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DECEMBER

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ERISA & LIFE INSURANCE NEWS Cover ing ERISA and Life, Health and Disability Insurance Litigation

INSIDE THIS ISSUE Proof “Satisfactory to the Insurer” Held Insufficient to Confer Discretionary Authority

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Fatal Motorcycle Crash under Influence of Alcohol and Marijuana Not an Accident Under ERISA Plan

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Methamphetamine Held Not a “Narcotic” Under Exclusion in Life Insurance Policy

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Court Applies Federal Common Law Presumption Against Death by Suicide

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Offer of Settlement Did Not Constitute Appeal of ERISA Claims Determination

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Failure to Identify TPA in the Plan Does Not Defeat Delegation of Discretion

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No Viable Claim Exists Under § 502(a)(3) Where Relief Is Available Under § 502(a)(1)(B)

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Substantial Evidence Supported Termination of Disability Benefits, Despite Social Security Award

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Summary Plan Descriptions and Language of Discretion after CIGNA Corp. v. Amara

In CIGNA Corp. v. Amara, 563 U.S. __, 131 S.Ct. 1866, 1878 (2011), the Supreme Court concluded that summary plan descriptions, “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).” Since Amara, the lower courts with relative uniformity have declined to give effect to a grant of discretion found in a summary plan description but absent from the plan document. See, e.g., Ingorvaia v. Reliastar Life Ins. Co., __ F. Supp. 2d __, 2013 WL 2006689, at *2 (S.D. Cal. May 14, 2013) (“where the SPD is not incorporated, or the plan is not otherwise amended to include the SPD’s terms, the SPD’s terms are not binding”); Messer v. Prudential Life Ins. Co. of Am., 2013 WL 1319391, at *8 (W.D.N.C. Mar. 29, 2013) (“the SPD is not part of the Plan and therefore cannot grant discretionary authority to the administrator.”) continued on page 2 >>


Indeed, even before Amara, a number of circuit courts had refused grants of discretionary authority contained only in the SPD. These courts held “that a grant of discretion to the plan administrator, appearing only in a summary plan description, does not vest the administrator with discretion where the policy provides a mechanism for amendment and disclaims the power of the summary plan description to alter the plan.” Jobe v. Medical Life Ins. Co., 598 F.3d 478, 484 (8th Cir. 2010). Exceptions This general principle is not without some exceptions. Thus, for example, where the SPD is actually part of the plan, the language of discretion in that document may be given effect. Eugene S. v. Horizon Blue Cross Blue Shield of N.J., 663 F.3d 1124, 1131 (10th Cir. 2011) (“the insurer must demonstrate that the SPD is part of the Plan, for example, by the SPD clearly stating on its face that it is part of the Plan”).

document.” In Maly v. Trustees of Local 309 Wireman’s Pension Trust, 2013 WL 1317970 (E.D. Mo. Mar. 29, 2013), for example, the court found effective a grant of discretion contained in both the trust and the SPD where it was nonetheless absent from the plan document. “The primacy of the Trust over other Plan Documents,” the court reasoned,“is expressed in . . . the Plan which provides that ‘the Plan may be amended at any time in accordance with the Trust Agreement.’” Maly, 2013 WL 1317970, at *5.

...the absence of discretionary language in the plan document itself is at least going to complicate the standard of review argument.

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Similarly, in Ehas v. Life Insurance Company of North America, 2012 WL 5989215 (N.D. Ill. Nov. 29, 2012), the court concluded that The terms of the SPD may be enforced language of discretion appearing in both where there is no “master plan document” the SPD and an “Appointment of Claim and “the SPD is the plan.” Henderson v. Fiduciary” document would have resulted in Hartford Life and Acc. Ins. Co., 2012 WL deferential review, absent a state insurance 2419961, at *5 (D. Utah June 26, 2012); regulation prohibiting discretionary clauses. but see Wilson v.Walgreen Income Protection The court rejected the argument that Plan for Pharmacists and Registered Nurses, Amara significantly undercut earlier Seventh Walgreen Co., 2013 WL 1799599 (M.D. Circuit precedent in Raybourne v. Cigna Life Fla. Apr. 29, 2013) (rejecting argument Insurance Company, 576 F.3d 444 (7th Cir. that language of discretion in SPD applied 2009), where the court gave effect to a because it was the only plan document, grant of discretionary authority contained where the SPD “did not conform to all of in a Claim Fiduciary Agreement. the requirements of section 1102(b)”). “Although Amara made clear that the terms Related to this, some post-Amara decisions of an SPD are not synonymous with the have applied language of discretion terms of the plan,” the court in Ehas wrote, found in documents other than the “plan “Plaintiff goes too far in arguing that this 2

