EMPLOYEE BENEFITS LAW
by Jayne Elizabeth Zanglein*
I.
II.
III.
IV.
V.
VI.
VII.
VIII.
IX.
INTRODUCTION...... . . . . . . . . . . . . . . . . . . . . . . . . ..
ERISA PREEMPTION OF WRONGFUL DEATH CLAIMs
EXTRACONTRACTUAL DAMAGES . . . . . . . . . . . . . . . . . . ..
REQUESTS FOR INFORMATION AND NOTICE
REQUIREMENTS
645
647
650
652
A. Notice of Plan Amendments . . . . . . . . . . . . . . . . . . .. 652
B. Penalty for Administrator's Failure to Comply with
Participant's Request for Information
653
C. Termination of Post-Retirement Medical Benefits
Without' 'Sufficient" Notice to Participants
655
REDUCTION OR TERMINATION OF BENEFITS
658
A. Termination of Benefits Due to Plant Closure
658
B. Reduction of Accrued Benefits
660
C. Termination of Post-Retirement Medical Benefits
662
REVIEW OF CLAIMS DENIALS . . . . . . . . . . . . . . . . . . . . .. 663
A. Application of the Treating Physician Rule in Benefit
Denial Cases
663
B. Consideration of Evidence Not Presented to Plan
Administrator in Claims Appeal
666
DEFINITION OF WELFARE PLANS
671
A. Sole Proprietorships and MEWAs . . . . . . . . . . . . . . .. 671
B. Severance Policy Defined as Welfare Plan. . . . . . . . .. 674
STATUTE OF LIMITATIONS
675
CONCLUSION................................. 675
I. INTRODUCTION
The employee benefits cases decided by the Fifth Circuit during the
survey period chronicle the effects of corporate downsizing and costcontainment prevalent in the 1980s. In Wildbur v. ARCa Chemical Co.,!
the Fifth Circuit ruled that the lower court could examine relevant evidence
outside of the administrative record when interpreting plan language
concerning enhanced benefits for employees whose employment was
• Professor of Law, Texas Tech University School of Law; B.M.E. Berklee College of Music,
1975; J.D. State University of New York at Buffalo, 1980.
1. 974 F.2d 631 (5th Cir. Del. 1992).
645
HeinOnline -- 25 Tex. Tech L. Rev. 645 1993-1994
TEXAS TECH LAW REVIEW
646
[Vol. 25:645
tenninated as a result of corporate consolidation? In Harms v. Caveham
Forest Industries, Inc} the court stated that cancellation of a severance
plan after a change of control may violate ERISA's prohibition against the
tennination of accrued benefits.4 In Whittemore v. Schlumberger Technology
Corp} the Fifth Circuit held that an employer was not required to give
employees advance notice when the employer modified its severance plan
to eliminate benefits for employees who were offered employment by a
successor corporation. 6 Wise v. EI Paso Natural Gas Compani involved
the tennination of post-retirement medical benefits by a successor corporation. s In Unida v. Levi Strauss & Co} the Fifth Circuit held that Levi
Strauss did not discriminate against its employees in violation of ERISA §
510 when it closed its San Antonio plant, allegedly to reduce retirement
costs. 1O And in Corcoran v. United Health Care, Inc.,ll the Fifth Circuit
held that ERISA preempts wrongful death actions arising from a denial of
benefits based on allegedly negligent medical review required as part of a
medical plan's cost containment program. 12
Other noteworthy cases include Medina v. Anthem Life Insurance
CO.,13 and Corcoran v. United Healthcare. Inc. 14 in which the court
refused to allow recovery for extra-contractUal damages lS and Godwin v.
Sun Life Assurance Co. of Canada,16 in which the court rejected plaintiff's
argument that a plan amendment is only effective where the participant
receives personal notice. 17 In Salley v. EJ. DuPont de Nemours & CO.,IS
the Fifth Circuit held that in a claims detennination a plan administrator
cannot randomly pick and choose what infonnation it will rely on,19 and
in Meredith v. Time Insurance CO.,2D the Fifth Circuit held that an insur-
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
See infra section VI.B., notes 241-299 and accompanying text
984 F.2d. 686 (5th Cir. Mar.). cert. denied, 114 S. Ct 382 (1993).
See infra section V.B., notes 172-203 and accompanying text
976 F.2d 922 (5th Cir. Sept 1992).
See infra section IV.A., notes 88-96 and accompanying text.
986 F.2d 929 (5th Cir. Mar. 1993).
See infra section IV.C., notes 123-57 and accompanying text.
986 F.2d 970 (5th Cir. Mar. 1993).
See infra section V.A., notes 159-71 and accompanying text.
965 F.2d 1321 (5th Cir. June). cert. denied, 113 S. Ct 812 (1992).
See infra section II.• notes 22-69 and accompanying text
983 F.2d 29 (5th Cir. Jan.), cert. denied, 114 S. Ct. 66 (1993).
965 F.2d 1321 (5th Cir. June 1992), cert. denied. 113 S. Ct. 812 (1992).
See infra section III., notes 70-87 and accompanying text.
980 F.2d 323 (5th Cir. Dec. 1992).
See infra section 1V.B., notes 97-122 and accompanying text.
966 F.2d 1011 (5th Cir. July 1992).
See infra section VI.A., notes 204-40 and accompanying text.
980 F.2d 352 (5th Cir. Jan. 1993).
HeinOnline -- 25 Tex. Tech L. Rev. 646 1993-1994
1994]
EMPLOYEE BENEFITS LAW
647
ance plan purchased by a sole proprietor is not an employee welfare benefit
plan under ERISA. 21
II. ERISA PREEMPTION OF WRONGFUL DEATH CLAIMS
ERISA preempts all state laws that relate to an employee benefit
plan. 22 The United States Supreme Court has declared that "[t]he preemption clause is conspicuous for its breadth.' ,23 While the goal of
preemption is laudable, in some circumstances, the doctrine of preemption
denies recovery to innocent persons who have been grievously injured.
Corcoran v. United HealthCare, Inc. 24 is such a case.
Florence Corcoran, an employee of South Central Bell Telephone,
participated in Bell's Medical Assistance Plan.2s The medical plan is a
self-funded medical plan administered by Blue Cross and Blue Shield of
Alabama. 26 The plan includes a quality care program that requires
participants to obtain advance notice for overnight hospital stays and certain
medical procedures. 27 The plan also requires participants to undergo
utilization review to detennine how long their hospitalization should
continue. 28 Failure to abide by the precertification and utilization review
provisions will result in a reduction of benefits payable under the plan. 29
The utilization review and precertification program is administered by
United HealthCare.
In early 1989, Aorence Corcoran became pregnant 30 That July, her
obstetrician recommended complete bed rest for the remainder of her
pregnancy.3) She applied for temporary disability benefits from her
employer, but was denied these benefits. 32 Corcoran appealed the denial
of benefits. 33 Included in the appeal was a letter from her obstetrician who
21. See infra section VILA.• notes 300-37 and accompanying text.
22. Employee Retirement Income Security Act (ERISA) § 514. 29 U.S.c. § 1144 (1988 & Supp.
I 1989).
23. FMC Corp. v. Holliday. 498 U.S. 52, 58 (1990).
24. 965 F.2d 1321 (5th Cir. June 1992).
25. Jd. at 1322. 1323.
26. Jd. at 1323.
27. Jd.
28. Jd.
29. Jd. If a plan participant does not follow the precertification procedure, benefits are reduced
by 20% for the remainder of the calendar year or until the annual out-of-pocket limit is reached. Also,
the annual out-of-pocket limit is increased from $1000 to $1250. If the participant contacts United
HealthCare. but does not comply with its decision. "the penalty may be waived ... if the medical facts
show that the treatment chosen was appropriate." Jd. The right to an internal appeal is not described
in the summary plan description. but is found in the Quality Care Program administrative manual. Jd.
30. Jd. at 1322.
31. Jd.
32. Jd.
33. Jd.
HeinOnline -- 25 Tex. Tech L. Rev. 647 1993-1994
648
TEXAS TECH LAW REVIEW
[Vol. 25:645
indicated Mrs. Corcoran had a high risk pregnancy.34 Bell again denied
the disability benefits, but solicited a second opinion on Mrs. Corcoran's
condition. 35 The obstetrician who offered the second opinion reviewed
Mrs. Corcoran's medical files, but did not examine her or talk to her
obstetrician. 36 In fact, Mrs. Corcoran was not even aware of the second
opinion. 37 The second obstetrician concurred with the original diagnosis
and advised the company to follow the advice of Mrs. Corcoran's doctor. 38
Near the end of Mrs. Corcoran's pregnancy, her doctor ordered her to
be hospitalized so that he could constantly monitor the fetus. 39 On October
3, Mrs. Corcoran was admitted to the hospital.40 Her obstetrician sought
precertification for the hospital stay.41 United HealthCare determined that
hospitalization was unnecessary and authorized ten hours per day of home
nursing care. 42 Mrs. Corcoran was discharged on October 12 because her
hospital stay was not precertified.43 She returned home and hired a nurse
for ten hours a day.44 On October 25, during a time when a nurse was not
on duty. the fetus died.45
The Corcorans sued Blue Cross and United HealthCare in Louisiana
state court for wrongful death. 46 Defendants removed the action to federal
court and moved for summary judgment, claiming that the wrongful death
action was preempted by ERISA,47 the district court granted the motion
for summary judgment. noting that ERISA preempts state law claims "'of
general application,' including tort claims where ERISA ordinarily plays no
role in the state law at issue.' .48 The district court said:
But for the ERISA plan, the defendants would have played no role in
Mrs. Corcoran's pregnancy; the sole reason the defendants had anything
to do with her pregnancy is because the tenns of the ERISA plan directed
Mrs. Corcoran to' the defendants (or at least to United HealthCare) for
approval of coverage of the medical care she initially sought49
The district court held that "because the ERISA plan was the source of the
relationship between the Corcorans and the defendants, the Corcorans'
34.
35.
36.
37.
38.
39.
40.
41.
42.
