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This month’s Friday Five discusses decisions (1) allowing a bad faith claim to proceed against a long-term disability insurer based on its handling of a claim for benefits, (2) enforcing a forum-selection clause in an ERISA plan against the plan’s insurers that were not parties to the plan, (3) enforcing an exclusion barring recovery under an accidental death policy where the insured died during treatment of an underlying illness, (4) affirming an administrator’s termination of long-term disability benefits, and (5) enforcing the terms of a divorce settlement in deciding to whom life insurance proceeds should be paid.
The Saul Ewing ERISA Litigation Team
- Bad faith claim against insurer that initially terminated long-term disability benefits but later reinstated those benefits allowed to proceed, but breach of contract claim alleging attorneys’ fees as damages dismissed. The Plaintiff, a registered nurse, was covered under a long-term disability (LTD) insurance policy issued through her employer. After developing long COVID and other medical conditions, plaintiff received LTD benefits for approximately three years. When the policy's definition of disability changed from inability to perform her own occupation to inability to perform any occupation, the insurer conducted a review and terminated the plaintiff’s benefits. Plaintiff alleged that the insurer relied on a biased medical reviewer, failed to adequately evaluate her mental impairments, and conducted an unfair investigation before terminating her benefits. Plaintiff appealed the termination through the insurer's internal review process. The insurer reinstated the benefits retroactively and paid the past-due amounts with interest. Nevertheless, the plaintiff sued the insurer for breach of contract and insurance bad faith, seeking emotional distress damages, attorney's fees, and declaratory relief regarding the policy provisions and benefit limitations. The insurer moved to dismiss the complaint, arguing that it did not state a claim for breach of contract because the plaintiff had already received the benefits owed under the policy and had not alleged recoverable contract damages. The court held that the plaintiff could not maintain her breach of contract claim because the attorney's fees she incurred challenging the termination of her disability benefits were not recoverable contract damages under California disability insurance law. The court held, however, that the plaintiff could maintain her bad faith claim because she sufficiently alleged that the insurer unreasonably terminated and delayed payment of benefits. Thus, the Court concluded that a bad faith claim may proceed even though the insurer later reinstated and paid the benefits after an internal appeal as the insurer's later payment of benefits did not eliminate potential tort liability. Medina v. Reliastar Life Ins. Co., No. 1:26-CV-00102-KES-SAB, 2026 WL 1557611 (E.D. Cal. June 2, 2026).
- Forum-selection clause in ERISA plan requiring suit in specific federal district held enforceable against non-signatory insurance companies because they were closely related to the dispute. The plaintiff was an employee that participated in his company's ERISA-governed employee benefit plan which included an Accidental Death and Dismemberment (AD&D) benefit. Following his wife’s accidental death, the plaintiff filed a claim for the full policy amount but received only half. Following an unsuccessful administrative appeal, the employee sued his employer, the insurer, and an affiliate of the insurer seeking the remaining benefits. The employer moved to transfer the case to the United States District Court for the Western District of North Carolina based on a forum-selection clause in the Summary Plan Description (SPD), which required that all legal actions concerning the plan be brought in that court. Plaintiff agreed that transfer was appropriate, but the insurance companies opposed transfer, arguing that they were not signatories to the SPD and therefore were not bound by its forum-selection clause. The court held that the forum-selection clause was valid and enforceable under federal law and concluded that the insurance companies were closely related to the dispute because they issued the AD&D policy, their interests were directly tied to the employer’s interests, and the SPD expressly incorporated the insurance certificate they issued. As a result, it was reasonably foreseeable that they would be bound by the forum-selection clause, even though they were not signatories to the SPD. The court found that transferring the entire case, rather than splitting the claims between different courts, best served judicial economy and the interests of justice. Hughes v. Truist Bank, Inc., No. 1:25-CV-04667-SDG, 2026 WL 1849942 (N.D. Ga. June 26, 2026).
- Under ERISA-governed accidental death policy, exclusion for losses caused or contributed to by an illness or its treatment barred recovery when the insured accidentally died from complications arising during treatment of an underlying illness. Under ERISA accidental death policies, even when a death is accidental, benefits may be denied if the accident is sufficiently connected to the treatment of an underlying illness and the policy excludes losses "caused or contributed to by" that illness or its treatment. The policy at issue expressly excluded coverage for losses "caused or contributed to by" a physical illness or the treatment of that illness. The Court explained that "cause" means something that brings about a result and that “contribute" means being one of the reasons something happens. Therefore, the exclusion applies if treatment of the underlying disease, here kidney disease, either caused or was one of the reasons for the death. In this action, the evidence showed that the insured died from severe blood loss after failing to properly close or disconnect her dialysis port during or immediately after a dialysis session. Because the dialysis equipment and port were part of the treatment for her underlying illness, and because the fatal blood loss resulted directly from her interaction with that treatment, the court found substantial evidence supporting the insurer’s determination that the treatment contributed to her death. The Eighth Circuit affirmed the lower court’s decision that the exclusion applied. Kleinsteuber v. Metro. Life Ins. Co., 176 F.4th 1088 (8th Cir. 2026).
