How to Tell if an Insurance Claim is Preempted by ERISA
By Eric L. Buchanan
I. Introduction: What is ERISA?
If your client obtained his or her insurance coverage at work, then any claim under that policy may be preempted by the Employee Retirement Income Security Act of 1974 (ERISA). For example, claims for long-term disability benefits, life insurance or health insurance benefits are ERISA claims in most cases, if the insurance was provided through work.
ERISA is a comprehensive Federal statute that applies to many claims related to employee benefits. ERISA is a complicated area of the law that throws up many hurdles that stand between employees (and their attorneys) and their insurance benefits if the insurance coverage is provided as an employee benefit.
ERISA was passed in response to a significant perceived problem, that employee benefits were subject to varying, and often conflicting state laws, and that employee’s rights were not adequately protected by state laws. Employees often had significantly different rights depending on the state in which they worked, while large, multi-state companies often had conflicting obligations.
Congress also perceived problems involving possible corruption and self-dealing involving large pension plans. In order to provide Federal oversight of employee pensions and uniform national standards, Congress enacted ERISA to regulate employee pension plan. At the last minute, ERISA was amended to include other employee benefits, including such employee welfare benefits as health care coverage, long-term disability insurance, life insurance and other similar benefits provided to employees by private employers. Thus, ERISA applies to two broad categories of employment benefits, pension benefits and welfare benefits.
The intent of Congress in enacting ERISA was to protect the “interest of participants in employee benefit plans . . . by establishing standards of conduct, responsibility, and obligation for fiduciaries of employee benefit plans, and by providing for appropriate remedies, sanctions, and ready access to the Federal courts. .” 29 U.S.C. § 1001(b). The language of the ERISA statute draws heavily from trust law as well as contract law. Congress instructed the courts to develop a common law of ERISA, using both trust and contract principals. The Department of Labor also has authority to issue regulations governing the processing of ERISA claims.
II. ERISA Preemption
ERISA “shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan … .” ERISA § 514(a), 29 U.S.C. § 1144(a). A saving clause then provides that some state laws are not preempted: “nothing in this subchapter shall be construed to exempt or relieve any person from any law of any State which regulates insurance, banking, or securities.” ERISA § 514(b)(2)(A), 29 U.S.C. § 1144(b)(2)(A).
In order for a state law to survive preemption by ERISA, the state law must be one that regulates insurance. As opposed to a state laws of general application that have some bearing on insurers. Kentucky Association of Health Plans, Inc. v. Miller, 538 U.S. 329, 123 S.Ct. 1471 (2003), citing ERISA, § 514(b)(2)(A), 29 U.S.C.A. § 1144(b)(2)(A). In order for a state law to survive ERISA preemption as a law regulating insurance, “it must satisfy two requirements. First, the state law must be specifically directed toward entities engaged in insurance. . . Second, as explained above, the state law must substantially affect the risk pooling arrangement between the insurer and the insured.” Kentucky Ass’n of Health Plans, Inc. v. Miller, 538 U.S. at 342 (2003).
ERISA preemption also means that almost all employee benefits plans that provide such benefits as health insurance, life insurance or disability insurance are regulated under Federal ERISA law; however, plans sponsored by governmental employers and churches are not usually preempted by ERISA. ERISA § 4(a), 29 U.S.C. § 1003(a) provides that ERISA
shall apply to any employee benefit plan if it is established or maintained—
(1) by any employer engaged in commerce or in any industry or activity affecting commerce; or
(2) by any employee organization or organizations representing employees engaged in commerce or in any industry or activity affecting commerce; or
(3) by both.
However, ERISA does not apply to all employee benefit plans. ERISA § 4(b), 29 U.S.C. § 1003(b) provides:
(b) The provisions of this subchapter shall not apply to any employee benefit plan if–
(1) such plan is a governmental plan (as defined in §3(32) [29 U.S.C. § 1002(32) of this title);
(2) such plan is a church plan (as defined in §3(33) [29 U.S.C. § 1002(33) of this title) with respect to which no election has been made under section 410(d) of the Internal Revenue Code of 1954 [Title 26];
(3) such plan is maintained solely for the purpose of complying with applicable workmen’s compensation laws or unemployment compensation or disability insurance laws;
(4) such plan is maintained outside of the United States primarily for the benefit of persons substantially all of whom are nonresident aliens; or
(5) such plan is an excess benefit plan (as defined in § 3 [29 U.S.C. § 1002(36)] of this title) and is unfunded.
II. What is an “employee benefit plan?”
ERISA benefits fit into two broad categories: employee pension benefit plans and employee welfare benefit plans. Insurance benefits are provided to employees through welfare benefit plans. ERISA defines a welfare benefits plan in ERISA §3, 29 U.S.C. § 1002 as follows:
The terms “employee welfare benefit plan” and “welfare plan” mean any plan, fund, or program which was heretofore or is hereafter established or maintained by an employer or by an employee organization, or by both, to the extent that such plan, fund, or program was established or is maintained for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise, (A) medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment, or vacation benefits, apprenticeship or other training programs, or day care centers, scholarship funds, or prepaid legal services. . .
A. When is a plan “established or maintained?”
While ERISA § 402(a)(1), 29 U.S.C. § 1102(a)(1) states that “every employee benefit plan shall be established and maintained pursuant to a written instrument,” courts have held that an ERISA plan may exist even without a written plan. The Court of Appeals for the Eleventh Circuit explained that, “ERISA does not . . . require a formal, written plan.” Donovan v. Dillingham, 688 F.2d 1367, 1372 (11th Cir. 1982)(en banc). The Dillingham Court set out the test to determine if an ERISA plan was established: “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.” Id, at 1373. The Dillingham test has been adopted by every circuit, and is the most cited case on haw to determine if a “plan” has been established. Jayne E. Zenglein, ERISA Litigation 8 (The Bureau of National Affairs 2003); see also Butero v. Royal Maccabees Life Ins. Co., 174 F.3d 1207, 1214 (11th Cir. 1999) and Williams v. WCI Steel Co.,Inc., 170 F.3d 598, 602 n.3 (6th Cir. 1999) (The Sixth Circuit reported that the Dillingham test had been adopted by every circuit).
However, not all insurance provided to employees fall under ERISA. The Department of Labor has issued regulations at 29 C.F.R. §2510.3-1(j), which clarify that certain insurance policies that are made available at work are not ERISA benefits. This is often referred to as the “safe harbor” provisions of ERISA. See, e.g. Anderson v. Unum Provident Corporation, 369 F.3d 1257, 1262 (11th Cir. 2004). The regulations explain that the definition of a “welfare plan,”
shall not include a group or group-type insurance program offered by an insurer to employees or members of an employee organization, under which
(1) No contributions are made by an employer or employee organization;
(2) Participation the program is completely voluntary for employees or members;
(3) The sole functions of the employer or employee organization with respect to the program are, without endorsing the program, to permit the insurer to publicize the program to employees or members, to collect premiums through payroll deductions or dues checkoffs and to remit them to the insurer; and
(4) The employer or employee organization receives no consideration in the form of cash or otherwise in connection with the program, other than reasonable compensation, excluding any profit, for administrative services actually rendered in connection with payroll deductions or dues checkoffs.
