Legal Summary: Harris-Frye v. United of Omaha Life Insurance Company

 No. 1:14-CV-72, 2015 WL 5562193 (E.D. Tenn. June 1, 2015) (Report and Recommendation)

2015 WL 5562196 (E.D. Tenn. Sept. 21, 2015) (final order)

This case started because we wanted to help our client get a straight answer as to why United of Omaha refused to pay the life insurance that covered her father through his union when he passed away.  The final court opinion addressed other ways we were able to help our client.

The life insurance covered union employees while they worked at union jobs.  Because work might be intermittent for carpenters’ union members, the union plan provided that coverage under insurance policies could be “banked” for up to three months of coverage when a person was not working.  So, if a person gets sick and passes away while not working, one issue under the insurance policy and union rules is when the life insurance coverage ends.  In the process of helping, we also found out that life insurance coverage could be continued for someone who becomes disabled before the coverage ends.

In this case, the court asked the United States Magistrate Judge to issue a “Report and Recommendation” (“R&R), which is not the final decision of the court but could be, if neither side objected.

The Magistrate Judge ruled for our client on the most important issue, which was that the insurance company did not follow the language in the policy and in the union rules.  Harris-Frye v. United of Omaha Life Ins. Co., No. 1:14-CV-72-HSM-SKL, 2015 WL 5562193 (E.D. Tenn. June 1, 2015) (the Report and Recommendation (R&R)).  Rather than determining whether he was disabled at the time the coverage ended, the insurance company tried to say the test was whether the union member was disabled when he stopped working.  The Magistrate Judge ruled that was wrong, and no one appealed that issue.  So, the court ordered the insurance company to properly consider whether he was disabled at the time coverage ended; if so, life insurance would be paid.  Harris-Frye v. United of Omaha Life Ins. Co., No. 1:14-CV-72, 2015 WL 5562196, at *2 (E.D. Tenn. Sept. 21, 2015) (The final order adopting part of the R&R and rejecting part (“final order”)).

Other issues were appealed, so the court addressed them in more detail, ultimately adopting part of the R&R and overruling part of the R&R in the final order.

One big issue addressed by the court in the final order dealt with the fact that the union refused to provide our client with the insurance policy and other plan documents that explained the rules about the life insurance case. The union, as plan administrator, did not provide those documents until after the case was in court.  Because the union/plan administrator failed to provide the documents on time (within 30 days of a written request), they should have to pay our client penalties under ERISA § 502(c). Final Order, at *2-4.

We wrote three different letters to the union, asking for our client’s life insurance policy and other documents that controlled the terms of the plan.  R&R at *4-7.  Other than a few pages out of the summary plan description, the union did not provide any of the documents they should have provided until well after we were in court on the case.

We also asked for the documents from the insurance company, who eventually provided us a copy of the insurance policy.  We told the union we got the insurance policy from the life insurance company.  The court awarded penalties for the failure of the union to provide the life insurance policy from the time we requested the documents plus 30 days (when penalties start) until we told the union we got the documents.  The court awarded our client $12,760, at $110 for 116 days, from the time penalties started, until the union learned we got the policy.  The court rejected the union’s argument that the penalties should have stopped when we got the documents about a month earlier, not when they learned we got the documents.  The court rejected that argument; the court explained that it was up to the union, as plan administrator, to provide the documents, and the purpose of the penalties is to punish administrators who don’t respond properly to requests, so the court assessed the full penalty. Final Order, at *4.

In addition to the insurance policy, we requested, on behalf of our client, any other plan documents that controlled the plan, including the “plan document,” or the master plan document maintained by the union setting forth the rules for its benefits plans.  Id., at *9.  The union argued that the booklet it had provided, the “summary plan description,” was the controlling plan document, so they did not have to produce the actual plan, even though we requested it. Id.

The court rejected the union’s arguments on two grounds.  First, the court pointed out, at *9, that the U.S. Supreme Court had explained in CIGNA Corp. v. Amara, 563 U.S. 421 (2011) that “summary documents, important as they are, provide communication with beneficiaries about the plan, but that their statements do not themselves constitute the terms of the plan for purposes of § 502(a)(1)(B).” (emphasis in original). The court explained that the plan is the official version of the rules and that an SPD is not (except in cases where the SPD is expressly incorporated or is the only document). Harris-Frye, at *9-10.  Second, the SPD in this case expressly said that it was NOT the “Plan Document,” and that “If there is any difference between the Plan Document and the summary in this booklet, the Plan Document will control.” Id., at *10. (emphasis added by the court).  So, the court ruled, the union should have provided us the master plan document and was in violation of ERISA § 502(c) for not providing it.

In calculating the amount of the penalty, the court had to determine when the documents should have been provided and how much the penalty should be for each day they documents were late.  In determining the day the documents were due, the court gave the union “the benefit of the doubt” that the first two requests for plan documents “may have been ambiguous,” but the third request clearly was not. Id., at *11.  The start date for penalties for those documents was 30 days after the third request.  Id.  The court then explained:

Given Defendant Board of Trustees’ deliberate choice not to respond to Plaintiff’s unambiguous third request for documents, and Defendants failure to respond at all to either the second or third request for documents, (see Doc. 39 at 15–16), the Court finds that assessing the maximum penalty is appropriate in this case. Accordingly, Defendant Board of Trustees will be assessed a penalty of $61,380.00 for its failure to furnish a copy of the Plan Document, calculated at $110.00 per day for the 558 days between May 31, 2013 and December 10, 2014. This penalty is in addition to the $12,760.00 for Defendant Board of Trustees’ failure to provide a copy of the Policy.

Id., at *11 (emphasis in original).  Thus, the court awarded a total of $74,140 in penalties because the union refused to provide her the documents that set out the rules governing the life insurance claim.