Brian S. King Blog

Supreme Court Expands ERISA's Equitable Remedies in CIGNA v. Amara

Wed, 18 May 2011 00:00:00 EST

The day before yesterday the Supreme Court issued its ruling in CIGNA v. Amara, Case No. 09-804, 2011 U.S. LEXIS 3540. You can find it in the website library here. The case involved misstatements by CIGNA to its employees about changes in their pension plan. The summaries of the changes CIGNA provided to its employees characterized them as being more generous than they actually were. The district court actually found that this was more than a simple mistake and that CIGNA had taken steps to withhold accurate information from the employees about the pension plan changes. The employees brought a class action to ask that the terms of the plan be reformed to reflect what CIGNA told the employees rather than the less generous terms the changes in the plan documents actually provided. The district court and U.S. Court of Appeals for the Second Circuit gave that relief to the employees. CIGNA appealed.

The Supreme Court reversed. In a 8-0 decision (Justice Sotomayor recused herself) written by Justice Breyer, the Court held that summaries of the plan were not part of the documents that formed rights and obligations between ERISA plans and their participants and beneficiaries. Consequently, the section of ERISA that allows plan participants to bring a claim to recover benefits or enforce rights under the terms of the plan, 29 U.S.C. §1132(a)(1)(B), §502(a)(1)(B) of ERISA, was not available to the employees.

However, the Court was clearly troubled by the behavior of CIGNA. It remanded the case for further proceedings before the district court and made clear that, whether the erroneous information provided to the employees occurred by mistake or with bad intent by CIGNA, 29 U.S.C. §1132(a)(3), §502(a)(3) of the Act, may well provide money damages to the participants. That section of ERISA provides ERISA participants (employees) with "appropriate equitable relief" to redress violations of an ERISA plan or the Act, or to enforce the terms of a plan or the Act. CIGNA argued that in order to obtain any recovery based on the faulty information in the summaries of the pension plan changes, each employee had to demonstrate they detrimentally relied on those summaries. Thus, CIGNA argued that treatment of the case as a class action was improper in light of the individual inquiry required of each claimant. The district court and circuit courts rejected that argument but did require the employees to demonstrate that the erroneous information likely harmed them.

In providing guidance to the district court on remand, the Supreme Court in Amara significantly expands the power and substance of the remedies available under §502(a)(3) of ERISA. The language of the decision affirms that where there is a violation of the terms of an ERISA plan or the requirements of the Act itself for which no remedy exists elsewhere in the Act, as in Amara, that equity will provide a remedy. Slip Op., p. 18. The majority opinion (which was joined by Chief Justice Roberts and Justices Kennedy, Ginsburg, Alito and Kagan) goes on to state that the scope of remedies available at equity is broad and includes both affirmative and negative injunctions, mandamus, and restitution. The majority emphasize both the flexibility of equity and the need to tailor the appropriate remedy to redress injury based on the facts of the specific case before the court. Under the circumstances in Amara, the Court makes clear that providing false or misleading information, whether occurring by fraud or mistake, may form the basis for reforming a contract in equity in a manner very similar to what the district court attempted to do under §502(a)(1)(B) of the Act. The Court went on to state that other aspects of the district court's order also resembled equitable estoppel and surcharge. Surcharge is an "exclusively equitable" remedy and involves a monetary award against a trustee who violates any fiduciary duty. Slip Op., p. 19. The Court specifically states that "make-whole" relief is available to trust beneficiaries against a breaching trustee under appropriate circumstances. Slip Op., p. 20.

Finally, the decision states that ERISA does not establish any particular standard for determining harm under the Act. "Hence, any requirement of harm must come from the law of equity." Slip Op., p. 21. Reviewing that body of law, the Court stated that "detrimental reliance," the standard of harm CIGNA urged the Court to adopt, was not uniformly applicable in equity. Detrimental reliance must be proven by a party invoking estoppel. But neither surcharge nor contract reformation require such a level of proof. Equity's "flexible approach belies a strict requirement of 'detrimental reliance.'" Id. The Court does state that surcharging a trustee when there is no harm arising out of a breach of fiduciary duty would not be appropriate. But if a breach by a trustee does cause harm, the equitable remedy of surcharge may be appropriate. In such a case the majority doubts Congress would have wanted to deny those employees a remedy. Silp Op., p. 22.

