+1 212 318 2000
Europe, Middle East, & Africa
+44 20 7330 7500
+65 6212 1000
Peter O'Hara | Bloomberg Law Funk v. CIGNA Group Insurance, No. 10-CV-3936, 2011 BL 202365 (3d Cir. Aug. 4, 2011) The U.S. Court of Appeals for the Third Circuit vacated the lower court's decision with respect to CIGNA's denial of benefits because it did not act arbitrarily and capriciously when it determined that plaintiff was not disabled under the terms of the plan, but remanded the issue for further proceedings because the district court should not have given significant weight to the plan administrator's financial conflict of interest. The Court also held that it was appropriate for CIGNA to file a counterclaim seeking recoupment of LTD overpayments under ERISA § 502(a)(3). Plaintiff, whose job at Lucent Technologies, Inc. involved testing computer software and hardware as part of product development, was a participant in The Lucent Technologies, Inc. Long Term Disability Plan for Management or LBA Employees (Plan), which was self-funded through a trust. Connecticut General Life Insurance Company (CIGNA) was the Plan administrator and had "full discretionary authority and power to … determine eligibility for [Plan] benefits [and] to interpret and construe the terms and provisions of the [Plan]." Plaintiff took a leave of absence due to depression and related disorders on December 7, 2004 and received short term disability benefits under the plan for 26 weeks. Plaintiff applied for long term disability (LTD) benefits in August 2005 and submitted treatment records from his mental healthcare providers, his psychiatrist and his psychotherapist to support his claim for benefits. After an independent review, plaintiff's claim for LTD benefits was granted for a one-year period retroactive to June 28, 2005. Plaintiff executed two agreements (Agreements) in June 2005 and August 2005 providing that his LTD benefits would be reduced by any Social Security disability benefits he ultimately received and that he would reimburse CIGNA for any overpayment that may occur as a result of having received Social Security benefits. Plaintiff was notified by CIGNA in January 2006 that it would review his case to determine whether he was eligible to continue receiving LTD benefits beyond the initial one-year period. Plaintiff was required to complete a disability questionnaire and provide current treatment information from his mental healthcare providers, which concluded that he was still unable to return to work due to depression and anxiety, among other things. An independent reviewer concluded that the evidence did not show that plaintiff was not "functionally impaired from working in a supportive, low stress, low cognitive demand environment." CIGNA notified plaintiff on August 22, 2006 that he was no longer disabled under the Plan and would not receive any further LTD benefits, basing its decision on the lack of "clinical evidence to support [that] Funk would be unable to work in a supportive, low stress, low cognitive demand environment." Plaintiff filed an appeal with CIGNA. While his administrative appeal was pending, plaintiff was awarded Social Security disability benefits, retroactive to June 1, 2005. The retroactive award covered a period during which plaintiff received both Social Security and LTD benefits. Plaintiff repaid CIGNA approximately 3/4 of the overpayment amount. CIGNA subsequently denied plaintiff's LTD benefit claim appeal because it "had not received medical information demonstrating a severity in [Funk's] condition supporting restrictions preventing [him] from performing [his] own or any occupation." Plaintiff's second LTD benefit claim appeal was also denied by CIGNA, which stated that it "had not been provided with the clinical evidence to support a physical or psychiatric functional loss that would preclude [Funk] from performing his regular occupation." Plaintiff filed suit in federal court and CIGNA countersued under ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3), seeking to recover from plaintiff the remaining overpayment amount.
District Court DecisionThe U.S. District for the District of New Jersey granted plaintiff's motion, finding that CIGNA acted arbitrarily and capriciously in denying LTD benefits. The Court determined that CIGNA failed to assess whether plaintiff was disabled as defined under the Plan from working in a job that would pay him 60% of his former wage. The Court further determined that its denial was not supported by substantial evidence as set forth by the Supreme Court in Metropolitan Life v. Glenn, 554 U.S. 105 (2008), because CIGNA did not reconcile its decision with Social Security Administration's award of disability benefits; provided greater weight to non-treating physicians' opinions without explanation; issued the initial denial without having reviewed a neuropsychologist's report; confused cognition with mental illness in determining plaintiff's ability to work; and had a financial conflict of interest as Plan administrator. With respect to CIGNA's counterclaim for recoupment of the LTD overpayment amount, the Court held that an equitable lien over the Social Security funds was not possible because the funds could not be traced. CIGNA appealed.
