At Mehr Fairbanks Trial Lawyers, we understand the intricate nature of long-term disability claims and appeals. The appeal process in a long-term disability claim is vital as it provides a platform for claimants to challenge an unfavorable decision made by the insurance company. Often, depending on the insurance policy terms, the appeal process is even required before you can file a lawsuit challenging the insurance company’s decision. However, the sophistication needed in these cases requires more than just a basic understanding. And, importantly, the way you communicate with the insurance company may likely be used against you.

DOES AI REALLY HELP YOUR CLAIM?

Technology often lacks the human emotion that may be necessary to humanize you for purposes of the appeal – or later, for the Court.

Although technology advancement, particularly AI, has brought convenience to many aspects of our lives, it’s important to tread carefully when considering its use in the claim or appeal process for long-term disability claims. While AI assistance might seem inviting due to its speed and ease, it lacks the human touch necessary for these complex endeavors. AI, by nature, lacks the empathy and insight inherent in human interaction. For those who are going through the distress of dealing with a disability, it may be difficult expressing their concerns or articulating their situation to the insurance company. AI likely won’t capture the full extent of what a disabled claimant suffers on a day-to-day basis.

Insurance companies often use communication skills, detailed summaries, and information from claimants as evidence to prove the ability to work. Machine-generated appeals or summaries may lack the necessary nuances or fail to fully capture the claimant’s situation. AI also lacks the ability to understand and convey emotions, a significant factor considering the individualized nature of disability claims. In such sensitive cases, human involvement and understanding are indispensable.

Insurance companies will often seize any angle they can to minimize or deny the payout for a claim. One particular approach that these companies have been known to employ involves the exploitation of concise, well-written summaries, emails, or medical records provided by a claimant. Moreover, they might even leverage such articulated documents that were compiled with the assistance of AI. For instance, the company might argue that the claimant is not disabled or ill to the extent they claim if they are capable of putting together a lengthy medical history or appeal. By suggesting that the very ability to write a comprehensive, structured document contradicts the severity of the claimed disability or medical condition, the company may try to avoid its obligations and refuse to approve benefits.

The insurance company may not even acknowledge its view of your “detailed” appeal until you receive the final denial letter that alleges you were able to communicate and provide detailed information. If this happens, it is unlikely that you will be able to defend yourself by explaining that you utilized AI to assist you because once the insurance company issues a final denial of your benefits, you may not be able to submit any additional information in support of your claim.

PITFALLS OF AI

AI is not perfect. There is absolutely room for error in the information it generates based on the inquiries you input. There is a significant risk that – without careful review – you may even unknowingly provide information to the insurance company that is simply wrong. By failing to catch incorrect information that AI generated for you, you may be subject to the incorrect information being used against you unfavorably by the insurance company. If the appeal process finalizes without this information being corrected, you are at risk of being bound to that information without a way to dispute it if you file a lawsuit. This, combined with the lack of human emotion, the risk of the insurance company using detailed communications in opposition to you, and the privacy concerns related to your information, demonstrate the dangers of relying on AI to support your claim.

It is important to be up-to-date on the software you are relying on. Is that information protected? Are there privacy concerns? You may unknowingly put your own privacy at risk by inputting your confidential medical and personal information in AI software.

CONTACT US TODAY FOR A FREE CONSULTATION

Professional advice and representation in these matters carry more weight than any AI can provide. Mehr Fairbanks Trial Lawyers is ably equipped to navigate the complex terrain of disability claims and appeals. Our law firm provides personalized attention and drafts comprehensive appeals which articulate your story and situation compellingly. We keep abreast of the ever-evolving rules and regulations surrounding long-term disability claims, appeals, and ERISA to ensure we are always poised to fight for you.

Bear in mind, presenting well-articulated documentation is perfectly within your rights. If an insurance company tries to barter with such unscrupulous semantics, Mehr Fairbanks Trial Lawyers can help protect your rights and help you get the compensation you deserve. Reach out to us at (800) 249-3731 for a free consultation today.

Recently, a federal judge in Pennsylvania ruled in favor of the plaintiffs in an action brought against DuPont and Corteva Inc. (defendants). The court held that the Defendants’ motion to dismiss was premature, and that the case could continue through the litigation process. The case concerns the claim brought by employees of DuPont and Corteva alleging that the companies acted in violation of ERISA’s fiduciary duties by changing their early retirement policy after a corporate merger. The Defendants attempted to dismiss the case by arguing that the workers who initiated the suit were not classified as “employees” and therefore ineligible for early retirement. The court disagreed, rejecting the motion, and stating that it was still too early in the suit to determine whether this was adequate grounds for dismissal, and that such a determination would be more appropriate in the summary judgment phase or left to a jury.

Additionally, the judge stated that the “Plaintiffs have pled sufficient[ly] to allege that the administrative committee did not act reasonably in terminating their rights to early retirement … and that they had a legally enforceable right to benefits under the plan.” The violations at issue concern the Defendants’ actions following corporate restructuring. After a merger between DuPont and Dow Chemical Co., three separate entities were created: Corteva, Dow Inc., and DuPont. The named Plaintiff, Cockerill, stated that he had structured his career relying on DuPont’s early retirement options. Cockerill has worked for the corporation for over 20 years under the Rule of 85 early retirement plan (“Plan”). The Plan provided that early retirement was available if the sum of an employee’s age and the years they had worked at the company totaled to 85. Thus, Cockerill would have been eligible for retirement at the age of 58. The issue arose when DuPont became Corteva, and the retirement plan’s time frame divested as Cockerill was considered terminated from DuPont and a new employee of Corteva. However, no changes to Cockerill’s job were made and he continued to perform in the same role he had for DuPont. After the switch to Corteva, Cockerill was informed that the earliest year in which he could retire had changed from 2027 to 2034 due to the change in retirement plan management.

