October 10, 2019 Issue: Fall 2019

Circuit Round-Up of Key Appellate ERISA Decisions from February-September 2019

By: Michelle L. Roberts and Andrew M. Kantor

First Circuit

Fortier v. Hartford Life & Accident Ins. Co., 916 F.3d 74 2019 EB Cases 55547 (1st Cir. 2019) (exhaustion of administrative remedies).

Fortier received long-term disability (LTD) benefits under a group disability plan insured by Hartford Life & Accident Insurance Company (“the Plan”).  The Plan only pays 24 months of benefits for disabilities caused by mental illnesses.  Hartford approved and paid Fortier’s LTD benefits before sending her notice on September 13, 2011 that her benefits would terminate in the future on November 1, 2011 due to the Plan’s Mental Illness Limitation.  The letter informed Fortier of her right to appeal within 180 days of the date that she received the letter.  Fortier retained an attorney who submitted a timely appeal and was able to get her benefits reinstated.  Shortly after reinstating her claim, Hartford explained that since it did not give Fortier prior notice of the application of the Mental Illness Limitation, it was starting the 24-month period as of September 13, 2011 and no benefits will be payable beyond September 12, 2013. 

After completing an investigation and review of Fortier’s claim,  Hartford notified Fortier’s attorney by letter dated July 17, 2013 that it would stop paying benefits on September 13, 2013 because it had determined that the Mental Illness Limitation applied to the claim.  The letter also notified Fortier of her right to appeal within 180 days of receipt of the letter.  Fortier did not appeal within 180 days but sent in a letter purporting to appeal two months after Hartford’s stated deadline.  Hartford declined to consider the appeal because it was untimely.

The First Circuit rejected the plaintiff’s argument that the 180-day period should run from the date of the termination of benefits and not from the date of the July 17, 2013 notice of the adverse decision.  It held that the 180-day time limit to appeal an adverse benefit determination began to run from the date of the notice of the determination.  The court also found that Hartford followed the terms of the Plan, which were consistent with ERISA’s requirements, when it provided her notice of the benefit determination and her right to appeal within 180 days. 

Although the doctrine of “substantial compliance” has been applied to excuse an insurer’s failure to comply with ERISA’s notice requirements, it does not apply to late appeals by claimants.  The court agreed with the Seventh Circuit’s decision in Edwards v. Briggs & Stratton Ret. Plan, 639 F.3d 355 (7th Cir. 2011), which reasoned that applying the doctrine to the exhaustion requirement “would render it effectively impossible for plan administrators to fix and enforce administrative deadlines while involving courts incessantly in detailed, case-by-case determinations as to whether a given claimant’s failure to bring a timely appeal from a denial of benefits should be excused or not.”  Id. at 362.  The court also explained that nothing in the ERISA regulations is undermined by insurers applying deadlines strictly against plan participants.

Lastly, like the Seventh and Ninth Circuits, which have considered this issue, the court held that New Hampshire’s common law notice-prejudice rule does not apply to ERISA appeals:  “[t]he exhaustion requirement -- and several of its underlying policy goals -- would be undercut by an extension of a state law notice-prejudice rule to ERISA appeals.”

Second Circuit

Usenko v. MEMC LLC, 926 F.3d 468 (8th Cir. June 4, 2019)

The Eighth Circuit affirmed the district court’s dismissal of this putative class action alleging that defendants breached their duty of prudence with respect to keeping SunEdison stock in the defined-contribution retirement savings plan.  The plaintiffs alleged that the defendants knew, or should have known, that between July 20, 2015 and April 21, 2016, SunEdison was in poor financial condition, and that they should have removed SunEdison stock from the plan’s assets. 

The court found the allegations in this case insufficient to plausibly state a breach of the duty of prudence based on the standard articulated in Fifth Third Bancorp v. Dudenhoeffer, 573 U.S. 409, 134 S.Ct. 2459, 189 L.Ed.2d 457 (2014).  The plaintiffs’ position was that the defendants should have acted on publicly available information to investigate and determine that divesting from SunEdison stock would be prudent as of July 20, 2015.  The court noted, however, that the complaint did not contain allegations that the circumstances indicated to the defendants that they could not rely on the market’s valuation of the stock.  The defendants were not required to outperform the market based solely on their analysis of publicly available information to determine that the SunEdison stock was excessively risky.  Further, the requirement set forth in Tibble v. Edison, 135 S. Ct. 1823, that a fiduciary has a continuing duty to monitor trust investments and remove imprudent ones, did not exempt the plaintiff from the requirement of meeting Dudenhoeffer’s pleading requirements.  Lastly, the court affirmed the denial of the plaintiff’s motion for leave to amend his complaint because he did not submit a proposed amended complaint with his motion.

