Life, Health and Disability News - Miller Johnson · Roulette and Accidental Death Insurance...

Life, Health and Disability News

The newsletter of the DRI Life, Health and Disability Committee

continued on page 5

Summer 2007

©2007 DRI. All rights reserved.

In This Issue…Amended ERISA Regulation

and Standard of Review: theCourts Remain Divided ....... 1

Life, Health And DisabilityCommittee Leadership ......... 2

From the Chair:October DRI Annual Meeting

in D.C.:Be There or beSquare! .................................. 4

Committee Spotlight:Publications .......................... 9

Bang! You’re Dead: RussianRoulette and Accidental DeathInsurance ............................ 10

Green v. Holland: FurtherMuddying the EleventhCircuit’s Prejudgment InterestWaters ................................. 15

ERISA Update:Supreme Court Grants Cert to

Again Determine Breadth ofERISA Remedies; ThirdCircuit Expands Reach ofAttorney-Client Privilege.... 17

Network News ...................... 20Michigan ............................. 20Supreme Court ................... 20First Circuit ........................ 21Fourth Circuit .................... 22Fifth Circuit ........................ 24Sixth Circuit ....................... 24Illinois District Court ........ 25Massachusetts District

Court ................................ 26South Carolina District

Court ................................ 27Virginia District Court ...... 29

Amended ERISA Regulationand Standard of Review:the Courts Remain DividedJonathan M. FordinJerel C. DawsonShutts & Bowen LLPMiami, [email protected]@shutts.com

It is a fact of life in ERISA law thatcourts and litigants are continuallybedeviled by controversies regardingthe proper standard of judicial reviewto apply when a benefits dispute isbrought into court. If, as is typicallythe case, the plan documents give theclaims administrator discretionary au-thority to decide claims, the generalrule is that the administrator’s deci-sion will be reviewed deferentially,and overturned only if it is so unrea-sonable that the administrator isdeemed to have abused its discretion.See Firestone Tire and Rubber Co. v.Bruch, 489 U.S. 101, 115 (1989);Donovan v. Eaton Corp. LTD Plan,462 F.3d 321, 326 (4th Cir. 2006).

This deferential standard of reviewis commonly referred to as the “arbi-

trary and capricious” standard, in thatonly an arbitrary and capricious ad-ministrative decision will be reversedby the court. See, e.g., Groves v. Met.Life Ins. Co., 438 F.3d 872, 874 (8thCir. 2006). In the absence of discre-tionary authority, however, judicial re-view is de novo. See Firestone, 489 U.S.at 115.

It is also a fact of life in the insur-ance business that some claims takelonger to investigate and decide thanothers. With respect to insurance thatis governed by ERISA, the Depart-ment of Labor has promulgated regu-lations designed to protect employeesfrom undue delay in the dispositionof their claims.

Claim administration proceduresare governed by 29 C.F.R. §2560.503-1, which provides, amongother things, time periods withinwhich administrators must approve ordeny claims and decide administrativeappeals of adverse claim determina-tions. If an administrator fails to makea timely decision, the claimant is per-

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2 Life, Health, and Disability News Summer 2007

Committee Chair

Simeon D. RapoportStandard Insurance Co.900 SW 5th AveLaw Department C 14CPortland, OR 97204(503) 321-7223(503) 321-6407 – [email protected]

Committee Vice ChairBrooks R. MagrattenVetter & White20 Washington PlProvidence, RI 02903(401) 421-3060(401) 272-6803 – [email protected]

Membership/ AnnualMeeting

Daniel W. GerberGoldberg Segalla665 Main St Ste 400Buffalo, NY 14203-1425(716) 566-5425(716) 566-5401 – [email protected]/ AnnualMeeting Co-Vice ChairsSimon ManoucherianMeserve Mumper Hughes300 S Grand Ave 24th FlLos Angeles, CA 90071-3185(213) 620-0300(213) 625-1930 – [email protected]

Anthony H. PelleCarlton Fields100 SE 2nd St Ste 4000Miami, FL 33131(305) 530-0050(305) 530-0055 – [email protected]

Marketing Chair

Sheila J. CarpenterJorden Burt LLPSuite 400 East1025 Thomas Jefferson

Street, N.W.Washington, D.C. 20007202-965-8100202-965-8104 – [email protected]

Marketing Vice ChairE. Ford StephensChristian & Barton909 E Main St Ste 1200Richmond, VA 23219-

3095(804) 697-4124(804) 697-4112 – [email protected]

Publications Chair

H. Sanders Carter, Jr.Smith Moore LLP1201 W Peachtree St, Ste 3700Atlanta, GA 30309(404) 965-4950(404) 658-9726 – [email protected]

Publications Vice ChairKenton J. CoppageSmith Moore LLP1201 W Peachtree St, Ste 3700Atlanta, GA 30309(404) 965-4955(404) 962-1256 – [email protected]

Teleconference Chair

Jay P. SymondsSun Life Assurance Co of Canada1 Sun Life Executive PkWellesley Hills, MA 02481(781) 416-2229(781) 237-0707 – [email protected]

Teleconference Vice ChairByrne J. DeckerPierce AtwoodOne Monument SqPortland, ME 04101(207) 791-1152(207) 791-1350 – [email protected]

Program 2007

Gary SchumanAon Corporation1000 N Milwaukee AveGlenview, IL 60025(847) 953-1506(847) 953-2779 – [email protected]

Program Chair 2008

Ann AndrewsLewis and Roca40 N Central AvePhoenix, AZ 85004-4429(602) 262-5707(602) 734-3764 – [email protected]

Expert Witness Chair

Andrew I. HamelskyWhite & Williams80 E Rt 4Paramus, NJ 07652(201) 368-7206(201) [email protected]

Legislative/RulemakingLiaison

Stephanie W. KanwitAmerican Association of

Health Plans1129 20th St, NW, Ste 600Washington, DC 20037-

3421(202) 778-3200(202) 331-7487 – [email protected]

Diversity Liaison Chair

Cheryl A.C. BrownFunk & Bolton, P.A.36 South Charles Street, 12th

Fl.Baltimore, MD 21201410-659-7700410-659-7773 – [email protected]

LIFE, HEALTH AND DISABILITY COMMITTEE LEADERSHIP

Web Page Chair

Michael H. BernsteinSedgwick, Detert, Moran &

Arnold LLP125 Broad Street, 39th

FloorNew York, NY 10004-

2400(212) 422-0202(212) 422-0925 – [email protected]

Web Page Vice ChairRussell G. GommMeserve Mumper Hughes300 S Grand Ave Ste 2400Los Angeles, CA 90071-

3185(213) 620-0300(213) 625-1925 – [email protected]

Special Projects Chair

Erna A.P. WombleWomble, Carlyle, Sandridge

& RiceOne West Fourth StWinston-Salem, NC 27101(336) 721-3723(336) 733-8412 – [email protected]

Young Lawyer LiaisonChair

Catherine ShaghalianVetter & White20 Washington PlProvidence, RI 02903(401) 421-3060(401) 272-6803 – [email protected]





















3Life, Health, and Disability NewsSummer 2007

Steering Committee

Ann-Martha AndrewsSheila J. CarpenterH. Sanders Carter, Jr.Brooks MagrattenSimeon D. RapoportDaniel W. Gerber

Erna A.P. WombleWomble, Carlyle, Sandridge

& RiceOne West Fourth StWinston-Salem, NC 27101(336) 721-3723(336) 733-8412 – [email protected]

Linda M. LawsonMeserve Mumper Hughes300 S Grand Ave Ste 2400Los Angeles, CA 90071-

3185(213) 620-0300(213) 625-1930 – [email protected]

Mark E. SchmidtkeSchmidtke Hoeppner

Consultants LLP103 East LincolnwayValparaiso, IN 46383 219-464-4961219-465-0603 – [email protected]

Thomas F. SegallaGoldberg Segalla665 Main Street Ste 400Buffalo, NY 14203(716) 566-5480(716) 566-5401 – [email protected]

Newsletter Editor

DRI ERISA ReportH. Sanders Carter, Jr.

Life, Health andDisability NewsKenton J. Coppage

Law Institute Liaison

Linda M. Lawson

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FROM THE CHAIR October DRI Annual Meeting in D.C.:BeThere or be Square!Simeon

D.Rapoport

Standard Insurance CompanyPortland, [email protected]

I strongly encourage each of you to at-tend this year’s DRI Annual Meetingon October 10-14, 2007 at theMarriott Wardman Park in Washing-ton, D.C.

On Thursday, October 11 from3:30 to 4:30, our former Chair andLaw Institute Liaison, Linda Lawson,will moderate a program entitled“The Emperor’s New ‘Suit’- Liens,Subrogation, and ReimbursementsRights.” Our committee has orga-nized this portion of the plenary pro-gram. It is intended to address healthplan reimbursement under Sereboff, aswell as Medicaid and Medicare reim-bursement.

A nationally recognized panel willdiscuss the rights of healthcare plans,Medicaid/Medicare, and other lienholders. Proactive options for counsel

will then be examined and explored inan interactive discussion among thepanel.

Matt Garretson is a nationally rec-ognized expert on Medicare/Medicaidissues. He has built an entire nationalpractice around resolving these claims.Tom Lawrence has spoken for DRIand a number of other organizationsin the past on health plan reimburse-ment rights. Tom Fitzgerald arguedthe Sereboff case before the SupremeCourt. Scott Conant is the Presidentof Subrogation Partners. He representshealth plans by managing their claimsfor reimbursement.

We are also currently planning acommittee dinner and there will bemore information forthcoming aboutthat from our Membership/AnnualMeeting Chair, Dan Gerber.

In addition to the plenary session,our Young Lawyers Subcommitteewill offer a panel program during theCommittee meeting which is sched-uled from 4:30 p.m. to 6:00 p.m. on

Friday, October 12. SimonManoucherian of Meserve, Mumper& Hughes LLP, Catherine Shaghalianof Vetter & White, and Jennifer M.Lawrence of Preaus, Roddy & Associ-ates, LLP will discuss the highlights ofthe most important life, health, dis-ability and ERISA decisions of 2007.

Speaking of the Young LawyersSubcommittee, the Subcommittee isworking to enhance networking op-portunities for Young Lawyers attend-ing the annual Life, Health, Disabilityand ERISA Claims seminar. At the2008 seminar, several Dine Aroundswill be reserved for Young Lawyers.The Subcommittee is also planning aYoung Lawyers social event for theevening of Wednesday, April 23,2008. More details will be providedas the seminar approaches.

We look forward to seeing you inD.C.

DEADLINE FOR NEXT ISSUE

The deadline to submit articles and case summaries for the next issue of Life, Health and Disability News is November 2,2007.



ERISA Discovery, from page 1

mitted to bring suit for the desiredbenefits without having to exhaust herremaining administrative remedies.

The court must then determinewhat standard of review to apply. Incases where the administrator had dis-cretionary authority, the question ofwhether that discretion is entitled tojudicial deference in the event of aregulatory violation presents a “uniqueissue” in ERISA law. Kieft v. Am. Ex-press Co., 451 F. Supp. 2d 289, 295(D. Mass. 2006). As discussed in de-tail below, this issue has long been,and remains, highly unsettled.

Although an administrator withdiscretionary authority is ordinarilyentitled to deferential review of its de-cision, what if the administrator hasnot made a decision, or if its decisionis tardy, not final, or otherwise proce-durally flawed? Prior to 2000, courtsdiffered sharply on this question, inpart because the applicable regulationdid not address it. In 2000, the regu-lation was amended, but the amend-ment failed to resolve the issue, andcourts continue to disagree.

The Department of Labor hasopined that the regulation removesundecided or late-decided claims fromthe ambit of deferential review, eventhough the text of the amended regu-lation says nothing of the kind. In-deed, more than one court hasinterpreted the amendment as com-pelling the exact opposite result.

This article examines the differingapproaches courts have taken in deter-mining the applicable standard of re-view in view of the amendment andthe Labor Department interpretation,and contends that deferential reviewshould be retained in any case where

an administrator makes any decisionat all — no matter how flawed the de-cision may be procedurally — withrespect to a claimant’s entitlement tobenefits. The article also suggests thateven where the administrator haswholly failed to make a decision,courts should give consideration to re-manding the case to the administratorwith directions to render a final deci-sion within a specified period of time,as an alternative to the court simplysubstituting itself for the administra-tor as the decision-maker in the firstinstance.

The Old Regulation

The pre-amendment regulation pro-vided that if an administrator failed tocomply with applicable regulatorydeadlines for deciding a claim, theclaim was “deemed denied,” leavingthe claimant free to seek judicial re-lief. See Goldman v. Hartford Life andAcc. Ins. Co., 417 F. Supp. 2d 788,798 (E.D. La. 2006) (providing a de-tailed discussion of the regulation be-fore and after the amendment). Theregulation said nothing about the ju-dicial standard of review. Prior to the2000 amendment, which applied tobenefits claims filed after January 1,2002, courts were divided as towhether a “deemed denial” forfeitedthe administrator’s discretion andmandated de novo review. See Torres v.Pittston Co., 346 F.3d 1324, 1332-34(11th Cir. 2003) (discussing splitamong circuit courts, but declining totake a position).

Courts that chose to review suchcases de novo reasoned that where aclaim was “deemed denied,” the de-

nial occurred by operation of lawrather than through a decision by theadministrator, and thus there was nodiscretionary decision to which acourt could accord deference. See, e.g.,Gilbertson v. Allied Signal, Inc., 328F.3d 625, 632 (10th Cir. 2003) (rul-ing that where claim was “deemed de-nied,” there was “no opportunity forthe exercise of discretion,” and de novoreview was therefore proper); Gritzer v.CBS, Inc., 275 F.3d 291, 295-96 (3dCir. 2002) (where administrator failedto decide claim, there was “no analysisor reasoning to which the court maydefer”).

