Covering ERISA and Life, Health and Disability Insurance Litigation
2 "ERISA-fication" of Individual Policies: Why It Benefits Insurers and How It Is Done
4 State Law Claims for Misrepresentation, Constructive Fraud, and Emotional Distress Preempted by ERISA
5 Reliance on Dictionary of Occupational Titles Is Not an Abuse of Discretion
5 Denial of LTD Benefits Upheld When Physician Fails to Certify Permanent Inability to Work
6 "Unwillingness to Give Fair Consideration" to Claimant's Evidence Was Abuse of Discretion
7 Termination of LTD Benefits Reversed, Because Decision-Making Not Reasoned and Principled
8 Georgia Bad Faith Statute Is Substantive for Choice-of-Law Purposes Under Erie
9 Loss of Sight in One Eye Results in Residual Disability, Not Total Disability
10 Insurer's Creation of Retained Asset Account for Life Insurance Benefits Violated ERISA Fiduciary Duties
"ERISA-fication" of Individual Policies: Why It Benefits Insurers and How It Is Done
"ERISA-fication" is a made-up term describing the application of ERISA to what, on its face, would appear to be a typical individual insurance policy.
When an individual disability income insurance policy-- an IDI policy--is shown to be part of an employee welfare benefit plan, as that term is defined by ERISA, and does not fall within the scope of the Department of Labor's "safe harbor" exemption, 29 C.F.R. 2510.31(j), the substantive and procedural benefits to the insurer can be significant.
For example, if the insured files suit in state court and asserts state law claims to recover benefits under a policy governed by ERISA, the insurer can remove to federal court under 28 U.S.C. 1441 as an action arising under federal law, even when the ERISA-related nature of the action does not appear on the face of the complaint. Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58 (1987); see also Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41 (1987).
The insured's statutory "bad faith" claim will be preempted. If the policy includes language of discretion, discovery likely will be limited and the standard of judicial review will be deferential. And the case will be decided by the judge, not a jury.
When an IDI Policy Is Governed by ERISA To establish that ERISA applies, the insurer must show
that the IDI policy (1) is part of a plan, fund or program, (2) established or maintained (3) by an employer, (4) to provide disability benefits (5) to participants or their beneficiaries. 29 U.S.C. 1002(1); Donovan v. Dillingham, 688 F.2d 1367, 1371 (11th Cir. 1982). In most instances, "[p]rerequisites (3), (4) and (5) are either self-explanatory or defined by statute."
Donovan, 688 F.2d at 1371. With respect to the first requirement, "a `plan, fund, or
program' under ERISA is established if from the surrounding circumstances a reasonable person can ascertain the intended benefits, a class of beneficiaries, the source of financing, and procedures for receiving benefits." Donovan, 688 F.2d at 1372.
In the context of a group disability policy, these requirements are easily satisfied. The policy identifies the intended benefits (disability benefits), the intended beneficiaries (employees eligible for coverage under the group policy), the source of financing (premiums typically paid by the employer, but sometimes withheld from the employees' pay), and the procedure to apply for and collect benefits (as outlined in the group policy). See Butero v. Royal Maccabees Life Ins. Co., 174 F.3d 1207, 1214 (11th Cir. 1999); Stefansson v. Equitable Life Assur. Soc'y of U.S., 2005 WL 2277486, at *6-8 (M.D. Ga. Sept. 19, 2005).
The mere fact that the benefits in dispute are provided under an IDI policy does not necessarily dictate a different result. "Employee welfare benefit plans can be funded through the purchase of group or individual policies." Merrick v. Northwestern Mut. Life Ins. Co., 2001 WL 34152095, at *6 (N.D. Iowa July 5, 2001); Mass. Cas. Ins. Co. v. Reynolds, 113 F.3d 1450, 1453 (6th Cir. 1997); Clark v. Unum Life Ins. Co. of Am., 95 F. Supp. 3d 1335, 1350 (M.D. Fla. 2015); Alexander v. Provident Life & Accident Ins. Co., 663 F. Supp. 2d 627, 634 (E.D. Tenn. 2009). In fact, an individual policy may be subject to ERISA "even when the premiums are paid entirely by the employee." Shipley v. Provident Life & Accident Ins. Co., 352 F.