In a separate action, the Second Circuit in O’day v. Chatila, 774 F. App'x 708 (2d Cir. June 7, 2019) affirmed the district court’s dismissal of a complaint alleging that the defendants breached their fiduciary duties by giving ESOP participants the opportunity to invest in publicly traded shares of SunEdison stock when they knew, or should have known, that SunEdison was on the verge of bankruptcy.  The Second Circuit found that the district court was correct in holding that the plaintiffs failed to allege any “special circumstances” that would affect the reliability of the market price as a reflection of the value of SunEdison shares.  The court noted that unlike Jander v. Retirement Plans Committee of IBM, 910 F.3d 620 (2d Cir. 2018) (certiorari granted June 3, 2019), the plaintiffs had “not alleged that an earlier disclosure of SunEdison’s financial problems might have caused less damage than a later disclosure.”  The court found that this case was analogous to Rinehart v. Lehman Bros. Holdings Inc., 817 F.3d 56, 65–67 (2d Cir. 2016), where the court held that a prudent fiduciary could have concluded that divesting or stopping the purchasing of stock “would have done more harm than good.”  Lastly, with respect to the plaintiffs’ allegation that the defendants’ “compensation structure caused them to pursue a growth strategy that led to SunEdison’s demise,” the court found that the plaintiffs failed to allege that the compensation structure caused the defendants to breach their fiduciary duties.

Kelly v. Honeywell Int’l, Inc., 933 F.3d 173 (2d Cir. Aug. 7, 2019) (retiree medical)

Following the Supreme Court’s decision in M&G Polymers USA, LLC v. Tackett, 574 U.S. 427, 135 S. Ct. 926, 190 L.Ed.2d 809 (2015), Honeywell reviewed its collective bargaining agreements.  Believing it was justified to terminate the retiree medical coverage it had been providing to the plaintiffs for over 15 years, Honeywell announced that it was doing so effective December 31, 2016.  As a result of various lower court proceedings, however, Honeywell continued to provide medical coverage to the retirees.

The court analyzed relevant provisions of three documents: the effects bargaining agreement (“EBA”), the Collective Bargaining Agreement (“CBA”), and the Supplemental Agreement.  The EBA, which expired on June 6, 1997, provides that

“All past and future retired employees and surviving spouses shall continue to receive ... full medical coverage as provided in the ... Group Insurance Agreement, as now in effect or as hereafter modified by the parties for the life of the retiree or surviving spouse.”

Id. at *2 (emphasis added).  The CBA, which explicitly incorporates the EBA as a supplemental agreement, contains a durational clause that permits the agreement to renew year to year until written notice to terminate or amend the agreement is given by either party.  The CBA also incorporates the Supplemental Agreement, which provides a description of the details of the group insurance benefits specified in the CBA.  The Supplemental Agreement also has a cancellation clause that states: “If the Collective Bargaining Agreement is canceled in whole or in part benefits hereunder will immediately cease.”

The court determined that the EBA’s language stating that the retires and their surviving spouses shall continue to receive full medical coverage for the life of the retiree or surviving spouse “manifests the intent to secure medical coverage for qualifying retirees’ lifetimes.”  The court rejected Honeywell’s argument that the cancellation clause in the Supplemental Agreement permits it to terminate the plaintiffs’ vested medical benefits.  The court found that the EBA “expressly prohibits Honeywell from unilaterally cancelling retiree medical benefits” and that the Supplemental Agreement “does not clearly reserve Honeywell’s rights to amend retiree’s medical benefits.”  Further, the cancellation clause language does not operate as a reservation of rights to terminate benefits like the other court decisions which relied on general durational provisions to set the lifespan of welfare benefits.  Because the EBA’s language is unambiguous about its promise of lifetime medical coverage, the court found that the contracts’ general durational clauses do not prevent the benefits from vesting.

With respect to retirees who retired after the EBA expired (“Post-Expiration plaintiffs”), the court found that they were entitled to a preliminary injunction because the EBA is ambiguous as to the term “future retired employees” and the Post-Expiration plaintiffs presented a plausible interpretation of the contract provision that entitled them to vested benefits. “Interpreting the term ‘future’ as calling for an indefinite duration that exceeds the duration of the EBA is particularly plausible in light of the anticipatory purpose of the EBA.”  The court considered extrinsic evidence which showed that Honeywell believed the EBA conferred lifetime medical benefits to retirees who retired after the EBA expired.  The court affirmed the district court’s order preliminarily enjoining Honeywell from terminating medical benefits vested after the EBA expired.

Third Circuit

Sweda v. Univ. of Pennsylvania, 923 F.3d 320, 2019 EB Cases 158780  (3d Cir. 2019) (breach of fiduciary duty)

In this class action, participants in the University’s defined contribution plan alleged that the plan fiduciaries breached their fiduciary duties by failing to properly manage the plan’s investments.  The plaintiffs brought three claims based on a breach of the duties of prudence and loyalty, three claims based on alleged party-in-interest prohibited transactions, and one claim alleging a failure to monitor the appointed fiduciaries.  The district court dismissed all three actions for failing to state a claim for relief under the Bell Atlantic Corp. v. Twombly 550 U.S. 544 (2007) pleading standard and the Third’s Circuit’s early decision in Renfo v. Unisys Corp. 671 F. 3d 314 (2001), because the allegations were not plausible and were indicative of reasonable conduct.