| ERISA and Life Insurance News | December 2013

conclusion – which the Court made in the context of addressing the larger issue of the propriety of the district court’s remedy under ERISA – is at odds with Raybourne.” Ehas, 2012 WL 5989215, at *4. By contrast, the court in Rada v. Cox Enterprises, Inc., 2012 WL 3262867 (D. Nev. Aug. 7, 2012), declined to apply a grant of discretion found in an administrative services contract. Citing Amara, the court held that a “document that is not ‘itself part of the plan’ cannot confer discretionary power on an entity.” Rada, 2012 WL 3262867, at *4. Rather, such documents have been upheld “only when they are integrated with the plan itself in some way,” the court wrote. Id. The administrative services contract, according to the court, was “not part of the plan, integrated or otherwise, and is not distributed to employees.” Id. That last phrase – “not distributed to employees” – leads to another issue. When the SPD is Silent Even after Amara, the notion of looking at “a series of documents” to find discretion may retain some viability. As a general proposition, however, the absence of discretionary language in the plan document itself is at least going to complicate the standard of review argument. What about the converse situation? What is the result now when the plan document contains a clear grant of discretion but the SPD is silent? Related to that, what is the effect of a failure to distribute an SPD or other document containing the grant of discretion? In short, what are the notice requirements for grants of discretionary authority? Historically, many courts held that “where the plan documents and the summary plan


description conflict, the SPD controls.” Tocker v. Philip Morris Cos., Inc., 470 F.3d 481, 487 (2d Cir. 2006). Nonetheless, many courts have been untroubled by the absence of discretionary language in an SPD when the plan document contained such language. In Tocker, for instance, the Second Circuit held that “the level of discretion reserved to a plan administrator is not a ‘condition [ ] which must be met before a participant will be eligible to receive benefits,’ 29 C.F.R. § 2520.102-3(j)(1).” 470 F.3d at 488. “Nor is it a circumstance which may result in denial of benefits within the meaning of 29 U.S.C. § 1022(b),” the court reasoned. Id. Moreover, the participant was unlikely to show prejudice resulting from the absence of the language. Id., citing Mario v. P & C Food Markets, Inc., 313 F.3d 758, 764 (2d Cir. 2002) (the standard of review “simply fixes the procedure to be followed after a denial has occurred, and therefore a plan participant cannot be prejudiced by a lack of knowledge about that procedure”). The absence of notice was a problem for the court in Mangum v. Metropolitan Life Insurance Company, 2011 WL 466814 (D. Ore. Feb. 4, 2011), where the court refused to give effect to a grant of discretion contained only in an SPD that was not distributed to the participant. “[T]he SPD is the primary way in which plan participants are apprised of their rights and obligations under the contract,” the court wrote. Mangum, 2011 WL 466814, at *3. The absence of notice – in a different sense – was also at issue in the Seventh Circuit’s decision in Herzberger v. Standard Insurance Company, 205 F.3d 327, 331 (7th Cir. 2000), where the court went so far as to draft “safe harbor” language of discretion for use by plan employers in plan creation. The

“satisfactory proof” language of the plan at issue in that case was insufficient and did “not give the employee adequate notice that the plan administrator is to make a judgment largely insulated from judicial review by reason of being discretionary,” the court reasoned. 205 F.3d at 332. The court then added: “The employees are entitled to know what they’re getting into, and so if the employer is going to reserve a broad, unchanneled discretion to deny claims, the employees should be told about this, and told clearly.” Id. at 333. Actual Notice is Unnecessary Relying on this language from Herzberger, a claimant argued that de novo review was appropriate because she did not receive the plan documents containing a grant of discretion. In Thurber v. Aetna Life Insurance Company, 712 F.3d 654 (2d Cir. 2013), the Second Circuit rejected that argument and rendered a decision that will be helpful in countering arguments against deferential review based upon a putative lack of notice, whether it results from a silent SPD or the inability to prove that the participant received the applicable plan documents. The participant in Thurber brought an action against Aetna following the company’s denial of her claim for long term disability benefits. Exercising a deferential standard of review, the district court entered summary judgment in favor of Aetna on the plaintiff’s benefits claim. On appeal, the plaintiff asserted that she never received the plan documents which contained the grant of discretionary authority to Aetna and that her claim should have been reviewed on a de novo basis as a result. Both the plan document and the summary plan description contained sufficient language of discretion, a fact conceded by the plaintiff at oral argument. Nonetheless,

