:: Regulatory Defect Renders Plan’s Contractual Limitation Period Void

Based on the plain language of the regulation, we hold that the correct interpretation of section 2560.503-1(g)(1)(iv) is that a denial of benefits letter must include notice of the plan-imposed time limit for filing a civil action. . . .

[T] the Department of Labor requires plan administrators to give notice of the limitations period in the denial of benefits letter — even when the information is also contained elsewhere in the plan documents . . . This leaves us with but one conclusion to draw, which is that the regulation itself contemplates that failure to include this information in the denial of benefits letter is per se prejudicial to the plaintiff.

Santana- Díaz v. Metropolitan Life Insurance Co., No. 15-1273, 1st Cir. (March 14, 2016)

This long term disability case illustrates the importance of including notice of contractual limitation periods on filing suit.

Contractual Limitations Periods

ERISA itself does not contain a statute of limitations for bringing a civil action, see 29 U.S.C. § 1132(a)(1)(B), so federal courts usually “borrow the most closely analogous statute of limitations in the forum state.”  On the other hand, plans may impose a contractual limitations period and in such cases, courts will enforce the provision so long as it is reasonable.

Equitable Tolling

In the case at bar, the plaintiff argued that the plan failed to advise him of the limitations period in the plan and therefore the plan should not be allowed to enforce the three year period set forth in the document.  In other words, the plaintiff asked to court to “toll” or suspend the running of the limitations period.

A limitations period may be equitably tolled where a plaintiff establishes that “extraordinary circumstances” beyond his control prevented a timely filing, such as where the plaintiff was “materially misled into missing the deadline.” BarretoBarreto v. United States, 551 F.3d 95, 101 (1st Cir. 2008) (citations omitted).  The Court chose a different solution.

Regulatory Compliance Defect

Rather than resolving the issue in terms of equitable remedies, the Court concluded MetLife’s regulatory violation rendered the contractual limitations period altogether inapplicable.

Department of Labor regulations require that a plan administrator to provide “written or electronic notification of any adverse benefit determination” that includes a “description of the plan’s review procedures and the time limits applicable to such procedures, including a statement of the claimant’s right to bring a civil action.” 29 C.F.R. § 2560.503-1(g)(1)(iv).

The Court held that this language required inclusion of the time limits in the denial letter, stating:

Based on the plain language of the regulation, we hold that the correct interpretation of section 2560.503-1(g)(1)(iv) is that a denial of benefits letter must include notice of the plan-imposed time limit for filing a civil action. To repeat, the regulation states that the letter must contain a “description of the plan’s review procedures and the time limits applicable to such procedures, including a statement of the claimant’s right to bring a civil action.” 29 C.F.R. § 2560.503-1(g)(1)(iv) (emphasis added).

Substantial Compliance Defense

Courts only require “substantial compliance” with the regulations such that a plaintiff must demonstrate that the violation prejudiced him by affecting review of his claim. In other words, a plaintiff must make some “showing that a precisely correct form of notice would have made a difference.” Recupero v. New England Tel. & Tel. Co., 118 F.3d 820, 840 (1st Cir. 1997).  In the case at bar, however, the violation failed to meet even this general compliance standard.

The Court stated that:

 . . . we hold that, where a plan administrator fails, as MetLife did here, to include the time limit for filing suit in its denial of benefits letter, and it has not otherwise cured the defect by, for example, informing the claimant of the limitations period in a subsequent letter that still leaves the claimant sufficient time to file suit, the plan administrator can never be in substantial compliance with the ERISA regulations, and the violation is per se prejudicial to the claimant.


By holding the contractual limitations period inapplicable, the Court placed the issue back in the realm of the most analogous state statute.  In this case, that was the 15 year contractual limitations period – which left the plaintiff’s suit well within the allowable time period to be timely.

Note:  The First Circuit noted that both the Third and Sixth Circuits have interpreted section 2560.503-1(g)(1)(iv) as it did, and have held that the regulation requires a plan administrator to provide in its final denial letter not only notice of the right to bring a civil action, but also of the time limit for filing the action.  See, Mirza v. Insurance Administrator of America, Inc., 800 F.3d 129 (3d Cir. 2015); Moyer v. Metropolitan Life Insurance Co., 762 F.3d 503 (6th Cir. 2014); but cf., Wilson v. Standard Insurance Co., 613 F. App’x 841 (11th Cir. 2015) (per curiam) (unpublished).