On Appeal, the Third circuit affirmed the dismissal of the prohibited transaction claims, as it determined that an allegation that a fiduciary engaged in a prohibited transaction requires self-dealing or specific intent to benefit said fiduciary, rather than mere unreasonableness or recklessness, as was alleged here.  In doing so, the Third Circuit acknowledged an express disagreement with the Seventh Circuit, which interprets ERISA Section 406(a) as creating a per se rule against such transactions, and requires defendants to plead an exemption from engaging in such a transaction at all as an affirmative defense.

In contrast, the Third Circuit reversed the district court’s dismissal of  the claims based on breach of the duties of prudence and loyalty, finding that the Twombly and Renfro pleading standards should not apply to fiduciary breach claims under ERISA, as it reasoned that requiring the plaintiffs to “rule out every possible” legal justification for the conduct in question was not consistent with the Federal Rules governing motions to dismiss nor the intent of ERISA to protect plan participants.  Applying this principle to the plaintiff’s two fiduciary breach claims, the court concluded that the allegations stated a sufficient claim for relief. 

Senior Judge Roth noted in her dissent that she would have dismissed these claims as well, noting the “unenviable position” fiduciaries of large plans face when sued, that any recovery by plan participants would not be meaningful, and that this decision is not distinguishable from Renfro.

Fourth Circuit

Dawson-Murdock v. Nat’l Counseling Grp., Inc., 931 F.3d 269 (4th Cir. 2019) (breach of fiduciary duty)

Plaintiff Dawson-Murdock’s deceased husband, Wayne Murdock, worked full-time for Defendant National Counseling Group, Inc. (“NCG”).  As a full-time employee, he was covered by a group life insurance policy funded by Unum Life Insurance Company of America.  On March 21, 2016, Wayne switched to part-time work and then died six months later.  After he started part-time work, Wayne continued to pay premiums for his life insurance coverage.  When Ms. Dawson-Murdock submitted a claim for life insurance benefits, Unum denied her claim on the basis that Wayne had not converted to portable coverage.  NCG’s Vice President of Human Resources assured Dawson-Murdock that it would pay the claim and that she no longer had to deal with Unum.  On that assurance, she did not appeal the denial to Unum, and missed the 90-day window to do so.  She continued to communicate with NCG about the payment for several months before NCG decided it was not going to pay after all. 

Dawson-Murdock filed suit against NCG alleging an ERISA breach of fiduciary duty to herself and her husband.  Judge John Gibney, Jr. dismissed the breach of fiduciary duty claims against NCG because the court determined that the employer’s conduct of failing to notify Wayne about his eligibility for life insurance benefits after he switched to part-time work and collecting his premiums did not fall within the scope of fiduciary activity.  Even though the VP of HR misstated information to Dawson-Murdock by telling her that NCG would take care of the claim and she did not need to deal with Unum, the court found this did not meet the narrow definition of fiduciary activity.

On appeal, Dawson-Murdock presented the following questions:

  1. Whether the defendant NCG, the named plan administrator, was acting as a fiduciary when it failed to inform decedent that he was no longer eligible for life insurance benefits under the plan but could instead convert to individual coverage.
  2. Whether NCG was acting as a fiduciary when the company, acting through its Vice President of Human Resources, erroneously informed the plaintiff that she need not appeal the denial of benefits because NCG would pay her claim. 

Contrary to the district court’s determination, the Fourth Circuit found that NCG, as the Plan Administrator and named fiduciary for the Plan, was a fiduciary for the purposes of Dawson-Murdock’s ERISA claims.  A participant does not need to allege in every case that the plan administrator and named fiduciary is also a functional fiduciary.  The Fourth Circuit held that the district court erred by failing to recognize the significance of NCG’s status as the joint plan administrator and named fiduciary and by focusing on Fourth Circuit precedent addressing functional fiduciaries.  The court noted that this error alone supported a vacatur and remand, but the district court also erred in its functional fiduciary analysis.

On the functional fiduciary question, the Fourth Circuit found that Dawson-Murdock’s complaint sufficiently alleged that NCG is a fiduciary with respect to the conduct giving rise to her claims.  The court explained that “when a plan administrator is responsible for verifying employee eligibility for participation in an employee benefit plan, that administrator acts in a fiduciary capacity with regard to that obligation.”  When an administrator knows that an employee wishes to maintain participation in a plan, it acts in a fiduciary capacity when it conveys, or fails to convey, material information to a plan participant about the retention of eligibility for the benefits.  A plan administrator, which by the nature of its position has discretionary authority or responsibility in the administration of a plan, is a functional fiduciary.  See 29 C.F.R. § 2509.75-8(D-3). 

Notably, in a footnote, the court stated that the district court relied primarily on the unpublished opinion in Moon v. BWX Tech., Inc., 577 F.App’x 224 (4th Cir. 2014) for the proposition that an employer was not acting as a fiduciary when it accepted an employee’s life insurance premiums without advising him that he was not eligible for the coverage.  The court explained that Moon failed to mention Griggs v. E.I. DuPont de Nemours & Co., 237 F.3d 371 (4th Cir. 2001), which approved a fiduciary breach claim where the plan administrator failed to correct the plan participant’s material misunderstanding of the relevant plan.  Also, the employer in Moon was neither a plan administrator nor a named fiduciary.

