course of several years. The parties agreed that the terms of the benefit plan provided that the Plaintiff was insured for 60 percent of the amount of wages she received from her employer prior to her disability, calculated on a monthly basis. The court rejected the complainant’s argument that this calculation should include forms of compensation beyond her base salary, such as bonuses, as the complainant presented no evidence showing the amounts of bonuses she received. she received it and admitted that she couldn’t provide a specific calculation to reflect her premium payouts. The court also rejected the complainant’s argument that the benefit payments, made on a monthly basis, were incorrect because she was not working on an annual contract basis, but simply as an “exempt employee”, what the regime did not address. The court ruled that as an exempt employee, the complainant received an annual salary so the only proper way to calculate her monthly benefits was to divide her annual salary by twelve. This was in line with the scheme’s goal of providing benefits based on a worker’s salary calculated on a monthly basis. Finding no ambiguity in the plan, the court ruled that the claimant was not entitled to recover overpayments from the claims administrator. Morris v. Aetna Life Ins. Co., Case No.8: 20-cv-00821-SB-GJSx, 2021 WL 3509553 (CD Cal. August 9, 2021) (Judge Stanley Blumenfeld, Jr.).
- Does a formal notice satisfy or excuse the requirement to exhaust administrative remedies? Courts widely accept that the exhaustion of administrative remedies is required before a claimant can sue in federal court to recover benefits under an ERISA plan. The United States District Court for the District of Illinois strengthened the requirement of administrative exhaustion by granting the defendant’s motion to dismiss in Pierce c. Flsmidth, Inc., concluding that the allegations contained in the amended complaint did not meet the requirement. Plaintiff, beneficiary of her deceased husband’s benefit plan, sued her employer alleging that he breached his fiduciary duty under ERISA by failing to inform the husband of the employment provisions assets of his life insurance plan. The employer filed a motion to dismiss, arguing that the complainant had not exhausted her administrative remedies under the plan before filing a complaint. The complainant claimed she had exhausted her remedies when her lawyer sent a letter to Lincoln Life Assurance Company of Boston, the claims administrator, after dismissing her claim. The court disagreed, finding that the letter made “no mention of a breach of fiduciary duty claim against the defendant”, nor “requests an administrative review of this claim”. Instead, the letter simply threatened to sue Lincoln “if the matter is not resolved favorably for the plaintiff.” The tribunal further concluded that the claimant could not be excused from not having exhausted administrative remedies in the absence of meaningful access to review procedures, or when pursuing domestic remedies to the plan would be futile. Because the plaintiff did not allege sufficient facts to satisfy either of these exceptions, the court refused to excuse the exhaustion requirement. Pierce c. FLSmidth, Inc., n ° 20-CV-1369, 2021 WL 3502463 (CD Ill. 9 August 2021).