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Supp. 2d 1213, 1216 (S.D. Ala. 2004). As it relates to the second requirement, whether a plan has
been "established" or "maintained" by an employer "necessarily focuses on the employer and its involvement with the administration of the plan." Anderson v. Unum Provident Corp., 369 F.3d 1257, 1263-64 (11th Cir. 2004). "If the employer has a role in obtaining and providing the benefit, plan status will likely be found." Moorman v. UnumProvident Corp., 2005 WL 6074572, at *15 (N.D. Ga. Feb. 17, 2005); see, e.g., Butero v. Royal Maccabees Life Ins. Co., 174 F.3d 1207, 1214 (11th Cir. 1999) (finding implementation of plan where employer "consulted an insurance agent, selected the terms of the group policy it wished to purchase for its employees, completed an application form for the policy, solicited enrollments from its employees, collected money through payroll deductions, and remitted premium checks to" the insurer).
"[T]he purchase of ... multiple policies covering a class of employees offers substantial evidence that a plan, fund, or program has been established." Donovan, 688 F.2d at 1373.
IDI Policies That Supplement Group LTD Coverage In two recent cases, insurers successfully opposed
plaintiffs' motions to remand disability actions that arose under IDI policies, by offering evidence establishing the applicability of ERISA. In both instances, the IDI policies were issued to certain employees to supplement their coverage under a group long-term disability policy issued to their employer.
In Denson v. Provident Life and Accident Insurance Company, 1:16-CV-01635-ELR (N.D. Ga. Mar. 8, 2017), for example, Microvision obtained a group disability insurance policy from Unum Life as part of an employee welfare benefit plan established or maintained under ERISA. Several years later, Microvision retained a broker to solicit proposals for supplemental disability insurance to be offered to, and paid for by, certain categories of its employees.
Provident offered to provide the supplemental coverage, and Microvision and Provident entered into a Supplemental Income Protection Plan agreement. Microvision negotiated certain policy terms and exceptions to the eligibility requirements. Microvision agreed to provide its employees with a letter of endorsement and to have "mandatory" enrollment meetings.
Provident and Microvision also entered into an Employer Sponsored Multilife Agreement, by which Microvision agreed to withhold from its employees' pay 100% of the premiums due for the IDI policies. Provident submitted a monthly premium invoice, or "list bill," to Microvision, which, in turn, remitted the premiums to Provident by means of a single check. Provident assigned all the individual policies to a separate "risk group," resulting in a 25% monthly premium discount.
Denson and more than 40 other employees applied for and were issued IDI policies under the Supplemental Income Protection Plan. Denson signed a payroll deduction authorization, which stated the plan was sponsored by Microvision. Based on this evidence, the court concluded that Microvision had established a "plan, fund, or program," as contemplated by ERISA.
Similarly, in Bender v. Unum Group, 2016 WL 5420156 (N.D. Cal. Sept. 28, 2016), coverage under the IDI policies was intended to "coordinate" with coverage under a group disability policy. The employer negotiated certain terms of the IDI policies and participated in their selection. The individual disability policies were offered to certain categories of employees.
All eligible employees were provided personalized enrollment packets, which stated the coverage was "made available" by the employer and that the employer "selected" certain "features to add to your [IDI policy]." Because the IDI policies were obtained through the employer, they were sold at a 25% premium discount and were assigned the same "risk number."
The district court denied the motion to remand, finding the plaintiff's IDI policy "was part of the larger Supplemental Disability Plan that was established by [the employer]" and, therefore, was "part of a program that provides disability benefits." Id. at *5.
Overcoming the Safe Harbor Argument In both cases, the insureds argued that their IDI policies
were exempt from ERISA under the "safe harbor" provision. See 29 C.F.R. 2510.31(j). To qualify for that exemption, four criteria must be satisfied. Id. Thus, the insurer must be prepared to negate at least one requirement.
To negate the first requirement, the insurer must show that "contributions [were] made by an employer." Numerous courts have concluded that if an employee receives a discounted premium on an IDI policy by virtue of his employment, that constitutes a contribution by the employer. Alexander v. Provident Life & Accident Ins. Co., 663 F. Supp. 2d 627, 63-35 (E.D. Tenn. 2009) (employer established and maintained plan by entering into Salary Allotment Agreement with insurer, establishing a "risk number" for group billing, and paying a portion of the premiums each pay cycle); Halprin v. Equitable Life Assurance Soc'y of the U.S., 267 F. Supp. 2d 1030, 1037 (D. Colo. 2003). Other courts require the employer to make a financial contribution. See, e.g., Letner v. Unum Life Ins. Co., 203 F. Supp. 2d 1291, 1301 (N.D. Fla. 2001).
