ERISA: Highlights of recent notable cases
The Ninth Circuit’s ERISA decisions affect the full range of employer-provided insurance and pension benefits
The Employee Retirement Income Security Act of 1974 (“ERISA”) is a federal law that governs most employer-provided benefits in the private sector. Below is a recap of notable ERISA decisions from the Ninth Circuit Court of Appeals within the last year. ERISA governs many different types of disputes, but the focus of this round-up is on disability, life, health, and pension benefit claims. Included are also significant decisions that deal with remedies, preemption, and the statute of limitations.
ERISA is an ever-evolving area of the law. Based on my review of each published decision picked up by Westlaw since August 2014, I can reasonably estimate that the courts across the country collectively issue an average of over a thousand decisions each year in a matter involving an ERISA claim. If you are interested in staying up to date on ERISA decisions, you can subscribe for free to the “Your ERISA Watch” blog for regular weekly updates at www.erisawatch.com.
Disability benefit claims
The court issued several notable, albeit unpublished, decisions in the context of disability insurance claims. These decisions address the standard of review, procedural irregularities, expanding the “administrative record,” remedies, and offsets.
Expanding the “administrative record”
In Johnson v. General Electric Company (9th Cir. May 21, 2019) No. 18-35581, __F.App’x__, 2019 WL 2185332, the court found that the district court did not err in concluding that the disability claimant did not establish her entitlement to additional long-term disability benefits based on the Plan terms. She was entitled to benefits calculated on her “normal-straight time annual earnings” (“NSTAE”) unless GE’s Pension Board “provide[s]” that it also includes “commissions,” “other variable compensation,” or “special or supplemental payments.” The court found that there is no evidence that the Pension Board determined that her NSTAE should include other compensation. Additionally, the district court did not err by admitting extrinsic evidence – specifically, the declarations of GE and MetLife employees – because the evidence was necessary to conduct an adequate de novo review of the benefit decision. Without the evidence there were only competing assertions from the parties about Plaintiff’s earnings. The court determined that it need not reach Plaintiff’s arguments about GE and MetLife’s failure to comply with certain procedural requirements.
The case was decided by Circuit Judges Diarmuid O’Scannlain and Michelle Friedland, and District Judge William H. Pauley III (S.D.N.Y.).
This case is notable because of the court’s consideration of extra-record evidence on de novo review. ERISA benefit litigation is typically based on an “administrative record” that is developed prior to the filing of a lawsuit. In the Ninth Circuit, when de novo review applies, a district court must exercise its discretion to consider new evidence in certain circumstances to enable the full exercise of informed and independent judgment. (See Mongeluzo v. Baxter Travenol Long Term Disability Ben. Plan (9th Cir. 1995) 46 F.3d 938, 943.)
Procedural irregularities and the standard of review
In Gordon v. Metropolitan Life Insurance Company (9th Cir. 2019) 747 F.App’x 594, 2019 EB Cases 2999, the court reversed and remanded the district court’s grant of summary judgment to MetLife because it erroneously applied abuse of discretion review. The Ninth Circuit found that MetLife’s decision to deny benefits is subject to de novo review because MetLife failed to issue a final decision on Gordon’s appeal, even years after its deadline to do so. The court found that this was a “wholesale and flagrant” violation of both ERISA and the benefit plan and “utterly disregards” MetLife’s duties as a plan administrator. (See 29 C.F.R. § 2560.503-1(h)-(j); Abatie v. Alta Health & Life Ins. Co. (9th Cir. 2006) 458 F.3d 955, 971.)
This case was decided by Circuit Judges Consuelo Callahan, N. Randy Smith, and Mary H. Murguia.
Since the Ninth Circuit’s decision in Abatie v. Alta Health, few courts have found procedural irregularities that rise to the level of changing the standard of review from abuse of discretion to de novo where the plan document gives the administrator discretion to make claims determinations. In this case, MetLife could have issued a final decision even after Gordon filed her lawsuit. It chose not to. The court found this disregard of its obligation under the ERISA Regulations to be egregious enough to remove any deference to its claim decision that it would have otherwise enjoyed.
