Articles Posted in ERISA

Lawyers who handle Employee Retirement Income Security Act (ERISA) claims will tell that insurance claims made on an individual policy and claims made on an ERISA plan are remarkably different.  ERISA requires that the insurer or third-party claims administrator engage in a dialogue with the claimant about the claim and the reasons for denial, allowing the claimant an opportunity to rebut the reasons for denial and compelling a fiduciary review of a denied claim.  The downside of that review is that if the claimant asks for judicial review of a denied appeal, the federal court will probably have to defer to the claim fiduciary’s decision and the evidence will be limited to the contents of the claim file.

There is no monetary remedy within ERISA for a violation of claims procedures nor does ERISA allow for consequential damages.  The remedies for claims violations are potentially (1) a remand to the claims fiduciary for another try, or (2) forfeiture of deference, i.e. a change in the standard of review from abuse of discretion to a preponderance of the evidence.  The 5th Circuit had never awarded an ERISA claimant a change in the standard of review as a result of claims handling violations.

The collective policy of Texas and other states is that deference is harmful because it impairs the rights of insured.  The 5th Circuit takes a different view, believing that ERISA deference provides a lubricant to a federal court system.  According to the 5th Circuit and many other federal courts, any harm to individual claimants is outweighed by the harm requiring de novo review of each ERISA benefit claim would bring to the court system.  The 5th Circuit is also at odds with the Department of Labor (DOL), as the DOL considers deference to be forfeited if the claims procedures are not followed.

Discretionary Clauses in Employee Retirement Income Security Act (ERISA) policies — In protecting deference in the face of substantial claims procedure violations, the United States 5th Circuit’s position not only conflict with other United States Circuits but with the Texas Department of Insurance and other state insurance commissioners regarding what is fair to an insured.  In the balance between an individual insured’s rights and the efficiency of the federal court system, the 5th Circuit has found the latter to be more important, perceiving de novo review to be a threat to the court’s efficiency.  The Texas Department of Insurance and Texas legislators perceive deference to be a greater threat.

In 2010, the Texas Commissioner of Insurance wrote as follows regarding discretionary clauses in policies that are meant to bind a court to deferential standard of review:

The United States 5th Circuit Court of Appeals has never found sufficient claims procedure abuse to warrant a change in the standard of review from abuse of discretion to a preponderance of the evidence in an Employee Retirement Income Security Act (ERISA) case.  In that regard, the court has noted that “this circuit has rejected arguments to alter the standard of review based upon procedural irregularities in ERISA benefit determinations, such as delays in making the determination ….  Absent potential wholesale or fragrant violations that evidence an utter disregard of the underlying purpose of the plan, this court does not heighten the standard of review from abuse of discretion to de novo.

Oddly, the 5th Circuit has protected deference to the factual determinations of the claims fiduciary even when the claims fiduciary did not make any factual determinations.  This resulted from the 5th Circuit’s overriding concern that allowing de novo review of ERISA benefit claims will clot the veins of the federal court system.  Regarding this, this court has held as follows:

Lawyers handling Employee Retirement Income Act (ERISA) cases will tell you that the answer to the above question is … nothing happens.

Generally, the United States Supreme Court has not allowed any remedy that is not clearly expressed within ERISA’s provision 29 U.S.C. Section 1132.  Section 1132 allows for injunctive relief and the monetary remedies limited to (1) up to $100 per day for a plan administrator’s failure to provide certain documents to a plan participant within 30 days of a proper written request, and (2) benefits that should have been paid under the plan pursuant to Section 1132(a)(1)(B).

A narrow opportunity for an additional monetary remedy is created by allowance of “other appropriate equitable relief” under Section 1132(a)(3).  The Supreme Court’s decision in CIGNA Corp. v. Amana opened the door to a potential monetary remedy under paragraph (a)(3), reviving the term “surcharge” relief from decisions by the equity courts during the days of the divided bench.  Surcharge relief is available for certain consequential damages that might result from violations of ERISA.  In SIGNA, the claimants alleged violations of ERISA due to improper notice of modifications to the Cigna pension plan that resulted in financial harm to some pensioners.  The court allowed that monetary relief might be available to some plan participants as a “surcharge” remedy.

The Employee Retirement Income Security Act (ERISA) is governed by federal statutes.