But other circuit courts held thatthe “standard of review is no different”whether the claim or appeal is “actu-ally denied or deemed denied,” be-cause the “role of the district court isthe same in either event.” Daniel v.Eaton Corp., 839 F.2d 263, 267 (6thCir. 1988). See also Southern Farm Bu-reau Life Ins. Co. v. Moore, 993 F.2d998, 101 (5th Cir. 1993) (same).Some courts taking the latter view rea-soned that removing deferential reviewfrom “deemed denial” cases would becounterproductive because it would“force plan administrators to deny in-complete claims within the permittedperiod,” rather than taking additionaltime to obtain all needed information“so that a more reasoned decision …based on a review of the full medicalrecords, can be made.” Wertheim v.Hartford Life Ins. Co., 268 F. Supp.2d 643, 664 (E.D. Va. 2003) (cita-tion omitted).

The New Regulation

The drafters of the amended regula-


tion deleted the “deemed denied” lan-guage, replacing it with the followingprovision:

In the case of the failure of a planto establish or follow claims proce-dures consistent with the require-ments of this section, a claimantshall be deemed to have exhaustedthe remedies available under theplan and shall be entitled to pursueany available remedies under[ERISA] on the basis that the planhas failed to provide a reasonableclaims procedure that would yielda decision on the merits of theclaim.

29 C.F.R. § 2560.503-1(l).The amendment did not resolve

the problem of what standard of re-view to apply in cases where the ad-ministrator who violated theregulation was vested with discretion-ary authority. Favorably from a de-fense perspective, a few courts havedetermined that the deletion of the“deemed denied” language from theregulation meant that de novo reviewwas now inappropriate under any cir-cumstances where the administratorhad discretion. See Meyers v. GE GroupLife Assur. Co., 2006 WL 680993,*10 (D.N.J., Mar. 10, 2006) (reject-ing plaintiff ’s argument for de novostandard as “unpersuasive” because“claims are not deemed denied” underthe amended regulation); Ott v. LittonIndus., Inc., 2005 WL 1215958, *7(M.D. Pa., May 20, 2005) (findingde novo review “not warranted” be-cause the amendment to the regula-tion “excised … the provision thattransgressions of time limitations willresult in the claim being ‘deemed de-nied’”). Those rulings, however, arebased on the premise that the“deemed denied” language in the old

regulation did in fact mandate de novoreview, which, as seen above, is a de-batable premise.

The fact of the matter is that, asone court recently observed, “neitherversion of the regulation expresslypurports to establish the applicablestandard for judicial review of un-timely decisions.” Goldman, 417 F.Supp.2d at 802 (emphasis added).Finding “little functional difference”between the old and new versions, theGoldman court found that the centralpurpose of each is simply to ensurethat the administrator’s “failure to is-sue a timely decision on a benefits ap-peal has the effect of permitting theparticipant to forego any additionaladministrative procedures and file acivil action.” Id.

Although the regulation does notspecify the proper standard of review,the Department of Labor has com-mented that, in its view, proceduralviolations by an administrator “shoulddeprive its decision of any judicialdeference in a later lawsuit.”Goldman, 417 F. Supp. 2d at 803(citing ERISA Claims Procedure, 63Fed. Reg. 48,390, 48,397, and 65Fed. Reg. 70,246, 70,255). Giventhat the regulation was promulgatedby the Department, its interpretationobviously cannot be ignored, but, asdiscussed below, neither is it determi-native.

Judicial Responses to DOL’s

Commentary

Departmental interpretations of fed-eral regulations are generally notbinding on courts, but they can bepersuasive, and are under some cir-cumstances entitled to judicial defer-ence. See Gonzales v. Oregon, 546 U.S.

243 (2006). Some courts have fol-lowed the Department’s interpreta-tion — as well as pre-amendmentjudicial decisions — in applying denovo review to claims governed by theamended regulation. See Reeves v.Unum Life Ins. Co. of Am., 376 F.Supp. 2d 1285, 1293-94 (W.D.Okla. 2005) (citing DOL interpreta-tion and ruling that de novo standardwould apply pursuant to amendedregulation); Stefansson v. Equitable LifeAssur. Soc’y. of the U.S., 2005 WL2277486, **12, 12 n.18 (M.D. Ga.Sept. 19, 2005) (same).

On the other hand, two districtcourts have recently given the LaborDepartment’s interpretation carefulexamination, concluding in well-rea-soned decisions that they need notdefer to it. In Goldman, the court em-phasized that, regardless of theDepartment’s interpretive commen-tary, the plain text of the amendedregulation “simply does not speak tothe issue of the standard of review.”Goldman, 417 F. Supp. 2d at 804. Asa matter of basic regulatory interpreta-tion and common sense, it seems self-evident that if the Department hadintended to alter the standard of judi-cial review in cases subject to theregulation, it could easily have said so.See, e.g., Legal Environmental AssistanceFoundation, Inc. v. Bd. of CountyCmm’rs of Brevard County, Fla., 10F.3d 1579, 1584 (11th Cir. 1994)(ruling that if the “drafters of theregulations had intended to say” whatlitigant advocated, they “would havesaid so”).

In Seger v. ReliaStar Life, 2005 WL2249905 (N.D. Fla. Sept. 14, 2005),the court took the analysis a step fur-ther, concluding that the Departmentof Labor lacks authority to regulate


the standard of judicial review inERISA cases. The Seger court observedthat the Supreme Court has rejectedattempts by federal agencies to “regu-late the scope of judicial power in ad-judicating rights, absent a cleardelegation of authority from Con-gress.” Id. at *8 (citing Adams FruitCo. v. Barrett, 494 U.S. 638, 649(1990)).

Although ERISA authorizes the La-bor Department to regulate employeebenefit plans in a variety of ways, it“does not empower the Secretary [ofLabor] to regulate the scope of the ju-dicial power vested by the statute.”Id. at *9. Congress, in enactingERISA, delegated to the federal judi-ciary the authority to determine en-titlement to benefits “under the termsof the plan,” not under the terms ofERISA’s implementing regulations.Id. (citing 29 U.S.C. §1132(a)(1)(B)).

Together, Seger and Goldman pro-vide a solid foundation for arguingthat the Department of Labor’s com-mentary does not in itself decide thequestion. Indeed, Seger strongly sug-gests that if the text of the regulationdid explicitly mandate an alteration ofthe standard of review, that provisionmight well be invalid.

Moving Forward in the Post-

Amendment Landscape

As the statutory text makes clear, theterms of plan documents are entitledto great respect. Courts, in adjudicat-ing actions for benefits, are thereforeobligated to comply with the require-ment that “plans be administered,and benefits be paid, in accordancewith plan documents.” Egelhoff v.Egelhoff, 532 U.S. 141, 150 (2001).

Accordingly, an express delegation ofdiscretionary authority to an adminis-trator should not be lightly disre-garded. See HCA Health Servs. of Ga.,Inc. v. Employers Health Ins. Co., 240F.3d 982, 994 (11th Cir. 2001) (“Wecannot over emphasize the importanceof the discretion afforded a claims ad-ministrator … under the terms of theplan.”).

The court in Goldman, noting thatthe Labor Department’s interpreta-tion is “entitled to judicial respect …only the extent that it has the powerto persuade,” was not persuaded bythe Department’s “rigid and mechani-cal” position that a “procedural defectshould automatically strip anadministrator’s deference.” Goldman,417 F. Supp. 2d at 803-04. The courttherefore adopted the pre-regulation“substantial compliance” doctrine thathad been applied by several circuitcourts. See id. at 805 (collectingcases).

The administrator in Goldman haddenied the participant’s claim, deniedan appeal, and then failed to respondto the participant’s second appeal. Id.Although the court did not “excuse[the administrator’s] sheer failure todispose of [the claimant’s] second ap-peal,” it found that it was “not pre-sented with a situation in which theadministrator has simply failed to is-sue any reasoned decision.” Id. Be-cause the administrator had in factmade a decision, albeit a procedurallyflawed one, the court concluded thatit was “appropriate to review [the] de-nial of [the] claim under an abuse ofdiscretion standard.” Id.

From a defense perspective, theideal rule under the amended regula-tion, as under the old one, is that pro-cedural failures have no effect on the

standard of review whatsoever, as sug-gested by the opinions in Daniel,Moore, Meyers, and Ott. See alsoSoltysiak v. Unum Provident Corp.,2006 WL 2884461, **2-3 (W.D.Mich., October 10, 2006) (rulingthat Daniel was still controlling SixthCircuit law in case subject to amendedregulation, and rejecting plaintiff ’s ar-gument that administrator’s decisionwas “not entitled to deference” due tountimeliness).

Failing that, and given the impor-tance of the administrative discretionprovided by a plan, Goldman andother cases point the way toward anappropriate middle-ground standardthat still preserves judicial deference inall cases where the administrator hasmade at least one actual benefits deci-sion, thereby exercising the discretionafforded it by the plan documents.

The Goldman court, for example,cited McGarrah v. Hartford Life Ins.Co., 234 F.3d 1026 (8th Cir. 2000),in which the administrator terminatedbenefits and then failed to respond tothe claimant’s appeal. Finding that theadministrator’s notification letter had“adequately explained” the basis of thetermination decision, the Eighth Cir-cuit determined that the decision wassufficient to permit meaningful judi-cial review, and to preclude any infer-ence that the administrator “did notexercise judgment when rendering thedecision.” Id. at 1031. Theadministrator’s failure to decide theappeal, although a “serious proceduralirregularity,” did not “undermine [thecourt’s] confidence in the integrity ofits decision-making process.” Id. Thecourt therefore upheld the benefits de-cision under the abuse of discretionstandard. But see Demirovic v. Bldg.Serv. 32 B-J Pen. Fund, 467 F.3d 208,


212 (2d Cir. 2006) (ruling that a deci-sion on the claimant’s appeal is neces-sary for a “final decision” that issufficient to constitute an “exercise ofthe [administrator’s] discretion”).

In St. Luke’s Episcopal Hosp. v.Accordia National, 2007 WL 508936(S.D. Tex. Feb. 13, 2007), a case de-cided under the new regulation, theadministrator denied the claim butfailed to give proper notice of the de-nial decision to the insured, who wasdeprived of her “opportunity to appealthe denial and submit additional infor-mation.” Id. at *6. Following Goldman,the court found that although the ad-ministrator had failed to comply withthe procedural regulations, it “actuallyexercised its discretion” because it“made factual findings about theemployee’s claim” when the claim wasdenied. Id. at *12. Because the admin-istrator “did not fail to make a decisionon the claim,” the court declined tosubject the decision to de novo review.Id.

Acknowledging the insured’s inabil-ity to present all her evidence at theadministrative level due to the proce-dural violations, the court instead re-manded the case to the administratorfor a “full and fair administrative reviewof the claim denial,” with the resultingdecision to be reviewed deferentially inthe event the matter came back beforethe court. Id. St. Luke’s suggests a sen-sible way for courts to address the situ-ation in which the administrator makesa decision on the claim but fails to al-low or decide an appeal by the claim-ant. This approach preserves thedeference to which the administrator’sinitial discretionary decision is entitled,while also protecting the right of theclaimant to appeal the decision andhave all her evidence considered.

In Gritzer, a pre-amendment appel-late case commonly cited by claimantsurging de novo review, the administra-tor “apparently never made any effortto analyze [employees’] claims[,] muchless to advise them of what that analy-sis disclosed until after this litigationwas filed.” Gritzer, 275 F.3d at 295. Inthe absence of any administrative deci-sion, the Third Circuit proceeded toreview the employees’ entitlement tobenefits de novo. The problem withthat is that Congress, in enactingERISA, did not intend for districtcourts to “function as substitute planadministrators.” Peterson v. ContinentalCas. Co., 282 F.3d 112, 117 (2d Cir.2002).

In Peterson, the court held thatERISA empowers courts only to reviewdecisions by plan administrators, whileproviding “no authority for a court torender a de novo determination of anemployee’s eligibility for benefits.” Id.Therefore, “absent a determination bythe plan administrator,” federal courtsare actually “without jurisdiction” tomake the initial adjudication ofwhether benefits are payable to a givenplan participant or beneficiary. Id. Forthat reason, the Second Circuit re-versed the district court’s judgment forthe participant, explaining that thelower court had “exceeded its jurisdic-tion” when it made its own determina-tion of entitlement to benefits beforeany decision had been made by the ad-ministrator. Id. at 118.

Similar reasoning was applied re-cently in Kieft v. Am. Express Co., 451F. Supp. 2d 289 (D. Mass. 2006),where the claim administrator “[n]everreviewed [plaintiff ’s] claims for LTDbenefits or Life Insurance premiumwaivers.” Id. at 294. The plaintiffurged de novo judicial review, while the

administrator sought deferential “arbi-trary and capricious” review. Id. at 295.

After examining some of the deci-sions on both sides of the question, thecourt determined that the absence ofan administrative decision left it with“nothing to review under any legalstandard.” Id. at 296. Rather than un-dertake to determine the benefitsclaims itself, the court remanded thecase to the administrator for a “full andfair determination on the merits.” Id.But see Stefansson v. Equitable Life Assur.Soc’y. of the U.S., 2005 WL 2277486,**10-12 (M.D. Ga. Sept. 19, 2005)(ruling that claim never decided by ad-ministrator had been “effectively de-nied,” and deciding benefits issue denovo rather than remand to adminis-trator for further proceedings).