Representation for the plaintiffs has proposed a subclass of DuPont employees who did not qualify for early retirement due to the merger, though had been fired from the companies for “lack of work.” In response, the Defendants argue that the suit must be dismissed, as the plans at issue only applied to “employees” for the “company,” and members of the subclass did not meet the requirements of the description. In order to be considered an “employee,” the Defendants argue that a worker must have been employed by the original E.I. DuPont de Nemours and Co. or a subsidiary. The subsidiary at issue in the case, Specialty Products, is argued to not qualify as it was not affiliated with the original DuPont at the time the company diverged.

The Plaintiffs disagree, arguing that the definition for “employee” should include past employees as there was no termination date in the definition, though there was a start date. Furthermore, the Plan provides in other sections that “employee” includes former employees, thus strengthening the argument that the definition in this section of the Plan should do so as well. The Supreme Court of the United States has also held that the term “employee” can be ambiguous; in Nationwide Mutual Ins. Co. v. Darden, the Court held that “employee” may be interpreted in numerous ways.

Due to the ambiguity of the term “employee,” the court stated that the proper inquiry of the case was whether the Defendants had acted reasonably in their management of the plan and revocation of the Plaintiffs’ rights to early retirement. The court held that the Plaintiffs had provided enough information to adequately allege that the Defendants’ actions could have been in violation of ERISA. The case now moves on to the process of discovery. If the court finds in favor of the Plaintiffs, ERISA provides that the Plaintiffs are entitled to equitable remedies due to the Defendants’ breach of their fiduciary duties.

Recently, a federal judge in Texas court ruled in favor of retired NFL player, Michael Cloud, determining that the administrators of The Bert Bell/Pete Rozelle NFL Player Retirement Plan (“Plan”) violated their fiduciary duties under ERISA in denying Cloud a full and fair application review. Cloud’s appeal concerned his eligibility for the highest level of disability benefits under the Plan, which was subsequently denied by the Defendants.

Cloud boasts an impressive NFL career, playing 7 seasons, including for the New England Patriots during their 2004 Super Bowl winning year. Cloud additionally played for the Kansas City Chiefs and the New York Giants between 1999 and his retirement in 2006. During his career, Cloud states that he injured “virtually every aspect of his body” as well as endured numerous cases of head trauma known as “dings” (an instance where a player’s vision goes black due to a hard hit to their head). One of Cloud’s last head injuries sustained in 2004 led to his early retirement, as the frequency and severity of the injuries had caused “cumulative mental disorders.” In 2010, Cloud began receiving benefits under the retirement Plan, and was found to be “totally and permanently” disabled in 2014. Subsequently, in 2016 Cloud applied for reclassification under the Plan but was denied both initially and on appeal.

Cloud brought an action against the Plan in 2020, alleging that his application for reclassification was never fully reviewed by the Defendants. He alleged that the Defendants (including six board members for the Plan) did not adequately review his over 1000-page application. Instead, a paralegal was made to write a summary of the application for the administrators. It has been speculated that the decision on the matter was already drafted before the administrators viewed the summary of the new appeal, as it cited to incorrect documents that belonged to the wrong benefits plan. Further, the denial letter included contradicting information with written minutes taken at the board meeting during their deliberation; the minutes state that the only reason for the denial was the Cloud did not show by clear and convincing evidence the existence of a new injury, while the letter additionally states that the application was made outside of a 180-day deadline among other timing issues. During closing arguments, counsel for Cloud stated that the issue of unfair denial is not new nor exclusive to Cloud, and that the Plan consistently failed to fully review applications by reviewing as many as 50 at a time with no discussion of the specific cases.

The Defendants argued that the payment of benefits was not appropriate, as Cloud did not sustain any new injuries between his first application in 2014 and his application for reclassification in 2016. They further opined that Cloud’s current benefits category was “exactly where he should be” and that he was one of the few beneficiaries to bring an action against the Plan.

The Court did not agree, stating that the denial was incorrect and Cloud’s reclassification application should be granted and he should be placed in the highest benefits category due to the injuries sustaining during his career. Judge Karen Gren Scholer stated that the Plan obviously spent “virtually no time in rubber-stamping the decision.” She further stated that the Plan’s practice of reviewing player’s applications was “wrong and absurd.” Regarding the argument that the low number of cases brought against the Plan is evidence that the decision was correct, Judge Scholer stated that this essentially constituted an “if it ain’t broke, don’t fix it” argument and thus was rejected. She further speculated that it is incredible that under the Plan only 30 former players (all of whom have injuries causing paralysis) are at the highest benefit tier. Thus, she stated that, “The Plan is broke and it’s time to fix it.”

Both Cloud and his family are grateful that the long battle for benefits due to him under the Plan is finally over. Cloud described the Plan’s denial and its effects had “tortured [his] family for years without caring.” This decision is not only a victory for Cloud and his family, but other members of the same or similar retirement plans who have been denied full and fair review of applications by plan administrators. In fact, even outside of the realm of plans relating to former athletes, the decision solidifies the fiduciary duties owed to beneficiaries under ERISA and sets the standard for individualized, thorough, and fair reviews of applications and benefit determinations.

The 6^th Circuit recently heard a case in which participants in a TriHealth (“Defendants”) 401(k) fund (“Plan”) alleged that the administrators of the Plan breached their fiduciary duty to the participants by offering costly mutual fund options. The 6^th Circuit revived one of the class claims, though affirmed the lower court’s dismissal of other claims brought under ERISA. This case was brought by the named Plaintiff, Danielle Forman, and included allegations that TriHealth breached its fiduciary duties under ERISA by charging high fees to participants, providing funds that underperformed their counterparts, and offering expensive actively managed options. The decision to dismiss these claims relied heavily on the precedent set in Yosaun Smith v. CommonSpirit Health et al. (follow the link to see a summary of CommonSpirit: https://www.mehrfairbanks.com/blog/sixth-circuit-affirms-dismissal-of-erisa-case-holding-that-plan-management-was-not-imprudent/).