To negate the second requirement, the insurer must show that "[p]articipation [in] the program is [not] completely voluntary for employees." This may be done with evidence that the employer guaranteed the insurer a minimum participation rate and met that level of participation. Chamblin v. Reliance Standard Life Ins. Co., 168 F. Supp. 2d
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1168, 1171 (N.D. Cal. 2001). The third requirement prohibits the employer from
endorsing the program and "explicitly obliges the employer who seeks its safe harbor to refrain from any functions other than permitting the insurer to publicize the program and collecting premiums." Butero, 174 F.3d at 1213; see also Dept. of Labor Op. No. 94-23A at 7-8 (July 1, 1994) (construing third provision of "safe harbor" provision).
In Bender, the court concluded the safe harbor regulation did not apply, finding the employer did not "remain neutral," but endorsed the plan, including the IDI policies. In Denson, the court concluded the third element of the safe harbor exemption had not been met "[f]or the same reasons that the Court found that Microvision established the plan."
Conclusion The ERISA-fication of an IDI policy will result in substantive
and procedural benefits to the insurer. Therefore, an insurer
must consider whether a state law claim for benefits under an IDI policy can be governed by ERISA. The most critical factor both in establishing the existence of a "plan, fund, or program" under ERISA and in negating the applicability of the safe harbor exclusion is the employer's involvement in procuring and in maintaining the IDI policy.
Evidence of the employer's involvement may be derived from the IDI policy itself, the insurer's application and underwriting files pertaining to the insured, the premium payment history, and the records of the agent who sold the IDI policy.
The insurer also should determine whether it provided group coverage to the employer or additional IDI policies to other employees, because all of that evidence, taken together, may establish the employer's intent to establish or maintain a plan to provide benefits to its employees as part of the employment relationship and, thus, the applicability of ERISA to a particular IDI policy.
State Law Claims for Misrepresentation, Constructive Fraud, and Emotional Distress Preempted by ERISA
Prince v. Sears Holding Corp. | 848 F.3d 173 (4th Cir. 2017)
Prince applied for life insurance for his wife through his employer, Sears. After Prince's wife developed cancer, Sears informed Prince that his wife's coverage was not in effect because an "evidence of insurability questionnaire" had not been submitted.
Sears claimed it advised Prince that unless he submitted the questionnaire, his application for life insurance coverage would be terminated. Prince claimed he was not notified of this request to submit the questionnaire. Prince's application for life insurance coverage was terminated.
When Prince's wife died, Prince did not receive the death benefit he expected, based on his application for life insurance. Prince sued Sears in state court for misrepresentation, constructive fraud, and intentional infliction of emotional distress. Sears removed the suit to the Northern District of West Virginia, arguing ERISA preempted Prince's claims. The district
court agreed and denied Prince's motion to remand. On appeal, the Fourth Circuit affirmed.
The Fourth Circuit held Prince's state law claims satisfied the three-prong test for preemption under ERISA 502(a)-- that "(1) the plaintiff must have standing under 502(a) to pursue its claim; (2) its claim must `fall[ ] within the scope of an ERISA provision that [it] can enforce via 502(a)'; and (3) the claim must not be capable of resolution `without an interpretation of the contract governed by federal law,' i.e., an ERISA-governed employee benefit plan." (quoting Sonoco Products Co. v. Physicians Health Plan, Inc., 338 F.3d 366 [4th Cir. 2003]). Prince agreed he had standing to bring a claim under ERISA 502(a). Accordingly, the Fourth Circuit examined only the second and third prongs.
Prince argued that his state law claims were not preempted because they concerned Sears' conduct prior to the denial of life insurance benefits. The
Fourth Circuit rejected this argument. The court held that "[r]egardless of whether his claims attack Sears' actions prior to the denial or in issuing the denial, these claims are enforceable under 502(a)." The court noted that Prince's claims arose out of Sears' duties "while administrating his benefits," which "clearly fall within the scope of ERISA." Thus, the court held the second prong was satisfied.
As to the third prong, the court held that because the "only duty Sears had to Prince regarding his benefits (both prior to and after the denial of benefits) stemmed from the ERISA plan," Prince's state law claims could not be adjudicated without interpreting the ERISA-governed employee benefit plan. Thus, the court held the third prong was satisfied.