she argued that there was no evidence that she received anything other than a booklet which did not contain such language. Relying upon Herzberger, the plaintiff argued “that she must have received actual notice of Aetna’s reservation of discretion before Aetna’s denial of benefits is entitled to deferential review.” 712 F.3d at 659. The court disagreed with the plaintiff’s argument, noting that Herzberger “did not in any way involve, and the court’s language did not address, a situation in which the plan’s language did unambiguously provide for discretion (as did the SPD), but the employee seeking benefits had not received a copy of either document.” Id. “That a court will review benefits determinations de novo unless the plan documents clearly specify a reservation of discretion,” the court continued, “does not imply that such a reservation must be specifically conveyed to all members of the plan.” Id. If the Herzberger decision could be interpreted as the plaintiff suggested, the court wrote, “we cannot detect any basis in law or the statute to support this position.” Id. Further explicating its position, the Second Circuit pointed out that the Supreme Court’s decision in Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989) had said “nothing about whether the SPD or other plan documents must contain language clearly reserving discretion – Firestone refers to the plan itself.” Id. Moreover, “although plan participants are entitled to receive copies of the SPD . . . , the administrator of an ERISA plan has no obligation to ensure that participants receive copies of the plan itself.” Id. The issue thus devolved to whether ERISA required the SPD to contain the language relative to the standard of review. continued on page 4 >>

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Barring that, the court saw “no reason why a plan administrator must actually notify a participant of its reservation of discretion.” Id. “ERISA contains no such edict,” the court concluded. As a result, that Thurber “did not have actual notice of Aetna’s reservation of discretion [was] of no consequence.” Id. Addressing potential policy arguments, the Second Circuit acknowledged the possibility of “strong arguments that plan provisions that affect the basic terms of the plan, or ones that affect what an applicant must do to become eligible for benefits, should be conveyed directly to plan beneficiaries and not buried in a lengthy and technical contract.” Id. at 659-60. Such arguments, the court reasoned, “do not apply to a provision that is effectively addressed not to the beneficiary, but only to a reviewing court that must act only after an application has been denied.” Id. at 660. But see Cosey v. Prudential Ins. Co. of Am., 735 F.3d 161 (4th Cir. 2013) (“It is critical that employees understand the broad range of a plan administrator’s authority....”). Uniformity of application was also important to the court. Thus, “a standard that focuses on the language of the plan raises a purely legal standard of review for all participants in the same plan.” Id. “In contrast,” the court noted, “an actual notice standard would make the standard of review different for each individual applicant, based on resolution by reviewing courts of factual disputes – which will frequently pit a participant’s fallible and self-interested memory against a plan administrator’s reliance on evidence of standard practice – about whether the particular participant received a copy of the relevant documents.” Id.

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The Supreme Court’s decision in Amara played no stated role in the Second Circuit’s Thurber decision and indeed was not mentioned. The Court’s statements in Amara, however, concerning the role of the summary plan description would only seem to support the rationales underlying the later decision. Conclusion The Amara decision reinforces the wisdom of making certain that any grant of discretionary authority is included in the

official plan document. Room may remain for arguments in support of discretionary language contained in other documents, particularly where those documents are integrated into the plan by reference. The surest practice, however, is inclusion in both the plan and summary documents where possible. In the event of omission from the summary plan description, or absence of proof of notice to plan participants, the recent Second Circuit opinion in Thurber and decisions like it provide strong arguments for a deferential standard of review notwithstanding.

Proof “Satisfactory to the Insurer” Held Insufficient to Confer Discretionary Authority Cosey v. Prudential Ins. Co. of Am., 735 F.3rd 161 (4th Cir. 2013) Cosey sought LTD benefits under an ERISA-regulated plan administered by Prudential. The claim was denied and the denial was upheld on administrative review. The LTD plan stated that benefits would be paid only to a claimant who “submit[s] proof of continuing disability satisfactory to Prudential.” The district court applied an abuse of discretion standard of review and granted summary judgment in favor of the plan administrator.

While the court acknowledged that “no magic words” are required to ensure discretion, it observed that “drafters of ERISA plans have had every opportunity to avoid adverse rulings on this issue, especially in light of the gradual but unmistakable change in the precedential landscape of federal appellate decisions.” (Citing Gross v. Sun Life Assurance Co. of Can., 2013 WL 4305006 at *12 (1st Cir. Aug. 16, 2013).)

The Fourth Circuit reversed and held that the plan language did not unambiguously confer discretionary authority. Citing a “growing consensus of circuit courts that require stricter clarity in plan language before insulating insurance companies from full judicial review,” the court found that the phrase “proof satisfactory to us” was inherently ambiguous. The court also expressed concern that the phrase would not provide insured employees sufficient notice that the plan administrator had broad discretion to deny claims.

