By: Tom Horan and Sam Schwartz-Fenwick

Seyfarth Synopsis: A recent case from the Eastern District of Pennsylvania reaffirms the basic principle that a threshold element of any ERISA claim is pleading the existence of an ERISA plan.

In Dixon v. Washington, No. 18-cv-2838, 2018 WL 5046033 (E.D. Pa.), plaintiffs—members of the congregation of the First Baptist Church of Fairview—brought suit against the Church’s elected Pastor and CEO, and the members he selected to serve on the Church’s Board of Directors.

Plaintiffs asserted both state law claims and a breach of fiduciary duty claim under ERISA. The ERISA claim alleged that the defendant pastor stole money collected to award scholarships to two church members, who had never received the promised benefits, and misappropriated funds from the sale of real estate and from a FEMA grant intended to cover repairs related to damages caused by a flood. The ERISA claim did not allege the existence of an ERISA plan, a pre-requisite for any ERISA claim.

Defendants moved to dismiss both for lack of subject matter jurisdiction and for failure to state a claim for relief that was plausible on its face.

The court first considered whether it had subject matter jurisdiction. Because the complaint asserted claims arising under § 409 of ERISA, the court concluded that it presented a valid federal question. Accordingly, the court held that it could not dismiss for lack of subject matter jurisdiction.

Having found that it had subject matter jurisdiction from the face of the complaint, the court considered whether plaintiffs had presented a plausible claim for relief. Here, the court found the complaint deficient, holding that plaintiffs had not plead enough facts to make their ERISA claim plausible. Specifically, without deciding whether plaintiffs’ allegations regarding the misappropriation of funds constituted a breach of fiduciary duty, the court found that plaintiffs had not alleged sufficient facts to show the involvement of a plan covered by ERISA, which was necessary to make an ERISA claim plausible. The court thus dismissed the complaint, noting plaintiffs could amend the complaint if they could plead sufficient detail to make their claim plausible.

While the holding of the case is relatively straightforward—a claim under ERISA must involve a plan covered by ERISA—this case highlights the importance of evaluating whether a complaint is sufficiently pled as to all required elements.

Seyfarth Synopsis: Excessive fee complaint dismissed because the diverse selection of funds available to plan participants negates any claim that Defendants breached their duties of prudence simply because cheaper funds were available.

By Ron Kramer and Shannon Callahan

Nearly 20 universities have been sued under the Employee Retirement Income Security Act (“ERISA”) over the fees paid in their Section 403(b) qualified employee benefit defined contribution plans.

Many of these actions have survived the motion to dismiss stage. Still, some courts have been willing to look carefully at ERISA’s requirements and quickly determine that these suits have no basis because they do not allege violations of ERISA. Most recently, the Southern District of New York ruled against plaintiffs, noting after a trial that plaintiffs have not proven a violation of ERISA, that prudent process does not require perfection, and that, relative to performance there is no such claim under ERISA. Sacerdote v. New York University, Case No. 16-cv-6284, 2018 WL 3629598 (July 31, 2018 S.D.N.Y.).

The latest blow to these largely cookie cutter cases is Davis v. Washington University, Case No. 17-cv-1641 (E.D. Mo.), which alleged that the plan paid excessive fees for administrative or investment management services, the plan should have consolidated to one recordkeeper (as opposed to two), that certain funds underperformed and that the plan’s fiduciaries caused the plan to engage in prohibited transactions.

On Friday, September 28, 2018, Judge Ronnie L. White dismissed Davis holding that Plaintiffs failed to allege a breach of fiduciary duties based upon Plan participants’ payment of purportedly excessive fees and recordkeeping fees. The court reasoned that the complaint starts with the false premise that just because the plan’s fees could have been lower, there must have been some breach of duty. Relying on precedent in other circuits, the court held that the diverse selection of funds available to the plan’s participants negates any claim that defendants breached their duties of prudence because cheaper funds were available. The court further held that allowing plan participants to pay fees on an asset basis is a pure question of where the burden of recordkeeping costs should be placed and that plaintiffs pled no basis for removing the discretion of a reasonable plan administrator. The court likewise dismissed the prohibited transaction claims, noting that plaintiffs pled the affirmative defense in their complaint.

