The Friday Five: Five Current ERISA Litigation Highlights - November 2021


This month’s Friday Five highlights equitable claims under ERISA, the applicability of an arbitration provision that fails to allow for plan-wide remedies, and the ongoing discretion in interpretation and application of certain plan terms.  

The Saul Ewing Employee Benefits/ERISA Litigation Team

November 5, 2021 | By Amy Kline, Caitlin Strauss and Erin E. Westbrook

  1. Fifth Circuit Reverses Finding of Waiver of Insurer to Contest Benefits After Finding That Plan Limitation Did Not Apply. The district court reversed the denial of long-term disability benefits, rejecting the insurer’s application of a 12-month limitation provision. In addition to finding the 12-month limitation provision did not apply, the district court awarded “any-occupation” benefits up to the date of judgment, concluding that the insurer had waived its right to contest any-occupation benefits after the insurer declined to make a determination of any-occupation benefits upon concluding the 12-month limitation applied. After the insurer appealed only the any-occupation benefits holding, the Fifth Circuit reversed, holding that the insurer did not waive its right to determine any-occupation benefits. Specifically, the Fifth Circuit noted that once the insurer determined the 12-month limitation applied, it had no need to analyze whether any-occupation benefits applied. Thus, the insurer did not waive its right to make that determination, and the case was remanded to the plan administrator to make the initial benefits determination under the any-occupation provision as it was entitled to do under ERISA. Martinez v. Standard Ins. Co., No. 20-10475, 2021 WL 4592430 (5th Cir. Oct. 5, 2021).
  2. Fifth Circuit Rejects ERISA Estoppel Claim, Concluding That Plaintiff’s Reliance on Misrepresentation Was Not Reasonable. The plaintiff challenged the denial of life insurance benefits under a group policy sponsored by her late husband’s employer. The plaintiff argued that the employer made a material misrepresentation as to coverage by continuing to deduct premium’s from her late husband’s paychecks and by confirming such deductions in annual benefits statements for years. Although the Fifth Circuit agreed that these amounted to misrepresentations, it concluded the plaintiff could not show her reliance was reasonable—an essential element to an estoppel claim. Specifically, the court held that the plaintiff could not rely on informal documents that contradicted the plain language of the plan documents. Moreover, the documents made clear that they were statements from the employer, not the insurer. Thus, the plaintiff could not show that her reliance on the informal documents were reasonable, and her estoppel claim failed. Talasek v. Nat'l Oilwell Varco, L.P., 16 F.4th 164 (5th Cir. 2021).
  3. An Arbitration Provision Is Not Enforceable Under ERISA if It Fails to Allow Vindication of Plan-Wide Rights. The Seventh Circuit found that although arbitration provisions are generally enforceable under ERISA, an exception applies when the provision prevents the “effective vindication” of a statutory right. In this case, the plaintiff had invoked 29 U.S.C. § 1109(a), which would allow for “other equitable or remedial relief as the court may deem appropriate, including removal of such fiduciary.” The arbitration provision, however, prevented a participant from seeking relief that “has the purpose or effect of providing additional benefits or monetary or other relief to any” individual other than the claimant. The Seventh Circuit concluded that removing a fiduciary—an explicitly articulated statutory form of relief—would result in relief that extended to the entire plan, not just the claimant. Thus, the effective prohibition on plan-wide remedies contemplated by the ERISA statute made the arbitration provision unenforceable. Smith v. Board of Directors of Triad Manufacturing, Inc., 13 F.4th 613 (7th Cir. 2021).
  4. First Circuit Upholds LTD Plan’s Self-Reported Symptom Limitation. The plaintiff, who suffered from chronic fatigue syndrome, fibromyalgia, and related symptoms including pain and fatigue, challenged the self-reported symptoms benefit limitation in her employer’s long-term disability plan. Although the plaintiff was initially awarded benefits in 2011, the Plan terminated her benefits after approximately 43 months based on a provision providing for a maximum benefit period of 24 months for “disabilities due to mental illness and disabilities based primarily on self-reported symptoms.” The plaintiff argued that the Plan’s requirement that she provide objective evidence of her limitations should not apply and that, even if it did, she had provided such objective evidence by submitting results from a Cardiopulmonary Exercise Test (“CPET”). The court first drew a distinction between requiring objective evidence of conditions that do not lend themselves to objective verification and requiring objective evidence of the functional limitations resulting from such conditions, finding the latter permissible. Thus, the plaintiff’s first argument failed. The court next found that the record provided a reasonable basis for the Plan to find that the CPET results did not make up for the lack of objective evidence of plaintiff’s functional limitations, thus supporting the conclusion that the functional limitations were based primarily on self-reported pain and fatigue subject to the self-reported symptoms limitation. Thus, the insurer did not act arbitrarily or capriciously in denying the plaintiff’s benefits under the self-reported pain limitation. Ovist v. Unum Life Insurance Company of America, --- F.4th ---- (1st Cir. 2021).
  5. Plan Administrator Did Not Abuse Its Discretion in Applying Pre-Existing Condition Limitation to Deny Supplemental Long-Term Disability Coverage. The Ninth Circuit affirmed the district court’s decision that the Plan and the Plan Administrator did not abuse their discretion in terminating Plaintiff’s supplemental long-term disability benefits pursuant to the Plan’s pre-existing condition clause. The funding for supplemental coverage was held in a Voluntary Employee Benefit Association (“VEBA”) Trust, which reimbursed the Plan for supplemental LTD benefits paid. The court first concluded the VEBA Trust was not a separate plan but was merely a funding mechanism; thus, there was only one ERISA plan at issue, and that plan gave discretionary authority to the Plan Administrator to construe the terms. The Ninth Circuit also concluded the district court did not abuse its discretion by concluding that the pre-existing condition clause was valid and the Plan Administrator was permitted to construe and interpret the terms of the Plan, including the pre-existing conditions limitation. Finally, the Plan Administrator did not abuse its discretion by interpreting the pre-existing condition clause as requiring 12 consecutive months as an active employee, by applying the pre-existing condition clause to plaintiff even though he was not diagnosed or treated during the look-back period, and determining that the clause did not expire on January 1, 2014, the date by when plaintiff could seek supplemental LTD coverage. Based on the evidence considered by the Plan Administrator, the court explained “it cannot be reasonably argued that ‘no one even suspected’ [plaintiff suffered from the condition with which he was ultimately diagnosed.” Sorger v. Novartis Corp., No. 20-15224, 2021 WL 3758280, at *2 (9th Cir. Aug. 25, 2021).

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