However, one of the claims against TriHealth was not governed by the CommonSpirit decision. The 6^th Circuit panel of judges stated that “[t]he gist [of the claim] is this: Even if a prudent investor might make available a wide range of valid investment decisions in a given year, only an imprudent financier would offer a more expensive share when he could offer a functionally identical share for less.” Therefore, “The plaintiffs in this last respect have stated a plausible claim that TriHealth acted imprudently.”

Forman’s attorney argued that the differences between the fees charged for the respective funds were “sort of a bulk purchase discount”, and that “[s]hare classes that were in the fund lineup were simply more expensive than other share classes of the same fund that were available to the Defendants for years.” This argument weighed into the panel’s decision to uphold this particular claim while dismissing the others. They further rejected arguments made by the Defendants that the Plaintiffs hadn’t provided a comparable plan to demonstrate that the retail share classes’ returns were lower than other options available to the Defendants. The Court stated, “Unlike a claim premised on an imprudent choice between two different mutual funds that perform differently over time, a claim premised on the selection of a more expensive class of the same fund guarantees worse returns.”

The Defendants also argued that the share class offerings were “revenue-sharing arrangements” and thus the remaining claim should also be dismissed. The Court disagreed, first stating that the argument was offered in an amicus brief by the U.S. Chamber of Commerce, not TriHealth, and second that the argument provides a “competing inference” as an explanation for the offering of the funds. Therefore, “In the absence of discovery or some other explanation that would make an inference of imprudence plausible, we cannot dismiss the case on this ground.”

This case began in July of 2019 with the named Plaintiff brining an action in Ohio federal court, which dismissed the case based on the failure to state a claim several months later in September. The Plaintiffs subsequently appealed. The case is now remanded by the Court of Appeals to address the remaining claim against the Defendants.

The result of this case shows a trend in the 6^th Circuit to let issues such as the one revived by the panel be resolved in discovery. Attorneys have speculated that this process will provide clarity for the standards expected in pleadings. After the Supreme Court decision in Hughes v. Northwestern University, this clarity is welcome. Essentially, courts are now considering whether revenue-sharing agreements are considered to be under the purview of Hughes (which held that employers couldn’t rely on providing better investment options to relieve them from claims stemming from offering worse ones). Therefore, TriHealth gives lower courts the chance to determine if revenue-sharing agreements breach the fiduciary duties required under ERISA. Opinions of this decision vary between counsel for beneficiaries and counsel for employers, with each side focusing on the aspects that most favor arguments that will have to be made in the future. The former feel positively about the revival of the share class claim due to the commonality of employers providing such options to employees. The latter focus on the claims for violations of ERISA that were dismissed by the court. The nature of the holding is such that plaintiffs are now more likely to move past the pleading stage in cases of this nature and therefore engage in discovery, which may facilitate settlement agreements between parties

Yosaun Smith v. CommonSpirit Health et al. concerns the Plaintiff’s, Yosaun Smith (“Smith”), action against the administrators of her ERISA retirement plan, Defendants CommonSpirit (“CommonSpirit”) and Catholic Health Initiatives Retirement Plans Subcommittee (“Subcommittee”) alleging that the Defendants violated ERISA when they did not replace “actively managed mutual funds with passively managed mutual funds.” The Court of Appeals for the Sixth Circuit upheld the decision from the district court, affirming that ERISA does “not give the federal courts a broad license to second-guess the investment decisions of retirement plans,” and that remedies are only available under ERISA when a fiduciary duty has been violated. Thus, the Plaintiff in this case alleged no facts supporting the conclusion that the Defendants had violated any fiduciary duties under ERISA.

Over the last few decades, employer provided retirement funds have commonly been structured as defined-contribution 401(k) plans. These plans allow participants to contribute pre-tax income to accounts, the amount often matched by employers. Therefore, the value of the assets in the account is the determining factor of the amount participants will receive in their payout; “A beneficiary’s payout thus may ‘turn on the plan fiduciaries’ particular investment decisions.’” ERISA provides that under a defined-contribution plan, participants may bring an action for breach of fiduciary duty against the plan administrators if the fund is imprudently managed. Until recent years, plans were actively managed by plan fiduciaries where “the portfolio manager actively makes investment decisions and initiates buying and selling of securities in an effort to maximize return.” However, more recent trends have enabled investors to use index funds, creating a “fixed portfolio structured to match the overall market or a preselected part of it.” This option means that there is “little to no judgment” involved in the management of the plan.

The Plaintiff in this case is an employee of Catholic Health Initiatives (otherwise known as CommonSpirit Health) and has been a participant in its defined-contribution 401(k) plan (“Plan”) since 2016. The Plan is administered by an appointed administrative committee and serves more than 105,000 participants with more than $3 billion in assets. Options available to participants include index funds with low management fees (0.02%) as well as funds that are actively managed with management fees up to 0.82%. If employees do not select a fund, they are placed by default into the Fidelity Freedom Funds, which are actively managed. These are a group of “target date fund[s]” meaning that “managers change the allocation of the underlying investments that they hold over time, say by selling funds that hold stocks to buy a greater proportion of funds that hold bonds or cash.” The purpose of this management is the “reallocation of asset types [allowing] managers to protect an employee’s investment gains and spare her the unpredictability of market fluctuations as she approaches retirement.”

The Plaintiff alleged that CommonSpirit breached its fiduciary duty of prudence under ERISA when it offered multiple actively managed investment funds despite the availability of index funds with “higher returns and lower fees.” The Plaintiff specifically referenced three actively managed funds (the Fidelity Freedom Funds, American Beacon Fund, and AllianzGI Fund) that demonstrated worse performance than relative available index funds. It is further alleged that fees associated with the recordkeeping and management of the Plan were excessive.

The Defendants’ motion to dismiss the complaint was granted by the district court. The court held that the Plaintiff “failed to allege facts from which it could plausibly infer that CommonSpirit had acted imprudently in violation of ERISA.” In analyzing the case on appeal, the Court states that in an examination of a dismissal based on the “sufficiency of a complaint,” dismissal is appropriate under Federal Rule of Civil Procedure 12(b)(6) when a complaint “fails to state a claim upon which relief can be granted.” Combined with Federal Rule of Civil Procedure 8 (requiring a “short and plain statement of the claim showing that the pleader is entitled to relief”), a plaintiff must provide sufficient “facts to state a claim to relief that is plausible on its face.”

