This month’s Friday Five explores two decisions concerning claims for breach of fiduciary duty arising from subrogation, exhaustion of administrative remedies, a challenge to the calculation of benefits and alleged violation of 29 C.F.R. § 2560.503-1, and the propriety of relying on video surveillance to terminate a long-term disability benefits.
1. Third Circuit rejects claimant’s breach of fiduciary duty claims arising from repayment of funds claimant paid to plan pursuant to subrogation. In Minerley, the Third Circuit Court of Appeals affirmed the entry of summary judgment on claims for benefits due and for breaches of fiduciary duties pursuant to ERISA. The plaintiff was involved in a motorcycle accident and recovered money from the tortfeasor which, pursuant to the policy, was paid to the plan. The plaintiff sued for repayment of the funds, contending that seeking reimbursement of the funds constituted a breach of the duty of loyalty. The court rejected this argument, reasoning that the position amounted to an assertion that the defendants violated ERISA by enforcing the plain terms of the reimbursement requirement in the subject insurance policy. The court also rejected the plaintiff’s contention that because the terms of the insurance policies the employer offered to employees varied depending on the employees’ states of residence, the defendants breached a duty owed under ERISA. The plaintiff relied on the Supreme Court’s reasoning in Conkright v. Frommert that it would be problematic under ERISA if “employees could be entitled to different benefits depending on where they live.” 559 U.S. 506, 520 (2010). In Conkright, the Court reasoned that the decision pertained to affording judicial deference to an administrator’s plan interpretation to avoid conflicting judicial interpretations of a single ERISA plan, which was not the case in this matter. Minerley v. Aetna, Inc., No. 19-2730, 2020 WL 734448 (3d Cir. Feb. 13, 2020).
2. Pennsylvania federal court permits claimant to pursue breach of fiduciary duty claim that administrator and employer improperly demanded subrogation. In Wolff, the U.S. District Court for the Middle District of Pennsylvania held that a claimant could pursue her ERISA claim against the plan administrator and her employer in a purported class action alleging that the defendants improperly demanded subrogation from a tort settlement she received. In 2015, the claimant was temporarily disabled in a motor vehicle accident, and later settled her action against the alleged tortfeasor. Thereafter, the defendants sought reimbursement from the settlement in the amount of approximately $50,000 in long-term disability benefits they had previously paid the claimant. The judge dismissed various state law claims, but allowed the individual’s ERISA claim against the administrator for failure to disclose and failure to avoid materially misleading beneficiaries. That claim, the court said, was not redundant of the claimant’s other claims for breach of fiduciary duty. Further, the judge dismissed the employer from the claim seeking amounts due under ERISA and acknowledged that the proper defendant in an ERISA § 502(a)(1)(B) claim was the plan or a person who controlled the administration of benefits. Wolff v. Aetna Life Ins. Co., 4:19-CV-01596, 2020 WL 1637938 (M.D. Pa. Apr. 2, 2020).
3. Sixth Circuit deemed claimant’s administrative remedies exhausted where plan document contained no administrative review procedures and, instead, suggested no administrative remedies were available. In Wallace, on de novo review, the Sixth Circuit Court of Appeals held that a long-term disability claimant’s administrative remedies were deemed exhausted under ERISA where the plan document failed to establish claims procedures permitting administrative review of claims for benefits. The Court rejected the administrator’s argument that it was not required to include procedures for administrative review in the plan document because it detailed such procedures in a letter to the claimant denying benefits. The Court reasoned that the plan document contained no information about review procedures and was instead actively misleading because it suggested that no such remedies were available. The Sixth Circuit also vacated the district court’s judgment in favor of the claimant after determining that further fact-finding was necessary to determine whether the claimant was eligible for long-term disability benefits under the terms of the plan. Wallace v. Oakwood Healthcare, Inc., No. 18-2316, 954 F.3d 879 (6th Cir. March 31, 2020).
4. Southern District of New York finds that insurer’s calculation of plan benefits was not an abuse of discretion. Following a bench trial, the U.S. District Court for the Southern District of New York entered judgment against the plaintiff, a plan participant, and in favor defendants, an employee welfare benefit plan and an insurer. In Mayer, the plaintiff brought an action under ERISA alleging the defendants wrongfully calculated his long-term disability benefits and determined that his benefits were fully taxable. Applying the abuse of discretion standard, the Court found the benefit calculation to be adequately supported by the record. The plaintiff owned and operated an affiliate of Ringler Associates Incorporated (“RAI”). Specifically, the plaintiff argued that it was an abuse of discretion to rely on income information from RAI rather than the information provided by his affiliate company. In rejecting this argument, the judge reasoned that RAI, not the affiliate, was the employer, plan administrator, and policyholder under the plan. Moreover, the judge held that it was reasonable for the plan administrator to determine that the plaintiff’s long-term disability benefit was fully taxable. Although the plaintiff provided the insurer a letter from his accountant noting “the company” paid the plaintiff’s premiums, RAI confirmed that it, not the affiliate, paid premiums for the plaintiff’s coverage under the plan. Even if RAI first paid the plaintiff’s premiums and then reassigned those costs to its affiliate, any dispute respecting whether the plaintiff effectively paid his own premium would need to be resolved by the plaintiff and RAI, not the plaintiff and the plan administrator. Significantly, in addition to its benefit calculation claim the plaintiff argued, among other things, that the plan administrator failed to comply with the claims procedure requirements set forth in 29 C.F.R. § 2560.503-1 (“Section 503-1”) by failing to provide requested documentation to the plaintiff prior to its determination on administrative appeal. The judge applied a prior version of Section 503-1, recognizing that the current version of the regulation applied only to claims filed on or after April 1, 2018. Unlike the current version of Section 503-1, the prior version of Section 503-1 did not require disclosure of information generated or received as part of the administrative appeal prior to rendering a decision on review. Therefore, the defendants’ alleged failure to provide the plaintiff the requested documentation did not constitute a violation of the applicable version of Section 503-1. Mayer v. Ringler Assoc. Inc. and Affiliates Long Term Disability Plan, 18 CV 2789 (VB), 2020 WL 1467374 (S.D.N.Y. March 26, 2020).
5. District of Massachusetts rules that video surveillance, alone, can support termination of long-term disability benefits. The U.S. District Court for the District of Massachusetts granted a plan administrator’s motion for summary judgment after determining that the administrator’s decision to terminate a claimant’s long-term disability benefits was reasonable because substantial evidence supported the administrator’s finding that the claimant was not physically disabled from working. In Gammon, the plan administrator relied on video surveillance that contradicted the claimant’s self-reported limitations. For example, while the claimant reported that she was incapable of driving, surveillance showed her driving and that she spent three days in a row out of the house for several hours at a time. The court held that when surveilled activities directly contradict a claimant's asserted limitations in an ERISA case and there is no definitive evidence of a disabling condition, the surveillance alone can provide adequate support for a denial of benefits. Gammon v. Reliance Standard Life Ins. Co., No. 18-11665, 2020 WL 1190926 (D. Mass. March 12, 2020).