Justices Scalia, joined by Justice Thomas, concurred in the decision but wrote to state that anything in the opinion beyond reversing the lower courts' erroneous use of §502(a)(1)(B) of the Act was unnecessary dicta.

The Supreme Court has issued several cases since 1993 addressing the breadth and strength of the "appropriate and equitable relief" language in §502(a)(3) of ERISA. However, Amara is significant because, more than any Supreme Court ERISA case to date, it makes clear the potential for this section of ERISA to provide meaningful remedies, including monetary relief, to ERISA plan participants and beneficiaries when faced with fiduciaries who have violated the terms of their plans or the requirements of the statute and for which a remedy does not exist elsewhere in ERISA.

Bloomberg Markets: "ERISA Exploits Consumers!"

Tue, 29 Mar 2011 00:00:00 EST

A great article from the April, 2011, issue of Bloomberg Markets examines how ERISA, a statute meant to protect consumers, actually exploits them. One of the examples the article discusses involves Kellogg v. Met Life, a case I handled a few years ago.

I've added the article to the website library here.

Insurers Have to Use the Correct Criteria in Evaluating Medical Necessity

Fri, 31 Dec 2010 00:00:00 EST

Last week I received an excellent decision from Judge Dale Kimball in federal district court for the District of Utah, James F. v. CIGNA Behavioral Health. I've placed it in the website library.

James's daughter, C.F., had serious mental, emotional and behavioral problems that required acute inpatient mental healthcare. When she had stabilized her treating doctors recommended that she be treated inpatient on a sub-acute basis at a residential treatment center. Her parents admitted her to Island View Residential Treatment Center. CIGNA Behavioral Health (CBH) refused to authorize coverage for Island View asserting that C.F.'s condition did not satisfy CBH's internal medical necessity criteria. Thus, CBH said C.F.'s residential treatment was not covered.

James retained me to represent him and we brought suit against CBH to recover the unpaid medical expenses. Judge Kimball reversed CBH's denial. He ruled that CBH had utilized improper criteria in evaluating C.F.'s condition. He also faulted CBH for cherry picking C.F.'s medical records and ignoring the opinions of her treating physicians. Finally, CBH attempted to present for the first time in litigation reasons it denied the claim. Because these reasons had never been communicated to the family when the claim was initially denied, the court refused to consider them. The court ordered CBH to pay C.F.'s residential treatment at Island View.

I wish I could say that how CBH treated C.F.'s residential treatment claim was uncommon. But the fact is that insurers regularly use improper criteria to evaluate coverage of residential treatment.

More on Murphy

Sun, 03 Oct 2010 00:00:00 EST

Last month I blogged about a new Tenth Circuit case, Murphy v. Deloitte & Touche Group Ins. Plan, 2010 U.S. App. LEXIS 18752 (10th Cir. 2010). Professor DeBofsky has provided me some private thoughts about that case and has also summarized the case for subscribers to his disability newsletter. I asked if he minded me sharing some of those thoughts with the blog audience and he was kind to allow me to do so.

Mark is unimpressed with Murphy. Particularly galling to him is the administrative law framework the Tenth Circuit utilizes in analyzing the issue. In fact, nothing in ERISA's language or legislative history allows courts to provide anything less than plenary review of a denied ERISA benefit claim. In other words, there is no justification for the idea that the court is "reviewing" anything. Rather, participants and beneficiaries are entitled under the statute and the Federal Rules of Civil Procedure to present their cases at trial, examine witnesses and documents and present their cases under a de novo standard of review in the same way other civil litigation is handled. Rules 1, 2 and 81 of the Federal Rules of Civil Procedure require no less.

The Tenth Circuit is not alone in asserting that it is restricted to reviewing the pre-litigation appeal record. Many courts, including the Supreme Court, have cited ERISA's legislative history for the idea that a truncated review in litigation of ERISA benefit denial cases is necessary. The oft repeated language in legislative history for this argument is Senate Report No. 93-383, at 1179 (1973) reprinted in 1974 U.S.C.C.A.N. 4639, 5000. In that transcript is language to the effect that ERISA was enacted to provide "a method for workers and beneficiaries to resolve disputes over benefits inexpensively and expeditiously." Murphy and many other cases quote this purported legislative history to support the idea that Congress did not intend to provide participants and beneficiaries with full blown trials in federal court.