With the recent defense victories in Divane v. Northwestern University, Sacerdote v. New York University and Sweda v. University of Pennsylvania, Washington University brings another beacon of hope to the universities facing these claims and reinforces the discretion incumbent upon plan administrators.

 

 

By: Michelle M. Scannell and Kathleen Cahill Slaught

Seyfarth Synopsis: A district court recently denied a motion to dismiss a 401(k) proprietary fund class action, continuing an overwhelming trend of allowing these cases to survive pleading challenges. On the bright side, however, the Eighth Circuit recently affirmed a dismissal of such a case, and the first of these cases to be tried resulted in a defense victory, which is on appeal with the First Circuit.

The plaintiffs’ bar sparked a new 401(k) class action trend a few years ago by targeting “proprietary” in- house investment products, alleging that fiduciaries were committing a breach by including their in-house proprietary funds in plans to the exclusion of less expensive, better-performing comparable options.

In most of these cases, plaintiffs have survived initial pleading challenges. Generally courts have found that allegations underlying these cases supported an inference that the fiduciaries engaged in a flawed process. See, e.g., Cryer v. Franklin Templeton Res., No. 16-cv-4265 (N.D. Cal. Jan. 17, 2017); Urakhchin v. Allianz Asset Mgmt. of Am., L.P., No. 15-cv-1614 (C.D. Cal. Aug. 5, 2016).

A district court in Maryland recently continued the trend by denying a motion to dismiss a first amended complaint for a proprietary fund case. See Feinberg v. T. Rowe Price Group, Inc., et al., D. Md. Case No. MJG-17-0427, 2018 BL 298391 (Aug. 20, 2018). In Feinberg, plaintiffs alleged that fiduciaries breached their duties and committed related ERISA violations by, among other things, including in the plan retail-class versions of in-house funds even though purportedly cheaper versions of the same funds were available for commercial customers. Notably, in addressing defendants’ argument that the plan documents required that they select an exclusive line-up of proprietary funds, the court found that the decision to structure the plan that way was a settlor, non-fiduciary function, and “did not provide a blanket defense” for the fiduciaries. The court concluded that plaintiffs pled sufficient allegations to raise plausible inferences to support all of their claims.

Defendants also argued that plaintiffs’ prohibited transaction claim was barred under ERISA’s six-year statute of repose, because no prohibited transaction (i.e. the initial inclusion of the fund in the plan) occurred within six years of the lawsuit. The court noted that while defendants “may have viable defenses,” the claim would not be dismissed now, because the court could infer a plausible timely claim of prohibited transactions, including the continuous monthly fees being paid for the funds at issue.

In contrast to this decision and the plaintiff-friendly trend on pleading challenges for these cases, one defense victory on a motion to dismiss was recently affirmed by the Eighth Circuit. See Meiners v. Wells Fargo & Co., No. 0:16-cv-003981, 2017 WL 2303968 (D. Minn. May 25, 2017); Eighth Circuit No. 17-2397 (Aug. 3, 2018). In that case, the Eighth Circuit expressly acknowledged the “challenging pleading burden” for plaintiffs because they have different levels of knowledge regarding the investment choices the fiduciary made versus how the choices were made. The Eighth Circuit held that the existence of a cheaper fund, as pled by plaintiff, doesn’t mean that a particular proprietary fund is too expensive in the market generally or that it’s otherwise an imprudent choice.

As any litigator knows, losing a motion to dismiss is the loss of merely one battle in what can be a long-fought (and not to mention, costly) war. In fact, in the first of these cases to go to trial resulted in a defense victory, which is pending appeal in the First Circuit. Brotherston v. Putnam Investments LLC, 1:15-cv-13825, 2017 WL 2634361, (D. Mass. June 19, 2017). While some companies avoid protracted litigation and choose to settle these cases at early stages, this is not to say that a sound fiduciary process cannot be ultimately vindicated in court. Stay tuned on further developments. . .