43.
44.
45.
46.
47.
48.
49.
[d.
[d.
[d.
[d.
[d.
[d.
[d.
[d.
[d.
[d.
[d.
[d.
[d.
[d.
[d.
[d.
at 1322-23.
at 1324.
at 1324-25.
at 1325.
HeinOnline -- 25 Tex. Tech L. Rev. 648 1993-1994
1994]
EMPLOYEE BENEFITS LAW
649
attempt to distinguish United's role in paying claims from its role as a
source of professional medical advice was unconvincing.' ,so The district
court granted summary judgment in favor of United HealthCare and Blue
CrosS. 51 The Corcorans appealed. 52
In their wrongful death action, the Corcorans alleged that United
HealthCare wrongfully denied the medical care recommended by Mrs.
Corcoran's doctor and wrongfully decided that ten hours of horne nursing
care daily was adequate medical care. 53 The action was brought under
article 2315 of the Louisiana Civil Code which provides that" [e]very act
whatever of man that causes damage to another obliges him by whose fault
it happened to repair it. .. 54 Louisiana courts have held that parents may
sue for the wrongful death of their children under article 2315.55
The Fifth Circuit noted that ERISA's preemption clause preempts all
state laws that "relate to" an employee benefit plan. 56 The phrase "relate
to" has been interpreted broadly: state laws "relate to" an employee
benefit plan "whenever they have 'a connection with or reference to such
a plan.' "57 Clearly, ERISA preempts state laws "that are specifically
designed to affect ERISA-governed employee benefit plans... 58 Less clear
in the statute, but well-established, is that ERISA preempts laws of general
application that may affect ERISA-governed plans. 59 Although commonlaw causes of action such as wrongful death do not involve laws that are
"'specifically designed' to affect ERISA plans," nevertheless, these types
of negligence actions may affect the plan. 60
In Pi/ot Life Insurance Co. v. Dedeaux,61 the United States Supreme
Court held that "ERISA preempts state law tort and contract actions in
which a beneficiary seeks to recover damages for improper processing of a
claim for benefits.' ,62 Relying on Pilot Life, the Fifth Circuit held that
ERISA preempts the Corcorans' wrongful death action because United
50.
5!.
52.
53.
Id.
Id.
Id.
Id. at 1326. On appeal. the Corcorans only pursued the claims against United HealthCare.
Id.
54. LA. avo CODE ANN. art. 2315 (West 1993).
55. Danos v. St. Pierre. 402 So. 2d 633. 637-38 (La. 1981).
56. 965 F.2d at 1328. Another Fifth Circuit preemption case decided this term is Hogan v. Kraft
Foods. 969 F.2d 142 (5th Cir. Aug. 1992). In Hogan. the court held that ERISA preempts violations of
TEX. INS. CODE ANN. art. 21.21 (Vernon 1981 & Supp. 1994), violations of the Texas DTPA. and the
torts of breach of fair dealing. negligence. and intentional inflection of emotional distress. 969 F.2d at
144.
57. 965 F.2d at 1328 (citing Shaw V. Delta Air Lines. Inc., 463 U.S. 85.96-97 (1983».
58. Id. at 1329.
59. [d.
60. Id.
6!. 481 U.S. 41 (1987).
62. Id. at 48-49.
HeinOnline -- 25 Tex. Tech L. Rev. 649 1993-1994
650
TEXAS TECH LAW REVIEW
[Vol. 25:645
HealthCare gave medical advice' 'in the context of making a determination
about the availability of benefits under the plan.' ,63 The court concluded:
When United's actions are viewed from this perspective, it becomes
apparent that the Corcorans are attempting to recover for a tort allegedly
committed in the course of handling a benefit determination. . . . The
principle of Pilot Life that ERISA preempts state-law claims alleging
improper handling of benefit claims is broad enough to cover the cause
of action asserted here. 64
The court recognized that its decision leaves a gap in remedies within
ERISA, a statute that was designed to protect the rights of plan participants. 65 However, the court concluded that "the lack of an ERISA remedy
does not affect a preemption analysis.,,66 Yet, the Fifth Circuit is sympathetic to the Corcorans' plight: "The result ERISA compels us to reach
means that the Corcorans have no remedy, state or federal, for what may
have been a serious mistake.' ,67 The court noted that employee benefit
plans have changed drastically since Congress enacted ERISA almost twenty
years ago. 68 The court suggested that Congress reevaluate ERISA in light
of "[f]undamental changes such as the widespread institution of utilization
review . . . so that [ERISA] ... can continue to serve its noble purpose of
safeguarding the interests of employees. ' ,69
III.
EXTRACONTRACTUAL DAMAGES
In Medina v. Anthem Life Insurance Co.,7° the Fifth Circuit refused
to allow the plaintiff to amend her complaint to allege extracontractual and
punitive damages. 71 ERISA § 502 allows plan participants to sue to
recover benefits due under the plan.72 ERISA does not specifically
63.
64.
65.
66.
965 F.2d at 1331.
/d. at 1332.
/d. at 1333.
/d.
67. /d. at 1338. The court further noted that:
This is troubling for several reasons. First, it eliminates an important check on the thousands
. of medical decisions routinely made in the burgeoning utilization review system. With
liability rules generally inapplicable, there is theoretically less deterrence of substandard
medical decisionmaking. Moreover, if the cost of compliance with a standard (reflected either
in the cost of prevention or the cost of paying judgments) need not be factored into utilization
review companies' cost of doing business, bad medica1judgments will end up being cost-free
to the plans that rely on these companies to contain medical costs. The ERISA plans, in tum,
have one less incentive to seek out the companies that can deliver both high quality services
and reasonable prices.
/d. (footnote omitted).
68. /d.
69. /d.
70. 983 F.2d 29 (5th Cir. Jan.), cert. denied, 114 S. Ct. 66 (1993).
71. /d.
72. 29 U.S.c. § 1102 (1988).
HeinOnline -- 25 Tex. Tech L. Rev. 650 1993-1994
1994]
EMPLOYEE BENEFITS LAW
651
mention recovery of extracontraetual damages. Predictably, the court
refused to allow such recovery: •• Had Congress intended to develop ERISA
remedies additional to the ones it specifically crafted, it has had ample
opportunity to enact such legislation. Since Congress has not translated its
intent into law, we are loathe to take this initiative on our own.,,73
In support of her argument, plaintiff quoted the Supreme Court's dicta
in Ingersoll-Rand Co. v. McClendon: 74 "[T]here is no basis in § 502(a)'s
language for limiting ERISA actions to those which seek 'pension benefits. '
It is clear that the relief requested here [compensatory and punitive
damages] is well within the power of federal courts to provide. ,,75 The
court rejected plaintiff's argument that Ingersoll-Rand opened the door for
recovery of punitive damages. The court cited the Seventh Circuit with
approval:
We are not rash enough to believe that the Court intended to overrule
settled law in most of the circuits, as well as narrowly limit - if not
overrule - its own decision in Russell in such an off-hand manner....
We will continue to doubt the availability of extracontraetual damages
under ERISA until a more plausible signal reaches us from above. 76
The Fifth Circuit expressed its reluctance "to believe that the Supreme
Court intended us to create a body of federal common law based upon an
off-hand statement in Ingersoll-Rand." 77 The court affirmed the district
court's decision denying plaintiff's motion for leave to amend her complaint
to allege punitive damages. 78
Likewise, in Corcoran v. United HealthCare, Inc.,79 the Fifth Circuit
refused to allow plaintiffs' claim for extracontractual damages resulting from
the death of their unborn child. 8o ERISA § 502(a)(3)81 allows plan
participants to sue to obtain "other appropriate equitable relief. ..82
73. 983 F.2d at 31; see also Pilot Life Ins. Co. v. Dedeaux. 481 U.S. 41. 54 (1987) in which the
Supreme Court stated that the "carefully integrated civil enforcement provisions found in § 502(a) ...
provide strong evidence that Congress did not intend to authorize other remedies that it simply forgot
to incorporate expressly." (quoting Massachusetts Mut. Life Ins. Co. v. Russell. 473 U.S. 134, 146
(1985)). In Russell, the Supreme Court noted that since the statute "says nothing about the recovery of
extracontraetual damages ... there really is nothing at all ... to support the conclusion that [the statuteI
gives rise to a private right of action for compensatory or punitive relief." 473 U.S. at 144.
74. 498 U.S. 133. 145 (1990).
75. 983 F.2d at 32.
76. Jd. (quoting Harsch v. Eisenberg, 956 F.2d 651. 660 (7th Cir.), cert. denied. 113 S. Ct. 61
(1992»). The court also relied on the Eleventh Circuit's decision in McRae v. Seafarers' Welfare Plan,
920 F.2d 819. 821 n.7 (11th Cir. 1991). Jd.
77. 983 F.2d at 32.
78. Jd. at 33.
79. 965 F.2d 1321 (5th Cir. June 1992).
80. ld. at 1334-35.
81. 29 U.S.C. § 1132(a)(3) (1988).
82. Jd.
HeinOnline -- 25 Tex. Tech L. Rev. 651 1993-1994
652
TEXAS TECH LAW REVIEW
[Vol. 25:645
Plaintiffs argued that punitive or extracontractual damages are "other
appropriate equitable relief" authorized by § 502(a)(3).83
In their wrongful death action, the Corcorans sought recovery against
United HealthCare, a company that performed utilization review services on
behalf of the plan, based on United HealthCare's alleged breach of
contract. 84 The Fifth Circuit noted that principles of both trust law and
contract law allow a plaintiff to recover sufficient damages to make the
plaintiff whole. 85 However, the court further noted that courts uniformly
have held that a plaintiff cannot recover damages from a doctor for breach
of contract "unless there is an express agreement to perform a particular
service or to achieve a specific cure. ,,86 The court found that United
HealthCare did not contractually agree to perform a specific service or to
obtain a specific result and held that the Corcorans' "contractual theory of
recovery is dubious at best.' ,87
IV. REQUESTS FOR INFORMATION AND NOTICE REQUIREMENTS
A. Notice of Plan Amendments
In Whittemore v. Schlumberger Technology Corp.,88 the court rejected
plaintiffs' argument that Schlumberger should have given notice of a
severance plan amendment to employees in advance of the statutory notice
period so that employees would receive full notice of the amendment before
they were terminated. 89 Originally, the plan provided severance pay in lieu
of notice of termination. 9o On December 22, 1988, the plan was amended
to provide that employees who were offered full time employment with the
acquiring company were not eligible for severance pay.91 Plaintiffs
received copies of the amended plans on February 7, 1989.92 Plaintiffs'
employer was acquired on February 28, 1989 and apparently employment
was terminated shortly thereafter. 93 On March 8, 1989, plaintiffs received
a summary plan description for the amended plan.94 The court rejected
83.