The Court concludes that the Plaintiff has not met the requirements of Rule 12(b)(6) and Rule 8, and that she did not “plausibly [plead] that this ERISA plan acted imprudently merely by offering actively managed funds in its mix of investment options.” The Plaintiff opines that “investors should be very skeptical of an actively managed fund’s ability to consistently outperform its index,” and that the Freedom Funds plan “[chases] returns by taking levels of risk that render [them] unsuitable for the average retirement investor.” The Court rejects this argument, stating that “there is nothing wrong with permitting employees to choose [plans] in hopes of realizing above-average returns over the course of the long lifespan of a retirement account – sometimes through high-growth investment strategies, sometimes through highly defensive investment strategies.” Further, the Court states that if plan managers refused to provide this option to participants, that action would constitute imprudent management. The Court additionally highlights that the Plaintiff (as well as any participant in the Plan) could choose to participate in an index fund offered by the Defendants. It is concluded that “[o]ffering actively managed funds in addition to passively managed funds was merely a reasonable response to customer behavior.” The Court cites several cases from other circuits stating that the offering of both actively and passively managed funds does not violate any fiduciary duty under ERISA. Therefore, the Defendants did not act imprudently in the management of the Plan.

The Court also addressed whether it is imprudent for administrators to offer actively managed plans at all, deciding that as long as the company does not imprudently offer “specific actively managed funds,” it has not violated its fiduciary duties. Put simply, the court states that ERISA “does not allow fiduciaries merely to offer a broad range of options and call it a day.” Thus, so long as the options offered by the fiduciaries are prudent, there has been no violation under ERISA. The Court states that the Plaintiff in this case has also not alleged facts showing that the Defendants violated ERISA in this manner. Rather, she only compared the performance of the Fidelity Freedom Funds to its passively managed counterpart, the Fidelity Freedom Index Funds. Though the Index Funds trailed the Freedom Funds by up to 0.63 percentage points annually, this does make other funds imprudent. Therefore, “a showing of imprudence [does] [not] come down to simply pointing to a fund with better performance.” Further, “claims require evidence that an investment was imprudent from the moment the administrator selected it, that the investment became imprudent over time, or that the investment was otherwise clearly unsuitable for the goals of the fund based on ongoing performance.”

The Plaintiff brings other facts forward alleging imprudent actions on the part of the plan managers, calling certain decisions “red flags.” She includes the “discretion that fund managers had in choosing investment, net outflows from these funds to other investments, and outside analysts’ critical evaluations of the funds” as indicators that the managers were acting imprudently. The Court again disagrees, stating then when “[viewed] with the proper foresight-over-hindsight perspective, [these] [facts] do not make a cognizable claim of imprudence.”

Regarding the Plaintiff’s allegation that the Plan charged excessive fees for recordkeeping and administration, she alleged that the Plan charged between $30 and $34 per person compared to $35 charged for both recordkeeping and administration by smaller plans. She further opines that investment management fees associated with the Plan were excessive, as they amount to “around 0.55% of total assets annually.” Regarding allegations of excessive recordkeeping fees, the Court holds that “Smith fails to give the kind of context that could move this claim from possibility to plausibility.” This failure stems from her failure to “[plead] that the services that CommonSpirit’s fee covers are equivalent to those provided by the plans comprising the average in the industry publication that she cites.”

In addressing Smith’s allegations that management fees were excessive, the Court states that it is rejected for the same reason as Smith’s base allegations of imprudence: the Defendants offer multiple plan options with a variety of costs and the existence of one that is more expensive than others alone is not proof of mismanagement. They state, “An average plan-wide management fee of 0.55% is merely evidence that CommonSpirit offers a number of actively managed funds, and an imprudence claim based on this fee alone fails for the same reason that Smith’s more general attack on active investment fails.” The Court further states that the rejection of claims for excessive fees when “it is clear those fees are set by market forces” is common in appellate courts and therefore the appropriate decision.

Therefore, the Court of Appeals affirmed the district court, dismissing the Plaintiff’s claims.

The Eleventh Circuit Court of Appeals in Gimeno v. NichMD, Inc. analyzed whether Section 1132(a)(3) of ERISA provides authorization for a beneficiary of a plan governed by ERISA to sue for ‘”appropriate equitable relief’” due to violations of the plan or relevant statute. Thus, the question presented to the court is whether “Section 1132(a)(3) create[s] a cause of action for an ERISA beneficiary to recover monetary benefits lost due to a fiduciary’s breach of fiduciary duty in the plan enrollment process[.]” The Court answers this question in the affirmative, stating that a court “may order typical forms of equitable relief under Section 1132(a)(3).”

This decision reverses that of the district court, which had held that “such a claim would be futile.” The basis for this reversal is the common practice of awarding “equitable surcharge” in cases where a fiduciary’s breach of duty caused a beneficiary to sustain losses. The facts of the case center around the plan holder, Justin Polga, and his spouse, Raniero Gimeno (“Plaintiff”). Polga was an M.D. and an employee of NCHMD, Inc., a subsidiary of NCH Healthcare System Inc. (“Defendants”). When initially hired by the Defendants, the HR department assisted Polga in filling out the relevant paperwork. Gimeno was listed as the primary beneficiary under the relevant plan (“Plan”) and NCH Healthcare the administrator. Polga decided to elect to pay for $350,000 in “supplemental life insurance coverage on top of $150,000 in employer-paid coverage.” In order to receive this coverage, it was required that Polga submit “an evidence of insurability form,” however this form was not provided in his enrollment paperwork nor did the HR department attempt to rectify the error. Therefore, Polga was never properly enrolled on the program according to the insurance company. Despite this fact, the Plan “deducted premiums corresponding to $500,000 in life insurance coverage from Polga’s paychecks.” Further, Polga was provided with benefits statements that included the $500,000 in coverage.