In view of the divided precedentboth before and after the amendmentto the regulation, this unique issue willcontinue to be problematic for ERISAlitigants. But the importance of theadministrator’s discretionary decision,coupled with the absence from theregulatory text of an explicit attempt tochange the standard of review, providesa viable argument for preserving defer-ential judicial review notwithstandingthe Labor Department’s expansive in-terpretation of its regulation.


Committee Spotlight: PublicationsH. Sanders Carter, Jr.Publications ChairSmith Moore LLPAtlanta, [email protected]

I suspect that most of us became in-volved in DRI’s Life, Health and Dis-ability Committee for similar reasons.Certainly, the chance to get to knowothers who work in this practice area ispersonally and professionally reward-ing. Equally important are the oppor-tunities to learn and to shareinformation through our annual semi-nar, webcasts, and publications.

This Committee provides a remark-able range of opportunities for itsmembers to write articles that are readand appreciated by a national audi-ence. We now produce two newslettersthat average 30-40 pages per issue andthat contain materials produced almostexclusively by Committee members.

Our original newsletter is Life,Health and Disability News, which ispublished quarterly and is edited bymy partner Kent Coppage of SmithMoore in Atlanta. A typical issue con-tains four substantive articles dealingwith specific issues in this practicearea, the ERISA Update column, andNetwork News, a collection of recentcase summaries submitted by Commit-tee members from throughout thecountry.

The newsletter has been a successyear after year because members of theLife, Health and Disability Committeehave given it remarkable support bycontributing articles and case summa-ries. Some articles have been written

specifically for the newsletter, otherswere converted from papers presentedby Committee members at seminarssponsored by other organizations, andothers began as briefs that were turnedinto articles of general interest.

To illustrate the breadth of theCommittee’s support, in the 12months between our seminars in 2006and 2007, newsletter materials werecontributed by 44 Committee mem-bers from 33 law firms and companiesin 19 states. Articles and case summa-ries for Life, Health and Disability Newsshould be submitted to Kent Coppageby e-mail [email protected].

More recently, the Committeelaunched DRI ERISA Report, a twiceyearly publication that is my privilegeto edit. As with Life, Health and Dis-ability News, we depend almost entirelyon members of this Committee as thesource of articles for DRI ERISA Report.This newsletter is distributed to theentire membership of DRI, but theformat is similar, consisting of threesubstantive articles and a collection ofERISA case summaries, presented asERISA Update. Articles should be sub-mitted to me by e-mail [email protected].

The opportunities to publish ar-ticles is not limited, though, to theCommittee’s two newsletters. Six timeseach year, the Committee is asked toprovide a short article for The Voice,DRI’s weekly electronic newsletter. Inthe past 18 months, those articles havebeen written by Mark Schmidtke(Schmidtke, Hoeppner Consultants),

Scott Trager (Semmes, Bowen &Semmes), Doreen Mohs (RiderBennett), Lisa Coppola (Rupp, Baase,Pfalzgraf, Cunningham & Coppola),Aaron Pohlmann (Smith Moore),Stephen Bressler, Robert Schaffer, andKatie Shaw (Lewis & Roca), AndrewPortinga (Miller Johnson), MichaelBernstein (Sedgwick, Detert, Moran &Arnold), and Simon Manoucherian(Meserve, Mumper & Hughes).

Finally, about every 18 months theCommittee is asked to provide full-length articles for DRI’s flagship publi-cation, For The Defense, the monthlymagazine. For the January 2007 issue,articles were contributed by MarkSchmidtke, Joelle Sharman (SmithMoore), and Snowden Stanley andChristopher Lyon (Semmes, Bowen &Semmes). The next opportunity willcome with the October 2008 issue ofFor The Defense. We’ll have more to sayabout that at the 2008 seminar, but inthe meantime, anyone who is inter-ested in writing for that issue of themagazine should let me know.

The Life, Health and DisabilityCommittee is important to all of uswho practice in the areas of life, health,and disability insurance, ERISA, man-aged healthcare, and employee ben-efits. Its publications give us a nationalvoice and provide a connection to oth-ers around the country whose work isfocused on these areas of the law. Thecontinued success of those publicationsdepends entirely on our involvementas Committee members.





Bang! You’re Dead: Russian Roulette andAccidental Death InsuranceGary SchumanAon CorporationChicago, [email protected]

Accidental death and dismembermentinsurance provides benefits for aninsured’s loss of life, limb or sight dueto accident. The words “accident”,“accidental” and “accidental bodily in-jury” used in insurance policies havenever acquired a technical meaning inlaw, and must be interpreted accord-ing to their plain, ordinary and popu-lar sense as understood by the averageperson.

Courts, when determining whetherthe loss was accidental, focus on theforeseeability of the event, i.e.,whether the loss was the natural andprobable consequence of the insured’sconduct. Individuals sometimes vol-untarily subject themselves to dangerswhich may result in injury or deathand still be covered under an accidentpolicy. Rodgers v. Reserve Life Ins. Co.,132 N.E.2d 692, 697 (Ill. App.1956). It is only when the conse-quences of the conduct are so naturaland probable that it can be said theinsured, in effect, intended the resultand it was therefore not accidental.

The issue of whether an insured’sdeath is “accidental” within the mean-ing of an accidental death policy arisesin many contexts such as drunk driv-ing, drug overdose and autoerotic as-phyxiation. Court decisions have notbeen consistent in these areas.

Another area where the issue of ac-

cidental death coverage has arisen andbeen contested involves the “game” ofRussian roulette. An insured partici-pating in Russian roulette is perhapsthe clearest example of voluntary ex-posure to danger which should negatea finding that death was the result ofan accident.

Russian roulette involves placing asingle bullet in a six-chambered re-volver, spinning the chamber, aimingthe gun at the player’s head, and pull-ing the trigger. A player following therules will not make any effort to checkto determine if the firing chamber isempty before pulling the trigger.Wickman v. Northwestern Nat’l. Ins.Co., 908 F. 2d 1077, 1087 n. 4 (1stCir. 1990), cert. denied, 498 U.S.1013 (1991). Russian roulette par-ticipants do not expect or intend thatthey will be killed, evidently “enter-taining a fanciful expectation that fatewill inevitably favor them.” Id. at1087.

The participant in Russian roulettevoluntarily faces a 1-in-6 chance ofdeath or serious harm and takes nomeasures to otherwise reduce thatrisk. For them, the “game” is merely adaring pastime. Thus, a participantessentially relies solely upon fate todetermine if he or she will be shot.Individuals participating in this gamesometimes own accidental death in-surance and, upon their death, thebeneficiary seeks to recover benefitsunder the policy.

Insurer Position

Insurers have challenged accidentaldeath claims on the ground that Rus-sian roulette is an example of behaviorso objectively unreasonable that no re-covery should be allowed under an ac-cident policy to a participantengaging in this conduct. The risk ofserious injury or death is so apparentthat the insured is presumed to haveanticipated the results of his danger-ous act and there is no accident cover-age for resulting death or injury. Itshould be presumed that the partici-pant intended that he will be killed orinjured should fate stop the cartridgein the spinning cylinder in the firingposition.

Regardless of the actual expectationor intention of the insured, a deathresulting from Russian roulette is notaccidental. This is because such con-duct is so inherently dangerous thatno reasonable person would considerthe resultant death to be accidental,when he points a gun at his head,knowing full well that there is onebullet placed randomly in the cylin-der, and pulls the trigger. Engaging insuch risky behavior without takingany reasonable steps to control therisk of death or injury is determinedto be objectively unreasonable as amatter of law. This is so even if the in-sured subjectively believed he couldbeat those odds.

The death of the Russian rouletteplayer is not accidental because the



whole purpose of playing the “game”involves facing the risk of death con-sciously and directly, when a personvoluntarily places a gun to his head.King v. Hartford Life and AccidentCompany, 357 F. 3d 840, 845 (8thCir. 2004). “[T]he common sense ofmankind teaches that such lethalgames are inherently dangerous, evenif some of the players do escape.”Green v. American Tobacco Company,409 F.2d 1166, 1167 (5th Cir.1969). See also Thompson v. PrudentialIns. Co. of America, 66 S.E.2d 119,123-34 (Ga. App. 1951). Simplystated, death from “the precarious andridiculous ‘game’ of Russian Roulette”is intentional and not accidental.Koger v. Mutual of Omaha Ins. Co.,163 S.E.2d 672, 676 (W. Va. 1968).

There can be little question that aperson who puts a gun to his headand pulls the trigger, knowing thatone of the six cylinders has a live shellin it, should not be entitled to acci-dent insurance coverage should helose. When an individual places a gunto his head, the result of the cartridgebeing in a position to fire is not un-foreseen, unusual and unexpected.Rather, it is one of two probable andexpected results, even though theodds may be in favor of the gun notfiring. That just because a “player”may have survived several rounds inno way lessens the certainty of seriousharm or even death. It cannot be ra-tionally said that having survived, let’ssay, three rounds of Russian roulette,the fourth time playing is any moresafe than the first three.

Beneficiary Arguments for

Recovery

Beneficiaries have challenged the

insurer’s denial of accidental deathbenefits on a number of grounds,such as that the insured had devel-oped a method to avoid the bulletfrom lodging in the firing position, orthe insured was too intoxicated or de-pressed to understand his conduct.Each will be discussed.

The belief that an individual can“beat the system” will not convertsuch reckless conduct into an acciden-tal death. In Thompson v. PrudentialIns. Co. of America, 66 S.E.2d 119(Ga. Ct. App. 1951), the insured fiveor six times the night before his deathhad successfully shown others how hecould put one bullet in his gun, spinthe cylinder making the bullet land atthe bottom, and then pull the triggerwithout firing the bullet. On thenight he died, the insured removed allbut one of the bullets from his gun,spun the cylinder and invited othersto play Russian roulette (which theydeclined to do). Then he placed thepistol to his head, pulled the triggerand the gun discharged, killing him.Id. at 123.

The court, ruling for the insurer,reasoned that the insured had engagedin a game of chance with death andpulled the trigger voluntarily withoutascertaining the position of the car-tridge, which he knew to be in thecylinder, in relation to the firingmechanism. Therefore, the insured’sdeath was “no less intentional thanhad the gun been fully loadedand…cannot be said to have been theresult of accident…” Id. The courtwent on to say that “[i]n such a case,it will be presumed that the partici-pant intended that he should bekilled or injured should fate stop thecartridge in the spinning cylinder infiring position. One engaging in such

a bizarre pastime with a lethalweapon, if he be compos mentis, knowsthat he is courting death or severe in-jury, and will be held to have in-tended such obvious, and well knownresults, if he is killed or injured. Suchreckless abandon and exposure to aknown, and obvious danger cannot besaid to have been accidental…” Id.

Similarly, in Arnold v. MetropolitanLife Insurance Company 970 F.2d 360(7th Cir. 1992), the insured, a formerIllinois correctional officer, had a his-tory of playing Russian roulette. Theinsured’s companion testified the in-sured told her when playing Russianroulette that the weight of the onebullet in the gun would, when thechamber is spun, always fall to thebottom. In the instance resulting inhis death he took his gun, removed sixbullets, placed one in the cylinderand spun the cylinder. She heard oneclick and the gun discharged.

The court found “that where an in-sured knows that a revolver containsone live bullet, pulls the trigger, andsubsequently dies from the gunshotwound, his death is not accidental.”The court also rejected plaintiff ’s ar-gument that because the insuredthought the bullet weight would au-tomatically drop it to the bottomwhen the cylinder was spun, he didnot expect to die. “[T]he fact that[the insured] thought he was playingRussian Roulette with ‘loaded dice’ soto speak, does not change the fact thathe knew he was playing Russian Rou-lette.” Id. at 362.

The plaintiff finally argued that thebullet would protrude slightly fromthe chamber and the insured lookedat the cylinder prior to pulling thetrigger. Accordingly, this situation issimilar to cases where the insured


thought he was firing an empty gun.This argument failed as well. “Theforeseeability of death from firing aloaded gun is different not just in de-gree but in kind from the foreseeabil-ity of death from firing what a personbelieves to be an unloaded gun.” Id.at 363. See also Nicholas v. ProvidentLife & Accident Ins. Co., 457 S.W.2d536 (Tenn. App. 1970), where thecourt rejected a similar argument,saying that so long as “the decedentknew that there was one live cartridgein the cylinder,” he had no basis for arecovery.

Beneficiaries have also attempted toavoid an adverse verdict by contend-ing that the insured’s conduct fallswithin an exception. The primary ar-gument is that the insured was toointoxicated to understand the natureof his conduct. This argument hasalso been rejected by the courts.

In Moats v. Life Insurance Companyof North America, 162 F.3d 1162(Table), 1998 WL 553159 (6th Cir.1998), the insured died of a gunshotwound to the head. The insured, analcoholic, had spent the day drinkingand returned to his home with afriend. During the course of the daythe insured had talked about buyinga boat and visiting his family.

That evening, according to hisfriend, his mood changed and he re-trieved a gun from the bedroom. Theinsured asked his friend to play a“game”. He took five bullets from thegun and tried unsuccessfully to spinthe cylinder. He then pulled the trig-ger three times, and the last time thegun discharged, killing him. Hisblood-alcohol level was .20%. Ben-efits under the accidental death policywere denied under the following ex-clusion: “Intentionally self-inflicted

injuries, suicide, or any attemptthereat, while sane or insane; use offirearms or knives or any other lethalinstrument shall be presumed to beintentional.”

The beneficiary argued that the in-sured was so intoxicated that he didnot expect or intend to die from hisreckless, impulsive act. The beneficiarypresented a medical affidavit statingthat the insured was so intoxicatedand/or impaired that he could nothave understood that death might re-sult from his conduct. The trial andappellate courts rejected plaintiff ’s ar-gument. Although there is a presump-tion against suicide, the facts resultedin only one conclusion and the courtshould not allow a jury to decide theissue. There is no doubt that the in-sured acted in a voluntary and inten-tional manner. The fact that an expertalleges the insured was too drunk tounderstand or appreciate his conductis of no consequence. The policyclearly has a “sane or insane” provi-sion, which takes mental capacity outof the inquiry.

