Tuning Up Your Plan
Vince Hess
vhess@lockelord.com
September 11, 2014
Thanks to Larry Hansen
and Linda Simon
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Agenda
• forum selection clauses
• contractual limitation periods
• anti-assignment provisions
• Microsoft/ Independent contractor provisions
• subrogation and reimbursement provisions (U.S.
Airways v. McCutchen)
• arbitration clauses
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U.S. Supreme Court in 2013:
“The statutory scheme [of ERISA] … ‘is built
around reliance on the face of written plan
documents.’ ”
“The plan, in short, is at the center of ERISA.”
and in 2003:
“[E]mployers have large leeway to design disability
and other welfare plans as they see fit.”
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FORUM SELECTION CLAUSES
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ERISA’s venue provision allows for multiple
potential forums for a lawsuit:
“. . . an action under this title . . . may be brought in
the district where the plan is administered, where
the breach took place, or where a defendant
resides or may be found . . . .”
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Sample Clause (ERISA Plan)
Except as the laws of the United States may otherwise
require, any action by any Plan Participant or
Beneficiary relating to or arising under the Plan shall
be brought and resolved only in the U.S. District Court
for the Eastern District of Missouri and in any courts in
which appeals from such court are heard, and such
court shall have personal jurisdiction over any
Participant or Beneficiary named in such action.
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Another Example
Any action in connection with the Plan by a Member or
beneficiary may only be brought in Federal District
Court in Monroe County, New York.
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Benefits to a Plan
• Convenience for plan administration
• Consistent (and predictable) judicial interpretation of
plan terms
• Avoid “plaintiff-friendly” jurisdictions
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Additional Benefits
• Cost savings from:
– avoiding litigation over where lawsuits should be
filed, and
– the plan sponsor/plan administrator being able to
litigate lawsuits in its home state.
“[T]hose [cost] savings can be passed along to the
plan itself.”
Conte v. Ascension Health, 2011 U.S. Dist. LEXIS
111657 (E.D. Mich. September 28, 2011)
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For example:
“Enforcement of the forum selection clause
in this case, moreover, actually furthers
one of the purposes of ERISA by
‘bring[ing] a measure of uniformity in an
area where decisions under the same set
of facts may differ’ as a result of
geographic location . . . .”
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“The forum selection clause contained in Xerox’s
LTD Plan allows one federal court to oversee the
administration of the LTD Plan and gain special
familiarity with the LTD Plan Document, thereby
furthering ERISA’s goal of establishing a uniform
administrative scheme.”
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Klotz v. Xerox Corp., 519 F. Supp. 2d 430, 435,
436 (S.D.N.Y. 2007) (quoting from a Second
Circuit ruling).
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Enforcement
ERISA Cases
• Majority of district courts have enforced forum
selection clauses in ERISA plans.
• Minority (mostly, IL and TX) don’t enforce them on
basis that they run counter to public policy reflected
in ERISA’s broadly worded venue provision.
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Illinois:
Coleman v. Supervalu, Inc., 2013 U.S. Dist. LEXIS
13372 (N.D. Ill. January 21, 2013).
The court refused to enforce the clause at issue
because “the inclusion of such clauses in a plan of
the nature at issue here runs counter to the strong
public policy announced by Congress in ERISA” –
namely, “the statute’s broadly—worded venue
provision.”
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Similar reasoning in a Texas case:
• Nicolas v. MCI Health & Welfare Plan
No. 501, 453 F. Supp. 2d 972 (E.D. Tex.
2006)
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Enforcement (cont.)
• No decisions (yet) on this issue by 7th Circuit (IL) or
5th Circuit (TX)
• Would other federal district courts in Illinois or Texas
follow the general consensus or the minority?
– A federal district court in Louisiana recently declined to
follow Coleman and Nicolas, and instead followed the
“substantial majority of courts” upholding a forum selection
clause in the ERISA context: Haughton v. Plan Adm’r, 2014
WL 888407 (W.D. La. March 6, 2014)
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Enforcement (cont.)
Non-ERISA cases – will generally be enforced unless:
– clause was obtained by fraud, duress, or other
unconscionable means;
– the designated forum would ineffectively or
unfairly handle the suit; or
– designated forum would be so seriously
inconvenient such that requiring the plaintiff to
bring suit there would be unjust.
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U.S. Supreme Court has recently enforced a
forum selection clause in a non-ERISA case.
Atlantic Marine Constr. Co. v. U.S. Dist.
