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Tuning Up Your Plan Vince Hess September 11, 2014.

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Presentation on theme: "Tuning Up Your Plan Vince Hess September 11, 2014."— Presentation transcript:

1 Tuning Up Your Plan Vince Hess September 11, 2014

2 Thanks to Larry Hansen and Linda Simon 2

3 Agenda forum selection clauses contractual limitation periods anti-assignment provisions Microsoft/ Independent contractor provisions subrogation and reimbursement provisions (U.S. Airways v. McCutchen) arbitration clauses 3

4 U.S. Supreme Court in 2013: “The statutory scheme [of ERISA] … ‘is built around reliance on the face of written plan documents.’ ” “The plan, in short, is at the center of ERISA.” and in 2003: “[E]mployers have large leeway to design disability and other welfare plans as they see fit.” 4


6 ERISA’s venue provision allows for multiple potential forums for a lawsuit: “... an action under this title... may be brought in the district where the plan is administered, where the breach took place, or where a defendant resides or may be found....” 6

7 Sample Clause (ERISA Plan) Except as the laws of the United States may otherwise require, any action by any Plan Participant or Beneficiary relating to or arising under the Plan shall be brought and resolved only in the U.S. District Court for the Eastern District of Missouri and in any courts in which appeals from such court are heard, and such court shall have personal jurisdiction over any Participant or Beneficiary named in such action. 7

8 Another Example Any action in connection with the Plan by a Member or beneficiary may only be brought in Federal District Court in Monroe County, New York. 8

9 Benefits to a Plan Convenience for plan administration Consistent (and predictable) judicial interpretation of plan terms Avoid “plaintiff-friendly” jurisdictions 9

10 Additional Benefits Cost savings from: –avoiding litigation over where lawsuits should be filed, and –the plan sponsor/plan administrator being able to litigate lawsuits in its home state. “[T]hose [cost] savings can be passed along to the plan itself.” Conte v. Ascension Health, 2011 U.S. Dist. LEXIS 111657 (E.D. Mich. September 28, 2011) 10

11 For example: “Enforcement of the forum selection clause in this case, moreover, actually furthers one of the purposes of ERISA by ‘bring[ing] a measure of uniformity in an area where decisions under the same set of facts may differ’ as a result of geographic location....” 11

12 “The forum selection clause contained in Xerox’s LTD Plan allows one federal court to oversee the administration of the LTD Plan and gain special familiarity with the LTD Plan Document, thereby furthering ERISA’s goal of establishing a uniform administrative scheme.” 12

13 Klotz v. Xerox Corp., 519 F. Supp. 2d 430, 435, 436 (S.D.N.Y. 2007) (quoting from a Second Circuit ruling). 13

14 Enforcement ERISA Cases Majority of district courts have enforced forum selection clauses in ERISA plans. Minority (mostly, IL and TX) don’t enforce them on basis that they run counter to public policy reflected in ERISA’s broadly worded venue provision. 14

15 15 Coleman v. Supervalu, Inc., 2013 U.S. Dist. LEXIS 13372 (N.D. Ill. January 21, 2013). The court refused to enforce the clause at issue because “the inclusion of such clauses in a plan of the nature at issue here runs counter to the strong public policy announced by Congress in ERISA” – namely, “the statute’s broadly—worded venue provision.” Illinois:

16 16 Nicolas v. MCI Health & Welfare Plan No. 501, 453 F. Supp. 2d 972 (E.D. Tex. 2006) Similar reasoning in a Texas case:

17 17 No decisions (yet) on this issue by 7 th Circuit (IL) or 5 th Circuit (TX) Would other federal district courts in Illinois or Texas follow the general consensus or the minority? –A federal district court in Louisiana recently declined to follow Coleman and Nicolas, and instead followed the “substantial majority of courts” upholding a forum selection clause in the ERISA context: Haughton v. Plan Adm’r, 2014 WL 888407 (W.D. La. March 6, 2014) Enforcement (cont.)

