Lessons From The Howard Case

Last year I had the opportunity to attend a gathering of many of the ERISA litigators in Florida, both plaintiff and defense. One of the hot topics at that conference was a case known as Howard v. Hartford Life & Accident Insurance Co. which was possibly going to be the vehicle for the Eleventh Circuit to clarify the rules of discovery in ERISA cases. That never really happened. Nonetheless, the district court recently decided the case on the merits in favor of Hartford. It is still an important read.

Like so many ERISA LTD cases, the plaintiff claimed fibromyalgia as a primary disabling condition. As often happens in these cases, the plaintiff was placed under video surveillance. Just as commonly, consulting doctors were retained who were shown portions of the video depicting, in the court’s opinion, the plaintiff doing far more than she claimed possible. The district court ultimately ordered summary judgment in Hartford’s favor. Plaintiffs and their attorneys have several lessons to learn from Howard…

• Video surveillance can kill an ERISA case. That is exactly what happened in Howard. Within the opinion there is a debate over the meaning of “objective medical evidence”. In the court’s opinion the best evidence was the video which showed the plaintiff doing far more than subjectively complained of.

• Plaintiff’s attorneys cannot simply count on a bare conflict of interest without more to show that the carrier’s conduct was arbitrary and capricious. Neither can one rely upon simply showing that the defendant’s employee received bonuses and company stock or were aware of case reserves.

• Counsel must strictly adhere to the technical page limitation, footnote and font rules. The judge’s considerable aggravation about plaintiff’s counsel’s violation of those rules did not help the plaintiff’s cause.

These are never easy cases and they are made only difficult, if not impossible to win, when damaging surveillance is involved. It is imperative to determine whether it exists and review it carefully before filing suit.

A Great Resource Book

I recently had the opportunity to review PLI's ERISA Litigation Answer Book 2013.

If you're new to ERISA litigation and need a quick overview of the landscape or need a handy desk reference this is a great resource. The Q and A format combined with footnoting rather than embedding the cites in the main text makes it easy to read.

Check it out here

ERISA Liens: Big As Ever

In my last blog post I overviewed the opposing arguments heard by the Supreme Court in U.S. Airways v. McCutchen. On April 16, 2013 the court handed down its decision: one clearly favorable to health insurance carriers seeking reimbursement of benefits paid from tort recoveries.

Recall that the application of the “unjust enrichment” and “common fund” doctrines in reimbursement cases was before the court. A unanimous court ruled that the unjust enrichment doctrine was ineffective to reduce a carrier’s reimbursement claim. Justice Kagan’s opinion held that a health insurance carrier’s right of reimbursement arises as a matter of contract and is enforceable as the modern-day equivalent of an equitable lien by agreement.

Apart from the question of whether the unjust enrichment doctrine applied to bar or reduce the carrier’s claim, the court also answered the question of whether the “common fund” doctrine could serve to offset the carrier’s claim to the extent the tort claimant’s attorney was entitled to a contingency fee. Since the U.S. Airway’s health insurance plan did not contain language barring the application of the common fund doctrine the court held that it was applicable - McCutchen's lien was thus proportionately reduced. This, of course, was a fact-specific result with an implicit message to carriers to add the appropriate language to avoid the "problem" in the future.

So, not only is the 800-pound gorilla not going on a diet, he is bigger and more powerful than ever. Personal injury practitioners must recognize that ERISA liens are super liens and must factor this into the intake analysis. Practitioners will need to make early contact with the health insurance carrier to persuade it that but for the tort action no recovery whatsoever may be had. At least this logic may still hold some weight.    

ERISA Liens: Is the "800 Pound Gorilla" About To Go On A Diet?

Most personal injury attorneys undoubtedly view ERISA liens arising out of group health insurance payments as the “800 pound gorilla” that can gut a client’s recovery or indeed dissuade a lawyer from taking a case in the first place. The conventional wisdom, backed up by more than adequate authority, is that ERISA liens are so-called “super liens” entitled to precedence over a personal injury plaintiff’s own recovery. Whether ERISA liens will continue to be as “super” in the future is a question now before the U.S. Supreme Court. The outcome may change the landscape of personal injury litigation.