Court, 134 S. Ct. 568 (2013)
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Effect
• Court may dismiss suit so it may be re-filed in the
venue identified in the plan; or
• Court may order the lawsuit to be transferred to the
court listed in the plan (common in federal cases)
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Disclosure
• To be safe, disclose forum selection clause in:
– SPDs and
– claims denial letters
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CONTRACTUAL LIMITATION PERIODS
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Contractual Limitations
Provisions
• ERISA provides a statute of limitations only for
fiduciary claims (6 years)
• For non-fiduciary claims, like a claim for benefits,
courts “borrow” the state statute of limitations that is
most analogous to a plaintiff’s non-fiduciary ERISA
claim
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Contractual Limitations (cont.)
• Problem is that state statutory limitations can be
quite long, often 6 to 10 years, or even longer.
• Solution: Add a contractual limitations period to the
plan. Following common law, courts will honor a
plan’s contractual limitation period so long as it’s
reasonable.
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Contractual Limitations (cont.)
• What’s reasonable?
• Courts have generally upheld three years or more, but
some have upheld shorter periods:
– Young v. UPS, 2011 U.S. App. Lexis 5983 (10th Cir. 2011)
(180 days)
– Delosky v. Penn State Geisinger Health Plan, 2002 U.S.
Dist. Lexis 17188 (M.D. Pa. 2002) (60 days)
– Davidson v. Wal-Mart Associates Health And Welfare
Plan, 305 F. Supp. 2d 1059 (S.D. Iowa 2004) (45 days
after plan’s final denial)
– Rusch v. United Health Group Inc., 2013 WL 3753947
(S.D. Tex. July 15, 2013) (periods of 6 months and 30
months)
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Contractual Limitations (cont.)
• State insurance laws might apply in case of insured plans.
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Contractual Limitations (cont.)
• Related issue: When does the statute of limitations
begin to run? Two approaches:
– when participant is required to file a proof of loss
(e.g., if a plan requires proof of loss within 60 days
from injury, the limitations period will begin on the
60th day after the injury)
– after the participant has exhausted the plan’s internal
claims and appeal procedure, i.e., when the plan
issued its final denial
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Contractual Limitations (cont.)
• For ERISA claims, this is an issue of federal law, not
state law.
• Supreme Court has recently ruled on this question.
Heimeshoff v. Hartford Life & Accident Ins. Co., 134
S. Ct. 604 (2013):
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Contractual Limitations (cont.)
• The plan in Heimeshoff required a participant to sue
within three years from the time that proof of loss
was due under the plan, which was “within 90 days
after the start of the period for which the Hartford
owes payment.” In this case the plan’s three-year
period ran out before the plan’s final denial of
benefits.
• The Supreme Court found the provision
enforceable.
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Contractual Limitations (cont.)
• As long as the limitations period itself is reasonable
in length, a participant and a plan may agree by
contract to a limitations period that starts to run
before the cause of action accrues (before the
internal review process is exhausted).
• Possibility of waiver, estoppel, equitable tolling to
protect a participant
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Contractual Limitations (cont.)
• Contractual limitations period should be explained in
the SPD, as well as the plan.
• To be safe, contractual limitations period should also
be set forth in claims denial letters.
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ANTI-ASSIGNMENT PROVISIONS
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Assignment of Benefits
• Customary for plans to pay medical providers
directly for services rendered to a plan participant
pursuant to an “assignment of benefits” signed by
participant.
• Insured plans might be required to honor such
assignments under state law.
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Assignment (cont.)
• Question: Can a plan limit the effect of an
assignment so that the provider doesn’t assume all
the rights of a participant, namely, right to appeal,
right to disclosure of plan documents, right to sue,
etc.?
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Anti-Assignment Provisions
• Most courts will honor an assignment if the plan
doesn’t prohibit it.
• Under ERISA, only participants or beneficiaries may
bring suit against a plan to recover benefits or
enforce their rights under the plan. Providers are
sometimes found to be “beneficiaries.” More
frequently, they are allowed to sue as “participants”
because they are “standing in the shoes” of
participants.
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Anti-Assignment (cont.)
• Courts are split on allowing an assignment if the
plan prohibits it.
• No downside to adding such a provision to a plan.
May be helpful to a plan, particularly in dealing with
out-of-network providers.
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Anti-Assignment (cont.)
• Basic Anti-Assignment Provision
– “Benefits under this plan cannot be assigned.”
• Problems
– Doesn’t say any attempted assignment is void.