When Polga passed away, the Plaintiff filed a claim with the Plan’s insurance company for benefits as the named beneficiary. The claim was partially denied, as the company approved the claim for the amount of benefits excluding the supplemental amount. Subsequent to this denial, the Plaintiff filed suit to recover the supplemental benefits, alleging that “by failing to notify Polga of the need for the form and misleading him about the nature of his coverage, the defendants breached their fiduciary duty to administer the plan fairly and properly, to inform Polga of his rights and benefits, and to ensure that all application forms were correctly completed and submitted.” As a remedy, the Plaintiff also sought that the Defendants be required by order to pay the benefits that would have been received if not for the breach – “the unpaid $350,000.”

In response, the Defendants moved to dismiss the case “for failure to state a claim.” This argument was based on the Defendants’ belief that, unlike the insurance company, they “had no obligation to award the benefits at issue” and thus were the “improper defendants.” The Plaintiff replied with a motion to amend his complaint to only a cause for “appropriate equitable relief” under Section 1132(a)(3). The district court agreed with the Defendants, granting the motion to dismiss and denying the motion to amend. The Plaintiff timely appealed.

The Plaintiff argued that the district court’s decision to deny his motion to amend was incorrect as the relief sought is appropriate under Section 1132(a)(3). The Court of Appeals agreed. Section 1132(a)(3) delineates that a beneficiary may sue a plan for “appropriate equitable relief” upon a breach of the statute or the plan’s terms. Equitable relief applies to “’categories of relief that were typically available in equity’ before the fusion of courts of equity and courts of law.” Though courts do not typically allow monetary damages to be granted under Section 1132(a)(3), when equity demands monetary relief, it may be interpreted under ERISA. Under equitable principles, courts are permitted to award “restitution of ‘particular funds or property in the defendant’s possession.’” Further, when the remedy at issue stems from a relationship between a trustee and a beneficiary, “’[t]he trustee’s personal liability to make compensation for the loss occasioned by a breach of trust is a simple contract equitable debt.’” Therefore, “[t]his remedy – as between a trust beneficiary and a trust fiduciary – is ‘equitable in character and enforceable against [a] trustee[] in a court exercising equity powers.’” Supreme Court precedent supports the conclusion that equitable surcharge is an appropriate equitable remedy “between beneficiaries and fiduciaries.” The Court of Appeals furthered reasoned that every district court that has addressed the issue of equitable surcharge has followed the Supreme Court’s line of reasoning and considered monetary relief appropriate. Thus, the Court of Appeals rejects the Defendants’ arguments that Section 1132(a)(3) does not provide “a comparable remedy.”

The Court determined that both NCHMD and NCH Healthcare are fiduciaries; they provide that “[a]n entity is a fiduciary under ERISA if it ‘exercises any discretionary authority or discretionary control respecting management’ or ‘administration’ of the plan.” In order to prove that an entity is a fiduciary, a party may show evidence from the “plan document” but may also provide evidence from the “factual circumstances surrounding the administration of the plan, even if these factual circumstances contradict the designation in the plan document.” In the case at hand, NCHMD opines that it is not a fiduciary of the Plan because it was not listed as an administrator in the plan documents. However, the Court reasoned that since NCHMD’s HR department assisted Polga with the relevant paperwork at the time he enrolled in the Plan as well as provided him with a benefits summary, these circumstances provided adequate evidence to consider NCHMD a fiduciary. Therefore, the Court held that the Plaintiff may pursue a cause of action for lost benefits pursuant to Section 1132(a)(3).

The Court also rejects the Defendants’ argument that the Plaintiff sought to violate precedent by asserting claims under multiple sections of ERISA. It is concluded that since the Plaintiff “’must rely on’ Section 1132(a)(3) or he would have ‘no remedy at all’ … his claim may proceed under Section 1132(a)(3).” Thus, the Eleventh Circuit Court of Appeals reversed the district court’s ruling and remanded the case for the Plaintiff to properly bring a claim under 1132(a)(3) for breach of fiduciary duty.

A federal court in Pennsylvania recently certified a class of Plaintiffs under Defendant Aetna Life Insurance Co.’s disability benefits plan (“Plan”). The Plaintiffs alleged that the Defendants forced beneficiaries who had received payments for personal injury claims to send the payments back to the company in violation of ERISA.

The named Plaintiff, Joanne Wolff, first filed suit against Aetna in 2019 when the company asked for the repayment of over $50,000 in long-term disability benefits stemming from a temporary disability suffered by the Plaintiff after a car wreck. At the time of the request, Wolff told the Defendants that her employer, Bank of America, did not allow reimbursement, and negotiations ended in an agreement that that Wolff would pay $30,000 despite this fact.

This did not end the dispute, however, and Wolff along with an at least 48-member class now allege that Aetna violated ERISA when it required reimbursement payments of long-term personal injury disability payments. Aetna responded that class certification would be inappropriate, as the proposed class did not meet the specifications required for certification under the Federal Rules of Civil Procedure. Mainly, the Defendants argued that some of the members of the proposed class should be disqualified, thus the number of participants in the class did not meet the numerosity requirement. It argued that since some of the members of the class were from different companies, there was not sufficient typicality to fulfill the requirements under the Civil Rules and members under other employers should be disqualified, reducing the class number to 28. Aetna also argued that timing issues barred several more participants under the relevant statutes of limitations.

The Court disagreed, stating that the class size both exceeded the minimum number of members and that the benefit plans of each member were substantially similar, thus making certification appropriate under the Civil Rules. It was decided that the plans at issue contained similar enough language that the fact that the beneficiaries worked for different companies was irrelevant. Judge Matthew W. Brann stated, “Because Wolff meets all three concerns implicated by typicality, the court finds she had satisfied this requirement.” Regarding the argument that certain members were barred under statutes of limitations, the Court stated that this number was so few that it would not impact the ability for the class to be appropriately certified under the Civil Rules.