But here's the problem: this language in the legislative history relates to an early version of ERISA containing a provision to allow claimants to pursue administrative proceedings or arbitration before the Department of Labor. That procedure was later dropped from the statute. Thus, the language which has provided a significant part of the rationale for treating ERISA benefit recovery claims like administrative review proceedings is inapplicable to ERISA as it was actually enacted. It never should have been, and should not continue to be, quoted as support for the bogus argument that federal judges may only review what insurers, acting as quasi-judicial bodies, have decided. In addition, 29 U.S.C. Sec. 1133, ERISA's claims procedure provision, does not allow for discovery or provide any protection for the evidentiary integrity of what ends up being placed in the "administrative appeal record" as insurers and other ERISA plan fiduciaries are fond of calling their claims files. Under these circumstances, it is necessary for ERISA claimants to obtain plenary review before a federal district court judge of all claims involving benefit denials.

Every ERISA claimant lawyer in the country complains about the gross inequity that is the process through which individuals have to adjudicate their claims in federal court. ERISA sets up a a remarkably unfair playing field for claimants. Quoting Mark, "there is no justifiable public policy rationale for giving an insurance company deference; and claimants for benefits should be entitled to a fair, even-handed opportunity to prove their claims to a court with all of the tools that any other civil litigant possesses."

Amen to that brother.

Testimony Before The Senate Finance Committee

Tue, 28 Sep 2010 00:00:00 EST

Today the U.S Senate Finance Committee holds a hearing on whether long term disability policies governed by ERISA deliver what they promise. As readers of this blog know, my opinion is that that do not.

Two of the individuals providing testimony have significant experience with ERISA and are presenting information that both condemns and compels. First is Mark DeBofsky, an attorney from Chicago who represents ERISA disability claimants on a regular basis and is an adjunct professor at the John Marshall Law School. Mark is also a personal friend. I've placed his testimony in the website library here.

A second witness at the hearing is U.S. District Court Judge William Acker. Judge Acker has frequently commented and written on ERISA. His testimony can be found here in the website library. To get a sense for Judge Acker's feelings about ERISA in a recent case, take a look at Blankenship v. Metropolitan Life Insurance Co, 686 F.Supp.2d 1227 (D. Ala. 2009).

It's hard for me to believe that any reasonable person could review the comments of Judge Acker and Mark and not recognize that ERISA is badly in need of fundamental reform. They do not overstate the statute's flaws. In fact, their comments are the tip of the iceberg of the ways in which the statute sets up a fundamentally unfair playing field against claimants.

Murphy v. Deloitte & Touche Group Ins. Plan

Sat, 11 Sep 2010 00:00:00 EST

Earlier this week the U.S. Court of Appeals for the Tenth Circuit issued an important decision regarding an issue that Circuit and District courts across the country have struggled with since the Supreme Court's MetLife v. Glenn decision a couple of years ago. The case is Murphy v. Deloitte & Touche Group Ins. Plan, 2010 U.S. App. LEXIS 18752 (10th Cir. 2010). I've placed Murphy in the website library. The bedeviling question concerns the degree to which claimants in ERISA benefit recovery cases are entitled to conduct discovery in litigation relating to issues of conflict of interest.

MetLife v. Glenn, 554 U.S. 105 (2008), provided guidance on how courts should adjust the abuse of discretion standard of review for ERISA benefit denial cases where the same entity charged with ERISA's fiduciary duty responsibilities is also paying benefits out of its own assets. The Court suggested that discovery may be appropriate to allow the claimant an opportunity to gather information that sheds light on the nature and extent of the conflict. In turn, this information would be presented to the court so that a judge could take into account the nature and extent of the conflict in calibrating how much deference would be owed to the decision-maker. If the conflicted decision-maker was scrupulous in meeting ERISA's fiduciary and claims processing requirements, significant deference would be provided by the district court. If the decision-maker pursued its own financial interests at the expense of the claimant or cut corners in following ERISA's claims procedure requirements, less deference would be shown.

