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On January 22nd, 2019, a federal district judge certified a class of at least 28,000 participants and beneficiaries of the Cornell University Retirement Plan, consisting of the Employees of the Endowed Colleges at Ithaca Plan and the Cornell University Tax Deferred Annuity Plan, in Cunningham et al. v. Cornell University et al., No. 1:16-cv-06525 (S.D.N.Y., Jan. 22, 2019).

Consistent with a number of suits for underfunded and poorly performing university pension plans, the plaintiffs’ complaint asserts the fiduciaries did not manage the plans prudently, underperformed, and accrued excessive administrative fees in violation of ERISA Sections 404 and 406, 29 U.S.C. §§ 1104, 1106.

Each plan holds more than a billion dollars in assets, a fact which the plaintiffs claim affords the plans and their fiduciaries “tremendous bargaining power in the market for retirement plan services.”  While participants are allowed to designate which of the available investment options to invest their individual accounts, the Plans’ fiduciaries choose the investment option offerings, which as of December 2014 averaged 300 separate investment options between the two plans.

The defendant fiduciaries, including Cornell University, the Retirement Plan Oversight Committee, the plan recordkeepers – TIAA-CREF (Teachers Insurance and Annuity Association of America) and the College Retirement Equities Fund) and Fidelity, and CAPTRUST Financial Advisors, had previously filed a motion to dismiss which was denied in part.

In denying the defendants’ motion to dismiss, the federal court held that the plaintiffs’ amended complaint plausibly alleged:

  • All defendants, other than CAPTRUST, failed to monitor and control the plans’ recordkeeping fees and failed to solicit bids from competing recordkeeping providers on a flat per-participant fee basis, and failed to determine, in a timely manner, whether the plans would benefit from moving to a single recordkeeper; and
  • All defendants unreasonably continued to offer as a fund option the CREF Stock Account and TIAA Real Estate Account, despite high fees and poor performance, selected and retained funds with high fees and poor performance relative to other available options, and selected and retained high-cost mutual funds instead of identical lower-cost funds.

In ruling on the motion to dismiss, the court also held that the plaintiffs had plausibly alleged that Cornell University and Mary G. Opperman, the head of the Oversight Committee, failed to monitor the performance of their appointees to the Committee and failed to remove appointees whose performance was inadequate as related to selecting and retaining funds.

In certifying the class, the court defined the class as “All participants and beneficiaries of the Plans from August 17, 2010, through the date of judgment, excluding the Defendants and any participant who is a fiduciary to the Plans.”

The court held that the plaintiffs had demonstrated individualized losses for each count which survived the motion to dismiss, noting that the Second Circuit has previously held that plaintiffs who assert claims in a derivative capacity on behalf of a retirement plan establish sufficient injury-in-fact by alleging injuries to the plan itself, regardless of whether the plan is a defined benefit or defined contribution plan.  Nor was standing predicated on a plaintiffs actual purchase of a financial instrument – as long as the defendant’s conduct in question implicates the same set of concerns, a plaintiff can bring claims on behalf of the absent class members who had purchased said instruments. (“Personalized injury-in-fact requires named plaintiffs to demonstrate individualized losses in the form of some amount of financial damage; it does not require harm to be shown from investment in each fund that makes up an overall plan.”).

In adjudging commonality, the court noted that the common contention of the classes’ action was that “the investment lineup made available to all participants violated ERISA… [and that] the centralized administration of [the plans] is common to all class members.”  This commonality holds regardless of the number of individual funds available in each plan, as the allegations go to the defendants’ prudential oversight and failure to take actions that would result in lower costs.

Also of note, the court refused to credit defendants’ argument that individualized statute of limitation calculations negated the “many other common issues in this case.”

Regarding typicality, the court held that “[e]ach plaintiff’s claim and each class member’s claim is based on the same legal theory and underlying events, namely, that CAPTRUST and the Cornell Defendants breached their duty of prudence by imprudently selecting, administering, and reviewing the Retirement and TDA Plans’ investments, recordkeeping fees, and the Committee’s delegates.”

A full copy of the court’s opinion and order is available here.