Denial of LTD BenefitsReviewing CIGNA's denial of LTD benefits decision for an abuse of discretion, the Court considered whether CIGNA complied with the Plan and relied on substantial evidence in denying LTD benefits. The Court also considered whether CIGNA could assert an equitable lien on plaintiff's Social Security benefits in order to recoup an overpayment of LTD benefits. Compliance with Plan Documents. Plans governed by ERISA often grant authority to plan administrators to interpret the plan's terms. Goldman v. Johnson & Johnson, 251 F.3d 433, 441 (3d Cir. 2001). If the plan terms are unambiguous, any actions taken by the plan administrator that are inconsistent with the plan's terms are deemed to be arbitrary. If a reviewing court determines that the terms of a plan document are ambiguous, it must determine whether the plan administrator's interpretation of the plan document is reasonable. Bill Gray Enterprises, Inc. Employee Health & Welfare Plan v. Gourley, 248 F.3d 206, 218 (3d Cir. 2001); McElroy v. SmithKline Beecham Health & Welfare Benefits Trust Plan for U.S. Employees, 340 F.3d 139, 143 (3d Cir. 2003). The Court determined that the Plan's requirements for determining LTD benefits were unambiguous and held that CIGNA's decision to deny benefits was reasonably consistent with the Plan's requirements because it determined that plaintiff could, without restrictions, perform his former job at Lucent. The Court held that "[i]t went without saying that his former job could be understood to pay 100% of his former wage" and it was not necessary for CIGNA to consider any alternative jobs that would pay plaintiff 60% of his former pay to reach its determination. Substantial Evidence. The Court rejected the district court's reasoning that CIGNA's decision was not supported by substantial evidence because "it did not give proper consideration to the evidence and was infected by a conflict of interest" because of its role as administrator to a Plan that is self-funded. The Court found that the district court failed to consider that the Supreme Court noted that a "party's status as a third-party administrator does not automatically encumber it with a material conflict of interest … as the conflict may be of little or no practical significance." See MetLife v. Glenn, 554 U.S. at 114-15. Accordingly, the Court held that the district court should not have given significant weight to CIGNA's conflict of interest and remanded the issue for further deliberation.
Relief Under ERISA § 502(a)(3) Is AvailableUnder Section 502(a)(3) of ERISA, a fiduciary may seek relief if the relief falls within "those categories that were typically available in equity" and "the basis for its claims is equitable. Sereboff v. Mid Atlantic Medical Services, Inc., 547 U.S. 356, 361, 363. In Sereboff, the Supreme Court held that an insurer's claim seeking to recoup medical expenses from an insured who had received a tort settlement was permissible under ERISA § 502(a)(3) because the funds upon which the insurer sought to impose a lien were still in the insured's possession. The Supreme Court held that "the fund over which [an equitable] lien [by agreement] is asserted need not be in existence when the contract containing the lien provision is executed" and there is no tracing requirement for an equitable lien by agreement. Sereboff, 547 U.S. at 365-66. The Court noted that the Plan and the Agreements at issue specified the receipt of Social Security disability benefits as the particular fund from which reimbursement would be made. The Court also rejected plaintiff's argument under Great-West Life & Annuity Life Insurance Co. v. Knudson, 534 U.S. 204 (2002), that there was no equitable lien because the funds upon which CIGNA sought to impose the lien were no longer in his possession because they were used to pay for ordinary living expenses. The Court concluded that the language in the Plan and the Agreements was sufficient to create an equitable lien by agreement over the Social Security disability funds that are overpayments under the Plan. The Court held that CIGNA properly sought relief under ERISA § 502(a)(3) and ordered plaintiff to pay CIGNA the remaining LTD overpayment amount. Disclaimer This document and any discussions set forth herein are for informational purposes only, and should not be construed as legal advice, which has to be addressed to particular facts and circumstances involved in any given situation. Review or use of the document and any discussions does not create an attorney-client relationship with the author or publisher. To the extent that this document may contain suggested provisions, they will require modification to suit a particular transaction, jurisdiction or situation. Please consult with an attorney with the appropriate level of experience if you have any questions. Any tax information contained in the document or discussions is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code. Any opinions expressed are those of the author. The Bureau of National Affairs, Inc. and its affiliated entities do not take responsibility for the content in this document or discussions and do not make any representation or warranty as to their completeness or accuracy. ©2014 The Bureau of National Affairs, Inc. All rights reserved. Bloomberg Law Reports ® is a registered trademark and service mark of The Bureau of National Affairs, Inc.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
Notify me when updates are available (No standing order will be created).