So too, in C. M. Life InsuranceCompany v. Ortega, 562 So.2d 702(Fla. App. 1990), where the insuredowned two life insurance policieswhich limited the benefit should theinsured die by suicide, while sane orinsane, within the first two years thepolicy was in force. Id. at 703. On thenight of his death, the insured hadconsumed several alcoholic drinks atdinner. He appeared depressed overhis divorce and, upon returninghome, he picked up his revolver, re-moved all the bullets and replaced onebullet. He spun the cylinder, put thegun to his head and pulled the trigger.When nothing happened he remarked“If you are meant to die, you’re meant

to die.” He then pulled the triggeragain, firing a bullet into his head,killing himself. Benefits were deniedbecause the insurer said the death wasa suicide. Id.

There was conflicting psychiatrictestimony regarding his personalityprofile, supporting and refuting sui-cide. The evidence showed the insuredwas depressed and despondent. Heknew the gun was loaded and theshooting was the result of a consciousdecision to play a game with death.

The appellate court overturned atrial court verdict for the beneficiary,finding suicide was established by apreponderance of the evidence.“[W]here the harm which befalls theinsured is a reasonable and probableconsequence of his volitional act, theharm cannot be deemed uninten-tional.” Id.

The appellate court rejected thetrial court’s findings that the insured’sdeath was inadvertent, resulting froma display of machismo, attempting toshow how brave he was by defying theodds of Russian roulette. The appel-late court held that this was nothingmore than “a speculative hypothesisand as such could not be employed toovercome the evidence of suicide….”See also Life Insurance Company ofNorth America v. Von Valtier, 116 F.3d279 (7th Cir. 1997), an ERISA case,where the court held “[w]e do notdoubt that [the insured] was a deeplydisturbed man when he took his ownlife [playing Russian roulette], nor isit unlikely that his alcoholism and hisdepression medications made mattersworse rather than better…[H]owever,under the insurance policy…[theplaintiff ] is not entitled to benefits.”


Recovery Permitted

The threshold issue in each case iswhether the insured knew that thegun was loaded at the time he pulledthe trigger. Courts have held thatdeath from a self-inflicted gunshotwound will be considered to be acci-dental only when the insured believedthe gun was not loaded. This includeswhere the insured places a pistol tohis head as a joke and through someerror the pistol discharges resulting indeath or injury. Here, it has been heldthat the accident benefit is owed.

For example, in Gulf Life Ins. Co. v.Nash, 97 So.2d 4 (Fla. 1957), the in-sured had never examined the gunwith which he fatally injured himself.He was in good humor and jokingwith friends when he aimed the gunat his chest and fatally shot himself.He then immediately screamed, “MyGod, the gun was loaded – I am shot.Call a doctor.” Based on this evidence,the Florida Supreme Court deter-mined there was sufficient evidence tosupport a finding the insured did notcommit suicide.

The case of Life Insurance Companyof Georgia v. Williams, 135 S.E.2d925 (Ga. Ct. App. 1964), involved aninsured playing with a rifle hethought to be unloaded. He pointedthe gun at his head and it discharged,killing him. Here, unlike Russian rou-lette, the insured believed the riflewas not loaded and a jury’s findingthat he should not have foreseen theconsequences of his act was affirmed.It would not be presumed as a matterof law that the insured took a knownrisk with the intention that he bekilled.

In Bloomfield v. The Western-South-ern Life Insurance Company, No. 80

AP-154, 1980 WL 35643 (OhioApp. Aug. 26, 1980), the insured waskilled when, as a joke, he placed a gunto his head and pulled the trigger. Hewas under the impression that thecartridge was in a location in the cyl-inder that would not reach the firingchamber. Accident benefits were de-nied.

The appellate court held that ajudge or jury could reach differentconclusions as to whether theinsured’s death resulted from acciden-tal bodily injury. Evidence showedthat the insured may have only beenpretending to play this “game” as ajoke but, instead, carefully looked atthe location of the one cartridge inthe cylinder to determine that the re-volver would not fire when he pulledthe trigger. Here, he mistakenlythought the cylinder would revolveclockwise when, in fact, it revolvedcounter-clockwise and dischargedwhen the trigger was pulled.

“If one points a revolver he knowsto be loaded at his head and voluntar-ily pulls the trigger not knowingwhether or not the gun will discharge,the resultant injury is not accidental.On the other hand, where one pointsa revolver at his head and voluntarilypulls the trigger under the mistakenimpression that there is no possibilitythat the revolver will discharge, theresultant injury when it does dis-charge is accidental, even if not causedby accidental means.” Id. at *4. Theissue was one for the jury to decide.

In Oldring v. Metropolitan Life In-surance Co., 492 F. Supp. 994 (D.N.J.1980), the insured died of a self-in-flicted gunshot wound to his head.There was no evidence of mental in-stability or any marital or financialproblems. In fact, he had just been

notified that he passed the qualifyingexam for the New Jersey State Police,his career objective. Id. at 995-96.

He was well-trained and skilled inthe use of firearms. The insured alsodisplayed a history of playing withweapons, including pointing pistols athis head which he thought to be un-loaded and pulling the trigger. Oneday he was playing with his gun,pointed it at his head and pulled thetrigger. Nothing happened. He pulledthe trigger again and the gun dis-charged. One empty shell was foundin the gun’s chamber and expert testi-mony established this bullet mostlikely stuck in the cylinder when theinsured had emptied the gun. Therewas no evidence of suicide and the in-sured pulled the trigger believing thegun was empty. Id. at 986.

The court considered the reason-able expectation of the above policy-holder. The insured’s conduct mayhave been “foolish, reckless or evenstupid,” however, the bullet thatstuck in the gun’s chamber could beseen as an unexpected or unforeseenoccurrence. Thus, recovery is permit-ted. Id. at 998.

In Harrington v. New York Life In-surance Company, 299 F.2d 803 (9thCir. 1962), the insured was playingwith a German Mauser semi-auto-matic pistol. Believing the safety wassecure, he placed the gun to his headand pulled the trigger. The gun dis-charged, killing him. Was his death“directly and independently of allother causes, from accidental bodilyinjury?” The insurer argued his deathwas not because his conduct was sodangerous that death was a foreseeableand natural result. Id. at 805.

The court held the insured had areasonable basis to believe the gun


was safe. His conduct just prior to thedischarge reflected that the safety wasin place. He did nothing intentional,such as spinning the chamber in a re-volver, which would make his relianceunreasonable. Thus, his death was un-expected. “[The insured’s] expectationas to what would happen, based onhis reasonable supposition, controlshere. As to him, death was unex-pected.” Id. at 806.

Conclusion

Courts have rejected as unreasonablethe argument that death resultingfrom playing Russian roulette is acci-

dental. The player’s subjective expec-tation of survival, even with an 83%chance of beating the odds, is unrea-sonable. The entire purpose of playingthis “game” involves facing the risk ofdeath consciously and directly.

A person who puts a gun to hishead and pulls the trigger, knowingthat one of the six chambers has a liveshell in it, is not entitled to accidentbenefits should he lose. It cannot besaid that the person playing the“game” necessarily intends death.Nevertheless, the substantial certaintyof harm to the person who engages insuch conduct with his own life dem-onstrates that he is not entitled to

benefits. That he may have survivedseveral rounds of play in no way less-ens the certainty of death or seriousinjury.

EDITORIAL INFORMATION

Life, Health and Disability News is published quarterly by the DRI’s Life, Health and Disability Committee. Articles and casesummaries should be submitted for publication via e-mail to Newsletter Editor Kenton J. Coppage of Smith Moore LLP in At-lanta (see p. 2). Submissions are encouraged and welcomed.


Green v. Holland: Further Muddying theEleventh Circuit’s Prejudgment Interest WatersAmelia T. DriscollBradley Arant Rose & White, LLPBirmingham, [email protected]

In Flint v. ABB, Inc., the UnitedStates Court of Appeals for the Elev-enth Circuit held that prejudgmentinterest was not available under eitherERISA § 502(a)(1)(B) or ERISA §502(a)(3). 337 F.3d 1326, 1329-31(11th Cir. 2003). Despite thisstraightforward ruling, several districtcourts in the Eleventh Circuit havedistinguished (or rejected) Flint andhave awarded prejudgment interest inERISA-based disputes. See IgnoringFlint: Prejudgment Interest in the Elev-enth Circuit, Life, Health and Disabil-ity News (Winter 2007).

Although the Eleventh Circuitagain addressed the propriety of pre-judgment interest awards this pastspring – see Green v. Holland, 480F.3d 1216 (11th Cir. 2007) – its de-cision did little to clarify the EleventhCircuit’s prejudgment interest waters.This article examines the EleventhCircuit’s prejudgment interest juris-prudence and analyzes the effect thatGreen is likely to have on prejudg-ment interest-based disputes in thatCircuit.

In Flint, the plaintiff (“Flint”) al-leged that he was entitled to interestpayments on retroactive plan benefitshe had received. 337 F.3d at 1328.After the United States District Courtfor the Southern District of Floridadismissed Flint’s suit, the Eleventh

Circuit affirmed. Id. at 1331. Specifi-cally, the Eleventh Circuit reasonedthat prejudgment interest was un-available under ERISA § 502(a)(1)(B)because (1) that statute did not ex-pressly require employers to pay inter-est on reinstated benefits, and (2)Congress did not authorize ERISAremedies that it did not expressly in-corporate into the ERISA statute. Seeid. at 1329.

The Flint court also suggested thatprejudgment interest awards were un-available under § 502(a)(3)’s catch-all“appropriate equitable relief ” provi-sion because interest on money pastdue was a classic form of compensa-tory damages and not equitable reliefof the type required by § 502(a)(3).See id. at 1330, 1331 (suggesting, inlight of the United States SupremeCourt’s decision in Great-West Life &Annuity Insurance Co. v. Knudson, 534U.S. 204 (2002), that a claim for in-terest under § 502(a)(3) was “an im-permissible attempt to dress anessentially legal claim in the languageof equity”).

Despite the Eleventh Circuit’sstraightforward ruling in Flint, severaldistrict courts have distinguished thatdecision and awarded prejudgmentinterest in ERISA-based disputes. See,e.g., Burroughs v. Bellsouth Tel., Inc.,446 F. Supp. 2d 1294, 1302-03(N.D. Ala. 2006), rev’d on othergrounds, 2007 WL 1954050 (11thCir. July 6, 2007) (unpublished opin-ion); Oliver v. Coca-Cola Co., 397 F.Supp. 2d 1327, 1331 (N.D. Ala.

2005); Cheal v. Life Ins. Co. of N.Am., 330 F. Supp. 2d 1347, 1351,1355 (N.D. Ga. 2004).

With respect to its § 502(a)(1)(B)analysis, district courts have reasonedthat, inasmuch as Flint only prohib-ited an ERISA claimant from bringingan “independent claim for interest[,]”Flint is inapposite where a claimanthas “asserted a claim to recover benefits[and not just an independent andseparate claim for interest] under §502(a)(1)(B) . . . .” Cheal, 330 F.Supp. 2d at 1352 (ruling that, wherea claimant has brought a claim forplan benefits, the claimant may re-cover prejudgment interest under §502(a)(1)(B) if he is successful on themerits of his benefits claim becausefederal courts have broad discretion toaward prejudgment interest on judg-ments obtained pursuant to federalstatute) (emphasis in original).

In Green, the Eleventh Circuit sug-gested, in dicta, that the districtcourts’ § 502(a)(1)(B) distinction wascorrect, conceding that Flint prohib-ited only an “independent action to re-cover interest under § 502(a)(1)(B)where the . . . plan [did] not expresslyprovide for interest” and observing –albeit in a footnote – that becauseFlint “did not . . . create a per se prohi-bition on a recovery of interest under§ 502(a)(1)(B)[,]” Flint left “open theprospect of an ERISA claimant litigat-ing and recovering an award of ben-efits that are due and unpaid under §502(a)(1)(B) and receiving, as part ofthat benefits award, interest on those



benefits from the time they were due.”480 F.3d at 1223, 1223 n.4 (citingCheal, 330 F. Supp. 2d at 1352).

Green’s effect on prejudgment inter-est litigation based on § 502(a)(1)(B)will likely be two-fold. First, Green willundoubtedly strengthen the defendants’position that prejudgment interestawards are unavailable where the plain-tiff has brought an interest claim sepa-rate and apart from any claim forbenefits. On the other hand, Green’sfootnote dicta has likely muddied thewaters with respect to the availability ofprejudgment interest awards where aplaintiff has litigated and recovered anaward of benefits that are due and un-paid under § 502(a)(1)(B). In thosetypes of cases, attorneys practicing inthe Eleventh Circuit should anticipateincreased litigation on the availability ofprejudgment interest.

The second (and frankly more prob-lematic) distinction that district courtsin the Eleventh Circuit have drawn withrespect to Flint relates to Flint’s §502(a)(3) analysis. Although it must beconceded that the Flint court did notconclusively rule that prejudgment in-terest awards are always unavailable un-der ERISA § 502(a)(3), Flint’s dictastrongly suggests that the Eleventh Cir-cuit considered prejudgment interestawards under that section to be im-proper. See 337 F.3d at 1330-31. TheFlint opinion made clear, after all, that“interest on money past due under acontract is a classic form of compensa-tory damages and, as such does notqualify as ‘equitable relief ’ under §502(a)(3)(B).” Id. at 1330.

