1 Attorneys at Law ERISA and Life Insurance News Covering ERISA and Life, Health and Disability Insurance Litigation DECEMBER 2012 INSIDE THIS ISSUE Request for Information Did Not Constitute Request for Appeal of Denied Claim under ERISA Application of Five-Factor Test to Deny Competing Claims for Attorney s Fees Did Not Contravene Hardt Letters Refusing to Sign Subrogation Agreement Did Not Constitute an Appeal, and They Were Otherwise Untimely Insured s Incapacity Does Not Excuse Non-Payment of Premiums, Absent a Policy Provision to the Contrary Circuits Split over Whether ERISA Section 510 Applies to Retaliation Claims Based on Informal Complaints ERISA s anti-retaliation provision makes it unlawful for an employer to discharge or discriminate against a plan participant because he inquiry or proceeding relating to [the Act]. ERISA 510, 29 U.S.C An issue that has divided the federal circuit courts is whether the phrase inquiry or proceeding limits the protection of 510 only to persons who testify or provide information in formal proceedings such as trials and administrative hearings or whether it extends also to an employee s informal unsolicited complaint that his employer has violated ERISA. 7 Death from Heat Exposure after Fall from Motorized Scooter Was Covered under Accidental Death Policy Availability of Equitable Remedies under ERISA Permitted Amended Pleadings and Additional Evidence ERISA Plan Awarded Full Reimbursement of Benefits and Attorney s Fees against Personal Injury Lawyer Plaintiff Can Pursue Claim for Breach of Fiduciary Duty Based on Misrepresentation by Plan Administrator TRICARE Contractor s Recoupment of Funds Not Barred by Voluntary Payment Doctrine Assurances of Repayment May Be Sufficient to Toll ERISA s Statute of Limitation for Breach of Fiduciary Duty Claim Six circuit courts have considered the question, some with more analysis than others, and they are split 3-3 on whether 510 affords a cause of action to plan participants who claim that they suffered retaliation because of informal workplace complaints concerning ERISA violations. The Second, Third, and Fourth Circuits have held that the term inquiry or proceeding refers to formal proceedings, or at least to a request for information an inquiry from an employee s supervisors. The Fifth, Seventh, and Ninth Circuits, however, have taken a more expansive view, holding that 510 applies also to retaliation claims based on informal complaints or questions raised by an employee concerning the administration of an ERISA plan. CONTINUED ON PAGE 2>>
2 CONTINUED FROM PAGE 1>> Ninth Circuit Ninth Circuit Court of Appeals. In Hashimoto v. Bank of Hawaii, 999 F.2d 408 (9th Cir. 1993), a bank employee complained to her supervisors that the bank had violated the reporting and disclosure requirements and the wrongful discharge action, relying solely on a Hawaii whistleblower statute. The district court held that the employee s state law claim was preempted by ERISA. The Ninth Circuit agreed, but it recharacterized the claim as one for retaliation under 510 of ERISA, which the court said could be fairly construed to protect a person in the plaintiff s position, because 510 was clearly meant to protect whistle blowers. Id. at 411. The court concluded that the statute provided a remedy under the circumstances presented, describing complaints such as the one made by in giving information or testifying. Id. Under a more restrictive view of the statute, the court said, the process of giving information or testifying [would be] interrupted at its start: the 2 anticipatory discharge discourages the whistle blower before the whistle is even blown. Id. The case was remanded to the district court for trial. Fifth Circuit The next year, the Fifth Circuit became the next to address the scope of 510 although in very cursory fashion in Anderson v. Electric Data Systems Corp., 11 F.3d 1311 (5th Cir. 1994). Similar to the complaint in Hashimoto, the plaintiff sued for wrongful discharge under Texas law, contending that he commit illegal acts involving employersponsored pension plans, and because he reported another employee s ERISA violation. Based on ERISA preemption of the state law claim, the district court granted summary judgment to the employer. On appeal, the employee did not directly challenge the grant of summary judgment, but instead asked the appellate court to remand his case to state court, arguing that the district court lacked subject matter jurisdiction since his complaint did not allege any violations of ERISA. Although the plaintiff alleged that his discharge was in response to what was only an informal complaint, the Fifth Circuit held that his claim fell within the protection of ERISA 510, which prohibits the discharge or other adverse treatment of any person because he has given information or testimony relating to ERISA. Id. at With almost no further discussion of the statute, the of summary judgment to the employer on ERISA preemption grounds. Fourth Circuit The issue was next presented nearly a decade later. In King v. Marriott International, Inc., 337 F.3d 421 (4th Cir. 2003), the Fourth Circuit became protect unsolicited informal complaints. The plaintiff complained to her about the anticipated transfer of funds from an employer-sponsored medical plan into a general corporate reserve plaintiff asserted an anti-retaliation claim under 510 of ERISA as well as a claim under Maryland law. The