A silver lining in Muniz

Late last year, the Ninth Circuit issued a decision that is not generally particularly favorable to ERISA disability insurance benefits plaintiffs. Muniz v. Amec Constr. Mgmt., Inc., 623 F.3d 1290, 1295 (9th Cir. 2010). The case involved a plaintiff's appeal from a district court decision in a case where the courts reviewed the insurer's adverse benefit determination de novo. The Ninth Circuit held generally that the failure of the insurer to provide a full and fair review (which would be evidence of a conflict of interest in a case reviewed for abuse of discretion), was not necessarily a relevent consideration for a court conducting a de novo review of the insurer's decision.

The case contained one little gem, however. In dicta, Muniz stated that, in cases reviewed for abuse of discretion, if the administrator has a structural conflict of interest (see my post about the Supreme Court's decision in Glenn v. MetLife, below), the administrator has the burden of proving that the conflict of interest did not improperly influence its decision. Muniz, 623 F.3d at 1295.

Last week in an unpublished decision in Dine v. MetLife (click the case name to read the decision at the Ninth Circuit's web site) -- an abuse of discretion case -- the Ninth Circuit cited Muniz for exactly that proposition, reversed the district court, and ordered benefits be paid to Ms. Dine forthwith. Prominent in Dine, a very short decision, is the following quote:

"The administrator has the burden of proving that the conflict of interest did not improperly influence its decision. See Muniz v. Amec Constr. Mgmt., Inc., 623 F.3d 1290, 1295 (9th Cir. 2010)."

Ever since the Supreme Court issued its landmark decision in Glenn v. MetLife, courts, claimants, and insurers have struggled to apply its mandate that the insurer's conflict of interest be weighed as a factor. In the Ninth Circuit, at least, weighing that factor just became simpler. If Muniz and Dine mean what they say, then conflicted fidicuiaries (i.e., those that both adjudicate and pay claims) must now overcome a presumption that their conflict tainted their claims administration.

At the end of the day this is a fair and just implimentation of the law, since the claimaint rarely can prove with certitude what went on behind the administrator's closed doors. Rather, it is the fiduciary that controls the adjudication, controls the evidence, and must honor its fiduciary duty with "an eye single" to the interests of the participants and beneficiaries. It is consistent with hundreds of years with of common law trusts and fiduciary jurispridence that the burden of proving fiduciary compliance should rest with the fiduciary.

If you find yourself struggling with your ERISA plan's administrator or insurer over your benefits (pension, disability, health, or otherwise), let us see if we can help.

Ninth Circuit Rules Unanimously For My Client Laura Cyr

Cyr v. RSL, 642 F.3d. 1202 (9th Cir. June 22, 2011)(en banc)

Laura Cyr, for whom I am co-counsel, sued her former employer's ERISA disability plan insurer after the insurer reneged on its promise to implement an upward correction of her disability benefit following the settlement of her wage discrimination lawsuit against the employer. Mrs. Cyr alleged claims for benefits under 29 U.S.C. § 1132(a)(1)(B), estoppel, and breach of fiduciary duty. The insurer, Reliance Standard Life Insurance ("RSL") initially prevailed on summary adjudication as to the (a)(1)(B) claim only, on the basis that the Ninth Circuit's holdings in Ford v. MCI and Everhart v. Allmerica categorically insulated ERISA plan insurers from civil liability to participants for payment of benefits.

In a decision authored by Judge Clifton, a unanimous 11-judge en banc panel of the Ninth Circuit explicitly overturned its prior decisions in Ford v. MCI, Everhart v. Allmerica, Spain v. Aetna, and Gelardi v. Pertec -- cases dating back to 1985 that RSL and other ERISA plan insurers had intermittently invoked in order to avoid liability for ERISA benefits on technical procedural grounds. Citing the Supreme Court's decision in Harris Trust & Savings Bank v. Salomon Smith Barney, Inc., 530 U.S. 238 (2000), the Ninth Circuit held that the remedial provisions contained in ERISA § 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B), imposes no categorical limitations upon the universe of appropriate defendants. As such, an insurance company that makes benefit determinations and pays the benefits, such as Appellant RSL, is an entirely appropriate defendant in a suit for benefits under that section of ERISA.

This result of the case will likely prove beneficial for thousands of ERISA plan participants nationwide who are forced to pursue their benefit claims in court. It also benefits employers who no longer need to fear that they will be forced into litigation to defend the conduct of their insurers.