This exception is difficult to meet. In Anderson v. Unum Provident Corporation the Plaintiff presented evidence that the employer affirmatively took the position that ERISA did not apply to the long-term disability benefits insurance policy that was made available to its employees. Id at 1267. The “determination of whether ERISA governs the UNUM Plan does not turn on whether [the employer] intended the plan to be governed by ERISA, but rather on whether Shaw intended to establish or maintain a plan to provide benefits to its employees as part of the employment relationship.” Anderson v. Unum Provident Corporation, 369 F.3d at 1263-4 (emphasis in original). (Holding that “[i]f the UNUM Plan satisfies the statutory definition of an employee welfare benefit plan, then ERISA applies regardless of the intent of the plan administrators and fiduciaries.” A plan was established or maintained based on various factors, including the fact that the employer chose the insurance policy to be offered, the use of the employer’s emblem on claims forms, and the fact that the documents referred to ERISA, and the employer took no affirmative steps to remove the reference to ERISA from Unum’s documents until after litigation began.)
When the employer pays the premiums, that is almost universally held to be an ERISA plan. See generally, ERISA Litigation, supra, 13; see also Fugarino v. Hartford Life and Acc. Ins. Co., 969 F.2d 178, 183 (6th Cir. 1992) (abrogated on other grounds in Yates v. Hendon, 541 U.S. 1, 124 S.Ct. 1330, 159 L.Ed. 40 (2004)) and Randol v. Mid-West Nat. Life Ins. Co. of Tennessee, 987 F.2d 1547, 1551-2 (11th Cir. 1993).
The test in the Sixth Circuit to determine if a plan is an ERISA plan is set out in the Sixth Circuit case of Thompson v. American Home Assurance Co., 95 F.3d 429, 434-35 (6th Cir. 1996). This case provides for a detailed analysis of whether a plan is an ERISA plan.
First, the Court explained that
The existence of an ERISA plan is a question of fact, to be answered in light of all the surrounding circumstances and facts from the point of view of a reasonable person. See Credit Managers Ass’n of So. Calif. v. Kennesaw Life and Acc. Ins. Co., 809 F.2d 617, 625 (9th Cir.1987), citing Donovan v. Dillingham, 688 F.2d 1367, 1373 (11th Cir.1982) ( en banc ). Accord Gahn v. Allstate Life Ins. Co., 926 F.2d 1449, 1451 (5th Cir.1991); Wickman v. Northwestern Nat’l Ins. Co., 908 F.2d 1077, 1082 (1st Cir.), cert. denied,498 U.S. 1013, 111 S.Ct. 581, 112 L.Ed.2d 586 (1990).
95 F.3d at 434. The Court explained how this analysis works; first a court must conduct a three-part test:
In determining whether a plan is an ERISA plan, a district court must undertake a three-step factual inquiry. First, the court must apply the so-called “safe harbor” regulations established by the Department of Labor to determine whether the program was exempt from ERISA. Fugarino v. Hartford Life and Accident Ins. Co., 969 F.2d 178, 183 (6th Cir.1992), cert. denied,507 U.S. 966, 113 S.Ct. 1401, 122 L.Ed.2d 774 (1993). Second, the court must look to see if there was a “plan” by inquiring whether “from the surrounding circumstances a reasonable person [could] ascertain the intended benefits, the class of beneficiaries, the source of financing, and procedures for receiving benefits.” Int’l Resources, Inc. v. New York Life Ins. Co., 950 F.2d 294, 297 (6th Cir.1991) (citing Donovan, 688 F.2d at 1373), cert. denied,504 U.S. 973, 112 S.Ct. 2941, 119 L.Ed.2d 565 (1992). Finally, the court must ask whether the employer “established or maintained” the plan with the intent of providing benefits to its employees. See McDonald v. Provident Indem. Life Ins. Co., 60 F.3d 234, 236 (5th Cir.1995), cert. denied,516 U.S. 1174, 116 S.Ct. 1267, 134 L.Ed.2d 214 (1996); Hansen v. Continental Ins. Co., 940 F.2d 971, 977 (5th Cir.1991).FN1
FN1. Some courts collapse the first and third prongs of this analysis by interpreting the Department of Labor regulations as the indicia for determining whether a plan is established and maintained by the employer. See, e.g., Gahn, 926 F.2d at 1451. Since, however, those courts agree that even if a plan is not within the safe harbor, there must be an additional finding that the employer intended to establish or maintain a plan in order to find that an ERISA plan exists, see id., the court finds that breaking the analysis into three separate prongs is more logical.
95 F.3d at 434-5. At the first step, a court should determine whether a plan meets the “safe harbor” provisions.
Department of Labor (“DOL”) regulations set out a “safe harbor” provision that excludes an employee insurance policy from ERISA coverage if: (1) the employer makes no contribution to the policy; (2) employee participation in the policy is completely voluntary; (3) the employer’s sole functions are, without endorsing the policy, to permit the insurer to publicize the policy to employees, collect premiums through payroll deductions and remit them to the insurer; and (4) the employer receives no consideration in connection with the policy other than reasonable compensation for administrative services actually rendered in connection with payroll deduction. 29 C.F.R. § 2510.3-1(j). A policy will be exempted under ERISA only if all four of the “safe harbor” criteria are satisfied. Fugarino, 969 F.2d at 184, citing Hansen, 940 F.2d at 977. Accord Grimo, 34 F.3d at 150; Gahn, 926 F.2d at 1451; Kanne v. Connecticut General Life Ins. Co., 867 F.2d 489, 492 (9th Cir.1988) (per curiam), cert. denied,492 U.S. 906, 109 S.Ct. 3216, 106 L.Ed.2d 566 (1989).
95 F.3d at 435. Often, the third part of the test, whether the employer “endorsed the policy” is argued by insurers to establish ERISA preemption. In Thompson, the Court of Appeals adopted the test set out previously by the First Circuit in Johnson v. Watts Regulator Co., 63 F.3d 1129 (1st Cir.1995), which the Thompson Court summarized:
In Johnson, the First Circuit clarified the standards that govern a finding of endorsement, including its belief that “endorsement of a program requires more than merely recommending it.” 63 F.3d at 1136. According to the Johnson court,
[a]s long as the employer merely advises employees of the availability of group insurance, accepts payroll deductions, passes them on to the insurer, and performs other ministerial tasks that assist the insurer in publicizing the program, it will not be deemed to have endorsed the program under 29 C.F.R. § 2510.3-1(j)···· It is only when an employer purposes to do more, and takes substantial steps in that direction, that it offends the ideal of employer neutrality and brings ERISA into the picture.