84.
85.
965 F.2d at 1336.
Jd. at 1337.
Jd. at 1336.
86. Jd. at 1337.
87. [d.
88. 976 F.2d 922 (5th Cir. Sept 1992).
89. Jd. at 923.
90. Jd.
91. Jd.
92. Jd. at 923-24.
93. Jd. at 923. The exact date of tennination is unclear from the court's opinion. It appears that
plaintiffs were offered employment with the acquiring company. See id.
94. Jd. at 923-24.
HeinOnline -- 25 Tex. Tech L. Rev. 652 1993-1994
1994]
EMPLOYEE BENEFITS LAW
653
plaintiffs' argument that such late notice was inequitable.95 The Fifth
Circuit held "that Schlumberger was entitled to give notice within the
statutory notice period and was not required to provide it sooner.' '96
B. Penalty for Administrator's Failure to Comply with Participant's
Request for Information
ERISA § 502(c) penalizes a plan administrator who "fails or refuses
to comply with a request for any infonnation which such administrator is
required ... to furnish to a participant or beneficiary (unless such failure or
refusal results from matters reasonably beyond the control of the administrator). ' ,97 The administrator must mail the requested infonnation to the
participant within thirty days after the request. 98 If the administrator fails
or refuses to comply, the administrator' 'may in the court's discretion be
personally liable to such participant or beneficiary in the amount of up to
$100 a day from the date of such failure or refusal, and the court may in its
discretion order such other relief as it deems proper.' '99
In Godwin v. Sun Life Assurance Co. of Canada,IOO the Fifth Circuit
upheld a district court's refusal to award penalties under section 502(c).
Murphy Godwin was a participant in a group long-tenn disability plan
issued to his employer by Sun Life. lol In 1984, Godwin was injured at
work. I02 He continued to work for two years until he was rendered disabled
in a second job-related accident. 103 Two weeks later, Godwin was
terminated because of his health. 104 He applied for disability benefits
under the Sun Life plan. 105
In 1985, prior to his injuries, Godwin requested certain plan information. 106 Allegedly, over the next four years, Sun Life failed to provide
the requested infonnation. I07 The district court held that Godwin was not
prejudiced by Sun Life's failure to provide infonnation and refused to award
the statutory penalty to Godwin. 108 On appeal, Godwin claimed that
95.
96.
97.
98.
99.
100.
101.
102.
103.
104.
lOs.
106.
107.
108.
[d. at 924.
[d.
29
u.s.c. §
1132(c)(I) (1988 & Supp. II 1990).
[d.
[d.
980 F.2d 323 (5th Cir. Dec. 1992).
at 324.
[d.
[d.
[d.
Id.
Id.
Id.
Id.
Id.
at 324-25.
at 325.
at 326.
In fact. the court said that "not only was Godwin not prejudiced by the 1981
amendment, he benefitted from it.... [nhe same amendment that Godwin complains of was the same
HeinOnline -- 25 Tex. Tech L. Rev. 653 1993-1994
654
TEXAS TECH LAW REVIEW
[Vol. 25:645
ERISA does not require a showing of prejudice as a precondition to an
award of penalties under § 502(c)(1).I09 The Fifth Circuit affinned and
held that "[a]lthough section ... [502] does not require the claimant to
show he was prejudiced to be entitled to penalties, . . . prejudice is one
factor a district court may consider in exercising its discretion. "110
The court also rejected Godwin's contention that a plan amendment
which offset Social Security benefits was unenforceable against Godwin
because he was not notified of the amendment when he applied for
benefits. 11 I ERISA § 102112 requires that plan participants receive a
summary plan description ("SPD") which contains infonnation including
any "circumstances which may result in disqualification, ineligibility, or
denial or loss of benefits.,,113 A copy of the SPD and all amendments
must be provided to plan participants within 210 days after the plan year in
which the change is adopted. 114 At trial, a Sun Life representative testified
that after each amendment Sun Life updated the SPDs and sent the updated
version to Godwin's employer for distribution. 1I5 Nonetheless, Godwin
contended that he never received the SPDS. 116
The district court rejected Godwin's argument that the amendment was
ineffective without personal service. 117 The Fifth Circuit affinned. 1I8
A plan amendment is effective even if it was not personally served on the
plan participant' 'unless the beneficiary can show active concealment of the
amendment,,119 or "some significant reliance upon, or possible prejudice
flowing from" the lack of notice. 120 The Fifth Circuit found no evidence
of active concealment, significant reliance, or prejudice from his alleged lack
amendment which made him eligible for any benefits at all." [d. at 328 n.14.
109. [d. at 326.
110. [d. at 327 (footnote omitted). See Paris v. Profit Sharing Plan for Employees of Howard
B. Wolf, Inc., 637 F.2d 357. 362 (5th Cir.), cert. denied, 454 U.S. 836 (1981) (refusing to find the
district judge abused his discretion in denying relief under 29 U.S.C. § 1132(c)( I) when plaintiffs failed
to demonstrate prejudi<:e).
II J. 980 F.2d at 328. Set-offs are enforceable under the Supreme Coun's decision in Alessi V.
Raybestos-Manhattan, Inc.• 451 U.S. 504, 526 (1981). See also Nesom v. Brown & Root, USA, Inc.,
987 F.2d 1188, 1193 (5th Cir. Apr. 1993) (discussing set-offs and holding the district coon properly
applied set-offs to the plaintiff's award).
112. 29 U.S.c. § 1022 (1988).
113. [d. § 1022(b).
114. See 29 U.S.C. §§ 1022(a)(I) (1988) and 1024(b)(1) (1988 & Supp. IV 1992).
115. 980 F.2d at 328.
116.
117.
118.
119.
[d.
[d.
[d.
[d.; see Blau v. Del Monte Corp., 748 F.2d 1348, 1352 (9th Cir. 1984), cert. denied, 474
U.S. 865 (1985).
120. 980 F.2d at 328; see Govoni v. Bricklayers, Masons & Plasterers Int'l Union of Am., Local
No.5 Pension Fund, 732 F.2d 250, 252 (1st Cir. 1984).
HeinOnline -- 25 Tex. Tech L. Rev. 654 1993-1994
1994]
655
EMPLOYEE BENEFITS LAW
of notice. 121
Godwin. 122
Therefore, the offset was valid and enforceable against
C. Termination of Post-Retirement Medical Benefits Without
"Sufficient" Notice to Participants
In 1959, El Paso Natural Gas Company ("EI Paso") began to
provide comprehensive medical insurance to its retirees. 123 The plan
allowed EI Paso to unilaterally modify or terminate coverage. 124 EI
Paso increased and decreased medical benefits on several occasions. 125
The plan was amended several times to comply with ERISA. 126
The SPD in dispute provided that "[u]pon retirement, you, your spouse,
and eligible children under 19 years of age are automatically insured for
retirement health care benefits and the Company pays the entire
COSt.,,127 The SPD did not contain a reservation of rights clause that
would allow EI Paso to amend or terminate the plan, although the SPD
did refer participants to the official plan document for complete information. 128
In 1983, Burlington Northern, Inc. acquired EI pasO. 129 Burlington
began to provide medical coverage to EI Paso employees through its own
medical plans. EI Paso, however, continued to pay post-retirement
medical benefits in full. 130 When FASB 106 131 was proposed, Burlington commissioned an actuarial analysis to determine the impact of the
accounting rule's requirement that employers include on their balance
sheets the present value of estimated future costs for post-retirement
medical benefits. 132 The impact was great: "[T]he new balance sheet
liability and annual expenses were conservatively estimated to be 'significantly greater than ... for all of the other Burlington-held companies
added together.'" 133 The actuarial report raised concern that EI Paso's
SPD may not have included a reservation of rights clause. l34
121.
980 F.2d at 328.
122.
[d.
123.
Wise v. El Paso Natural Gas Co., 986 F.2d 929, 932 (5th Cir. Mar. 1993).
[d.
124.
125.
126.
127.
128.
129.
130.
[d.
[d.
[d.
131.
FINANCIAL
[d.
[d.
[d.
ACCOUNTING
STANDARDS
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
132.
133.
134.
No. 106:
EMPLOYER'S
ACCOUNTING
(1990).
986 F.2d at 932.
[d. at 933.
Jd.
HeinOnline -- 25 Tex. Tech L. Rev. 655 1993-1994
FOR
656
TEXAS TECH LAW REVIEW
[Vol. 25:645
In response to the report, EI Paso amended the SPD to include the
following reservation of rights clause: "The Company reserves the right
to alter, amend, delete, cancel or otherwise change the plan or any of the
provisions of the plan at anytime [sic]. If the plan is tenninated, coverage for you and your eligible family members will end. "13S
In October 1985, EI Paso exercised this right and eliminated postretirement medical benefits. 136 EI Paso announced that employees who
retired on or after March 1, 1986 would not be eligible for free postretirement medical benefits. 137 Benefits would continue for employees
who retired before March 1986. 138 Plaintiffs, employees who retired
after March 1, 1986, sued to compel EI Paso to pay post-retirement
medical benefits. 139
The post-retirement medical plan at issue is an "employee welfare
benefit plan," as defined by ERISA § 3(1).140 Welfare plans are not
subject to ERISA's vesting requirements. 141 The Fifth Circuit reaffirmed its well established position that "ERISA simply does not prohibit
a company from eliminating previously offered benefits that are neither
vested nor accrued. '.142 Therefore, EI Paso had the right to terminate
coverage of free post-retirement medical benefits under the plan. 143
Next. the court considered whether EI Paso violated ERISA by
tenninating the post-retirement medical benefits without first notifying its
employees. l44 The court noted that it had addressed this issue twice
this tenn. In Whittemore v. Schlumberger Technology Corp.,145 the
135. [d.