district court granted summary judgment to the employer, concluding that the proof of a causal connection between her complaint and her termination. On appeal, the Fourth Circuit squarely addressed the question of whether the plaintiff s unsolicited informal complaint came within the protection of 510. The court held that it did not, stating: The most immediate question is the proper scope of the phrase inquiry or proceeding. In interpreting a very similar provision of the Fair Labor Standards Act, 29 U.S.C. 201 et seq., we concluded that the term proceeding referred only to administrative or legal proceedings, and not to the making of an intracompany complaint. In particular, we explained, testify and institute both connote a formality that does not attend an employee s oral complaint to his supervisor. In the instant case, as well, the use to testify does suggest that the phrase inquiries or proceedings referenced in section 510 is limited
3 to the legal or administrative, or at least to something more formal than written or oral complaints made to a supervisor. The phrase given information does no more than insure that even the provision of non-testimonial information (such as incriminating documents) in an inquiry or proceeding would be covered. 337 F.3d at 427 (citations omitted). Because there was no allegation that to testify, or that he had provided information in connection with any legal or administrative proceeding, the court concluded that 510 did not apply and that ERISA did not provide a cause of action. In doing so, the Fourth Circuit distinguished Hashimoto and Anderson and found them to be unpersuasive. Second Circuit Two years later, in Nicolaou v. Horizon Media, Inc., 402 F.3d 325 (2d Cir. 2005), the Second Circuit also held that 510 does not protect unsolicited informal complaints. The key to the decision was not the lack of a formal proceeding, however, but the fact that the plaintiff s complaint was unsolicited, rather than having been made in response to an inquiry by the employer. Thus, the Second Circuit disagreed with the Fourth Circuit that a formal inquiry, in the context of a trial or administrative hearing, was required before an employee could invoke the protection of 510. The court agreed, however, that 510 requires more than merely giving information. Rather, the information must be given in response to an inquiry from the employee s supervisors. In Nicolaou, the plaintiff was discharged after she complained about underfunding of an employer-sponsored 401(k) plan. The plaintiff had taken her complaint to an attorney for her employer, who apparently undertook an investigation, and then met with the company s president, Koenigsberg, apparently at the attorney s request. The plaintiff sued her former employer, asserting claims under both ERISA 510 and the Fair Labor Standards Act. The district court dismissed the 510 claim, concluding that the allegations of a claim under 510 because they did not establish the existence of a formal, external inquiry U.S. Dist. LEXIS 18341, at *7. The Second Circuit reversed, stating that [w]hile proceeding refers to the progression of a lawsuit or other business before a court, agency, or broadly to any request for information. 402 F.3d at 329. [T]he proper focus, the court said, is not on the formality or informality of the circumstances under which an individual gives information, but rather on whether the circumstances can fairly be deemed to constitute an inquiry. Id. at 330. The court concluded: Certainly, if [the plaintiff] can demonstrate that she was contacted to meet with Koenigsberg in order to give information about the alleged underfunding of the Plan, her actions would fall within the protection of Section 510. Thus, the district court erred in concluding that, as a matter of law, [the plaintiff s] allegations could not survive a motion to dismiss because they do not establish the existence of a formal, external inquiry. The meeting with Koenigsberg was something less than a formal proceeding, but we an inquiry within the meaning of Section 510. Id. (citation omitted). The case was an amended complaint. Third Circuit The next appellate court to consider the issue was the Third Circuit in Edwards v. A.H. Cornell & Son, Inc., 610 F.3d 217 (3d Cir. 2010), cert. denied, 131 S.Ct (2011). As the Fourth and Second Circuits had done, the court held that 510 of ERISA does not protect unsolicited complaints by an employee. The plaintiff brought an anti-retaliation claim under 510 and a common law wrongful discharge claim, contending complained to management about company violations of ERISA. The district court held that the complaint failed to state a claim under 510, because the employee s complaints to management were not part of an inquiry or proceeding. The Third Circuit agreed, stating: as [a] request for information. Here, Edwards does not allege that anyone approached her requesting information regarding a potential ERISA violation. Rather, she made her complaint voluntarily, of her own accord. Under these circumstances, the information that Edwards relayed to management was not part of an inquiry under the term s plain meaning. Neither is Edwards s conduct encompassed by the term proceeding. A proceeding is and orderly progression of a lawsuit or the procedural means for seeking redress from a tribunal or agency. Here, there is no suggestion that any such formal action has occurred. 610 F.3d at 223 (citations omitted) (quoting Black s Law Dictionary 864, 1324 (9th ed. 2009)). The court adopted the Fourth Circuit s construction of the phrase inquiry or proceeding, stating: As the King court noted, even beyond the plain meaning of inquiry and CONTINUED ON PAGE 4>> 3