Additionally, there are at least four notable procedural features of Cyr v. RSL, all of which are rare in federal appellate practice: first, the Ninth Circuit heard the case en banc in the first instance -- this was a hearing en banc, not a rehearing en banc; second, an 11-judge en banc panel of the Ninth Circuit issued a unanimous opinion; third, the Ninth Circuit explicitly overturned its own historical precedent; and finally, the United States Secretary of Labor filed an amicus brief in support of Mrs. Cyr's petition to have the matter heard en banc, and appeared and argued at the en banc oral argument. These events speak to the court's recognition of the importance of the issue that it resolved.

Here is a link to the published decision:

http://www.ca9.uscourts.gov/datastore/opinions/2011/06/22/07-56869.pdf

If you find yourself struggling with your ERISA plan's administrator or insurer over your benefits (pension, disability, health, or otherwise), let us see if we can help.

CIGNA v. Amara - Supreme Court recognizes a new ERISA remedy for aggrieved participants!

The insurance industry, oddly, is characterizing this case as a victory for CIGNA. If it's a victory for insurers and employers, it's a pyrrhic one at best. The case does hold that the remedies available under ERISA § 502(a)(1)(B) are limited to those specifically identified in that section of the statute, i.e., benefits, or a declaration of the right to future benefits. Under 502(a)(1)(B), a court does not have authority to reform a plan or award other remedies or damages.

However, the Court significantly altered the remedies available under § 502(a)(3). This provision is a catch all that imposes liability upon fiduciaries and parties in interest for breaches of fiduciary duty not otherwise remedied by (a)(1)(B), or by 502(a)(2). The Court has consistently held that the only rememdies available under (a)(3) are equitable remedies (which the Court has held to mean such remedies as were traditionally authorized and available in court of equity in the era of the English divided bench). Mertens v. Hewitt, 508 U.S. 248 (1993), Great-West v. Knudsen, 534 U.S. 204 (2002). That limitation -- equitable remedies only -- has consistently been held not to include the imposition of monetary damages.

In Amara, however, the Court wrote that in addition to remedies like reformation of plan documents, and injunctive relief, the traditional equitable remedy of "surcharge" is indeed available under (a)(3) to remedy a fiduciary breach. The Court in Amara wrote

[The] District Court injunctions require the planadministrator to pay to already retired beneficiariesmoney owed them under the plan as reformed. But the fact that this relief takes the form of a money paymentdoes not remove it from the category of traditionally equitable relief. Equity courts possessed the power to providerelief in the form of monetary “compensation” for a loss resulting from a trustee’s breach of duty, or to prevent the trustee’s unjust enrichment. Restatement (Third) of Trusts §95, and Comment a (Tent. Draft No. 5, Mar. 2,2009) (hereinafter Third Restatement); Eaton §§211–212,at 440. Indeed, prior to the merger of law and equity thiskind of monetary remedy against a trustee, sometimes called a “surcharge,” was “exclusively equitable.” Princess Lida of Thurn and Taxis v. Thompson, 305 U. S. 456, 464 (1939); Third Restatement §95, and Comment a; G. Bogert& G. Bogert, Trusts and Trustees §862 (rev. 2d ed. 1995) (hereinafter Bogert); 4 Scott & Ascher §§24.2, 24.9, at 1659–1660, 1686; Second Restatement §197; see also Manhattan Bank of Memphis v. Walker, 130 U. S. 267, 271 (1889) (“The suit is plainly one of equitable cognizance, the bill being filed to charge the defendant, as a trustee, for a breach of trust”); 1 J. Perry, A Treatise on the Law ofTrusts and Trustees §17, p. 13 (2d ed. 1874) (common-law attempts “to punish trustees for a breach of trust in damages, . . . w[ere] soon abandoned”).

The surcharge remedy extended to a breach of trust committed by a fiduciary encompassing any violation of aduty imposed upon that fiduciary. See Second Restatement §201; Adams 59; 4 Pomeroy §1079; 2 Story §§1261,1268. Thus, insofar as an award of make-whole relief is concerned, the fact that the defendant in this case, unlike the defendant in Mertens, is analogous to a trustee makes a critical difference. See 508 U. S., at 262–263. In sum, contrary to the District Court’s fears, the types of remedies the court entered here fall within the scope of theterm “appropriate equitable relief” in §502(a)(3).

What does it all mean? It means a huge victory for participants and beneficiaries bringing suit against ERISA plan fiduciaries who have breached their duties. For the first time, the Supreme Court has explicitly recognized that what would normally be characterized as "consequential damages" are an available remedy for breached of fiduciary duty under ERISA § 502(a)(3). This is a game changer for plaintiffs and a huge loss -- not a win -- for CIGNA.

Notably, the Court also rejected CIGNA’s argument that plan beneficiaries must always show detrimental reliance to obtain relief for violations of ERISA's notice provisions, but the Court also emphasized that the class members were required to make at least some showing of actual harm.