136. [d.
137. [d. However, E1 Paso allowed employees to continue to participate under the plan at their
own expense. [d. at 933 n.5.
138. [d. at 933.
139. [d.
140. 29 U.S.c. § 1002(1) 1988). An employee welfare benefit plan is defined as:
[A]ny plan, fund or program which was heretofore or is hereafter established or maintained
by an employer or by an employee organization, or by both, to the extent that such plan,
fund, or program was established or is maintained for the purpose of providing for its
participants or their beneficiaries, through the purchase of insurance or otherwise, (A) medical,
surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability,
death or unemployment, or vacation benefits, apprenticeship or other training programs, or
day care centers, scholarship funds, or prepaid legal services, or (B) any benefit described in
section 186(c) of this title (other than pensions on retirement or death, and insurance to
provide such pensions). [d.
141. 29 U.S.C. § 1051 (I) (1988).
142. 986 F.2d at 935 (quoting Phillips v. Amoco Oil Co., 799 F.2d 1464, 1471 (11th Cir. 1986),
cert. denied, 481 U.S. 1016 (1987»; see also McGann v. H & H Music Co., 946 F.2d 401, 405-07 (5th
Cir. 1991) (holding Congress did not intend ERISA to circumscribe employers' control over the content
of benefit plans they offer to their employees), cert. denied, 113 S. Ct 482 (1992).
143. 986 F.2d at 935.
144. [d.
145. 976 F.2d 922 (5th Cir. Sept. 1992).
HeinOnline -- 25 Tex. Tech L. Rev. 656 1993-1994
1994]
EMPLOYEE BENEFITS LAW
657
court rejected plaintiffs' argument that notice beyond the statutory requirements is necessary: "[The defendant] was entitled to give notice
within the statutory notice period and was not required to provide it
sooner. ,,146 In Godwin v. Sun Life Assurance Co. of Canada,147 the
Fifth Circuit held "that an amendment to a welfare benefit plan is valid
despite a beneficiary's lack of personal notice, unless the beneficiary can
show active concealment of the amendment." 148
The Schlumberger - Godwin - El Paso trilogy sounded the death
knell for the emerging argument that ERISA's notice requirements are
inadequate and, therefore, plan administrators are required, by equity, to
provide "adequate" notice, or notice beyond that required by statute.
ERISA § 104(b)( I) requires a plan administrator to notify participants of
any plan amendment within 210 days after the end of the plan year in
which the amendment is adopted. 149 For example, if a plan which operates on a calendar year is amended on January 1, 1993, plan participants must be notified of this modification by July 29, 1994. The
inequity is obvious: a participant may not learn of a terminated or reduced benefit until more than nineteen months after the benefit was
terminated or reduced. The court acknowledged that "amendments,
almost by definition, do not always herald pro-beneficiary news.' ,ISO
Unlike Schlumberger and El Paso, where it appears that plaintiffs were
given some advance notice of the amendment, even though the notice
was short or otherwise inadequate, some employers may use ERISA's
notice provisions to fraudulently induce or mislead employees into taking
action that they would not have taken if they knew of the plan amendment. The Fifth Circuit was not faced with such an egregious failure-tonotify case this term. If faced with an egregious abuse of ERISA's
reporting requirements, perhaps in a future case the Fifth Circuit will be
willing to apply equitable principles to deter this type of abuse.
The Fifth Circuit professed to be sympathetic to the plight of the EI
Paso workers. 151 However, the court's sympathies for the employer outweighed its concern for the "significant hardship" that its decision
imposes "on workers who have invested, in many cases, most of their
lives in service to the company.,,152 The court explained:
Across the nation, companies faced with rapidly rising costs and
worried about their competitiveness are paring retiree benefits that were
146.
147.
148.
149.
150.
151.
152.
Jd. at 923-24.
980 F.2d 323 (5th Cir. Dec. 1992).
Jd. at 328.
29 U.S.C. §1024(b)(3) (1988).
Wise v. EI Paso Natural Gas Co., 986 F.2d 929, 937 (5th Cir. Mar. 1993).
Jd.
Jd.
HeinOnline -- 25 Tex. Tech L. Rev. 657 1993-1994
658
TEXAS TECH LAW REVIEW
[Vol. 25:645
once considered sacrosanct. But ERISA simply does not grant employees unfettered rights to the corporate treasury. Employers need not
abandon prudent business behavior when marketplace forces compel
them to rethink earlier offers of contingent, non-vested benefits. In
light of today's spiraling health care costs, cutbacks in governmentsponsored health care coverage (Medicare), and our ever-aging population, Congress may enact changes. But the current ERISA requires no
more. 153
The court acknowledged that although ERISA does not impose vesting
standards on welfare plans, "[a]n employer can oblige itself contractually
to maintain benefits at a certain level in ways that are not mandated by
ERISA." 154 However, the court found no evidence that EI Paso "waived
its statutory right to modify or terminate benefits and vested its workers
contractually with the right to receive free lifetime coverage. . .. Such
extra-ERISA commitments must be found in the plan documents and must
be stated in clear and express language.,,\55 Moreover, the court stated
that plaintiffs' reliance on the pre-1985 SPDs, which did not contain the
reservation of rights clause, was misplaced.1~6 The pre-1985 SPDs are
irrelevant, and the 1985 SPD (with the reservation of rights clause) governs
the termination of benefits that became effective on March I, 1986. 157
V. REDUCTION OR TERMINATION OF BENEFITS
A. Termination of Benefits Due to Plant Closure
In last year's survey, the most interesting Fifth Circuit cases related to
alleged ERISA § 510 violations, most notably McGann's allegations that H
& H Music violated § 510 by reducing medical benefits for treatment of
AIDS, thus discriminating against him "for exercising any right to which
he is entitled under the provisions of an employee benefit plan ... or for
the purpose of interfering with the attairunent of any right to which such
participant may become entitled under the plan.,,\58 During this survey,
the court decided another § 510 case in which plaintiffs fared no better. 159 .
153. Id.
154. Id. (quoting Vasseur v. Halliburton Co., 950 F.2d 1002, 1006 (5th Cir. 1992».
155. Id.
156. Id. at 938.
157. Id.
158. See McGann v. H & H Music. 946 F.2d 401 (5th Cir. 1991), cert. denied. 113 S. Ct. 432
(1992); see also 29 U.S.c. § 1140 (1988) (making it unlawful to discriminate against a plan participant
for exercising a right provided in an employee benefit plan).
159. See Unida v. Levi Strauss & Co.• 986 F.2d 970 (5th Cir. Mar. 1993).
HeinOnline -- 25 Tex. Tech L. Rev. 658 1993-1994
1994]
EMPLOYEE BENEFITS LAW
659
In 1990, plaintiffs were tenninated by Levi Strauss due to the closing
of its San Antonio plant. l60 Plaintiffs sued Levi Strauss, alleging that the
employer closed the plant in order to deprive them of their employee
benefits, in violation of § 510. 161 Under § 510, "the plaintiff must show
that the employer had the 'specific intent to violate ERISA." ,162
The district court awarded summary judgment in favor of Levi Strauss
based, in part, on the affidavit of Peter Thigpen, the manager who decided
to close the plant. 163 In his affidavit, Thigpen stated: "My decision to
close the San Antonio plant was made without regard to costs associated
with pension, workers' compensation, or other employee benefits."I64
Plaintiffs attempted to rebut Thigpen's statement by showing:
(1) evidence that the San Antonio plant was closed to "cut costs"; (2)
evidence that Levi Strauss decided to close its San Antonio plant rather
than cutting back ... [other] operations ... where the company did not
incur pension and benefit expenses; (3) evidence that, at the time the San
Antonio plant was closed, management was aware that benefit and
pension costs were rising steeply on a company-wide basis; and (4)
evidence suggesting that the plant closure prevented 369 employees ...
from becoming "fully vested. ,,16S
Plaintiffs requested the court to infer from this evidence that the San
Antonio plant was closed in violation of ERISA § 510. 166
The court noted that although ' '[p]laintiffs are entitled to have
reasonable inferences drawn in their favor, the inferences to be drawn 'must
be rational and reasonable, not idle, speculative, or conjectural."'167 The
court criticized the evidence offered by plaintiffs. Although plaintiffs
alleged that the San Antonio plant was closed to cut costs at a time when
benefit costs were rising company-wide, plaintiffs did not present' 'evidence
suggesting that Levi Strauss closed the San Antonio plant because of high
Id. at 973.
Id. Plaintiffs also sued under the Texas Workers' Compensation Statute, which makes it
unlawful to "discharge or in any other manner discriminate against any employee because the employee
has in good faith filed a claim, hired a lawyer to represent him in a claim, instituted, or caused to be
instituted, in good faith, any proceeding under the Texas Workmen's Compensation Act ...." Act of
May 7.1971. 62d Leg., R.S., ch. 115, § I, 1971 Tex. Gen. Laws 884, repealed by Act of May 22,1993,
73d Leg., R.S., ch. 269, § 5(1), 1993 Tex. Gen. Laws 1275. Plaintiffs' novel argument was that Levi
Strauss violated art. 8307c when it closed the San Antonio plant "because of high costs that include
workers' compensation costs, and in doing so discharge!d) employees who have and employees who have
not engaged in workers' compensation activities." 986 F.2d at 977. The court concluded that such
conduct does not violate article 8307c. Jd. The court held that "an employee cannot prevail under
article 8307c unless he can demonstrate that he was discriminated against, by being discharged or
otherwise treated unequally, for engaging in the specified workers' compensation activities." Jd. at 978.