4 CONTINUED FROM PAGE 3>> 4 or is about to testify implies that the phrase inquiry or proceeding is limited to more formal actions. Not all anti-retaliation statutes are so limited. In drafting [ 510], Congress could have used broad language similar to that present in the antiretaliation provision in Section 704(a) of Title VII, which extends broad protection to employees that have opposed any practice made an unlawful employment practice by [Title VII.]. Congress declined to do so, and, like the court in King this choice to be persuasive. Id. (citations omitted). The court also view of 510 adopted by the Ninth and Fifth Circuits, stating: [W]e agree with the Fourth Circuit that the Ninth and Fifth Circuit opinions in Hasimoto and Anderson, respectively, are not compelling. Neither court examined the statutory language of Section 510 in detail: the Fifth Circuit gave the issue cursory treatment, and the Ninth Circuit appeared to focus its analysis on the adoption of a fair interpretation. Id. (citations omitted). Seventh Circuit In the most recent examination of the issue, the Seventh Circuit took a more expansive view of 510, joining the Ninth and Fifth Circuits in holding that it provides a cause of action for retaliation based on an employee s unsolicited informal complaint. George v. Junior Achievement of Central Indiana, Inc., 694 F.3d 812 (7th Cir. 2012). George was a vice president of Junior Achievement. When he discovered that money withheld from his pay had not been deposited into his retirement account and his health savings account, he complained to company executives. He also contacted the U.S. Department complaint. After George raised the issue with two members of the company s board of directors, he received checks for the missing funds plus interest, but Junior Achievement later terminated his employment several months before his anticipated retirement date. In a lawsuit against Junior Achievement, George alleged that his questions about the failure to deposit funds into his retirement and health savings ERISA s anti-retaliation provision. Junior Achievement argued that 510 did not apply, because George had simply raised the issue informally, not in the context of a formal inquiry. The district court agreed and entered summary judgment for the employer U.S. Dist. LEXIS (S.D. Ind. Sept. 28, 2011). Describing ERISA s anti-retaliation provision as a mess of unpunctuated conjunctions and prepositions, 694 F.3d at 814, the Seventh Circuit resolved the ambiguous text in favor of protecting the employee, rejecting the employer s argument that 510 did not apply because there had been no inquiry within the meaning of the statute. The phrase has given information provides context that helps us understand inquiry, the court said. The clause has given information covers every kind of communication, denotes a type of communication in a more formal setting, such as a trial or administrative hearing. Id. Thus, [t]he latter language implies a level of formality but not necessarily formality in giv[ing] information, the court said. A natural inference from the fact that the statute refers to giv[ing] information in addition to testifying is that giv[ing] information covers informal communications and, if informal communications are covered, inquiry cannot be limited to formal proceedings. Id. The court observed that while an inquiry could refer to something the Department of Labor conducts under ERISA, it also could mean nothing more than a question. Id. at 815. The Seventh Circuit concluded that the best reading of 510 is one that divides the world into the informal sphere of giving information in or in response to inquiries and the formal sphere of testifying in proceedings. This means that an employee s grievance is within 510 s scope whether or not the employer solicited information. Id. at 817. The court added, however, that the anti-retaliation provision should not be read to cover trivial bellyaches the statute requires the retaliation to be because of a protected activity, and the grievance must be a plausible one, though not necessarily one on which the employee is correct. Id. employer of a potential breach of its be done to remedy the breach. Those conversations involved an inquiry, as we understand that word, the court said, because Junior Achievement responded to them rather than ignoring them. Id. The case was remanded to the district court to decide whether there is some other ground on which this case may be resolved short of trial, or whether a trial on causation is necessary. Id. Conclusion There is a split among the six circuit courts of appeals that have considered whether 510 of ERISA protects employees from retaliation in response to an employee s informal questions or complaints. The Seventh Circuit has joined the Fifth and Ninth Circuits in holding that informal inquiries initiated by an employee are covered. The Second Circuit has held that 510 applies if information is provided in response to an inquiry initiated by the employer, while the Third and Fourth Circuits have concluded that the phrase inquiry or proceeding requires a formal trial or administrative proceeding.