Because all three prongs were met, the Fourth Circuit affirmed the district court's order denying Prince's motion to remand and dismissed his complaint.
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Reliance on Dictionary of Occupational Titles Is Not
an Abuse of Discretion
Till v. Lincoln Nat'l Life Ins. Co., 2017 WL 393257 (11th Cir. Jan. 30, 2017)
Till, a radiology technologist, submitted a claim for disability benefits under his employer's ERISA plan due to back problems. The plan's insurer, Lincoln, denied the claim. Till filed suit. The district court and the Eleventh Circuit upheld Lincoln's decision.
Till argued that Lincoln abused its discretion in relying on the Dictionary of Occupational Titles ("DOT") to determine how Till's job was performed in the national workforce. The Eleventh Circuit rejected this argument, noting that it and "several other circuits" have upheld reliance on the DOT. "Given that Lincoln was contractually required to consider the manner in which this job is performed in the national workforce, its decision to credit the DOT over Till's personal experience was not only reasonable, it was undeniably correct," the court added.
Noting that the DOT was "much maligned," the court wrote that "despite [the DOT's] flaws, we see no reason why Lincoln should have been required to give more credit to the resources Till cites on appeal than to the DOT." The court would "not disturb an administrator's decision to credit one piece of evidence over another without evidence that they abused the discretion that had been committed to them."
The court also rejected Till's arguments that Lincoln's structural conflict of interest as both payor and decision-maker rendered the decision arbitrary and capricious. "Lincoln's conflicts of interest are typical of the insurance industry," the court reasoned, "and we have previously rejected attempts to prove that a benefits `decision was tainted by self-interest' based on these standard industry practices." The court added that "Lincoln's conflicts are simply not of such a severity that they will turn an otherwise reasonable decision into an arbitrary and capricious one."
"As both this Court and the Supreme Court have noted," the court wrote, "`the presence of a structural conflict of interest [is] an unremarkable fact in today's marketplace [and] constitutes no license, in itself, for a court to enforce its own preferred de novo ruling about a benefits decision,'" citing Metropolitan Life Ins. Co. v. Glenn, 554 U.S. 104, 120 (2008).
Denial of LTD Benefits Upheld When Physician Fails to Certify Permanent Inability to Work
Pitts v. SCANA Corp. Health and Welfare Plan | 2016 WL 5956282 (D.S.C. Oct. 14, 2016)
SCANA, through its third-party administrator, Reed Group Ltd., denied long-term disability ("LTD") benefits to its employee, Pitts. To receive LTD benefits under the plan, Pitts was required to show she was under the care of a physician who certified she was permanently disabled by a medical condition.
The district court held Pitts did not establish she was permanently disabled by a medical condition as defined by the plan and, therefore, upheld the denial of her claim for LTD benefits.
Beginning in July 2012, Pitts claimed and received short-term disability benefits for lower back and elbow pain. In December 2012, Reed Group asked Pitts' primary physician, Dr. Pinner, whether Pitts might qualify for LTD benefits. Dr. Pinner informed Reed Group he would determine LTD once he received certain functional assessment test results.
After Dr. Pinner received and reviewed the test results, he indicated that Pitts' prognosis was "excellent." In January 2013, however, Dr. Pinner reported to Reed Group that he believed Pitts was "permanently disabled," but he also reported that Pitts may return to work with no limitations effective February 19, 2013.
Reed Group attempted to have Dr. Pinner clarify his opinion, but those efforts were "ineffective."
The LTD Committee denied Pitts' claim for LTD benefits, explaining that while the record showed Pitts was currently unable to work, it did not show she was
permanently unable to work. The LTD Committee also explained that while Dr. Pinner indicated a permanent disability, he also advised that he expected Pitts would be able to work. The LTD Committee's decision was upheld by the Appeals Committee.
The district court reviewed the decision to deny Pitts' claim. To receive LTD benefits, the plan required Pitts' physician to certify that she was disabled by a medical condition. The term "disabled" was defined by the plan as a condition that "permanently prevents [the employee] from performing one or more of the material and substantial duties." The term "permanently" was not defined by the plan.
The court noted that an undefined term will be accorded its plain and ordinary meaning or, if ambiguous, the meaning provided by the administrator, if reasonable. The court understood the LTD Committee and the Appeals Committee interpreted the term "permanently" to mean the employee is permanently prevented from performing her duties. Thus, if a physician opines that an employee can return to work, then the employee is not permanently prevented from performing her duties.