162. 986 F.2d at 980 (quoting Clark v. Resistoflex Co., 854 F.2d 762. 770 (5th Cir. 1988».
163. Id.
164. Id.
165. Id. (footnote omitted).
166. Id.
167. Id. (quoting Richoux v. Armstrong Cork Corp.• 777 F.2d 296, 297 (5th Cir. 1985».
160.
161.
HeinOnline -- 25 Tex. Tech L. Rev. 659 1993-1994
660
TEXAS TECH LAW REVIEW
[Vol. 25:645
pension and benefit costs at that plant.' '168 Nor did plaintiffs prove that
benefit costs were rising at the San Antonio plants.169 The Fifth Circuit
observed: "In an era when benefits costs are ever increasing, if mere
evidence of company-wide cost increases in ERISA benefits supported an
inference that a plant was closed with specific intent to violate ERISA,
every plant closure could be challenged under ERISA section 510 .... ,,170
Likewise, the court criticized evidence that the plant closure prevented
369 employees from vesting. The court noted that "where the only
evidence [offered to prove] that an employer specifically intended to violate
ERISA is the employee's lost opportunity to accrue additional benefits, the
employee has not put forth evidence sufficient to separate that intent from
the myriad of other possible reasons for which an employer might have
discharged him. "171 The Fifth Circuit held that plaintiffs failed to demonstrate Levi Strauss' specific intent to violate ERISA § 510. 172
B. Reduction of Accrued Benefits
In Harms v. Caveham Forest Industries, Inc.,m the Fifth Circuit
reviewed a severance plan de novo, as required by Firestone Tire & Rubber
Co. v. Bruch. 174 After scrutinizing the plan language and deferring to the
plan administrator's proper factual determinations relating to benefits
eligibility,175 the court held that the plan allowed Crown Zellerbach to cancel
the severance plan after a change of control. 176 However, the court noted
that Crown Zellerbach may have violated ERISA § 204(g)(2),177 which
prohibits the reduction or termination of accrued retirement benefits, when
it cancelled the severance benefits. 178 The court disagreed with the lower
court's finding that the plan was a welfare plan, not a retirement plan, and
therefore not protected by ERISA § 204(g).179
168. Id.
169. Id.
170. Id.
171. Id. at 981 (citing Clark v. Resistoflex Co.• 854 F.2d 762. 771 (5th Cir. 1988».
172. Id.
173. 984 F.2d 686 (5th Cir. Apr.), cert. denied, 1I4 S. Ct. 382 (1993).
174. 489 U.S. 101, lIS (1989) (holding that when a plan does not grant discretionary authority
to the plan administrator to determine benefit eligibility, a denial of benefits is reviewed de novo). The
parties conceded that the plan did not delegate discretionary authority to the plan fiduciaries. 984 F.2d
at 688.
175. See Pierre v. COMecticut Gen. Life Ins. Co., 932 F.2d 1552, 1562 (5th Cir.), cert. denied,
1I2 S. Ct. 453 (1991).
176. 984 F.2d at 690.
177. 29 U.S.c. § 1054(g)(2) (1988).
178. 984 F.2d at 691.
179. Id. at 692
HeinOnline -- 25 Tex. Tech L. Rev. 660 1993-1994
1994]
EMPLOYEE BENEFITS LAW
661
The plan under scrutiny is "Supplement C," an amendment to the
Crown Zellerbach Retirement Plan. 180 Supplement C describes itself as
"a benefit 'in lieu of Early Retirement Benefits and Vested Benefits.'''181
Benefits are to be paid to discharged employees instead "of their normal
retirement benefits and are payable for life."I82 The major distinction
between the Supplement C benefits and normal retirement benefits offered
under the plan is that the supplemental benefits are to be paid without
reducing the benefits by an early retirement discount factor. 183
The lower court held that the Supplement C benefits were unaccrued
welfare benefits which were not protected by § 204(g).I84 Because
eligibility for Supplement C benefits "is contingent upon an employee's
involuntary separation from" Crown Zellerbach,185 the district court
concluded that the plan is a severance plan and, as such, is a welfare benefit
plan not a retirement plan.
The Fifth Circuit examined the legislative history of a 1984 amendment
to ERISA § 204(g)(2). The legislative history distinguished severance
benefits that cease at retirement age from benefits that continue after
retirement: "[A] subsidy that continues after retirement is generally to be
considered a retirement-type subsidy. "186 The Fifth Circuit held that the
Supplement C benefits are retirement-type subsidies because the benefits are
payable for life,187 the benefits are calculated in a normal manner for
retirement subsidies,188 and the age and service requirements are substantially the same as for retirement benefits. 189 Also, the court noted that
under Supplement C, an employee's years of service do not include any
period during which the employee receives severance benefits under a
separate benefit program. 190 The court concluded that "Supplement C
does not duplicate severance obligations but is, in fact, a retirement-type
subsidy protected by ERISA section 204(g). ,,191
Section 204(g) prohibits the elimination or reduction of retirement
benefits' 'with respect to a participant who satisfies (either before or after
180. Id. at 689.
181. Id. at 691.
182. Id.
183. Id.
184. Id.
185. Id.
186. Ross v. Pension Plan for Hourly Employees of SKF Indus., 847 F.2d 329, 333 (6th Cir.
1988) (quoting S. REP. No. 575, 98th Cong., 2d Sess. 3D, reprinted in 1984 U.S.C.C.A.N. 2547, 2576).
187. 984 F.2d at 692.
188. Id. Benefits are calculated "by multiplying the participant's [mal average pay figure (the
"Dollar Amount") by his years of service." Id.
189. Id.
190. Id.
191. Id.
HeinOnline -- 25 Tex. Tech L. Rev. 661 1993-1994
662
TEXAS TECH LAW REVIEW
[Vol. 25:645
the amendment) the preamendment conditions for the subsidy.,,192 The
court held that the employees clearly met the age and service requirements. 193 Less clear, is whether they timely incurred an "involuntary
separation" from their employer. 194
In 1985, Crown Zellerbach ("Crown") attempted to ward off a hostile
takeover. 195 On April I, 1985, Crown adopted Supplement c. 196 All
persons employed by Crown on April I, 1985 would become eligible for an
enhanced severance benefit in the event of a change of control of
Crown. 197 On May 5, 1985, Crown's Timber and Wood Products operations were acquired by Caveham Forest Industries (" CFI").198 Plaintiffs
accepted CR's offer of employment. 199 On May 6, 1985, Crown amended
its Retirement Plan to eliminate Supplement c. 2OO Within the next year,
each of the plaintiffs were involuntarily separated from CFI and .received
severance benefits under aCFI severance plan. 201
The Fifth Circuit held that under ERISA § 204(g), it is irrelevant
whether plaintiffs were involuntarily separated before or after Crown
eliminated the Supplement C benefits by plan amendment. 202 The court
concluded that "[t]hese were, in short, vested pension benefits that had
accrued and could not be reduced or eliminated by subsequent plan
amendment. ,,203
C. Termination of Post-Fetirement Medical Benefits
See discussion of Wise v. El Paso Natural Gas Co .• in section IV.C.
above.
192.
193.
194.
195.
196.
197.
198.
199.
29 U.S.c. § 1054(g)(2).
984 F.2d at 692.
Id.
Id. at 688.
Id.
Id.
Id.
Id.
200. Id.
201. Id.
202. Id. at 692.
203. Id. The coun also held that Crown did not violate ERISA by transferring to CFI its
obligation to pay benefits under the plan. Id. at 693. The coun held that the transfer is not "necessarily
a modification of ... benefits, so long as the CFI plan does not reduce the benefits already accrued to
beneficiaries by vinue of their service to [Crown)." Id. The coun also affirmed the district coun's
refusal to award costs and attorney fees to plaintiffs. Id. at 694.
HeinOnline -- 25 Tex. Tech L. Rev. 662 1993-1994
1994]
EMPLOYEE BENEFITS LAW
663
VI. REVIEW OF CLAIMS DENIALS
A. Application of the Treating Physician Rule in Benefit Denial Cases
In Salley v. E.I. DuPont de Nemours & CO}04 the Fifth Circuit
applied the abuse of discretion standard20s to a termination of hospitalization benefits. 206 Danielle.Salley, a teenager, was a beneficiary under the
DuPont Hospital Medical-Surgical Coverage Plan. 207 Danielle had a
history of emotional disabilities, drug abuse, and depression. 208 She had
been hospitalized three times for these symptoms.209 During these
hospitalizations, Danielle exhibited "suicidal tendencies, attempted to
escape, and experienced episodes of head-banging.' ,210 Although she
improved during her hospital stays, she reverted to her previous behavior as
soon as she was released. 211 Her psychiatrist, Dr. Gordon Blundell,
concluded that Danielle could not continue to live with her parents and
attend public school without suffering a relapse. 212
Dr. Blundell labeled Danielle's frequent hospital admissions as a
"revolving door admissions" problem.213 Dr. Blundell worked with the
plan administrators for the DuPont medical plan in an effort to eliminate the
revolving door admissions problem. 214 Jointly, they designed a benefit
flex which granted Danielle coverage for benefits not otherwise covered
under the plan.215 The benefit flex was mutually advantageous: Danielle
received the desired coverage, and the plan reduced its expenses through less
204. 966 F.2d 1011 (5th Cir. July 1992).
205. In Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989), the Supreme Court held that
a denial of benefits "is to be reviewed under a de fWVO standard unless the benefit plan gives the
administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the
terms of the plan." Jd. at 115. Where a plan administrator or fiduciary is given discretionary authority,
the denial is reviewed under an abuse of discretion standard. Jd. Under this standard, the court must
determine whether the plan administrator acted arbitrarily or capriciously. Penn v. Howe-Baker Eng'rs.
Inc., 898 F.2d 1096, 1100 n.2A (5th Cir. 1990).
In the instant case. the DuPont medical plan provided that "[t]he [DuPont] Employee Relations
Department shall be responsible for development of procedures to implement the policy, for interpretation
of policy, and for coordination of administration." 966 F.2d at 1014. The contract between DuPont and
Preferred Health Care provided that "DUPONT reserves fmal authority to authorize or deny payment
for services to beneficiaries of a Plan." Jd. The court held that this language was sufficient to trigger
review under an abuse of discretion standard. Jd.