Perhaps more importantly, however,the Flint court expressed its tremendousskepticism regarding the continued pro-priety of prejudgment interest awardsunder § 502(a)(3) in light of Knudson.

See id. at 1331 (questioning “whether §502(a)(3) ever allows an award of inter-est for delayed benefits” in light ofKnudson “or whether such a claim [wa]san impermissible attempt to dress an es-sentially legal claim in the language ofequity”). Despite this dicta, districtcourts in the Eleventh Circuit have con-cluded that, where a plaintiff has “al-ready received benefits and seeks torecover solely for interest” – like theplaintiff in Flint – he or she is entitledto recover prejudgment interest under§ 502(a)(3). Cheal, 330 F. Supp. 2dat 1356, 1356 n.11 (refusing to readFlint to preclude an award of prejudg-ment interest under § 502(a)(3) alto-gether because doing so would“require Courts to reach an absurd re-sult in cases where benefits are wrong-fully withheld that is contrary to thepurposes of ERISA”).

Fortunately, the Eleventh Circuitclarified its § 502(a)(3) stance in Green,when it reiterated its reluctance to char-acterize a claim for interest on moneypast due as a form of equitable relief andunderscored its opinion that prejudg-ment interest awards under § 502(a)(3)are improper, especially where a planadministrator has “acted reasonably andin accordance with both the Plan andERISA in processing” a claimant’sclaim. See 480 F.3d at 1225-26, 1228(refusing to determine whether a claimfor prejudgment interest was a claim for“equitable” relief even though that issuewas ripe for consideration).

In Green, the plaintiff (“Green”)brought an independent action to re-cover accrued interest on his disabilitybenefits under § 502(a)(3) after hisbenefits had been delayed but eventu-ally paid under his pension plan. Id. at1218. The Eleventh Circuit noted thata plaintiff is not entitled to recover un-

der § 502(a)(3) unless he or she can es-tablish (1) that the relief sought is equi-table in nature, and (2) that the reliefsought is predicated on a violation of ei-ther ERISA or the enforcement of a planprovision. Id. at 1224.

As specifically relevant to the secondrequirement, the Green court rejectedthe contention: (1) that a plan adminis-trator could “breach [a] Plan’s terms[solely] because [it] failed to pay [aclaimant] disability benefits when [theclaimant] was eligible for them”; and(2) that “the payment of [a] disabilityaward without any interest constituteda decrease or a forfeiture of an ‘accruedbenefit’ via a Plan amendment, in viola-tion of ERISA § 204(g) . . . .” Id. at1226, 1227-28. The Green court alsorejected the contention that “any delay– however minor – in paying out . . .benefits effectuates an unjust enrich-ment” in violation of ERISA. Id. at1227 n.8 (emphasis in original). To thecontrary, the court recognized that “ev-ery claim for . . . benefits under an em-ployee benefit plan will inevitablyinvolve some amount of administrativedelay in processing the claimant’s re-quest.” Id.

In effect, Green emphasized the Elev-enth Circuit’s reluctance to award pre-judgment interest under § 502(a)(3),particularly where the plan administra-tor involved in the litigation acted rea-sonably and in accordance with boththe plan and ERISA. On the otherhand, and because the Green court in-tentionally dodged addressing the issueof whether a claim for prejudgment in-terest is a claim for “equitable” relief, at-torneys practicing in the EleventhCircuit should be prepared to argueabout this issue.


ERISA UPDATE

Supreme Court Grants Cert to Again DetermineBreadth of ERISA Remedies; Third CircuitExpands Reach of Attorney-Client PrivilegeMARK E. SCHMIDTKE

Schmidtke Hoeppner Consultants LLPValparaiso, [email protected] J. COPPAGE

Smith Moore LLPAtlanta, [email protected]

This edition of ERISA Update will dis-cuss two recent developments thatpromise to impact ERISA litigationfar into the future. The first develop-ment is the Supreme Court’s recentdecision to grant certiorari in LaRue v.DeWolff, Boberg & Assoc., Inc., 450F.3d 570 (4th Cir. 2006), a case thatraises the question of the remediesavailable to individual plan partici-pants under sections 502(a)(2) and(a)(3) where plan fiduciaries havebreached their duties. The second de-velopment is the Third Circuit’s hold-ing in Wachtel v. Health Net, Inc., 482F.3d 225 (3d Cir. 2007) that wherean insurer is a fiduciary under anERISA plan, the fiduciary exceptionto the attorney-client privilege is notapplicable, thereby preserving theconfidentiality of an insurancecompany’s communications with itslawyers.

LaRue v. DeWolffERISA-governed pension plans take

several forms that fall primarily intotwo categories: defined contributionplans and defined benefit plans. De-fined benefit plans are the traditionaltype of pension plan where aparticipant’s benefit is a fixed amounttypically based on years of service andpay. Employers generally make in-vestment decisions under defined ben-efit plans and bear the risk ofinvestment losses to the plan.

In contrast, defined contributionplans (also known as individual ac-count plans) allow certain levels of pe-riodic contributions to an individualaccount owned by the participant.The participant typically makes deci-sions about how to invest the fundsand bears the risk of investment losses.Whatever balance is in the account atthe time of retirement is the amountavailable to the participant for retire-ment.

James LaRue was a participant inhis employer’s 401(k) account, a de-fined contribution plan. LaRue al-leged that in 2001 and 2002, heinstructed the plan fiduciary to makecertain investment changes in his ac-count, which were never accom-plished. As a result, according toLaRue, he lost thousands of dollars ininvestment gains when the stock mar-ket soured.

LaRue sued the fiduciary under

ERISA, section 502(a)(3), seeking“make whole” relief. After losing inthe district court, LaRue appealed tothe Fourth Circuit, adding a claim forrelief under ERISA, section 502(a)(2).

ERISA, section 502(a)(3) permitsinjunctive and “other appropriate eq-uitable relief ” to remedy violations ofERISA or the terms of an ERISA-gov-erned plan. Section 502(a)(3) doesallow remedies for personal losses.See, e.g., Varity Corp. v. Howe, 516U.S. 489 (1996). However, the Su-preme Court has addressed thebreadth of remedies available under502(a)(3) on several occasions and hasconsistently held that this subsectionprovides only “those categories of re-lief that were typically available in eq-uity” in the days of the dividedbench. See, e.g., Mertens v. Hewitt As-sociates, 508 U.S. 248, 256 (1993);Sereboff v. Med Atl. Services, Inc., 126S.Ct. 1869, 1873 (2006) (quotingMertens).

ERISA, section 502(a)(2) takes adifferent tack than 502(a)(3). Section502(a)(2) is the remedial provision forviolations of section 409, which statesthat a breaching fiduciary shall beheld liable to “make good to the planany losses to the plan.” (Emphasisadded.) Because of section 409’s fo-cus on losses to the plan, the SupremeCourt limited the reach of section




502(a)(2) to recoveries that “inure[]to the benefit of the plan as a whole,”not to particular persons with rightsunder the plan. Massachusetts Mut.Life Ins. Co. v. Russell, 473 U.S. 134,140 (1985) (emphasis added).

In seeking relief for his investmentlosses under 502(a)(2), LaRue arguedthat because the investment gainswould have gone into the plan, he wasnot seeking individual relief. TheFourth Circuit disagreed. The courtstated that “[i]t is difficult to charac-terize the remedy plaintiff seeks asanything other than personal” andthat “[w]e are therefore skeptical thatplaintiff ’s individual remedial interestcan serve as a legitimate proxy for theplan in its entirety, as §1132(a)(2) re-quires.”

The Fourth Circuit also rejectedLaRue’s claim for “make whole” reliefunder 502(a)(3). Unlike equitable re-lief which gauges a recovery by thedefendant’s gain, LaRue was seekingdamages based on his own loss. Thisis legal, not equitable, relief. LaRuehad no cause of action under section502(a)(3).

On rehearing, the Fourth Circuitpanel supplemented its decision in or-der to respond to tardy argumentssubmitted by the Department of La-bor. Essentially, the DOL took theposition that the relief that LaRue wasseeking was on behalf of the plan andwas therefore within the boundaries of502(a)(2). The Fourth Circuit re-jected the argument: “Here, LaRueseeks to recover money damages towhich he believes he is individuallyentitled – such an action is in nosense ‘representative.’”

LaRue filed a petition for writ ofcertiorari with the Supreme Court.Although the Fourth Circuit had spe-

cifically denied that there was a splitin the circuits on the breadth of reliefunder section 502(a)(2), the SupremeCourt apparently believes otherwisebecause it granted LaRue’s petition onJune 18, 2007. The Court will ad-dress two issues: (1) whether502(a)(2) permits a participant tobring an action for losses attributableto his own account in a defined con-tribution plan caused by the fiduciarybreach; and (2) whether 502(a)(3)permits a participant to bring an ac-tion for monetary “make-whole” reliefto compensate for losses directlycaused by a fiduciary breach.

While an initial impression may bethat LaRue is limited to pension planissues, it is clear that a Supreme Courtdecision on the breadth of these twoERISA remedial provisions will extendwell beyond pension plans. For ex-ample, if the Court widens the reme-dial avenues under 502(a)(3) to allow“make-whole” relief, something thatdissenting justices suggested in Great-West Life Ins. Co. v. Knudson, 534 U.S.204 (2002), it is quite probable thatplaintiffs will append such claims totheir benefit review suits, seekingdamages beyond plan benefits. Enter-prising plaintiffs may also seek tobring actions under 502(a)(2) whichto this point have been virtually un-known in benefit review actions. Adecision from the Supreme Court isexpected before the end of this year.

Wachtel v. Health NetOn a whole different front, the ThirdCircuit’s decision in Wachtel addressesthe breadth of the attorney-clientprivilege and the corresponding fidu-ciary exception, in the context of com-munications between an insurancecompany and its counsel regarding its

actions related to an ERISA benefitplan. Of course, the attorney-clientprivilege is well known. It has beenaround for centuries and was estab-lished for the purpose of encouragingfrank communications between a cli-ent and his counsel.

More recently, a corollary to the at-torney-client privilege known as the“fiduciary exception” has developed inthe case law. A concept growing outof trust law, the fiduciary exceptioncompels disclosure of attorney-clientcommunications to a beneficiarywhere the attorney is communicatingwith a trustee who owes fiduciary du-ties to the beneficiary. Typically, theexception has been influenced bythree factors: “(1) the content of theadvice is for the benefit of the trust,not the trustees; (2) the advice is paidfor with assets of the trust, not assetsof the trustees; and (3) no adversarialproceeding against the trustees ispending, meaning that the trusteeshave no need to seek personal legaladvice.”

Prior to Wachtel, several courts hadapplied the fiduciary exception in thecontext of an ERISA plan where aplan fiduciary sought advice of coun-sel regarding its fiduciary duties, duein part to ERISA’s substantive roots intrust law. See, e.g., Becher v. Long Is-land Lighting Co., 129 F.3d 268 (2dCir. 1997); Wildbur v. ARCO Chemi-cal Co., 974 F.2d 631 (5th Cir.1992).

Before determining whether the fi-duciary exception applies to commu-nications within an insurancecompany, the Third Circuit did alengthy analysis of the attorney-clientprivilege, the fiduciary exception, andthe application of the fiduciary excep-tion in ERISA cases. Ultimately, the


court cited several reasons why the fi-duciary exception should not apply toinsurance company communicationswith its counsel:• In a fully insured ERISA plan ar-

rangement, the insurer is adminis-tering claims involving its ownassets and not those of the benefi-ciary. “This convergence of man-agement and ownership places aninsurer . . . in a different positionthan other ERISA fiduciaries towhom the fiduciary exception hasbeen applied, and demonstratesthat [the insurer] has a substantialand legitimate interest in the man-agement of its assets – even while itengages in fiduciary acts.”

• In ERISA benefit disputes, theThird Circuit recognizes a struc-tural conflict of interest where aninsurer determines benefit claimsthat put at risk the insurer’s ownassets. This conflict demonstratesthat the insurer does have its owninterests to consider when seekingadvice of counsel rather than justthe interests of the beneficiary.

• Insurers also have to consider theinterests of other insureds in otherERISA plans and non-ERISA ar-rangements. “Even while acting asa loyal fiduciary to the beneficiariesof one plan, [the insurer] must bemindful of the duties it owes to thebeneficiaries of other customerplans, all of whom are paid fromthe same pool of assets.”

• An insurer pays for legal advicewith its own assets and not those ofa trust or of the beneficiary.

The court acknowledged that even in-surers have certain disclosure obliga-tions when acting as fiduciaries ofERISA plans, but “we do not believethat Congress intended to imposeupon insurance companies doingbusiness with ERISA-regulated plansthe same disclosure obligations thathave been imposed upon trustees atcommon law.” The court also foundpersuasive the fact that the complexi-ties of ERISA require insurers to seekongoing legal advice and that a blan-ket fiduciary exception would discour-age seeking this advice.

However, the court also cautionedthat not all communications withcounsel are privileged and that suchcommunications must involve legal,not business, advice, and that theprivilege only applies to the commu-nications themselves and not the un-derlying information communicated.

Ultimately, the Wachtel decision isa good decision for insurers of ERISAplans in resisting discovery of other-wise privileged communications. Inthe ERISA context, the fiduciary ex-ception threatened to swallow theprivilege, but Wachtel reverses thistrend, giving insurers defendingERISA claims some prime authorityto limit discovery.

FOR PREVIOUS ISSUES OF THIS NEWSLETTER . . .