By: Mark Casciari and Jim Goodfellow

Seyfarth Synopsis: The Ninth Circuit declined to enforce an agreement to arbitrate ERISA Section 502(a)(2) claims, but did not rule out enforcement in other ERISA claim contexts.

In Munro v. University of Southern California, et al., No. 17-5550, 2018 WL 3542996 (9th Cir. July 24, 2018), plaintiffs sought to represent a class of participants in two ERISA-governed defined contribution plans sponsored by the University of Southern California, alleging multiple breaches of fiduciary duty stemming from the administration of those plans. Plaintiffs sought equitable relief on behalf of the plans under ERISA Section 502(a)(2) in the form of monetary relief, removal of the breaching fiduciaries, a full accounting of losses, reformation of the plans, and an order regarding appropriate future investments.

The defendants moved to compel arbitration, as all of the potential class members had signed arbitration agreements to arbitrate all claims that the putative class members or USC had against one another. The agreements expressly covered claims under federal law, including ERISA. The defendants sought further to compel individual, and not class arbitrations, because the arbitration agreements did not specifically allow class arbitration.

The district court denied the motion, and the Ninth Circuit affirmed. The Ninth Circuit analogized the plaintiffs in this case to plaintiffs in a qui tam action brought on behalf of the U.S. Government under the False Claims Act. Citing to its 2017 decision in U.S. ex rel. Welch v. My Left Foot Children’s Therapy, LLC, 871 F.3d 791 (9th Cir. 2017), the Court stated that individual agreements to arbitrate do not extend to qui tam actions because those are brought on behalf of the government by the plaintiffs. Similarly, the Court said, an ERISA Section 502(a)(2) breach of fiduciary duty claim is brought on behalf of an ERISA plan by its participants.

There is more to take away from this decision, however. The Ninth Circuit specifically declined to rule that an agreement to arbitrate ERISA claims is always unenforceable. The Court suggested that it might disagree in a future case with its 1984 decision in Amaro v. Continental Can Co., 724 F.2d 747 (9th Cir. 1984), which it held that ERISA’s “equitable character” could not be satisfied in an arbitral proceeding. The Court referred to “intervening Supreme Court case law,” obviously referring to a number of Supreme Court decisions after 1984, including, most recently the Epiq Systems decision that broadly enforce agreements to arbitrate. So we have not heard the last word from the Ninth Circuit on the enforceability of agreements to arbitrate ERISA claims. And we should expect other Courts of Appeal to address arbitration of ERISA claims, and perhaps create a split in the Circuits that would lead to Supreme Court review. Notwithstanding the Ninth Circuit decision in Munro, arbitration agreements remain a hot topic in federal jurisprudence. Stay tuned.

By, James Goodfellow and Amanda Sonneborn

Seyfarth Synopsis: The Fifth Circuit adds to the growing body of case law requiring more detailed reviews of claims for life insurance or accidental death and dismemberment benefits following accidents resulting from drunk driving.

In White v. LINA, No. 17-30356, __F.3d__, 2018 WL 2978641 (5th Cir. June 13, 2018), a case involving denial of life insurance benefits provided pursuant to an ERISA governed plan, the Fifth Circuit concluded that LINA abused its discretion in determining that the intoxication exclusion applied.

The facts of the case are straight forward. The insured was driving a car and collided with a truck. Following the crash, two blood samples were drawn from the insured, as well as a urine sample. These samples were tested, and while none tested positive for alcohol, all tested positive for illegal drugs. None of the test results, however, provided the level of drugs in the insured’s system. All of the samples subsequently were destroyed pursuant to the labs’ respective policies, and no further testing was conducted. The police did cite the insured for driving under the influence.

A few days after the crash, the insured died from a stroke. The medical examiner determined that the immediate cause of death was a “massive stroke,” and the underlying causes of death were “multiple trauma (from the car accident),” as well as illegal drug abuse.

