Safeguards to Defend Against Conflict of Interest Allegations in the Administration of ERISA Welfare Benefit Claims
In cross-motions for summary judgment in Geiger v. Aetna Life Insurance Company, the U.S. Court of Appeals for the Seventh Circuit considered whether Aetna, the designated claims fiduciary and insurer of disability benefits provided under an employer-sponsored ERISA welfare benefit plan, abused its discretion when it terminated the plaintiff’s disability benefits. The plaintiff was a former employee of the employer-plan sponsor. The terms of the plan specifically granted discretionary authority to Aetna with respect to determining benefits and construing the terms of the plan. However, the plaintiff alleged that Aetna had operated under a conflict of interest, as the party that both determined eligibility for and paid plan benefits, and thus abused its discretion in denying her claim. In deciding that Aetna did not abuse its discretion, the Court considered the following four safeguards that Aetna had undertaken to minimize any conflict of interest: (i) Aetna obtained numerous independent physician… Continue Reading
The U.S. Department of Labor issued final regulations revising the ERISA claims procedures that apply to employee benefit plans offering disability benefits. Generally, these final regulations extend certain procedural rules applicable to claims submitted under group health plans to disability benefit claims submitted under ERISA plans that provide disability benefits. The final regulations apply to claims for disability benefits filed on or after January 1, 2018. View the final regulations here.
On November 18, 2015, the U.S. Department of Labor (“DOL”) published proposed amendments to the claims procedure regulations under ERISA with respect to claims for disability benefits. Generally, these amendments have the effect of extending to disability benefit claims several of the procedural protections that were added by the Affordable Care Act for health benefit claims, particularly regarding internal claims and appeals under group health plans (e.g., providing expanded benefit denial notices written in a culturally and linguistically appropriate manner). If the proposed regulations are adopted as final, administrators of plans providing disability benefits would be required to implement these enhanced claims and appeals procedures. The proposed regulations are available here.
The U.S. Sixth Circuit Court of Appeals recently held that a disability plan participant was not entitled to disgorgement of an insurance company’s profits when the participant had recovered on his wrongful denial of benefits claim. The en banc Sixth Circuit reversed a prior panel’s opinion that held the participant could recover both for the value of unpaid disability benefits plus approximately $3.8 million in profits the insurance company earned on the unpaid amounts. The Sixth Circuit reasoned that equitable relief under ERISA, such as disgorgement of profits, is a “catch all” remedy only available where a participant is not otherwise made whole under another of ERISA’s remedial provisions. Here, the participant had been made whole by recovering the unpaid disability benefits plus his attorneys’ fees. Accordingly, to permit him to also recover the insurance company’s profits would result in a double recovery. The Sixth Circuit’s en banc opinion can… Continue Reading
Conflict Remains among Federal Appellate Circuits Regarding Recovery of Overpayments under ERISA Section 502(a)(3)
The U.S. Supreme Court recently declined to review a decision by the U.S. Court of Appeals for the Second Circuit in Thurber v. Aetna Life Insurance Co., 712 F.3d 654 (2d Cir. 2013), which held that a plan fiduciary was entitled under Section 502(a)(3) of the Employee Retirement Income Security Act of 1974 (“ERISA”) to recover overpayments made to a participant from a short term disability (“STD”) plan subject to ERISA, even though the participant had already spent the overpayments she received from the plan. The overpayments in Thurber arose when the participant received “other income,” which the STD plan document provided could reduce the amount payable from the plan. The Second Circuit specifically rejected the reasoning of the Ninth Circuit in Bilyeu v. Morgan Stanley Long Term Disability Plan, 683 F.3d 1083, 1093–95 (9th Cir. 2012), which held that overpayments from a disability plan could not be recovered under… Continue Reading
Generally, payment of an accident or health insurance premium from a qualified retirement plan constitutes a taxable distribution. Recently issued final regulations provide an exception to this general rule if the disability insurance contract pays benefits to the plan on the employee’s behalf in the event of an employee’s inability to continue employment due to disability. This exception applies provided the payment of benefits does not exceed the reasonable expectation of the annual contributions that would have been made to the plan on the employee’s behalf during the period of disability. These regulations apply for taxable years beginning on or after January 1, 2015, though taxpayers may elect to apply the final regulations to earlier taxable years. The final regulations can be found here.
5th Circuit: No Plan Administrator Duty to Investigate Authenticity of Emails Relied Upon in Making Benefit Determination
A plan administrator denied disability benefits to a participant, and sought reimbursement for previously paid benefits, after the administrator concluded that the participant was not in fact disabled. The administrator’s decision rested in large part on emails provided by the participant’s ex-boyfriend that showed the participant was not disabled. The participant argued that the administrator abused its discretion in considering the emails without confirming their authenticity. The U.S. 5th Circuit Court of Appeals, whose jurisdiction includes Texas, held that a plan administrator does not have a duty to reasonably investigate a claim or to investigate the accuracy or source of evidence because the claimant, who is likely in a better position to produce contradictory evidence, should submit evidence discrediting the evidence that the administrator relied upon in making its determination. Here, the participant argued that email accounts can easily be hacked and/or forged, but produced no evidence that the emails,… Continue Reading