Federal law controls administration of benefit plans, such as disability, health, and pension plans, under a law known as ERISA.  But states are free to regulate insurance.  Therefore many fringe benefits have both state and federal laws affecting their content and their administration.

Maryland passed a law this year limiting the administration of disability insurance policies.  Under this new law, which went into effect on Saturday, a disability insurance in Maryland may not state that the insurance company has the sole discretion to interpret the terms of the policy.  This kind of clause has been used to prevent many people from getting disability benefits.  It has often meant that an insurance company would interpret the definition of disability to exclude someone from coverage.   I have represented individuals who have paid premiums for years, whose social security disability applications were granted, but who were denied benefits under an insurance company employee’s stretch of the English language.  Then, because of the reservation of the sole discretion to interpret its own language, the insurance company wins in court.  In Maryland, this kind of unfettered discretion will not be acceptable for new or renewed policies.  Despite the mundane language of the law, its attempts to curb abuses could have an enormously beneficial effect on disabled Marylanders.

On the plus side, however, workers were more satisfied than three years ago on physical safety at work, flexibility of the hours, and the recognition given for work accomplishments.

The pollsters warn that the results indicate a tug of war between paying workers enough to make them more productive, and using the money to hire more people.

That part of the decision related to the immunity of states from private lawsuits in federal courts.  Under the 11^th Amendment to the Constitution, states cannot be sued in federal courts unless the state has consented to the suit, or Congress has specifically, and legally, removed the immunity.

The Supreme Court earlier decided that Congress removed the immunity for FMLA suits against states when the employee was using FMLA protection to care for another person.  The FMLA protected workers in that situation because of ingrained sex discrimination, “the pervasive sex-role stereotype that caring for family members is women’s work.”

The FMLA offers protection to workers taking time off for their own illness or disability also; but according to the Fourth Circuit, the motivation for the law did not implicate any constitutional protections.  Instead, Congress found that the economic effect of job loss due to illness was profound, and sought a way to limit it when larger employers were involved.  Because there was no constitutional imperative underlying the law, Congress could not validly permit the states to be sued.

The petition for certiorari pointed out cases in which the circuit courts believe that the law has to stand or fall as a unit, therefore all of its parts must be viewed together.  Others specifically requested the high court’s guidance.

The Supreme Court does not announce why it agreed to hear a case; it becomes clearer (sometimes) after the decision comes out.  The Rehnquist Court upheld states’ rights to be free of federal legislation, but this newer Court may go in a different direction.

ERISA is the law that governs pension and other employee benefits.  It requires internal administrative appeals to be used before an employee or a beneficiary goes to court.  The appeals are decided by company personnel, or by outside administrators hired by the company, so they seldom favor the employees.

In the first case, heads they win; tails she loses.  The Fourth Circuit just turned down an appeal by a mother suing for the proceeds of her daughter’s life insurance policy.  The mother had taken out a life insurance policy on her daughter, as a dependent child.  After her daughter was murdered, she put in a claim for benefits under the policy.  The insurance company denied the benefits, on the basis that a child could be covered only up until the age of 19, or 24 if enrolled full-time in school.  The child was 25 at the time of her death.  (Debbie McCravy v. Metropolitan Life Ins. Co.)

The court ordered the return of the premiums paid for the life insurance only.  It cited other circuit courts also refusing to award the face value of a life insurance policy, but only the return of wrongfully withheld premiums.

When the insurance company is caught overcharging for insurance that it will not honor, it just repay the premiums.  When it is not caught, it gets to keep them.  There are no consumer protection-type remedies to influence the companies to catch the overpayments: when the rules say someone is ineligible for insurance, the companies should not keep the money and should notify the employee.

But yesterday the Supreme Court issued an opinion in another case under ERISA, arising out of CIGNA’s alteration of its pension plan.  Like many companies, CIGNA became alarmed at the cost of its promises to pay certain benefits to retirees, based on their years of service and last salary.  Many of these defined benefit plans were constructed on assumptions of high rates of interest on pension funds, and sometimes just plain “irrational exuberance.”  To save itself from having to pay for these benefits, CIGNA changed the plan to a cash balance equal to what each employee had already earned, and additional annual contributions.  It basically changed the plan to an IRA, and seeded each person’s fund based on how long the employee had been with the company.

The employees objected to the new plan, and claimed that CIGNA had not given proper notice of the change in benefits.  The description of the plan touted it as employee-friendly, an enhancement, and not a cost saver for the company.  None of these statements was true.  The trial court ordered CIGNA to pay benefits under a plan as reformed by the court.

The Supreme Court sent the case back for another look, based on a complex discussion of the history of trust law principles and how it relates to the statute.  The upshot is that the District Court may still impose a revised pension plan, but based on different authority.  And unlike the Fourth Circuit’s take, the issue of notice is key to the holding.

• A simple addition to the Wage Payment and Collection Act goes into effect on October 1.  It reads as follows:

“An agreement to work for less than the wage required under this subtitle is void.”

I believe this is already implied in the law.  Yet, it is helpful to state it outright, since not everyone understands that minimum wage is required.