If you find yourself struggling with your ERISA plan's administrator or insurer over your benefits (pension, disability, health, or otherwise), let us see if we can help.

Cyr v. Reliance Standard Life Insurance Co., Ninth Circuit Case No. 07-56869 (en banc)

On March 22, 2011, an 11-judge en banc panel of the Ninth Circuit heard oral argument in this ERISA disability benefits suit in which I and Joseph Garofolo are co-counsel for the Plaintiff/Appellee, Laura Cyr. The Ninth Circuit ordered hearing en banc pursuant to our petition. The court receives between 20 and 25 petitions for hearing (as distinct from rehearing) en banc every year, but normally none are granted. In fact, this is the only ERISA appeal of which we are aware that was heard en banc in the first instance (without a 3-judge panel decision) upon the petition of a party. The United States Secretary of Labor also filed a brief an amicus (aka "friend of the court") brief in support of Mrs. Cyr, and argued at the hearing.

The amicus brief of the Secretary of Labor can be found HERE

A video of the hearing can be found HERE

An audio recording of the hearing can be found HERE

The issue that the Ninth Circuit agreed to consider en banc was whether it should affirm, reverse or modify its precedent on one narrow question: who or what is a permissible defendant to a suit for benefits under ERISA, 29 U.S.C. § 1132(a)(1)(B)? In Gelardi v. Pertec, the Ninth Circuit wrote that section (a)(1)(B) permits suits only against an employee benefit plan as an entity. 761 F.2d 1323 (9th Cir. 1985). Subsequently, the Ninth Circuit wrote that such suits may be brought against both a plan and its plan administrator (a term of art under ERISA § 3(16)), and left open the question whether or not a party functioning as a plan administrator could also be named. Everhart v. Allmerica, 275 F.3d 751 (9th Cir. 2001). In that case, Judge Reinhardt wrote an impassioned dissent arguing that any party with discretion over a claim determination should be subject to suit, and asserting that the panel should have referred the case for a hearing en banc to resolve a circuit circuit split. Subsequently, in Ford v. MCI, the Ninth Circuit, relying on Gelardi and Everhart, held that only a plan may be sued, and that, categorically, the plan’s insurer is not a proper defendant. 399 F.3d 186 (9th Cir. 2005).

In Cyr, the District Judge Dean Pregerson, in ruling in favor of Ms. Cyr on summary judgment, distinguished both Ford and Everhart on their facts, and held that Reliance was a proper defendant because it alone held ultimate authority to adjudicate benefits claims, and it alone shouldered the obligation to fund them. Cyr. V. Reliance, 525 F. Supp. 2d 1165 (C.D. Cal 2007). Reliance appealed that judgment on the basis that Ford and Everhart categorically insulate it from liability for benefits. If its interpretation of those cases were correct, it would implicate a split amongst the circuits, a split within the Ninth Circuit, and possibly contravene the Supreme Court’s decisions in Harris Trust v. Solomon Smith Barney, Inc., 530 U.S. 238 (2000), and MetLife v. Glenn, 554 U.S. 105 (2008).

If the Ninth Circuit adopts the position advocated by Mrs. Cyr and the U.S. Secretary of Labor, it will abrogate Gelardi, Ford, and Everhart, and hold that, on its face, 29 U.S.C. § 1132(a)(1)(B) admits no limit to the universe of proper defendants, and Reliance, as the party that adjudicated claims and funded the benefits, is a proper defendant to a claim for benefits under ERISA. Notably, both Judge Reinhardt and the author of the Everhart majority opinion, Judge Fisher, were on the Cyr v. Reliance en banc panel.

The pointed questions from the bench, especially from Judges Berzon and Smith, and Chief Judge Kozinski, imply that the court is inclined to adopt the Secretary's position. However, reading too much into the questions asked during an oral argument can be a risky proposition, so we'll have to wait until the court issues its opinion. A decision is expected later this year.

If you find yourself struggling with your ERISA plan's administrator or insurer over your benefits (pension, disability, health, or otherwise), let us see if we can help.

Supreme Court's MetLife Decision Changes The Landscape for Discovery

MetLife has been creating a lot of ERISA law lately, and not all of it helpful to insurers.  

Discovery in benefit denial cases has always been a trickier subject than it should be.  Traditionally, in those cases in which the court evaluates claims administrators' decisions for an abuse of discretion, insurers and other defendants have long maintained that no discovery is appropriate because the job of the courts is merely to evaluate the administrative record to determine whether the administrators' decisions were rational (i.e., not an abuse of discretion).