The court found this interpretation accorded with the plain and ordinary meaning of "permanently" and, even if ambiguous, the interpretation chosen by the LTD Committee was reasonable. Therefore, the court upheld the denial of Pitts' claim.
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"Unwillingness to Give Fair Consideration" to Claimant's Evidence Was Abuse of Discretion
Montero v. Bank of America LTD Plan | 2016 WL 7444957 (W.D.N.C. Dec. 27, 2016)
Montero participated in an ERISAgoverned plan administered by Aetna for employees of Bank of America. Montero claimed that severe pain in her neck and back caused by fibromyalgia and chronic fatigue syndrome prevented her from performing her work functions. Following initial acceptance of Montero's long-term disability claim, benefits were denied when the "any occupation" standard became effective.
Montero's treating physician concluded she was disabled as a result of her condition. Aetna obtained two independent peer review opinions, both of which concluded there was insufficient evidence to support the conclusion that Montero was unable to perform the duties of her occupation. Moreover, Aetna had a transferrable skills analysis performed, which identified multiple positions Montero could fill with her
background and skill level. Montero appealed the denial
and submitted statements from her husband, her attorney, and an additional physician supporting her disability claim. In response, Aetna obtained two additional peer reviews, both of which again concluded the evidence did not support a finding of functional impairment. Aetna upheld its denial.
Acknowledging that discretionary authority was properly delegated to Aetna and, thus, the "abuse of discretion" standard applied, the court nonetheless found that Aetna's actions were not the "product of a principled, reasoned decision-making process supported by substantial evidence." The court stated that Aetna "did not adequately consider or rebut the evidence" Montero provided regarding her disability.
Citing DuPerry v. Life Ins. Co. of N. Am., 632 F. 3d 860, 873 (4th Cir.
2011), the court stated that when Montero submitted sworn statements from her husband regarding the extent of her pain and disability, and years of medical records documenting her complaints of pain, the burden of proof shifted to Aetna to present substantial evidence in rebuttal. According to the court, rather than providing evidence in rebuttal, Aetna based its decision on its peer reviewers and the lack of objective findings supporting an inability to function. Aetna also relied on Capabilities and Limitations worksheets, completed by Montero's treating physician, indicating that she "could stand, walk, and lift up to ten pounds occasionally."
Aetna's recitation of the findings and conclusions in Montero's submission of additional evidence did not qualify as addressing that evidence "thoughtfully and at length," the court said. Rather, Aetna's focus
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on "functional impairment," a term not found in the plan, failed to reconcile how Montero's ability to perform certain tasks occasionally and for short periods of time could be instructive on Montero's ability to "endure the rigors of a full workday or workweek."
The court found significant Aetna's failure to obtain an independent medical exam or surveillance to support its apparent belief that Montero's subjective evidence was fabricated or exaggerated. Citing to Seventh and Forth Circuit opinions, the court said such evidence was required because Aetna was both operating under a conflict of interest and had rejected the treating physician's opinion.
With respect to Aetna's conflict of interest, the court found it to be more than a structural conflict because Aetna also encouraged Montero to apply for Social Security benefits, offering to pay a third party to represent her. Thus, on the one hand, Aetna denied Montero's claim for disability benefits, and at the same time requested that counsel Aetna obtained for Montero argue that Montero "exhibited classic fibromyalgia tender points" and that her complaints of "chronic pain are consistent with the medical records and should be found credible."
Due to its "manifest unwillingness to give fair consideration to evidence that supports" Montero, the court determined that remand was not appropriate. It ordered that Aetna reinstate Montero's benefits and pay pre-judgment interest, attorney's fees, and costs.
Termination of LTD Benefits Reversed, Because Decision-Making Not Reasoned and Principled
Wilkinson v. Sun Life and Health Ins. Co. | 2017 WL 56721 (4th Cir. Jan. 5, 2017)
As an employee of Dolan & Traynor, Inc. ("D&T"), Wilkinson was a participant in D&T's employee benefit plan. He sued Sun Life, the claims administrator, after Sun Life terminated his long-term disability benefits.
Wilkinson claimed to be disabled following a diagnosis of cardiomyopathy. Just months before the diagnosis, Wilkinson's wife died, leading to a period during which Wilkinson struggled emotionally and physically to perform his job. At the time, Wilkinson was a D&T vice president, routinely working approximately 60-hours per week and earning an annual salary of $434,300.