Relying on CIGNA Corp. v. Amara, 131 S. Ct. 1866 (2011), the court also dismissed Prudential’s argument that the summary

| ERISA and Life Insurance News | December 2013

plan description conferred discretion. The SPD provided that the administrator had “sole discretion to interpret the terms of the Group Contract, to make factual findings, and to determine eligibility for benefits.” The court held that “because we have determined that the language of the LTD plan is ambiguous ... we find no basis for crediting a conflicting grant of authority contained in a non-plan document.”


Fatal Motorcycle Crash Under Influence of Alcohol and Marijuana Not an Accident Under ERISA Plan Clark v. Life Ins. Co. of N. Am., 2013 WL 3005289 (N.D. Ga. June 8, 2013)

Clark’s husband, Jeffrey Clark, was killed when he rode a motorcycle with no helmet on a curvy two-lane road, left the roadway, was ejected from his motorcycle, and struck a tree. At the time of the crash, Mr. Clark had a blood alcohol content (“BAC”) over twice the legal limit in Georgia and Colorado (where the crash occurred), and tested positive for THC, the principal psychoactive constituent of marijuana. LINA determined that benefits were not payable under the ERISA-governed accidental death Plan at issue, and explained that the Plan pays benefits for bodily injuries caused by an accident directly and from no other causes, and interpreted “accident” to mean “a sudden, unforeseeable, external event.” Because every state criminalizes DUI to protect the public, LINA reasoned that all drivers have notice of drunk driving consequences, and no reasonable person would be unaware of the danger of operating a vehicle while intoxicated. Because serious injury and death are likely risks of driving drunk, and the combination of a high BAC and THC could only increase the risk, LINA determined Mr. Clark’s death was not an accident under the Plan. Clark appealed, emphasized that Mr.

Clark “was an experienced motorcycle rider [and] was a frequent traveler of this roadway and very familiar with its nuances,” and speculated that the circumstances of the motorcycle crash “lead to the conclusion Mr. Clark was confronted with an unexpected, unforeseen, and unanticipated obstacle in the roadway, to which he was reacting and which caused the motorcycle to run off the road and crash.” No additional information was submitted to support this argument, and LINA upheld its determination on appeal. Clark sued to recover accidental death benefits, and the parties filed cross-motions for judgment on the administrative record. The district court applied the “multi-step framework” used by courts in the Eleventh Circuit when reviewing an ERISA claim decision. First, the court discussed whether LINA’s determination was wrong from a de novo perspective, and concluded: “Although the Court [was] sympathetic to the pain [Ms.] Clark has suffered as a result of [Mr. Clark’s] unexpected death, the Court [did] not disagree with LINA’s decision.” Clark argued that LINA’s determination was de novo wrong because, she alleged,

LINA did not properly consider all facts in the administrative record and LINA unfairly interpreted the term “accident” in the group policy. Clark also argued that LINA should have included an alcohol exclusion in the group policy. The court rejected these arguments, holding that: •

LINA properly applied the federal common law standard set forth in Wickman v. Northwestern Nat’l Ins. Co., 908 F.2d 1077 (1st Cir. 1990), which has been adopted by the Eleventh Circuit and the Northern District of Georgia. See Buce v. Allianz Life Ins. Co., 247 F.3d 1133 (11th Cir. 2001); McAfee v. Transamerica Occ. Life Ins. Co., 106 F.Supp.2d 1331 (N.D. Ga. 2000), aff ’d sub nom., 252 F.3d 1362 (11th Cir. 2001);

Mr. Clark’s subjective expectation when he purchased the policy (the relevant inquiry) was not indicated by the facts; “[E]ven if the inquiry were limited to [Mr. Clark’s] subjective expectations just prior to the crash, any expectation that he might have had that he would not crash his motorcycle and be killed under the circumstances of this case would have been unreasonable”; A reasonable person in Mr. Clark’s shoes would have viewed death or injury as “highly likely to occur as a result of riding a motorcycle under similar facts”;

Clark “failed to carry her burden of showing that something other than [Mr. Clark’s] impairment and diminished control of the motorcycle caused [Mr. Clark’s] skid marks”; “In the absence of other circumstances explaining what caused [Mr. Clark] to crash, [Mr. Clark’s] BAC and drug test results are important factors”; continued on page 6 >>

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Clark “never presented evidence to LINA that [Mr. Clark’s] BAC and drugtest results could not have contributed to the cause of the crash”; LINA could not address arguments Clark never made; and Specific evidence by a toxicologist or forensic consultant regarding Mr. Clark’s level of intoxication was not necessary in light of the facts of this case.

Although the court concluded that LINA’s decision was legally correct, and thus could have ended its inquiry there, the court went on to evaluate the reasonableness of LINA’s decision and found that, “[b]ased on the information available to LINA at the time it denied Clark’s initial claim and appeal, its decision was reasonable.” Further, the court held that Clark did not present “any evidence that LINA’s decision is the result of self-interest; rather, the record shows that its decision

was based on an unbiased consideration of the facts and the policy at issue. Therefore, there was not a conflict that rendered LINA’s denial of benefits arbitrary and capricious.” As a result, the court granted judgment to LINA.