Offsets and remedies
In Mrkonjic v. Delta Family-Care And Survivorship Plan (9th Cir. 2018) 736 F.App’x 678, 2018 EB Cases 212588, the disability claimant alleged that he was forced to elect early retirement benefits solely because the Plans wrongfully denied his long-term disability benefits. Then, the Plans refused to allow Plaintiff to rescind his retirement. “In this context, because the situation was unique and caused by the Plans, the Plans should have implemented the Mrkonjic I judgment so as to leave Mrkonjic no worse off from their mistakes. Instead they accumulated offsets and collected an overage, treating him more poorly than other beneficiaries.” The court remanded to the district court to consider the appropriate remedy in light of the court’s holding that the Plans could not require reimbursement of the portion of retirement benefits that exceeded Plaintiff’s monthly LTD benefit amount. “Alternatively, the district court may wish to exercise its power of equitable relief and fashion an order to cut the Gordian knot of this long-litigated matter.”
This case was decided by Circuit Judges Marsha S. Berzon and Jay S. Bybee, and District Judge John A. Woodcock, Jr. (D. Me.).
This case is significant because of the remedy afforded the claimant as a result of his wrongfully denied disability benefits. Though not discussed in depth in this Ninth Circuit opinion, the lower court in Mrkonjic I found that the plaintiff was entitled to rescind his early retirement election and to be reinstated in the disability plan subject to offsets of benefits already paid. (Mrkonjic v. Delta Family-Care & Survivorship Plan, No. CV 10-02087 GAF JCX, 2013 WL 8292329, at *11-12 (C.D. Cal. Jan. 3, 2013).) In so doing, the court permitted the plaintiff to receive relief under two provisions of ERISA: Section 502(a)(1)(B) and Section 502(a)(3). This relief was important because the plaintiff opted to receive a lower retirement benefit and one that was subject to offset by the disability plan. In other words, the disability plan would reduce what it paid the plaintiff by what he received in retirement benefits. Many courts do not permit a plaintiff to seek or receive equitable relief with respect to a benefit claim denial when they can receive “adequate relief” under Section 502(a)(1)(B). The court found that recession was required to remedy the injury caused by the denial of benefits.
Life insurance claims
In Masuda-Cleveland v. Life Insurance Company of North America (9th Cir. May 8, 2019) No. 17-17149, 2019 WL 2024835, a dispute over accidental death benefits, the court vacated and remanded the district court’s grant of summary judgment in favor of LINA. In its final denial of the claim, LINA relied on a new report to support a new position that the death was not caused by the injuries sustained in an accident but was caused by a fatal cardiac event. The district court did not allow Plaintiff to submit rebutting evidence for its consideration. The Ninth Circuit found that this was in error. The court found that a higher degree of skepticism should apply because (1) “LINA never directly contacted the original physician forensic-pathologist who conducted the autopsy”; (2) LINA obtained a new report after Plaintiff submitted the appeal and used that report to uphold the decision on a different basis; and (3) “The evidence that the decedent actually had a fatal cardiac event was weak.” The court can only speculate about the decision the district court would have reached had it considered the above. For that reason, the court vacated the judgment and remanded to the district court for further proceedings.
This case was decided by Circuit Judges Dorothy W. Nelson, Ferdinand F. Fernandez, and Carlos Bea.
What is notable about this decision is how the court found that the procedural irregularity of the insurer making a final decision in reliance on a report that it did not disclose to the claimant, with an opportunity for rebuttal, warranted expansion of the “administrative record.” A procedural irregularity that prevents the full development of the record is one circumstance where a court may consider new evidence that was not considered by the ERISA claims administrator. In essence, the court may re-create what the administrative record would have been had the procedure been correct. (See Abatie v. Alta Health & Life Ins. Co. (9th Cir. 2006) 458 F.3d 955, 973.)
Exclusions and substantial contribution
In Dowdy v. Metro. Life Ins. Co., 890 F.3d 802 (9th Cir. 2018) 2018 EB Cases 173555, Dowdy was involved in an automobile accident and sustained a serious injury to his left leg, which was eventually amputated below the knee. Dowdy and his wife sought accidental dismemberment benefits under an insurance policy provided by his employer and insured and administered by Metropolitan Life Insurance Company. MetLife denied the benefits on the basis that Plaintiff’s diabetes contributed to the decision to amputate Plaintiff’s leg and the AD&D policy has an exclusion for any loss caused or contributed to by an illness or infirmity. The district court declined to consider evidence outside of the “administrative record.” On the merits, the district court found that diabetes caused or contributed to the need for amputation and Plaintiff’s loss was excluded under the policy.