The claims procedures originate from 29 U.S.C., Section 1133 and 1135.  Section 1133(1) requires that a carrier or claims administrator provide adequate notice of the reasons for denial that can be readily understood by the claimant.  Section  1133(2) requires ERISA plans to afford claimants a full and fair review, usually called an appeal, of a denied claim by a claim fiduciary.  The full and fair review is usually conducted by the same entity that issued the denial, typically an insurance carrier or third-party administrator, but must be conducted by someone other than the adjuster who denied the claim.

Section 1135 grants the power to the Secretary of the U.S. Department of Labor (DOL) to establish claims regulations that comply with ERISA.

Employee Retirement Income Security Act (ERISA) issues can be more onerous than most people can imagine.

Most people who get their insurance from work do not think about it except the the extent of how much it costs, the extent of coverage, and which providers are in the network.  Rarely will anybody consider the differences in litigating a denied claim between one type of coverage and another type of coverage.  When a plan is not an ERISA plan, the insured stills retains their rights under the Texas Insurance Code.  And the insurer suffers penalties if a trier of fact determines the insurer took advantage of the insured or was slow about paying the insured’s claims.

The Texas Insurance Code levels the playing field between the insurer and the insured.  As the Texas Supreme Court has stated:

The Employee Retirement Income Security Act, otherwise known as ERISA provides for insurance benefits that are vital to claimants and their families.  An ERISA claim denial means that the claimant did not receive the medical treatment, disability income, life insurance or retirement benefits that the claimant expected under the plan.  A medical benefit denial can mean the difference between life and death as was seen in the case styled, Conway v. Louisiana Health Service & Indemnity Co. d/b/a Blue Cross Blue Shield.

The Federal Courts give deference to the decisions of the plan administrators in insurance plans governed by ERISA.  The Fifth Circuit Court of Appeals recently described the power of ERISA judicial deference this way:

ERISA cases are complicated, as any attorney handling ERISA cases can tell you.  This is exemplified in an April 2018, opinion from the U.S. District Court, Western Division, Austin Texas.  The opinion is styled, Kimberley Phillips v. Charter Communications, Inc. Welfare Benefit Plan.

Charter filed a motion to transfer the case to the District Court for the Eastern District of Missouri.  This court granted the motion.

This ERISA plan contains a forum-selection clause (FSC) that states, “any legal action to appeal a denial of claims for benefits shall be brought in a federal court sitting within the Eastern District of Missouri.  Charter argues that the FSC is valid and controlling, warranting transfer.  Phillips, meanwhile, argues that the controlling document to this dispute is the Summary Plan Description (SPD) for the Charter  Short-Term Disability Program ( STD Program), which is a component program of the Plan.  The SPD contains a clause that states, “at the completion of that review process, you have the right to file suit in federal or state court.”  Phillips argues that the SPD’s clause supersedes the Plan’s FSC and confers broad forum-selection authority upon Phillips.  In the alternative, Phillips argues that even if the Plan’s FSC is valid, the Court should refuse to apply it because doing so would be unfair.

A 2017, Southern District, Houston Division opinion needs to be read by ERISA lawyers.  The opinion is styled, Samuel Heron, III v. ExxonMobil Disability Plan.

This ERISA case challenges a plan administrator’s denial of benefits.  Heron alleges that the decision to end his long-term disability benefits after an initial two year period violated 29 U.S.C. Section 1132(a)(1)(B).  Exxon filed a motion for summary judgment which was granted by the Court.

Heron is a 60 year old man who suffers from a variety of illnesses.  He worked in the procurement department at Exxon where he negotiated and managed worldwide material and services agreements.  The Plan covering him divided benefits into two periods, the first is the period that begins on the last day the person was actively at work, and ends two years later.  In this first period, an individual is incapacitated “if the person is wholly and continuously unable, by reason of physical or mental health impairment, to perform any work suitable to the person’s capabilities, training and experience, that the person’s employer has available during the initial period, and such inability to perform work is expected to continue for … at least six months form the date the person’s ability to perform work is determined.”  After the initial two year period, an individual is incapacitated “if the person is wholly and continuously unable, by reason of a physical or mental health impairment, to perform any work for compensation or profit for which the person is or may become reasonably fitted by education, training or experience, and such inability to perform work is expected to continue for  … at least six months from the date the person’s ability to perform work is determined.”  In the initial period, the definition of incapacitated looks only to the ability to perform any work that the person can do or reasonably could do with training.