:: NAIRO White Paper On External Review Questionable

The NAIRO released a white paper covering a number of points on the new external review requirements. A press release on the white paper appears here.

Under the DOL’s point of view, the decision of the external review organization is binding.  In other words, if Sue Smith requests external review of a benefit denial, the external review organization’s decision will be the final word, absent further judicial review to the extent available.

The drafters of the interim guidance show a woeful lack of perspective on the existing state of the law under Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989) and ancillary legal concerns over fiduciary status and deference in judicial review. Continue reading

:: EBSA Regulatory Projects Underway

From the Employee Benefit Security Administration’s website:

EBSA Unified Agenda Entries

DOL Fall 2010 Semi-Annual Agenda

:: EBSA Cites Statistics Showing Effective “Targeting” Of ERISA Plans

In FY 2009, EBSA closed 3,669 civil investigations, with 2,833 (77.21%) resulting in monetary results for plans or other corrective action.

“Civil Investigation Statistics Demonstrate Success In Targeting” Employee Benefit Security Administration Fact Sheet

The EBSA cites its targeting protocols as contributing to the success of enforcement efforts against ERISA plans and fiduciaries during 2009. The news release does not provide information on the methods involved in the targeting process, but that information is generally described in the EBSA Enforcement Manual.

For example, regarding the sources of data indicating selection of targets for review, the manual provides:

3. Targeting

Sources for Potential Limited Review Cases.

Computer generated compilations of selected employee benefit plans or service providers derived from reports filed with EBSA.

Information derived from detailed review and analysis of annual reports, supporting financial statements, schedules, exemption application files, ERISA section 502 complaints, and other internal EBSA sources.
Information concerning employee benefit plans or service providers derived from other governmental agencies such as the IRS, the SEC, and state insurance agencies.

Information concerning employee benefit plans or service providers derived from non-governmental sources such as newspapers, industry journals and magazines, or leads from knowledgeable parties.

Information received as a result of complaints from participants, fiduciaries, informants, or other sources in the community, other than allegations of acts against a participant or beneficiary for exercising any right to which he/she is entitled under the provisions of an employee benefit plan, or interfering with the attainment of any right to which the participant may become entitled, which should be handled as described in Chapter 43.

Compilations of selected employee benefit plans or service providers derived by using combinations of the sources listed in (1) through (5) above.

EBSA Enforcement Manual, Chapter 53, “Targeting and Limited Reviews”

Regarding group health plans, the Manual provides some specific guidance:

12. Limited Review Cases Involving Health Plans. Part 7 of ERISA was amended by four separate statutes: the Health Insurance Portability and Accountability Act of 1996 (HIPAA); the Mental Health Parity Act of 1996 (MHPA); the Newborns’ and Mothers’ Health Protection Act of 1996 (Newborns’ Act); and the Women’s Health and Cancer Rights Act of 1998 (WHCRA).

During the course of an investigation involving an ERISA-covered health plan, Investigators/Auditors will ordinarily determine whether a plan is in compliance with these statutes. An investigative guide to assist in this effort is found at Figure 3. If the investigator finds that a large firm sponsors several covered group health plans, a compliance review for each of the plans should be conducted. Claims procedures for the plan should be reviewed to determine if they are in compliance with ERISA Section 503.

A checklist of potential review items is included in the Enforcement Manual materials. That checklist can be reviewed here.

In the case of any contact by regulators, plan fiduciaries should be aware that one thing frequently leads to another. The agenda contemplated by the auditor/investigator will likely not be conveyed to the plan fiduciary in advance.

The targeting guidelines provide that:

Generally, other than stating that the purpose of the limited review is to determine whether a violation of Title I of ERISA has occurred or is about to occur, the Department has adopted the policy of not informing plan officials or others as to the basis of its investigation.

The limited review (Program 53) is designed to expedite a decision on conversion of the case to a more serious review, such as a fiduciary violation investigation (Program 48).

The sole objective of a Program 53 case is to look at one or more issues and to determine whether to convert the case to a Program 48 case or to conclude the inquiry as quickly as possible. . .