On appeal, the Ninth Circuit held that the district court did not abuse its discretion in excluding evidence outside of the “administrative record,” and any error on that issue was harmless. But, the Ninth Circuit found that Plaintiff’s diabetes did not substantially contribute to the amputation of Dowdy’s leg, so it was a covered loss under the policy. The court explained that the Dowdys are entitled to coverage if the car accident was the “direct and sole cause” of the loss, and if amputation “was a direct result of the accidental injury, independent of other causes.” The court declined to determine whether the applicable language is conspicuous or inconspicuous as described in McClure v. Life Ins. Co. of N. Am. (9th Cir. 1996) 84 F.3d 1129, because even under the more demanding “substantial contribution standard,” the record does not support a finding that diabetes substantially contributed to Dowdy’s loss. Here, Plaintiff’s doctor opined that Dowdy’s wound issues were complicated by his diabetes but faulted the comorbidities and the type of injury as the need for amputation. The district court’s application of the substantial contribution standard was overly strict.
Lastly, the court held that the substantial contribution standard applies in interpreting the concepts of cause and contribution in the exclusion for “any loss caused or contributed to by illness or infirmity.” Applying this standard, the court found that diabetes did not substantially cause or contribute to the amputation where Dowdy suffered a deep infection related to the original injury and the fracture itself was slow to heal. For these reasons, the court found that Plaintiff is entitled to benefits.
This case was decided by Circuit Judges Marsha S. Berzon and Michelle T. Friedland, and District Judge William K. Sessions III (D. Vt.).
Health benefit claims
In the past year, the court decided only one case involving whether certain medical treatment should be covered under an ERISA-governed health plan. In Sammons v. Regence Bluecross Blueshield of Oregon (9th Cir. 2018) 739 F.App’x 385, 2018 EB Cases 222545, the court affirmed the district court’s de novo determination that coverage for artificial disc replacement surgery falls under the ERISA plan’s investigational exclusion. Though the plan contains no explicit time frame for when certain metrics must be shown regarding the overall impact of the surgery, the district court’s finding that five years is the relevant benchmark for this surgery was not clearly erroneous. Judge Paez dissented on the basis that Defendant’s interpretation of the plan language was not the only reasonable interpretation and because it could reasonably be interpreted to cover the procedure, summary judgment should be in favor of Plaintiff.
This case was decided by Circuit Judges A. Wallace Tashima, M. Margaret McKeown, and Richard A. Paez.
Pension benefit claims
In Reed v. KRON/IBEW Local 45 Pension Plan (9th Cir. May 16, 2019) No. 17-17176, __F.App’x__, 2019 WL 2145652, the Ninth Circuit reversed the district court’s decision, finding that it was not an abuse of discretion for Defendant to deny survivor-spousal benefits to a same-sex domestic partner.
Plaintiff David Reed and Donald Lee Gardner, an employee of KRON-TV, were registered as domestic partners in California in 2004. Mr. Gardner retired in 2009 and elected a single-life annuity pension under the KRON/IBEW Local 45 Pension Plan (the “Plan”). Reed claimed that KRON-TV’s HR department never mentioned the availability of a joint-and-survivor form of benefit although they knew he and Gardner were registered domestic partners. In May 2014, Reed and Gardner got married and then Gardner passed away five days later. Reed submitted a claim for a survivor benefit to the KRON/IBEW Local 45 Pension Plan (the “Committee”), which it denied.
Plaintiff filed suit against Defendants, asserting three claims: (1) claim for benefits under ERISA Section 1132(a)(1)(B) against the Plan and the Committee; (2) a penalty under Section 1132(a)(1)(A) against the Committee and KRON-TV; and (3) a violation of ERISA Section 1132(a)(3) against KRON-TV. Reed alleged that he and Gardner had the status of married persons under California law and that Reed did not consent to Gardner’s election of a single-life annuity. Reed also alleged that KRON-TV breached its fiduciary duties to him by failing to investigate his entitlement to a joint-and-survivor annuity and failing to advise him of his rights.