5 Request for Information Did Not Constitute Request for Appeal of Denied Claim under ERISA Am. Dental Assoc. v. Wellpoint Health Networks, Inc., 2012 U.S. App. LEXIS (11th Cir. Oct. 23, 2012) class action against WellPoint Health method in determining the usual, customary, and reasonable amount of reimbursement to patients for dental services. received payment and an explanation provided to a particular patient, for which the patient had received only a partial reimbursement. The EOB stated that the a patient s behalf. Plaintiff wrote to Wellpoint requesting information about how it calculated its rates. Wellpoint responded with a letter explaining that payments were made in accordance with the Health Insurance Association of America fee schedule. Plaintiff did not contact Wellpoint again judgment, asserting that plaintiff failed to exhaust his administrative remedies under ERISA. Plaintiff argued that his letter requesting information served as the administrative appeal. The Eleventh Circuit upheld the district court s award of summary judgment in favor of Wellpoint, noting that plaintiff s letter did not challenge the partial denial perform any kind of review. The court held that a rear-guard attempt to turn a request for information into a demand for administrative review must be rejected. The Eleventh Circuit also held that plaintiff failed to establish that pursuing Wellpoint s administrative appeal process would have been futile. Because plaintiff failed even to initiate the administrative review process, the district court was left to speculate whether Wellpoint would have conducted a thorough and adequate review of a hypothetical administrative appeal. In short, [m]ere futility exception, the court said. Application of Five-Factor Test to Deny Competing Claims for Attorney s Fees Did Not Contravene Hardt Cross v. Quality Mgmt. Group, LLC, 2012 U.S. App. LEXIS (11th Cir. Sept. 27, 2012) Cross claimed that she was 100% vested claimed that her vesting was at 60%. The parties settled the action, using a 75% vesting calculation, and then each moved for attorney s fees under ERISA, 29 U.S.C. 1132(g)(1). Exercising its discretion, the district court denied both motions. On appeal, Cross argued that in denying her motion (1) the district court applied Hardt v. Reliance Standard Life Ins. Co., 130 S.Ct (2010), and (2) the court acted in bad faith in assessing her claim and in litigating the case. Defendants argued that the district court abused its to deny their claim for fees. The Eleventh Circuit rejected Cross s argument that the district court should have ended its inquiry when it determined that she had obtained some degree of success on the merits, and held that the court had taken the exact approach approved by the Supreme Court in Hardt: [T]he Supreme Court in Hardt must show some degree of success on the merits before a court may award attorney s fees under 1132(g)(1). It then said: We do not foreclose the possibility that once a claimant has becomes eligible for a fees award under 1132(g)(1), a court may whether to award attorney s fees. The Eleventh Circuit held that the district court correctly determined that Cross had obtained some degree of success on the merits because she ultimately achieved 15% more vesting in the plan than defendants had claimed she was entitled to receive. The appellate court also held that the district court did not err in its application rejecting both parties claims of bad faith and in weighing the relative merits of their claims. The court noted that [b]oth parties positions had some merit, but neither had relatively more merit than the other. 5
6 Letters Refusing to Sign Subrogation Agreement Did Not Constitute an Appeal, and They Were Otherwise Untimely Fla. Health Sciences Ctr. v. Total Plastics, Inc., 2012 U.S. App. LEXIS (11th Cir. Nov. 6, 2012) Kristy Schwade and her son were funded by her former employer. The plan s subrogation rights were set out in the summary plan description ( SPD ), which made clear that the plan administrator had no obligation participant did not sign a subrogation agreement or execute other documents needed to protect the plan s subrogation rights. The SPD also established the administrative appeal procedure required before a participant could take any legal action against the plan, including a 180- day appeal deadline, and stated that any Schwade s son was injured by his daycare provider. Initially, the plan paid 6 his medical expenses. Later, in June 2007, the plan administrator sent Schwade a letter stating that it could not process her claim unless she completed a questionnaire about her son s injury and signed a subrogation agreement. The subrogation agreement warned Schwade that failure to execute the agreement would relieve the plan of all did not respond to the letter. Between August and November 2007, the plan administrator sent Schwade 54 EOB forms, 48 of which explained that the claim had been denied based on her failure to provide accident information. appeal, and the deadline to do so. After the last appeal deadline expired, Schwade s attorney wrote the plan administrator, complaining that it had ignored Schwade s claim for the sole reason that she would not sign a boilerplate subrogation agreement, the terms of which the attorney found unacceptable. The attorney later sent several letters stating that the plan s subrogation rights limited Schwade s ability to recover damages for her son s injuries in a civil action. He proposed instead that the plan and Schwade split any such recovery. The plan did not respond to the letters. Insured s Incapacity Does Not Excuse Non-Payment of