The Supreme Court didn't come right out and say that discovery was allowed in these cases. But it intimated that discovery may be necessary to allow the parties and the court to carry out the conflict calibration process. Since Glenn, insurers and ERISA plan administrators have argued vociferously that when dealing with an abuse of discretion standard of review, no discovery should be allowed. Doing so allows the claimant to impermissibly supplement the pre-litigation appeal record. On the other hand, claimants have argued that to give the Court's language in Glenn any meaning, claimants have to be given a chance to uncover facts showing how significant any conflict is and how seriously it has tainted the insurer's or plan administrator's perspective on a claim.

Courts across the country have split on the issue. Some simply do not allow any discovery. But, although I haven't conducted a comprehensive survey, my sense is most courts have allowed limited discovery so long as it is directed to conflict of interest and is not used to supplement the merits of the claim.

Murphy, is the first Circuit decision to tackle the issue head on. The Tenth Circuit threads the needle between the two positions. The case holds that discovery is allowed relating to conflict of interest in particular circumstances. Federal Rule of Civil Procedure 26(b) governs discovery on this question as it does with any other discovery matter in federal civil litigation. It may be apparent to a court on the face of an administrative record that conflict of interest discovery is not necessary or may be so costly or burdensome as to be unjustified. Other times, the scope and extent of the conflict of interest will not be apparent from the face of the pre-litigation appeal record and targeted discovery will be necessary. As with all other discovery disputes, the trial judge has broad discretion to resolve any arguments between the parties.

Holmstrom v. MetLife

Sat, 04 Sep 2010 00:00:00 EST

Last month the U.S. Court of Appeals for the Seventh Circuit issued an important ruling in Holmstrom v. Metropolitan Life Ins. Co., 2010 U.S. App. LEXIS 16123 (7th Cir. 2010). You can find the case in the "hits" section of the website library here.

Lanette Holmstrom had been receiving disability benefits for a number of years when MetLife cut them off. She sued the company and the trial court ruled that MetLife had not acted unreasonably. She appealed to the Seventh Circuit. That court reversed and order payment of benefits by MetLife to Holmstrom.

The case has a number of noteworthy comments. The decision faults MetLife for relying on "normal" test results when all parties agreed that there were no tests to definitively pin down the illness Holmstrong suffered from (complex regional pain syndrome). In addition, it was an abuse of discretion for MetLife to insist on objective proof of her condition when there were no objective tests available for this illness. What Holmstrom did present was a functional capacity evaluation that the court ruled constituted objective evidence that satisfied the requirements of the terms of the policy.

MetLife also rejected Holmstrom's argument that her award of social security disability benefits justified an award of disability benefits from MetLife. The court noted that the requirements to qualify for benefits under the social security act were more stringent than the any occupation disability requirements of the MetLife policy and that MetLife encouraged Holmstrom to apply for social security disability benefits. As in MetLife v. Glenn, 128 S.Ct. 2343 (2008), MetLife ignored the social security award in considering whether Holmstrom was disabled under the terms of the policy. The court ruled that this indicated arbitrary and capricious decision-making by MetLife.

The court also ruled that MetLife failed in its obligation to consider Holmstrom's medical evidence as a whole, including evidence of the cognitive impairment that Ms. Holmstrom's CRPS, a physical condition, created through its pain and the prescriptions necessary to treat her symptoms. The court also faulted MetLife for relying on reviewing physicians while minimizing the opinions of treating physicians who were in a superior position to reach valid conclusions about Holmstrom's illness and limitations. If reviewing physicians disagree with the treating doctors, the reviewers must identify specific reasons for that disagreement. Especially troubling to the court was the fact that MetLife's consultant recommended an independent medical examination and MetLife failed to follow up on that recommendation.

The court was also concerned by what it characterized as a "moving target" MetLife established in dealing with Holmstrom's claim. MetLife would tell the claimant what she needed to present to establish her right to benefits and then, when she presented that information, MetLife would present additional evidentiary hurdles for Holmstrom to jump over. "Such conduct frustrates fair claim resolution and is evidence of arbitrary and capricious behavior."

Next, the court criticized MetLife for "cherry picking" information from Holmstrom's records that supported a basis to deny the claim while ignoring information that demonstrated she was entitled to benefits.