Previous issues of Life, Health and Disability News are available via the internet at the home page of the Life, Health andDisability Committee. To access every issue since Winter 1999, go to DRI’s web site at www.dri.org.

http://www.dri.org


Network News

KENTON J. COPPAGE

Smith Moore LLPAtlanta, [email protected]

Michigan

Michigan InsuranceCommissioner BansDiscretionary ClausesIn February, Michigan’s Office of Fi-nancial and Insurance Services pro-mulgated regulations declaringdiscretionary clauses in insurancepolicies to be invalid. These rules arepromulgated at Michigan Administra-tive Code, Rule 500.2201 et seq.These regulations are similar to thosethat exist in Illinois and are similar tothe opinion letter issued by the Cali-fornia Insurance Commissioner.

Under the new regulations, discre-tionary clauses in insurance contractsare prohibited. Discretionary clausesinclude any provision that purports tobind the claimant to or grant defer-ence in subsequent proceedings to aninsurer’s decision or interpretation ofthe policy.

These regulation do not apply toexisting policies, but they do apply tonew policies issued after March 1,2007, and to policies that “are revisedin any respect” after March 1, 2007.Even slight modifications to existingpolicies could bring any reservation ofdiscretion into question.

If these regulations apply toERISA-governed insurance policies,then the decisions of the administra-tor would always be reviewed de novo,instead of under the “arbitrary and ca-

pricious” standard of review. Theregulations, by their terms, do not ex-empt ERISA policies from the scopeof the regulation.

Recently, a lawsuit was filed in theWestern District of Michigan, chal-lenging these regulations to the extentthat they purport to apply to ERISA-governed policies. American Councilof Life Insurers v. Watters, Case No. 07-cv-0631 (W.D. Mich.). The lawsuitalleges that the regulations are pre-empted by ERISA. The outcome ofthis lawsuit could potentially have asignificant impact on ERISA litigationin Michigan.D. Andrew PortingaMiller JohnsonGrand Rapids, [email protected]

Supreme Court

Merger not Proper Terminationof Defined Benefit PlanIn Beck v. PACE Int’l Union, 127 S.Ct.2310 (2007), PACE InternationalUnion represented employees coveredby single-employer defined-benefitpension plans sponsored and adminis-tered by Crown Paper, and its parententity, Crown Vantage (collectively re-ferred to as “Crown”), which had filedfor bankruptcy. Crown rejected theunion’s proposal to terminate theplans by merging them with theunion’s own multiemployer plan, opt-ing instead for a standard terminationthrough the purchase of annuities.

The union and plan participantsfiled an adversary action in the bank-ruptcy court alleging that Crown’s di-rectors had breached their fiduciaryduties under ERISA by neglecting toseriously consider PACE’s merger pro-

posal. The bankruptcy court ruled infavor of PACE, and the case was ap-pealed to the District Court, whichaffirmed in relevant part, as did theNinth Circuit.

The Ninth Circuit acknowledgedthat the decision to terminate a pen-sion plan is a business decision notsubject to ERISA’s fiduciary obliga-tions, but reasoned that the imple-mentation of a termination decision isfiduciary in nature. It then deter-mined that merger was a permissibletermination method and that Crowntherefore had a fiduciary obligation toseriously consider PACE’s merger pro-posal, which it had failed to do.

After granting certiorari, a unani-mous United States Supreme Courtreversed the Ninth Circuit, holdingthat Crown did not breach its fidu-ciary obligations in failing to considerPACE’s merger proposal becausemerger is not a permissible form ofplan termination under ERISA §1341(b)(3)(A). The Supreme Courtnoted that it has traditionally deferred tothe Pension Benefit Guaranty Corpora-tion (“PBGC”) when interpreting ERISA.The PBGC argued that § 1341(b)(3)(A)does not permit merger as a method oftermination because merger is an alterna-tive to, rather than an example of, plantermination. The Court found that thePBGC’s position was based upon apermissible and plausible constructionof the statute.

The Court held that terminating aplan through purchase of annuitiesformally severs ERISA’s applicabilityto plan assets and employer obliga-tions, whereas merging the Crownplans into PACE’s multiemployerplan would result in plan assets re-maining within ERISA’s purview,where they could be used to satisfy




the benefit liabilities of themultiemployer plan’s other partici-pants and beneficiaries. The Courtfurther found that, although ERISAexpressly allows the employer, undercertain circumstances, to recoup sur-plus funds in a standard termination,merger would preclude the receipt ofsuch funds by reason of § 1103(c),which prohibits employers from mis-appropriating plan assets for theirown benefit.

The Court also opined that mergeris not mentioned in § 1341, but isinstead dealt with in an entirely dif-ferent set of statutory sections settingforth different rules and procedures.Finally, from a policy standpoint, theCourt held that PBGC’s constructionof the statute was reasonable becausetermination by merger could havedetrimental consequences for the par-ticipants and beneficiaries of a single-employer plan, as well as for plansponsors.Scott M. TragerSemmes, Bowen & SemmesBaltimore, [email protected]

First Circuit

Court Upholds Denial ofDisability Claim Based onSurveillance and DOTIn Tsoulas v. Liberty Life Assur. Co. ofBoston, 454 F.3d 69 (1st Cir. 2006),the court upheld the discontinuanceof disability benefits after surveillancefound the claimant’s activities to beinconsistent with her alleged disabil-ity.

Tsoulas was covered by a disabilitypolicy obtained by her employer, andgoverned by ERISA. She applied forand received short and long-term dis-

ability benefits on the basis of a diagnosisof multiple sclerosis. She received ben-efits for over five years.

As part of its review of Tsoulas’ claim,Liberty Mutual conducted surveillance inJanuary 2004 and found her activities tobe contrary to her responses to a routineactivities questionnaire submitted con-temporaneously to the surveillance.

Because there appeared to be sig-nificant discrepancies betweenTsoulas’ self-reported limitations andthe surveillance, Liberty conductedadditional surveillance a month later.That surveillance again found Tsoulas’activities to be inconsistent with heralleged symptoms. Video was ob-tained during both periods of surveil-lance.

Subsequent to the surveillance, Lib-erty had Tsoulas’ file reviewed by anindependent physician who deter-mined that Tsoulas was able to work.Tsoulas appealed, and a second inde-pendent physician came to the sameconclusion. Tsoulas filed suit and thedistrict court ruled in favor of LibertyMutual.

On appeal, Tsoulas claimed thatthe deferential standard of reviewshould not have been granted to Lib-erty Mutual due to a conflict of inter-est. The court held that in acircumstance where the insurer makesboth the claim decision and pays thebenefits the burden is on the claimantto prove that the insurer’s decisionwas improperly motivated. Tsoulasattempted to prove this by allegingthat Liberty Mutual undertook thesurveillance for the purpose of termi-nating her benefits and by engagingin a selective review of the administra-tive record.

The court rejected both arguments.It found that Liberty Mutual initiated

the surveillance to objectively docu-ment Tsoulas’ activity level. It alsoheld that Liberty Mutual did not en-gage in a selective review and specifi-cally stated that it was not for thecourt to determine how much weightLiberty Mutual should accord a par-ticular piece of evidence in its overalldecision.

Tsoulas also attacked LibertyMutual’s decision by alleging that itimproperly relied on the Departmentof Labor’s Dictionary of OccupationalTitles (“DOT”). Tsoulas argued thatLiberty Mutual should have acquireda more accurate job description ofTsoulas’ own job.

The court held that Tsoulas borethe burden to prove that she was un-able to perform the duties of her occu-pation and that a part of that evidencewould be a statement of what her jobrequired. The court noted that Lib-erty Mutual contacted Tsoulas for adescription of her job duties and thatthe information provided by Tsoulaswas not inconsistent with the DOTdescription and therefore Liberty Mu-tual did not commit any error in rely-ing on the DOT.

Tsoulas next attacked the surveil-lance as not being sufficient evidenceto establish that she was able to per-form her job. The court held thatwhile Tsoulas’ occupational responsi-bilities were different from the activi-ties portrayed in the surveillancevideo, Tsoulas failed to prove that Lib-erty Mutual’s inference that the con-flict between her self-reportedlimitations and her actual activitiessuggested an ability to perform heroccupational responsibilities was arbi-trary and capricious.

Finally, the court rejected Tsoulas’arguments that her medical records



required the continuance of her dis-ability benefits or that the indepen-dent physicians who reviewed herclaim were biased. The court affirmedthe district court’s judgment andfound that Liberty Mutual’s decisionto terminate benefits was not arbitraryand capricious.Joseph M. HamiltonJOAN O. VORSTER

Mirick O’ConnellWorcester, [email protected]@modl.com

Fourth Circuit

Plan Abuses Discretion by Failingto Evaluate Mental ConditionIn McKoy v. International Paper Co.,488 F.3d 221 (4th Cir. 2007), theplaintiff sought disability retirementbenefits from his employer, Interna-tional Paper Company, pursuant to anERISA plan. The plan paid the plain-tiff short-term disability benefits dueto a shoulder injury, but twice denieddisability retirement benefits becauseit determined that the plaintiff wascapable of sedentary or light workand, therefore, was not disabled underthe plan. The plan again denied ben-efits after the plaintiff supplied newinformation from the Social SecurityAdministration, a psychologist, a vo-cational evaluator and an internistdemonstrating substantial cognitivedeficits in addition to his physical in-jury.

The district court concluded, un-der the discretionary standard of re-view, that the plan’s denial of theplaintiff ’s claims was procedurally andsubstantively unreasonable and consti-

tuted an abuse of discretion. The casewas appealed to the Fourth Circuit,which affirmed the decision of thedistrict court.

After the plan was provided withthe additional information from theplaintiff, it referred the new informa-tion, along with the original file, to aconsulting orthopedist, who, despitefinding that the plaintiff was “border-line retarded” due to his cognitivelimitations, concluded that the plain-tiff was not physically disabled.

The Fourth Circuit stated that,standing alone, the plaintiff ’s physicaldisability might have allowed him todo sedentary or light work. However,the court found that the plan reliedsolely on the plaintiff ’s physical con-dition and never squarely addressedhis borderline retarded mental condi-tion. The plan defined “disability” asa “medically determinable physical ormental impairment.”

The Fourth Circuit held that theplan’s denial of benefits rested on anunreasonable failure to determine theplaintiff ’s mental condition, resultingin an unreasonable application of theplan’s definition of “disability.” Spe-cifically, the plan did “virtually noth-ing” to evaluate the plaintiff ’s mentalcapacity.

Despite the fact that the file wasreopened solely to permit the plaintiffto present evidence of his mental dis-ability, the file was thereafter evalu-ated only by an orthopedist. Theplan’s referral of the claim only to anorthopedist and its reliance on theorthopedist’s report to deny benefitswas held to be procedurally unreason-able.Scott M. TragerSemmes, Bowen & SemmesBaltimore, MD

[email protected]

Litigation Activity Subject to theFair Debt Collection Practices ActIn Sayyed v. Wolpoff & Abramson, 485F.3d 226 (4th Cir. 2007), the plain-tiff sued a law firm, Wolpoff &Abramson (“W&A”), under the FairDebt Collection Practices Act(“FDCPA”) for actions taken inW&A’s effort to collect a debt fromhim. The district court dismissed thesuit on the ground that absolute im-munity protected W&A.

The plaintiff appealed to theFourth Circuit, which reversed thedistrict court and held that there is noblanket common law litigation immu-nity under the FDCPA, except thatformal pleadings are exempted fromthe requirement of providing a disclo-sure that the debt collector is at-tempting to collect a debt and thatany information obtained will be usedfor that purpose.

W&A was retained by DiscoverBank, the issuer of the Discover creditcard, to pursue an action against theplaintiff for defaulted credit carddebt. W&A sued the plaintiff inMaryland state court to collect thebalance due. After W&A moved forsummary judgment in the state col-lection suit, the plaintiff sued W&Ain federal court, alleging violations ofthe FDCPA in pursuing the state ac-tion. Specifically, the plaintiff allegedthat the interrogatories and motionfor summary judgment filed by W&Aviolated the FDCPA, specifically 15U.S.C. §§ 1692e(1) and 1692f bymaking false statements.

The district court granted W&A’smotion to dismiss, concluding, interalia, that W&A enjoyed absolute im-munity from the FDCPA for its inter-





rogatories and summary judgmentmotion. On appeal, W&A arguedthat it could not be subject to claimsunder the FDCPA because an absolutecommon law immunity attaches toany statements made during thecourse of judicial proceedings.

The Fourth Circuit rejected W&A’sarguments, holding that the FDCPAapplies to law firms that constitutedebt collectors, even where their debt-collecting activity is litigation. Thecourt found that the statutory text ofthe FDCPA makes clear that there isno blanket common law litigation im-munity from the requirements of theFDCPA, as the plain meaning of theFDCPA’s definition of “debt collector”encompasses attorneys. Accordingly,W&A was a “debt collector” subjectto the FDCPA’s provisions.

Moreover, while the court notedthat an earlier version of the FDCPAhad provided an express exception forlawyers, which stated that the term“debt collector” did not include “anyattorney-at-law collecting a debt as anattorney on behalf of and in the nameof a client,” this exception was re-pealed by Congress in 1986. There-fore, the FDCPA applies to alllitigation activities of lawyers.