Premiums, Absent a Policy Provision to the Contrary Elter v. Principal Life Ins. Co., No. 5:11-CV H (E.D.N.C. Sept. 25, 2012) Principal Life Insurance Company issued a $650,000 term life insurance premium on February 7, Future premium payments were due annually thereafter. Dr. Elter designated his wife Dr. Elter underwent cancer surgery in Baltimore, Maryland, on January 10, 2008, and was expected to return home to North Carolina ten days after the surgery. Due to medical complications, however, Dr. and Mrs. Elter did not return to North Carolina until March 15, On January 17, 2008, Principal Life mailed to Dr. Elter a notice of premium due on February 5, When the premium was not paid by the due date, Principal Life sent a letter notifying Dr. Elter that his policy had entered the When Schwade was sued by a medical provider for services rendered, she plan. The plan administrator moved for summary judgment, arguing that Schwade had failed to exhaust her administrative remedies under the plan. The district court granted summary judgment to the administrator. In upholding the district court s decision, the Eleventh Circuit rejected Schwade s argument that her attorney s written expressions of disagreement with the administrative appeal, and noted that the attorney s letters, even if they could be considered an appeal, were untimely. Schwade also argued that she was excused from exhausting her administrative remedies because the plan administrator failed to follow its own claims procedures. The Eleventh Circuit rejected this argument, noting that the only remedy for such failure was to remand the case to the administrator, which Schwade had not requested. Additionally, the court rejected Schwade s argument that an appeal would have been futile, because she failed even to attempt an administrative remedy, and she pled only bare allegations of futility, rather than the clear and positive showing of futility required in the Eleventh Circuit. grace period and would terminate if the premium was not received by March 7, Receiving no payment, Principal March 7, 2008, that his policy had terminated. On March 16, 2008, the day after the Elters returned to North Carolina, Mrs. Elter discovered the March 7, 2008, termination notice. At the direction of their insurance agent, the premium
7 payment was mailed to Principal Life. Principal Life returned the late premium payment by letter dated March 21, 2008, informing Dr. Elter that the policy had terminated and providing instructions regarding the reinstatement process. The Elters took no further action with respect to the policy, and Dr. Elter died on September 18, On February 7, 2011, after being Department of Insurance that it did not have authority to require Principal Life to reinstate the under the policy. The issues presented on summary judgment were: (1) whether Dr. Elter s alleged incapacity excused his failure to make in a timely fashion the February 5, 2008 premium payment; and (2) whether Principal complied with the notice requirements of North Carolina General Statute Mrs. Elter contended that Dr. Elter s alleged incapacity at the time the premium payment was due and throughout the thirty-one-day grace period excuses his failure to timely make the February 5, 2008 premium payment. The Court distinguished Dr. Elter s policy from those that include provisions for waiver of premium in case of disability, noting that courts have consistently acknowledged that there is a material distinction between a failure to provide proof of disability and a failure to pay a premium. The court also held that the contract law doctrine of impossibility of performance was inapplicable, because [t]he condition of payment of the premium is a material part of the exchange so that it cannot be excused by incapacity. Finally, the court noted that insurance treatises uniformly recognize that the law does not excuse non-payment of premiums when due based on incapacity, absent a provision in the policy to the contrary. Mrs. Elter further argued that Principal Life failed to comply with North Carolina s lapse notice statute, and that a oneyear statutory grace period applied, rather than the 31-day grace period provided by the policy. Section , at base, requires the insurer to provide the insured with the necessary information to avoid default and to inform the insured of the consequences of failure to timely pay the premium. The court held that Principal Life s January 17, 2008, to satisfy and rejected Mrs. Elter s argument that the notice had to recite the statutory language verbatim. The notice served the statutory purpose of placing Dr. Elter on notice of the consequences of nonpayment of premium. The court thus granted summary judgment in favor of Principal Life. The case is on appeal in the Fourth Circuit. Death from Heat Exposure after Fall from Motorized Scooter Was Covered under Accidental Death Policy Genal v. Prudential Ins. Co. of Am., 2012 U.S. Dist. LEXIS (D.S.C. July 12, 2012) ERISA-governed accidental death insurance policy insuring his 74-year-old father, Gregory Genal, who died in The father had suffered from multiple sclerosis for approximately 25 years and used a wheelchair and a motorized scooter. The father was found unresponsive in his backyard with his scooter nearby in the grass. The police and medical examiner concluded that he had fallen from the scooter. The medical examiner listed the cause of death as Environmental Heat Exposure Complicating Multiple Sclerosis. Prudential denied Genal s claim for that the death was caused or contributed to by multiple sclerosis. Prudential relied on a policy provision stating that life resulting directly from an accidental bodily injury and from no other cause, and on an exclusion for death resulting directly or indirectly from sickness. Prudential s medical director opined there were two events resulting in the scooter, but there was no evidence of physical trauma from the fall. Second, because the insured was unable to get up, he was exposed to two days of environmental heat. Prudential argued that but for the multiple sclerosis, the insured would have been able to remove himself from exposure to the elements after he fell. CONTINUED ON PAGE 8>> 7
