Life, Health and Disability Insurance Law Blog : Life, Health and Disability Insurance Law Blog : California Disability Lawyer & Attorney : Barger & Wolen Law Firm : CA Life Insurance & ERISA Law, Life Health Disability

On April 15, 2013, the United States Supreme Court agreed to review a case involving the question of when the statute of limitations accrues for judicial review of an adverse benefits determination under an ERISA long-term disability plan.  

On November 18, 2010, Julie Heimeshoff (“Heimeshoff”) filed suit against Hartford Life & Accident Insurance Company (“Hartford”) and her former employer, Walmart Inc., after Hartford denied her claim for benefits under a long-term disability plan established by Walmart (the “Plan”). See Heimeshoff v. Hartford Life & Accid. Ins. Co, et al., 2012 U.S. Dist. LEXIS 6882 (D. Conn. 2012).

Hartford filed a motion to dismiss on the ground that Heimeshoff’s claim was barred by the three-year contractual limitations period in the Plan, which provided as follows: “Legal action cannot be taken against The Hartford . . . 3 years after the time written proof of loss is required to be furnished according to the terms of the policy.” As to proof of loss, the Plan required that “[w]ritten proof of loss must be sent to The Hartford within 90 days after the start of the period for which The Hartford owes payment.”  

The district court granted Hartford’s motion to dismiss because Heimeshoff filed her complaint more than three years after proof of loss was required to be furnished under the Plan. In doing so, the district court rejected Heimeshoff’s argument that the Plan provision was ambiguous and that the limitations period did not begin to run until the final denial latter. The Court also rejected her argument that Hartford could not rely on the limitations period because it failed to advise Heimeshoff of the limitations period in the denial letter.  

The Court of Appeal for the Second Circuit affirmed, holding that, under Connecticut law, parties to an insurance contract may shorten the limitations period and that the “policy language is unambiguous and it does not offend the statute to have the limitations period begin to run before the claim accrues.” 

Heimeshoff filed a petition for writ of certiorari, which the Supreme Court granted on April 15, 2012, as to the following question: “When should a statute of limitations accrue for judicial review of an ERISA disability adverse benefit determination?” Heimeshoff v. Hartford Life & Accid. Ins. Co, et al., Case No. 12-729. 

The Supreme Court’s decision will be important because ERISA does not provide a limitations period for actions for plan benefits under 29 U.S.C. § 1132. As a result, federal courts apply the applicable state statute of limitations period that is most analogous or, if permitted, federal courts will apply the contractual limitations period, which may be shorter than the state statute. Thus, the Court’s decision will provide uniformity on the accrual of benefit claims under contractual limitations periods in ERISA group policies.

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By Michael A.S. Newman

Comcast v Behrend is the latest in a series of United States Supreme Court cases in recent years that have restricted the ability of plaintiffs to certify federal class actions. In so doing, it has expanded the scope of the Court's landmark 2011 decision, Walmart v. Dukes (click here for our analysis of that decision).

In Comcast, plaintiffs were subscribers to Comcast's cable-television services. Plaintiffs alleged that Comcast engaged in a practice called "clustering," a strategy of concentrating operations within a particular region, and that this practice violated antitrust law. In particular, plaintiffs alleged that the clustering scheme harmed subscribers in the Philadelphia area by eliminating competition and elevating prices.

Plaintiffs sought to certify the class under Federal Rules of Civil Procedure, Rule 23(b)(3), which permits certification only if:

the court finds that the questions of law or fact common to class members predominate over any questions affecting only individual members." 

The district court held that to meet this predominance requirement, plaintiffs needed show:

1. that the existence of individual injury "was capable of proof at trial through evidence that [was] common to the class rather than individual members" and
2. that the damages resulting from the injury were measurable "on a class-wide basis" through the use of a "common methodology."

Plaintiffs proposed four theories of antitrust impact. Of these four theories, the district court concluded that only one was capable of class-wide proof, and rejected the rest. 

In establishing that damages could be calculated on a class-wide basis, plaintiffs introduced the testimony of an expert, who introduced a model that calculated damages of over $875 million for the entire class. However, despite the fact that the district court had rejected three, and allowed only one, theory of antitrust impact, the model introduced by the expert did not isolate damages resulting from any one theory of antitrust impact.