Id. at 1133. The First Circuit further found that, while the Hansen court had relied on the employer’s intent in determining endorsement, the proper focus was on whether employees could reasonably conclude that the employer had endorsed the policy based on their observation of the employer’s activities in connection with the plan. 63 F.3d at 1134 & 1137 n. 6.
95 F.3d at 436. The Court of Appeals for the Sixth Circuit explained that this reasoning would be adopted in this Circuit, as correctly applying Congress’s intent:
The court finds that the First Circuit’s approach in Johnson is directly in keeping with Congress’ intentions in enacting ERISA. According to the Department of Labor, “employer neutrality is the key to the rationale for not treating such a program ··· as an employee benefit plan····” 40 Fed.Reg. 34,526 (1975). As the Johnson court noted, therefore, where the employer “offends the ideal of employer neutrality” as a result of its level of involvement, ERISA is properly invoked. 63 F.3d at 1133. “Where, however, the employer separates itself from the program, making it reasonably clear that the program is a third party’s offering, not subject to the employer’s control, then the safe harbor may be accessible.” Id. at 1137.
95 F.3d at 436. Thus, the Court of Appeals explained, the key element whether an employer endorsed a plan, is whether the employer acted neutrally.
The crucial task before the court, therefore, is to determine the set of circumstances in which employer neutrality is compromised to such an extent that ERISA should provide the governing framework. After reviewing the relevant case law, the court determines that a finding of endorsement is appropriate if, upon examining all the relevant circumstances, there is some factual showing on the record of substantial employer involvement in the creation or administration of the plan. See Hansen, 940 F.2d at 977 (requiring “some meaningful degree of participation by the employer in the creation or administration of the plan”). For example, where the employer plays an active role in either determining which employees will be eligible for coverage or in negotiating the terms of the policy or the benefits provided thereunder, the extent of employer involvement is inconsistent with “employer neutrality” and a finding of endorsement may be appropriate. See, e.g., Custer v. Pan American Life Ins. Co., 12 F.3d 410, 417 (4th Cir.1993) (considering, inter alia, employer’s role in negotiating terms and benefits of the policy in determining whether a plan should fall out of the safe harbor); Wickman, 908 F.2d at 1083 (considering, inter alia, employer’s role in devising eligibility requirements when determining the applicability of the safe harbor regulations). Similarly, where the employer is named as the plan administrator, a finding of endorsement may be appropriate. See, e.g., Kanne, 867 F.2d at 493; Shiffler v. Equitable Life Assur. Soc. of U.S., 838 F.2d 78, 82 n. 4 (3d Cir.1988) (both considering, inter alia, the employer’s role in administering the plan when determining whether to allow the policy to come under the safe harbor provision of the DOL regulation).
95 F.3d at 436. The test whether the employer “endorsed” the plan, is not measured from the point of view of the insurance company, but from the point of view of the employee, viewing the conduct of the employer:
The court agrees, however, with the holding of the Johnson court that the relevant framework for determining if endorsement exists is to examine the employer’s involvement in the creation or administration of the policy from the employees’ point of view. Johnson, 63 F.3d at 1134 & 1137 n. 6. Accordingly, in evaluating an employer’s role in the creation and administration of a plan, emphasis should be placed on those circumstances which would allow an employee to reasonably conclude that the employer had compromised its neutrality in offering the plan. Thus, for example, where the employer provides a summary plan description that specifically refers to ERISA in laying out the employee’s rights under the policy or that explicitly states that the plan is governed by ERISA, the employee is entitled to presume that the employer’s actions indicate involvement sufficient to bring the plan within the ERISA framework. See Johnson, 63 F.3d at 1137 n. 5 (protective filing of ERISA form with the Department of Labor is insufficient to prove employer endorsed a policy in the absence of any evidence that the employees knew of this filing); Kanne, 867 F.2d at 493 (where employer, inter alia, distributed a summary plan description detailing the employees rights under ERISA, the safe harbor regulations were inapplicable); Wickman, 908 F.2d at 1083 (same). See also Hansen, 940 F.2d at 976 (finding that an ERISA plan existed because an employer letter accompanying the plan suggested, although without referring to ERISA, that it had endorsed the program).
95 F.3d at 436-7. In Thompson, the Court found that the employer did not endorse the plan.
While, like in Hansen, the insurance policy here included an introductory letter encouraging employees to obtain accident insurance, that letter was not printed on Burns’ letterhead, nor did it refer to the accident insurance policy as Burns’ plan. Further, while Burns’ name was featured on the cover of the policy description, this fact may be as consistent with identification as endorsement, depending on what the evidence on remand shows concerning the circumstances of its placement. The policy documentation submitted as an exhibit on appeal nowhere mentions that the policy is subject to ERISA, nor does it set out a description of an employee’s rights under ERISA. It is unclear from the record whether Burns acts as an administrator, nor is it clear whether Burns participated in either devising the terms of the policy or in processing claims, although the record does indicate that Thompson submitted her claim directly to American Home. The court finds that such evidence presents a material question of fact as to whether Burns endorsed the policy under the DOL regulation. See Johnson, 63 F.3d at 1135 n. 3 (“The question of endorsement vel non is a mixed question of fact and law. In some cases the evidence will point unerringly in one direction so that a rational factfinder can reach but one conclusion. In those cases, endorsement is a question of law···· In other cases, the legal significance of the facts is less certain, and the outcome will depend on inferences that the factfinder chooses to draw···· In those cases, endorsement becomes a question of fact. This case is of the latter type.”) (citations omitted).