206. 966 F.2d at 1014.
2m. Jd. at 1012.
208. Jd.
209. Jd.
210. Jd. at 1013.
21 I. Jd.
212. Jd.
213. Jd.
214. Jd.
215. Jd.
HeinOnline -- 25 Tex. Tech L. Rev. 663 1993-1994
664
TEXAS TECH LAW REVIEW
[Vol. 25:645
expensive treatment. 216
After Danielle's second hospitalization, the Salleys and hospital
employees attempted to locate better treatment for Danielle.217 They
considered boarding schools but were unable to locate a facility that would
meet all of her needs. 218 Unable to fmd a suitable alternative, Dr. Blundell released Danielle to attend public schools.219 She suffered a relapse. 22o
Danielle was hospitalized a third time and restabilized quickly.221
She began "to function at the highest level she ever has in life.' ·222
Encouraged by this progress, Dr. Blundell told a DuPont case manager that
Danielle had dramatically improved, but expressed his reservations about
releasing Danielle before making suitable arrangements for her continued
care. 223 The case manager advised Dr. Blundell that the plan would review
DanielIe's case to determine whether continued care was "medically
necessary" under the DuPont plan.224
Danielle's case was evaluated by Dr. Ahluwalia, a psychiatrist
employed by the case management firm. 225 Dr. Ahluwalia was familiar
with Danielle's medical history, although she' 'never had examined Danielle
nor reviewed the medical records from the second or third admission.' ,226
Dr. Ahluwalia decided to terminate benefits for DanielIe's hospitalization, knowing that this was against the recommendation of Danielle's
physician. 227 The Salleys sued to recover benefits for the two-and-a-half
months from the date of termination of benefits to the date of Danielle's
discharge. 228 After Danielle was discharged, she enrolled in a boarding
school with appropriate medical facilities. 229
The district court held that DuPont abused its discretion by prematurely
terminating Danielle's hospitalization benefits.230
The Fifth Circuit
affirmed, holding that "the district court correctly ruled that DuPont abused
its discretion when it terminated benefits for Danielle's in-patient hospital-
2160 [do
217.
218.
219.
2200
221.
222.
[do
[do
[d.
223.
[d.
[do
[do
[do
224.
[do
225.
226.
[do
[d.
[d.
The tenn "medically necessary" was not defined in the plano [do
2270
2280 [do
229. [d.
230. [d. at 10140
HeinOnline -- 25 Tex. Tech L. Rev. 664 1993-1994
1994]
EMPLOYEE BENEFITS LAW
665
ization. "231 The court noted that:
[a]lthough we generally decide abuse of discretion based upon the
information known to the administrator at the time he made the decision,
the administrator can abuse his discretion if he fails to obtain the
necessary information. In the present case, neither Schlegel [the case
manager] nor Dr. Ahluwalia ever examined Danielle, nor had either one
obtained the records from the second or third admissions . . . .232
The Fifth Circuit noted that, although a plan administrator may rely on
the treating physician's advice, or may conduct an independent examination,
the administrator cannot pick and choose what information it will rely on:
"The administrators, however, cannot rely on part of Dr. Blundell's advice
and ignore his other advice.' ,233 If the plan administrator wished to rely
on Dr. Blundell's opinion that Danielle was no longer suicidal or out of
control, the administrator must also heed his warning that Danielle could be
released "only if there was an 'iron-clad plan in hand that would assure her
structure, safety, and well-being. ",234 The court concluded that until an
appropriate alternative "facility was found, hospitalization was medically
necessary. "235
The Fifth Circuit also addressed an issue of first impression: whether
the "treating physician rule" should be applied in ERISA cases. 236 This
rule' 'requires the court, in appropriate circumstances., to defer to a patient's
treating physician's testimony unless substantial evidence contradicts the
testimony... 237 The court raised doubts about the propriety of applying the
"treating physician rule" in ERISA cases.238 Under the rule, "the treating
physician would stand to profit greatly if the court were to find benefits
should not be terminated. There is a clear and strong conflict of interest,
and we are doubtful that a court should defer automatically to his or her
testimony. ,,239 The Fifth Circuit held that even if the district court erred in
Id.
232. Id. at 1015.
233. Id. The court stated:
231.
Because they [the plan administrators) chose to follow Dr. Blundell's diagnosis, Schlegel
[the case manager) and Dr. Ahluwalia were required, absent independent inquiry, to follow
all of his advice, not just part of it. If they decided to deviate from his diagnosis, they were
required to investigate further the medical necessity of in-patient hospitalization. Whether this
investigation included an examination of Danielle or an analysis of hospital records depended
on the particulars of each case. At the very least, however, administrators relying on hospital
records obviously must review the most recent records. The case administrator and the
physician conceded at trial that they did not do so.
Id. at 1015-16.
234. Id. at 1015.
235. Id.
236. Id. at 1016.
237. Id.; see Jones v. Sullivan, 949 F.2d 57. 59 (2d Cir. 1991).
238.
966 F.2d at 1016.
239.
Id.; see Jell v. Blue Cross & Blue Shield of Ala., Inc., 890 F.2d 1137, 1140 (11th Cir.
HeinOnline -- 25 Tex. Tech L. Rev. 665 1993-1994
666
TEXAS TECH LAW REVIEW
[Vol. 25:645
applying the "treating physician rule," such error was hannless because the
district court properly evaluated the credibility of all of the witnesses,
including the attending physician.240
B. Consideration of Evidence Not Presented to Plan Administrator in
Claims Appeal
In Wildbur v. ARCO Chemical CO.,241 the Fifth Circuit concluded that
a plan administrator abused his discretion by denying plan benefits for
Kenneth Wildbur and other employee-plaintiffs. Plaintiffs were employed
by ChemLink Petroleum, Inc., an ARCa subsidiary, until December 19,
1986, when ARCa sold ChemLink to paNY Industries.242 At the time of
the sale, plaintiffs were participants in the ARCa Retirement Plan (" ARRP' ')
and a Special Termination Allowance Plan ("STAP").243 The STAP plan
is an employee welfare benefit plan under ERISA, which provides severance
benefits to eligible employees. 244
In May 1986, ARCa amended the ARRP to allow special enhanced
retirement benefits. 245 A plan participant became eligible for these
enhanced benefits if ARCa advised the employee between May 6, 1986 and
January 31, 1987 that "he or she will be terminated from employment due
to the continuing consolidation of [ARCa], with a termination date on or
before December 31, 1989, as determined by [ARCa].,,246 Eligible
participants would receive five additional years of service for calculating
vesting, eligibility, and accrual of benefits.247
At the same time, ARCa also amended STAP, the severance plan. 248
Employees who were advised between May 6, 1986 and January 31, 1987
of their termination due to consolidation and who' 'terminated employment"
on or before December 31, 1989 would receive enhanced severance
benefi tS. 249 The STAP plan further provided that an employee would not
"terminate employment" if the employee went to work for a successor
company that purchased an ARCa subsidiary.250 Eligible employees
1989).
240. 966 F.2d at 1016.
241. 974 F.2d 631 (5th Cir. Oct. 1992).
242. Id. at 633-34.
243. Id. at 633.
244. Id.
245. Id.
246. Id.
247. Id. Other enhanced benefits included "adding five years to the employee's actual age for
benefit calculations; and ... increasing the employee's average final base pay for benefit calculations."
Id.
248. Id.
249. Id.
250. Id.
HeinOnline -- 25 Tex. Tech L. Rev. 666 1993-1994
1994]
EMPLOYEE BENEFITS LAW
667
could elect to receive either the regular severance benefits under the STAP
with no enhanced ARRP retirement benefits, or enhanced retirement benefits
under the ARRP plus a reduced special payment under the STAP. 2S1 They
could not receive enhanced benefits under both plans.
On December 19, 1986, ARCO sold plaintiffs' employer, ChemLink,
to PONY Industries. 2S2 Pursuant to the Asset Purchase Agreement, PONY
was required to "use reasonable efforts to utilize employees of [ARCO] in
the operation of the Purchased Assets after closing.,,253 PONY employed
plaintiffs after the closing. 2S4
After plaintiffs were tenninated by ChemLink, they applied for
enhanced benefits under the STAP and ARRP plans.2SS The plan administrator denied plaintiffs' applications, claiming that plaintiffs had not been
terminated from employment.2s6
Plaintiffs sued to recover payment for enhanced benefits under both
plans.2S7 Simultaneously, plaintiffs pursued their administrative remedies. 2s8 All administrative appeals were denied and, in 1991, the district
court reviewed the plan administrator's denial of benefits de novo and
granted ARCO's motion for summary judgment.259 The court held that
the plan language " 'tenninated from employment, due to continuing
consolidation of the company' meant termination from all employment, not
merely from ARCO employment.,,260 The court ruled that "a change of
employers with a continuation of employment was not a tennination from
employment and therefore that the plaintiffs were not entitled to the special
severance benefits" or the enhanced retirement benefits?61 In reaching its
decision, the district court relied only on evidence that had been presented
to the plan administrator. 262 The issue presented to the Fifth Circuit was
whether the district court should have considered evidence outside of the
administrative record. 263
First, the Fifth Circuit reviewed the plan to determine the applicable
standard: de novo or abuse of discretion. In Firestone Tire & Rubber Co.
251. [d. at 633-34.
252. [d. at 634.
253. [d.
254. [d.
255. [d.
256. [d.
257. [d.
258. [d.
259. [d. at 635; see Wilbur v. Atlantic Richfield Retirement Plan, 765 F. Supp. 891, 895 (W.D.
La. 1991). The court noted that it would have reached the same result under the arbitrary and capricious
standard 974 F.2d at 635.
260. 974 F.2d at 635.
261. [d.
262. [d. at 636.
263. [d.