In those instances where the limited review case identifies violations in areas such as bonding, reporting and disclosure, improper administrative practices of a de minimis nature, or prohibited transaction(s) already corrected, the case should generally remain as a Program 53.

A voluntary compliance letter will issue on matters of a de minimis nature whereby the plan is given an opportunity to correct minor violations.

In cases where fiduciary violations are found or suspected the plan is to be advised and follow up action will be taken.

In the case of potential criminal violations, the Manual provides as follows:

Apparent Criminal Violations Found.

Whenever the limited review case uncovers evidence of possible criminal violation(s), the assigned Investigator/Auditor must apprise the group supervisor at the earliest possible time. Normally, the civil case will proceed and no investigation of the criminal case will be performed until the RD has decided whether and by whom such criminal investigation(s) will be conducted.

Note: Plan fiduciaries should be aware of the stage and scope of the audit based upon the targeting criteria provided in the Enforcement Manual. The investigator is under no obligation to apprise the fiduciary of these matters, but some indication can be inferred from the nature of the inquiries as suggested by a review of the excerpts noted above from the targeting protocols. Completion of a civil case before a criminal investigation obviously poses serious risks to the targets of the audit. Therefore, plan fiduciaries and counsel must be alert to the intentions of the investigator and make appropriate judgments as to the risks posed in the course of the investigation.

:: Data Mining & The HIPAA Privacy Rule – Can This Marriage Be Saved?

What is data mining?  Data mining has been described as process of extracting data from large databases of information in a manner that is meaningful to the extractor.

What kind of information?  Many different kinds.

Continue reading

:: District Court Opinion Provides Additional Analysis Of Post-Sereboff Counterclaims

Finally, defendant has moved for summary judgment on its counterclaim seeking reimbursement for certain overpayments of the initial short term disability benefits. Plaintiff admits that the overpayments were made, but argues that defendant’s claim is subject to exhaustion. Although there is little support for plaintiff’s argument, there is a more fundamental problem with the counterclaim.

Raybourne v. Cigna Life Ins. Co., 2008 U.S. Dist. LEXIS 48341 (N.D. Ill. June 24, 2008)

I recently noted what appears to be a tendency in disability cases to permit counterclaims against benefit claimants to proceed without significant analysis of the counterclaims’ theoretical basis. (See, :: Seventh Circuit Holds That Sereboff Supports Disability Carrier’s Counterclaim) In the recent decision in Raybourne v. Cigna, however, the court gives the issue more detailed analysis and is therefore worthy of note.

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:: Counterclaim For Disability Benefits Properly Framed In Terms Of Sereboff Prerequisites

I recently criticized the tendency evidenced in several post-Sereboff opinions to merge the requirement of a fund, separable from the defendant’s general assets, with the abandonment of a strict tracing principle. See, :: Seventh Circuit Holds That Sereboff Supports Disability Carrier’s Counterclaim

Professor Roger Baron calls our attention to another recent counterclaim case in which the district court got the analysis right. The case is Killian v. Johnson & Johnson, 2008 U.S. Dist. LEXIS 49580 (D.N.J. June 23, 2008).

In that case the defendant in a claim for benefits case filed a counterclaim, asserting that social security benefits received by the plaintiff should have been offset from disability benefits paid to her – resulting in her actually owing the plan, on the defendant’s theory, some $45,000.

Continue reading

:: Seventh Circuit Holds That Sereboff Supports Disability Carrier’s Counterclaim

Although Standard’s plan does not use the word “discretion,” it uses a variety of equivalent terms that convey the same meaning. See supra (“full and exclusive authority to control and manage, . . . to administer, . . . and to interpret and to resolve all questions arising in its administration, interpretation, and application”; “[t]he right to determine [e]ligibility [and] entitlement”; “any decision Standard makes in the exercise of our authority is conclusive and binding”).

This is a far cry from the spare language “when Prudential determines” and “satisfactory to Prudential” that this court found inadequate to signal discretion in Diaz, 424 F.3d at 638, 640. The Standard plan’s language unambiguously communicates the message that payment of benefits is subject to Standard’s discretion.