However, the FDCPA does ex-pressly exempt formal pleadings froma sole, particularized requirement ofthe FDCPA – the requirement that allcommunications state that they comefrom a debt collector. Thus, the re-sult of this decision is that litigationactivity is subject to the FDCPA, ex-cept that formal pleadings are ex-empted from the requirements of 15U.S.C. § 1692e(11). Moreover, acommunication to a debtor’s counsel,regarding a debt collection lawsuit inwhich counsel is representing the

debtor, qualifies as an indirect com-munication to the debtor and is,therefore, a “communication” underthe FDCPA.Scott M. TragerSemmes, Bowen & SemmesBaltimore, [email protected]

Prudence of ERISA Fiduciary NotProperly Measured in HindsightIn DiFelice v. U.S. Airways, Inc., 2007WL 2192896 (4th Cir. Aug. 1,2007), an airline employee broughtan ERISA class action against U.S.Airways, as plan administrator, alleg-ing breach of fiduciary duty by retain-ing a Company Stock Fund (the“fund”), consisting primarily of thepublicly traded shares of US AirwaysGroup, Inc., as a plan investment op-tion during its financial crisis. Theaction further sought recovery afterthe fund was cancelled without distri-bution when U.S. Airways filed forChapter 11 bankruptcy.

Following a bench trial, the districtcourt granted summary judgment infavor of U.S. Airways. Thereafter, theemployees appealed to the Fourth Cir-cuit.

The class contended that, giventheir losses and U.S. Airways’ knowl-edge of its uncertain financial condi-tion, U.S. Airways must have violatedERISA’s “prudent man” duty when itcontinued to offer the fund as a planoption. According to the class, theairline’s economic peril rendered itsdecision to offer the fund to plan par-ticipants a violation of its fiduciaryduties to select and hold prudent in-vestments and to prudently monitorthose investments. The class also as-serted that U.S. Airways acted underan improper conflict of interest.

Affirming the district court, theFourth Circuit held that the plan fi-duciaries did not breach their duty ofloyalty by continuing to offer thefund as an investment option as theplan participants offered only bare al-legations of the fiduciaries’ conflict ofinterest, as high-ranking company of-ficers. The court found that there wasno evidence that retaining the fundwas based on anything other than theparticipants’ best interests as the fidu-ciaries had a well-founded belief thatU.S. Airways would avoid bankruptcywhich, if correct, could have producedvery profitable results.

In so concluding, the Fourth Cir-cuit stated that, under ERISA, theprudence of investments or classes ofinvestments offered by a plan must bejudged individually by a fiduciary,who must initially determine, andcontinue to monitor, the prudence ofeach investment option available toplan participants. The Fourth Circuitfurther held that the prudence of afiduciary’s actions cannot be measuredin hindsight even if such hindsightwould accrue to the fiduciary’s detri-ment or benefit. Specifically, thecourt found that diminution in valueis neither necessary, nor sufficient, todemonstrate a violation of a fiduciary’sERISA duties.

Accordingly, the court, quoting 29U.S.C. § 1104(a)(1)(B), held thatU.S. Airways satisfied the only test ofa fiduciary’s duties – the requirementthat fiduciaries act “with the care,skill, prudence, and diligence underthe circumstances then prevailing thata prudent man acting in a like capac-ity and familiar with such matterswould use in the conduct of an enter-prise of a like character and with likeaims.” The Fourth Circuit concluded



that the employees could not succeedsimply by demonstrating that U.S.Airways offered the fund during atime of grave uncertainty, no matterhow significant the employees’ ulti-mate financial losses.Scott M. TragerSemmes, Bowen & SemmesBaltimore, [email protected]

Fifth Circuit

No Duty to Inform Insured ofMedical Test ResultsIn McLachlan v. New York Life InsuranceCompany, 488 F.3d. 624 (5th Cir. 2007 ),the plaintiff had applied for increased life in-surance coverage. He submitted blood andurine samples which indicated increased lev-els of phosphatase and creatinine. Acceptinghis application, New York Life disclosed tothe insured only the phosphatase level be-cause this elevated reading resulted in ahigher premium.

The plaintiff was later diagnosed withkidney failure and sued, alleging thatNew York Life had a duty to disclose thehigher creatinine level. The insured dis-closed the elevated phosphatase level tohis gastroenterologist so this was moni-tored, but no screening for creatinine wasperformed. Ultimately, his increasedcreatinine level indicated irreversible kid-ney damage, requiring a transplant.

The plaintiff argued that had NewYork Life disclosed this information ear-lier, the kidney damage could have beenprevented. The lawsuit did not rely onLouisiana insurance law because there isno duty to disclose in this situation. In-stead, the insured relied on state negli-gence law arguing that New York Lifehad an affirmative duty to disclose andalternatively that it assumed such a duty

when it disclosed the phosphatase infor-mation.

The district court dismissed the caseand the Fifth Circuit affirmed, finding asa matter of law that no such duty existedunder state law. There is no fiduciary re-lationship nor privity of contract betweenthe parties. The circuit court noted thatinsurers mitigate risk, not protect life,and any testing such as that conductedin this instance is strictly for the insurer’sbenefit. Nor did the test set the diseaseprocess in motion.

Insurers are not held to the same dis-closure requirements as doctors becausethey do not have the same level of exper-tise. In substance, the risk that appli-cants, like the plaintiff, may nototherwise learn about serious medicalproblems is not a risk created or borne bythe insurer. The related argument that New YorkLife somehow assumed a duty to disclosebecause it did disclose one abnormal testresult was also rejected. This disclosurewas made solely to inform the insuredwhy he was being charged a higher pre-mium, not for his well-being. Nor didNew York Life make any representationsto him about the comprehensiveness ofits tests. “A reasonable person would havethought that [the insurer] did the testsonly for its benefit and reported onlywhat it thought actuarially relevant, notmedically relevant.”GARY SCHUMAN

Aon CorporationChicago, [email protected]

Sixth Circuit

Violation of ERISA NoticeRequirement Resultsin ReinstatementIn Wenner v. Sun Life, 482 F.3d 878(6th Cir. 2007), the court held thatan ERISA claimant was entitled to re-instatement of disability benefits asthe result of a procedural violation inthe administration of a claim. This isone of two recent Sixth Circuit casesin which the court has awarded a sub-stantive remedy for a procedural viola-tion. See also Cooper v. Life Ins. Co. ofAm., 486 F.3d 157 (6th Cir. 2007).

In Wenner, the claimant suffered aheart attack. Sun Life initially ap-proved disability benefits, but peri-odically requested updated medicalinformation from the claimant. Theclaimant, however, asserted that SunLife sent these requests to the wrongaddress. When the claimant failed torespond, Sun Life terminated his dis-ability benefits, because the claimanthad failed to provide the requested in-formation.

Although the termination letterwas sent to the same (allegedlywrong) address as the requests for up-dated medical information, the claim-ant did receive the termination letter,and he appealed the termination. Healso submitted the previously-re-quested medical information.

On appeal, Sun Life determinedthat, based on the supplementalmedical information, the claimant wasno longer disabled. Sun Life affirmedthe termination based not on theoriginal rationale (i.e., the failure toprovide requested information), butrather because he was no longer dis-abled. Sun Life’s letter affirming the




termination did not provide for anymeans for a second appeal.

The Sixth Circuit held that Sun Lifefailed to comply with the notice require-ments of ERISA. 29 U.S.C. 1133. Spe-cifically, the court held that because therationale for Sun Life’s affirmation of itstermination (i.e., the determination thatthe claimant was not disabled) was differ-ent from Sun Life’s original basis for ter-mination (i.e., the claimant’s failure toprovide requested information), Sun Lifehad violated the notice requirements ofERISA by not providing the claimantwith a second appeal.

Interestingly, the court further heldthat the appropriate remedy for this pro-cedural violation was substantive, insteadof procedural. Instead of remanding theclaim to the administrator for a secondappeal, the court ordered Sun Life to re-instate benefits from the point of termi-nation. The majority held that thisremedy would put the claimant in thesame position he would have been in hadthere been no procedural violation.

One judge dissented. Although thedissenting judge agreed that Sun Lifehad violated the notice provisions, heopined that the appropriate remedyshould be procedural and that the caseshould be remanded to the administratorfor a proper determination. The dissent-ing judge further noted that the court’sholding would “unduly increase thestakes when procedural violations are al-leged in the termination of ERISA-cov-ered benefits” because plaintiffs withnon-meritorious claims will have an in-centive to raise procedural challenges inthe hopes of winning reinstatement ofbenefits.D. Andrew PortingaMiller JohnsonGrand Rapids, [email protected]

Illinois District Court

Court Dismisses Class Actionon Mootness GroundsIn White v. Humana Health Plan, Inc.,No. 06 C 5546, 2007 WL 1297130,(N.D. Ill., May 2, 2007), the courtdismissed a class action lawsuitbrought against a health insurer basedon its alleged wrongful subrogation ofminors’ tort recoveries.

The plaintiffs, a husband, wife, andtwo minor children, were participantsin an insured employee welfare benefitplan governed by ERISA. Claimingthat the insurer improperly soughtsubrogation of the minor plaintiffs’tort recoveries, the plaintiffs filed aclass action complaint in state courtchallenging the insurer’s right to sub-rogation of these recoveries.

After the matter was removed tofederal court based on principles ofcomplete preemption by ERISA, theplaintiffs sought remand claiming: (1)that the insurer’s notice of removalwas insufficient because it failed tospecifically identify the complete pre-emption test set forth by the SeventhCircuit in Jass v. Prudential HealthCare Plan, Inc., 88 F.3d 1482, 1487(7th Cir. 1996); and (2) that the in-surer could not satisfy the Jass test, inany event. The court quickly disposedof plaintiffs’ first argument, findingthat “[t]raditional rules of noticepleading apply to notices of removal”and thus, the removing party is onlyrequired to plead facts, not legal theo-ries. Because the insurer’s removal no-tice alleged sufficient facts to meet thenotice pleading standard, the courtfound that its notice of removal wasentirely proper.

The court then considered whether

the case was completely preemptedby ERISA following the three-prongJass test. After ruling that the firstprong of the Jass test was met becausethe plaintiffs were enrolled in theERISA plan and thus able to bring aclaim under ERISA Section 502(a),the court analyzed whether the sec-ond prong of the Jass test was satis-fied.

In order to fulfill the second prong,one of plaintiffs’ causes of action hadto fall within a provision of ERISAthat could be enforced using Section502(a). At the heart of this issue waswhether plaintiffs’ claims were closerto those presented in Blackburn v.Sundstrand Corp., 115 F.3d 493 (7thCir. 1997) and Speciale v. Seybold, 147F.3d 612 (7th Cir. 1998), where theSeventh Circuit found that ERISAdid not completely preempt actionsto apportion settlement fundsamongst various creditors where reim-bursement was sought by an ERISA-governed plan, or decisions from theFourth and Fifth Circuits where com-plete preemption was deemed to existbecause the plaintiffs were challengingthe right to subrogation under anERISA plan. See Arana v. OchsnerHealth Plan, 338 F.3d 433 (5th Cir.2003) and Singh v. Prudential HealthCare Plan, Inc., 335 F.3d 278, 290-291 (4th Cir. 2003).

Agreeing with the insurer that theSeventh Circuit in Hart v. Wal-martStores, Inc. Associates’ Health and Wel-fare Plan, 360 F.3d 674 (7th Cir.2004) had distinguished Arana andSingh from its prior holdings inBlackburn and Speciale, the districtcourt “elect[ed] to follow Arana andits progeny based on the implicit au-thority of the Seventh Circuit,” find-ing that the case before it was



factually distinguishable fromBlackburn and Speciale. Consistentwith the holdings in Arana and Singh,the district court concluded that be-cause plaintiffs’ claims explicitly chal-lenged the legality of the ERISAplan’s subrogation provision, they fellwithin a provision of ERISA thatcould be enforced using Section502(a).

Thereafter, the court determinedthat the third prong of the Jass testwas satisfied because plaintiffs’ claimscould not be resolved without an in-terpretation of the ERISA-governedpolicy and held that ERISA com-pletely preempted plaintiffs’ claims.

Having concluded that jurisdictionwas proper, the district court turnedto the insurer’s motion to dismiss theclass action complaint. The insurerhad moved to dismiss the complaintunder F.R.C.P. 12(b)(1) on theground that the named class represen-tatives’ claims were moot as a result ofits offer to satisfy their individualclaims in full.

Noting the significance of the tim-ing of the insured’s offer in the classaction context, the court held that be-cause the offer was made before a mo-tion for class certification had beenfiled, the offer mooted plaintiffs’claims, thus depriving the court ofsubject matter jurisdiction. In soholding, the court expressly statedthat “an offer’s effect depends on itstiming: offers received before a motionfor class certification is filed moot thecase, but offers received after the mo-tion has been filed do not.”

The court also rejected plaintiffs’argument that their request for classcertification in the complaint (whichwas filed prior to the offer) was suffi-cient, concluding that the significant

event was the filing of a motion forclass certification: simply requestingclass certification in the complaintwas not enough to avoid mootness.

Finally, plaintiffs’ claim that the of-fer of individual injunctive relief wasinsufficient because it was not di-rected to the entire proposed class wasrejected by the court, which foundthat “[b]ecause a motion for class cer-tification had not been filed at thetime the offer was made, the injunc-tive relief requested for the putativeclass members cannot be consideredby this Court — just as the putativeclass members’ potential monetary re-lief cannot be considered.”William A. Chittenden IIIJULIE WALL

Chittenden, Murday, & Novotny LLCChicago, [email protected]@cmn-law.com

Massachusetts District Court

Disability Policy Insuring OnlyOne Employee Constitutes ERISAPlanIn O’Leary v. Provident Life & AccidentInsurance Company, 456 F.Supp.2d285 (D.Mass. 2006), the court heldthat an individual disability policyconstituted an ERISA plan.

O’Leary was employed as the ad-ministrator of The New EnglandCarpenter’s Training Fund. The Fundis a trust whose trustees consist of rep-resentatives of both labor unions andemployers. The Fund’s sole purposeis to train apprentice carpenters.

O’Leary was hired in 1988. Onhis date of hire, the trustees providedO’Leary with a number of benefits in-cluding a pension and health insur-

ance. Several weeks later they decidedto provide him with disability insur-ance as well. He was the only em-ployee of the Fund to receive thisbenefit.