Methamphetamine Held Not a “Narcotic” Under Exclusion in Life Insurance Policy Hutchinson v. Liberty Life Ins. Co., 404 S.C. 20, 743 S.E.2d 827 (2013) In a case of first impression, the South Carolina Supreme Court held that methamphetamine is not a “narcotic” for purposes of an exclusionary clause in a mortgage life insurance policy.

(h) injury as a result of the insured being under the influence of any narcotic unless administered on the advice of a physician and taken in the dosage prescribed.

The insured was a long-distance truck driver who died at the scene of a one-truck accident in Illinois. The death certificate listed the immediate cause of death as “blunt chest trauma,” with “motor vehicle crash” as the underlying cause. It also listed “methamphetamine use” as an “other significant condition contributing to death but not resulting in the underlying cause given.” The Illinois autopsy lab report was negative for narcotics but positive for both amphetamine and methamphetamine.

This exclusion was derived from S.C. Code Ann. § 38-71-370(9) (2002), which permits an exclusion “for any loss resulting from the insured being drunk or under the influence of any narcotic unless taken on the advice of a physician.”

Liberty Life denied benefits under an exclusion that provided: A Benefit will not be payable under this Certificate if your Accidental Death results directly or indirectly from: ...

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The beneficiary sought a declaratory judgment that methamphetamine in her husband’s system while driving a truck was not a narcotic. She also alleged bad faith for violation of the South Carolina Unfair Trade Practices Act. The trial court granted summary judgment in favor of the beneficiary. Liberty Life appealed, and the South Carolina Court of Appeals reversed, holding that the exclusion applied. The case then went to the South Carolina Supreme Court, which reversed the Court of Appeals, stating:

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The Court of Appeals appears to have read the term “narcotic” in exclusion (h) to mean any drug widely known to be used illegally. In our view, the use of the term “narcotic” in the exclusion rather than “unlawful drug” or “unlawful use of drug” creates, at minimum, an ambiguity as ‘narcotic’ is a defined type of controlled substance rather than a generic term for illegally used substances. If there is any ambiguity [internal cit. omitted] it must be construed in favor of the petitioner. The policy did not define “narcotic,” and the court expressed doubt that the term as codified in 1947 embraced methamphetamine, particularly in light of the fact that methamphetamine is considered under South Carolina law to be “a controlled substance.” Thus, applying what it referred to as South Carolina’s “state rules of insurance policy construction favoring the insured,” the Supreme Court held that the ambiguous policy provision could not support denial of the claim, because methamphetamine was not a “narcotic” under the exclusion.


Court Applies Federal Common Law Presumption Against Death by Suicide Acree v. Hartford Life & Acc. Ins. Co., 917 F. Supp. 2d 1296 (M.D. Ga. 2013) ERISA plan beneficiaries sued Hartford after the company denied their claim for accidental death benefits arising from a death due to a self-inflicted gunshot wound. Under the plan, “injury” was defined as “bodily injury resulting: (1) directly from an accident; and (2) independently of all other causes.” The plan also contained exclusions for losses caused or contributed to by “intentionally self-inflicted injury” and “suicide or attempted suicide.” Plaintiffs claimed the insured’s death occurred while he was cleaning a gun that he assumed to be unloaded. The autopsy report concluded that the insured died of a self-inflicted wound, and stated that the autopsy “failed to reveal any other trauma, and that the manner of death was suicide.” On the death certificate, the coroner listed the cause of death as trauma arrest resulting from a self-inflicted gunshot wound to the chest. After reviewing the autopsy report, however, the coroner ultimately wrote that the manner of death was “undetermined,” rather than suicide. Hartford concluded that both exclusions applied, and that even an “undetermined” death would still be excluded from coverage because the loss “must have resulted directly from accident and independently of all other causes.” During the administrative appeal, plaintiffs submitted evidence that the insured was unfamiliar with guns, that the gun at issue jammed repeatedly, that the insured was found in a chair on his back porch with gun cleaning materials nearby, and that the gun did not have a clip in it.