Therefore, Wolff and the class of members is permitted to move forward in federal court as all requirements have been satisfied. This decision is a victory not only for members of the class, but for participants in disability plans governed by ERISA. ERISA requires that plan administrators fulfill various fiduciary duties to their participants; when these duties are violated it is often done on a large scale and impacts participants across not only the specific company but under similar plans as well. This decision shows the importance of policy language and similarity between plans, creating the standard that when companies breach their duties to participants, an action may be brought under similar policy language rather than under the same employer. This provides the opportunity for recourse under ERISA to a wider range of plan participants, ensuring the fulfillment of benefits and accountability from administrators.

Recently, a federal judge in Texas court ruled in favor of retired NFL player, Michael Cloud, determining that the administrators of The Bert Bell/Pete Rozelle NFL Player Retirement Plan (“Plan”) violated their fiduciary duties under ERISA in denying Cloud a full and fair application review. Cloud’s appeal concerned his eligibility for the highest level of disability benefits under the Plan, which was subsequently denied by the Defendants.

Cloud boasts an impressive NFL career, playing 7 seasons, including for the New England Patriots during their 2004 Super Bowl winning year. Cloud additionally played for the Kansas City Chiefs and the New York Giants between 1999 and his retirement in 2006. During his career, Cloud states that he injured “virtually every aspect of his body” as well as endured numerous cases of head trauma known as “dings” (an instance where a player’s vision goes black due to a hard hit to their head). One of Cloud’s last head injuries sustained in 2004 led to his early retirement, as the frequency and severity of the injuries had caused “cumulative mental disorders.” In 2010, Cloud began receiving benefits under the retirement Plan, and was found to be “totally and permanently” disabled in 2014. Subsequently, in 2016 Cloud applied for reclassification under the Plan but was denied both initially and on appeal.

Cloud brought an action against the Plan in 2020, alleging that his application for reclassification was never fully reviewed by the Defendants. He alleged that the Defendants (including six board members for the Plan) did not adequately review his over 1000-page application. Instead, a paralegal was made to write a summary of the application for the administrators. It has been speculated that the decision on the matter was already drafted before the administrators viewed the summary of the new appeal, as it cited to incorrect documents that belonged to the wrong benefits plan. Further, the denial letter included contradicting information with written minutes taken at the board meeting during their deliberation; the minutes state that the only reason for the denial was the Cloud did not show by clear and convincing evidence the existence of a new injury, while the letter additionally states that the application was made outside of a 180-day deadline among other timing issues. During closing arguments, counsel for Cloud stated that the issue of unfair denial is not new nor exclusive to Cloud, and that the Plan consistently failed to fully review applications by reviewing as many as 50 at a time with no discussion of the specific cases.

The Defendants argued that the payment of benefits was not appropriate, as Cloud did not sustain any new injuries between his first application in 2014 and his application for reclassification in 2016. They further opined that Cloud’s current benefits category was “exactly where he should be” and that he was one of the few beneficiaries to bring an action against the Plan.

The Court did not agree, stating that the denial was incorrect and Cloud’s reclassification application should be granted and he should be placed in the highest benefits category due to the injuries sustaining during his career. Judge Karen Gren Scholer stated that the Plan obviously spent “virtually no time in rubber-stamping the decision.” She further stated that the Plan’s practice of reviewing player’s applications was “wrong and absurd.” Regarding the argument that the low number of cases brought against the Plan is evidence that the decision was correct, Judge Scholer stated that this essentially constituted an “if it ain’t broke, don’t fix it” argument and thus was rejected. She further speculated that it is incredible that under the Plan only 30 former players (all of whom have injuries causing paralysis) are at the highest benefit tier. Thus, she stated that, “The Plan is broke and it’s time to fix it.”

Both Cloud and his family are grateful that the long battle for benefits due to him under the Plan is finally over. Cloud described the Plan’s denial and its effects had “tortured [his] family for years without caring.” This decision is not only a victory for Cloud and his family, but other members of the same or similar retirement plans who have been denied full and fair review of applications by plan administrators. In fact, even outside of the realm of plans relating to former athletes, the decision solidifies the fiduciary duties owed to beneficiaries under ERISA and sets the standard for individualized, thorough, and fair reviews of applications and benefit determinations.

The Court of Appeals for the Fourth Circuit recently held that under ERISA, the “deferential review” standard is not a one size fits all seal of approval for plan administrators’ reasoning in denying claims. The case giving rise to this decision is Garner v. Central States and Southwest Areas Health and Welfare Fund Active Plan in which the Defendants denied the Plaintiff’s claim for the reimbursement of medical costs related to their back surgery. A court in North Carolina provided the original ruling in the case (later upheld by the Court of Appeals) that the plan at issue had “abused its discretion” in denying the claim.

The case boiled down to two significant issues relating to the determination that benefits would be denied, each addressed by the Court of Appeals. The first relates to the omission of an MRI scan in the documents to be analyzed by the first reviewing doctor in making their decision on the availability of benefits. This omission was held to be significant, as the results of the MRI were crucial to the Plaintiff’s treating doctor’s decision to operate. Secondly, no notes from the Plaintiff’s treating doctor relating to the decision to conduct surgery and discussion of the MRI were provided to the reviewing doctor.

The Plaintiff’s initial appeal was denied on the grounds that a second reviewing doctor had reached the same conclusions as the first. Thus, according to the Defendants, the lack of information provided to the first doctor did not preclude denial. The Court disagreed with this argument, stating that the issues with the first doctor’s review were not cured by the concurrence of the second doctor, as their opinion also misstated facts surrounding the Plaintiff’s need for surgery. As a result, the Court held that the Defendants’ denial of the claim was not “the result of a deliberate, principled, reasoning process.”

This conclusion provides that plan administrators were not acting in a “reasoned” or “principled” manner in their failure to provide the reviewing doctors with all of the relevant medical documents. The second doctor’s opinion misrepresented the facts of the Plaintiff’s treatment in relying on an incorrect belief that the Plaintiff had not attempted to undergo any “conservative” treatment prior to surgery, which in fact was untrue. On this aspect, the Court stated that a requirement that the Plaintiff undergo “conservative” treatment prior to surgery in order to receive benefits was incorrect and baseless. The Court stated that reading this into the Plan as a requirement would be “effectively … [adding] a new term to the plan, a term for which [the Plaintiff] did not bargain, and about which she lacked any notice.”