95 F.3d at 437. In remanding the claim, the Court of Appeals gave specific instructions as to what factors a trial court should consider:
The district court’s further consideration of this issue, whether in the context of a renewed summary judgment motion based on a more complete factual record or at trial, should take into account, but is not limited to, Burns’s role in administering benefits under the plan, whether the policy language itself contemplates the application of ERISA, and Burns’s role in determining eligibility and coverage. The crucial question is whether Burns was substantially involved in the creation and administration of the plan to such an extent that employees could reasonably conclude that Burns had endorsed the plan. Further, if the district court determines that the policy is not excluded from ERISA coverage under the safe harbor regulations, the court on remand must also determine that a “plan” exists under the standards set forth in Int’l Resources, Inc., 950 F.2d at 297 (a “plan” exists if “from the surrounding circumstances a reasonable person [could] ascertain the intended benefits, the class of beneficiaries, the source of financing, and procedures for receiving benefits”). See also Dist. of Columbia v. Greater Wash. Bd. of Trade, 506 U.S. 125, 131 n. 2, 113 S.Ct. 580, 584 n. 2, 121 L.Ed.2d 513 (1992); Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 12, 107 S.Ct. 2211, 2218, 96 L.Ed.2d 1 (1987); Belanger v. Wyman-Gordon Co., 71 F.3d 451, 454 (1st Cir.1995) (all defining “plan”). Furthermore, the district court must conclude that Burns “established or maintained” the plan with an intent to provide benefits to its employees. See McDonald, 60 F.3d at 236; Hansen, 940 F.2d at 977 (“In addition to some meaningful degree of participation by the employer in the creation or administration of the plan, the statute requires that the employer have had a purpose to provide health insurance, accident insurance or other specified types of benefits to its employees. 29 U.S.C. § 1002(1). Thus, ··· the evidence must show that the employer had an intent to provide its employees with a welfare benefit program through the purchase and maintenance of [the] group insurance policy.”) (internal citation omitted). Only upon completing this three-step factual inquiry can a district court ascertain that an ERISA plan exists, thus requiring the application of the federal common law of ERISA to the underlying insurance claim.
95 F.3d at 437-8. More recent decisions have relied on Thompson and the analysis set fourth in that case. The Court of Appeals found that ERISA did apply in the unpublished case of Nicholas v. Standard Ins. Co., 48 Fed.Appx. 557 (6th Cir., 2002). (Finding that ERISA did apply, where the insurance agent who sold the policy testified that he helped procure employee benefits for the employer, where the employer was named as the plan administrator, and the documents specifically referred to ERISA. Id at 564)
IV. Who is covered under a plan?
A. Employees are covered.
ERISA § 3(7), 29 U.S.C. § 1002(7) defines a “participant” as “any employee or former employee of an employer, … who is or may become eligible to receive a benefit of any type from an employee benefit plan which covers employees of such employer …, or whose beneficiaries may be eligible to receive any such benefit.” An “Employee,” is defined as “any individual employed by an employer,” ERISA § 3(6), 29 U.S.C. § 1002(6).
B. Independent Contractors are not covered.
A person must be an “employee” to be covered by an ERISA plan. In Nationwide Mutual Insurance Company v. Darden, 503 U.S. 318, 112 S.Ct. 1344, (1992) the Supreme Court adopted the “common law” definition of an “employee” using traditional agency law principals. Id at 323. The Court held that the following factors should be used:
1) the hiring party’s right to control the manner and means by which the product is accomplished.
2) the skill required
3) the source of the instrumentalities and tools;
4) the location of the work;
5) the duration of the relationship between the parties;
6) whether the hiring party has the right to assign additional projects to the hired party;
7) the extent of the hired party’s discretion over when and how long to work;
8) the method of payment;
9) the hired party’s role in hiring and paying assistants;
10) whether the work is part of the regular business of the hiring party;
11) whether the hiring party is in business;
12) the provision of employee benefits;
13) and the tax treatment of the hired party.
Id, at 323-4, numbering not in original. The Court explained that no factor was dispositive; rather, “since the common-law test contains no shorthand formula or magic phrase that can be applied to find the answer, … all of the incidents of the relationship must be assessed and weighed with no one factor being decisive.” Id, at 324 (internal quotes and citations omitted).
C. Employers may or may not be covered.
The general rule addressing whether an employer is also an “employee” and covered by ERISA is whether or not other employee are also covered under the plan. Yates v. Hendon, 541 U.S. 1, 124 S.Ct. 1330, 1335, 159 L.Ed. 40 (2004). The ERISA regulations explain that:
(1) An individual and his or her spouse shall not be deemed to be employees with respect to a trade or business, whether incorporated or unincorporated, which is wholly owned by the individual or by the individual and his or her spouse, and
(2) A partner in a partnership and his or her spouse shall not be deemed to be employees with respect to the partnership.
29 C.F.R. § 2510.3-3(c). In the Yates case, Dr. Yates argued that his contributions to his company profit-sharing plan should be covered by ERISA, to avoid having his recent loan repayments to that plan treated as preferential payments when he filed bankruptcy; if the plan was under ERISA the money could stay in the plan and not be part of his bankruptcy estate.
The Court found that the definition of “employee” in ERISA was “completely circular and explains nothing.” Id, at 1339. The Court found that a working owner can have dual status as both an employer and employee entitled to participate in the plan. Id, at 1341. The Court overturned lower court decisions that held an owner could never be a participant in an ERISA plan. Id, at 1342-3. However, the Court left open the general interpretation of ERISA application, that an employer may not be covered where no other employees are covered by the Plan. We argue this issue as follows:
D. Policies which only insure working owners are not governed by ERISA.
In a case arising out of the Eastern District of Tennessee, the Supreme Court has stated that “[p]lans that cover only sole owners . . . fall outside [ERISA]. Plans covering working owners and their nonowner employees, on the other hand, fall entirely within ERISA’s compass.” Raymond B. Yates, M.D., P.C. Profit Sharing Plan v. Hendon, 541 U.S. 1, 21 (2004). Yates tells us that while working owners are capable of being considered employees as well as employers for the purposes of ERISA if a plan covers both employees and employers, benefit plans which cover only working owners and/or their spouses do not fall under the guise of ERISA. Id. Such a result seems clear when the root purpose of ERISA is contemplated: “to remedy abuses by employers who manage . . . plan assets held in trust for workers . . . .” In re Watson, 161 F.3d 593, 598 (9th Cir. 1998) (citing Schwartz v. Gordon, 761 F.2d 864, 868 (2d Cir. 1985)). Congress had no reason to extend ERISA coverage to plans in which self-employed individuals provide benefits for themselves, as there was no potential for abuse. Id. “Self interest provides adequate protection.” Id.
This is consistent with the regulation relied on by the Court in Yates:
29 C.F.R. § 2510.3-3, which states: “[T]he term ‘employee benefit plan’ [as used in Title I] shall not include any plan … under which no employees are participants”; “ [f]or purposes of this section,” “[a]n individual and his or her spouse shall not be deemed to be employees with respect to a … business” they own . . . . The Labor Department’s Advisory Opinion 99-04A . . . interprets the regulation to mean that the statutory term “employee benefit plan” does not include a plan whose only participants are the owner and his or her spouse . . . .
Yates, 541 U.S. at 4.
V. Some types of “plans” are not ERISA plans.A. Payroll practices are not ERISA “plans.”
The Department of Labor has explicitly excluded certain employee benefits from ERISA if those benefits meet the definition of certain payroll practices.
