Speak Very Clearly in ERISA

A recent line of court decisions has been placing ERISA plan drafters under a heightened duty to speak very plainly if they want to have courts uphold plan administrator discretion in making disability decisions. The importance of discretion; it will determine whether a reviewing court applies a de novo standard of review to the evidence in a case, or if the court must find an abuse of discretion to overturn a plan administrator’s decision.

In Cosey v. Prudential, 2013 WL 5977151, 4th Circuit (2013), the Fourth Circuit found that ERISA plan language stating that benefits will be paid to a claimant who “…submit(s) proof of continuing disability satisfactory to Prudential…” was ambiguous and therefore failed to grant the necessary discretionary power to the administrator.

Ms. Cosey offered a mixed bag of medical opinions to support her claim of both short and long term disability. Most of her complaints involved her own reported symptoms, with very little objective proof.

The Federal District Court below had found the plan language offered the degree of certainty necessary to give the administrator’s discretion in ruling on a claim. In fact, the District Judge bootstrapped the language so that the administrator could even require objective evidence to uphold a claim for disability even though there was no such requirement in the policy.

The Fourth Circuit Court of Appeals strongly disagreed, finding the plan language lacked the clarity ERISA requires to confer discretionary power in the administrator.

The major fault in the language, the Court found, was that “proof satisfactory to us” is ambiguous. It can mean proof must be provided in a certain form and the wording does not clearly confer discretion to the administrator to make a decision on the merits.

The extraordinary part of the opinion to our mind was the Court’s concern that an employee may not understand the meaning of the language in the plan and that an employee may make a choice of employer based on whether a plan gives an administrator’s decision deference.

In reality, such a chain of events is so far from what actually happens in real life that it makes us wonder how courts can conceivably think that an employee carries any weight in the ERISA plan his employer enters into. Further, it suggests a degree of sophistication regarding the nuances of ERISA jurisprudence that most laymen, even most lawyers, simply do not possess.

The insurance contract portion of an ERISA plan is not a contract the employee bargains for. It is a contract of adhesion. It is in place at the time of employment and the employee either takes it or leaves it. There is no input from the employee which can change its terms.

That’s why we are upset when the Supreme Court justifies, as it did in U.S. Airways v. McCutchen, 133 S. Ct. 1537 (2013), taking away important equitable remedies from employees on the grounds that the insurance contract is something they had a hand in bargaining for.

The decision in Cosey is to be applauded. Employers and insurance companies have all the say in the wording of an ERISA plan and its supporting insurance policy. It should be done correctly.

The worrisome part of Cosey is that some judges still think employees have any influence or knowledge of the ERISA plan and insurance policy which covers them. This is absolutely not so.

To believe it is so, gives the wrong slant to deciding future ERISA cases.





Common Sense In ERISA

The 3rd Circuit Court of Appeals applied a little ERISA common sense recently and came up with a decision that does justice when it comes to medical expense reimbursement. The court ruled that an ERISA claim administrator’s rights are subject to “appropriate equitable relief” under 29 USC 503(a)(3) and that the word “appropriate” has real meaning.

Just about every ERISA plan has reimbursement provisions which provide that the plan is subrogated to an insured’s claim against a third party and that the plan has the right to recover any amounts it paid to the insured out of any monies the insured may recover from a third party for the same losses.

That was the situation in US Airways, Inc. v. McCutchen, 2011 WL5557411 (C.A.3(Pa.)). McCutchen, the insured, was severely injured in a motor vehicle accident in which several others died or also suffered severe injuries. Since the negligent driver did not have adequate insurance to cover all of the damages of the accident, McCutchen settled his claim for a total of only $110,000.

US Airways, McCutchen’s employer and the administrator of his Health Insurance Plan, had laid out $66,866 for McCutchen’s medical and hospital expenses, as required by his ERISA policy. After McCutchen settled his third party claim US Airways sought to recoup from those funds the $66,866 it had previously paid in medical expenses. But, McCutchen, after paying his lawyers and expenses of suit, was left with less than $66,000 from his settlement. Yet, US Airways insisted on full reimbursement of the $66,866 it had laid out.

It is important to note that although the plan administrator had the right of subrogation, (the right to sue the negligent party for the money it had paid McCutchen), US Airways chose to let the insured carry the ball and did not exercise its rights. Most plan administrators take this position. They let the insured lay out the time and money to sue and collect from the wrongdoer. Then the plan administrator just comes in at the end to take back their money without having all the hassle and expense of trying to collect from the third party.

The 3rd Circuit said, “Not so fast”. When McCutchen argued that US Airways’ claim for reimbursement was limited to “appropriate equitable relief”, the court agreed that forcing McCutchen to pay the full amount requested would amount to unjust enrichment for U.S. Airways. Therefore, the court sent the matter back to the District Court (which had earlier granted summary judgment to US Airways for the full amount) to determine what would constitute “appropriate” equitable relief for US Airways.

Other circuits, notably the 5th, 7th, 8th and 11th do not give much weight to the word “appropriate” and allow a result which the 3rd Circuit would call “unjust enrichment”. Insurance companies and other plan administrators love this because it puts the entire burden of obtaining and paying for recoveries against third parties squarely on the insured. Then, once the money is collected, the insurers and plan administrators stick out their hands and automatically collect their money without having expended a dollar in legal fees and costs, or an ounce of sweat in getting the money back.

Hopefully, the good sense and sound arguments of McCutchen will persuade circuits which pay too little attention to the word “appropriate” in addressing claims for equitable relief under ERISA, to come around to this more equitable position.

When they do, it will force plan administrators to get off their butts and help insureds,
both financially and effort-wise to collect from wrongdoers.

That would truly be “appropriate equitable relief”.