The District Court approved the certification of the class, and Third Circuit Court of Appeal affirmed.  The Supreme Court, in a 5-4 decision authored by Justice Antonin Scalia, overturned these rulings, holding that the class action was improperly certified.

As Justice Scalia explained,

a model purporting to serve as evidence of damages in this class action must measure only those damages attributable to that theory.  If the model does not even attempt to do that, it cannot possibly establish that damages are susceptible of measurement across the entire class for purposes of Rule 23(b)(3)." 

The Court rejected the reasoning of the Third Circuit that such inquiry would involve consideration into the "merits," which, the Third Circuit believed, has "no place in the class certification inquiry."  To the contrary, Justice Scalia explained, "our cases requir[e] a determination that Rule 23 is satisfied, even when that requires inquiry into the merits of the claim." 

Comcast is part of a recent trend in Supreme Court jurisprudence allowing, and indeed even requiring, district courts to examine the merits of the claim in determining the suitability of class certification. 

This principle was announced in Walmart v. Dukes, and it is no accident that the Court begins the analysis section of Comcast with an invocation from that 2011 ruling. Moreover, Comcast extends the ruling of Walmart v. Dukes, which considered only Rule 23(a) (the requirement that plaintiffs establish commonality), to the predominance requirement of Rule 23(b)(3).

Originally posted to Barger & Wolen's Insurance Litigation & Regulatory Law Blog.

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By Larry Golub

A unanimous decision by the United States Supreme Court has restored the integrity of the Class Action Fairness Act, or CAFA. At issue in Standard Fire Insurance Co. v. Knowles was the transparent attempt by a named plaintiff to ouster federal court jurisdiction by “stipulating” that the damages sought through a class action complaint would not exceed the $5,000,000 minimum jurisdictional limit of CAFA. 

In a brief and direct decision, Justice Stephen Breyer disallowed the use of such a pre-certification stipulation, concluding that prior to the issuance of any certification order, a named plaintiff does not have the ability to bind absent class members and to concede the value of those class members’ claims.

Knowles was the named plaintiff in an action filed in Arkansas state court against Standard Fire concerning an alleged practice of failing to include general contractor fees in homeowner’s insurance loss payments. The complaint filed by Knowles, as well as an attachment to the complaint, contained a stipulation that Knowles and the Class would not seek to recover damages “in excess of $5,000,000 in the aggregate.” 

Accordingly, after Standard Fire removed the action to federal court under CAFA jurisdiction, Knowles moved to remand the action back to state court based on the stipulation that Knowles claimed made the “amount in controversy” fall beneath the $5,000,000 CAFA threshold and therefore defeated jurisdiction under CAFA. While the federal district court agreed with Knowles, other cases reached the opposite view, and thus the issue ended up at the Supreme Court.

In Knowles, the district court had found that the amount at issue would have exceeded the $5,000,000 minimum limit, but for the stipulation. As such, the Supreme Court had little difficulty concluding that the stipulation was ineffective to bind absent class members because, at the precertification stage, the proposed class members are not yet – and potentially never will be – parties to the action, and thus the named plaintiff cannot bind those non-parties. At the pre-certification stage, the named plaintiff cannot bind “anyone but himself.”

In enacting CAFA, Congress sought to relax the jurisdictional threshold of class actions and ensure “Federal court consideration of interstate cases of national importance.” The unilateral “stipulation” attempted in Knowles and in other cases not only frustrated the intent of Congress but also prejudiced the claims of absent class members. The Supreme Court correctly restored the balance in CAFA.

Originally posted to Barger & Wolen's Insurance Litigation & Regulatory Law Blog.

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The United States Supreme Court recently denied certiorari in a Fifth Circuit case, United Healthcare Insurance Co. v. Access Mediquip LLC, that allowed a health care provider to pursue state law misrepresentation claims against an ERISA-governed health insurance plan. 

The provider, a medical device company, alleged that it supplied devices to patients based on representations from the ERISA plan that it would reimburse reasonable charges for the devices and related services.

The District Court ruled that ERISA preempted the state law misrepresentation claims. The Fifth Circuit reversed, holding that the state law claims could go forward because the alleged misrepresentations were based on promises of reimbursement, rather than the terms of the ERISA plan. That ruling drew a distinction between plan beneficiaries and healthcare providers with respect to reimbursement representations – ERISA preempted the former but not the latter.