Finally, the court discussed MetLife's inherent, structural conflict of interest and found that, while the court did not think Holmstrom's claim presented a close call based on the analysis in the decision to that point, it was nevertheless true that MetLife's conflict of interest was yet another reason to overturn it's denial of the claim. As a remedy, the court ordered reinstatement of Holmstrom's benefits.

Judge Acker Speaks His Mind About ERISA

Fri, 27 Aug 2010 00:00:00 EST

Judge William Acker is a federal district court judge in Alabama who has shown an interest in ERISA for many years. He has been unsparing in his criticism of the statute for a long time. Several months ago he issued an opinion, Blankenship v. Metropolitan Life Ins. Co., 686 F.Supp.2d 1227 (D. Ala. 2009), that is remarkable for a number of reasons and that I've posted in the website library. The case is a straightforward disability benefits denial case. But Judge Acker uses it as an opportunity to voice his irritation with the federal courts for, as he puts it, "failing to take Congress at its word" in interpreting the statute.

"Instead of recognizing the patently obvious Congressional intent, the ERISA courts have contrived ersatz administrative procedures, with an inlay of trust law, for the judicial review of denials of ERISA benefits. This court has learned to live with its disappointment."

The court raise the question of whether, in light of the Supreme Court's ruling in MetLife v. Glenn, 554 U.S. 105 (2008), courts should allow claimants to conduct limited discovery to ferret out conflict of interest evidence and information about procedural defects. Judge Acker did not resolve that question because he found that based on information in the record, without discovery, MetLife had abused its discretion in denying Blankenship's disability benefits.

One aspect of MetLife's decision-making process that bothered the court was MetLife's reliance on file reviews, without examining the claimant, to deny the claim. "Most hired hands don't go contrary to the boss's best interest. Paid experts, more often than not, are, in this court's experience, 'predisposed' or 'preconditioned' . . . The fact that MetLife relied on mere file reviews, especially when the reports re in direct conflict with opinions rendered by Blankenship's own treating physicians and with the Social Security Administration's ultimate, if belated, determination, are facts that weigh in favor of a finding that MetLife's denial decision was the culmination of a structurally conflicted process."

A final aspect of the decision that is worth comment is its last paragraph. The decision was issued on December 30, 2009. The parties apparently settled the case thereafter on condition that the plaintiff would agree with the defendant to jointly ask the court to withdraw its December 30, 2009, Memorandum Opinion! This maneuver produced the following terse comment by the court:

"The court has before it an oral motion by defendant, Metropolitan Life Insurance Company, in which plaintiff, Frank Blankenship, joins. it was communicated to the court by telephone to a law clerk. The parties seek a vacation or withdrawal of the opinion of December 30, 2009, as amended, in consideration of Metropolitan Life Insurance Company's agreement not to appeal. The motion, if not contemptuous, is unlike any motion ever submitted to the undersigned during his twenty-eight years on the bench. It is DENIED."

ERISA Bonds

Thu, 03 Jun 2010 00:00:00 EST

Kevin Kaiser at SuretyBonds.com asked if he could provide a guest post dealing with bonding requirements involving ERISA plans. "If ERISA's bonding requirements are anything like the rest of the statute we can all use a little more knowledge," I said. Here is Kevin's guest blog post:

ERISA Bonds: How They Protect You

Thanks to a 35-year-old law, investors can stave off dishonest practices of those who handle pension plans or profit-sharing programs. ERISA bonds with fiduciaries, or those who manage the funds.

In part, violating the ERISA got Bernie Madoff in trouble when a company allegedly invested money in securities controlled by Madoff without beneficiaries’ interest. The ERISA, enacted in 1974, aims to prevent and penalize such actions by bonding every fiduciary and fund manager. When employees at a retirement-plan company commit fraud, steal money or simply misuse funds, they can be held accountable for losses.

As a result, investors may be compensated for the malfeasance. The surety company refunds the retirement plan the amount of the bond, and goes to the plan manager for repayment.

Anybody with a criminal history cannot receive a bond as a fiduciary and cannot be hired to invest retirement-plan funds. At least 10 percent of a fiduciary’s plans need to be bonded at a minimum bonding amount of $1,000. Although higher limits exist, the typical maximum bond amount is $500,000. Every year, the bonding amount must be reevaluated and made current since assets change.

Within the last five years, the government has made some changes to pension funding rules. The Pension Protection Act of 2006 introduced new vesting rules for employee and employer contributions. By 2008, all of the act’s funding rules went into effect.