On January 22, 2019, the United States Secretary of Labor filed an amicus curiae brief in support of the plaintiff-appellants/ cross-appellees Ivan and Melissa Mitchell in the matter of Mitchell, et al. v. Blue Cross Blue Shield of North Dakota, et al.

Blue Cross Blue Shield of North Dakota filed a cross-appeal in the matter arguing that the Mitchells, despite being fully insured for medical claims by Blue Cross, had ‘no legal or constitutional standing’ to sue for payment of their benefits.

Ms. Mitchell was transported by air ambulance during a winter storm between two medical facilities owing to the fact that the receiving hospital did not have the capability to treat her emergency medical condition.

Blue Cross, despite having provided the Mitchells with coverage documents indicating it would pay 80% of “allowed” air ambulance charges, paid only about 20% of those charges.

The Secretary argued:

1.  “A denial of a participant’s or beneficiary’s right to have a benefits claim determined in accordance with plan terms is an injury sufficient to establish constitutional standing. The Mitchells suffered an injury in fact when Blue Cross denied benefits they contend were promised by the Plan by failing to fully reimburse their medical service provider”; and

2.  In accordance with Supreme Court precedent, an ERISA participant “may include a former employee with a colorable claim for benefits.” (quoting LaRue v. DeWolff, Boberg & Assocs., Inc., 552 U.S. 248 (2008)).  The Mitchells advanced a “colorable argument that Blue Cross interpreted the Plan terms to deprive them of rights promised under the Plan” and, accordingly, established statutory standing to bring an ERISA action under Section 502(a)(1)(B).

The Secretary of Labor emphasized the fact that the four United States Circuits to consider the issue have each held that a denial of a benefits claim which is alleged to constitute a violation of the plan terms constitutes injury for Article III purposes.  Uniformly, “whether a provider decided to seek payment for services from a plan participant or whether the participant actually paid is irrelevant to the injury that the participant suffers from the deprivation of benefits owed under the plan.”  This also comports with Congressional intent underlying ERISA, common law precedent,[1] and Spokeo v. Robins, 136 S. Ct. 1540 (2016).  A ruling contrary to that of the district court’s on the issue of standing would “create an unnecessary circuit split and deny a participant the only recourse for judicial review of a plan’s denial of a benefit.”

The amicus brief also argues that, consistent with all circuit court decisions, a “provider’s actions are not determinative to an injury in fact analysis: “Whether the Mitchells assigned the proceeds of this litigation to (but not their underlying claim) to another party is irrelevant to their injury in fact… That injury is not eliminated if the provider decides not to balance bill the patient for the amount the plan did not pay.”

A copy of the Secretary of Labor’s brief is available here.

[1] “A breach of a promise in a plan is analogous to a breach of contract, and courts have always considered breaches of contractual promises to constitute Article III injuries.”

 

A federal district judge in Mississippi undertook the painstaking steps of collecting and documenting Reliance Standard’s long history of abusive claims practices in disability claims.   The expansive decision of Nichols v. Reliance Standard Life Ins. Co., No. 3:17-CV-42-CWR-FKB, 2018 WL 3213618 (S.D. Miss., June 29, 2018), contains hundreds of citations of cases where reviewing courts have found a long history of improper practices on the part of Reliance Standard in the ERISA benefits context.

With respect to relief, the district court ordered Reliance Standard to pay full past due benefits to the disabled claimant and instated the payment of future benefits.

The district court identified common themes and patterns known to lawyers who litigate against Reliance Standard – biased experts, disingenuous denials, inconsistencies, and reckless indifference in evaluating the medical claims of its insured.

The district court, realizing the limits of ERISA, did point out that perhaps further case law will expand the remedies available to disability claimants against insurance companies like Reliance. The district court explained:

Many courts have, after recounting Reliance’s abuses, ordered the insurer to pay benefits and attorney’s fees. Apparently, these costs have not caused Reliance to change course, as it has spent decades ignoring them with impunity—perhaps treating them as the price of doing business. In future cases, courts may be asked to order further relief to curb Reliance’s perceived abuses. That relief can be quite broad. (Id. at *10).