- Insurer did not act arbitrarily and capriciously in terminating long-term disability benefits after determining that the insured was capable of performing "any occupation" under the terms of the ERISA-governed disability policy. In this action, a former software engineer received long-term disability (LTD) benefits under an ERISA-governed disability plan after undergoing lumbar spine surgery for chronic back pain and degenerative spinal disease. Under the policy, he initially qualified for benefits because he could not perform the duties of his own occupation. However, after 24 months, the policy required him to prove that he was unable to perform any occupation for which he was qualified by education, training, or experience. As part of its claim review, the insurer obtained updated medical records, independent physician reviews, and a vocational assessment. Although the insured continued to experience chronic back pain and knee osteoarthritis, the reviewing physicians concluded that he retained the functional capacity to perform full-time sedentary work with certain restrictions. A transferable skills analysis identified several occupations that matched his education, work experience, and physical capabilities. Based on this evidence, the insurer terminated benefits. The insured appealed the decision, submitting additional medical records, a functional capacity evaluation (FCE), and the Social Security Administration’s (“SSA”) decision finding him disabled. The insured argued that the insurer ignored his chronic pain, improperly discounted the SSA's disability determination, failed to consider his age, and arbitrarily relied on its own reviewing physicians instead of his treating providers. The insurer upheld its denial after obtaining another independent medical review. Upon review, the Court was required to determine whether there was a reasonable basis for the insurer’s decision, based upon the facts as known to the administrator at the time the decision was made. The district court upheld the insurer’s decision. The Court found that the insurer reasonably relied on independent medical reviews, objective medical evidence, and the vocational analysis showing that the insured could perform sedentary occupations. It also held that the SSA’s disability determination was not controlling because the SSA and ERISA plans apply different disability standards. Last, the Court found that although the insurer operated under a structural conflict of interest as both insurer and claims administrator, there was no evidence that the conflict improperly influenced its decision. Forbus v. Standard Ins. Co., No. 1:23-CV-24723-GAYLES, 2025 WL 3541545 (S.D. Fla. Nov. 17, 2025).
- Under non-ERISA-governed life insurance policy, ex-spouse that remained the named beneficiary was not entitled to policy proceeds after relinquishing her rights to the life insurance under divorce settlement. Following the death of the insured, the estate of the insured and his ex-wife made competing claims to the proceeds of the insured’s life insurance policy. At the time of the insured’s death, the insured and his wife were in the process of a divorce and had executed a settlement agreement. The agreement provided that each spouse would retain all life insurance policies on his or her own life, released all claims against one another, declared itself irrevocable, and became effective immediately. Both parties also signed a divorce decree incorporating these terms, although the judge had not yet signed it. At the time of the insured’s death, he had not yet formally changed the beneficiary designation on the policy. The following day, the wife attempted to revoke the settlement agreement and sought payment of the insurance proceeds as the named beneficiary. The action was brought by the insurer as an interpleader. The Court denied the wife’s claim finding the settlement agreement valid, binding, and irrevocable. The Court also rejected the wife’s argument that the insured’s death made performance impossible, explaining that contractual obligations generally survive death and may be performed by the decedent's estate. The Court also determined that the settlement agreement and divorce decree clearly demonstrated the parties' intent to sever all financial interests, including any claims to the policy. Although there was never a formal change of beneficiary designation, Texas law recognizes that a valid settlement agreement may extinguish a beneficiary's rights when the parties clearly intended that result. The Court found that the insured’s death shortly after signing the agreement further supported this conclusion because he had little opportunity to complete the administrative beneficiary change. Key to the Court’s conclusion was its finding that the policy was not governed by ERISA because the policy insured only the insured and no employees. In the context of an ERISA policy, the plan administrator must distribute benefits to the beneficiary named in the plan, regardless of any state-law waiver purporting to divest that beneficiary of his right to the benefits. Principal Life Ins. Co. v. Jones, No. 3:25-CV-00221, 2026 WL 1480286 (S.D. Tex. May 27, 2026), report and recommendation adopted, No. 3:25-CV-00221, 2026 WL 1751257 (S.D. Tex. June 17, 2026).
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