Equity Can Be Fickle in ERISA

The Employee’s Retirement Income Security Act was enacted by Congress purportedly to make it simpler for employees to obtain disability and retirement benefits.  So, why does the U.S. Supreme Court keep making it harder for average citizens to get the benefits they’ve worked for and to which they are entitled?

The latest dagger to the heart of ERISA claimants was sharpened by the Court in Heimeshoff v. Hartford Life, 134 S. Ct. 604 (2013), where the Court gave employers and insurance companies a new way in which to harass employees and make benefits claims more difficult for the average claimant.

To understand the Heimeshoff downside, one must know that trying to establish a disability claim can take years, most of them spent on the employer’s “court”.  Employers make the rules for how such claims can be made when they write an administrative plan and then support that plan with an insurance policy.

Time limits are set by the plan terms formulated by the employer who gets an additional assist from the insurer who has years and years of experience fighting claims.  If there is a way to make successful claim prosecution more difficult, you can bet that is the path the employer and insurance company will choose.

A statute of limitations limits the time period within which a lawsuit may be filed.  Ordinarily, it does not begin run until the claim’s cause of action has accrued.  This makes the statute’s effect universal.  Each claimant is subject to the same rules.

In Heimeshoff, it was different.  The plan itself limited the time within which a claim had to be filed to 3 years from the date upon which proof of loss had to be filed . 

However, as anyone in the ERISA area is aware, the time limit in the law on when a denial of claim must be issued has not been rigorously enforced.  It can take far more than 90 days for a final denial of a claim to be issued.  Only when such a final denial issues has the claimant exhausted his administrative remedies so that a lawsuit may be filed. 

A statute of limitations usually runs from the date upon which a cause of action arises.  For example:

• The date of an accident.
• The date of a contract.
• The date of an alleged breach of duty.
• The date of a purchase.

Under Heimeshoff, the statute of limitations could very well run before the right to file a suit on the claim accrues!  The time limit within which you could file a suit could expire before a final denial is communicated by a plan administrator, leaving a claimant with no time in which to file a suit.

The Supreme Court felt it had covered this eventuality by citing equitable doctrines which would permit relief from such a result.  But, the ERISA plaintiffs’ bar, remember U.S. Airways v. McCutchen, 133 S. Ct. 1537 (2013) and other such cases where the Supreme Court found no difficulty in ignoring a well-settled equitable rule, resulting in a harsh result for the claimant. 

If the Court can ignore established equitable principles in one type of case, why not in another?  How much can plaintiffs rely on equitable principles to prevent injustice in cases where the insurance company controls the pace of proceedings until final denial?

A fixed period of time for filing an action on an ERISA claim should be the rule.  That time should not begin to run until either there is a final denial of an administrative appeal or until the time to file such an administrative appeal expires.  A defendant’s artful ability to delay a final denial of claim should not be able to restrict those rights .

The Heimeshoff decision puts real teeth into the maxim:

“Justice delayed is justice denied.”


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”.