18 Non-ERISA cases – will generally be enforced unless: –clause was obtained by fraud, duress, or other unconscionable means; –the designated forum would ineffectively or unfairly handle the suit; or –designated forum would be so seriously inconvenient such that requiring the plaintiff to bring suit there would be unjust. 18

19 U.S. Supreme Court has recently enforced a forum selection clause in a non-ERISA case. Atlantic Marine Constr. Co. v. U.S. Dist. Court, 134 S. Ct. 568 (2013) 19

20 Effect Court may dismiss suit so it may be re-filed in the venue identified in the plan; or Court may order the lawsuit to be transferred to the court listed in the plan (common in federal cases) 20

21 Disclosure To be safe, disclose forum selection clause in: –SPDs and –claims denial letters 21


23 Contractual Limitations Provisions ERISA provides a statute of limitations only for fiduciary claims (6 years) For non-fiduciary claims, like a claim for benefits, courts “borrow” the state statute of limitations that is most analogous to a plaintiff’s non-fiduciary ERISA claim 23

24 Contractual Limitations (cont.) Problem is that state statutory limitations can be quite long, often 6 to 10 years, or even longer. Solution: Add a contractual limitations period to the plan. Following common law, courts will honor a plan’s contractual limitation period so long as it’s reasonable. 24

25 Contractual Limitations (cont.) What’s reasonable? Courts have generally upheld three years or more, but some have upheld shorter periods: –Young v. UPS, 2011 U.S. App. Lexis 5983 (10 th Cir. 2011) (180 days) –Delosky v. Penn State Geisinger Health Plan, 2002 U.S. Dist. Lexis 17188 (M.D. Pa. 2002) (60 days) –Davidson v. Wal-Mart Associates Health And Welfare Plan, 305 F. Supp. 2d 1059 (S.D. Iowa 2004) (45 days after plan’s final denial) –Rusch v. United Health Group Inc., 2013 WL 3753947 (S.D. Tex. July 15, 2013) (periods of 6 months and 30 months) 25

26 Contractual Limitations (cont.) State insurance laws might apply in case of insured plans. 26

27 Contractual Limitations (cont.) Related issue: When does the statute of limitations begin to run? Two approaches: –when participant is required to file a proof of loss (e.g., if a plan requires proof of loss within 60 days from injury, the limitations period will begin on the 60th day after the injury) –after the participant has exhausted the plan’s internal claims and appeal procedure, i.e., when the plan issued its final denial 27

28 Contractual Limitations (cont.) For ERISA claims, this is an issue of federal law, not state law. Supreme Court has recently ruled on this question. Heimeshoff v. Hartford Life & Accident Ins. Co., 134 S. Ct. 604 (2013): 28

29 Contractual Limitations (cont.) The plan in Heimeshoff required a participant to sue within three years from the time that proof of loss was due under the plan, which was “within 90 days after the start of the period for which the Hartford owes payment.” In this case the plan’s three-year period ran out before the plan’s final denial of benefits. The Supreme Court found the provision enforceable. 29

30 Contractual Limitations (cont.) As long as the limitations period itself is reasonable in length, a participant and a plan may agree by contract to a limitations period that starts to run before the cause of action accrues (before the internal review process is exhausted). Possibility of waiver, estoppel, equitable tolling to protect a participant 30

31 Contractual Limitations (cont.) Contractual limitations period should be explained in the SPD, as well as the plan. To be safe, contractual limitations period should also be set forth in claims denial letters. 31


33 Assignment of Benefits Customary for plans to pay medical providers directly for services rendered to a plan participant pursuant to an “assignment of benefits” signed by participant. Insured plans might be required to honor such assignments under state law. 33

34 Assignment (cont.) Question: Can a plan limit the effect of an assignment so that the provider doesn’t assume all the rights of a participant, namely, right to appeal, right to disclosure of plan documents, right to sue, etc.? 34

35 Anti-Assignment Provisions Most courts will honor an assignment if the plan doesn’t prohibit it. Under ERISA, only participants or beneficiaries may bring suit against a plan to recover benefits or enforce their rights under the plan. Providers are sometimes found to be “beneficiaries.” More frequently, they are allowed to sue as “participants” because they are “standing in the shoes” of participants. 35

36 Anti-Assignment (cont.) Courts are split on allowing an assignment if the plan prohibits it. No downside to adding such a provision to a plan. May be helpful to a plan, particularly in dealing with out-of-network providers. 36