Defendants moved to dismiss all three claims. On December 5, 2016, Judge Jeffrey S. White of the Northern District of California dismissed the second claim for relief on the basis that KRON-TV is not a plan administrator and not subject to penalties under ERISA section 1132(c). (Reed v. Kron/Ibew Local 45 Pension Plan, No. 16-CV-04471-JSW, 2016 WL 10826863, at *3 (N.D. Cal. Dec. 5, 2016).) The court did not dismiss the first and third claims.
Defendants then moved for judgment on the pleadings on the remaining claims. On September 25, 2017, Judge White issued an order granting Defendants’ motion for judgment on the pleadings as to the first and third claims. The court determined that ERISA does not preempt state law recognition of spouses but that the Committee did not abuse its discretion in failing to offer Gardner joint-and-survivor annuity benefits because when Gardner retired, DOMA Section 3 was still considered good law. (DOMA Section 3 prevented the federal government from recognizing any marriages between same-sex couples for the purpose of federal laws or programs, even if those couples are considered legally married by their home state.) The court further explained that DOMA explicitly defined “spouse” as limited to partners of the opposite sex. (Reed v. KRON/IBEW Local 45 Pension Plan, No. 16-CV-04471-JSW, 2017 WL 6523478, at *5 (N.D. Cal. Sept. 25, 2017), rev’d and remanded sub nom. Reed v. KRON/IBEW Local 45 Pension Plan (9th Cir. May 16, 2019) No. 17-17176, 2019 WL 2145652.) The court also held that KRON-TV is not a fiduciary under ERISA because it does not have sufficient control of plan assets to qualify as a fiduciary.
In reversing the district court, the Ninth Circuit found that the Committee abused its discretion by denying benefits to Reed. When the Committee evaluated the Plan’s benefits (in 2009 and 2016), California law afforded domestic partners the same rights, protections, and benefits as those granted to spouses. (See Fam. Code, § 297.5(a).) The court found that neither ERISA nor the Internal Revenue Code provided binding guidance inconsistent with applying this interpretation of spouse to the Plan. Because “Reed and Gardner were domestic partners at the time of Gardner’s retirement, the Committee should have awarded Reed spousal benefits in accordance with California law, as was required by the Plan’s choice-of-law provision.”
Remedies and preemption
In The Depot, Inc. v. Caring for Montanans, Inc. (9th Cir. 2019) 915 F.3d 643, 2019 EB Cases 38427, the Ninth Circuit addressed several issues, including fiduciary actions, plan assets, remedies and preemption. 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 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 are not plan assets, 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” under title 29 of the United States Code, section 1132(a)(3). Specifically, the court found that the restitution Plaintiffs seek is not equitable because Plaintiffs have not identified a specific fund to which they are entitled and any judgment for Plaintiff would have no connection to any particular fund. Additionally, Plaintiffs allege that Defendants spent the surcharges. Even if Defendants did place the surcharges in a general account, the court found it at least conceivable that the account no longer exists. Because Plaintiffs have not identified any specific property from which the proceeds derived, the court found that Plaintiffs cannot 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 is no ERISA preemption. Express preemption does not apply because the claims do not bear on an ERISA-regulated relationship – the misrepresentations occurred initially before Plaintiffs ever agreed to subscribe to a plan. Conflict preemption does not apply because the duties implicated in the state-law claims do 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.”
This case was decided by Circuit Judges William A. Fletcher and Jay S. Bybee, and District Judge Larry A. Burns (S.D. Cal.).
In Hansen v. Grp. Health Coop. (9th Cir. 2018) 902 F.3d 1051, 2018 EB Cases 317877, the plaintiff mental health providers claim that GHC’s licensing of the Milliman Care Guidelines, which provides “primary criteria” for authorizing psychotherapy treatment, is unfair and deceptive because the treatment guidance is biased against mental healthcare. The providers also claim that GHC uses its treatment guidelines to avoid complying with Washington’s Mental Health Parity Act, and unfairly competes in the marketplace by discouraging its patients from seeking treatment by rival practitioners. The court held that the mental health providers’ unfair and deceptive business practice claims were not preempted by ERISA because Washington’s law provides an independent statutory duty apart from an ERISA plan’s defined terms. In addition, any duty GHC has to refrain from harming its competitors arises under state law, not under the terms of an ERISA plan.