ERISA terms about bonding are rather intricate, but mainly come down to who, what and how. One party will be responsible for purchasing the bond, and ERISA provisions also define which retirement plan holders need a surety bond. The required bond amount is defined, as is how the bond should be structured.

This is a guest post from Kevin Kaiser of SuretyBonds.com, a surety bond company.

Delayed Claim for Prosthetic Leg

Mon, 10 May 2010 00:00:00 EST

Hiran Ratnayake with the The News Journal in Delaware reports on a two year delay in payment of a prosthetic leg for Stephen Fine, an insured of Horizon Blue Cross Blue Shield of New Jersey. You can read the story here. In the process of writing the story, Hiran contacted me for information about the relationship between ERISA and state insurance law.

It makes your blood boil to read about the facts surrounding Mr. Fine's experience with Horizon. The lack of any meaningful remedy under ERISA for insureds such as Stephen absolutely guarantees that insurer foot dragging will proliferate.

Thanks to Hiran for his good work. It's pretty clear that his reporting is going to result in Stephen's claim getting paid. Would Horizon have paid this claim without this type of publicity or a lawsuit? Who knows. In the war of attrition between insurers and insureds, the Horizon's of the world definitely have more ammunition.

I Thought I Was Irritated By Conkright . . . .

Mon, 26 Apr 2010 00:00:00 EST

. . . but I was not nearly as irritated by it as Marc Machiz.

Marc's right.

Conkright v. Frommert

Sun, 25 Apr 2010 00:00:00 EST

Last Wednesday the Supreme Court issued its opinion in Conkright v. Frommer t. The case involves some complex "phantom" pension account issues and erroneous interpretations of the language governing the plan by its administrator. In a 5-3 decision the Supreme Court held that a "single honest mistake" by a plan administrator does not divest it of court deference the administrator would otherwise be entitled to under the terms of the plan documents. The decision is not likely to be widely applied beyond the facts of the case for a variety of reasons. But it is noteworthy for a couple of analytical mistakes the Court makes.

First, when an ERISA case involving a denial of benefits is reviewed by a federal judge, by definition, the court is never faced with a "single honest mistake" made by a plan administrator. Why? Because the federal judiciary uniformly holds that no ERISA benefits denial case may be brought to court unless and until the claimant has exhausted his pre-litigation appeal rights and obligations. That involves at least one level of appeal after the initial denial and usually two levels of appeal. Consequently, before a court hears a case, the plan administrator or its agents have already considered the claimant's arguments at least two, and usually three or more, times. The basis for the claim denial has been carefully considered and reviewed. Consequently, the fault Chief Justice Roberts lays at the feet of the Second Circuit for improperly adopting a "one-strike-and-you're-out" rule is fundamentally misplaced.

This error in the Court's analysis will undoubtedly cause unscrupulous insurers to claim that even if a judge determines that the insurer has wrongly denied benefits, it was a "single honest mistake" by the insurer and the court should give that insurer a second chance to make it right. These "remands" to plan administrators are easy ways for courts to unload off their dockets ERISA cases that they view as undesirable. But, of course, if there is no negative consequence for an insurer who can convince a court that their claims denial was simply a "single honest mistake," why should an insurer work hard to get it right the first time? The delay and cost associated with remands are disproportionately borne by the claimant, not the insurer. However, the slack the federal judiciary has cut insurers of ERISA plans over the last three decades has caused those insurers to grow increasingly sloppy. It's generally not hard for experienced claimant lawyers to find a variety of substantive and procedural errors made by insurers. In those cases, it's difficult for the insurer to argue, in good faith and with a straight face, that any error it might have made in denying a claim is a "single honest mistake." But that doesn't mean they won't use Conkright to try and make that argument.

The Court's analysis is frustrating because, as is so often the case in ERISA cases, the Court is exquisitely sensitive to any potentially negative economic consequences to plans and their administrators and sponsors but fails to consider the losses and hardships its ruling causes for plan participants and beneficiaries.

Holdeman v. Devine

Sat, 28 Nov 2009 00:00:00 EST

Back in July the U.S. Court of Appeals for the Tenth Circuit decided a case, Holdeman v. Devine, 572 F.3d 1190 (10th Cir. 2009), that put an end to a large class action I've been working on for many years. You can read the decision here.  I blogged about this case earlier here.