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United States District Judge Howard Matz of the Central District of California indicated yesterday that he would preliminarily approve a proposed $73 million settlement of a class action lawsuit against Conseco Life Insurance Company.

The case was filed in 2011 after the named plaintiff, Celedonia Yue, obtained a judgment in a separate action declaring that premium rate hikes and cost-of-insurance increases (monthly charges based on the insured’s age) violated her policy’s provision for determining cost-of-insurance rates. 

The class action, which includes more than 45,000 California policyholders, consists of both policyholders with in-force policies and former policyholders whose policies lapsed or were terminated in connection with the increases. The proposed settlement, among other things, will reduce the premium and cost-of-insurance increases and allow for reinstatement of terminated or lapsed policies. Former policyholders who do not wish to reinstate their policies are eligible for a cash payment.

A further hearing is set for March 7, 2013. Barger & Wolen will continue to follow this case. 

UPDATE: On March 6, 2013, District Judge Howard Matz issued findings and an order for preliminary approval of the proposed settlement and directing notice of the settlement to the class members.  Judge Matz found that the proposed settlement, which was reached after the parties had engaged in discovery, was the result of arm's length negotiations and was sufficiently fair and reasonable to warrant sending notice of the settlement to the class members. 

The court will rule on final approval of the settlement at a fairness hearing scheduled for June 10, 2013. 

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The recent case of Greb v. Diamond International Corp. highlights the need for dissolved corporations and their insurers to consider the survival statute of their state of incorporation when defending against actions brought in California.

In Greb, the California Supreme Court held that California law does not preclude the application of a foreign jurisdiction’s survival statute. The defendant, a Delaware corporation, argued that Delaware’s three-year survival statute barred the action. Plaintiffs contended that California corporate law – which places no time limit on suits against dissolved corporations – governed their suit.

The trial court agreed with the defendant and sustained its demurrer with prejudice on the grounds that Delaware’s survival statute barred the action which was filed more than three years after defendant dissolved. The court of appeal affirmed.

The Supreme Court unanimously affirmed the appellate court’s judgment. The opinion, authored by Chief Justice Cantil-Sakauye, rejected plaintiffs’ arguments that foreign corporations that qualified to do business in California were thereby organized under the laws of California.

The court found “no evidence” that the legislature intended to accomplish that “dramatic result.” Furthermore, “such a scheme would require foreign corporations to ‘follow a litany of requirements regarding various corporate activities that their home state already regulates.’”

For more information on this matter, please contact the article authors: James Hazlehurst, Ed Oster or Robert Renner.

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The California Fourth District Court of Appeal adopted the principle that:

it is inherently unreasonable for any person to rely on a prediction of future IRS enactment, enforcement, or non-enforcement of the law by someone unaffiliated with the federal government. As such, the reasonable reliance element of any fraud claim based on these predictions fails as a matter of law,” citing Berry v. Indianapolis Life Insurance Co.

In Brakke v. Economic Concepts, Inc., the trustee of a defined benefit plan and the principals of the company that established it brought suit against American General Life Insurance Company, Economic Concepts, Inc. and others for alleged fraud. The plaintiffs alleged they were induced to establish the pension plan by false representations that contributions to the plan were tax deductible under the Internal Revenue Code. Years after the plan was established, the Internal Revenue Service made an adverse ruling that the pension plan did not qualify for favorable tax treatment and required plaintiffs to pay back taxes and penalties.

The dispositive issues were whether defendants’ statements were actionable misrepresentations and if so, whether plaintiffs could establish reasonable reliance. The trial court sustained a demurrer without leave to amend.

On a purely factual basis, the appellate court noted inconsistencies between allegations in the complaint and exhibits to the complaint concerning the representations. More importantly, the representations were made and the plan was established in 2002-2003, whereas the IRS did not rule until 2006. This led the court to conclude that plaintiffs failed to allege the statements by defendants were false when made.

Equally fatal to plaintiffs’ position was the court’s reference to and reliance upon the Berry decision quoted above, albeit non-controlling, and analogous case law in California such as Holder v. Home Sav. & Loan Assn. (1968) (“statements with regard to future assessments or levies of taxes … made by a private person ... may not justifiably be relied on.”). The rationale in Holder was that:

“[t]he fixing of assessed values of property and of tax rates is solely within the power of public officials, whose decisions are not and should not be subject to control by a property owner.”