Plaintiffs (most often participants and beneficiaries of employer-sponsored heath insurance and disability insurance policies) maintained that at a minimum, they should be permitted to conduct discovery into whether the administrator had a conflict of interest that affected its decision making.  An example might be where the individual who makes the claim determination gets a bonus tied to how many claims he or she rejects.  Courts have long held that where there is such a conflict of interest, that the level of deference paid to the administrator's determination will be significantly attenuated.  As a result, plaintiff's generally want to get as much discovery as possible related to the conflict.

This battle played out in hundreds, if not thousands, of benefit cases in federal courts all over the country.  In some courts some plaintiffs sometimes prevailed, but at the same time the approach of other federal courts has been to limit severely the scope of discovery available to plaintiffs in such cases.

In its recent decision in Metropolitan Mutual Life Insurance Co. v. Glenn, 128 S. Ct. 2343 (2008), the Court held that whenever the same entity is required to make the claims decision and also to pay the claim, there is always a conflict of interest.  The Court specifically suggested, inter alia, that trial courts might consider an insurer's "history of biased claims administration,"  whether the administrator "has taken active steps to reduce potential bias and promote accuracy," and whether the administrator has imposed "management checks that penalize inaccurate decisionmaking, irrespective of whom the inaccuracy benefits."  Id. at 2351.

Though one might have thought this would resolve the issue once and for all, just two weeks ago I had an insurer's attorney express to the court at a case management conference that, in light of the MetLife decision, no discovery is appropriate because her client (also MetLife), as both the payor and the decision-maker, was conflicted as a matter of law, and no further inquiry was required.

That's an interesting position, but the one post-MetLife court that has considered it has rejected it, and adopted the position that discovery that is reasonably calculated to lead to the discovery of admissible evidence of the scope and effect of an insurer's conflict is appropriate.  In Hogan-Cross v. Metropolitan Life Insurance Co., --- F. Supp. 2d ---, 2008 WL 2938056 (S.D.N.Y. 2008), the court could not have expressed my sentiments better: "[E]ach case must be considered on its own merits.  Blunderbuss attempts to cut of discovery on the ground that it never or rarely should be permitted in [ERISA benefit denial] cases, whatever their merits before Glenn, no longer have merit."  Id. at *4.

Blunderbuss is such a great word.

If you find yourself struggling with your ERISA plan's administrator or insurer over your benefits (pension, disability, health, or otherwise), let us see if we can help.

Welcome to "an eye single"

Allow me to introduce you to my ERISA blog. ERISA was enacted by congress to reconcile a number of competing policy interests, but principally to mandate duties, procedures, and practices that would protect the assets of employee benefit plans from mismanagement and malfeasance. I've been working primarily in matters relating to the Employee Retirement Income Security Act of 1974, as amended, since 1995.

There are some particularly unfortunate aspects of the way ERISA was drafted and has come to be interpreted over the years. For example, the lack of a punitive remedy for bad faith denials of benefits by self-serving insurance companies has caused virtually every major health and disability insurer in the U.S. to adopt practices designed to repel contractually valid benefit claims, purely for profit. [Under state law, insurers frequently face punitive damages for bad faith denial of claims; under ERISA, those same insurers will never have to pay more than the insurance benefit they would have to pay if they honored their insurance contract. So they delay and obfuscate as long as possible in order to keep their money, and wear down their insureds] Another example is the Supreme Court's consistent interpretation of the phrase "other appropriate equitable relief" in ERISA section 502(a)(3) to mean "remedies that were available in British courts of equity." We continue to believe that a more appropriate interpretation of "equitable" in that connection is "fair," but we're not Supreme Court Justices, and we have to work with what they give us.

On the other hand, ERISA continues to create some incredibly powerful protections for employees: the ability to obtain the equivalent of class relief under 502(a)(2) without the necessity of a burdensome class action law suit; a claim regulation promulgated by the D.O.L. that mandates a set of practices and procedures for communicating with employees such that they can actually understand what their insurers are telling them; strict liability for self-dealing under ERISA section 406; and let's not forget ERISA's fiduciary duties generally: the highest duties known to the law. Indeed, the name of this blog derives from the Second Circuit's seminal 1982 decision in Donovan v. Bierwirth, holding that a fiduciary must act “with an eye single to the interests of the participants and beneficiaries.” 680 F.2d 263 (2nd Cir. 1982)(emphasis added).

This blog will explore current developments in ERISA jurisprudence, issues we face in our practice, and serve as a forum for discussion of same. I hope you come back for more.

And if you find yourself struggling with your ERISA plan's administrator or insurer over your benefits (pension, disability, health, or otherwise), let us see if we can help.