8 CONTINUED FROM PAGE 7>> The district court analyzed the claim under a two-part test previously adopted by the Fourth Circuit Court of Appeals. First, a court is to determine whether there was a pre-existing disease, predisposition, or susceptibility to injury, and then whether it substantially contributed to the loss. See Adkins v. Reliance Standard Life Ins. Co., 917 F.2d 794 (4th Cir. 1990); Quesinberry v. Life Ins. Co. of N. Am., 987 F.2d 1017, 1028 (4th Cir. 1993) (when policy language limits coverage to losses caused by accident directly and independently of all other causes, a pre-existing condition which contributes to the loss does not bar recovery under an ERISA policy unless the pre-existing condition substantially contributed to the disability or loss ). Thus, a direct and independent cause does not mean that a plaintiff must prove that an accident was the sole cause of death. Rather, Genal only needed to establish that his father s multiple sclerosis did not substantially contribute to the death. See Pegram v. Prudential Ins. Co., 2009 U.S. Dist. LEXIS (E.D. Va. 2009). The court noted that the father s death was triggered by his fall from the scooter, not by his multiple sclerosis. But for the fall, he would not have died. Therefore, the fall substantially contributed to his death. However, Prudential s expert concluded that the insured died directly from heat exposure, and from no other cause. Had the insured fallen in his home, he would not have been subjected to heat exposure. Therefore, the multiple sclerosis did not substantially contribute to his death. Second, the court concluded that the sickness exclusion was not applicable, because the insured s pre-existing after his fall from the scooter, the insured s multiple sclerosis did not demise. Rather, it was the fall and heat exposure which directly contributed to his death. Accordingly, the court held the exclusion did not apply and that Genal s claim for accidental death 8 Availability of Equitable Remedies under ERISA Permitted Amended Pleadings and Additional Evidence Israel v. Prudential Ins. Co., 2012 U.S. Dist. LEXIS (D.S.C. July 31, 2012) As a participant in his employer s ERISA plan, Israel selected term life insurance to cover his wife. Under the terms of dependent would lose coverage in the event of a divorce from the participating employee. administrative record, Israel alleged that after he and his wife separated in September 2009, he called his told he could continue his wife s group life insurance during the separation and after the divorce. Because the defendants had no record of the call, they vigorously denied the alleged conversation. and his ex-wife died in July Prudential accepted premiums during the separation and after the divorce. When Israel submitted a claim for life wife s death, Prudential denied the claim because, as a result of the divorce, dependent eligible for coverage. attorney s fees under ERISA, and state law claims for negligence, gross negligence, and negligent misrepresentation. After the case was removed to federal court, Israel sought to amend his complaint to dismiss the state law causes of action, to add claims for a return of premiums and the equitable remedies of reformation, estoppel, and a return of premiums under 29 U.S.C. 1132(a)(3). The district court permitted Israel to amend his complaint to seek additional equitable remedies under ERISA. The court concluded that the Supreme Court s decision in Cigna Corporation v. Amara, 131 S.Ct. 1866, 179 L. Ed. 2d 843 (2011), and the Fourth Circuit s decision in McCravy v. Metropolitan Life Insurance Co., 2012 U.S. App. LEXIS (4th Cir. July 5, 2012), made clear that equitable relief is available to a plaintiff pursuing a claim under 1132(a)(3), and that they constituted new controlling case law that had issued The court also permitted Israel s conversation during which he allegedly was told he could continue group life insurance coverage for his ex-wife through the separation and after the divorce. Relying on Quesinberry v. Life Insurance Co. of North America, 987 F.2d 1017 (4th Cir. 1993), the court found that the heart of the equitable relief issues and therefore constituted additional evidence necessary to determine the outcome of the case. Finally, although the court granted the defendants motion for summary judgment on Israel s claim for a return of premiums (they had long since been returned) and his claim for death denied the defendants motion for summary judgment on the remaining equitable claims. The court held that Israel s claims for equitable relief under 1132(a) (3) required intensive factual determinations, including whether the alleged November 2009 telephone call took place, whether Israel was reliably informed that his ex-wife s coverage would continue after their divorce, and whether Israel received a copy of the summary plan document or the policy language that would have put him on notice as to the policy terms. The court s was presented about these questions, thus making summary judgment improper on the claims for equitable relief.
