ERISA AND FLTCIP:
THEIR AFFECT ON GROUP LTC INSURANCE LITIGATION
By: Elizabeth P. Allen, Esquire
INTRODUCTION
Litigating Long Term Care (“LTC”) claims involve the same issues,
problems and legal strategies as with other types of life and health insurance. In
the future, some other areas are likely to play an increasing role in LTC litigation.
The number of employers offering LTC insurance has grown steadily, and this
group has the potential of becoming a force in the marketplace.
The federal
government has also gotten into the act by offering LTC insurance to federal
employees. Because of these two large pools of insureds in the group insurance
context, the application of the Employee Retirement Income Security Act of
19741 ("ERISA") and the Long-Term Care Security Act2 becomes relevant. This
paper will discuss the impact of ERISA and FLTCIP on the LTC care litigation
scene.
ERISA
ERISA was passed in 1974 and has affected the arena of group insurance
ever since. One of its greatest impacts is that, for most scenarios, it displaces
state law in the litigational sense. This has an enormous affect on how a claim
denial or adverse benefit determination is reviewed in the legal system.
Group
LTC care plans also fall within the governance of ERISA under the same test as
any other group plan.
At least one reported case has already held that LTC coverage obtained
through one’s employer can be the basis for preemption and application of
ERISA.3 As with any other case, the existence of an ERISA plan and preemption
of state claims were the primary focus for the court.
When ERISA applies to a LTC action, the effect would be, for most cases,
preemption of all state laws claims that “relate to” the plan pursuant to ERISA’s
“preemption clause” which provides:
Except as provided in [the savings clause] . . . [ERISA
shall] supercede any and all state laws insofar as they
now or hereafter relate to any employee benefit plan. .
. .4
29 U.S.C. § 1144. ERISA would preempt state law claims of breach of contract
and bad faith5, emotional distress,6 certain scenarios for estoppel,7 and fraud8. a
plaintiff would loose all typical state law remedies because, under ERISA, there
is no right to extracontractual damages or punitives9. The law is also clear that
there is no right to a jury trial under ERISA.10 The actions allowed for individuals
(who meet the required “beneficiary” or “participant” threshold) are those under
ERISA’s civil enforcement provision, 29 U.S.C. § 1132. This amounts to a claim
for benefits (§ 1132(a)(1)(B), breach of fiduciary action (§ 1124), in very limited
circumstances claims for “other appropriate equitable relief” (§ 1132(a)(3));
statutory violation for nondisclosure of requested information (§ 1133); and a
retaliation claim for interference with benefit rights (§ 1140). In addition to the
benefit to a defendant insurer of the limited damages available under ERISA,
attorney’s fees are not mandatory, but are discretionary to the prevailing party.11
2
ERISA claims are also subject to removal from State court to Federal court upon
a showing of complete preemption pursuant to federal question jurisdiction.12
Initially, when faced with an LTC claim under an employer/employee
situation, the defendant must show that the subject plan constitutes an employee
welfare benefit plan for purposes of ERISA.
This usually includes an analysis
using either the “surrounding circumstances” test in Donovan v. Dillingham, 13 the
“safe harbor” exception,14 and/or the ERISA statutory test for an “employee
welfare plan.”15
The majority of courts also require that plaintiffs exhaust a plan’s
administrative remedies before filing suit.16 This gives a defendant the
opportunity and ability to complete and finalize the reasons for its actions and the
administrative record for review.
Some exceptions to exhaustion of
administrative remedies exist – such as futility and where resort to the remedy
would be inadequate.
However, determination of this matter is within the
discretion of the court and should be sparingly used.17
Lastly, and as important as the limited damages, is the standard of review
applied to the defendant’s actions under an ERISA plan. There are three
standards of review that can be applied to a decision made by an appropriately
sued ERISA entity.
The Supreme Court, in the case of Firestone v. Bruch,18
has stated that:
[A] denial of benefits challenged under 1132(a)(1)(B)
is to be reviewed under a de novo 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.19
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If discretionary authority is given, the court applies an arbitrary and
capricious standard of review (more deferential to the defendant) to a benefit
decision.
Courts have varied in the language necessary to confer such
discretionary authority.20
Even under the arbitrary and capricious standard of
review, further analysis is needed.
If the defending party has a conflict of
interest, then courts apply a less deferential arbitrary and capricious standard
based upon, in most circuits, a “sliding-scale” approach for deference to the
defendant.21
Another key difference between the standards is the evidence admissible
for review.
Under a de novo review, there is a split in authority over what
evidence can be reviewed by the court. Some courts limit evidence to only that
which was before the administrator/fiduciary at the time of its decision. 22
Conversely, other courts allow evidence other than that in the administrative
record.23
However, under an arbitrary and capricious standard of review
(heightened or not), most courts have ruled that only those materials that were
before the defendant during the administrative process can be reviewed. 24
Though there is some limited exception for expert information or facts to show
conflict,25 defendants have been able to strike from the record additional medical
and other types of factual information which plaintiffs attempted to include once
suit has been filed.
FEDERAL LONG-TERM CARE INSURANCE PROGRAM
Another important development in the LTC arena is the passage by
Congress in 2000 of the Long-Term Care Security Act, implementing FLTCIP.