With respect to the VP’s advice to Dawson-Murdock to not appeal her denial of benefits to Unum, the Fourth Circuit found that this action of conveying information about plan benefits to a beneficiary in order to assist plan-related decisions, is a fiduciary activity under ERISA.  For these reasons, the Fourth Circuit Court of Appeals vacated the district court’s decision and remanded for further proceedings.  

Fifth Circuit

Nichols v. Reliance Standard Life Insurance Company, 924 F.3d 802, 2019 EB Cases 189567 (5th Cir. 2019) (disability benefits)

As laid out in Nichols v. Reliance Standard Life Ins. Co., 2018 WL 3213618, 2018 EB Cases 232667  (S.D. Miss. June 29, 2018), rev’d, No. 18-60499, 2019 WL 2223614 (5th Cir. May 23, 2019), Nichols became unable to work as a Hazard Analysis and Critical Control Points Coordinator at a chicken processing factory, a career she had spent her entire life doing, because circulatory system disorders including Raynaud’s disease, prevented her from being able to work in cold temperatures.  Though Reliance acknowledged that Nichols could not work in cold temperatures, one of its vocational experts determined that Nichols’ occupation as it was performed in the national economy was “sanitarian,” which does not require that she be exposed to cold temperatures.  Judge Carlton Reeves found that Reliance Standard Insurance Company abused its discretion in denying Nichols’ claim for LTD benefits.  In so doing, the court laid out Reliance Standard’s “decades-long pattern of arbitrary claim denials and other misdeeds.”  The court found over 100 decisions in the last 21 years criticizing Reliance’s disability decisions.  Of those, 60 opinions were very critical of Reliance’s underlying claims administration.  Judge Reeves awarded Nichols past benefits and ordered Reliance to pay her benefits in the future. 

The Fifth Circuit reversed the grant of benefits to Nichols and rendered judgment for Reliance Standard.  The court held that substantial evidence supported Reliance’s finding that work in cold areas was not a material duty of Nichol’s regular occupation of sanitarian.  The court explained that its precedent does not require an administrator to consider each of a claimant’s job duties of her particular position with a particular employer to determine her regular occupation.

On the conflict of interest, the Fifth Circuit found that the district court erred in emphasizing Reliance’s structural conflict where Nichols never suggested that Reliance’s structural conflict impacted its decision to deny her LTD benefits and she did not adduce evidence that Reliance’s conflict affected its benefits decision.  “The court’s extensive sua sponte review eschewed our repeated holdings that a structural conflict is not a significant factor where the claimant offers no evidence that the conflict impacted the administrator’s decision.” 

Faciane v. Sun Life Assurance Co. of Canada, 931 F.3d 412 (5th Cir. 2019) (accrual of limitations period)

Sun Life approved Faciane’s LTD claim in March 2008.  In a letter dated March 31, 2008, Sun Life informed Faciane that he was entitled to a benefit equal to 50% of his basic monthly earnings.  Sun Life also informed Faciane that it calculated his basic monthly earnings as $5,3134.16 and that due to various offsets, he was entitled to the plan minimum of $100/month.  A Sun Life claim control log documenting a conversation with Faciane suggested that he received the letter.  Faciane disputed that he was only entitled to 50% of his basic monthly earnings and convinced Sun Life by April 2011 that he was entitled to 66.67% under a “buy-up” plan.  However, his net monthly benefit remained the same due to offsets.  Sun Life’s letter explaining this also informed him of the appeal process and his right to sue under ERISA.  Then six years later, Faciane appealed the benefit calculation.  He argued his average monthly earnings were $8,118.52 and he challenged the way Sun Life offset his worker’s compensation settlement.  The latter was resolved in his favor, but Sun Life stood by its original determination of his basic monthly earnings.  Faciane filed suit in December 2017.

Sun Life moved to dismiss on the basis that the lawsuit was time-barred under the LTD plan’s three-year contractual limitations provision.  Faciane claimed that he never received the initial March 31, 2008 letter and that his claim should accrue as of 2017 when Sun Life denied his appeal.  The district court converted the motion to dismiss to a motion for summary judgment and ruled in Sun Life’s favor.  Observing that the Fifth Circuit has not expressly stated an accrual rule for miscalculation claims, it followed the Second Circuit decision in Novella v. Westchester County, 661 F.3d 128, 147 (2nd Cir. 2011) (determining that accrual begins at the time there is enough information available to the participant to know or reasonably should know of the miscalculation) and the Third Circuit decision in Miller v. Fortis Benefits Ins. Co., 475 F.3d 516, 521 (3rd Cir. 2007) (ruling that an award of benefits could trigger accrual of a miscalculation claim if it constituted a repudiation of the beneficiary’s entitlement to greater benefits that is clear and made known to the beneficiary).  

The Fifth Circuit affirmed the decision of the district court.  Citing to Heimeshoff, the court noted that for Faciane to prevail would have needed to show that the plan’s limitation provision would leave him an unreasonably short period to file suit from the time his claim accrued.  Further, accrual may happen before any administrative review has started.