9 and Attorney s Fees against Personal Injury Lawyer AirTran Airways, Inc. v. Elem, Case No. 1:10-cv ODE (N.D. Ga. Oct. 22, 2012) AirTran sued Elem and her personal injury attorney under section 502(a)(3) of ERISA, 29 U.S.C. 1132(a)(3), for reimbursement of more than $131,000 for medical expenses incurred by Elem due to injuries sustained in a motor vehicle accident. against the responsible driver. Despite the fact that AirTran provided Elem and her attorney with notice of the plan s subrogation and reimbursement rights, the personal injury lawsuit was settled and the settlement funds were distributed to Elem and the attorney without reimbursing the plan. The personal injury lawsuit settled for $500,000, but the attorney reported to AirTran that the case had settled for only $25,000, and asked AirTran to accept $4,500 to resolve the reimbursement claim. AirTran discovered the true amount of the settlement, and invoked section 502(a)(3) to impose an equitable lien to recover the full amount the possession of Elem and the attorney, along with attorney s fees and costs under section 502(g)(1) of ERISA. summary judgment. AirTran argued that it was entitled to full reimbursement from the settlement fund under Zurich Am. Ins. Co. v. O Hara, 604 F.3d 1232 (11th Cir. 2010). Elem and her attorney argued that the plan should not be reimbursed, most notably because (1) Elem had not been made whole by the settlement, and therefore, reimbursement to the plan did not constitute appropriate equitable relief, and (2) a large portion of the plan treatment of a knee condition that preexisted the motor vehicle accident. The court granted summary judgment to AirTran, noting that the plan expressly disclaimed application of the make called anti-subrogation statute, O.C.G.A Because the plan was self-funded by AirTran, the Georgia law was preempted by ERISA. The court noted O Hara s that in the Eleventh Circuit the make whole doctrine is a default rule that and unambiguous language precluding [its application]. While noting the Supreme Court s grant of certiorari in U.S. Airways v. McCutchen, 663 F.3d 671 (3d Cir. 2011), in which the Third Circuit disagreed with O Hara, the court elected to proceed under existing Eleventh Circuit precedent. The court further rejected Elem s argument that her knee condition preexisted the motor vehicle accident, contrary in her personal injury lawsuit to maximize the damages she could obtain in that action. Elem had previously denied under oath that a pre-existing injury contributed to her damages from the accident. But [n]ow that the issue [was] what Ms. Elem has to pay back for her medical coverage, the court noted that Elem and her attorney changed their story in an attempt to exclude alleged pre-existing injuries from her reimbursement obligations. The court invoked judicial estoppel to prevent [t]his calculated change of position in response to the exigencies of the moment. Finally, the court awarded attorney s fees to AirTran against the attorney and substantial lengths to avoid disclosing $475,000 of the settlement, and further, that under clear Eleventh Circuit precedent, the make whole doctrine never even arguably applied. 9
10 Plaintiff Can Pursue Claim for Breach of Fiduciary Duty Based on Misrepresentation by Plan Administrator 2012 U.S. Dist. LEXIS (W.D.N.C. Oct. 1, 2012) Strickland became disabled and retired in 1998, but he remained eligible for plan. Strickland then applied for social The Social Security Administration apparently told Strickland that the plan would continue as his primary would be the secondary payor, and that Medicare Part B coverage was therefore unnecessary. Strickland alleged that the plan administrator told him the same thing. As a result, Strickland purchased only Medicare Part A coverage. In 2006, Strickland underwent knee and shoulder surgery. The plan the claims would be covered by workers compensation. When that proved to be untrue, the administrator paid the claims as the presumed primary payor. However, under the terms of the plan, Strickland was required to enroll in Medicare Part B as soon as he became eligible for it. Strickland had not done so, and once the plan administrator payments previously made to the medical providers. Those medical providers then sent bills to Strickland and demanded was upheld on administrative review of summary judgment, both of which the court denied. First, the court denied the plan s motion, holding that Strickland was entitled to seek equitable relief, even if he had a remedy under another provision of ERISA. The court stated that [i]n light of the Supreme Court s decision in Amara and the Fourth Circuit s interpretation in McCravy,. equitable relief is now available. In addition, the court held that Strickland was not required to raise his breach of noted that surcharge or make-whole relief was appropriate equitable relief, and therefore Strickland was not precluded from recovery based on the written terms of the plan. However, the court found genuine issues of material fact that precluded the grant of Strickland s motion for summary judgment. Strickland alleged that the plan administrator told him he did not need Medicare Part B coverage, yet transcripts of two telephone conversations showed that Strickland referred only to representations by the Social Security Administration. Similarly, there was a