HeinOnline -- 25 Tex. Tech L. Rev. 667 1993-1994
668
TEXAS TECH LAW REVIEW
[Vol. 25:645
v. Bruch,264 the United States Supreme Court held that courts must review
a claims denial de novo unless the plan gives the administrator "discretionary authority to detennine eligibility for benefits or to construe the terms of
the plan. ,,265 If the administrator has discretionary authority, courts must
review the administrator's decision under an abuse of discretion standard. 266 Citing Cathey v. Dow Chemical Co. Medical Care Program,267
the Fifth Circuit observed that "[d]iscretionary authority cannot be implied;
an administrator has no discretion to detennine eligibility or interpret the
plan unless the plan language expressly confers such authority on the
administrator. ,,268
The court examined the plan269 and concluded that although the plan
"does not expressly give the administrator authority to construe plan tenns,
it does expressly give the administrator discretionary authority to determine
eligibility for benefits. ,,270 The plan specifically states that the administrator shall independently detennine the applicant's eligibility for benefits and
that this decision "shall be final and conclusive upon all persons if
supported by substantial evidence in the record.' ,271 The Fifth Circuit held
that this language was sufficient to trigger an abuse of discretion standard
under Firestone. 272 The court concluded that the district court incorrectly
reviewed the claim de novo. 273
The Fifth Circuit articulated a two-step process for applying the abuse
of discretion standard: "First, a court must determine the legally correct
interpretation of the plan. If the administrator did not give the plan the
legally correct interpretation, the court must then determine whether the
264. 489 U.s. 101 (1989).
265. Id. at 115.
266. Id.
267. 907 F.2d 554 (5th Cir. 1990). cert. denied, 111 S. Ct. 964 (1991).
268. 974 F.2d 631, 636 (5th Cir. Oct. 1992).
269. The plan states that:
[T)he Administrator shall make a full and fair review of each application and any written
materials submitted by the applicant or the company in connection therewith and may require
the company or applicant to submit within thirty days of written notice by the administrator
therefor, such additional facts, documents, or other evidence as the Administrator, in its sole
discretion, deems necessary or advisable in making such a review. On the basis of its review,
the Administrator shall make an independent detennination of the applicant's eligibility for
benefits under the Plan. The decision of the Administrator on any application shall be final
and conclusive upon all persons if supported by substantial evidence in the record.
ld.
270.
271.
272.
273.
Id. at 637.
Id.
Id.
Id.
HeinOnline -- 25 Tex. Tech L. Rev. 668 1993-1994
1994]
EMPLOYEE BENEFITS LAW
669
administrator's decision was an abuse of discretion." 274 The first prong
requires consideration of three issues:
(1) whether the administrator has given the plan a unifonn construction;
(2) whether the interpretation is consistent with a fair reading of the
plan; and
(3) any unanticipated costs resulting from different interpretations of
the plan. 275
If the court decides that the plan administrator's interpretation was legally
incorrect. the court must then decide whether the administrator's decision
was an abuse of discretion. 276 In B(!tchelor v. International Brotherhood
of Electrical Workers Local 861 Pension & Retirement Fund,277 the Fifth
Circuit articulated three important factors that a court must consider when
reviewing a plan administrator's decision:
(1) the internal consistency of the plan under the administrator's
interpretation;
(2) any relevant regulations fonnulated by the appropriate administrative agencies; and
(3) the factual background of the detennination and any inferences of
lack of good faith. 278
The Fifth Circuit observed that a review of these "well-established
criteria for evaluating a benefit detennination under an abuse of discretion
standard makes it obvious that some evidence other than that contained in
the administrative record may be relevant at both steps of this process for
judicial review." 279 For example, to detennine if a plan administrator has
unifonnly applied the plan, a court must examine other benefit applications. 280 Likewise, an examination of whether a plan administrator lacked
good faith may require the court to review evidence that was not presented
to the administrator.281 The Fifth Circuit concluded "that a district court
is not conf"med to the administrative record in detennining whether, under
[the court's] analytical framework, a plan administrator abused his discretion
in making a benefit detennination.' ,282
274.
[d.; see Jordan v. Cameron Iron Worlts. Inc., 900 F.2d 53, 56 (5th Cir.), cert. denied, III
s. Ct. 344 (1990).
275.
denied, III
276.
277.
278.
279.
280.
281.
282.
974 F.2d at 638 (citing Jordan v. Cameron Iron Worlts, Inc., 900 F.2d 53, 56 (5th Cir.), cert.
S. Ct. 344 (1990».
[d.
877 F.2d 441 (5th Cir. 1989).
[d. at 445: see also 974 F.2d at 637-38.
974 F.2d at 638.
[d.
[d.
[d. at 639.
HeinOnline -- 25 Tex. Tech L. Rev. 669 1993-1994
670
TEXAS TECH LAW REVIEW
[Vol. 25:645
Although this holding was implicit in the court's prior rulings,283 this
is the first time the Fifth Circuit has directly ruled on the issue. 284 This
ruling departs from other circuits. Some circuits, such as the Third and
Eleventh Circuits, allow courts to consider additional evidence when the
administrator's decision is being reviewed under a de novo standard, but do
not allow outside evidence under the arbitrary and capricious standard. In
Luby v. Teamsters Health, Welfare & Pension Trust Funds,285 the Third
Circuit held that although a court reviewing an administrator's decision
under the arbitrary and capricious standard may only review evidence
considered by the plan administrator, "[such a] limitation makes little sense
when [the] administrator's decision was reviewed de novo.,,286 In Moon
v. American Home Assurance Co,,287 the Eleventh Circuit held that
limiting a trial court conducting de novo review to the facts available to the
administrator at the time of the decision was "contrary to the concept of a
de novo review. ,,288
The Sixth Circuit has taken a different approach. In Perry v. Simplicity
Engineering Division of Lukens General Industries, Inc.,289 the Sixth
Circuit examined the meaning of de novo review. 290 The court found two
poSsible meanings: 1) review based only on the administrative record; or
2) review based on the record and any additional evidence received by the
reviewing court. 291 The Sixth Circuit noted that in Firestone, the Supreme
Court did not explain which type of de novo review was appropriate.292
The court ruled that review based only on the administrative record is
appropriate because if courts were allowed to consider evidence outside the
administrative record, it would impair ERISA's goal of achieving prompt
and inexpensive benefit determinations by plan administrators. 293
The apparent conflict between Moon and Perry was addressed by the
Second Circuit in Masella v. Blue Cross & Blue Shield of Connecticut,
Inc.: 294
Jd. at 639 n.15.
284. The court rejected ARCO's contention that "if district courts were to consider evidence not
presented to the administrator, they would become 'substitute plan administrators' and in so doing, would
frustrate ERISA's goal of prompt resolution of claims by plan fiduciaries." Jd. at 639 (quoting district
court's ruling, Wilburv. Atlantic Richfield Retirement Plan, 765 F. Supp. 891,895-96 (W.D. La. 1991».
285. 944 F.2d 1176 (3d Cir. 1991).
286. Jd. at 1184-85.
287. 888 F.2d 86 (11th Cir. 1989).
288. Jd. at 89.
289. 900 F.2d 963 (6th Cir. 1990).
290. Jd. at 966.
283.
291.
292.
21)3.
Jd.
Jd.
Jd. at 966-67.
294.
936 F.2d 98, 104 (2d Cir. 1991).
HeinOnline -- 25 Tex. Tech L. Rev. 670 1993-1994
EMPLOYEE BENEFITS LAW
1994]
671
We believe that il is unnecessary to resolve the conflict between Moon
and Perry . ... Consideration of evidence relevant to plan interpretation
on de novo review does not implicate the Sixth Circuit's concern that
courts would become "substitute plan administrators," particularly since
de novo review under the Firestone standard presupposes that the
administrator's role does not include discretion to interpret the terms of
the plan: 29s
In Wildbur, the district court concluded that as a matter of law the administrator's interpretation of the plan was correct,296 The Fifth Circuit
upheld the district court's decision and noted that consideration of evidence
not presented to the plan adininistrator would not require courts to become
"substitute plan administrators.' ,297
Next, the court considered whether the district court erred when it
failed to consider relevant evidence not presented to the administrator. 298
Because the court was unable to determine whether the district court
properly evaluated all of the potentially relevant evidence, the Fifth Circuit
vacated the district court's decision and remanded "for a fuller analysis of
the evidence under the appropriate standard of review. ,,299
VII. DEFINITION OF WELFARE PLANS
A. Sole Proprietorships and MEWAs
The novel issue presented in Meredith v. Time Insurance Co. 3OO was
whether an insurance plan purchased by a sole proprietor, which covered
only herself and her husband, constitutes an "employee welfare benefit
plan" under ERISA. 301 If the plan is an employee welfare benefit plan,
then plaintiff's state law claims will be preempted by ERISA. 302
Meredith is a sole proprietor. 303 In 1987, she applied to participate
in Multiple Employer Trust Signature II, an insurance benefit program
offered by Time Insurance Company.304 Only two employees were
covered under the application: Meredith and her husband. 30s Meredith
lied on the application form. She indicated that she had never experienced
295.
Jd.
296.
974 F.2d 631, 642 (5th Cir. Oct. 1992).
297.
Jd. (quoting Masella v. Blue Cross & Blue Shield of COIUlecticut, Inc., 936 F.2d 98. 104
(2d Cir. 1991».
298.
299.
Jd. at 642-43.
Jd. at 644.
300.
301.
302.
303.
304.
305.
Jd. at 353.
Jd.
Jd.
Jd.
Jd.
980 F.2d 352 (5th Cir. Jan. 1993).
HeinOnline -- 25 Tex. Tech L. Rev. 671 1993-1994
672
TEXAS TECH LAW REVIEW
[Vol. 25:645
, 'any indication, diagnosis, or treatment for heart disorder, stroke, or
hypertension.' ,306 In fact, she had repeatedly complained of heart and
hypertension problems since 1983.307 Time Insurance Company investigated Meredith's file after she incurred $7,000 in medical expenses relating
to kidney stones. 308 After Time discovered the false representation in the
application, Time denied her benefits. Meredith sued alleging common-law
contract and tort claims, as well as DPTA claimS. 309 The district court
held that ERISA preempted Meredith's claims. 3lO Meredith appealed.