(b) Payroll practices. For purposes of Title I of the Act and this chapter, the terms “employee welfare benefit plan” and “welfare plan” shall not include–
(1) Payment by an employer of compensation on account of work performed by an employee, including compensation at a rate in excess of the normal rate of compensation on account of performance of duties under other than ordinary circumstances, such as–
(i) Overtime pay,
(ii) Shift premiums,
(iii) Holiday premiums,
(iv) Weekend premiums;
(2) Payment of an employee’s normal compensation, out of the employer’s general assets, on account of periods of time during which the employee is physically or mentally unable to perform his or her duties, or is otherwise absent for medical reasons (such as pregnancy, a physical examination or psychiatric treatment); and
(3) Payment of compensation, out of the employer’s general assets, on account of periods of time during which the employee, although physically and mentally able to perform his or her duties and not absent for medical reasons (such as pregnancy, a physical examination or psychiatric treatment) performs no duties; for example–
(i) Payment of compensation while an employee is on vacation or absent on a holiday, including payment of premiums to induce employees to take vacations at a time favorable to the employer for business reasons,
(ii) Payment of compensation to an employee who is absent while on active military duty,
(iii) Payment of compensation while an employee is absent for the purpose of serving as a juror or testifying in official proceedings,
(iv) Payment of compensation on account of periods of time during which an employee performs little or no productive work while engaged in training (whether or not subsidized in whole or in part by Federal, State or local government funds), and
(v) Payment of compensation to an employee who is relieved of duties while on sabbatical leave or while pursuing further education.
29 C.F.R. § 2510.3-1; see also Massachusetts v. Morash, 109 S.Ct. 1668 (1989) and Stern v. International Business Machines Corp., 326 F.3d 1367 (11th Cir. 2003) (an employee benefit providing continued pay while the employee is unable to work due to sickness or injury was exempted from ERISA by regulation. Even if the employer filed a “form 5500 and treated the plan as an ERISA plan, that does not overcome the regulatory exemption).
B. Benefits provided by governmental entities are not ERISA “plans.”
ERISA § 4(b), 29 U.S.C. § 1003(b) states that the provisions of ERISA “shall not apply to any employee benefit plan if—(1)such plan is a governmental plan (as defined in § 3(32)). That section further defines a governmental plan as: “a plan established or maintained for its employees by the Government of the United States, by the government of any State or political subdivision thereof, or by any agency or instrumentality of any of the foregoing.” ERISA §3(32), 29 U.S.C. § 1002(32).
C. Church plans are not “ERISA” plans unless the employer “opts in” to ERISA.
ERISA § 4(b)(2), 29 U.S.C. § 1003(b)(2) likewise exempts “church plans (as defined in §3(33) with respect to which no election has been made under §410(d) of the internal revenue code. . .” A Church Plan is “a plan established and maintained (to the extent required in clause (ii) of subparagraph (B)) for its employees (or their beneficiaries) by a church or by a convention or association of churches which is exempt from tax under section 501 of Title 26.” ERISA §3(33), 29 U.S.C. § 1002(33). “An organization, whether a civil law corporation or otherwise, is associated with a church or a convention or association of churches if it shares common religious bonds and convictions with that church or convention or association of churches.” ERISA § 3(33(C)(iv), 29 U.S.C. § 1002(33)(C)(iv).
Furthermore, a church plan may not “opt in” just by saying that it has. A church can elect to have participation, vesting, funding, and other provisions under the tax laws apply to it, even though church plans are normally excluded if it “opts in” in the manner prescribed by the Secretary; an election under Internal Revenue Code with respect to any church plan is irrevocable. IRC §410(d), 26 U.S.C. § 410(d). The Treasury regulations, at 26 C.F.R. § 1.410(d)-1 state that the election must be made by the plan administrator for the church plan. 26 C.F.R. § 1.410(d)-1(c)(2). The Plan Administrator must make a statement that an election is made under § 410(d) and must state the first year that election is effective. 26 C.F.R. § 1.410(d)-1(c)(5). That statement of election must be attached to the annual return filed for the first year such election is effective or attached to a written request for a determination letter. 26 C.F.R. § 1.410(d)-1(c)(3). Simply filing a form 5500 is not enough. See, e.g. Stern v. International Business Machines Corp., 326 F.3d 1367 (11th Cir. 2003) (in a non-church plan case, the Court held that an employer’s filing of a form 5500 does not make a non-ERISA plan into an ERISA plan.)
Furthermore, it has been held that even when an election is made, ERISA does not apply until the election has been filed. Catholic Charities of Maine, Inc. v. City of Portland, 319 F.Supp.2d 88 (D.Me. 2004).
It has been held that a plaintiff may not rely on a mere allegation that a plan is a “church plan” in order to avoid ERISA. Duckett v. Blue Cross and Blue Shield of Alabama, 75 F.Supp.2d 1310 (M.D.Ala.1999) (Holding that the Plaintiff, who claimed ERISA should not apply, should have produced evidence, including tax records or evidence that the controlling board was appointed by the church. Plaintiff failed to take discovery of such information, relying on the name of the employer as “Baptist” Health Services, thereby failing to overcome the Defendant’s motion for summary judgment by having no evidence to create a genuine issue of material fact.)
VI. Avoiding ERISA
If an insurer claims ERISA applies, and you have a good faith argument that one of the above exemptions applies, make them prove it. “The burden of establishing the existence of an ERISA plan is on [the insurer].” Zavora v. Paul Revere Life Ins. Co., 145 F.3d 1118, 1121 n 2 (9th Cir. 1997).
Whether an ERISA plan exists is a question of fact, Thompson v. American Home Assur. Co., 95 F.3d 429 (6th Cir. 1996), and mere conclusory allegations that an ERISA Plan was established is insufficient to support a finding that an ERISA plan has been established. See, e.g., Arkansas Book Co., 794 F.2d 358 (8th Cir. 1986); Scott v. Gulf Oil Corp., 754 F.2d 1499 (9th Cir. 1985). Crespo v. Candela Laser Corp., 780 F. Supp. 866 (D. Mass. 1992); Molyneaux v. Arthur Guinners & Sons, P.L.C., 616 F. Supp. 240, 243 (S.D. N.Y. 1985).
Some insurance policies that were originally issued as part of an ERISA plan may not longer be covered by ERISA is the employee converted the policy to an individual policy. Mizrahi v. Provident Life and Accident Ins. Co., 994 F.Supp. 1452, 1453-54 (S.D. Fla. 1998); Loudermilch v. The New England Mutual Life Ins. Co., 942 F.Supp. 1434, 1437 (S.D. Ala. 1996) (where the employer-company contributing to the ERISA plan is sold, makes no further contributions to the participant’s plan, and has no further involvement in the plan, the plan converts to an individual insurance policy outside the rubric of ERISA); but see, Glass v. United of Omaha Life Ins. Co., 33 F.3d 1341, 1346 (11th Cir.1994) (holding that ERISA governed a converted policy when the former employee’s ability to obtain the converted policy continued to be integrally linked with the original plan). At least one Circuit has expressly disagreed with this logic, holding that while the right to convert remains subject to ERISA, the conversion policies themselves do not. Demars v. CIGNA Corp., 173 F.3d 443, 450 (1st Cir.1999).