Given his decreased performance, D&T stockholders became concerned about Wilkinson's ability to continue in the vice president role. Several meetings were held between Wilkinson and the stockholders, during which Wilkinson acknowledged his decreasing productivity and expressed his desire to work 30-40 hours per week. The stockholders did not agree to this limitation. In a later meeting on April 21, 2004, Wilkinson and the stockholders agreed it would be beneficial for Wilkinson to take a leave of absence.
The parties signed a document titled "Response to Employee Request for Family or Medical Leave and Employee Acknowledgements of Obligations." The document noted that the parties became aware of the need for Wilkinson to take medical leave in April 2004, and that Wilkinson needed the leave beginning on or about May 10, 2004. Consistent with the agreement, Wilkinson was paid by D&T until May 7, 2004, and D&T's records reflected that Wilkinson's last day of work was May 7, 2004.
Wilkinson's health did not improve, and on August 18, 2004, he applied to Sun Life for LTD benefits. The Sun Life policy became effective on May 1, 2004 (replacing prior continuous coverage). In the LTD application, Wilkinson said he became disabled on May 7, 2004, and that he worked five days per week, eight hours per day, at the time of his disability. His disability application was supported by his treating physician, who also reported the date of disability as May 7, 2004. Likewise, in the employer portion of the form, D&T indicated that Wilkinson's last full day worked was May 7, 2004.
Sun Life approved the LTD claim
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and paid LTD benefits to Wilkinson without interruption for four years.
In 2007, Wilkinson sued D&T and its stockholders for fraudulent inducement. In his verified pleadings Wilkinson stated, "At the April 21st meeting, Timothy Dolan asked that I take a leave now ... I agreed to take the leave of absence with Tim Traynor's agreement that, in a few weeks, they would have a written agreement prepared for me and that my health insurance would continue... Based on their promises to work out an agreement within a few weeks, I began a medical leave for an undetermined period of time, beginning on May 7, 2004."
The statement "take a leave now" in the verified complaint led Sun Life to assert that Wilkinson ceased work before May 1, the date the Sun Life policy came into effect.
In July 2008, Sun Life sent a letter to Wilkinson, terminating his LTD benefits, based on insufficient medical evidence to support disability and his verified complaint, which showed he resigned from D&T because of disagreements with the stockholders over financial matters and not because of medical reasons. Wilkinson appealed. Focusing on assertions in the civil lawsuit regarding Wilkinson's decreased performance, Sun Life affirmed its decision on the theory that Wilkinson was not an "Active Fulltime Employee" when he became disabled. No determination was made as to Wilkinson's disability.
Wilkinson appealed again, stating he had no incentive to misrepresent his date of disability or work level, since he had coverage under the prior policy. Based on an independent medical examination ordered by Sun Life, which contradicted its 2008 termination, Sun Life concluded that Wilkinson did
suffer a disability under the policy. However, it determined that because Wilkinson accepted the terms of his leave of absence on April 21, 2004, he was not an "Active, Full-Time Employee" when the Sun Life policy went into effect.
Applying the "abuse of discretion" standard of review, the court held that Sun Life abused its discretion in terminating the LTD benefits because the decision was not supported by substantial evidence and the decision-making process was not reasoned and principled.
According to the court, Sun Life relied principally on part of a statement in Wilkinson's civil lawsuit, but ignored the following sentence, which said, "Based on [the partners] promises to work out an agreement within a few weeks, I began a medical leave for an undetermined period of time, beginning on May 7, 2004." The court concluded that Sun Life ignored numerous documents and statements by Wilkinson, his physician, and D&T indicating he was a full-time employee, working a fulltime schedule (defined as 30-hours per week) on May 7, 2004. The court found that Sun Life's evidence was mere speculation.
The Court said Sun Life's reliance on different reasons at each level of review evidenced a lack of a reasoned and principled decisionmaking process, stating, "Sun Life's persistence in denying Wilkinson benefits on the basis of three different theories suggests Sun Life's decision was driven by a desired outcome." Moreover, the court said, despite terminating Wilkinson's benefits based on his decreased work schedule, Sun Life did not seek information from the D&T stockholders to clarify any concerns regarding Wilkinson's work schedule or circumstances of departure.