Gutta v. Std. Select Trust Ins. Plans, 2008 U.S. App. LEXIS 13461, 8-10 (7th Cir. Ill. June 26, 2008)

This recent Seventh Circuit opinion in an ERISA disability case addresses the language needed to avoid de novo review, conflicting evidence of disability and an interesting counterclaim argument based upon Sereboff principles. (The district court opinion was discussed in :: Plan Fiduciary Claims For Overpayments, Post-Sereboff)

The Semantic Issue

The Court permits the language cited above to pass as adequate for the purpose of triggering deferential review. The holding of the Court finds support in prior holdings to the extent it had previously signaled that no particular formula should control the invocation of deferential review:

The reservation of discretion must be communicated clearly in the language of the plan, but the plan need not use any particular magic words. See Herzberger v. Standard Ins. Co., 205 F.3d 327, 331 (7th Cir. 2000).

Indeed, “the critical question is whether the plan gives the employee adequate notice that the plan administrator is to make a judgment within the confines of pre-set standards, or if it has the latitude to shape the application, interpretation, and content of the rules in each case.” Diaz v. Prudential Ins. Co. of Am., 424 F.3d 635, 639 (7th Cir. 2005) (emphasis added).

Whether the employee truly has “adequate notice” of the effect of such words, however, is seriously doubtful. So, to that end, the debate remains a sterile one of importance essentially to lawyers and judges.

The Claim Decision

Whether the claimant could engage in gainful employment other than his primary vocation presented one of the most important issues in the case. The specific facts are not so important to note for my purposes – I think the significance of the decision on this point lies in the role the district court and the court of appeals viewed as appropriate.

From the district court’s opinion:

Nevertheless, this court acts in an appellate capacity when it reviews a plan’s decision denying benefits, so it cannot consider evidence which was not before the plan.

And then, from the Seventh Circuit’s opinion:

Thus, we will review Standard’s determination deferentially, to ensure that the ultimate decision was not arbitrary, and we will not consider evidence outside the record that was before the administrator.

So, in effect, the federal judiciary serves as an appellate court for the decision of a commercial insurance carriers claims analyst. ERISA has come to a strange place indeed at this juncture.The district court did review the findings, which the plaintiff challenged, but the collapse of judicial review into the administrative model noted above foreordained the result:

Gutta attacks these findings, and it is possible that we might have found more to criticize if we were conducting de novo review. But we are not. The district court, we conclude, reasonably concluded that Standard’s decision was “based upon substantial evidence because it is consistent with the medical evidence in the record” and “thus easily satisfies the ‘arbitrary and capricious’ standard of review.” See Gutta v. Standard Select Trust Ins., 2006 WL 2644955, at *23.

The Counterclaim

The counterclaim presented one of the most interesting parts of the opinion.

Standard Select’s plan contains an offset for “Income Received From Other Sources,” which is defined as “[t]he amount you receive or are eligible to receive because of your disability under any group insurance coverage, other than group credit insurance or group mortgage disability insurance[.]” Under Sereboff, this clause creates an equitable lien on any monies paid by Standard Select prior to Dr. Gutta’s receipt of benefits from another group plan.

. . .

Thus, Standard Select may seek reimbursement of the benefits paid to Dr. Gutta if the plan created an equitable lien covering these benefits because the plan contains an offset provision preventing plan participants from receiving money from multiple group plans and provides that the participant must immediately reimburse Standard Select for any overpayments. Policy at 13.

The Seventh Circuit viewed Sereboff as settling the question and affirmed the judgment for the carrier.

The Court glossed over the Sereboff requirement that a fund exist, folding the issue into the aspect of Sereboff that disavowed any rule requiring strict tracing, stating:

When the court ruled on Dr. Gutta’s motion to dismiss Standard Select’s counterclaim, Great West was controlling. Thus, the court found that because Dr. Gutta comingled the benefits paid by Standard in with his other assets, the traceability rule explicated in Great West doomed Standard Select’s § 502(a)(3) claim.

However, in the Court’s recent decision in Sereboff, it retreated from a strict traceability rule and held that a plan need not be able to trace “particular funds or property” if a claimed equitable lien by agreement is involved. 126 S.Ct. at 1875-76; Donaldson v. Pharmacia Pension Plan, 435 F.Supp.2d 853, 866 (S.D. Ill. 2006) (Sereboff abrogated the rule in Great West holding that ERISA plans may only seek reimbursement only if the insured possesses clearly identifiable proceeds).