• Job Applicant Fairness Act

As of October 1, 2011, Maryland employers may not inquire into the credit of an employee or an applicant for employment.  Exceptions include banks, credit unions, investment advisor positions, or any other job in which another law requires a credit report, such as someone needing a security clearance.  Another large exception involves an employer pulling a credit report for jobs in which there is a realistic concern about the employee’s access to money.  The exceptions are listed, and include management position, access to money or a corporate credit card, or has access to trade secrets.

The most unfortunate compromise is that the enforcement mechanism for violations is limited to filing a written complaint with the Commissioner of Labor and Industry.  Still, the knowledge that in most cases an applicant’s credit history is off-limits should help the chances of people with poor credit.  The persistent recession has hurt many people financially, and credit ratings have suffered.  That does not mean that they would not be ethical, diligent employees.

• Change in disability benefits law.  This is an enormous change in disability insurance practice.  Effective for policies sold or renewed beginning on October 1, 2011, an insurance company may not reserve sole discretion to itself to interpret the terms of the policy, or to provie standards of review that are inconsistent with the laws of the state.

The law as originally proposed would have made all discretion illegal.  That kind of change would have made an enormous difference in fights over coverage, but this is a step in favor of the person who has made a claim for disability coverage.

That leaves those of us able to find private individual plans, and those of us (now 16.3%) with no coverage whatsoever.

I reported a while back on the odd origin of health insurance as a typical employment fringe benefit.  As group health insurance becomes scarcer, it becomes clearer that we need to reform the system.  Otherwise we’ll pay in other ways.

In the case of the FMLA, Congress enacted the law in large part to protect the jobs of women, who are disproportionately the caregivers to young, older, and sick relatives.  But in the case of self-care, the Circuit Court decided, there was no such attempt to combat discrimination.  Instead, the goal was to ease economic hardship caused by illness.

The Fourth Circuit had earlier held that no part of the FMLA could be applied to states.  That decision was overturned by the Supreme Court in 2003, in Nevada Department of Human Resources v. Hibbs.  The Supreme Court could revisit this issue if different circuits issue inconsistent opinions.

The Supreme Court took this case for a typical reason: different federal circuit courts of appeals used different standards to decide when employees may sue over the discrepancy between the summary plan description and the language of the longer plan. In the case before the Supreme Court, employees charged that CIGNA changed the pension plan, telling employees that it had “enhanced” the plan; in reality, the future benefits available upon retirement would be less favorable. The trial court found that by spinning its communications, CIGNA “wished to avoid the employee backlash likely to result from a thorough discussion of these aspects” of its changes to the plan. Still, the District Court concluded that it could not force the plan to reinstate the old benefits. The employees ask the Supreme Court to make clear that the trial courts are free to provide meaningful remedies for violation of the law.

Yesterday a unanimous court ruled that the Fourth Circuit was wrong in denying a disability claimant the right to recover attorney’s fees and costs.
I commented on this pending case here, Hardt v. Reliance Standard Life Ins. Co.

The Fourth Circuit denied attorney’s fees to the long-term disability claimant, on the theory that she did not show that she was a “prevailing party.”  Her long-term disability carrier had denied benefits, she appealed internally, was denied repeatedly, and finally filed suit.  The court found fault with the insurance company’s reasoning, which had ignored much of the available evidence, and ordered it to reconsider.  If it failed to reconsider all of the evidence, the court warned that it would enter judgment in favor of the claimant.  On reconsideration, the insurance company finally changed its decision and paid the plaintiff her disability benefits.  Therefore the only further court proceedings involved the claimant’s attorney fee request, which the trial court granted, and the Fourth Circuit vacated.

The Supreme Court rejected the idea that the claimant had to qualify as a “prevailing party.”  That usually means that a judgment is entered in favor of the person.  The words of the statute did not require prevailing party status (although many others do).  Instead, the Court borrowed from an early case interpreting the Environmental Protection Act (Ruckelshaus v. Sierra Club, 463 U. S. 680, 694 (1983)), and held that “a fees claimant must show ‘some degree of success on the merits’ before a court may award attorney’s fees under §1132(g)(1).”  Justice Stevens disagreed with using a different law to guide the interpretation of ERISA, but agreed with the result.

This decision is important to employees who are so often rejected on their first claims for benefits under disability policies.  Navigating the requirements for benefit claims can be a major undertaking.  The decisionmakers, often the insurance companies that ultimately will pay the benefits, require medical records, interviews, questionnaires, medical tests, and often have short timelines for these requirements.  Appeals at the administrative level must be handled with a lot of attention to detail, so that if necessary a federal court can be persuaded that the claimant has the bulk of the evidence on her side.  Then, if the claimant is successful, the only damages that ERISA allows are the benefits themselves!  The hardship of living without income, the burden of complying with all of the demands of the insurance company, the emotional toll – none of these can be elements of damage in court.  But the attorney’s fees and litigation costs are available, IF the claimant “shows some degree of success” on the merits.  The Supreme Court cut off an easy escape hatch for the insurance company.  It was certain to lose in court if it persisted, and by relenting on the benefits it hoped to deny the claimant attorney’s fees.  Her persistence paid off, at least by not costing her additional money for pursuing benefits for which her employer had paid premiums.

This program has been extended not only to last for fifteen months, from the earlier nine, but also applies to those laid off in April or May of 2010.  The subsidy is available for people who lose their jobs, not those who quit.