The question therefore is the accrual date of his miscalculation claim.  In answering this question, the court explained that accrual of ERISA claims is a question of federal common law.  Where it’s not clear when a claim has been formally made and denied, circuit courts have applied a form of the standard federal discovery rule which provides that a claim accrues when a party has enough information that they know, or reasonably should know, of the injury.  In the ERISA benefit context, many courts apply the “clear repudiation” rule:  the claim accrues when the plan clearly and directly repudiates a beneficiary’s claim to benefits.  Though the court did not expressly adopt or reject this rule, it noted that its published decision in Kennedy v. Electricians Pension Plan, IBEW No. 995, 954 F.2d 1116 (5th Cir. 1992) is consistent with its approach.  The bottom line: “information can trigger accrual, even in the absence of a formal application or denial of benefits, when it is clear and made known to the beneficiary.”

On the question of whether Faciane received the March 31, 2008 letter, the court found no genuine issue of material fact.  The district court applied the “mailbox rule” based on a Sun Life affidavit from an administrative-review official at Sun Life who attested that the standard mailing practices were followed in this case.  The notes in the claim control log also corroborated that the letter was mailed and Faciane received it.

The court concluded that the information in the March 31, 2008 letter was enough for Faciane’s miscalculation claim to accrue.  Sun Life displayed the monthly earnings amount prominently on the first page.  “Moreover, the alleged discrepancy is so large, and it concerns a matter so fundamental to any working person, that we conclude the letter clearly repudiated Faciane’s entitlement to greater benefits.”  The court found that the information was clear and simple that he should have spotted the problem right away.

Lastly, the court found that the district court did not abuse its discretion by denying Faciane’s motion for reconsideration.

Sixth Circuit

Wilson v. Safelite Grp., Inc., 930 F.3d 429 (6th Cir. 2019) (plan status)

In this case, the Sixth Circuit answers the question of what constitutes an employee pension benefit plan under ERISA.  At issue is a deferred compensation plan for executive employees that the district court determined to be an employee pension benefit plan under ERISA Section 3(2)(A)(ii) and not a bonus plan exempted from ERISA under 29 C.F.R. § 2510.3-2(c).  Analyzing the plain text of ERISA and the bonus plan regulation, the Sixth Circuit affirmed the district court’s decision.

Safelite’s Board of Directors created the Safelite Group, Inc. 2005 Transaction Incentive Plan (TIP), which provided a substantial bonus payment to five Safelite executives if they secured a strategic buyer for the company.  When Belron SA emerged as a likely buyer which would prompt payments under the TIP, the Board adopted the Safelite Group, Inc. Nonqualified Deferred Compensation Plan which would allow participants to defer compensation to avoid certain tax consequences.  Only four executive employees were eligible to participate in it.  The Plan permitted the participants to defer compensation and “TIP Amounts” and they could specify in which year or years they wanted to receive distributions of the deferred income, either during or after the termination of employment.  Wilson deferred hundreds of thousands of dollars between 2006 and 2013 such that when he left Safelite he had $9,111,384 in deferred compensation.  Unfortunately, a federal audit revealed that his elections failed to comply with 26 U.S.C. § 409(A) and he owed income taxes and substantial tax penalties. 

Wilson brought state law claims against Safelite and Safelite argued that those claims were preempted by ERISA.  The district court found that the Plan is an employee pension benefit plan and granted Wilson leave to file an amended complaint asserting ERISA claims.  Instead, he appealed.

On appeal, the Sixth Circuit had to resolve the issue of whether the Plan “results in a deferral of income by employees for periods extending to the termination of covered employment or beyond …”   ERISA Section 3(2)(A).  According to the ordinary meaning of the word “results,” a plan is an employee pension benefit plan when a deferral of income arises as an effect, issue, or outcome from the provisions of that plan.  A plan does not need to require a deferral of income to the termination of covered employment.  The court found that a plan can be an ERISA employee pension benefit plan even if it allows for distributions both before and after termination.  Here, the Plan was designed and administered to permit participants to defer income for various periods, including periods up to and beyond termination.  The court found that it does not fall under the bonus plan exemption because it does not state an intention to provide financial incentives for employee performance or retention and does not operate as a bonus plan.  The court agreed with the district court that deferring bonuses provided for under a separate agreement does not transform a deferred compensation plan into a bonus plan.

Seventh Circuit

Tran v. Minnesota Life Ins. Co., 922 F.3d 380, 2019 EB Cases 152127 (7th Cir. 2019) (autoerotic asphyxiation).

The Seventh Circuit reversed the district court’s ruling finding that the insured’s death from autoerotic asphyxiation was an accidental death payable under his life insurance policy.  The Seventh Circuit held that a reasonable person would interpret the insured’s death from autoerotic asphyxiation to be death due to an “intentionally self-inflicted injury,” which is excluded from the life insurance policy.

