Posted by marykeating on May 17, 2011 under Employment benefit issues | 
Yesterday two cases under ERISA showcased the limited remedies available to participants and beneficiaries of employee benefit plans. Regardless of their reliance on the benefits, employees often have an uphill battle to gain the benefits, and they are not entitled to anything extra, other than attorney’s fees, if they win.
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.
Posted by marykeating on May 25, 2010 under Employment benefit issues |
The Supreme Court usually ends its term in June with the real blockbuster decisions (though the decision holding that corporations have free speech rights, issued in February, may prove to be the most significant).
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.
Posted by marykeating on December 25, 2009 under Employment benefit issues |
Yesterday morning, on Christmas Eve, the Senate passed its version of the Patient Protection and Affordable Care Act. Whether the law will be good in the short or long term is now unknown, but it will allow many more people to obtain health insurance who were otherwise considered uninsurable.
And earlier this week, on December 21, the President signed a law extending the COBRA subsidy. The subsidy is available for a maximum of 15 months. As discussed here a few months ago, the COBRA subsidy reduces the premium for the terminated individual to 35% of the full freight; the employer pays the remaining 65%, but receives a dollar-for-dollar credit against withholding taxes, so it’s really just an advance. Employees who were eligible for the original COBRA subsidy can extend their coverage at the reduced cost through February. (These were employees involuntarily terminated between September 1, 2008, and December 31, 2009; now the termination cutoff date is extended through February.) Employees who dropped the coverage as too expensive will be given the option to rejoin the plan.