This case was decided by Circuit Judges Ronald M. Gould and Sandra S. Ikuta, and District Judge John R. Tunheim (D. Minn.).
Statute of limitations
In Sulyma v. Intel Corporation Investment Policy Committee (9th Cir. 2018) 909 F.3d 1069, 2018 EB Cases 437021, the Ninth Circuit, parting ways with the Sixth Circuit, held that “actual knowledge,” rather than “constructive knowledge,” is required to trigger ERISA’s three-year limitations period under title 29 of the United States Code, section 1113(2).
Plaintiff Sulyma worked for Intel between 2010 and 2012 and participated in the Intel Retirement Contribution Plan and the Intel 401(k) Savings Plan. Sulyma’s account investments depended upon the investment decisions controlled by Intel, through the performance of different Intel funds. In 2010, Intel disclosed information about the Funds’ performance on two websites to which Sulyma had access. Through “Fund Fact Sheets,” Intel explained that the 2045 Fund (where his Savings Plan account was invested), was invested more in hedge funds than comparable portfolios and not performing well as a result. However, Sulyma denied knowledge that his retirement accounts were invested in alternative investments while he was working at Intel.
On October 29, 2015, Sulyma filed suit alleging that the investment committee violated section 1104 of title 29 of the United States Code by imprudently investing in alternative investments; that the administrative committee violated section 1104 of title 29 of the United States Code and 29 C.F.R. § 2250.404a-5(a) by failing to disclose adequately information about the alternative investments; and that the finance committee violated section 1104 of title 29 of the United States Code by failing to monitor the investment and administrative committees. He also alleged that all defendants were liable for knowing of the other defendants’ ERISA violations and failing to remedy them.
Intel moved to dismiss the complaint as time-barred under section 1113(2). The district court converted the motion to dismiss into a motion for summary judgment and ordered discovery into the statute of limitations issue. After discovery, the district court ruled that Sulyma had actual knowledge of the alternative investments more than three years before filing suit, and entered summary judgment in favor of Intel.
The Ninth Circuit found that the district court erred by concluding Sulyma had the requisite actual knowledge that the investment committee violated section 1104 by investing his money in imprudent investments.
The Court applies a two-step process to determine whether a claim is barred by section 1113(2). “First, the court isolates and defines the underlying violation on which the plaintiff’s claim is founded. Second, the court inquires whether the plaintiff had ‘actual knowledge’ of the alleged breach or violation.”
The Court held that actual knowledge does not mean that a plaintiff had knowledge that the underlying action violated ERISA or that the underlying action occurred, but rather, a plaintiff must be aware of the nature of the alleged breach more than three years before the action was filed. In an ERISA section 1104 case, this means that a plaintiff was aware that the defendant had acted and that those acts were imprudent. The Court recognized “that this understanding of actual knowledge conflicts with the Sixth Circuit’s reasoning in Brown v. Owens Corning Investment Review Committee, 622 F.3d 564, 571 (6th Cir. 2010),” where Brown had only constructive knowledge of plan document terms. For section 1113 to apply, a plaintiff must have actual knowledge of the breach or violation; constructive knowledge is not enough.
Because there are disputes of material fact as to Sulyma’s actual knowledge, the Court reversed the summary judgment decision and remanded the case to the district court for further proceedings.
This case was decided by Circuit Judges J. Clifford Wallace and Susan P. Graber, and District Judge Robert S. Lasnik (W.D. Wa.). On June 10, 2019, the Supreme Court granted certiorari to hear this matter.
Michelle L. Roberts
Michelle L. Roberts is an ERISA plaintiff’s attorney and partner in the Bay Area office of Kantor & Kantor, LLP. Her practice focuses on ERISA disability, life insurance, and severance benefit claims. Ms. Roberts serves on the Board of Senior Editors of the ABA Employee Benefits Law book. In 2018 and 2019, she was named on the Northern California Super Lawyers Top 100 and Top 50 Women Lawyers list. Her complete bio can be viewed at www.kantorlaw.net.
2023 by the author.
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