The plan at issue, like many ERISA plans, contained exclusions precluding coverage if death is caused, at least in part, by intoxication or by voluntary ingestion of narcotics or drugs without a prescription. Upon receipt of Plaintiff’s claim for benefits, LINA hired a toxicologist to review the claim file to determine the level of impairment. Though the toxicologist concluded that it was impossible to estimate the level of the insured’s impairment, given that no qualitative analysis of the samples taken was complete, he concluded that in the absence of any other cause for the collision, the drugs in the insured’s blood system could explain his level of impairment that resulted in the crash. LINA thus denied the claim.

The district court found in favor of LINA, but the Fifth Circuit reversed, concluding that LINA had failed to provide Plaintiff’s claim a full and fair review because it did not disclose the toxicologist’s report until it filed the administrative record with the court after the lawsuit had been filed. On the merits, the Fifth Circuit acknowledged that the evidence was “close,” given that there was no other possible explanation for the insured’s driving on the night of the accident. Yet, because there was no way to determine the level of intoxication, if any, at the time of the accident, LINA’s structural conflict of interest acted as the tie-breaker.

In reaching this conclusion, the Fifth Circuit joined the other circuits in reading these exclusions to require an insurer to conclude that the insured was intoxicated at the time of the accident, which in turn requires some form of scientific proof. It is not sufficient, for example, for a toxicology report to reveal drugs in an insured’s system. It also may not be it sufficient, depending on the jurisdiction, that a toxicology report reveal alcohol intoxication at some point after the accident.

In sum, not having scientific proof to gird an otherwise logical conclusion could be fatal in defending the decision to apply the exclusion in court.

By: Chris Busey, Tom Horan and Sam Schwartz-Fenwick

Seyfarth Synopsis: The Fourth Circuit found in favor of an insurer on a claim for life insurance benefits, finding the insured’s failure to submit the required evidence of insurability was not excused by his employer having wrongly deducted premiums for that coverage from his pay.

In Gordon v. CIGNA Corp., Plaintiff sought to represent a putative class of participants and beneficiaries who were deemed ineligible for additional life insurance benefits despite having paid premiums for the for the additional coverage, because they failed to submit the requisite evidence of insurability (“EOI”).

Plaintiff, as her deceased husband’s beneficiary, made a claim for supplemental life insurance benefits from the insurer and claims administrator, Life Insurance of North America (“LINA”). LINA denied the claim because the decedent never submitted the EOI required for supplemental coverage. Plaintiff claimed the employer and insurer breached their fiduciary duties by failing to notify the insured of the EOI requirement while continuing to accept premiums for that coverage. Plaintiff also alleged that, if any defendant was not a fiduciary under the plan, it was liable for knowingly participating in a breach of trust.

The district court granted LINA’s motion for summary judgment on the bases that LINA was not acting as a fiduciary with respect to enrollment for coverage, and there was no evidence it had knowledge of the employer’s collection of a premium for the additional coverage. The court also rejected Plaintiff’s argument that the motion was premature because she had not conducted discovery. On appeal, the Fourth Circuit affirmed the district court’s opinion in full.

First, the court found the employer, and not LINA, was tasked with day-to-day administration of the plan, including billing and screening applications. Given this allocation of duties, LINA was not responsible for notifying the decedent of the EOI requirement, and therefore could not be liable for a breach of that duty.

Second, the court found that, even if breach of trust was a cause of action, Plaintiff’s claim would still fail. The record lacked evidence that LINA had any knowledge of the employer’s acceptance of premiums on behalf of the decedent for coverage above the guaranteed amount. To the contrary, the evidence showed that the employer remitted premiums to LINA as a lump-sum and did not provide employee names or associated coverage amounts.

Finally, the court rejected the argument that discovery was required before ruling on the motion. It noted Plaintiff had a reasonable opportunity to conduct discovery, also further found that the information sought would not have created a genuine issue of material fact given the clear allocation of fiduciary duties in the plan documents and, especially, the employer’s concession that it erred in collecting premiums and failing to obtain EOI.

This case is positive for insurers and claims administrators, and stands in stark contrast to the Ninth Circuit’s recent opinion in Salyers v. MetLife, 871 F.3d 934 (9th Cir. 2017) (finding employer acted as insurer’s agent in collecting premiums, thereby imputing knowledge of premium collection to insurer). The finding that LINA did not owe a fiduciary duty to the decedent with respect to enrollment, as the plan did not vest it with that duty, will help insurers defend against similar cases where premiums paid to the employer exceed the actual level of coverage.