dispute over Strickland s coverage. There was also an unresolved issue of whether the administrator s original payment of the claims affected the reasonableness of Strickland s reliance on the alleged misrepresentations. Strickland s suit could go forward but would not be decided at the summary judgment stage. TRICARE Contractor s Recoupment of Funds Not Barred by Voluntary Payment Doctrine The Medical Center, Inc. v. Humana Military Healthcare Services, Inc., 2012 U.S. Dist. LEXIS (M.D. Ga. Aug. 10, 2012) Humana Military Healthcare Services, as a TRICARE contractor, and PGBA LLC, as a subcontractor, recouped claim overpayments that had been made to The Medical Center by offsetting the overpayments against future claim payments. The Medical Center sued and argued primarily that HMHS was barred from recovering the overpayments under a state law voluntary payment doctrine. Under the Hospital Agreement between HMHS and the Medical Center, the hospital agreed to abide by all TRICARE policies and procedures. The Hospital Agreement authorized HMHS to deduct monies that may otherwise be due 10 and payable to [Medical Center] from any outstanding monies that [Medical Center] may, for any reason, owe to HMHS. The TRICARE Handbook requested that a provider return any duplicate payments or overpayments made for it provided that if such overpayments were not returned then PGBA may, after written notice, offset the amount of double payment against future claim payments. HMHS and PGBA moved for summary judgment on the grounds of federal preemption and that the voluntary payment doctrine did not apply in light of the contractual agreements between HMHS and The Medical Center. The court agreed with the latter argument, concluding that because a contractual agreement exists between Medical Center and HMHS providing for the offset of overpayments against future claims, the voluntary payment doctrine does not make the overpayments nonrefundable to HMHS. In light of its ruling on state law grounds, the court found it unnecessary to reach the preemption issue.
11 Statute of Limitation for Breach of Fiduciary Duty Claim D.E.W. Plumbing Incorporated v. Domestic Mortgage, Inc., 2012 U.S. Dist. LEXIS (N.D. Ga. July 3, 2012) contribution pension plan, of which Fishman was the plan administrator. It was undisputed that Fishman loaned $45,000 of the plan s assets to Domestic Mortgage, a company owned and controlled by Fishman and his children. to conceal the prohibited transaction by reviewing, signing and approving false. D.E.W. Plumbing sued Fishman and Domestic Mortgage for breach of transaction between the plan and a party in interest, in violation of ERISA, 29 U.S.C. 1106(a). The only issue before the district court on a motion for partial summary judgment was whether the claim was time-barred under 29 U.S.C. 1113, which provides a three-year statute of limitation for that in the case of fraud or concealment, such action may be commenced not later than six years after the date of discovery of such breach or violation. August 19, 2010, the court said, the earliest possible date that the Plaintiffs could have acquired actual knowledge of the breach and still not have been barred by the statute of limitations is August 19, The parties disputed whether D.E.W. Plumbing had actual knowledge of the breach in late 2004 or as early as February The district court assumed for the purpose of the motion that D.E.W. Plumbing had actual notice in February 2001 in order to address the equitable tolling doctrine that is read into every federal statute of limitations, which may halt the statute of limitations while the defendant conceals his bad behavior. Fishman had acknowledged his liability and had assured D.E.W. Plumbing of repayment if it refrained from suing him in 2005, in August 2008, and in January The court found that [t]his may be enough to toll the statute of limitations, but declined to decide the issue on summary judgment because D.E.W. Plumbing s reply brief. A Message from the editors Sanders Carter Kent Coppage Aaron Pohlmann informative. Covering issues as varied as ERISA s anti-retaliation provision and the role of a state law voluntary payment doctrine in TRICARE recoupment claims, the current issue includes contributions from the Smith Moore Leatherwood attorneys pictured below. Contributors to this Issue From left to right: Matthew Creech (Greensboro, NC), Nikole Crow (Atlanta, Ga), Kip Nelson (Greensboro, NC), Jennifer Rathman (Atlanta, Ga), Peter Rutledge (Greenville, SC), and Neil Thomson (Charleston, SC). 11
12 Attorneys at Law Smith Moore Leatherwood LLP Attorneys at Law Atlantic Center Plaza 1180 W. Peachtree St. NW Suite 2300 Atlanta, GA T: (404) F: (404) Attorneys at Law ERISA and Life Insurance Litigation Smith Moore Leatherwood s ERISA and Life Insurance Litigation Team has earned a national reputation for excellence. The Team is comprised of attorneys who have represented ERISA entities and insurers in hundreds of cases in federal and state courts throughout the nation. In addition to claims brought federal and state RICO Acts, the ADA, class actions, discriminatory underwriting claims, actions involving allegations of agent misconduct, and breach of contract claims for the recovery of life, ATLANTA CHARLESTON CHARLOTTE GREENSBORO GREENVILLE RALEIGH WILMINGTON Smith Moore Leatherwood LLP Attorneys at Law