In the application, O’Leary statedthat his employer would pay for thedisability coverage. Attached to thepolicy was a Salary Allotment Agree-ment which acknowledged an agree-ment between the Fund andProvident whereby Provident agreedto accept premiums as billed to theFund.

All premium payments were madeby the Fund. In addition, the trust-ees approved several increases to thedisability benefits and on at least oneoccasion disapproved an increase.O’Leary never received a summaryplan description or any other docu-mentation in connection with the cov-erage.

When O’Leary was denied benefits,he filed suit. Provident sought to dis-miss O’Leary’s state law claims on thegrounds of ERISA preemption.

The court noted that the First Cir-cuit had adopted the so-calledDonovan test crafted by the EleventhCircuit. That test requires the follow-ing elements: (1) a plan, fund, or pro-gram, (2) established or maintained,(3) by an employer or by an employeeorganization, or by both, (4) for thepurpose of providing . . . disability. ..benefits, (5) to participants or theirbeneficiaries.

The court held that the coverageprovided to O’Leary met all elementsof the test.

In challenging the application ofERISA, O’Leary made the followingarguments, all of which were rejectedby the court. O’Leary claimed thatthe mere purchase of insurance was




insufficient to establish an ERISAplan. The court, however, held thatan ERISA plan may be establishedwhere an employer purchases a dis-ability insurance policy for an em-ployee.

O’Leary also argued that there wasno ongoing administrative scheme toallow the policy to be governed byERISA. The court noted the trusteeshad to consider on an annual basiswhether to approve increases inO’Leary’s level of benefits and thatthe policy imposed a number of otherobligations. That the trustees del-egated many of these administrativeobligations to Provident did not takethe policy out of ERISA.

The court also rejected O’Leary’sargument that the policy should notbe governed by ERISA because theFund could withdraw coverage at anytime. The court noted that no welfarebenefits under ERISA are vested andthus the ability to terminate the cov-erage did not remove the plan fromthe scope of ERISA.

That there was no plan documenta-tion in addition to the policy also didnot take the case out of ERISA. Thecourt referenced First Circuit prece-dent that the absence of written docu-mentation for a plan should notnecessarily lead to a finding that therewas no plan.

The court also held that simply be-cause O’Leary was the only employeecovered under the plan does not takeit outside ERISA. The court refer-enced case law as well as the Depart-ment of Labor’s position that anERISA plan can cover only a singleemployee.

O’Leary also argued that state lawshould apply because the disabilitycoverage was provided through an in-

dividual policy. The court noted thatO’Leary failed to cite any legal au-thority for his contention. Further-more, the court noted that courtshave repeatedly found ERISA appli-cable in cases where the benefit planwas funded by individual policies.

Finally, the court rejected O’Leary’sargument that there could not be aplan because the disability coveragewas not part of his original hiringpackage. The court held it was un-aware of any requirement underERISA that a plan be established atthe outset of employment.

The court held that ERISA wouldgovern and that the state law claimswere dismissed.Joseph M. HamiltonKRISTINA H. ALLAIRE

Mirick O’ConnellWorcester, [email protected]@modl.com

Insured May Not Change LifeInsurance Beneficiary WhileDivorce PendingIn Unicare Life & Health InsuranceCompany v. Phanor, 472 F. Supp.2d 8(D. Mass. 2007), the court held thatan insured could not change his lifeinsurance beneficiary from his wife tohis girlfriend while his divorce actionwas pending. The probate court inthe divorce action had issued a re-straining order prohibiting eitherparty from, among other things,changing the beneficiary of life insur-ance.Philip M. HoweLeComte, Emanuelson and DoyleQuincy, [email protected]

South Carolina District Court

Plan’s Reinsurer Waived Right toArbitration of Plan’s ClaimsIn Connelly Management, Inc. Em-ployee Welfare Benefit Plan, et al. v.North American Indemnity, NV, 2007WL 1454876 (D.S.C.), the courtruled that a plan reinsurer had waivedits right to compel arbitration ofclaims by the plan for failure to reim-burse it for various medical expenseclaims.

The parties did not dispute the ex-istence of a valid arbitration agree-ment or that the case involvedinterstate commerce so as to make theFederal Arbitration Act applicable.The court referred to several FourthCircuit opinions emphasizing the fed-eral policy in favor of arbitration andthe heavy burden placed upon anyparty opposing arbitration on the ba-sis of waiver. The court discussedMicroStrategy, Inc. v. Lauricia, 268F.3d 244 (4th Cir. 2001) in which ithad found that the filing of threeseparate lawsuits of MicroStrategyagainst Lauricia before demanding ar-bitration did not amount to a waiverof the right to arbitration particularlybecause no actual prejudice could befound to have occurred.

However, in this case, the districtcourt found that the reinsurer hadtaken several actions inconsistent withits demand for arbitration whichcaused significant prejudice to theplan, including leaving the country,refusing to participate in the case be-fore it, transfer of the reinsurer’s assetsout of the country, filing of litigationagainst the plan sponsor and others inBelgium, and selective opposition todiscovery efforts in various jurisdic-





tions. Consequently, among otherrulings in the case, the court deter-mined that the reinsurer had waivedits right to compel arbitration of theclaims by the plan.J. Snowden Stanley, Jr.Semmes, Bowen & SemmesBaltimore, [email protected]

Worker’s Comp Offset Applies toLTD Claim Based on a DifferentConditionIn Elgin v. Aetna Life Insurance Co.,2007 WL 1034988 (D.S.C. Mar. 30,2007), the plaintiff sought a declara-tory judgment that the insurer forPlan was not entitled to offset hislong-term disability benefits by theamount of the Worker’s Compensa-tion benefits he recovered.

The plaintiff, who was a participantin the LTD plan established byMichelin North America and insuredby Aetna, filed a claim for long-termdisability benefits based on a rotatorcuff tear in this shoulder. The insurerapproved the claim and began payingmonthly LTD benefits to the plaintiff.At the time the plaintiff filed theclaim for long-term disability benefits,he was receiving weekly Workers’Compensation benefits based on a di-agnosis of carpal tunnel syndrome.

Aetna offset the Worker’s Compen-sation benefits against his monthlyLTD benefits. Thereafter, plaintiffsettled his Worker’s Compensationclaim in return for a lump sum pay-ment. Aetna then began offsettingthe LTD benefits with a portion ofthe benefits received in the Worker’sCompensation claims settlement.

The plaintiff contended that Aetnacould not properly offset the Worker’sCompensation benefits as a result of

his carpal tunnel syndrome becausethe physical causes of the two benefitswere different. Based upon the lan-guage of the plan and its offset provi-sion, however, the court rejected theplaintiff ’s argument and ruled thatAetna was entitled to offset all of theWorker’s Compensation benefitsagainst the monthly long-term dis-ability benefits under the plan.J. Snowden Stanley, Jr.Semmes, Bowen & SemmesBaltimore, [email protected]

Full and Fair Review TrumpsMotion for AdministrativeRemandIn Agnew v. Verizon Wireless Short TermDisability Plan, 2007 WL 1120411(D.S.C. Apr. 13, 2007), the court de-nied the plaintiff ’s motion to remandher short-term disability claim forconsideration of information she at-tempted to submit after the final de-nial of her claim.

The plaintiff filed a claim for short-term disability benefits after sheceased work due to alleged depression,which resulted from her boyfriendbreaking up with her. In support ofher claim, the plaintiff submitteddocuments from her treating physi-cian and a mental health counselor.During the claims process, the claimsadministrator obtained an opinionfrom an independent physician andultimately denied the claim basedupon the medical records and the in-dependent physician’s opinion.

In its denial letter to the plaintiff,the claims administrator did not iden-tify the independent physician byname, but did summarize thephysician’s opinion and provide the

reasons for denial of the plaintiff ’sclaim.

After the final denial of her claim,the plaintiff hired an attorney. Onfour occasions, the plaintiff ’s attorneysubmitted additional documents tothe claims administrator and re-quested reconsideration of the finaldenial. The “additional” informationconsisted of the same medical recordspreviously considered by the claimsadministrator, and summary affidavitsfrom the plaintiff, her primary physi-cian, and her mental health counselor.The affidavits contained very littlenew or objective information aboutthe plaintiff ’s condition.

Following each submission, theclaims administrator informed theplaintiff ’s attorney that the plaintiffhad exhausted her administrative rem-edies and that it would not considerthe additional documents.

After filing suit, the plaintiff filed amotion to remand her claim to theclaims administrator. The plaintifffirst requested that the court remandher claim because the claims adminis-trator had not identified by name theindependent physician who reviewedher medical records, and therefore hadviolated 29 C.F.R. §2560.503-1(h)(3)(iv)’s requirement that theplan identify medical and vocationalexperts whose advice is obtained inconnection with an adverse benefitdetermination.

Holding that the claims adminis-trator had satisfied the requirementsof Section 2560.503-1(h)(3)(iv), thecourt refused to remand the plaintiff ’sclaim. The court reasoned that theclaims administrator’s final denial let-ter had informed the plaintiff that“upon request, [the claims administra-tor] will . . . identify any medical . . .




expert(s) whose advice was obtainedin connection with your claim.”Agnew, 2007 WL 1120411, at * 4.

Moreover, the court noted that theapplicable summary plan description“clearly provided for the identificationof medical experts whose advice wasobtained on behalf of the plan in con-nection with an adverse benefit deter-mination.” Id. However, the plaintiffnever requested this information dur-ing the claims review process.

The plaintiff also argued that re-mand was appropriate to allow theclaims administrator to evaluate herclaim in light of the three affidavitsshe submitted after the final denial.Noting that the affidavits “merely re-state the work history, diagnosis,symptoms, and opinions of disabilityrepresented in Agnew’s records thatwere considered . . . in the review ofher claim,” and that “[t]he recordsconsidered . . . during the review ofAgnew’s claim provided detailed andthorough descriptions of her condi-tion, diagnosis, and treatment,” thecourt held that the plaintiff had re-ceived a full and fair review as requiredby 29 U.S.C. §1133(2), and thus, re-mand to consider the affidavits wasnot warranted. Id.James T. HedgepathNexsen Pruet, LLCGreenville, [email protected]

Virginia District Court

Courts Permit DiscoveryRegarding Claims Subject toDe Novo ReviewIn two separate cases, federal courts inVirginia have authorized limited dis-covery in cases arising from claims de-

termined to be subject to de novo re-view.

In Arnold v. Hartford Life InsuranceCompany, 2007 WL 1389606 (W.D.Va), the plaintiff filed suit againstHartford Life Insurance Company forits denial of accidental death benefitsunder a policy of group insurance is-sued by Hartford Life to her father’semployer.

On April 17, 2005, Mr. Arnoldwas killed in a motorcycle accident.After the plaintiff filed an AD & Dclaim, Hartford Life obtained a certifi-cate of blood alcohol obtained by themedical examiner which purportedthat his blood alcohol level at thetime of death was 0.18%. Basedupon this result, Hartford Life deniedthe claim stating that the word “acci-dent” as defined in the policy ex-cluded circumstances where it isreasonably foreseeable that death orserious injury will occur.

The plaintiff filed suit, challengingthe denial. During the course of thesuit, the plaintiff argued that the de-nial had to be reviewed under the denovo standard and that she should beallowed to supplement the adminis-trative record by conducting discoveryregarding the accuracy of the bloodtest taken by the medical examinerand the basis of the denial by Hart-ford Life.

The court held that the plan docu-ments did not confer discretion onthe insurer, that the de novo standardof review would be applied in thecase, and that “sufficient time for rea-sonable discovery into the medical is-sue” raised by the plaintiff should bepermitted.

In Termini v. Life Insurance Com-pany of North America, 2007 WL1556850 (E.D. Va), the plaintiff filed

suit against LINA for its denial of ac-cidental death benefits under a grouppolicy of insurance issued to herhusband’s employer, Electric PowerResearch Institute.

Salvatore Termini was injured whenhe fell while jogging. Mr. Termini’sfall resulted in a brain injury that ren-dered him unconscious and led to acardiac arrhythmia and his eventualdeath approximately eleven days later.LINA denied benefits to the plaintiffstating that she had not proven thatMr. Termini’s death was the result ofan accident and not the result of sick-ness, disease or bodily infirmity. Al-though the plaintiff proffered aneyewitness to her husband’s fall,LINA continued to deny benefits evenfollowing the plaintiff ’s appeal of thedenial.

The plaintiff sued LINA in Virginiastate court and LINA removed the ac-tion to the district court. The plain-tiff propounded interrogatories andrequests for production of documentsto the insurer, who filed a motion forprotective order arguing that discoverywas not permitted because the courtwas limited to the administrativerecord when reviewing a denial ofbenefits case.

The court held that the policy lan-guage contained in the plan did notgrant discretionary authority to theclaims administrator, noting that thelanguage was similar to language ex-amined by the Fourth Circuit inGallagher v. Reliance Standard Life In-surance Company, 305 F.3d 264 (4thCir. 2002) (“provision establishingthat the insurer will pay a monthlybenefit if the insured ‘submits satisfac-tory proof of Total Disability’ to theinsurer did not confer on the insurerdiscretion in determining benefit eli-



gibility”). Citing Quesinberry, thecourt concluded that exceptional cir-cumstances existed in the matter be-fore it which warranted additionalevidence in this case because the“resolution of whether [Mr. Termini’s]death is attributable solely to his acci-dent requires an understanding ofcomplex medical terminology andcausation” combined with theplaintiff ’s allegation that all availableevidence was not evaluated by LINA.Jeaneen J. JohnsonSemmes, Bowen & SemmesBaltimore, [email protected]


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