California Court of Appeal Emphasizes Just How Broad the Duty to Defend Is, which Includes Suits Alleging Even RapeApril 01, 2015 Robert McKennon
A liability insurer’s duty to defend its insured against lawsuits is extremely broad, much broader than its duty to indemnify its insured for a judgment entered against it. That has been the law in California for decades. But just how broad is the duty to defend? Does it extend to civil lawsuits alleging the insured raped and sexually assaulted the plaintiff? Does it extend to lawsuits alleging intentional acts by the insured? You bet it does if the policy contains the right language.
Multi-Million Dollar Disgorgement Award Struck Down in Rochow - But the Disgorgement Remedy May Still Be AliveMarch 31, 2015 Robert McKennon
In December 2013, we published an article highlighting the Sixth Circuit Court of Appeals’ bold decision to award the plaintiff disability benefits plus $2.8 million in disgorged earnings, as a potential “game-changer” in Employee Retirement Income Security Act of 1974 (“ERISA”) litigation—that is, if it survived review. Rochow v. Life Ins. Co. of N. Am., 737 F.3d 415 (6th Cir. 2013) (“Rochow I”). Alas, the Sixth Circuit Court of Appeals vacated the decision in February 2014 and stayed the case. Rochow v. Life Ins. Co., 2014 U.S. App. LEXIS 3158 (6th Cir. Feb. 19, 2014) (“Rochow II”). Finally, in March 2015, the Court of Appeals issued an en banc decision vacating the disgorgement award and remanding the case for a review of prejudgment interest. Rochow v. Life Ins. Co. of N. Am., 2015 U.S. App. LEXIS 3532 (6th Cir. 2015) (“Rochow III”). The Court held that because the plaintiff was adequately compensated by an award of the insurance benefits, attorneys’ fees and possible prejudgment interest, that in this case, disgorgement was not necessary to make the plaintiff whole. Although this decision is disheartening to claimant’s attorneys eager to test the limits of ERISA remedies, a careful reading of Rochow III reveals that the Sixth Circuit does not entirely foreclose disgorgement as an appropriate remedy under ERISA. Moreover, the concurring and dissenting opinions provide additional guidance for future ERISA claimants who suffer injuries and seek equitable remedies beyond their policy benefits.
Employees Must Follow ERISA Plan Documents in Designating Retirement Plan Beneficiaries or Risk Losing Critical RightsFebruary 09, 2015 Joe McMillen
Have you properly designated your intended beneficiaries for your retirement plan at work? What about for your savings plan, life insurance policy or other employee benefit plans you have through your employer? If you have not, the impact could be dire and life-changing for your loved ones after you pass. Make sure you follow the law so your family is properly taken care of when the inevitable happens.
The Ninth Circuit Court of Appeal recently addressed these issues in Becker v. Williams, 2015 U.S. App. LEXIS 1554 (9th Cir. Jan. 28, 2015). There, a 30 year employee of Xerox Corporation died in 2011, Asa Williams, Sr. Because Asa, Sr. did not follow through in changing his intended beneficiary with a written form after his telephone request to his employer, his son and ex-wife were left fighting each other over his retirement proceeds. The Court framed the issue as:
We must decide whether a decedent succeeded in his attempt to ensure that his son—and not his ex-wife—received the benefits to which his employer’s retirement plans entitled him.
Before his retirement, Asa, Sr. participated in Xerox’s retirement and savings plan (“Retirement Plans”). The Retirement Plans were subject to the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. 1001 et seq. (as are most employer sponsored employee benefit plans such as life insurance policies and disability insurance policies).
Asa, Sr. married Carmen Mays Williams and formally designated her as his beneficiary on his Retirement Plans. After their divorce, Asa, Sr. changed his designated beneficiary from his ex-wife to his son, Asa, Jr., by telephoning Xerox and instructing it to make the change three different times. Each time, following his phone conversation with Xerox, Asa, Sr. received, but did not sign and return, the beneficiary designation forms Xerox gave him to confirm the change.
After Asa, Sr. died, Carmen immediately wrote Xerox and claimed to be the beneficiary under the Retirement Plans. Asa, Jr. asserted the same claim. Rather than decide the family squabble, Xerox filed an interpleader action in federal district court and interpleaded the retirement proceeds.
Carmen moved for summary judgment, asserting that because Asa, Sr. failed to fill out and return the beneficiary designation forms, he did not properly designate Asa, Jr. as beneficiary in her place. Asa, Jr. argued that his father calling Xerox on the telephone and changing the beneficiary to himself from Carmen was enough. The district court sided with the ex-wife and granted her motion, despite that Asa, Sr. apparently intended his son to receive his retirement benefits. It reasoned the beneficiary forms were “plan documents” under ERISA and, therefore, Asa, Sr. was required to follow their instructions to legally complete the beneficiary change (they had language requiring the employee to sign and return the forms to validate a beneficiary change).