– Doesn’t extend beyond benefits to other rights of a
participant under a plan.
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Anti-Assignment (cont.)
• Better Anti-Assignment Provision
– “To the extent permitted by law, the rights of any Participant
under this plan may not be voluntarily or involuntarily assigned or
alienated; provided, however, that all benefits of a Participant
shall be paid to the permitted providers of Medical Care except
to the extent that the Participant submits a provider statement
showing that the Participant has paid the provider all or a portion
of the covered expenses for which benefits are payable under
the Plan.”
Vardag v. Motorola, 264 F. Supp. 2d 1056 (S.D. Fla. 2003)
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Anti-Assignment (cont.)
• Additional Improvements
– “Rights under the Plan that cannot be assigned include the
Participant’s right to the services provided, the right to collect
from the Plan for those services, the right to receive Plan
documents and disclosures, the right to appeal benefits or claims
determinations or the right to sue to enforce any such rights.”
– “No Eligible Individual may assign to a provide his or her right to
file an appeal under the Plan’s claims and appeal procedure or
to file a suit for benefits under Section 502 of ERISA. As the
sole exception to this prohibition, an Eligible Individual may
assign his right to appear to a provider if the appeal involves an
urgent care claim.” OSF Healthcare System v. Weatherford,
2012 WL 996900 (C.D. Ill. March 23, 2012)
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MICROSOFT/INDEPENDENT
CONTRACTOR PROVISIONS
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Microsoft/ Independent
Contractor Provisions
• Exclude from eligibility:
– individuals classified by employers as independent
contractors, regardless of whether they are later
reclassified as employees
– individuals who agree to render services as independent
contractors
• Reclassification is prospective only (for purposes of
plan)
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Microsoft (cont.)
• Successful plan provision:
– "the term Employee shall also not include any individual
for any period during which the individual (i) is subject to
an agreement, signed by the individual, which provides
that the individual has no claim to any benefits paid by
the Employer to or for the benefit of its employees, or (ii)
without regard to any retroactive change in treatment, is
contemporaneously treated by the Employer for federal
tax purposes as other than a common law employee
through issuance of a Form 1099 rather than a Form W2.“ Bendsen v. George Weston Bakeries Distribution,
Inc., 2008 WL 4449435 (E.D. Mo. Sept. 26, 2008)
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Microsoft (cont.)
• Unsuccessful plan provision:
– "any person employed by the Corporation or a
Participating Affiliate and treated as such on the books
and records of the Corporation or Participating Affiliate,
and shall not include (i) any person treated by the
Corporation or Participating Affiliate as an independent
contractor or (ii) any person serving the Corporation or
Participating Affiliate through an agency, consulting firm,
payroll service, subcontractor or other third party
provider.“ Nahoun v. Employees’ Pension Plan of Credit
Suisse First Boston, 2005 WL 1476453 (S.D.N.Y. June
22, 2005)
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Microsoft (cont.)
• Recommendation
– clearly define eligible employee in all plan documents
– use consistent terms in all plan documents and in
policies and procedures
– use terminology that is consistent with business
practices
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SUBROGATION AND
REIMBURSEMENT PROVISIONS
(U.S. AIRWAYS V. MCCUTCHEN)
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McCutchen (cont.)
• Background:
– McCutchen was a participant in U.S. Airways’ selffunded health plan. He was seriously injured in a car
crash.
– U.S. Airways plan paid $66,885 of medical expenses.
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McCutchen (cont.)
• McCutchen sued the driver at fault and recovered
$110,000 ($10,000 from the driver’s insurance policy
and $100,000 from underinsured motorist coverage).
• After paying his attorney, he retained $66,000. U.S.
Airways plan demanded the total payment as
reimbursement for the medical expenses paid by the
plan. When McCutchen refused to comply, the plan
filed suit.
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McCutchen (cont.)
• Plan and SPD had a Subrogation and Right of
Reimbursement provision:
– “If the Plan pays benefits for any claim you incur as the
result of negligence, willful misconduct, or other actions
of a third party, the Plan will be subrogated to all your
rights of recovery. You will be required to reimburse the
Plan for amounts paid for claims out of any monies
recovered from a third party, including, but not limited to,
your own insurance company. . . .”
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McCutchen (cont.)
• ERISA section 502(a)(3) provides that a fiduciary can
bring a civil action:
– “to obtain other appropriate equitable relief to redress
such violations or to enforce any provisions of [ERISA]
or the terms of the plan.”