If an employee converts a plan to an individual policy, ERISA may still apply. Paul Revere Life Ins. Co. v. Bromberg, 382 F.3d 33 (1st Cir. 2004) (where the employee resigned due to his disability and began making his own payments, and applied for disability six months after his resignation, ERISA still applied because his claimed onset date of disability was the date he left employment.) Contrast this to Waks v. Empire Blue Cross/Blue Shield, 263 F.3d 872, 874 (9th Cir.2001) (the injury causing disability occurred three years after conversion); Owens v. UNUM Life Ins. Co., 285 F.Supp.2d 778, 780 (E.D.Tex.2003) (disability occurred eleven years after conversion).
If the employee keeps the same policy, but begins making his own payments, that may not be enough to convert the policy in some Circuits. See, e.g. Massachusetts Cas. Ins. Co. v. Reynolds, 113 F.3d 1450 (6th Cir. 1997). (where employer provide employees with various individual policies and employee’s same policy remained in effect without change it was “continuation coverage” and, therefore, related to an employee benefit plan.) See also Painter v. Golden Rule Ins. Co., 121 F.3d 436 (8th Cir.1997) (holding state law claims under a converted policy are preempted by ERISA because the converted policy resulted from the exercise of a right under an ERISA plan).
VII. So what if ERISA applies?
After nearly 30 years of case law, ERISA benefits litigation has become a dangerous landscape, with pitfalls and mine fields full of traps for the unwary. ERISA limits the remedy of a claim in a benefits case to the benefits that should have been paid under the plan, plus maybe attorneys’ fees, but precludes other state law remedies, such as claims for bad faith failure to pay an insurance claim, or fraud, and ERISA precludes punitive damages or other state law remedies.
ERISA also lives in its own world of civil procedure, where ordinary rules do not ordinarily apply. For example, a claimant must first present all evidence to the insurance company and appeal all of the insurance policies internal appeals before filing a suit. Once a suit is filed, a claimant usually may not submit more evidence to be considered, and generally no discovery is permitted regarding the merits of the claim; a court instead reviews only those documents that were before the insurance.
Additionally, when reviewing the limited record, most claims are reviewed by the court under a standard of review that is deferential to the decision made by the insurance company. In broad strokes, the case law holds that laws that provide additional remedies or causes of action outside of ERISA are still preempted, while state laws that regulate insurance in other ways may not be. If ERISA applies, most claims should be filed in federal court (except for claims that are limited to claims for benefits over which state courts have concurrent jurisdiction), and if a plaintiff files a claim that is properly preempted by ERISA, the defendant may remove the claim to federal court without regard to the well-pled complaint rule. 29 U.S.C. § 1132(e).
ERISA claims can be successfully litigated, if the attorney is knowledgeable of ERISA procedures; however, ERISA litigation strategies are beyond the scope of this paper. Rather, the purpose of this paper is to address how to tell if a claim is preempted by ERISA.
VIII. ERISA Procedures Pre-litigation
Before filing a law suit, a claimant must exhaust the available remedies under the plan, so long as the plan’s procedures be reasonable. Following ERISA’s enactment in 1974, the Secretary of Labor issued a set of regulations describing reasonable claims procedures. 29 C.F.R § 2560.503-1, as published at 42 Fed. Reg. 27426 (May 27, 1977). The regulations were recently overhauled, and “new” claims regulations were published. 65 Fed. Reg. 70265 (Nov. 21, 2000), with minor amendments published at 66 Fed.Reg. 35887 (July 9, 2001). In regards to claims for disability benefits, the “old” regulations apply to claims filed prior to January 1, 2002, and the “new” regulations apply to claims filed after that date; the regulations have a later effective date for health care claims.
The claims regulations requires that every plan shall establish and maintain reasonable claims procedures. 29 C.F.R. § 2560.503-1. At a minimum, a reasonable claims procedure must be described in the summary plan description, and must not be administered in a manner that unduly inhibits or hampers the filing or processing of claims. Pursuant to a “written request,” plan procedures must allow claimants to “review pertinent documents” and “submit issues and comments in writing.”
A claimant may submit a written request for plan documents; if the administrator does not provide the documents within 30 days, the claimant may seek a penalty of up to $110 per day after the 30 days. 29 U.S.C. § 1132(c)(1). At any time a participant may request copies of any summary plan descriptions, insurance policies and other documents under which the plan is established or operated. 29 U.S.C. § 1024(b)(4). If there has been an adverse claim determination, the claims regulations require that all the documents pertinent or relevant to the claim should be provided to the claimant.
The claims regulations also establish maximum time limits for an administrator to consider a claim and minimum time for a claimant to appeal. If a claimant does not appeal within the time limits, his claim will likely be denied for failure to exhaust administrative remedies. The time-deadlines and basic requirements of the regulations are as follows:
Under 29 CFR 2560.503-1, to be reasonable, claims procedures that apply to disability claims under the new DOL claims regulations (claims filed after January 1, 2002) require:
The plan must provide reasonable claims procedures, including making timely decisions and allowing certain minimum times to appeal. After the initial claim is filed, the plan/claim administrator must make a decision within certain time limits.
For a disability claim:
- the administrator must make a decision within 45 days; however, if the administrator determines that “special circumstances” require an extension of time” the administrator may take two extensions of 30 days if it notifies the claimant in writing that it needs more time. 29 C.F.R. § 2560.503-1(f)(1) and (3).
- If denied, the time to file an appeal must be reasonable, but not less than 180 days.
For health care claims, several different time limits apply, depending on the type of health care claim.
- For “urgent care claims” the administrator must notify the claimant of its decision, whether adverse or not, within 72 hours, unless the claimant fails to give the administrator all the information it needs. If the administrator determines it did not receive all the information it needs, it must notify the claimant of that fact within 24 hours of receipt of the claim. If the administrator determines not enough information is provided, the administrator must give the claimant a “reasonable time” of at least 48 hours to provide the information. A decision on the claim must be made within 48 hours after the claimant provides the information to the administrator or within 48 hours of that the time expires to provide such information. 29 C.F.R. § 2560.503-1(f)(2)(i).
- For “concurrent care decisions” (where the insurance company or administrator has agreed to provide ongoing periodic treatments)
- If the administrator decides to stop or reduce the treatments, it must give the claimant its decision, allow a time to appeal, and allow for additional time for its final decision before benefits can be reduced. 29 C.F.R. § 2560.503-1(f)(2)(ii)(A).