The case before the court, U.S. Airways v. McCutchen, is a case that originated in federal court in Pennsylvania and later was appealed to the Third Circuit Court of Appeals. The plaintiff in McCutchen pursued damages arising out of a motor vehicle accident ultimately recovering $110,000. McCutchen and his attorney agreed to a 40% contingency fee resulting in a $44,000 fee out of the gross recovery netting McCutchen $66,000. Here was the problem: McCutchen’s medical benefits plan paid $66,866 in medical expenses thereby eliminating any recovery to him whatsoever. When the plan sponsored by McCutchen’s employer, U.S. Airways, demanded payment of the full sum out of the tort recovery, McCutchen’s attorney refused arguing that it would be unfair and inequitable to reimburse the plan in full when McCutchen had not been fully compensated for his injuries and the plan, which made no contribution to attorney’s fees and expenses, would be unjustly enriched were it permitted to recover without any allowance for those costs.

U.S. Airways filed suit in federal district court seeking recovery of the full $66,866. In support of its argument for recovery U.S. Airways noted plan language specifically authorizing reimbursement in the amount of benefits paid out of “any recovery”. It also pointed to case authority that had previously rejected equitable theories for reducing a lien recovery. The district court ruled in the plan’s favor and entered judgment against McCutchen.

On appeal the equitable nature of ERISA liens was brought into sharper focus. Prior Third Circuit precedent had allowed health insurance plans seeking reimbursement to ignore equitable arguments in favor of reducing the lien amount. The McCutchen panel reviewed those cases against the backdrop of more recent Supreme Court authority clarifying the meaning of “appropriate equitable relief” in ERISA reimbursement cases. The Circuit Court reasoned that if the plan had the power to seek appropriate equitable relief then the full range of equity principles, including those favoring a plaintiff, were in play as well. It reversed the District Court’s judgment and remanded the case for the District Court to consider the application of such principles to the case.

In what will now be a string of Supreme Court pronouncements on what exactly “appropriate equitable relief” means the court took certiorari and recently heard oral argument in the McCutchen case. The exchange between counsel and the court at oral argument reflects three possible outcomes. First, the court could rule in blanket fashion that equitable principles such as unjust enrichment, the common fund doctrine or the make whole doctrine apply in all ERISA lien cases. Conversely, the court could rule that plaintiff-favorable principles never apply. The third approach would look to the specific language of the plan document to see if the equity principles in question were addressed. Several of the justices at oral argument noted that U.S. Airways’ plan language might not have been clear enough to give its lien precedence. That could be the basis for a holding limited to the facts that could be favorable for Mr. McCutchen but unfavorable where plan drafters have drafted broad lien rights. I personally view this as the most likely outcome.

In the next several months pending the court’s decision I think plaintiff’s attorneys have an opening in negotiations with ERISA lien holders to argue that the lien should be reduced at least by the amount of the contingent attorney fee. Counsel could suggest that a very plaintiff-favorable ruling in McCutchen could lead to “make whole doctrine” arguments that could serve to eliminate liens completely. Yes, it is just an argument, but one well-informed counsel trying to maximize their clients recovery should consider making.

More on the Amara Case

In my previous post I briefly discussed the U.S. Supreme Court’s 2011 decision in Cigna Corp. v. Amara. The question in that case was the scope of relief available under Section 502(a)(1)(B) compared to Section 502(a)(3) of ERISA. “Garden variety” ERISA benefit cases are brought under Section 502(a)(1)(B) and seek enforcement of the terms of a plan. For instance, a plaintiff wrongfully denied long-term disability insurance benefits seeks to enforce the terms of the plan providing benefits to a totally disabled plan participant. In Amara the plaintiff class alleged misrepresentations regarding the effect of a defined benefits to cash balance pension plan conversion. The Supreme Court held that Section 502(a)(1)(B) was an inappropriate vehicle to conform the benefits to what plan participants and beneficiaries expected. This was the “victory” gained by Cigna.