While the Court did not make a statement regarding bad faith on the part of the Defendants, they opted to uphold the lower court’s decision and require the Defendants to pay the claim rather than remand the case consistent with their opinion. With this decision, the Court of Appeals exemplifies that the discretion of plan administrators to determine how and why to deny plans is not unlimited. Further, if administrators do not provide reviewing doctors with all of the relevant medical information relating to a claim, this will be considered an abuse of discretion. In the same line of reasoning, administrators requiring that all “conservative” treatment options be tried and fail to correct the issue otherwise the claim will be denied is an abuse of discretion.

Lastly, the Court of Appeals highlights that if a determination of benefits does not align with a plan’s purpose, the underlying reasoning may be an abuse of discretion. The Plan at issue in this case was designated as a reimbursement plan for necessary medical services received by plan participants and their beneficiaries. The denial of benefits to the Plaintiff was in direct opposition to the purpose of the plan, thus the Defendants’ reliance on their ability to use discretion in administering the plan does not hold water.

This decision is a major win for ERISA policy holders, as it lays the foundation that plan administrators cannot unfairly deny claims and then rely on their ability to use discretion as grounds for doing so. ERISA holds plan administrators to fiduciary duties and provides that participants are entitled to a review of their claims that is thorough and fair. This decision solidifies the rights of plan participants, and correctly limits the ability of administrators to deny claims based on inadequate review processes.

The Court of Appeals for the Sixth Circuit recently held that when a claim is brought under ERISA § 502(a)(2), individual arbitration agreements signed by employees do not apply. The rationale behind this decision is that claims brought under § 502(a)(2) are brought by the Plan, not by the individual employees who had signed the agreements.

The Plan at issue in this case is the “Partner’s Plan” (Plan), a “defined contribution” plan sponsored by one of the Defendants, Cintas. Defined contribution plans offer participants the opportunity to select investment options from a “menu” chosen by the plan’s sponsor (in this case, Cintas). Individual accounts are created for each participant, their value determined by the amount they have contributed, fees associated with management of the plan, and the market performance of the investment options selected.

ERISA requires fiduciaries to fulfill certain duties to plan participants, the two at issue in this case being the duty of loyalty and the duty of prudence. The duty of loyalty requires that plans be managed “for the best interests of its participants and beneficiaries,” while the duty of prudence requires that plans be managed “with the care and skill of a prudent person acting under like circumstances.” The Plaintiffs in this case allege that these duties were breached when the Defendants only offered opportunities to invest in “actively managed funds” and when excessive recordkeeping fees were charged to participants. The Plaintiffs brought action against Cintas, as well as its Investment Policy Committee and Board of Directors. These entities within the company are responsible for administering and appointing members to investment committees. The suit is putative class action encompassing all participants in the Plan and their beneficiaries during the relevant class period.

The issue on appeal is whether individual employment agreements signed by employees who participated in the Plan delineating that all claims be settled through arbitration are applicable to the claim of breach of fiduciary duty under ERISA. Due to these agreements, the Defendants moved to stay proceedings in federal court and compel arbitration. The district court denied the motions, stating that the fact that the Plaintiffs had signed individual arbitration agreements was irrelevant, as the action was brought on behalf of the Plan and any agreements signed by individual employees were inapplicable.

The Defendants argued that the arbitration agreements related to “all rights and claims relating to their employment” which includes claims arising under ERISA. Further, they argue that the “right” to assert the claims “belong[s]” to the individual plaintiffs, and thus claims are subject to the arbitration agreement consented to by the employees. However, the Plaintiffs countered that the claims of breach of fiduciary duty belong to the Plan itself, which was not subject to arbitration as it had not consented. The Court is careful to add that it is generally settled that ERISA claims are arbitrable, but state that the issue in this case is not whether ERISA claims can be arbitrated, but rather if the claims must be arbitrated as subject to the employee arbitration agreement.

The Court concludes that the Plaintiffs are correct in their assertion that the claims at issue belong to the Plan and not to the participants themselves, and thus the arbitration clause does not apply. § 502(a)(2) states that actions may be “brought in a representative capacity on behalf of the plan as a whole.” The Court relies on precedent set in Mass. Mut. Life Ins. Co. v. Russel, 473 U.S. 134 (1985). Russel provides that, “the ‘plan’ [is] [the] victim of any fiduciary breach and the recipient of any relief,” when considering the structure of defined-benefit plans. Mass. Mut. Life Ins. Co. v. Russel, 473 U.S. 134, 254-55, (1985). This context changes slightly when considering defined-contribution plans, though the Court still notes that, “although § 502(a)(2) does not provide a remedy for individual injuries distinct from plan injuries, that provision does authorize recovery for fiduciary breaches that impair the value of plan assets in a participant’s individual account.” Id. at 256. Further, in LaRue v. DeWolff, Boberg & Assocs., Inc., 552 U.S. 248 (2008), the Court established that, “§ 502(a)(2) authorizes suits on behalf of a defined-contribution plan even if the harm is inherently individualized.” Hawkins v. Cintas Corp., 2022 U.S. App. LEXIS 11377 at 11.

The Court next recognizes the failures of the Defendants arguments, mainly that in responding to case law presented by the Plaintiffs, they fail to offer a definition of the word “rights” as it applies to the language in the arbitration agreement and the right of the plan participants to bring a claim under § 502(a)(2). The Defendants proffer that since the agreements include “all of Employee’s rights or claims arising under [ERISA],” the claims at issue in this case are precluded from litigation by the agreement. The Court rejects this argument, stating that despite the inclusion of language relating to ERISA in the agreements, they are not “fundamentally different” than the arbitration agreements in cases used in support of the Plaintiffs’ arguments. Further, the Defendants did not provide an alternative definition of “rights,” nor did they provide case law interpreting the word. The Defendants also offered no explanation as to the possibility of arbitration being used to assert such a “right.”

