The November 6, 2015 edition of the Los Angeles Daily Journal features an article written by Robert McKennon and Joseph McMillen of the McKennon Law Group entitled: “Supreme Court Ramps UpInterest in ERISA.” In the article, Mr. McKennon and Mr. McMillen discuss five important United States Supreme Court cases involving litigation over employee life, health and disability benefit claims governed by the Employee Retirement Income Security Act of 1974. It discusses these cases and explains that the High Court has: (1) relaxed the standard for an employee to recover his attorney fees; (2) allowed discovery previously not permitted; (3) significantly expanded employee remedies; (4) determined plan language controls benefit reimbursement claims; and (5) confirmed an employer’s right to choose plan terms limiting the time to file a lawsuit.
The article is posted below with the permission of the Los Angeles Daily Journal.
Supreme Court ramps up interest in ERISA
Over the past several years, the U.S. Supreme Court has ramped up its interest in litigation over employee life, health and disability benefit claims governed by the Employee Retirement Income Security Act of 1974. It has: (1) relaxed the standard for an employee to recover his attorney fees; (2) allowed discovery previously not permitted; (3) significantly expanded employee remedies; (4) determined plan language controls benefit reimbursement claims; and (5) confirmed an employer’s right to choose plan terms limiting the time to file a lawsuit.
The result has mostly been significantly more rights for employees.
Relaxed Attorney Fees Standard
Most statutes and contract provisions that allow a litigant to recover his attorney fees require the court to find that the litigant prevailed. That is no longer the standard in ERISA cases after Hardt v. Reliance Standard Life Ins. Co., 560 U.S. 242 (2010). There, the Supreme Court held that a disability plan participant is entitled to recover attorney fees if he or she achieves “some degree of success on the merits.”
The court interpreted the plain and unambiguous language of the applicable ERISA statute, 29 U.S.C. Section 1132(g)(1), which gives the trial court discretion to award attorney fees to “either party.” It reasoned the statute does not include the phrase “prevailing party,” nor is that standard referenced anywhere in ERISA’s legislative history. It found the appellate courts had added the phrase and invented a statute rather than correctly interpreted one.
Since Hardt, courts have allowed plan participants to recover attorney fees even when no benefits are awarded them by the court, but, for example, their case is remanded back to the claim administrator.
The decision favors plan participants. When a participant wins an ERISA case, the district court virtually always exercises its discretion to award attorney fees. In contrast, courts rarely award a claim administrator attorney fees when it prevails at trial. The practical result: After Hardt, it is easier for claimants to recover their attorney fees in ERISA cases.
Expanded Right to Discovery
In Metropolitan Life Ins. Co. v. Glenn, 554 U.S. 105 (2008), a disability benefit plan gave the administrator discretionary authority to decide claims. The plan dictated the claims administrator act in a dual role: evaluate the claims and fund them. This created a conflict of interest between its fiduciary duties owed to plan participants and its own financial interest not to pay disability claims.
The court explained a conflict is one of many factors a reviewing court must consider when deciding whether the administrator abused its discretion by denying the claim. It said the conflict factor is less important if there is no evidence it impacted the benefits decision but is critical if there is evidence it did – i.e., “where an insurance company administrator has a history of biased claims administration.”
Glenn opened the door for disability claimants to propound discovery in ERISA cases. Previously, these cases were typically litigated without discovery. Now, in abuse of discretion cases in which a plan participant alleges that the plan administrator had a conflict that impacted its claims decision, district courts routinely permit discovery to explore the nature and effect of the conflict.
Expanded ERISA Remedies for Employees
Until CIGNA Corp. v. Amara, 563 U.S. 421 (2011), equitable relief in ERISA cases was limited to non-monetary remedies. Amara changed that. It allowed monetary equitable remedies for the first time under ERISA Section 502(a)(3) (which allows a plan participant “to obtain other appropriate equitable relief” to redress ERISA or plan violations). The court re-interpreted its prior decisions to expand the relief available under that provision. It permitted plan participants to recover monetary surcharges as an equitable remedy for harm suffered from ERISA or plan violations.