After the Tenth Circuit remanded the case back in 2007, the trial court ruled that the plaintiffs had not proven that any of the actions of the CEO/ERISA fiduciary, Michael Devine, caused any loss to the ERISA plan. The court basically said that even if Devine's actions were not carried out with an eye solely in the interests of the plan participants and beneficiaries as ERISA requires, there was no proof that the breach of fiduciary duty caused the underfunding of the ERISA plan. In July of this year, the Tenth Circuit affirmed the trial court's decision.

Left unstated by both the trial court and Tenth Circuit is just what proof could have been presented to establish the causal link the trial court and the Tenth Circuit demanded of plaintiffs in this case. We had shown that in the few months before the plan was terminated and the plan sponsor declared bankruptcy, Devine authorized the payment of over a million dollars to the owners of the company, his mother, aunts and uncle for their personal use. That was undisputed. The response by the trial court was, essentially, "given the dire financial condition of the company, how do I know that if the money hadn't been paid to Devine's family members, the money would have been paid into the underfunded medical plan?" The answer is quite obvious: ERISA's higher-than-marketplace fiduciary standards required that Devine, acting as the plan fiduciary, would, should and could have pressured Devine with his CEO hat on to completely fund the plan.

Our argument, both to the trial court and on appeal, was that once we had established a breach of fiduciary duty, the burden properly shifted to Devine to prove that his breach of fiduciary duty did not cause a loss to the plan.  As a practical matter, it's quite clear that whoever bears the burden of proof on causation, or lack of causation, of loss to an ERISA plan from a breach of fiduciary duty has a real uphill battle in presenting the proof necessary to carry their burden.  A number of other cases have held that once a breach of fiduciary duty is shown, it is only fair that causation be inferred and that the burden of showing no causal connection between the breach and a loss to the ERISA plan be shifted to the breaching fiduciary.  But the trial court rejected that argument and the Tenth Circuit avoided facing it head on.

We always felt that the trial court, inexplicably, had tremendous sympathy for Michael Devine which colored the court's view of the case. Devine, of course, tried to present himself as a guy who, despite difficult financial circumstances, was just trying to do the best job he could and that it was unfair to saddle him with any judgment. Ignored by the court was the hardship Devine's actions caused the plan participants and beneficiaries, the egregious ignorance and lack of proactive behavior Devine demonstrated as an ERISA fiduciary, Devine's own self dealing with his familiy members and the fact that an insurance policy existed to cover all losses arising out of Devine's breach of fiduciary duties.  Apparently, the tears Devine shed at trial about the grief he felt for the hundreds of employees and their family members who were on the hook for unpaid medical bills were real to the Judge.

We now have reason to think that Mr. Devine may not have been quite so deserving of any sympathy.  Earlier this week the Salt Lake Tribune carried this article about new allegations that cast doubt on Michael Devine's trustworthiness with other people's money.

ERISA was meant to protect America's workers and their family members. Decisions like Holdeman v. Devine make a mockery of that purpose.   I refuse to live in a country where the state of the law is like this. And I'm not leaving.

Ninth Circuit Upholds Ban on Discretionary Authority Clauses

Wed, 28 Oct 2009 00:00:00 EST

Yesterday the U.S. Court of Appeals for the Ninth Circuit issued Standard Ins. Co. v. Morrison, upholding the Montana State Insurance Commissioner's ban on discretionary authority clauses in that state. I've posted a copy of Morrison in the website library. I blogged about the underlying district court decision in Morrison here.

The opinion analyzes how the Commissioner's ban qualifies under both prongs of ERISA's savings clause test outlined by the Supreme Court in Kentucky Ass'n of Health Plans v. Miller, 538 U.S. 329 (2003). It concurs with the conclusion of the Sixth Circuit in American Council of Life Insurers v. Ross, 558 F.3d 600 (6th Cir. 2009), where that court upheld a Michigan state ban on discretionary authority clauses. In Morrison the Ninth Circuit spends time discussing and rejecting the insurer's argument that to allow states to ban discretionary authority clauses sets up an alternative remedy that conflicts with ERISA's exclusive scheme for redressing improper denial of benefits. The Ninth Circuit rightly swats that away. First, banning discretionary authority clause grants no additional remedy to insureds. And second, prior Supreme Court precedent makes clear that plan sponsors and administrators are not automatically entitled to deferential review of their decisions under ERISA. They dearly want that privilege. But the language of the statute provides no reason to think Congress intended that ERISA plan sponsors and administrators are automatically granted such a significant advantage in dealing with plan participants and beneficiaries.