37 Anti-Assignment (cont.) Basic Anti-Assignment Provision –“Benefits under this plan cannot be assigned.” Problems –Doesn’t say any attempted assignment is void. –Doesn’t extend beyond benefits to other rights of a participant under a plan. 37

38 Anti-Assignment (cont.) Better Anti-Assignment Provision –“To the extent permitted by law, the rights of any Participant under this plan may not be voluntarily or involuntarily assigned or alienated; provided, however, that all benefits of a Participant shall be paid to the permitted providers of Medical Care except to the extent that the Participant submits a provider statement showing that the Participant has paid the provider all or a portion of the covered expenses for which benefits are payable under the Plan.” Vardag v. Motorola, 264 F. Supp. 2d 1056 (S.D. Fla. 2003) 38

39 Anti-Assignment (cont.) Additional Improvements –“Rights under the Plan that cannot be assigned include the Participant’s right to the services provided, the right to collect from the Plan for those services, the right to receive Plan documents and disclosures, the right to appeal benefits or claims determinations or the right to sue to enforce any such rights.” –“No Eligible Individual may assign to a provide his or her right to file an appeal under the Plan’s claims and appeal procedure or to file a suit for benefits under Section 502 of ERISA. As the sole exception to this prohibition, an Eligible Individual may assign his right to appear to a provider if the appeal involves an urgent care claim.” OSF Healthcare System v. Weatherford, 2012 WL 996900 (C.D. Ill. March 23, 2012) 39


41 Microsoft/ Independent Contractor Provisions Exclude from eligibility: –individuals classified by employers as independent contractors, regardless of whether they are later reclassified as employees –individuals who agree to render services as independent contractors Reclassification is prospective only (for purposes of plan) 41

42 Microsoft (cont.) Successful plan provision: –"the term Employee shall also not include any individual for any period during which the individual (i) is subject to an agreement, signed by the individual, which provides that the individual has no claim to any benefits paid by the Employer to or for the benefit of its employees, or (ii) without regard to any retroactive change in treatment, is contemporaneously treated by the Employer for federal tax purposes as other than a common law employee through issuance of a Form 1099 rather than a Form W- 2.“ Bendsen v. George Weston Bakeries Distribution, Inc., 2008 WL 4449435 (E.D. Mo. Sept. 26, 2008) 42

43 Microsoft (cont.) Unsuccessful plan provision: –"any person employed by the Corporation or a Participating Affiliate and treated as such on the books and records of the Corporation or Participating Affiliate, and shall not include (i) any person treated by the Corporation or Participating Affiliate as an independent contractor or (ii) any person serving the Corporation or Participating Affiliate through an agency, consulting firm, payroll service, subcontractor or other third party provider.“ Nahoun v. Employees’ Pension Plan of Credit Suisse First Boston, 2005 WL 1476453 (S.D.N.Y. June 22, 2005) 43

44 Microsoft (cont.) Recommendation –clearly define eligible employee in all plan documents –use consistent terms in all plan documents and in policies and procedures –use terminology that is consistent with business practices 44


46 McCutchen (cont.) Background: –McCutchen was a participant in U.S. Airways’ self- funded health plan. He was seriously injured in a car crash. –U.S. Airways plan paid $66,885 of medical expenses. 46

47 McCutchen (cont.) McCutchen sued the driver at fault and recovered $110,000 ($10,000 from the driver’s insurance policy and $100,000 from underinsured motorist coverage). After paying his attorney, he retained $66,000. U.S. Airways plan demanded the total payment as reimbursement for the medical expenses paid by the plan. When McCutchen refused to comply, the plan filed suit. 47

48 McCutchen (cont.) Plan and SPD had a Subrogation and Right of Reimbursement provision: –“If the Plan pays benefits for any claim you incur as the result of negligence, willful misconduct, or other actions of a third party, the Plan will be subrogated to all your rights of recovery. You will be required to reimburse the Plan for amounts paid for claims out of any monies recovered from a third party, including, but not limited to, your own insurance company....” 48

49 McCutchen (cont.) ERISA section 502(a)(3) provides that a fiduciary can bring a civil action: –“to obtain other appropriate equitable relief to redress such violations or to enforce any provisions of [ERISA] or the terms of the plan.” Fiduciary brought action to enforce the plan term requiring a participant to reimburse the plan for plan- paid medical expenses out of any funds recovered from a third party. 49