4
According to one report,26 it is estimated that up to twenty million people are
eligible to purchase the LTC insurance.
The program is available to active
federal employees (including active military personnel), retired federal employees
and retired military personnel, and their families. The federal government upon
creating the program selected Long-Term Care Partners, LLC, a joint partnership
of the John Hancock Life Insurance and MetLife Companies, for the exclusive
purpose of providing coverage and administering the LTC plan under the Act.
Initial enrollment into the plan was July 1st through December 31, 2002 (with a
short early bird season from March 25th through May 15, 2002). The federal plan
offers much of the same benefits and contains much the same limitations and
exclusions as other LTC policies. The plan’s benefit booklet, which is available
at the Program’s web site (www.ltcfeds.com) gives a complete synopsis of the
plan.
Like ERISA plans, the federal LTC plan contains an internal administrative
appeal process.
The plan allows for written appeal of an initial eligibility or
benefit denial to an appeals committee composed of representatives from John
Hancock and MetLife and other persons mutually agreed upon by the U.S. Office
of Personnel Management (OPM) and John Hancock/MetLife.
There is further
limited administrative review. If a decision is upheld on appeal and it concerns
an evaluation of the insured’s medical condition/functional capacity, then a
written appeal can be made to an independent third party agreed upon by the
OPM and John Hancock/MetLife. The decision of that independent third party is
final and binding on John Hancock/MetLife.
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Some appeal decisions are not
subject to further appeal. Upholding a denial because of exhaustion of maximum
life benefit, for example, would not allow any further action other than the initial
appeal.
Legal actions can only be brought after the appeals process has been
exhausted, but no more than two years from the notice of the final benefit or
claim denial on appeal.
benefit payable.
Like ERISA, the amount of recovery is limited to the
The plan specifically states that there are no extracontractural
punitive, compensatory or consequential damages recoverable.
Also, like
ERISA, the federal program supercedes and preempts state or local law or
regulations. Interestingly, neither the benefit booklet nor the statutory provisions
contain references to attorney’s fees.
There have already been several published opinions dealing with litigation
under the FLTCIP.
Those cases have dealt with typical issues of
misrepresentation in the LTC application27 an abuse of discretion in underwriting
decisions.28
Based upon the design of the federal LTC program, and as shown above,
the same types of ERISA issues previously addressed will be applicable to a
claim under the FLTCIP.
CONCLUSION
As shown above, there is no reason to believe that LTC litigation will look
much different than other types of health or disability cases that have been
around for years. Despite the unique features of ERISA LTC plans and the
federal LTC plan, increased litigation in those areas is expected. With the rapidly
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aging population, the increasing percentage of senior citizens, and the steady
growth of the LTC market, it can reasonably be concluded that LTC litigation will
be on the rise for years to come.
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TABLE OF AUTHORITY
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28
29 U.S.C. § 1001 et seq.
5 U.S.C. § 9001-9009.
Schneider, Jr. v. Unum Life Ins. Co. of America, 149 F.Supp.2d 169
(F.R.D. 2001).
29 U.S.C. § 1144.
Pilot Life v. Dedeaux, 481 U.S. 41 (1987.
Pane v. RCA Corp., 868 F.2d 631 (3rd Cir. 1989.
Nachwalter v. Christie, 805 F.2d 956 (11th Cir. 1986.
Diduck v. Kaszycki & Sons Contractors, Inc., 974 F.2d 270 (2nd Cir. 1992).
Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134 (1985).
Wardle v. Central States, Southeast and Southwest Areas Pension Fund,
627 F.2d 820 (7th Cir. 1980).
29 U.S.C. § 1132(g).
28 U.S.C. § 1441(b).
688 F.2d 1367 (11th Cir. 1982).
29 CFR § 2510.3-1(j).
29 U.S.C. § 1002(1).
Amato v. Bernard, 618 F.2d 559 (9th Cir. 1980).
Perrino v. Southern Bell & Telegraph Co., 209 F.3d 1309 (11th Cir. 2000).
489 U.S. 101, 115 (1989).
Id. at 115.
DeNobel v. Vitro Corp., 885 F.2d 1180 (4th Cir. 1989 – “power to interpret
or continue plan terms;” compare - Patterson v. Catepillar, Inc., 70 F.3d
503 (7th Cir. 1995) – “due proof”.
Schatz v. Mutual of Omaha, 220 F.3d 944 (8th Cir. 2000).
Perry v. Simplicity Engineering, 900 F.2d 963 (6th Cir. 1990).
Moon v. American Home Assurance, 888 F.2d 86 (11th Cir. 1989).
Gooden v. Provident Life and Acc. Ins. Co., 250 F.3d 329 (5th Cir. 2001).
Shipp v. Provident Life & Accident Ins. Co., 214 F.Supp.2d 1241 (M.D.
Ala. 2002); Wilkins v. Baptist Health Systems, Inc., 150 F.3d 609 (6th Cir.
1998).
“Long-Term Care: It’s All In The Family,” from Keplinger’s Retirement
Report, Volume 9, Issue 3, March 2002.
Metropolitan Life Ins. Co. v. Conger, 474 F.3d 258 (6th Cir. 2007).
Gunson v. James, 364 F.Supp.2d 455 (D.N.J. 2005).
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