- If the claimant requests an extension of treatments beyond what was originally approved, the administrator or insurance company must make a decision within 24 hours of the request for extension, so long as the request is made at least 24 hours before the expiration of the course of treatment that was approved. 29 C.F.R. § 2560.503-1(f)(2)(ii)(B). Any appeal of any denial of ongoing treatment shall be made within the time limits for “urgent care claims,” if it is an “urgent care claim” (48 hours); however, if it is not an “urgent care claim” then the time deadline is the same as it would be for ordinary “pre-service” or “post-service” claims (discussed below). Id.
- For “pre-service claims” (where approval is sought before the medical service is provided) the insurance company or administrator must notify the claimant of the decision, whether favorable or not, “within a reasonable period of time appropriate to the medical circumstances” but not later than 15 days after receipt of the claim. The administrator may extend that time by another 15 days if it “determines that such an extension is necessary due to matters beyond the control of the plan” an notifies the claimant in writing. 29 C.F.R. § 2560.503-1(f)(2)(iii)(A). If the administrator determines the extension is necessary because the claimant failed to provide information necessary to decide the claim, the claimant shall be afforded 45 days from receipt of notice to provide such information. Id.
- For “post-service claims” the insurance company or administrator must notify the claimant of any adverse decision within 30 days of the receipt of the claim, which may be extended one time for 15 days if the administrator “determines that such an extension is necessary due to matters beyond the control of the plan” and notifies the claimant of such in writing before the original 30 days expires. 29 C.F.R. § 2560.503-1(f)(2)(iii)(B). If the administrator determines the extension is necessary because the claimant failed to provide information necessary to decide the claim, the claimant shall be afforded 45 days from receipt of notice to provide such information. Id.
For other claims that do not involve disability benefits or health care claims, the administrator may take up to 90 days to make a decision, which can be extended for another 90 days if “special circumstances require” additional time, as determined by the administrator. 29 C.F.R. § 2560.503-1(f)(1).
If the administrator fails to make a decision within the time required, the claimant’s claim is “deemed exhausted” and the claimant may file a complaint in court under ERISA § 502(a)(1)(B).
Under 29 CFR 2560.503-1, to be reasonable, claims procedures that apply to disability claims under the old DOL claims regulations (for claims filed before January 1, 2002) require:
The ERISA welfare benefits claims regulations were amended in 2001; however, the regulations from before the amendments sill apply to claims that were originally filed prior to January 1, 2002. While it would be almost impossible for any medical care claim to fall under the old regs, disability claims that have been paid benefits for a few years would always be governed by the old regulations if the claimant first filed his or her claim prior to January 1, 2002.
The old regulations still require that the plan must provide reasonable claim procedures, but there are some minor differences in what is defined as a reasonable claims procedure.
A big difference in the old regulations is the time deadlines, which, for disability claims, give more time to the insurance company or administrator and less time to the claimant. Specifically, an initial decision must be made within 90 days after the application, which can be extended by 90 days. The time to file an appeal must be reasonable and related to the nature of the benefit but not less than 60 days. The decision on appeal must be made within 60 days, which can be extended another 60 days.
If the administrator does not make a decision within the required time limit, the claim may be deemed denied.
IX. ERISA Litigation Procedures
A. Basic Procedures
The Court of Appeals for the Sixth Circuit has established procedures to guide courts in considering such claims in Wilkins v. Baptist Healthcare Systems, Inc., 150 F.3d 609 (6th Cir. 1998). Under Wilkins, the Court of Appeals explained that during judicial review of an ERISA claim for plan benefits the district court’s review is “based on the record before the administrator.” Wilkins at 617-8. The Court of Appeals held that such cases are neither properly resolved using a bench trial, nor by ordinary summary judgment procedures, but rather by means of judicial review of the record, wherein a district court issues a judgment on the record, considering the evidence before the decision-maker, the ERISA documents, and counsel’s arguments.
B. Standard of Review
A plan participant is entitled to seek judicial review if a plan fails to pay plan benefits. 29 U.S.C. § 1132(a)(1)(B). For such claims, the Court of Appeals explained in Wilkins, at 613:
With respect to review of the plan administrator’s denial of benefits, both the district court and this court review de novo the plan administrator’s denial of ERISA benefits, unless the benefit plan gives the plan administrator discretionary authority to determine eligibility for benefits or to construe the terms of the plan. See Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989).
The Supreme Court explained in Firestone Tire, at 110,
ERISA abounds with the language and terminology of trust law. See, e.g., 29 U.S.C. § § 1002(7) (“participant”), 1002(8) (“beneficiary”), 1002(21)(A) (“fiduciary”), 1103(a) (“trustee”), 1104 (“fiduciary duties”). ERISA’s legislative history confirms that the Act’s fiduciary responsibility provisions, 29 U.S.C. § § 1101-1114, “codif[y] and mak[e] applicable to [ERISA] fiduciaries certain principles developed in the evolution of the law of trusts.” H.R.Rep. No. 93-533, p. 11 (1973), U.S.Code Cong. & Admin.News 1974, pp. 4639, 4649. . . In determining the appropriate standard of review for actions under § 1132(a)(1)(B), we are guided by principles of trust law. Central States, Southeast and Southwest Areas Pension Fund v. Central Transport, Inc., 472 U.S. 559, 570, 105 S.Ct. 2833, 2840, 86 L.Ed.2d 447 (1985).
The Supreme Court’s analysis in Firestone Tire explains that,
ERISA was enacted “to promote the interests of employees and their beneficiaries in employee benefit plans,” Shaw v. Delta Airlines, Inc., 463 U.S. 85, 90, 103 S.Ct. 2890, 2896, 77 L.Ed.2d 490 (1983), and “to protect contractually defined benefits,” Massachusetts Mutual Life Ins. Co. v. Russell, 473 U.S., at 148, 105 S.Ct., at 3093. See generally 29 U.S.C. § 1001 (setting forth congressional findings and declarations of policy regarding ERISA).
Id at 113. Because of that, and other reasoning found in the Court’s decision, the Court held that the presumed standard of review to be applied by district courts under § 1132 (a)(1)(B) is de novo.
However, the Court further explained that because plan administrators are “trustees” or otherwise can act in a fiduciary capacity, that the de novo standard does not apply if the “plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan.” Id, at 115. Thus “a deferential standard of review appropriate when a trustee exercises discretionary powers.” Id, at 111.
In reality, this has become the exception that has swallowed the rule. Very quickly after Firestone Tire was decided, plan documents were amended to include language granting discretion to the administrator; now almost every plan claims that its decisions should be reviewed under the arbitrary and capricious standard of review. To make matters worse, in the Sixth Circuit, almost any language giving authority to an administrator to make a determination has been interpreted to be grant of discretion.