The Court concludes that based on precedent, if an injury is considered a plan injury rather than an injury sustained by one person’s account, the claim is not considered to be sought for individual relief and thus is not bound by arbitration agreements. According to the Court, the claims at issue in this case relate to the Plan as a whole, and thus the Plaintiffs are not precluded from pursuing the claims in court by the arbitration agreements. Therefore, the Court of Appeals affirmed the district court decision and ruled in favor of the Plaintiffs.

Recently, the Boston Children’s Hospital asked a judge in federal court to dismiss a case brought by former employees that alleged the charging of “exorbitant” fees relating to the management of ERISA retirement plans. The Hospital argues that fees associated with the plans were not exorbitant and no damage was sustained by plan members under the class, thus the case against them should be dismissed. The Hospital additionally argues that there was no requirement for them to pick the lowest possible costs for administration of their ERISA plans. Further, they argue that the plaintiffs in the class at issue were not deeply invested in the plans that are involved.

The Plaintiffs (former employees of the Hospital) in the class allege that the Hospital’s fiduciary duties under ERISA were breached when they overcharged participants for fees relating to recordkeeping. Further, the Plaintiffs allege that the Hospital encouraged participants to invest in funds that were more expensive than others and underperformed compared to their counterparts. The case was originally brought by four former employees of the Hospital, with the class now encompassing compensation for 18,580 employees. The Plaintiffs state that while participants in similar plans were required to pay between $23 to $42 per year in recordkeeping fees, participants in the Hospital’s plans at issue paid $73. The large size of the plan, according to the Plaintiffs, would have enabled them to negotiate for lower fees if the Hospital had been proactive about ensuring the performance of their duties to the participants.

The Hospital counters in their motion to dismiss that, “ERISA does not require Children’s to select the least expensive or best performing investment, and Plaintiff’s cannot plausibly allege a breach merely by pointing to alternative target date funds that have some similarities and that purportedly cost a bit less or performed a bit better.” Further, the Hospital alleges that the Plaintiffs are essentially attempting to make arguments that are directly opposed, stating that there are no comparable plans that are both less expensive and perform better than that those at issue in the case. Regarding the plans exemplified by the Plaintiffs as less expensive, the Hospital states that the cheaper plans did not perform as well as those chosen by the Defendant. The plans argued by the Plaintiffs to be comparable also had different payment structures and provided different services to participants, according to the Hospital.

The Defendant states that even if the allegations against their management of the plan were accurate, the Plaintiffs in the case have no cause of action for plans in which they did not specifically invest. The Hospital argues that this results in the named Plaintiffs having no claim for relief, therefore the suit should be dismissed.

Lastly, the Hospital argues that the amount of recordkeeping fees alleged in the case relate to 2020 prices, when none of the named Plaintiffs were involved in payment of plan fees.

The question is now posed to the Court of whether the arguments brought by the Defendant should result in dismissal of the case. Courts have recently held that classes of plaintiffs in similar situations are entitled to certification and a chance to litigate their claims. The facts of this case regarding the level of participation the Plaintiffs actually engaged in by paying excess fees may change this result. However, courts have made it apparent that when plaintiffs have paid excess fees under ERISA plans, they are entitled to appropriate legal recourse.

Recently, a Federal Court in North Carolina approved a settlement for over $3 million between a Coca-Cola (Defendant) bottling plant and a class of former employees. The named Plaintiffs brought the action against the Defendant alleging that the company had violated their fiduciary duties by presenting “risky” investment options to ERISA plan holders while additionally charging excessive fees. The Court held that the amount of the settlement was “fair, reasonable and adequate, taking into account the costs, risks and delay of litigation, trial and appeal.” Pursuant to this decision, the Court also ruled that the class presented by the Plaintiffs was appropriate for certification and includes all “participants and beneficiaries” under the plan in question. This totals around 13,000 individuals, according to a motion brought by the named Plaintiffs which is now moot after the Court’s certification of the class.

The details of the settlement agreement include statements that the Defendants denies any “wrongdoing or legal liability,” as well as the Defendants’ opinion that the group of 13,000 individuals was not appropriate for class certification. The specific wrongdoing alleged by the Plaintiffs is that the Defendants could have used their large size as a corporation in order to ensure that record-keeping and management fees were low for plan participants, which the failed to do. Additionally, Plaintiffs contend that the Defendants “imprudently” chose higher cost management services, though they had been presented with lower cost alternatives. According to the Plaintiffs, these decisions made by the corporation and its plan fiduciaries caused monetary losses into the millions. Lastly, the Plaintiffs contend that coupled with the breach of fiduciary duties through the above-mentioned means, the Defendants also breached their duties through their failure to disclose information concerning the fees and “risks” of the investment options they had selected. Further, the Plaintiffs state that the Defendants did not make an effort to actively monitor those in charge of administering their ERISA plans, thus further acting imprudently and in violation of their duties to the participants.

Prior to this proceeding, the Defendants had moved to dismiss the case in early 2021, a request which was subsequently denied in March the same year. The Court ruled that the Plaintiffs had presented a case that should move past the initial pleading stage of the trial process, and thus dismissal would be inappropriate. The parties will now move forward with the settlement agreement, with the Plaintiffs now as a certified class.

This decision is one of many recent decisions mirroring the same outcome, as courts are consistently holding that plaintiffs with complaints alleging violations of fiduciary duties by their employers and ERISA plan administrators are entitled to class certification. ERISA itself lays the foundation for employees to bring suit against their employers in cases similar to that brought in North Carolina, as the law requires that fiduciaries to a plan must act, “with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.”[i] Through numerous class certifications, courts are presenting plaintiffs with the opportunity to correct wrongs brought against them by the actions of their employers and ERISA fiduciaries alike.

[i] 29 U.S.C. § 1104(a)(1)(B).