I don't think there is much questionable analysis in either Morrison or ACLI v. Ross. I expect that few, if any, courts in the future will find that state bans of discretionary authority clauses are preempted by ERISA.

The L.A. Times Editorializes

Mon, 26 Oct 2009 00:00:00 EST

Thanks to the L.A. Times for its support of amending ERISA to provide meaningful remedies when insurers act in bad faith in denying claims. When there is no accountability for behaving badly in a competitive environment, you guarantee that bad behavior will increase.

Will Healthcare Reform Make Insurers More Accountable?

Mon, 19 Oct 2009 00:00:00 EST

Short answer: no. At least, nothing in the bills currently being debated in Congress will do anything to provide remedies that provide for more health insurance accountability when they wrongfully deny claims or rescind coverage. In fact, the pressure on insurers to become more aggressive in dealing with claims may increase as a result of the proposed legislation. Lisa Girion has the story here in the today's L.A. Times.

I Fear This Is Right

Tue, 13 Oct 2009 00:00:00 EST

Sadly, I think there is a lot of truth to the title of this op-ed piece, "health reform is corporate welfare." I especially like the "cherry lemon socialism" concept.

A non-frivolous argument can be made for the idea that profit making corporations should be allowed to do everything within their legal power to try and shift losses to taxpayers and keep profits for themselves. One can argue that avoiding accountability for their losses is part of the market competition. If they can do it better than their competitor, they may survive while their competitor may not. This is the kind of clear eyed realism that so many conservatives are so proud to embrace. You'll find these hardy souls are often quick to ridicule liberals who try to avoid cold-blooded, survival of the fittest, thinking. However, especially for those who adhere to pure market thinking, the idea that taxpayers should be made to subsidize the losers and the winners should be allowed to keep their profits is most offensive.

I hope Congress has the cajones to stand up to the health insurance industry and put in place some mechanisms to provide for meaningful corporate accountability as well as effective healthcare reform.

ESL Description of ERISA

Fri, 09 Oct 2009 00:00:00 EST

Sometimes things get lost in translation. But other times, a translation can give new and wonderful meaning to something we are familiar with and take for granted. For an interesting English-as-second-language description of self funded plans and ERISA, take a look at this summary. My personal favorite is that the Department of Labor "tranquilizes" self funded plans. If only.

h/t Richard Johnston

A Component of Healthcare Reform: Providing Meaningful ERISA Remedies

Mon, 14 Sep 2009 00:00:00 EST

The discussions about national healthcare reform contain very little comment about the near complete legal immunity of health insurers and employer sponsored plans. As I've discussed before, there is relatively no accountability when ERISA plan fiduciaries wrongfully deny benefits or violate the terms of ERISA. Tony Sebok, Professor of Law at the Cardozo Law School has some comments today on that issue. He promises to post additional thoughts as the week goes on.

For more information about the problems ERISA creates, take a look at a new blog from a friend of mine, Richard Johnston. Good stuff.

Who's Likely to Do Well With Healthcare Reform?

Thu, 27 Aug 2009 00:00:00 EST

Earlier this week this L.A. Times story gives us an idea about the answer to this question. Many months ago America's Health Insurance Plans, the lobbying group for health insurers and other payers of health benefits, decided they needed to get in front of the forthcoming legislative parade about how we deliver and finance healthcare in this country. Smart move AHIP. Many think healthcare payers will end up with a "bonanza" and a "financial windfalll" at the end of the Congressional process. Any legislation that passes will likely provide universal coverage which will add tens of millions of people to insurance company customer lists, taxpayer subsidies to assist the poor in paying premiums, and more lenient requirements for payers on the amount of insurance they must provide per premium dollar.

Insurers aren't out of the woods yet. If the public option ends up in a final blll that passes Congress, there could be some rain on the insurer's parade.

UPDATE: Kristof's column today is a must read.