The Seventh Circuit noted definition of “autoerotic asphyxiation” as “a sexual practice by which a person purposefully restricts blood flow to the brain to induce a feeling of euphoria. ‘Asphyxiophilia’ as defined in the DSM-5 is a subset of sexual masochism disorder, by which an ‘individual engages in the practice of achieving sexual arousal related to restriction of breathing.’” (citing to the 5th edition of the American Psychiatric Association, Diagnostic and Statistical Manual of Mental Disorders). 

There is no dispute that the insured, found hanging in his basement by his widow, died due to autoerotic asphyxiation.  The issue is whether his death fell under the following exclusion in his accidental death riders:

In no event will we pay the accidental death or dismemberment benefit where an insured’s death or dismemberment results from or is caused directly by any of the following: ... intentionally self-inflicted injury or any attempt at self-inflicted injury, whether sane or insane...

To answer this question, the court had to decide two decide two issues:  (1) whether autoerotic asphyxiation is an “injury” and (2) whether that injury was “intentionally self-inflicted.”  The court answered both in the affirmative.

On the first issue, the court declined to follow the reasoning in Padfield v. AIG Life Ins. Co., 290 F.3d 1121 (9th Cir. 2002) and Critchlow v. First UNUM Life Ins. Co. of America, 378 F.3d 246 (2nd Cir. 2004) because they are grounded on a false premise that the act of strangling oneself is severable into distinct phases and distinct injuries.  Specifically, they found the cause of death to not be the partial strangulation but the total loss of oxygen for a sustained period.  Here, as in those cases, the insured placed a noose around his neck, stepped off a stool, and strangled himself.  The court reasoned that the resulting hypoxia and his death all resulted from one intentionally inflicted injury.  Contrary to the Ninth Circuit’s reasoning in Padfield, the Seventh Circuit believes that an ordinary person would consider choking oneself by hanging from a noose to be an injury.  In addressing the dissent, the majority explained that the fact that his aim was sexual pleasure does not make partial strangulation less of an injury.

On the second issue, the court found that the injury was intentionally self-inflicted because the insured’s subjective intent was clear.  Whether the strangulation was done recreationally or with an intent to survive does not change the fact that the death was due to an intentionally self-inflicted harm.

The court concluded by clarifying that the opinion should not be read to establish a per se rule on coverage for autoerotic asphyxiation. 

Judge Bauer penned a dissenting opinion.  He agreed with the district court that cerebral hypoxia was not an intentional injury and the death resulted from an unforeseen accident.  The majority, Judge Bauer explained, incorrectly separated the masturbation from the asphyxiation.  He compared it to the act of skydiving gone wrong.  The intention was to survive.  The jump out of the plane was an intentional act but the crash back to earth was not intended.

Fessenden v. Reliance Standard Life Ins. Co., 927 F.3d 998 (7th Cir. 2019) (standard of review). 

Reliance Standard denied Fessenden’s LTD  benefits and he submitted an appeal of that denial on April 24, 2015.  Because Fessenden mailed the appeal to the wrong address, Reliance did not confirm receipt until May 8, 2015.  Under ERISA regulations, Reliance had 45 days to issue a final decision, but if special circumstances existed, it could take one 45-day extension.  See 29 C.F.R. § 2560.503-1(i)(1)(i) & (i)(3)(i) (2002).  It’s undisputed that Reliance did not make a decision after 90 days.  Fessenden filed suit on August 19, 2015 and then Reliance issued its decision late on August 27, 2015.

The district court sided with Reliance on the issue of whether substantial compliance applies to the timing to decide appeals and found that Reliance had substantially complied with the deadline.  It also found that Reliance’s decision to deny benefits was not arbitrary and capricious.

The Seventh Circuit disagreed.  It held that the “substantial compliance” exception does not apply to a blown deadline, which “is a bright line.”  Violation of this “hard-and-fast obligation” strips an administrator of the deference it would otherwise be entitled to.  The court declined Fessenden’s invitation to scrap the substantial compliance doctrine altogether.  Its holding assumes that the substantial compliance doctrine remains valid, it simply does not apply to violation of regulatory deadlines.  A claimant has a right to file suit as soon as his claim is deemed exhausted (after the deadline has passed and there is no decision).  The court explained that when there is an untimely decision there is nothing to review at the time that administrative remedies are deemed exhausted.  If a “claimant files suit before the decision arrives, there is neither an exercise of discretion to which a court could defer nor anything for the court to use to measure the degree of the administrator’s compliance.”  The court disagreed with its sister circuits (Sixth, Ninth, and Tenth) that have applied the substantial compliance exception to blown deadlines.

Eighth Circuit

Peterson on behalf of E v. UnitedHealth Grp. Inc., 913 F.3d 769, 2019 EB Cases 12938 (8th Cir. 2019) (cross-plan offsetting).

The court affirmed the district court’s grant of partial summary judgment to the plaintiff on the issue of liability on the basis that the relevant ERISA plan documents do not authorize United to engage in cross-plan offsetting for overpayments made to out-of-network medical providers.  The court found that Dr. Peterson was authorized to bring this action as a representative of his patients because there was no meaningful conflict between him and his patients and his disclosure of the supposed conflict of interest was sufficient.  The court did not decide whether cross-plan offsetting necessarily violates ERISA, but “at the very least it approaches the line of what is permissible.”