• Fiduciary brought action to enforce the plan term
requiring a participant to reimburse the plan for planpaid medical expenses out of any funds recovered
from a third party.
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McCutchen (cont.)
• Supreme Court:
– ERISA protects “contractually defined benefits”
– clear, unambiguous plan terms are controlling
– principles of equity apply only if there is no clear plan
term
– the clear reimbursement provision in this case applies
– however, the plan is silent on attorney’s fees, so the
common fund doctrine applies.
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McCutchen (cont.)
• Lesson: When a self-funded plan has clear,
unambiguous terms, those terms control in a lawsuit
for reimbursement.
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McCutchen (cont.)
• Suggested plan provisions:
– language specifically disclaiming equitable principles
– language applying the amount of reimbursement to any
amount paid, not just to the participant, but to spouse,
beneficiary, estate or trust, and providing that amounts
are recoverable even if they have been commingled with
other assets and that amounts do not need to be traced
– language ignoring earmarking or designations in
settlement agreements to items other than
reimbursement (such as pain and suffering)
– language providing that the plan is also reimbursed for
the costs incurred in recovering the reimbursement
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McCutchen (cont.)
• Suggested plan provisions:
– language specifically stating that the plan is reimbursed
from the first dollar received regardless of whether the
participant has been made whole
• will this discourage participants from trying to recover
from third party?; will it discourage attorneys from
taking cases?
• perhaps it will encourage plaintiffs’ attorneys to read
plan first and work out agreement with plan as to
attorney’s fees
• may wish to include language authorizing plan
administrator to negotiate the terms of reimbursement
in order to promote cooperation
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McCutchen (cont.)
• Tension:
– between wanting to take first dollar approach and not
wanting to deter participants from pursuing legal claims.
Plan sponsors may not want to take the most aggressive
approach possible. For example, the plan may wish to
provide that the plan’s right to reimbursement or
subrogation is net of reasonable costs and attorney's
fees
• SPD:
– Make sure SPD is consistent with plan
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ARBITRATION CLAUSES
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Federal courts generally recognize that claims
under ERISA are subject to arbitration (i.e., can
be ordered to arbitration pursuant to an
arbitration clause). E.g.:
• Bird v. Shearson Lehman/American Express, 926
F.2d 116 (2d Cir.), cert. denied, 501 U.S. 1251
(1991)
• Hernandez v. Jobe Concrete Products, Inc., 282
F.3d 360 (5th Cir. 2002)
• Lusk v. AmeriServ Financial, Inc., 2007 U.S. Dist.
LEXIS 55775 (S.D. Ind. July 31, 2007) (noting a
lack of a 7th Circuit decision)
• Chua v. Shippee, 2013 WL 4846689 (N.D. Ill.
September 10, 2013)
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• However, DOL regulations under ERISA section
503 limit use of arbitration provisions in group
health plans
– arbitration may be used as an appeal of an
adverse determination, but may not preclude a
subsequent lawsuit
– participants can’t be forced to pay for part of the
cost of arbitration

DOL regulations also (in effect) prohibit mandatory
cost-sharing in general, not just in group health
plans
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Cost-sharing provisions in arbitration clauses have
frequently been found contrary to ERISA
• Bond v. Twin City Carpenters Pension Fund, 307
F.3d 704 (8th Cir. 2002)
• Williams v. Ass’n de Prevoyance Interentreprises,
2012 U.S. Dist. LEXIS 68488 (E.D. La. May 16,
2012)
• Eisenrich v. Minneapolis Retail Meat Cutters and
Food Handlers Pension Plan, 2007 WL 3171515
(D. Minn. October 20, 2007)
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• Interpreting and applying these regulations, a court
declared invalid a mandatory arbitration clause in a
disability plan with respect to a claimant’s claim of
wrongful denial of benefits.
• In addition, the court ordered arbitration under the
plan of the claimant’s allegations of negligence and
gross negligence against the employer in regard to
a workplace injury.
• However, the court ordered that the employer must
bear all costs of that arbitration.
• Sosa v. PARCO Oilfield Services, Ltd., 2006 WL
2821882 (E.D. Tex. September 27, 2006)
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• Arbitration was once thought to be a quicker and
cheaper alternative to litigation, but not clear
whether that is true.
• With additional DOL restrictions, does it make sense
to include an arbitration clause in your plan?
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Conclusion/Q&A
Vince Hess
214-740-8732
vhess@lockelord.com
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