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Georgia Bad Faith Statute Is Substantive
for Choice-of-Law Purposes Under Erie
Days v. Stonebridge Life Ins. Ins. Co., 2016 WL 6877743 (S.D. Ga. 2016)
Days brought an action in Georgia to recover benefits under multiple accidental death insurance policies issued by Stonebridge Life. The policies included choice of law provisions, identifying Illinois law as controlling. In addition to a claim for the accidental death benefits, Days sought to recover a bad faith penalty under a Georgia statute, O.C.G.A. 33-4-6.
Before addressing the merits of the claims decision, the federal district court--to which the case had been removed--entered a decision concerning the choice of law issue and its effect on the bad faith claim.
Applying Georgia choice of law jurisprudence, the court noted that "Georgia will honor choice of law provisions unless no reasonable basis exists for doing so or, application of the chosen state's law is contrary to a fundamental policy of Georgia." Neither party asserted that the application of Illinois law would contravene any policy of the forum state or would be prejudicial to its interests. As a result, the court enforced the choice of law provisions in the policies.
The effect of applying Illinois law required the dismissal of plaintiff's claim to recover a penalty under the Georgia bad faith statute. According to the court, the statute authorizing that cause of action "is substantive for purposes of Erie, and thus not applicable if the laws of some other state should be applied to the issues in this case," quoting Pinkerton & Laws, Inc. v. Royal Ins. Co. of Am., 227 F. Supp. 2d 1348, 1357 (N.D. Ga. 2002).
Since Illinois law applied to the policies, the court concluded that the claim based on Georgia's bad faith statute was inapplicable, and it was dismissed.
Loss of Sight in One Eye Results in Residual Disability, Not Total Disability
Nefsky v. Unum Life Ins. Co. of Am. | 2017 WL 621269 (N.D. Ga. Feb. 15, 2017)
Nefsky was the president and sole shareholder of a business that buys and sells watches, jewelry, china, crystal, and silverware. The majority of Nefsky's inventory consisted of watches, which he bought wholesale from manufacturers. He also purchased items from estates, jewelry stores with excess inventory, and stores going out of business.
Nefsky did not sell goods in a showroom or store. Most of his inventory was sold through eBay. Nefsky would write a description of the items to be sold, and an employee would photograph the items, list them for sale, and fill orders received over the internet.
In 2006, Nefsky suffered a retinal vein occlusion, which severely impaired the vision in his left eye. He continued to operate his business, but the loss of vision caused his right eye to "tire out much faster" and prevented him from analyzing items for more than two hours a day. He remained a representative for two watch manufacturers, continued
to advertise in trade publications, and continued to purchase items from estates and jewelry stores. Nefsky had no other physical limitations. He was able to drive, hike, bike, swim, jog, and travel for pleasure.
A month after his retinal occlusion, Nefsky submitted a claim for total disability benefits under an individual disability policy. The insurer, Unum Life, determined that Nefsky was residually disabled, not totally disabled. Residual disabilitywas defined to mean the insured was not prevented from engaging in his regular occupation, but was restricted from performing his duties for as long as he customarily did before his sickness or injury, or as effectively as before. Nefsky was paid residual disability benefits until age 65, the maximum benefit period under the policy.
Nefsky then submitted a claim for continued benefits under a Lifetime Sickness Benefit Rider to the policy. The Rider provided lifetime benefits only
if Nefsky was totally disabled, defined as the inability "to perform the material and substantial duties of his regular occupation to an extent that prevents him from engaging in his regular occupation." Unum Life denied the claim for benefits under the Rider, and Nefsky sued.
The court granted summary judgment for Unum Life. The court looked to earlier cases in which the Georgia Court of Appeals defined "the material and substantial duties of [an insured's] occupation" as "most or a vast majority of the material duties" of the occupation. Pomerance v. Berkshire Life Ins. Co. of Am., 654 S.E.2d 638 (Ga. App. 2007). The court concluded Nefsky was residually disabled, not totally disabled. The court reasoned: "Plaintiff's eye condition restricts his ability to perform certain tasks `for as long [or as effectively] as he customarily performed them before [his] injury or sickness.' It does not, however, `prevent him from engaging in his regular occupation.'"
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Insurer's Creation of Retained Asset Account for Life Insurance Benefits Violated ERISA Fiduciary Duties
Owens v. Metropolitan Life Ins. Co. | 2016 WL 5868103 (N.D. Ga. Sept. 27, 2016)
As a participant in his employer's ERISA plan, Owens' husband was insured under a group life insurance policy issued by MetLife. The policy provided: "We will pay the Life Insurance in one sum. Other modes of payment may be available upon request."
