Posted by marykeating on October 4, 2011 under Employment benefit issues | 
Many employers offer short and long term disability benefits as part of the package of fringe benefits. Typically, but not always, employers pay the benefits during the short-term disability period. If the employee is still disabled at the end of that period (typically three months), then an insurance policy kicks in and pays the benefits for the remainder of the disability period.
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.
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 July 15, 2010 under Employment benefit issues |
The Supreme Court will decide an important issue in employee benefits in its next term. Under the federal law that governs employee benefits (ERISA), employees are entitled to get a copy of a summary plan description as well as notification of any important changes to the plan. The summary plan descriptions almost always state that the actual “plan” governs in cases of any differences in language. Although participants in the plan are entitled to obtain the full document upon request, they are not routinely given out without the request. Because pension plan document can easily run more than 100 pages, there are critical differences in language in plenty of cases. The plan amendments are even more difficult to comprehend, sometimes, since they can’t be understood without sitting down with the plan document itself to know how a change to Article IX might affect an employee’s entitlement to disability benefits, for example.
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.
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 April 22, 2010 under Employment benefit issues |
“People make mistakes.” Says the Chief Justice of the Supreme Court. He’s not talking about himself, but about ERISA plan administrators.
The case of Conkright v. Frommer sees Chief Justice Roberts singing the praises of employee benefit plans that give deference to their administrators to interpret plan provisions, coverage, and other issues. In this case, a pension plan administrator had made a calculation of pension benefits that the court found unreasonable. In their return to court, the pension plan participants objected to the replacement calculation. They urged the trial court to deny discretion to the plan administrator’s new calculation method, and to itself determine the appropriate level of benefits. The trial court agreed, and determined a method of calculating benefits as proposed by the pension beneficiaries.
The Supreme Court overturned the decision, faulting the trial court for not granting discretion to the administrator. In doing so, it expressed with approval the “efficiency” of granting the administrator discretion, since it prevents different courts from having a role, which could lead to different decisions. The opinion omits any benefit to the participants by having impartial courts determining their entitlement to benefits, many of which are paid for by the employees. Under the Court’s majority opinion, the administrator must commit multiple breaches of trust before the court can step in and take away its discretion. In any event, one free mistake is now the rule.
This approach tilts the scale too heavily in favor of the benefit plan trustee. In the pension situation, the trustee ideally attempts to pay out all beneficiaries at the levels promised by the plan, investing the funds prudently yet profitably so that retirement funds are available. In this ideal situation, there are no winners or losers, everyone gets what they should get.
Contrast another common ERISA case subject: the long-term disability plan. In those cases, the employer, with or without employee contribution, pays premiums for a long-term disability policy. Under the policy, an employee is entitled to obtain benefits if she becomes totally disabled. As with all insurance products, the insurance company underwriting the policy is hoping that premiums will outweigh the benefits paid. In many cases, the insurance company is also the administrator of the plan, invested with discretion to decide if someone is disabled, or otherwise qualifies for the benefits. Is there any surprise that long-term disability benefits are frequently denied?
Justice Breyer, who delivered the majority opinion in 2008′s Metropolitan Life Ins. Co. v. Glenn, dissented.
Posted by marykeating on April 17, 2010 under Employment benefit issues |
The Supreme Court will decide a case centering on the award of attorney’s fees in a long-term disability appeal. The Fourth Circuit, which hears appeals from federal courts in Maryland, decided that the successful claimant could not obtain attorneys’ fees from the insurance company. While the case will focus on a narrow provision of one law, ERISA, it has widespread ramifications. The case is called Hardt v. Reliance Standard Life Ins. , and discussed here.
ERISA is the acronym for the Employee Retirement and Income Security Act. This law governs employee benefit plans, including not only pensions but health insurance, life insurance, and long-term disability insurance. Among its provisions is a requirement that the benefit plan offer an internal administrative appeal procedure when claims are denied.
Long-term disability plans are frequently offered as fringe benefits. As many people have found, however, the administrators of these plans can be very suspicious of claims, and may deny benefits to claimants on dubious grounds. The administrators are often the same insurance companies who will pay the claim if they decide the claim is valid. A disabled person can go to court only after “exhausting” the administrative remedies (the word used by the courts is especially appropriate here). Then the court will review the decision of the administrator by comparing the definitions of the plan, the medical evidence, and the administrator’s reasoning. Ordinarily the disabled employee cannot add more information in court, so developing a good administrative record is key. 
Bridget Hardt’s experience followed a path I’ve seen many times. Her injuries and subsequent health issues prevented her from working, according to her and her doctors. The Social Security Administration agreed that she was unable to work and granted her benefits, but the long-term disability plan administrator did not agree. She filed suit under ERISA, and the federal court instructed the administrator to reconsider the evidence. It relented at that point, and gave her benefits through retirement age.
Under ERISA, a court may order a party to pay the other person’s attorney’s fees if the case was successful. These fee-shifting statutes are designed, in part, to encourage attorneys to take cases for people who might not be able to afford representation. The federal court in Ms. Hardt’s case awarded attorney’s fees to her; but the appeals court disagreed, holding that the administrator’s reconsideration did not result in a judgment in favor of the claimant, so Ms. Hardt did not qualify as a prevailing party. In other words, her success on the claim was not the result of a court order telling the administrator to pay the claim.
Because other federal courts have taken the opposite view, and because ERISA cases frequently arise in federal court, the Supreme Court has decided to resolve the question. It would be unfortunate if the Supreme Court takes the narrow view adopted by the Fourth Circuit. It is difficult for someone to battle an insurance company, and sometimes the nature of the employee’s disability makes it even harder to jump through the company’s hoops. A lawyer can be helpful to formulate the arguments and amass the evidence that might lead the insurance company to agree with the person’s doctor that she’s disabled. When the administrator agrees during that administrative process, attorney’s fees are not recoverable. But if they make a federal case out of it, it seems fair to make the insurance company pay for the successful person’s fees, even if the success does not stem from a judgment.
The decision should be issued by the end of June.