Ninth Circuit

Dorman v. Charles Schwab Corp., 934 F.3d 1107 (9th Cir. Aug. 20, 2019) (arbitration).

The Ninth Circuit addressed the question of whether ERISA claims can be subject to mandatory arbitration.  In determining that the arbitration agreement in the Schwab Retirement Savings and Investment Plan (“the Plan”) is enforceable, the court revisited and overruled prior Ninth Circuit authority. 

In Amaro v. Continental Can Co., 724 F.2d 747 (9th Cir. 1984), the Ninth Circuit held that exhaustion of arbitration procedures for contractual grievances is not required prior to bringing a statutory claim under ERISA Section 510.  The court reversed and remanded the district court’s decision that the arbitration award on a contractual grievance that was adverse to former employees of the company barred their ERISA claims.

In last year’s decision in Munro v. Univ. of S. California, 896 F.3d 1088, 1094 (9th Cir. 2018), cert. denied, 139 S. Ct. 1239, 203 L. Ed. 2d 199 (2019), the Ninth Circuit noted that there was “considerable force” to USC’s position that Amaro, standing for the proposition that ERISA claims are inarbitrable as a matter of law, is “clearly irreconcilable” with intervening Supreme Court case law.   The Munro court took a pass on the question of Amaro’s viability since the Court rested its decision on the fact that the asserted claims fell outside of the arbitration clauses in the employee agreements. 

In Dorman, the Court was presented squarely with the question of whether Amaro was still good law.  In American Express Co. v. Italian Colors Restaurant, 570 U.S. 228, 133 S.Ct. 2304, 186 L.Ed.2d 417 (2013), the Supreme Court held that federal statutory claims are generally arbitrable and arbitrators can competently interpret and apply federal statutes.  Considering intervening Supreme Court case law, including American Express Co., the three-judge panel determined that Amaro has been effectively overruled and is no longer binding precedent.

In a separately penned unpublished decision in Dorman v. The Charles Schwab Corporation, No. 18-15281, __F.App’x__, 2019 WL 3939644 (9th Cir. Aug. 20, 2019), the court held that the district court erred by refusing to compel arbitration of the ERISA breach of fiduciary duty claims since they fall squarely within the ambit of the Plan.  The court reversed and remanded “with instructions for the district court to order arbitration of individual claims limited to seeking relief for the impaired value of the plan assets in the individual’s own account resulting from the alleged fiduciary breaches.” 

The Depot, Inc. v. Caring for Montanans, Inc., 915 F.3d 643, 2019 EB 38427  (9th Cir. 2019) (fiduciary actions, plan assets, remedies and preemption).

The plaintiffs, employers and members of the Montana Chamber of Commerce, brought ERISA claims and state-law based claims against the defendant health insurance companies for their alleged misrepresentations and padding of healthcare premiums with hidden surcharges used to pay kickbacks to the Chamber and to buy unauthorized insurance products.  The district court dismissed all the claims, concluding that plaintiffs failed to state actionable claims under ERISA and finding that the state-law claims are preempted by ERISA.  The Ninth Circuit affirmed the dismissal of the ERISA claims but reversed dismissal of the state-law claims. 

Regarding the ERISA claims, the court made a few important findings.  First, the court held that when the defendants collected and concealed allegedly excessive insurance premium surcharges from the employers, they were not exercising discretionary authority over plan management, and thus, were not acting as ERISA fiduciaries.  Second, the allegedly excessive insurance premium surcharges paid by the employers for coverage under fully-insured health plans were not “plan assets.”  Because the premiums were not plan assets, the defendants were not acting as fiduciaries when collecting, concealing, or spending the surcharges. 

The court also determined that the remedies sought by the employers were not equitable in nature and thus, not “appropriate equitable relief” underERISA Section 502(a)(3).  Specifically, the court found that the restitution plaintiffs sought was not equitable because the plaintiffs had not identified a specific fund to which they were entitled and any judgment for the plaintiff would have had no connection to any particular fund.  Additionally, the plaintiffs alleged that the defendants spent the surcharges.  Even if the defendants did place the surcharges in a general account, the court found it at least conceivable that the account no longer existed.  Because the plaintiffs had not identified any specific property from which the proceeds derived, the Court found that the plaintiffs could not recover the derivative remedy of disgorgement. 

On the state-law claims for fraudulent inducement, constructive fraud, negligent misrepresentation, unjust enrichment, and unfair trade practices under the Montana Consumer Protection Act, the court found that there was no ERISA preemption.  Express preemption did not apply because the claims did not bear on an ERISA-regulated relationship – the misrepresentations occurred initially before the plaintiffs ever agreed to subscribe to a plan.  Conflict preemption did not apply because the duties implicated in the state-law claims did not derive from ERISA and ERISA does not have an enforcement provision that regulates misrepresentations by insurance companies.  Plaintiffs, however, must plead their fraudulent inducement and constructive fraud claims with more particularity, including enough detail on the “who,” “when,” “where,” or “how.”