The district court in Nichols appeared to give serious consideration to the Supreme Court’s observations in Metro. Life Ins. Co. v. Glenn, 554 U.S. 105 (2008), that an insurer’s history of claims abuses should be given greater weight when evaluating a determination under the abuse of discretion standard. Id. at 117.  (“The conflict of interest at issue here, for example, should prove more important (perhaps of great importance) where circumstances suggest a higher likelihood that it affected the benefits decision, including, but not limited to, cases where an insurance company administrator has a history of biased claims administration.”)

Western Michigan University-Cooley Law Review has published an article authored by J.J. Conway, Esq. and Trever M. Sims analyzing the Wilkins v. Baptist Healthcare Systems decision and its impact on ERISA benefits dispute resolution within the Sixth Circuit. The article, published in WMU-Cooley Law Review’s Summer 2018 issue, serves in part as a 20-year retrospective of what was, at the time, a concurring opinion in a seemingly routine disability benefits dispute. The article is entitled “Refining Wilkins: A 20-Year Look at the Recurring Factors Used in the Sixth Circuit’s Resolution of Disability Claims Under ERISA Section 502(a)(1)(B).”

The typical scenario in a benefits claim works something like this:  An employee becomes ill or injured.  An employee takes a medical leave of absence.  If the employer has sponsored a disability program, a claim for benefits is filed.  If there is a short-term disability plan, that benefit program may or may not be ERISA-qualified.  If the condition continues past the short-term period, then a claim would normally be expected to transition into a long-term disability claim. Often, the short-term disability claims administrator is also the administrator (and perhaps the insurer) for the long-term program.

In practice however, the rules and regulations applicable to disability claims tend to complicate matters.   If, for example, the short-term disability claim is denied or prematurely terminated, an appeal period is triggered. The appeal period runs 180 days, which can overlap with the commencement of the long-term disability coverage.

This is where trouble can start.

Sometimes a plan is written so there is a seamless transition from short-term to long-term disability.  The long-term disability benefit period will not start until the short-term benefit claim has been exhausted or paid out in full.   In other words, the filing of the short-term application will preserve an employee’s right to long-term disability benefits.  Sometimes, an application must be filed, regardless.

That is what the disability claimant in Kennedy v. Life Ins. Co. of North America, 718 Fed. Appx. 409, 410 (6th Cir. 2018) found out, the hard way, in a recent Sixth Circuit Court of Appeals decision.  In Kennedy, the claimant was receiving short-term disability benefits but had yet to file a claim for long-term disability benefits.  According to the Court, the “the first time” long-term disability was ever mentioned was in a demand letter, not an application. As a consequence, in a terse opinion, the Court affirmed the claim’s dismissal.  Writing for the majority, Judge Thapar wrote:

The district court was right: Kennedy never applied for long-term benefits. The first time he even mentioned long-term benefits was in his attorney’s letters—both of which came long after any such claim was due under the plan’s terms. Kennedy therefore failed to exhaust LINA’s administrative process.”  Id. (citing Garst v. Wal-Mart Stores, Inc., 30 Fed. Appx. 585, 593 (6th Cir. 2002)).

Bottom line: always file the long-term disability application or secure a written confirmation from the plan that the long-term disability claim is preserved while the short-term claim is being evaluated or appealed.

The United States District Court for the District of Idaho has ruled that a medical provider, acting pursuant to a pretreatment authorization and assignment of rights, may appeal an adverse benefit determination on the patient’s behalf for purposes of exhaustion under ERISA.   In Abdilnour v. Blue Cross of Idaho Health Service Inc., Case No. 17-00412 (D. Idaho May 4, 2018), the Court ruled that a written appeal, sent to the address listed on the patient’s Explanation of Benefits form, copying the patient, and stating that the document was intended to serve as an “Appeal” to a partial claim payment, was sufficient to withstand a challenge based on the failure to exhaust administrative remedies.  In denying a motion to dismiss, the Court held in pertinent part:

[T]he Court finds that the most natural reading of the letter is that it constitutes an appeal… [the insurer] should have recognized the letter as such, even without an explicit statement of [the Plaintiff’s] appeal rights, or at the very least sent notice to [the provider] and [Plaintiff] of their intention not to treat the letter as an appeal.  Where [the insurer] did not provide such notice, they cannot now argue that [the Plaintiff] failed to timely appeal.