On cross-motions for judgment on the administrative record, plaintiffs contended that the federal common law presumption against suicide and in favor of accidental death existed to resolve inconclusive cases, and that Hartford failed to apply it before denying benefits. Hartford argued that the presumption was inapplicable because the evidence was not inconclusive. In applying the first step of the Eleventh Circuit’s framework under the arbitrary and capricious standard of review, the court determined that Hartford’s claim decision was “de novo wrong” because the evidence regarding the cause of death was at least inconclusive, if not more likely to support a conclusion that the death was accidental. The court rejected Hartford’s argument that the exclusion for losses “caused or contributed to by ... intentionally selfinflicted injury” was not subject to the presumption and that even if the insured did not intend to die or injure himself, he still intended to shoot himself in the chest, and that such a loss would be excluded because “the natural and probable consequence of shooting yourself in the chest is serious injury or death.” According to the court, the issue was not whether to resolve the question of the insured’s intent to die by subjective or objective reasoning, but whether he intentionally pulled the trigger in the first place, and here, the record demonstrated only a “fatal mistake,” not an intentionally self-inflicted injury. The court also determined that even

under the arbitrary and capricious standard of review, Hartford’s decision was unreasonable. The court rejected Hartford’s position that legal presumptions should not affect a court’s deferential review because legal presumptions are not part of the administrative process. The court relied on Schikore v. BankAmerica Supplemental Retirement Plan, 269 F.3d 956 (9th Cir. 2001), which addressed the application of the federal common law mailbox rule to a claim denial under an ERISA plan. Noting that the mailbox rule is a “settled feature of the federal common law” and a rebuttable presumption was to be used “in the face of inconclusive evidence,” the Ninth Circuit found under its arbitrary and capricious analysis that the administrator abused its discretion for failing to apply the common law presumption. The court in Acree adopted this reasoning. The court also disagreed that Hartford’s decision was consistent with the federal common law standard announced in Wickman v. Northwestern National Insurance Company, 908 F.2d 1077 (1st Cir. 1990), which disposed of the distinction between “accidental means” and “accidental results.” Hartford contended that even if the plaintiffs provided evidence to support their theory that the gun jammed while the insured was cleaning it, Wickman would still apply because he should have known that serious injury would be a probable outcome of continuing to handle a gun known to jam. The court distinguished Wickman, however, finding that there was little evidence in the record to suggest that the decedent intentionally shot himself. Ultimately, the court remanded the case to Hartford, as claims administrator, for further review.

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Offer of Settlement Did Not Constitute Appeal of ERISA Claims Determination Phillips v. Aetna Life Ins. Co., Case No. 6:12-cv-81 (S.D. Ga. Aug. 19, 2013) Phillips submitted a claim under his employer’s benefit plan for total disability benefits. The claim was paid during the two-year “own occupation” period and thereafter was denied, effective July 21, 2010. The ERISA plan provided that Phillips had the right to appeal within 180 days following receipt of the denial letter. Phillips submitted no appeal of Aetna’s decision. On February 21, 2012, more than a year after the denial, Phillips’ attorney sent a letter to Aetna “for settlement purposes only” and offered not to file a lawsuit in exchange for a payment of $150,000. When Aetna declined to settle, Phillips brought an action to recover benefits. On Aetna’s motion for summary judgment, the court determined that Phillips

had failed to timely exercise the plan’s administrative remedies. Nothing in the record, the court noted, indicated that “the process would have been futile, provided an inadequate remedy, or that Phillips was denied meaningful access to the appeals process.” The court also disagreed with the contention that the settlement letter “was in actuality an appeal in that it disagreed with the last determination of” Aetna. “The letter itself,” the court wrote, “expressly states that it is for ‘settlement purposes only,’ not for any appeal.” Moreover, even if the letter had been an appeal, Phillips “sent it 400 days after the appeals period ended,” the court concluded. As a result, Phillips “failed to timely appeal the denial of benefits” and his claim was barred as a matter of law.

Failure to Identify TPA in the Plan Does Not Defeat Delegation of Discretion Brooks v. AT&T Umbrella Benefit Plan No. 1, 2013 WL 5935118 (D.S.C. Nov. 5, 2013) AT&T maintained a self-funded benefits plan that provided short-term and longterm disability benefits. AT&T was the Plan Administrator but delegated decisionmaking authority to a third-party claims and appeals administrator, Sedgwick Claims Management Service.

provided that the “Appeals Administrator has been delegated authority by the Plan Administrator to determine whether a claim was properly decided by the Claims Administrator.”