By Ryan Pinkston and Jon Braunstein

SEYFARTH SYNOPSIS: The Ninth Circuit recently dealt another major blow to healthcare providers that attempt to bring suits as assignees of their individual patients, holding that an ERISA plan’s anti‑assignment provision bars a provider’s suit even where the plan mistakenly told the provider that no such anti‑assignment provision exists.

On April 26, 2018, the United States Court of Appeals for the Ninth Circuit confirmed, yet again, the deference it pays to anti‑assignment provisions set forth in ERISA plans. In Eden Surgical Center v. Cognizant Technology Solutions Corp., No. 16‑56422 (9th Cir.), the appellate court affirmed a district court’s grant of summary judgment in favor of the defendant plan administrator and against a healthcare provider purporting to bring claims for ERISA benefits as an assignee of the provider’s patients.

Eden Surgical is not unique in its affirmation that anti‑assignment provisions in ERISA plans preclude providers from suing the plans as assignees. Time and again, the Ninth Circuit has barred would-be assignees from pursuing their patients’ claims. See, e.g., DB Healthcare, LLC v. Blue Cross Blue Shield of Ariz., Inc., 852 F.3d 868, 876 (9th Cir. 2017); Brand Tarzana Surgical Institute v. ILWU‑PMA Welfare Plan, 706 Fed. App’x 442, 443 (9th Cir. 2017) Spinedex Physical Therapy USA Inc. v. United Healthcare of Arizona, Inc., 770 F.3d 1282 (9th Cir. 2014). Rather, Eden Surgical is noteworthy for its recognition of the resilience of anti‑assignment provisions in spite of seemingly bad facts. In that case, the Ninth Circuit barred the provider’s suit even though the plan’s representative “mistakenly told Eden that the benefit plan did not contain an anti‑assignment provision.” The Ninth Circuit placed the onus on the healthcare provider to “attempt[] to obtain the plan documents from the purported assignor [the patient] to verify whether the plan contained an anti‑assignment provision, if knowledge of that fact was critical to its decision to file suit.” The provider’s failure to “attempt to obtain the plan documents from its purported assignor until after it had already filed [the] action” rendered any reliance by the provider on the plan’s misrepresentation “unreasonable” as a matter of law.

Eden Surgical also reiterates the Ninth Circuit’s conclusion that a plan does not waive enforcement of its anti‑assignment provision by not raising the provision during the administrative claims review process. As the Ninth Circuit has held in similar cases, an ERISA plan’s anti‑assignment provision is not a reason to deny ERISA benefits during the administrative claims review process, but, instead, is a litigation defense that need not be raised until a purported assignee improperly files suit. See, e.g., Brand, 706 Fed. App’x at 443. Lest there be any doubt, the Ninth Circuit explained in Eden Surgical that ERISA plans do not have “an affirmative duty to make [a provider] aware of the anti‑assignment provision.”

As out of network healthcare providers continue to devise novel theories upon which to pursue ERISA plans for medical benefits, Eden Surgical provides welcome comfort. The Ninth Circuit has yet again confirmed its commitment to enforcing anti‑assignment provisions in ERISA plans as a bar to providers’ suits as purported assignees of their patients. This commitment holds even where, as in Eden Surgical, the plan makes the unfortunate mistake of disclaiming the existence of the anti‑assignment provision.

By Ron Kramer

Seyfarth Synopsis:  While an employer can bargain to impasse and exit a critical status multiemployer pension fund, under the Pension Protection Act it cannot bargain to impasse and implement a proposal that would have it remain in the fund, but under different terms than the rehabilitation plan schedule the parties had previously adopted.

In a case of first impression, the Fourth Circuit held that the Pension Protection Act’s (“PPA”) obligation on bargaining parties to continue to follow a multiemployer pension fund’s rehabilitation plan schedule trumps an employer’s right, upon lawful impasse, to unilaterally implement a proposal to move new hires to a 401(k) plan.  Bakery & Confectionary Union & Industry International Pension Fund v. Just Born II, Inc., Case No. 17-1369 (4th Cir., decided April 26, 2018).