The Court also held that exhaustion was fulfilled for an earlier transport date where, although no appeal was filed, it would have been futile to appeal, as “[t]here is simply no reason to believe that BCI would have responded differently had the July 24 letter also incorporated the April 3 claim.”  This holding furthers a developing body of case law in the Ninth Circuit supporting the argument that where prior interactions between an insured and administrator demonstrate a claim was certain to fail, exhaustion may be excused.

A copy of the Court’s decision is available here.

The U.S. Department of Labor has decided to implement ERISA disability benefits claims regulations. The regulations were proposed at the end of 2016, with a scheduled January 1, 2018 effective date.  The regulations were designed to ensure various due process protections of ERISA disability claimants under 29 U.S.C. § 1133 and 29 C.F.R. § 2560.503-1, as well provide guidelines for claims administrators for the treatment of certain evidence submitted in support of disability claims. The regulations are set to take effect on April 1, 2018 and will be applicable to all claims filed after that date.

On January 5, 2018 the USDOL announced the implementation would be delayed in order to assess the reasonableness of the regulation. The announcement issued by the USDOL stated:

The Department announced a 90-day delay of the applicability date of the final rule – from Jan. 1, 2018, through April 1, 2018 – to give stakeholders the opportunity to submit data and information on the costs and benefits of the final rule. The Department received approximately 200 comment letters from the insurance industry, employer groups, consumer advocates, and lawyers representing disability benefit claimants, all of which are posted on the Department’s website. Only a few comments responded substantively to the Department’s request for quantitative data to support assertions that the final rule would drive up disability benefit plan costs by more than the Department had predicted, cause an increase in litigation, and consequently reduce workers’ access to disability insurance protections.

Notably, the USDOL announcement also stated:

The information provided in the comments did not establish that the final rule imposes unnecessary regulatory burdens or significantly impairs workers’ access to disability insurance benefits.

The Summit previously discussed the changes in-depth in a prior post, which may be found here.

The Tort Trial & Insurance Practice Section of the American Bar Association has published an article authored by J.J. Conway, Esq. discussing the history and usage of Social Security Disability Insurance awards in long-term disability insurance cases.  The article, published in the Health and Disability Law Committee Newsletter, discusses the interplay between Social Security Disability Insurance Benefits and ERISA long-term disability benefits from both a financial and evidentiary standpoint. The article is entitled, “Tracing the Evidentiary Path of Social Security ‘Other Income’ Offsets in Disability Cases Through Statutes, Case Law, and Regulations.” (Winter 2017). The article is available here, Tracing the Evidentiary Path of Social Security Other Income Offsets in Disability Cases

Insurance companies administering ERISA long-term disability claims may be facing new rules.  In 2012 the U.S. Department of Labor’s ERISA Advisory Council undertook a study on issues relating to managing disability claims in the ERISA administrative review context. The Advisory Council recommended that the USDOL review the current claims regulation and recommend specific updates and modifications.

After taking comments, the final rule was published on December 19, 2016, and is set to take effect January 1, 2018.[1]  One of the main aims of the final rule is to “alleviate the financial and emotional hardship suffered by many individuals when they are unable to work after becoming disabled and their claims are denied.”[2]

The main “Claims Regulation” under which ERISA disability claims have been administered and adjudicated since 2002 – 29 C.F.R. § 2560.503-1 – will be revised and updated to include the following:

1. Conflicts of Interest are to be Avoided.

Claims and appeals are to be adjudicated in a manner designed to ensure the independence and impartiality of the persons involved in making the benefit determination. Decisions regarding hiring, compensation, termination, promotion, or other similar matters are not be based upon the likelihood that the individual will support the denial of benefits.

2. The Disclosure Requirements are Expanded.

Under the final rule, benefit denial notices must contain a complete discussion of why the plan denied the claim and the standards applied in reaching the decision.  This includes the basis for disagreeing with the views of the claimant’s health care professionals, vocational professionals or with disability determinations made by the Social Security Administration.