The plan provided that the “Claims Administrator has been delegated authority by the Plan Administrator to determine whether a particular Eligible Employee ... is entitled to benefits ....” The plan similarly 8

| ERISA and Life Insurance News | December 2013

Finally, the plan provided that the “Plan Administrator (or, in matters delegated to third parties, the third party that has been so delegated) will have sole discretion to interpret the Program, including, but not limited to, interpretation of the terms


of the Program, determinations of coverage and eligibility for benefits, and determination of all relevant factual matters.” In Brooks’s action to recover benefits, the parties disagreed as to the applicable standard of review. Brooks asserted that the grant of discretion was inapplicable “because the entity which made both the claim and appeals decisions, Sedgwick, is not the properly designated Appeals Administrator.” That argument, in turn, was based on language in the summary plan description which advised claimants to send claims and appeals to the “AT&T Integrated Disability Service Center.” Additionally, Brooks appeared to rely on “the absence of any express identification of Sedgwick in the Plan documents.” The court disagreed with Brooks’s argument. “First,” the court wrote, “while the Plan documents may not refer expressly to Sedgwick, they clearly delegate the Plan Administrator’s discretion to a third-party Claims and Appeals Administrator.” Moreover, it was also “abundantly clear from the record that Sedgwick, in fact, served as the designated Claims and Appeals Administrator, acting through the AT&T Integrated Disability Service Center.” Brooks had presented no contrary evidence nor cited any authority to support the proposition that the company was “required to name its third-party Claims and Appeals Administrator within the SPD or other specific Plan document in order to delegate discretion to this third party.” As a result, the court concluded that the claims determination was subject to an abuse of discretion standard of review.

No Viable Claim Exists Under § 502(a)(3) Where Relief Is Available Under § 502(a)(1)(B) Harp v. Liberty Mutual Group, Inc., 2013 WL 5462290 (M.D.N.C. Sept. 30, 2013)

Harp submitted a claim under her employer’s benefit plan for total disability benefits. The claim was paid for a number of years, but benefits were terminated when the claims fiduciary determined that she no longer met the test for disability. In the ensuing lawsuit, Harp not only sought benefits under the plan under ERISA Section 502(a)(1)(B), 29 U.S.C. § 1132(a) (1)(B), she also brought claims which she subsequently denominated as claims for breach of fiduciary duty under ERISA Section 502(a)(3), 29 U.S.C. § 1132(a)(3). In response to a motion to dismiss and arguments that the additional claims were not viable because Harp had a remedy under Section 502(a)(1)(B) in the form of a claim for benefits, Harp cited a number of cases, including the Supreme Court’s decision in CIGNA Corp. v. Amara, 131 S.Ct. 1866 (2011), which addressed the equitable relief available under Section 502(a)(3). Harp did not “explain why § 1132(a)(1)(B)

does not afford her adequate relief,” the court noted. The implied argument of Harp addressed by the court was that Amara and subsequent cases somehow changed the limitation established by the Supreme Court in Varity Corp. v. Howe, 516 U.S. 489 (1996), on equitable relief available under Section 502(a)(3) when a participant had a viable claim for benefits under Section 502(a)(1)(B). The court rejected that argument, reasoning that Amara and the other cases cited by Harp “do not change the previously-established requirement that relief may be granted under § 1132(a)(3) only if relief is not available under § 1132(a) (1)(B).” The court wrote: “In the present case, because Plaintiff has an adequate remedy for the allegedly improper denial of her benefits under § 1132(a)(1)(B), she may not proceed under § 1132(a)(3).”

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Substantial Evidence Supported Termination of Disability Benefits, Despite Social Security Award Martin v. Hartford Life & Acc. Ins. Co., 2013 WL 5297146 (D. Md. Sept. 18, 2013)

The federal district court in Maryland upheld the termination of disability benefits despite the claimant’s award of Social Security disability benefits, explaining that “what qualifies as a disability for social security disability purposes does not necessarily qualify as a disability for purposes of an ERISA benefit plan [because] the benefits provided depend entirely on the language in the plan.” Martin was a former graphic designer whose job required him to work on a computer most of the day, read extensively, walk short distances, lift up to 20 pounds, and commute by car 18 miles to and from work. He participated in his employer’s group benefit plan that defined disability to mean “you are prevented from performing one or more of the Essential Duties of Your Occupation.” Martin alleged that he became disabled as the result of Meniere’s disease, which he claimed resulted in vertigo, dizziness, loss of balance, and tremors of the hands and head, which made him unable to drive or use the computer for long periods of time. He stopped working in April 2009. Martin saw several medical professionals for his illness, including a nurse practitioner who made the diagnosis of Meniere’s disease. However, the record was unclear whether his treating physicians independently verified the diagnosis or merely adopted the nurse practitioner’s diagnosis. One treating physician wrote that Martin’s “history [was] not strongly suggestive of Meniere’s disease.” Another 10