Tenth Circuit

Teets v. Great-W. Life & Annuity Ins. Co., 921 F.3d 1200 (10th Cir. 2019) (fiduciary status).

In this certified class action, plaintiffs alleged that Great-West, which manages an investment fund offered to employers as an investment option for their employees’ retirement savings plan, breached a fiduciary duty to participants in the fund; or in the alternative, that Great-West was a non-fiduciary party in interest that benefitted from prohibited transactions with his plan’s assets. Specifically, plaintiffs accused the company of putting away $500 million over six years at savers’ expense by setting an unfair rate for distributing the funds profits.

The Tenth Circuit affirmed the district court’s grant of summary judgment to Great-West on the basis that it was not a fiduciary and the plaintiff had not demonstrated that Great-West was liable as a non-fiduciary.  Specifically, the court concluded that “[b]ecause Mr. Teets has not provided evidence that contractual restrictions on withdrawal from the [Key Guaranteed Portfolio Fund (“KGPF”)] actually constrained plans or participants, Great-West does not act as an ERISA fiduciary when it sets the KGPF’s Credited Rate each quarter.  As a result, it also lacks sufficient authority or control over its compensation to render it a fiduciary.” In other words, the court found that money managers do not act as ERISA fiduciaries when they make decisions about reimbursement rates.

The court denied the appellant’s Petition for Panel Rehearing and Rehearing En Banc of its decision to affirm the district court’s grant of summary judgment for Great-West, “holding that (1) Great-West was not a fiduciary and (2) Mr. Teets had not adduced sufficient evidence to impose liability on Great-West as a non-fiduciary party in interest.”  The panel did sua sponte make some changes to the opinion to address the appellant’s argument that the panel erroneously concluded that Great-West never imposed a 12-month wait for class members to receive their savings from the fund.  The panel expanded a quote from the lower court concerning the 12-month delay and added the clause “if exercised” to a statement saying the delay could make Great-West a fiduciary.  The panel also removed the statement that Great-West argued it never imposed the wait as well as a clause that stated Great-West had never done so.

Eleventh Circuit

Boysen v. Illinois Tool Works Inc. Separation Pay Plan, 767 Fed.App’x 799, 2018 EB Cases 117528  (11th Cir. 2019) (duty to investigate).

In this dispute over separation pay benefits, the Eleventh Circuit reversed the district court, finding that the plan administrator did not give the plaintiff a full and fair review of his claim.  The Plan alleged that the plaintiff was terminated for unsatisfactory job performance, whereas the plaintiff alleged that he was terminated due to a permanent job elimination.  The record shows that the plan administrator repeatedly refused to consider highly relevant evidence or evidence which contradicted his decision.  “This is not a typical benefits case in which the claimant has the necessary medical or personal records in his possession and simply fails to provide them.  Here the plan administrator was in a much better position to identify and review internal information about any restructuring at ITW.  It is antithetical to the plan administrator’s fiduciary duty to refuse to seek documents that would be in the exclusive control of the company and then blame Mr. Boysen for not producing sufficient evidence. . . We do not hold that plan administrators are obliged to search for and consider every document ‘submitted by identification.’ We rule only that plan administrators, constrained as they are by certain fiduciary obligations, cannot refuse to consider key relevant information, or to investigate further when faced with potentially conflicting evidence, or deny access to information that is potentially beneficial to a claimant.”

District of Columbia Circuit

Kifafi v. Hilton Hotels Ret. Plan, 752 F.App’x 8 (Mem) (D.C. Cir. 2019) (equitable relief).

The plaintiffs brought this ERISA class action, originally certified in 1999, based on allegations that 1) the terms of the Plan produced an impermissible amount of variation among accrual rates, commonly called “Backloading,” 2) the defendants improperly applied the Plan’s vesting provisions, and 3) defendants committed multiple other ERISA violations as to Kifafi individually.

As a result of this litigation, in 2011 the district court ordered a permanent injunction requiring Hilton to amend the retirement plan’s benefit-accrual formula, award back payments for increased benefits that should have been paid, commence increased benefits for all class members, and administer a claim procedure to credit employees’ union service for vesting purposes. 

In February of 2015, after seventeen years of litigation, the court found that Hilton was “in compliance” with the terms of the injunction in light of the fact that Hilton 1) paid benefit increases to 11,000 out of 20,000 class members, 2) sent notices of increases to another 5600 members, and 3) tried to locate the remaining members and pay those who remained unpaid. Based on its finding of compliance, the Court denied Kifafi’s motion for post-judgment discovery.  In December 2015, the district court denied that request, ordered Hilton to conduct periodic address searches through December 2017, and otherwise terminated jurisdiction over the case.  Kifafi appealed, arguing that Hilton was not in compliance with the terms of the original injunction.

The court held that the district court did not abuse its discretion by choosing to end (and refusing to reinstate) its active supervision of the permanent injunction after finding Hilton was in compliance.  The court further held that the district court did not abuse its discretion by refusing to order an equitable accounting of Hilton’s compliance.

Michelle L. Roberts

Kantor & Kantor, LLP

Andrew M. Kantor

Kantor & Kantor, LLP