,
Timothy M. Iannettoni and
Christopher T. Horner II
Edited by
Kimberly J. Ruppel 
First Circuit - De Novo Review Focuses On Procedural Errors
Scibelli v. Prudential Ins. Co. of America., 666 F.3d 32 (1st Cir. 2012)
Although Prudential determined that the insured was totally disabled for the purposes of waiving the premium for an individually purchased life insurance policy, the insurer denied his estate's claim for proceeds under a group life insurance policy, based on the conclusion that the insured was not totally disabled when he stopped working for the plan sponsor, and therefore was not eligible for a premium waiver. Prudential argued that the definition of disability under the Group Policy was different than that of the Individual Policy, but in its initial determination cited a definition of disability different than that of the Group Policy at issue. Further, Prudential's initial determination was rendered over a year after the insured's employer forwarded his claim, and was only communicated to the employer - not to the insured. Seven years later, the insured inquired as to his coverage and was advised by his employer that it had received notice of a denial of the claim from the insurer.
Because Prudential was unable to prove that the insured was informed of the denial, it agreed to allow an appeal of the decision at that time. However, by that time, Prudential no longer had copies of the majority of the medical records relied upon for its original denial, nor did the insured's providers, who followed a policy of routinely destroying records after seven years. As a result, Prudential upheld its denial, based on the lack of medical records to establish that the insured was disabled when he stopped working.
The First Circuit found that the plaintiffs were "prejudiced by Prudential's seven-year delay in giving Jajuga notice that his claim had been denied." Explaining that "had Jajuga been informed within ninety days of the denial of his September 1998 claim, the additional records of his medical condition as of May 1997 would not have been routinely destroyed." Id. at 33-34. Further, the Court rejected Prudential's argument that the definitions of disability in the Individual Policy (disabled from "any gainful work") under which benefits were paid, and the Group Policy (disabled from "any job") under which benefits were denied, were materially different. Ultimately, the Court found the relevant evidence in the administrative record sufficient to conclude that the plaintiffs were entitled to benefits.
Fourth Circuit - Reasonable Interpretation Of Pre-Disability Earnings Provision
Fortier v. Principal Life Ins. Co., 666 F.3d 231 (4th Cir. 2012).
A plan participant claimed that the claim administrator misconstrued the plan's definition of pre-disability earnings and therefore incorrectly denied disability benefits under the plan. The administrator agreed that the participant was disabled, but determined that because the participant received benefits pursuant to a separate, individual disability policy in excess of the maximum amount to which the participant was entitled to receive under the policy at issue, no benefits were payable. The participant argued that the administrator erroneously deducted onetime startup business expenses from the calculation of pre-disability income, when otherwise pre-disability earnings were sufficiently large to entitle the participant to the maximum benefit under the group policy, notwithstanding the individual policy benefits. Because the policy entrusted the administrator with complete discretion, the Court deferred to its reasonable interpretation of definitional terms in calculating pre-disability earnings.
Sixth Circuit - Moench Presumption Does Not Apply at the Pleading Stage
Pfeil v State Street Bank and Trust Co., 2012 U.S. App. LEXIS 3482 __ F.3d ___ (6th Cir. 2012)
Participants in the ESOP alleged the trustee breached fiduciary duties under ERISA by continuing to allow participants to invest in GM common stock even though reliable public information indicated that GM was headed for bankruptcy. In response to a motion to dismiss based on ERISA section 404(c), the district court assumed the Moench presumption of prudence applied at the pleading stage and concluded that the participants pleaded sufficient facts to overcome the presumption. The Sixth Circuit noted that district courts in the Circuit had split on the issue of whether the presumption created a heightened pleading standard, and recognized the split in other circuit jurisdictions as well. The Court concluded that a plaintiff does not need to plead enough facts to overcome the presumption of prudence in order to survive a motion to dismiss, clarifying that the presumption is evidentiary in nature and not a pleading requirement.
Eighth Circuit - Active File Review Precluded Finding An Impermissible "Rubberstamp" Denial
Carrow v. Standard Ins. Co., 664 F.3d 1254 (8th Cir. 2012)
A plan participant applied for long-term disability benefits following complications arising from hip surgery. After a subsequent hip replacement surgery, the participant's surgeon concluded that he should be able to return to work at his normal duties. The participant returned to work as recommended for a few months, but then stopped working due to pain. At that point, the participant's primary treating physician concluded that he was totally disabled from working and he submitted a new claim for benefits. After payment of benefits for the 24 month "own occupation" period, Standard determined that the participant was not entitled to continued payment of benefits under the "any occupation" period. The participant argued that Standard's decision was improperly based on a "file review" of a consulting, non-examining physician, which was contrary to the opinion of the treating physician. However, in part because Standard asked its consultant specific questions about the participant's treating physician's recommendations and did not simply rubberstamp its consultant's reports, the Court disagreed and found substantial evidence supporting the plan administrator's decision.
9th Circuit - Assertion of "Participant" Status Sufficient To Confer Subject Matter Jurisdiction
Leeson v. Transamerica Disability Income Plan, 2012 U.S. Dist. LEXIS 1248, 51 BNA 2889 (9th Cir. 2012).
A former employee challenged the termination of his long-term disability benefits. On remand from a prior appeal, the plan filed a motion to dismiss for lack of subject matter jurisdiction, arguing, for the first time, that the former employee did not have statutory standing as a plan participant to file an ERISA action. The district court, relying on Curtis v. Nevada Bonding Corp., 53 F.3d 1023 (9th Cir. 1995), granted the defendant's motion to dismiss because the plaintiff lacked standing to pursue an ERISA claim.
The 9th Circuit reversed. Relying on Arbaugh v. Y & H Corp., 546 U.S. 500 (2006), the Court overruled the jurisdictional implications of Curtis and concluded that whether the former employee was a participant for purposes of ERISA is "a substantive element of his claim, not a prerequisite for subject matter jurisdiction." The Court explained that "[b]y asserting a colorable claim that he is a plan participant" the former employee satisfied the threshold for establishing federal court subject matter jurisdiction and the issue of participant status is a merit-based determination to be determined on summary judgment or trial.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