Departure From Sereboff?

No doubt the Court rejected the notion of strict tracing – but it did require the existence of a fund, a res, to which the lien would attach. Consider this excerpt from Sereboff:

Much like Barnes’ promise to Street and Alexander, the“Acts of Third Parties” provision in the Sereboffs’ plan specifically identified a particular fund, distinct from theSereboffs’ general assets—“[a]ll recoveries from a third party (whether by lawsuit, settlement, or otherwise)”—and a particular share of that fund to which Mid Atlantic was entitled—“that portion of the total recovery which isdue [Mid Atlantic] for benefits paid.” App. to Pet. for Cert. 38a.

Like Street and Alexander in Barnes, therefore, Mid Atlantic could rely on a “familiar rul[e] of equity” to collect for the medical bills it had paid on the Sereboffs’ behalf. Barnes, supra, at 121. This rule allowed them to “follow” a portion of the recovery “into the [Sereboffs’] hands” “as soon as [the settlement fund] was identified,” and impose on that portion a constructive trust or equitable lien. 232 U. S., at 123.

(Recall that in Sereboff, the fund existed in the form of an investment account where the tort recovery proceeds were invested pending judicial resolution of the issue.)

Whether the facts in Gutta present a real issue on this point cannot be easily discerned from the opinion, but the opinion of the Court goes too far when it merges the traceability question (rejected in Sereboff) with the question of a res to which the equitable lien can apply.

Note: Both Hertzberger and Diaz are important Seventh Circuit cases on the point, and now should be read in conjunction with Gutta to get a sense of the Court’s view on the necessary language to negate a de novo standard of review.

Procedural Issues – Of course there is no “administrative record” on the counterclaim issue because the carrier asserted that claim in the course of judicial proceedings. Though one might analogize the counterclaim, or offsets, as tantamount to a claims decision in that benefit amounts are potentially adjusted as a consequence, the courts have not been inclined to think this way.

Seventh Circuit View – The Seventh Circuit has proven very unfriendly to participants on offset issues. In a pre-Sereboff decision, the Court characterized recoupment as a contractual issue that does not implicate Section 502(a)(3) :: Seventh Circuit Approves “Contractually Based Recoupment” As Means Of Overpayment Recovery

:: Futility Doctrine Applied In Aid Of Class Action Claims Against HMO Defendants

Even if exhaustion of administrative remedies were required for these claims, however, ERISA plan beneficiaries are not required to exhaust their claims if they can demonstrate that exhaustion ‘would be wholly futile.’ “ Bridgeman v. Group Health Plan, Inc., 2007 WL 1527545, *4-5 (E.D.Mo. May 23, 2007) (quoting Burds v. Union Pacific Corp., 223 F.3d 814, 817 n. 4 (8th Cir.2000)). “This futility exception is particularly appropriate where the past pattern of a plan administrator, as well as its position on the merits of a current matter in litigation, reveal that any further administrative review would provide no relief.”

Starbird v. Mercy Health Plans, Inc.. Slip Copy, 2008 WL 2157100 (E.D.Mo.) (May 22, 2008)

In this recent decision, the plaintiffs alleged that the defendant HMO’s routinely overcharged for services. The defendants met these claims with a motion to dismiss for lack of subject matter jurisdiction and failure to exhaust administrative remedies. The plaintiffs prevailed on most issues in an decision that sheds light on Article III standing requirements and application of the futility doctrine.

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:: Court Finds No “Bright Line” Test For Eliminating Duplicative ERISA Claims

There is a split among circuits and within this district as to the effect of Varity Corp. and Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002), on a plaintiff’s ability to simultaneously pursue claims for benefits under § 502(a)(1)(B) and for breach of fiduciary duty under § 502(a)(3). See, e.g., Wolfe v. Lu, No. 06-0079, 2007 WL 1007181, *8-9 (W.D.Pa. Mar. 30, 2007) (noting that “the issue has been addressed by many district courts within our circuit with differing results” and collecting cases); Tannenbaum v. UNUM Life Ins. Co. of Am., No. 03-1410, 2004 WL 1084658, *3 (E.D.Pa. Feb. 27, 2004) (noting that “[t]he courts of appeals are split over whether Varity ever permits a plaintiff who has been denied benefits to simultaneously bring an action for benefits under § 1132(a)(1)(B) and an action for breach of fiduciary duty under § 1132(a)(3)(B)” and collecting cases). The Third Circuit has not expressly addressed this issue.

