The Friday Five: Five ERISA Litigation Highlights - November 2024

This month’s Friday Five discusses cases involving ERISA preemption, the methodology for calculating qualified joint and survivor annuity benefits, a dispute over an attempt to supplement the record before the Court, a factual dispute precluding summary judgment on a bad faith claim, and the payroll practice exemption under ERISA.

The Saul Ewing ERISA Litigation Team

1. Case remanded upon holding that ERISA preemption does not apply once life insurance benefits are distributed and the policy itself is no longer at issue. Defendant and Decedent were married in 2006 and divorced in 2021, with a divorce decree relinquishing their rights as beneficiaries to certain financial instruments, including life insurance policies. Decedent passed away without removing Defendant as the beneficiary of his life insurance policy. Plaintiff, the legal representative of Decedent’s estate sued Defendant and the life insurance company, alleging that Defendant waived her right to the insurance proceeds and that the insurer unlawfully withheld payment of the proceeds from the Estate. The case was removed to federal court based on ERISA preemption. The court initially denied a motion to remand, finding the claims were based on the existence of the life insurance policy and, thus, completely preempted by ERISA. The insurer was subsequently dismissed from the case, and Plaintiff again moved to remand, arguing that the remaining claims had no relation to or reliance on the life insurance policy. The district court agreed, explaining that the only remaining issue was whether Decedent’s ex-wife was liable to the Estate and that issue “was beyond ERISA’s preemptive reach.” As a result, the case was remanded. King v. King, 2024 WL 4350226 (S.D. Ill. Sept. 30, 2024).
2. In a dispute over qualified joint survivor benefits, Court finds genuine issue of material fact as to the appropriate methodology for calculating benefits and as to the relief sought. Plaintiffs sued Defendant’s life insurance company, alleging that the qualified joint and survivor annuity (“QJSA”) benefits they were receiving under their retirement plan violated the actuarial equivalence provision of ERISA, which requires a stream of income to surviving spouses through a QJSA to be actuarially equivalent to a single annuity for the participant’s life. Specifically, Plaintiffs claimed Defendant was using an outdated mortality table that improperly reduced the amount of the annuity and sought court-ordered reformation of the plan, payment of future benefits according to the reformed plan, and compensation for improperly withheld amounts. The parties offered different methodologies with Defendant arguing that a 12-Year Certain and Life Annuity (12YCLA) is a proper comparator to QJSA under ERISA, and Plaintiffs arguing the Single Life Annuity (“SLA”) is the appropriate comparator. The Court found that there was a genuine dispute over the actuarial equivalence of JSAs and SLAs, which was not suitable for summary judgment and declined to rule on the validity of Plaintiffs’ methodology or the potential ERISA violation of a reformed plan at the summary judgment stage. The Court also denied Defendant’s summary judgment motion as to the relief sought, concluding Plaintiffs had raised a genuine issue of material fact as to unjust enrichment, which allowed for equitable relief and rejecting Defendant’s argument that certain plaintiffs lacked standing, noting a plan can offer multiple QJSAs. Masten v. Metropolitan Life Ins. Co., 2024 WL 4350909 (S.D.N.Y. Sept. 30, 2024).
3. Plaintiff’s attempt to reconfigure and supplement the record with medical records not received or reviewed in denying claim denied, finding that plaintiff had the burden to provide such records. Plaintiff challenged Defendant’s denial of long-term disability benefits. Plaintiff moved for an order requiring Defendant to supplement the claim record with medical records that Defendant did not review in considering the claim. The Court determined that Plaintiff’s request was premised on the improper theory that Defendant was obligated to gather records when it was actually Plaintiff who had the burden to provide medical records. The Court concluded that Plaintiff’s motion was nothing more than a fishing expedition that would “reconfigure the record on which Defendant made its claim decision,” which Plaintiff was not entitled to do. The Court also denied Plaintiff’s attempt to obtain discovery concerning records reviewed by Defendant’s physician, explaining that such an attempt was based on a merits argument rather than an argument that would justify addition to the claim record. Basch v. Reliance Standard Life Ins. Co., 2024 WL 4459339 (D. Mass. Oct. 10, 2024).
4. Motions for summary judgment denied on bad faith claim arising from insurer’s investigation of claim. Plaintiff sued for breach of contract and bad faith based on Defendant-insurer’s failure to continue paying benefits under the Policy’s Residual Disability provision. Plaintiff argued that the insurer failed to conduct a full investigation because it violated its own policies and procedures and relied on doctors who never examined Plaintiff. The insurer, on the other hand, argued that gave a full and fair review of the claim and that its physicians found that Plaintiff’s treatment did not corroborate his alleged symptoms. The Court noted as an initial matter “[i]ncorrectly denying coverage does not, on its own, constitute bad faith.” But the Court explained that given that the parties “offer[ed] significantly contrasting versions of events,” it would deny summary judgment on both parties’ behalf as genuine issues of material fact existed. Husick v. Unum Life Ins. Co. of America, 2024 WL 4476554 (E.D. Pa. Oct. 11, 2024).
5. Argument that self-funded short-term disability plan did not meet the payroll practice exemption under ERISA regulations rejected, as was the argument that the DOL did not have the authority to promulgate the regulations. Plaintiff sued Defendant for not paying short-term disability (“STD”) benefits under Defendant’s employee benefit plan. The Court remanded the case to state court based on Plaintiff’s argument that the STD plan was a payroll practice exempt from ERISA under 29 C.F.R. § 2510.3-1(b)(2), thus precluding federal jurisdiction. The Court noted that the STD plan is self-funded, and benefits are paid through regular payroll, both of which pointed to meeting the payroll practice exemption under ERISA. In the alternative, Defendant argued that the Department of Labor lacked authority to promulgate the payroll practices regulation under the United States Supreme Court’s recent decision in Loper Bright Enterprises v. Raimondo, 144 S. Ct. 2244 (2024), which altered the Chevron deference framework. The Court rejected this argument, explaining that Loper “does not stand for the proposition that all regulations promulgated by federal agencies must be disregarded” and concluded that ERISA “specifically confers” on the DOL the authority to promulgate necessary regulations. As a result, the Court concluded that Defendant, as the party who initially removed the case, failed to meet its burden of establishing federal jurisdiction because the STD plan was a payroll practice. Hansen v. Laboratory Corp. of America, 2024 WL 4564357 (E.D. Wis. Oct. 24, 2024).

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