Plan Language Governs Reimbursement Claims
The Supreme Court dialed back its trend favoring employees somewhat when it decided US Airways Inc. v. McCutchen, 133 S. Ct. 1537 (2013). The district court ruled a plan participant in his employer’s self-funded ERISA health benefits plan must reimburse his employer for medical expenses. The Supreme Court agreed that plan language controls reimbursement rights, but disagreed with the amount of the judgment, the practical effect of which was a win for the employee.
US Airways paid McCutchen’s doctor bills sustained in a serious car accident (as required by the health insurance plan). He then filed a personal injury lawsuit against the other driver and recovered $110,000 in settlement funds. After he paid his attorneys, his share of the settlement was less than the doctor bills US Airways had paid on his behalf. US Airways sued McCutchen to be reimbursed the bills under ERISA Section 502(a)(3) for “appropriate equitable relief … to enforce … the terms of the plan.” The district court held McCutchen had to reimburse the full $66,866 because that is what the plan contract required.
The plan had a reimbursement provision that stated, “If [US Airways] pays benefits for any claim you incur as the result of negligence … of a third party … [y]ou will be required to reimburse [US Airways] for amounts paid for claims out of any monies recovered from [the] third party … as the result of … settlement, or otherwise.”
The district court rejected the employee’s argument that equitable principles such as unjust enrichment and the common fund doctrine should vitiate the contract’s language. The Supreme Court agreed, reasoning that proper enforcement of this type of “equitable lien by agreement” is accomplished by holding the parties to their mutual promises as reflected in the plan’s language. It rejected the application of equitable defenses where the plan’s terms contradict them.
The Supreme Court, however, decided that because US Airways’ reimbursement provision was silent as to how to allocate attorney fees incurred to obtain a tort settlement, the common fund doctrine must be used. It reasoned the parties would have explicitly rejected the common fund doctrine in the plan had that been their true intent because it is such a well-known rule.
US Airways thus was not entitled to be reimbursed the full $66,866 it paid for medical expenses. It had to reduce that amount by sharing with McCutchen the cost he incurred to obtain the personal injury settlement – i.e., his 40 percent contingency fee.
US Airways should cause every prudent ERISA plaintiff’s health and disability lawyer, and every plan participant, to carefully evaluate the value of competing injury claims and the plan’s reimbursement provisions before filing an ERISA benefits recovery action or a personal injury lawsuit. The participant may actually be worse off by filing a personal injury suit.
Contractual Limitations Periods Are Enforceable
In Heimeshoff v. Hartford Life & Acc. Ins. Co., 134 S. Ct. 604 (2013), the Supreme Court held that the limitations period in the employee benefits plan should be enforced unless it is unreasonably short or a controlling statute prevents the limitations period from taking effect. The employer’s plan required participants to file a lawsuit within three years after “proof of loss” was due, a common plan term. Because proof of loss in ERISA plans is typically due before the benefits claim is investigated and decided, in practice, the limitations period is shorter because a claimant cannot file suit until his claim is denied.
The court still held the contractual limitations period valid. It also held the limitations period was not tolled while the administrator reviewed the employee’s benefits claim, a marked difference from non-ERISA insurance claims and most prior ERISA jurisprudence. For disability claims, Heimeshoff probably means that California Insurance Code Section 10350.11 would apply to override any shorter limitations period found in the plan language, a result that aids plan participants.
Conclusion
The Supreme Court disrupted its recent trend favoring plan participants when it decided Heimeshoff and US Airways, although both decisions have holdings that can benefit them. On balance, plan participants have gained considerably more from recent Supreme Court jurisprudence than they had prior to these decisions. Given the prime importance of employee benefit plans to employees, this trend is laudable.
Robert J. McKennon is a shareholder of McKennon Law Group PC in its Newport Beach office. His practice specializes in representing policyholders in life, health and disability insurance, insurance bad faith, ERISA and unfair business practices litigation. You can reach him at (949) 387-9595 or [email protected]. His firm’s California Insurance Litigation Blog can be found at www.californiainsurancelitigation.com.
Joseph S. McMillen is an associate with the firm.