Just Born, the maker of Peeps, participated in the Bakery & Confectionary Union & Industry International Pension Fund (“Pension Fund”).  The Pension Fund is in critical and declining status, and had adopted a rehabilitation plan under the PPA which included a preferred schedule adopted by the Company and its Union pursuant to which Just Born was required to contribute hourly for every bargaining unit employee.

The Company proposed during its 2015 union negotiations that it remain in the Pension Fund for existing employees, but move new hires to a 401(k) plan.  The parties bargained to impasse, and the Company implemented its pension proposal.  The Pension Fund sued.  The Pension Fund relied on a PPA provision (as amended by the Multiemployer Pension Reform Act), 29 U.S.C. § 1085(e)(3)(C)(ii) (“the “Provision”), that the bargaining parties to an expired contract remain obligated to contribute under the rehabilitation plan schedule, which under the Pension Fund’s schedule included all employees, until such time as they reached an agreement.  Indeed, the Provision expressly provides that if the parties cannot reach an agreement within 180 days after contract expiration, the Pension Fund must apply the schedule, as updated, upon which the parties had previously agreed.

The Fourth Circuit ruled for the Pension Fund.  In addition to rejecting various affirmative defenses, the Court rejected the Company’s claim that it ceased being a “bargaining party” governed by the Provision once it reached a lawful impasse because it was no longer a party to an operative collective bargaining agreement.  The Court found that a plain reading of the Provision makes clear that a contract’s expiration cannot alter the employer’s status as a bargaining party.  Indeed, the Provision only applies to parties whose contracts have expired.

The Court further rejected the Company’s Hotel California argument that such an interpretation would mean that once an employer found itself in a critical status plan it would never be able to exit.  The Company argued that Trustees of the Local 138 Pension Trust Fund v. F.W. Honerkamp Co., 692 F.3d 127 (2d Cir. 2012), which upheld an employer’s right to bargain to impasse and implement a proposal to exit a critical status fund, gave it the Company the right to implement its proposal.  The Court distinguished Honerkamp, for it did not provide that an employer could implement a proposal to remain in the fund under different rules than provided for in the rehabilitation plan.

Last but not least, the Company argued that the Pension Fund’s interpretation undermined the Company’s right under the National Labor Relations Act (“NLRA”) to implement its last, best proposal upon impasse.  The Court disagreed, noting that although the right to implement a final offer applies to the Company’s bargaining rights and obligations, the Company’s statutory obligations under the PPA are separate and independent from its rights and obligations under the NLRA.  Just Born was free to bargain to impasse and implement its proposals provided, however, the Company could not implement proposals contrary to the PPA.

Just Born sets an important limit on an employer’s right to bargain to impasse over its participation in a critical or endangered status fund.  An employer is free under the PPA to bargain out and pay the resulting withdrawal liability, even if it has to reach lawful impasse and unilaterally implement.  What it cannot do, according to Just Born, is to remain in the fund but negotiate to impasse and implement conditions on participation different from the rehabilitation or funding improvement plan schedule to which it is a party.  Just Born does not address whether an employer can negotiate to impasse and implement a different schedule provided for in a rehabilitation plan — although it is doubtful since there would still be no agreement as required by the Provision.  Nor does it provide that the bargaining parties can just agree to terms different from a rehabilitation plan schedule.  While a fund may agree to different schedules, it is under no obligation to do so.  Employers beware.

By James Hlawek and Ian Morrison

Seyfarth Synopsis:   An employer, which had paid medical expenses on behalf of an employee’s dependent son, made comments about the company’s rising healthcare costs several months before firing the employee. The Sixth Circuit found this was enough to warrant a trial on the employee’s ERISA interference and retaliation claims.

In Stein v. Atlas Industries, Inc., No. 17-3737, the Sixth Circuit reversed the Northern District of Ohio, which had dismissed the plaintiff’s ERISA interference and retaliation claims. Plaintiff’s son, who suffers from a permanent and debilitating neurological condition, was hospitalized for four months in 2013. As an employee of Atlas Industries, Inc., plaintiff participated in a group medical plan that covered his son’s medical expenses. Atlas’s plan was partially self-insured, and the company paid approximately $250,000 for the son’s care.