Asa, Jr. appealed. The Ninth Circuit Court of Appeal reversed, holding that the beneficiary designation forms were not “plan documents” under ERISA. Relying on another case that addressed a slightly different ERISA issue, Hughes Salaried Retirees Action Comm. v. Adm’r of the Hughes Non-Bargaining Ret. Plan, 72 F.3d 686 (9th Cir. 1995), the Court of Appeal found the beneficiary designation forms were not plan documents because:
only those [documents] that provide information as to where [the participant] stands with respect to the plan, such as [a] [summary plan description] or trust agreement might, could qualify as governing documents with which a plan administrator must comply in awarding benefits under [ERISA].
The Court of Appeal reasoned because an ERISA plan administrator must distribute employee benefits in accordance with the governing “plan documents,” Xerox was not required to follow the instructions on the beneficiary designation forms when distributing Asa, Sr.’s retirement proceeds. Instead, Xerox was required to follow the requirements of the plan documents, including the Retirement Plans’ Agreement and Summary Plan Description. Those documents permitted an unmarried employee like Asa, Sr. to change his beneficiary over the telephone simply by calling the Xerox Benefits Center. The plan documents did not require a written form. The Court of Appeal thus found the district court erred in determining that Asa, Sr. was required to abide by the language in the forms – but not in the governing plan documents – to change his beneficiary designation from Carmen to Asa, Jr.
The Court next addressed the issue of whether the evidence showed Asa, Sr. actually changed his beneficiary to Asa, Jr. in accordance with the plan documents. It held that, based on Xerox’s call logs which showed Asa, Sr. called Xerox to change his beneficiary from Carmen to Asa, Jr., a reasonable jury could find he intended to make the change and that his phone calls substantially complied with the plan documents. The Court therefore found summary judgment in Carmen’s favor was inappropriate. It reversed and remanded to the district court for a trial in accordance with the rules espoused in its opinion on the issue of Asa, Sr.’s intent.
The Court addressed one final matter, the proper standard of review. The issue was whether it should defer to the Retirement Plan administrator’s decisions in the matter or, instead, should decide “de novo” if Carmen or Asa, Jr. should receive the retirement benefits. It held that because the Retirement Plan administrator did not exercise any discretion in deciding whether Asa, Sr. telephonically designating his son was valid under the Plans, it must decide the case de novo. Stated another way, the Court found there was no discretion exercised by the Plan administrator to which it could defer.
It looks like this case will turn out fine for now deceased Asa, Sr. and his son, albeit at great expense and aggravation to Asa Jr. But it teaches an important lesson to employees with employer sponsored retirement plans, life insurance policies and disability policies. Make sure you carefully follow the plan documents whenever effectuating your rights. The consequence of being careless could cost you or your family hard earned employee benefits.
Standing Spine(dex) Adjustment – Ninth Circuit Finds Healthcare Providers Have Article III Standing in Denial of Benefit Claims Under ERISAJanuary 13, 2015 Robert McKennon
A universal part of the American medical experience is paperwork. Everyone is familiar with visiting a healthcare provider for the first time, filling out history forms and signing pages of documents that they either do not understand or do not care about. The Ninth Circuit recently grappled with a minimally explored legal issue surrounding one such document: whether a non-participant healthcare provider, as assignee of health plan beneficiaries under an assignment form, has Article III standing to bring a denial of benefits claim under ERISA.
When and under what circumstances an insurer paying long-term disability benefits may collect retroactive benefits paid to an ERISA plan participant under the Social Security Act has been the source of conflicting opinions over the years. The most recent pronouncement: a long-term disability plan administrators must “specifically identify a particular fund” from which it will be reimbursed in order to seek to recover of alleged overpayment of disability benefits. So held the Southern District of California in its recent plaintiff-friendly decision in Wong v. Aetna Life Insurance Company, 2014 U.S. Dist. LEXIS 135661 (S.D. Cal. 2014). Through its decision in Wong, the district court reaffirmed that simply because an ERISA governed long-term disability plan’s language provides for recovery of an award of back-dated SSDI benefits does not mean that an insurance company may seek reimbursement from an insured’s general assets. Instead, the onus is on the insurer to specifically identify specific funds, separate from a plan participant’s general assets, on which it may place an attachment.
Ninth Circuit Expands the Availability of Equitable Remedies in ERISA Cases, Approving Surcharge as a Viable RemedyDecember 24, 2014 Scott Calvert
Since the Supreme Court’s decision in Massachusetts Mutual Life Insurance Co. v. Russell, 473 U.S. 134 (1985), the courts have grappled with the issue of the extent to which equitable remedies are available under the Employee Retirement Income Security Act (“ERISA”). One of the most interesting and beneficial for plan participants is the issue of the equitable remedy of surcharge under ERISA. Recently, the Ninth Circuit withdrew an earlier decision regarding the availability of the equitable remedy of surcharge in ERISA, and issued a new ruling consistent with the holdings of other Circuit courts. The new ruling, Gabriel v. Alaska Electrical Pension Fund, 2014 DJDAR 16590 (9th Cir. 2014), is much more favorable to ERISA claimants and makes clear that surcharge, a form of equitable relief, is available to ERISA claimants under 29 U.S.C. section 1132(a)(3). Further, the Court also set forth the requirements that a claimant must meet to qualify for other forms of equitable relief, including equitable estoppel and reformation.