The insurance program offered by Time is a multiple employer welfare
arrangement ("MEWA").311 Not all MEWAs are employee benefit
plans. 312 Because ERISA only preempts state laws "insofar as they relate
to employee benefit plans,' ,313 the first step in evaluating a preemption
claim is to determine whether an employee benefit plan is involved.
The court examined ERISA § 3(1), which defmes an "employee
welfare benefit plan. ,,314 The Time plan provided life and health insurance. These types of insurance are commonly offered by employee welfare
benefit plans.315 However, the inquiry does not end there.
The court applied a three prong test to determine whether the plan is
an "employee welfare benefit plan": (1) does the plan exist? (2) does it
fall within the safe harbor provision established in Department of Labor
regulations? and (3) does it satisfy the basic elements of an ERISA
"employee benefit plan?" (Le., established or maintained by an employer
who intends to benefit its employees?)316 If the plan fails to meet anyone
of the prongs, it is not an ERISA plan. 317
First, does a plan exist? A plan exists only if "a reasonable person
could ascertain the intended benefits, beneficiaries, source of fmancing, and
procedures for receiving benefits.' ,318 The Fifth Circuit found that a
reasonable person could readily discern the intended beneficiaries and
benefits. 319 However, a reasonable person might not be able to figure out
306. Id.
307. Id.
308. Id.
309. Id.
310. Id.
311. Id.
312. Id. at 354; see MDPhysicians & Assocs., Inc. v. State Bd. of Ins., 957 F.2d 178 (5th Cir.),
cert. denied, 113 S. Ct. 179 (1992).
313. 29 U.S.C. § 1144(a) (1988).
314. 29 U.S.C. § 1002(1) (1988); see supra note 140 for statutory language.
315. 980 F.2d at 355.
316. Id.
317. Id.
318. Id. (quoting Donovan v. Dillingham, 688 F.2d 1367, 1373 (11th Cir. 1982) (en bane».
319. Id.
HeinOnline -- 25 Tex. Tech L. Rev. 672 1993-1994
1994]
EMPLOYEE BENEFITS LAW
673
who pays the premium: Meredith or her alter ego, the sole proprietorship,320
The legal distinction between Meredith and her business also presents
difficulty in meeting the second prong of the test: does the plan fall within
the safe-harbor provisions? Department of Labor regulations 321 provide
that a plan is not governed by ERISA if "(I) the employer does not
contribute to the plan; (2) participation is voluntary; (3) the employer's role
is limited to collecting premiums and remitting them to the insurer; and (4)
the employer received no profit from the plan.' '322 All four requirements
must be met. The court was unable to determine if all the conditions had
been met.323
The third prong - whether the plan is established or maintained by an
employer intending to benefit employees - cuts to the heart of the problem.
The Fifth Circuit observed, "We have ... come full circle and perforce
must determine whether Meredith is both an employer and an employee for
the purposes of ERISA . . . .' '324 ERISA § 3(6) defines an employee as
"any individual employed by an employer. "325 An employer is "any
person acting directly as an employer, or indirectly in the interest of an
employer, in relation to an employee benefit plan. ,,326 An "employee
welfare benefit plan" is defined as a plan "established or maintained 'by an
employer or employee organization." '327 The Fifth Circuit stated the
obvious problem: "determining what is meant by these oblique defInitions.,,328 The court quoted Kwatcher v. Massachusetts Service Employees
Pension Fund: 329 "[e]mployer and employee are plainly meant to be
different animals ... the twain shall never meet. ,,330
Department of Labor regulations exclude from the definition of
employee benefit plans any "plans without employees.' ,331 The regulations specifically state that a plan' 'under which only ... a sole proprietor
[is a participant] covered under the plan will not be covered under Title I.
320. Id.
321. 29 C.F.R. §§ 25JO.3-1(j)(I)-(4) (1992).
322. 980 F.2d at 355.
323. Id.
324. Id. at 356.
325. 29 U.S.C. § 1002(6) (1988).
326. 29 U.S.C. § 1002(5) (1988).
327. 29 U.S.C. § 1002(1) (1988).
328. 980 F.2d at 356.
329. 879 F.2d 957 (1st Cir. 1989).
330. 980 F.2d at 356 (quoting Kwatcher v. Massachusetts Servo Employees Pension Fund, 879
F.2d 957, 959 (1st Cir. 1989». More recently, the Supreme Court noted that ERISA's definition of
"employee" was unhelpful. The Supreme Court looked to the common-law meaning for guidance.
Nationwide Mut. Ins. Co. v. Darden, 112 S. Ct. 1344, 1348 (1992).
331. 29 C.P.R. § 2510.3-3(b) (1993). The regulations state that "the term 'employee benefit
plan' shall not include any plan ... under which no employees are participants covered under the plan."
HeinOnline -- 25 Tex. Tech L. Rev. 673 1993-1994
674
TEXAS TECH LAW REVIEW
[Vol. 25:645
However, a. . plan in which one or more common-law employees, in
addition to the self-employed individuals are participants covered under the
plan will be covered under Title I.' ,332 The regulations shed even more
light on the issue:
[aln individual and his or her spouse shall not be deemed to be employees
with respect to a trade or business, whether incorporated or unincOIporated,
which is wholly owned by the individual or by the individual and his or
her spouse. 333
Therefore, the court concluded that Meredith could not simultaneously
be an employer and an employee. 334 Because the employer-employee
relationship was absent, an employee welfare benefit plan could not
exist. 335 Since the plan was not an employee benefit plan, Meredith's state
law claims are not preempted by ERISA. 336 The Fifth Circuit vacated and
remanded. 337
B. Severance Policy Defined as Welfare Plan
In Whittemore v. Schlumberger Technology Corp.,338 the Fifth Circuit
held that a provision in an employer's policy manual that provided for
severance pay in lieu of termination notice was an "employee welfare
benefit plan.,,339 Originally, the Schlumberger management policy manual
provided for severance pay in lieu of notice of termination. 340 Later, the
provision was amended to provide that an employee would not receive
severance pay if the employee was discharged "before the expiration of a
prescribed period of notice of termination, if he or she was offered full-time
employment by a company acquiring the division of Schlumberger in which
the employee worked.' ,341
ERISA § 3(1) defmes an "employee welfare benefit plan" as a plan
that provides "(A) ... benefits in the event of sickness, accident, disability,
death, or unemployment ... or (B) any benefit described in [section 302(c)
of the Labor-Management Relations Act] ... 342 Section 302(c) includes
332. ld.
333. ld.
334. 980 F.2d at 358. The court noted that ERISA was designed to safeguard the rights of
working persons under benefit plans. "When the employee and the employer are one and the same,
there is little need to regulate plan administration. Moreover, ... [ilt would appear axiomatic that the
employee-employer relationship is predicated on the relationship between two different people." ld.
335. ld.
336. ld.
337. ld. at 359.
338. 976 F.2d 922 (5th Cir. SepL 1992).
339. ld. at 923.
340. ld.
341. ld.
342. ld. (quoting 29 U.S.c. § 1002(1) (1988 & Supp. II 1990».
HeinOnline -- 25 Tex. Tech L. Rev. 674 1993-1994
1994]
EMPLOYEE BENEFITS LAW
675
"pooled vacation, holiday, severance or similar benefits... 343 The court
rejected plaintiffs' argument that the severance plan was not an employee
benefit plan under Fort Halifax Packing Co. v. Coyne344 and Wells v.
General Motors Corp.345 The Fifth Circuit swiftly. distinguished these
cases: "Fort Halifax involved a state law requiring severance pay, without
establishment of a plan, and Wells involved a one-time severance obligation
without the ongoing administration of benefits that is required of an ERISA
plan. ,,346 The court note(,1 that the Schlumberger plan "was not created with
a particular closing in mind' '347 and "the plan plainly required some sort
of administrative set-up in order to make payments to employees... 348
Therefore, the severance policy was a welfare plan within the meaning of
ERISA. 349
VIII.
STATUTE OF LIMITATIONS
In Hogan v. Kraft Foods,350 the court held that a claim for benefits
under an annuity policy brought under ERISA § 502 is governed by the four
year Texas limitation period which governs suits based on contract, rather
than the six year limitation period provided in ERISA § 413(a) for cases
involving fraud or concealment. 351 The court explained that since ERISA
does not provide a statute of limitations for § 502(a)(l)(B) claims, courts
must apply the analogous state statute of limitations.352 Here, the claim
was denied in March 1985, and suit was not brought until August 1989,
after the four year limitation period had expired. 353 The court held that
"[a]n ERISA cause of action accrues when a request for benefits is
denied. ' ,354 Because plaintiffs had actual knowledge of the facts giving
rise to their claims in March 1985, their claim was time-barred. 355
IX. CONCLUSION
This term, the Fifth Circuit decided many interesting cases resulting
from corporate downsizing. Hopefully, next term, as the economy improves,
343.
344.
345.
346.
3470
348.
349.
350.
29 U.S.C. § 186(c)(6) (1988).
482 U.S. 1 (1987).
881 F.2d 166 (5th Cir. 1989). cerro denied. 495 U.S. 923 (1990).
976 F.2d at 923.
[d.
[d.
[d.
969 F.2d 142 (5th Cir. Aug. 1992).
[do at 145. 146.
[d.: see TEX. CIV. PRAC. & REM. CODE ANN. § 16.004 (Vernon 1986).
353. 969 F.2d at 1450
354. [d.
351.
352.
355.
[d.
HeinOnline -- 25 Tex. Tech L. Rev. 675 1993-1994
676
TEXAS TECH LAW REVIEW
[Vol. 25:645
the Fifth Circuit will have fewer cases relating to severance plans and the
definition of "tennination of employment." Although Congress is
examining health care and preemption issues. we can expect future tenns to
bring more cases involving preemption and utilization review.
HeinOnline -- 25 Tex. Tech L. Rev. 676 1993-1994