DeVito v. Aetna, Inc., — F.Supp.2d —-, 2008 WL 482847 (D.N.J.) (February 25, 2008)

Noting a split of authority as to whether a plaintiff may simultaneously pursue claims for benefits under § 502(a)(1)(B) and for breach of fiduciary duty under § 502(a)(3), a federal district court refused to dismiss the plaintiff’s claims under § 502(a)(3). The case arose out of a dispute over the terms of insurance contracts issued by Aetna and subject to ERISA.

After holding that state law claims were duplicative of an ERISA § 502(a)(1)(B) claim for benefits, and thus preempted, the court turned to the Defendants’ motion to dismiss the plaintiffs’ claims of breach of fiduciary duty under ERISA § 502(a)(3).

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:: Supreme Court Docket Watch

Passing along an update from Prof. Roger Baron, University of South Dakota School of Law:

The Supreme Court has conferences scheduled for this coming Friday, 2/22 and also the following Friday, 2/29. It may be that the Court’s decision on the Petition for Writ in Wal Mart v. Shank [my summary here – :: Petition for Certiorari Filed In Criticized Wal Mart Health Plan Subrogation Case (RFH))  will be made at one of these upcoming conferences.

In addition to Wal Mart v. Shank, there are two other ERISA cases in which a Petition for Writ of Cert. is currently pending. Both of these other cases are scheduled for conference on Friday, 2/29. They are as follows:

Bauhaus USA v. Copeland – the case in which the Mississippi Supreme Court denied ERISA reimbursement, upholding state law which denies subrogation against a minor. (Supreme Court file # 07-840) [My summary here – :: State Supreme Court Holds ERISA Subrogation Provisions Unenforceable (RFH)]

Amschwand v. Spherion – the Fifth Circuit decision which denies death benefits as an impermissible attempt to collect money damages. The facts are extremely sympathetic here with the employee’s life insurance policy being left out when the employer switched insurers and with employer assuring the employee that he was covered by the new insurer. There is a strongly worded concurring opinion by Judge Benavides in this case in which he states that “The facts … scream out for a remedy beyond the simple return of premiums.” (Supreme Court file # 07-841) [My summary here – :: Fifth Circuit Rejects Claim For Death Benefits As Impermissible Attempt To Recovery Money Damages (RFH)]

HT to Prof. Baron.

:: Solicitor General Files Brief In Support Of Participant Claims Under ERISA Section 502(a)(2)

The solicitor general has filed a brief supporting the view that ERISA Sections 409(a) and 502(a)(2) allow plan participants to sue on behalf of a plan even when the losses are allocated to a subset of accounts in the plan. Moreover, the Solicitor General argues that the availability of a remedy under Section 502(a)(3) should not foreclose suit under Sections 409(a) and Section 502(a)(2).

Rogers v. Baxter International, Brief of Solicitor General

This issue has been a thorny one for some time. See,:: Threading The Standing Needle: A Closer Look At Representative Claims By Plan Participants

Why is it so important? Section 409(a) via Section 502(a)(2) make a big difference in the remedy available. See, :: Sequel To Tullis Decision – The Potential Reach Of Section 502(a)(2) No cramped equitable relief there – on the contrary, a hardy, make whole remedy that reaches into the fiduciary pocket. The contrast with the scant relief available under (a)(3) is dramatic. Cf. :: Equitable Relief Claims Under ERISA Section 502(a)(3)

So, as the Supreme Court perhaps ponders the issue in more far-reaching aspects, for now, the Seventh Circuit may be poised to ring the civil remedies chimes once again in support of a broader interpretation of Section 502(a)(2). And if so, consider the significance of assuming fiduciary status given this broadening of ERISA’s remedial reach. :: Slimming Down The ERISA Fiduciary Profile – Good Or Bad For ERISA Claims Administrators?