The specific facts of the Gabriel matter are unimportant, and ultimately the Ninth Circuit ruled that the district court was correct in holding that the plaintiff was not entitled to the payment of the pension funds that he sought because his rights to those funds never vested. The Ninth Circuit also remanded one aspect of the case to the District Court, but virtually instructed the lower court to deny that claim as well. However, the ruling is important because, by making the equitable remedy of surcharge available to ERISA claimants, the Ninth Circuit aligned itself with the Fourth, Fifth, Seventh and Eighth Circuits in expanding the rights of ERISA claimants.
What’s a Policyholder to Do? California Court Permits “Conditional Judgment” Awarding Replacement Cost to PolicyholdersDecember 11, 2014 Iris Chou
When a covered property is damaged, the insured may face a quintessential Catch-22—the insured cannot afford to proceed with costly repairs or replacement without insurance money, but until the repairs or replacements are finished, the insured cannot recover under the replacement cost provision of the liability policy. A recent court decision held a policyholder must actually repair or replace the damage in order to claim replacement cost value, but may recover a “conditional judgment” for replacement cost benefits and satisfy the condition after trial. Stephens & Stephens XII, LLC v. Fireman’s Fund Insurance Co., 2014 Cal. App. LEXIS 1073, 2014 WL 6679263 (Cal. App. 1st Dist. Nov. 24, 2014) (“Stephens”). Stephens fashions a pragmatic approach whereby insurers can condition payment on actual replacement, while policyholders preserve their rights to benefits after proving coverage.
Recent Federal Cases Applying the State and Federal Mental Health Parity Acts: What Do They All Mean?November 18, 2014 Iris Chou
The Federal Mental Health Parity and Addiction Equity Act (“MH Parity Act”) requires, at a minimum, that the financial requirements and treatment limitations for mental health benefits set by group health plans and health insurance carriers be no more restrictive than those provided for non-mental health medical benefits. The MH Parity Act was originally signed into law by President Bill Clinton in 1996 and amended the Employee Retirement Income Security Act (ERISA) and Public Health Service Act and Internal Revenue Code in 2008. Now, the MH Parity Act is at issue in an increasing number of cases and has been addressed several times by the federal courts in the Ninth Circuit Court of Appeals.
Too Little Time – Court Finds ERISA Plan’s Contractual Limitation Period Unreasonably Short and UnenforceableNovember 04, 2014 Robert McKennon
One hundred days is not a reasonable amount of time to give a plan participant to file a lawsuit under the Employee Retirement Income Security Act of 1974 (“ERISA”). This was the conclusion reached by the United States District Court Southern District of California in its recent decision in Nelson v. Standard Insurance Company, 2014 U.S. Dist. LEXIS 119179 (S.D. Cal. Aug. 26, 2014), which held that a contractual limitation contained in an ERISA-governed group long-term disability policy’s limitation period is unreasonable and unenforceable because the time period may have ran prior to the end of the administrative review process and because it provided the plan participant only one hundred days to file an action in federal court. The holding in Nelson was one of the first in the Ninth Circuit to determine, in the wake of the Supreme Court’s decision in Heimeshoff v. Hartford Life & Accident Insurance Co., 134 S. Ct. 604 (2013), that a plan’s contractual limitation on filing a lawsuit is unreasonably short. While numerous questions still remain as to what constitutes an unreasonable plan limitations period, the Nelson decision makes it clear that, at the very least, providing a plan participant only one hundred days within which to file a complaint in federal court is not reasonable.
Court Allows Mandamus Claim Against the California Department of Insurance Regarding Disability Insurance DisputeOctober 28, 2014 Scott Calvert
There is a commonly held belief that every disability insurance policy sold to the public has been actually reviewed and approved by the California Department of Insurance. Indeed, California Insurance Code section 10291.5 requires the Insurance Commissioner to reject a proposed new disability insurance policy form if it does not meet certain requirements set forth in the Insurance Code. However, prior to the recent ruling of Ellena v. Department of Insurance, 2014 Cal. App. LEXIS 883 (1st Dist. Oct. 1, 2014), the California Department of Insurance was not following this code provision, and in fact maintained that it did not have a duty to review each new disability insurance policy form. There is now no question that the Department of Insurance has a mandatory duty to review all new disability insurance policy forms that insurers wish to sell in California.