The problematic portion of the decision for Cigna was the court’s “guidance” to the district court on remand. The court observed in dictum (but probably persuasive dictum at that) that the court could award the requested relief pursuant to Section 502(a)(3). The court foresaw three theories of possibly viable equitable relief upon remand: equitable estoppel, reformation and surcharge. Equitable reformation under Section 502(a)(3) would require detrimental reliance by plan participants. A showing of detrimental reliance would not be required for reformation based upon fraudulent supression, omission or an insertion materially affecting the contract. Nor would detrimental reliance be required for surcharge based on a trustee’s breach of duty. Futher, the court observed that a remedy based upon the failure to provide complete and accurate information in summary plan descriptions and summaries of material modification would require only a showing of actual harm and causation, not detrimental reliance.

One of the cornerstones of ERISA litigation is the notion that ERISA law is based in equity (as is the general body of trust law). Consequently, most practitioners would say that money damages are not available in ERISA cases. The Amara decision is the latest in a series of decisions that has blurred the distinction between money damages at law and equitable relief. A surcharge, for instance, is going to look and feel like a money damage award to a party that has to pay it.

The scope of equitable relief available under ERISA is one of the hottest topics in ERISA litigation. Another setting where the scope of remedies is playing out is an ERISA plan’s right to equitably subrogate against a personal injury settlement: one of the most important considerations in any personal injury case where an employee’s health plan has paid for a portion or all of the medical care. In my next blog post I will explore U.S. Airways v. McCutchen a pending case where the Supreme Court will again address the limits of equitable relief.

Back in Blog

Yes, it has been a LONG time. Family health challenges have focused attention on the practice…and my family. But I am back. And a LOT has happened.

Let’s begin with the recent past. For years the courts have struggled with the meaning of “appropriate equitable relief” in ERISA cases. Last year the U.S. Supreme Court handed down Cigna Corp. v. Amara, a case with far-reaching implications on the “equitable relief” front.

The plaintiffs in Amara brought suit under both Sections 502(a)(1)(B) and 502(a)(3) of ERISA. The former authorizes suits to enforce the right to plan benefits, the latter authorizes actions for equitable relief. The plaintiffs’ claimed that the defendants misled them in the description of benefits that would be available after a pension plan was converted to a cash balance plan. The plaintiffs presented evidence, in the form of statements contrary to plan terms, showing the employer had deliberately failed to educate plan participants about their post-transition cash balances.

The district court ruled in the plaintiff’s favor holding that the defendants “representations have become terms of the plan” and ordered the plan to calculate benefits under the modified terms. The Second Circuit affirmed the district court’s opinion on appeal.

The Supreme Court handed the defendants a pyrrhic victory holding that the plaintiff’s claims could not be stated under Section 502(a)(1)(B). Nonetheless, seven of the nine Justices (all but Scalia and Thomas) held open the possibility that the plaintiff’s claims could be stated under Section 502(a)(3). The case was remanded to the district court for further proceedings. The court observed that appropriate “equitable relief” under Section 502(a)(3) could include reformation, estoppel and “surcharge” i.e. monetary compensation.

In my next post I will explore the implications of this holding in more detail. I am glad to be back.

New 11th Circuit Fiduciary Duty Case

The scope of ERISA’s fiduciary duties was recently analyzed by the Eleventh Circuit in Cotton v. Massachusetts Mutual. The plaintiffs in Cotton accused the carrier of misrepresentation, fraud and promissory estoppel and sought equitable relief requiring that certain life insurance policies perform as described in a whole life policy presentation. The District Court in this case, while rejecting a benefits claim as well as promissory estoppel and individualized fiduciary breach relief, held that the defendants had violated ERISA fiduciary duties entitling the plan to overall relief. The Circuit Court’s reversal focused on the insurer’s role as an alleged fiduciary. Although the carrier had conceded it was a fiduciary for the purpose of making death benefit determinations, it maintained that the plaintiffs had failed to establish that it was a fiduciary for any other purpose. The court agreed. The court noted that “simply urging the purchase of (insurance) products does not make an insurance company an ERISA fiduciary with respect to those products.” Thus it is important to consider not only the scope of ERISA’s fiduciary duties but also the role of the players in a plan, with an emphasis upon whether they truly perform fiduciary duties.