diagnosed diffuse arthralgia, and a third treating physician diagnosed benign essential tremors and titubation. One of the doctors noted that Martin “is disabled far out of proportion to his symptoms and physical examination and underlying psychiatric illness including anxiety and depression is considered the differential diagnosis.” Martin was also given a doctor’s note stating that he might not be able to pass a sobriety test. After contacting the nurse practitioner, who reported that Martin was “currently unable to work,” because he could only “use a computer for 15-30 [minutes] and read up to 20 [minutes] without triggering an episode,” that “[h]is episodes also increase in rainy weather,” and that he was “only able to drive 2–3 miles,” Hartford began paying long-term disability benefits in October 2009. In September 2010, Martin was awarded Social Security disability benefits, following examinations by two physicians working for the Social Security Administration. In February 2010, Hartford learned that Martin’s self-reported daily activities included watching television, checking his email, working in his yard, and playing guitar. Because Hartford believed that these activities were inconsistent with the reported limitations — the inability to look at a computer screen and hand tremors — it investigated the claim. In March 2010, an investigator video recorded Martin working on his cars and

| ERISA and Life Insurance News | December 2013

seeding his front lawn. In the surveillance videos, Martin was seen bending, reaching, squatting, rising, and walking normally without signs of dizziness or imbalance for several minutes at different times of day. Hartford concluded that the video footage also conflicted with Martin’s self-reported symptoms, and an investigator was sent to interview him at home. After the interview, Hartford hired an otolaryngologist and independent consultant to review Martin’s medical records and the surveillance videos. The consultant contacted one of the treating physicians, who reported that “in general, he does not regard patients with conditions like this as being permanently and continuously impaired — symptoms may be intermittent, and between episodes they may be able to function normally.” After his review, the independent consultant concluded that Martin could handle “a full-time light physical demand level up to 40 hours per week,” which was consistent with that required by his job as a graphic designer, classified as a “sedentary occupation” with light physical demands.


In November 2010, after the independent review, Hartford terminated the payment of disability benefits. When Martin appealed, Hartford hired specialists in otolaryngology and internal medicine to review his file, and ultimately upheld the termination of benefits. In ruling on the parties’ cross-motions for summary judgment, the court applied the abuse of discretion standard, because the plan vested the plan administrator with discretionary authority to make eligibility determinations. Martin argued, among other things, that Hartford had abused its discretion in terminating benefits because he had been awarded Social Security disability benefits. In response, Hartford asserted that the standard governing the award of Social Security disability benefits differed from those of the plan, reiterated that substantial evidence supported its decision, including independent reviews by two additional physicians, and asserted that the mere presence of some ailments

does not automatically compel a finding of disability. In addressing the difference between the standards under an ERISA plan and the standards under the Social Security Act, the court wrote: Unlike the Social Security program, ERISA does not “require employers to establish employee benefit plans” or require that employers provide a particular set of benefits. Black & Decker, 538 U.S. at 833. “Accordingly, what qualifies as a disability for social security disability purposes does not necessarily qualify as a disability for purposes of an ERISA benefit planthe benefits provided depend entirely on the language in the plan.” Smith v. Cont’l Cas. Co., 369 F.3d 412, 420 (4th Cir. 2004). When considering whether a beneficiary receiving Social Security disability benefits is also entitled to benefits under the Plan, “there is no obligation to weigh

the agency’s disability determination more favorably than other evidence.” Gallagher v. Reliance Standard Life Ins. Co., 305 F.3d 264, 275 (4th Cir. 2002) (internal quotation marks and citations omitted). Thus, “the mere grant of benefits by an agency that applies a different standard or a different definition of disability does not render [denial] of benefits under the Plan unreasonable.” Simmons v. Prudential Ins. Co. of Am., 564 F. Supp. 2d 515, 524 (E.D.N.C. 2008). Thus, the court concluded that in relying on the opinions of its consultants, particularly in the face of conflicting evidence of disability, Hartford did not abuse its discretion. The court noted that Hartford had not ignored the award of Social Security benefits, but rather, had accounted for all the evidence, as it was required to under the abuse of discretion standard. As a result, the court granted summary judgment, upholding Hartford’s claim decision.

Message from the Editors We hope that you find the latest edition of ERISA and Life Insurance News informative. As indicated by a number of articles in this issue, the Supreme Court’s decision in Amara continues to influence the lower courts with respect to a variety of ERISA issues. The current issue includes contributions from the Smith Moore Leatherwood attorneys pictured to the right.

Sanders Carter

Kent Coppage

Aaron Pohlmann

Contributors to this Issue

From left to right: Manning Connors (Greensboro, NC), Dorothy Cornwell (Atlanta, Ga), Nikole Crow (Atlanta, Ga), Jennifer Rathman (Atlanta, Ga), and Peter Rutledge (Greenville, SC).

Smith Moore Leatherwood LLP | Attorneys at Law |

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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 under ERISA, the firm’s attorneys defend a broad variety of actions, including those brought under 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, accidental death, disability, and health insurance benefits.

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ERISA and Life Insurance News  

Smith Moore Leatherwood's quarterly newsletter covering ERISA and Life, Health and Disability Insurance Litigation.

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