Plans can no longer disagree with a treating health care professional “merely by stating that the plan or a reviewing physician disagrees with the treating physician….”[3]  The final rule requires that the adverse benefit determination include a discussion of the basis for disagreeing with the health care professional’s views.

The same standard also applies to a denial which disagrees with a Social Security Administration finding of disability. Disagreement with the determination must be accompanied by “more detailed justification….”[4]  The final rule also requires an administrator to notify a claimant of an alleged deficiency in the record and provide an opportunity to supplement the record, particularly if the administrator is not in possession of an applicable Social Security Administration ruling.

3. Timely Disclosure of New Evidence and Rationale Supporting a Denial Must Be Produced

Under the final rule, claimants must be given timely notice of their right to access their entire claim file, as well as other relevant documents, and be guaranteed the right to present evidence and testimony in support of their claim during the review process.  The Department took the position that claimants

have a right to review and respond to new evidence or rationales developed by the plan during the pendency of the appeal and to fully and fairly present their case at the administrative appeal level, as opposed to merely having a right to review such information on request only after the claim has already been denied on appeal.[5]

Any evidence or rationale provided must be turned over as soon as possible, and sufficiently in advance of the date on which the notice of adverse benefit determination on review is required to be provided, to allow the claimant a reasonable opportunity to respond to the new evidence.  Rather than viewing this as a ‘new’ requirement, the DOL took the position that it simply hones the prior requirements under 29 C.F.R. § 2560.503-1 to clarify exactly what, and when, information should be provided to claimants.

4. Deemed Exhaustion of Claims and Appeals Processes

Under the final rule, plans cannot prohibit a claimant from seeking judicial review of a claim denial based on a failure to exhaust administrative remedies under the plan if the plan failed to comply with the claims procedure requirements.  A “minor error” is the only exception to this new provision, although the DOL noted that this standard is “stricter than a mere ‘substantial compliance’ requirement.”[6]

5. Amending the Definition of “Adverse Benefit Determination”

Under the final rule, certain rescissions of coverage are to be treated as “adverse benefit determinations” triggering the plan’s appeals procedures. For plans providing disability benefits, a rescission of coverage that has a retroactive effect now constitutes an adverse benefit determination.  Under the USDOL’s analysis, if a plan provides for the payment of disability benefits for a pre-determined, fixed period, the termination of benefits at the end of the specified period would not constitute an adverse benefit determination under the regulation, but rather a new claim.

6. The Applicable Statute of Limitations Must Be Disclosed

Under the final rule, the USDOL specified that it:

does not believe that a claims procedure would satisfy the statutory requirement if the plan included a contractual limitations period that expired before the review was concluded… A limitations period that expires before the conclusion of the plan’s internal appeals process on its face violates ERISA section 503’s requirement of a full and fair review process.  A process that effectively requires the claimant to forego the right to judicial review and thereby insulates the administrator from impartial judicial review falls far short of the statutory fairness standard and undermines the claims administrator’s incentives to decide claims correctly.[7]

The USDOL seems to suggest that any limitation time-period shorter than a year after the final claims decision does not allow a reasonable period after the conclusion of the appeal in which to bring a lawsuit and is accordingly unenforceable.  Additionally, “in addition to such traditional remedies, plans that offer appeals or dispute resolution beyond what is contemplated in the claims procedure regulations must agree to toll the limitations provision during that time.”[8]

 

[1] See Claims Procedure for Plans Providing Disability Benefits, 81 Fed. Reg. 92316 (December 19, 2016).

[2] Id. at 92317.

[3] Id. at 92321.

[4] Id. at 92322.

[5] Id. at 92324.

[6] Failure to comply constitutes a “minor error” if the violation was (1) de minimis, (2) non-prejudicial, (3) attributable to good cause or matters beyond the plan’s control, (4) in the context of an ongoing good-faith exchange of information, or (5) not reflective of a pattern or practice of non-compliance.  Id. at 92327.

[7] Id. at 92330.

[8] Id. at 92331.

The Michigan Court of Appeals has held that, for the purposes of a claim under the Court of Claims Act, the statute of limitations may begin to run prior to any actual deprivation of financial benefit.