Since almost every plan contains magic language that creates a deferential standard of review, the issue that courts must address is whether an administrator’s decision should be given less deference if the administrator acted under a conflict of interest. The Court of Appeals has recently explained:
We note, however, that our deferential review of the benefit denial at issue here is tempered by . . . the fact that the Plan is funded largely by Defendant/Appellee Emerson Electric, and that the EBC is appointed by Emerson’s Board of Directors. The “possible conflict of interest” inherent in this situation “should be taken into account as a factor in determining whether the [EBC’s] decision was arbitrary and capricious.” Davis [v. Kentucky Finance Cos. Retirement Plan], 887 F.2d , 694; see also Borda v. Hardy, Lewis, Pollard & Page, P.C., 138 F.3d 1062, 1069 (6th Cir.1998).
University Hospitals of Cleveland v. Emerson Elec. Co., 202 F.3d 839, 846-7 (6th Cir 2000). “There is an actual, readily apparent conflict here, not a mere potential for one” when the insurance company/plan administrator is the insurer that ultimately pays the benefits. Darland v. Fortis Benefits Ins. Co., 317 F.3d 516, 527 (6thCir. 2003), quoting from Killian v. Healthsource Provident Adm’rs, Inc., 152 F.3d 514, 521 (6th Cir .1998).
When a plan administrator regularly relies on the same medical experts, this also shows the insurance company is acting with a conflict of interest. Those medical experts have an incentive to help a plan administrator deny claims in order to save the plan administrator money and in turn continue to be paid to review cases. As the Court of appeals explained in Darland v. Fortis Benefits Ins. Co., 317 F.3d 516, 528 (6th Cir. 2003):
As the plan administrator, Fortis had a “clear incentive” to contract with a company whose medical experts were inclined to find in its favor that Darland was not entitled to continued LTD benefits. Regula v. Delta Family-Care Disability Survivorship Plan, 266 F.3d 1130, 1143 (9th Cir.2001) (noting “the conflict of interest inherent when benefit plans repeatedly hire particular physicians as experts” since “these experts have a clear incentive to make a finding of ‘not disabled’ in order to save their employers money and to preserve their own consulting arrangements”). Accordingly, the existence of an apparent conflict of interest must be taken into account as a “factor in determining whether there is an abuse of discretion.” Firestone Tire & Rubber Co., 489 U.S. at 115.
“Under principles of equity, a trustee bears an unwavering duty of complete loyalty to the beneficiary of the trust, to the exclusion of the interests of all other parties. Restatement (Second) of Trusts § 170 (1) (1957); 2 A. Scott, Law of Trusts § 170 (1967). To deter the trustee from all temptation and to prevent any possible injury to the beneficiary, the rule against a trustee dividing his loyalties must be enforced with “uncompromising rigidity.” Meinhard v. Salmon, 249 N.Y. 458, 464, 164 N.E. 545, 546 (Cardozo, C. J.). A fiduciary cannot contend “that although he had conflicting interests, he served his masters equally well or that his primary loyalty was not weakened by the pull of his secondary one.” Woods v. City National Bank & Trust Co., 312 U.S. 262, 269.”
In Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355, 122 S.Ct. 2151 (2002), the Supreme Court noted that:
[i]n Firestone Tire itself, we noted that review for abuse of discretion would home in on any conflict of interest on the plan fiduciary’s part, if a conflict was plausibly raised. That last observation was underscored only two Terms ago in Pegram v. Herdrich, 530 U.S. 211 (2000), when we again noted the potential for conflict when an HMO makes decisions about appropriate treatment, see id., at 219-20. It is a fair question just how deferential review can be when the judicial eye is peeled for conflict of interest.
Rush Prudential, 536 U.S. at 384 fn. 15.
However, even though most plan’s decisions are now reviewed under an “arbitrary and capricious” or “abuse of discretion” standard of review, the Supreme Court recently held in Metropolitan Life Ins. Co. v. Glenn, 128 S.Ct. 2343 (2008) that when courts consider cases where the ERISA decisionmaker also has a financial interest in the case, such as when an insurance company both makes a decision and would pay any benefits due out of its own funds, that this creates a conflict of interest. The Supreme Court explained that courts should consider the “dual role” of an entity as an ERISA plan administrator and payer of plan benefits as a factor in determining whether the plan administrator has abused its discretion in denying benefits, with the significance of the factor depending upon the circumstances of the particular case.
X. Other issues:
Disability benefits are often reduced by an offset for other benefits, such as social security benefits, worker’s compensation benefits or other benefits paid on account of disability; read the plan documents carefully. If your client is paid disability benefits under an ERISA plan, and later is awarded social security or worker’s compensation benefits, the insurance company may claim an overpayment. Your client may or may not have to repay the “overpaid” benefits, but you need to be familiar with ERISA law to address this.
Your client may have other benefits available at work that are payable based on a finding of disability under the company LTD plan or the benefits may require a seprerate application (a waiver of life insurance premiums is common). Be sure you ask the employer/plan administrator whether such other benefits are available and what should be done to apply for them.
Generally, there is no treating physician rule in ERISA claims, rather the terms of the plan apply. Read the plan carefully to see what mistakes the insurance company made. For example, many denials state the reason for the denial is a lack of objective evidence, while the actual plan does not require “objective evidence” to establish disability.
XI. Mistakes to avoid:
1. Do not assume you can add more evidence later; submit all your evidence early to ensure it will be before the court.
2. Do not ignore the insurance company’s or plan administrator’s deadlines.
3. Do not file suit until you have exhausted all your remedies.
4. Do not assume your client’s treating doctor’s conclusory opinion or a worker’s compensation rating is enough to establish disability; you must establish restrictions and limitations to support that your client cannot work.
5. Ensure you submit vocational evidence such as proof your client cannot do his own job as it is described in his job description or the Dictionary of Occupational Titles. If your client needs to show he is totally disabled, submit the opinion of a vocational expert that his restrictions would preclude work under the definition of disability in the plan.
6. Screen your cases carefully-the standard of review gives a huge advantage to the insurance company.
7. Do not ignore the plan’s contractual statute of limitations; it may be shorter than the regular statute of limitations, but a court will likely uphold it.
8. Figure out the financial value of the claim, and figure out any offsets.
9. Do not file an appeal until you are ready and do not miss appeal deadlines. Never tell your client to go appeal on his or her own and come back if denied.
10. If you are not going to handle the case yourself, refer it to an attorney who handles ERISA cases early before the client appeals and while there is still time to work up the case properly.
Plaintiffs may successfully litigate ERISA claims, but their attorneys’ hands are tied. ERISA limits discovery, limits damages to the amount due under the plan (plus possibly attorneys’ fees), often allows the insurer a deferential standard of review, limits evidence to that information that was provided during the administrative appeals process, does not allow for jury trials, and usually involves litigating in federal court.
A Plaintiff’s attorney should try to avoid ERISA in most cases; however, if ERISA applies, the attorney should know that before working on the case.