As a result, the Fourth District affirmed dismissal of the entire case.

Potential plaintiffs in comparable circumstances will need to find a more creative way around the court’s straightforward directive:

[I]t simply was not reasonable for plaintiffs to rely on representations concerning how the IRS would treat their pension plan in the future.”

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By David McMahon

In In re Insurance Installment Fee Cases, 2012 DJDAR 16696 (2012), the California Court of Appeal for the Fourth Appellate District decided an important class action cost recovery issue. The case arose in the insurance context.

A class action was filed against State Farm (“State Farm”) by a class representative. The representative pursued discovery seeking access to the class members’ personal and payment information, designed to identify which insureds might be eligible as plaintiffs in the class.  State Farm objected to the discovery requests. The plaintiff filed motions to compel the requested documents and the parties agreed to refer the dispute to a discovery referee. The discovery referee overruled State Farm’s objections. State Farm filed written objections to the referee’s recommendation which were subsequently overruled by the trial judge. The trial court also ordered State Farm to pay for and to mail out the notices regarding the discovery propounded by the plaintiffs. The merits of the litigation were subsequently decided in favor of State Farm.

State Farm filed a memorandum of costs after prevailing at the trial court level. In the cost memorandum State Farm sought to recover the $713,463 it incurred in sending out the notices to putative class members. The plaintiffs filed a motion to tax those costs. The trial court granted the motion to tax costs in its entirety.

The court of appeal reversed the trial court’s decision in part, and concluded the trial judge abused his discretion in taxing the costs relating to the mailing of the notices to putative class members. 

The court of appeal noted that certain cost items may be awarded in the trial court’s discretion if they are “reasonably necessary to the conduct of the litigation.” CCP § 1033.5(c)(2) and Seever v. Copley Press, 141 Cal. App. 4th 1550, 1558 (2006). 

However, when a party demands discovery involving significant “special attendant costs” beyond those typically involved in responding to routine discovery, the demanding party should bear those costs if the party is not successful in prevailing in the litigation. 

In reversing the trial court’s decision, the court of appeal reasoned that the costs State Farm incurred in providing the notice were “special attendant” costs beyond those involved in responding to routine discovery.

Originally posted to Barger & Wolen's Litigation Management & Attorney Fee Analysis blog.

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If you are serious about either DI or LTD litigation or claims operations, the inaugural Definitive Disability Conference is for you!

The conference's agenda, program and speakers are all set. The full program and agenda can be found here, but our speakers include:

• David A. Barron, Associate General Counsel, Mutual of Omaha Insurance Company
• Bryan D. Bolton, Founding Member, Funk & Bolton, P.A.
• Andrew J. Cohen, Secretary & General Counsel, Disability Management Services, Inc.
• J. Christopher Collins, Senior Vice President & General Counsel, Unum US
• William Demlong, Shareholder, Kunz, Plitt, Hyland & Demlong PC
• Anne J. Farina, AVP & Senior Counsel, Sun Life Financial
• Robert E. Hess, Partner, Barger & Wolen LLP
• Annie Hong, Senior Operations Representative, Life Insurance Company of North America
• Jeffrey Krivis, Mediator, First Mediation Corporation
• John M. Lucas, Vice President & Associate General Counsel, Disability Income & Claims, Ameritas Life Insurance Corp.
• Jacqueline Mallon, Assistant Vice President of Complex Operations Risk Management, Metropolitan Life Insurance Company
• John E. Meagher, Partner, Shutts & Bowen LLP
• Misty A. Murray, Of Counsel, Barger & Wolen LLP
• Mark K. Ostrowski, Partner, Shipman & Goodwin LLP
• Cheryl D. Provost, Director, Disability Claims, Business Process Services, CSC Financial Services Group
• Stephen J. Prunier, Second Vice President & Counsel, Berkshire Life Insurance Company of America
• Martin E. Rosen, Partner, Barger & Wolen LLP
• Mark E. Schmidtke, Shareholder, Ogletree, Deakins, Nash, Smoak & Stewart, P.C.
• Ernest Patrick Smith, Partner, Nawrocki Smith LLP
• Ronda S. Tranter, Assistant Vice President & Senior Counsel, Colonial Life Insurance Company

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