In Bauserman v. Unemployment Insurance Agency, No. 333181 (Mich. Ct. App. Jul. 18, 2017), the Michigan Unemployment Insurance Agency (defendant) appealed a trial court’s decision denying the defendant’s motion for summary disposition.  The Court of Appeals held that a violation of the Court of Claims Act did exist, reversing the trial court’s decision.

The dispute centered on the defendant’s use of an automated decision-making system to both “detect and adjudicate suspected instances of employment benefit fraud.”  Id. at 1.  Once the system ‘detected’ an instance of benefit fraud, it would issue a notice and questionnaire in regards, either to the employee’s home address or an online unemployment portal which was rarely, if ever, accessed by employees.  Following the notice, defendant would routinely “intercept” tax refunds, garnish wages and initiate collection activity through a court of law.  Id. at 2.

Plaintiffs alleged that the Unemployment Insurance Agency’s use of “an automated decision-making system for the detection and determination of fraud cases, whereby the computer code in the automated decision-making process contains the rules that are used to determine a claimant’s guilt, and those rules change the substantive standard for guilt or are otherwise inconsistent with the requirements of due process.”  Id. at 8.

The Court of Claims Act, MCL 600.6431(1), provides, in relevant part, that “[n]o claim may be maintained against the state unless the claimant, within 1 year after such claim has accrued, files in the office of the clerk of the court of claims either a written claim or a written notice of intention to file a claim against the state or any of its departments….”  In actions for property damage or personal injuries, the claimant only has “6 months following the happening of the event giving rise to the cause of action” to file a written claim.  MCL 600.6431(3).

The court identified the determinative question as “what event gave rise to [the plaintiffs’] cause of action.”  Bauserman at 5.  The triggering event was either when the defendant issued notices informing the plaintiffs they were disqualified from receiving unemployment benefits or when the defendant actually seized the plaintiffs’ property.  Id.

In McCahan v. Brennan, the court held that MCL 600.6431 is to be “understood as a cohesive whole.  Subsection (1) sets forth the general rule, for which subsection (2) sets forth additional requirements and which subsection (3) modifies for particular classes of cases that would otherwise fall under the provisions of subsection (1).”  492 Mich. 730, 742 (2012).  Thus, while subsection (1) of MCL 600.6431 may provide a longer time frame to file a notice with the Court of Claims, subsection (3) shortens the time period for applicable claims to six months after the plaintiff’s cause of action accrues, or “when the wrong on which they base their claims was done.”  Bauserman at 7.

The Bauserman plaintiffs alleged a violation of the Michigan Constitution, Article 1, § 17, which provides that “[n]o person shall be… deprived of life, liberty or property, without due process of law….”  Specifically, the plaintiffs alleged that the defendant failed to “follow the minimum due process standards required under federal law with respect to the collection of unemployment debts, including overpayment and penalties.”  Id. at 8.

The court held that while the plaintiffs claimed “the wrong on which their claims are based took place when defendant intercepted federal and state tax refunds, garnished their wages and forced repayment of unemployment benefits[,]” the alleged wrong actually took place “when defendant issued notices informing plaintiffs of its determination that plaintiffs had engaged in fraudulent conduct, and they were not given the requisite notice and opportunity to be heard.”  Id. at 9.  Therefore, the “economic deprivation” encountered by the plaintiffs was a secondary result of the original deprivation of due process, and not the proper point to adjudge the applicable statute of limitations.  Id.  Therefore, it was the notification of the deprivation of unemployment benefits, not the actual seizure of said benefits, which constituted the statutory point of claim accrual.

The Bauserman court cited Frank v. Linkner, a 2017 Sixth Circuit decision, which held in part that a plaintiff’s claims could accrue prior to a plaintiff incurring “calculable financial injury….”  894 NW2d 574 (2017) (Docket No. 151888), slip op at 14.

Following this decision, it is clear that a plaintiff’s pre-suit inquiry into the possible statute of limitations for claims arising against the State of Michigan must not be limited simply to the date the actual harm accrued, but should also account for any conduct preceding the harm which may have actually triggered the statutory cause of action.