When her husband died, MetLife did not pay the death benefit in one lump sum. Instead, it established a "Total Control Account" ("TCA") in Owens' name and provided her with a book of bank drafts, which allowed her to withdraw funds from the TCA in increments of $250 or more. The TCA paid interest to Owens of no less than 0.50%. MetLife's practice was to hold death benefits in its general account until it was called upon to transfer funds to cover drafts drawn on TCAs. The funds held in the general account earned interest for MetLife at a rate higher than
was paid to Owens. Owens sued MetLife on behalf of
herself and a class of others similarly situated, alleging that MetLife breached fiduciary duties owed under ERISA when it kept a majority of the interest earned on the assets backing the TCA, rather than sending a single check for the entire amount owed her. Owens' complaint was brought in five counts. Both Owens and MetLife filed motions for summary judgment.
The district court first determined that MetLife acted in a fiduciary capacity when it kept possession of the death benefit, giving Owens only the ability to request possession of the funds by writing a drafts on the TCA. Creation of the TCA, the court said, was inconsistent with the terms of the policy, which required MetLife to "pay the Life Insurance in one sum." Thus,
"the assets backing the TCA, as accrued yet unpaid benefits, are plan assets for which [MetLife] acts as a fiduciary."
Owens alleged in Count I that MetLife breached fiduciary duties under ERISA 404(a)(1)(A), which states that "a fiduciary shall discharge his duties with respect to the plan solely in the interest of the participants and beneficiaries ... for the sole purpose of: (i) providing benefits to participants and their beneficiaries; and (ii) defraying reasonable expenses of administering the plan." The court held a genuine issue of material fact existed as to whether making payment via a TCA violated MetLife's fiduciary duties. Both parties' motions for summary judgment as to Count I were denied.
In Count II, Owens alleged the MetLife violated ERISA 406(b)(1), which prohibits a fiduciary from dealing "with the assets of the plan in his own
10 ERISA & Life Insurance News
interest or for his own account." The court granted summary judgment to Owens on this count, stating: "While some of the interest earned was passed along to [Owens], [MetLife] kept a portion for itself. ... Even if this was not done in bad faith, [MetLife] violated ERISA 406(1)(b) when it used plan assets to generate investment income for its own account."
Count III alleged that MetLife violated ERISA 406(a)(1)(B), which provides generally that a fiduciary "shall not cause the plan to engage in a transaction, if he knows or should know that such transaction constitutes a direct or indirect ... lending of money or other extension of credit between the plan and a party in interest." This claim, the court said, depended on whether creation of the TCA in Owens' name while keeping the
assets backing that liability in MetLife's general account constituted a loan.
The court held this arrangement fell within the definition of a loan and granted Owens' motion for summary judgment as to Count III. "[MetLife] had temporary use of the assets backing the TCA liability between the time the account was set up and the time [Owens] withdrew the funds from the account," the court said. "This falls within the definition of lending."
Count IV alleged a violation of ERISA 406(a)(1)(C), which provides that a fiduciary "shall not cause the plan to engage in a transaction, if he knows or should know the such transaction constitutes a direct or indirect ... furnishing of goods, services, for facilities between the plan and a party in interest." An exception is made for reasonable arrangements with a party in interest for
"services necessary for the establishment or operation of the plan, if no more than reasonable compensation is paid therefor." The court found a genuine issue of material fact as to whether the exception applied and denied both parties' motions for summary judgment as to Count IV.
Owens sought in Count V to recover statutory interest on unpaid life insurance benefits under Georgia law, O.C.G.A. 33-25-10(a). The court granted summary judgment to Owens on this count, holding that she "is entitled to interest at a rate of twelve percent from thirty days after the claim was filed until payment is actually made."
The parties were directed to submit a proposed briefing schedule for resolution of Owens' motion for class certification.
E R I S A & L i f e I n s u ra n c e Ne w s
S a n ders C arter
K E n t C oppage
A n drea C atala n d
O ther C o n tri b u tors to T his I ss u e
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Smith Moore Leatherwood LLP Attorneys at Law Atlantic Center Plaza 1180 W. Peachtree St. NW Suite 2300 Atlanta, GA 30309-3482 T 404.962.1000 F 404.962.1200 www.smithmoorelaw.com
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