Seven months later, plaintiff did not call Atlas or report to work for three consecutive days after he had been released to work following a medical leave. Atlas’s handbook provided that any employee absent for three consecutive days without permission would be automatically fired. After plaintiff’s third no-call/no-show day, his supervisor fired him.

Plaintiff sued, alleging that the company had fired him because of his son’s medical expenses, and thus that the company was liable for both retaliation and interference under ERISA. In support, plaintiff pointed to evidence that (1) Atlas had expressed concerns about “skyrocket[ing]” medical costs in employee notices; (2) an Atlas Vice President had told him in 2013 that he hoped his son would be released soon because the medical costs were getting expensive for the company; and (3) an Atlas human resources director showed another employee the son’s medical expenses and said that large payments were causing the company’s health insurance costs to rise.

While the district court entered summary judgment for Atlas, the Sixth Circuit reversed, finding that there was enough evidence of interference or retaliation to deny summary judgment. Specifically, while the supervisor who fired plaintiff did not know about the son’s medical expenses, the Sixth Circuit found significant that the Vice President and director who commented about medical expenses played a role in the decision. Also, plaintiff contended that Atlas had tried to contact other employees before firing them under the no-call/no-show policy, but did not do the same for him.

The decision is serves as a warning to employers about dealing with employees who incur high medical expenses by themselves or their dependents. Comments about those expenses could considered evidence of interference or retaliation if the employee is later disciplined.   Even general comments about rising healthcare costs and how they burden the company could be used against the employer. The decision also reinforces the importance of consistently applying employment policies. Finally, for employers in the Sixth Circuit, this decision is a reminder that that the threshold for a trial on an ERISA interference or retaliation claim can be quite low.

By, Jim Goodfellow and Sam Schwartz-Fenwick

Seyfarth Synopsis: In a win for ERISA plan and claims administrators, the Third Circuit has affirmed the broad enforcement of a long-term disability plan’s mental or nervous limitation period.

In Krash v. Reliance Standard Life Insurance Group, No. 17-1814, the Third Circuit affirmed the judgment of the Middle District of Pennsylvania, which had concluded that the plaintiff’s disability was limited to the plan’s 24 month period for mental/nervous conditions.

The plan at issue limited benefits “caused by or contributed to by mental or nervous disorders” to 24 months. The plaintiff stopped working in May 2010 due to physical complaints (back pain and tremors). Reliance Standard, the plan’s insurer and claims administrator, paid benefits for four years, and then requested that the plaintiff submit to an in-person independent medical examination. The examining physician concluded that the plaintiff’s tremors were psychological, not physical, in nature. The plaintiff’s medical records also showed that she suffered from depression and anxiety. Accordingly, Reliance Standard terminated the claim, asserting that it was subject to the 24 month limitation for mental/nervous disorders.

The Middle District of Pennsylvania sided with Reliance Standard, and the Third Circuit affirmed. The Third Circuit stated that the plan’s language made clear that to remain eligible for benefits beyond 24 months, it was the plaintiff’s burden to “prove she was totally disabled from any occupation solely due to a physical condition.” The Third Circuit further explained that the terms of the mental nervous limitation in the plan (“’caused or contributed to by’ in a mental disorders limitations clause”) means “that benefits may be terminated when physical disability alone is insufficient to render a claimant totally disabled.” Accordingly, because the record reflected that the plaintiff was capable of performing sedentary work even with her physical condition, the Court found that Reliance Standard did not abuse its discretion in concluding that the mental/nervous limitation applied.

While this is a good win for ERISA plans in the Third Circuit (New Jersey, Delaware, and Pennsylvania), plan and claims administrators should continue to tread carefully, as courts in other circuits take a more plaintiff-friendly view of this type of limitation. Also, this decision turned on the language in the at-issue plan. It is important to review plan documents with counsel to see if their mental and nervous limitations are similarly broad.