50 McCutchen (cont.) Supreme Court: –ERISA protects “contractually defined benefits” –clear, unambiguous plan terms are controlling –principles of equity apply only if there is no clear plan term –the clear reimbursement provision in this case applies –however, the plan is silent on attorney’s fees, so the common fund doctrine applies. 50

51 McCutchen (cont.) Lesson: When a self-funded plan has clear, unambiguous terms, those terms control in a lawsuit for reimbursement. 51

52 McCutchen (cont.) Suggested plan provisions: –language specifically disclaiming equitable principles –language applying the amount of reimbursement to any amount paid, not just to the participant, but to spouse, beneficiary, estate or trust, and providing that amounts are recoverable even if they have been commingled with other assets and that amounts do not need to be traced –language ignoring earmarking or designations in settlement agreements to items other than reimbursement (such as pain and suffering) –language providing that the plan is also reimbursed for the costs incurred in recovering the reimbursement 52

53 McCutchen (cont.) Suggested plan provisions: –language specifically stating that the plan is reimbursed from the first dollar received regardless of whether the participant has been made whole will this discourage participants from trying to recover from third party?; will it discourage attorneys from taking cases? perhaps it will encourage plaintiffs’ attorneys to read plan first and work out agreement with plan as to attorney’s fees may wish to include language authorizing plan administrator to negotiate the terms of reimbursement in order to promote cooperation 53

54 McCutchen (cont.) Tension: –between wanting to take first dollar approach and not wanting to deter participants from pursuing legal claims. Plan sponsors may not want to take the most aggressive approach possible. For example, the plan may wish to provide that the plan’s right to reimbursement or subrogation is net of reasonable costs and attorney's fees SPD: –Make sure SPD is consistent with plan 54


56 Bird v. Shearson Lehman/American Express, 926 F.2d 116 (2d Cir.), cert. denied, 501 U.S. 1251 (1991) Hernandez v. Jobe Concrete Products, Inc., 282 F.3d 360 (5 th Cir. 2002) Lusk v. AmeriServ Financial, Inc., 2007 U.S. Dist. LEXIS 55775 (S.D. Ind. July 31, 2007) (noting a lack of a 7 th Circuit decision) Chua v. Shippee, 2013 WL 4846689 (N.D. Ill. September 10, 2013) 56 Federal courts generally recognize that claims under ERISA are subject to arbitration (i.e., can be ordered to arbitration pursuant to an arbitration clause). E.g.:

57 However, DOL regulations under ERISA section 503 limit use of arbitration provisions in group health plans –arbitration may be used as an appeal of an adverse determination, but may not preclude a subsequent lawsuit –participants can’t be forced to pay for part of the cost of arbitration 57  DOL regulations also (in effect) prohibit mandatory cost-sharing in general, not just in group health plans

58 58 Cost-sharing provisions in arbitration clauses have frequently been found contrary to ERISA Bond v. Twin City Carpenters Pension Fund, 307 F.3d 704 (8 th Cir. 2002) Williams v. Ass’n de Prevoyance Interentreprises, 2012 U.S. Dist. LEXIS 68488 (E.D. La. May 16, 2012) Eisenrich v. Minneapolis Retail Meat Cutters and Food Handlers Pension Plan, 2007 WL 3171515 (D. Minn. October 20, 2007)

59 59 Interpreting and applying these regulations, a court declared invalid a mandatory arbitration clause in a disability plan with respect to a claimant’s claim of wrongful denial of benefits. In addition, the court ordered arbitration under the plan of the claimant’s allegations of negligence and gross negligence against the employer in regard to a workplace injury. However, the court ordered that the employer must bear all costs of that arbitration. Sosa v. PARCO Oilfield Services, Ltd., 2006 WL 2821882 (E.D. Tex. September 27, 2006)

60 Arbitration was once thought to be a quicker and cheaper alternative to litigation, but not clear whether that is true. With additional DOL restrictions, does it make sense to include an arbitration clause in your plan? 60

61 Conclusion/Q&A Vince Hess 214-740-8732 61

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