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

Recently, in Broberg v. The Guardian Life Insurance Company of America, 171 Cal. App. 4th 912 (2009), the Court of Appeal for the Second Appellate District held that the "delayed discovery" rule, which applies to delay accrual of the statute of limitations for fraud causes of action until such time as the plaintiff discovers facts putting him on notice of the fraud, applies to unfair competition claims that are based upon alleged fraud. In so holding, the court added to the conflict in published decisions on the issue of whether the "delayed discovery" rule applies to unfair competition claims. See, e.g., Snapp & Associates Ins. Services, Inc. v. Robertson, 96 Cal. App. 4th 884, 891 (2002) (holding the "delayed discovery" rule does not apply to unfair competition claims).

In Broberg, David A. Powell purchased a $500,000 whole life insurance policy in 1993 from defendant The Guardian Life Insurance Company of America ("Guardian Life"). The Plaintiffs (Powell and the trustee of a related trust) alleged that Guardian Life's agent described the policy as so-called "vanishing premium" policy, i.e., one where, after a certain number of out-of-pocket premium payments were made, the policy itself would generate sufficient sums through its dividend and interest income to pay future premiums for the balance of his life. Claiming Guardian Life's marketing materials and its agent made false and misleading statements in 1993, when Powell purchased the policy, the plaintiffs alleged causes of action for fraud, negligent misrepresentation, unfair competition and false advertising under California's Unfair Practices Act (Business and Professions Code section 17200 et seq.) and violation of the Consumers Legal Remedies Act ("CLRA"), Civil Code section 1750 et seq.). The plaintiffs further alleged that Powell did not discover the deception until Guardian Life sent a bill for additional out-of-pocket premiums in 2004. The trial court sustained demurrers to the complaint, concluding disclosures in the policy and marketing materials were at least sufficient to give Powell inquiry, if not actual, notice of the alleged deception. The trial court determined the fraud, negligent misrepresentation and unfair competition causes of action accrued in 1993, when Powell purchased the policy and, therefore, those claims were time-barred under the three-year statute of limitations for fraud (see Code Civ. Proc.§ 338 (d)) and the four-year statute of limitations for unfair competition (see Bus.& Prof. Code § 17208). The trial court also concluded, based upon disclaimers in the documents, that the plaintiffs could not establish reliance as a matter of law. The trial court further determined that the CLRA claim was not viable, as the CLRA does not apply to insurance. (See Fairbanks v. Superior Court, 46 Cal. 4th 56 (2009) (holding the CLRA does not apply to insurance). Finally, although the trial court ruled that the allegations did not justify an unfair competition cause of action based on the "vanishing premium" theory, they were sufficient to state a claim amounting to an unfair and unlawful sales tactic.

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In Bosetti v. The United States Life Ins. Co., 175 Cal.App. 4th 1208 (2009), the California Court of Appeal addressed whether a standard, two-year benefits limitation on disabilities due to “mental, nervous or emotional disorder[s]” could serve to limit benefits payable to an insured disabled from depression and anxiety who also complained of interrelated physical impairments. The Bosetti court held that the limitation was ambiguous and was not applicable if the claimant’s physical problems contributed to her disabling depression or were a cause or symptom of that depression. The Bosetti court further concluded that the insurer’s denial of benefits based upon that two-year limitation was not in bad faith under the genuine issue doctrine.

Bosetti worked as an assistant director of adult education for a school district and first sought treatment after learning that her position would be terminated. Based upon the report of her treating physician and her complaints of depression and anxiety, she was put on temporary disability under her group policy. She thereafter applied for permanent disability benefits complaining of depression and fibromyalgia pain in her muscles, though her treating physician reported that her disabling impairment was solely mental or nervous in nature. After paying Bosetti’s benefits for two years, United States Life determined that she did not qualify for any additional benefits and could work in “any occupation”, which was the governing disability standard after two years. That determination was based primarily upon the two-year benefits limitation for mental or nervous disorders, the results of a functional capacity examination, and an independent physician consultation.

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The Court of Appeal recently interpreted the infertility treatment provisions of Health and Safety Code section 1374.55 in Yeager v. Blue Cross of California, __ Cal. Rptr. 3d __, 2009 WL 2033209 (July 15, 2009). Yeager sued Blue Cross, alleging that it violated its duty under section 1374.55 to offer coverage for infertility treatment in the group plan that Blue Cross provided through Yeager’s employer, Westmont College. Blue Cross moved for summary judgment, arguing that it complied with section 1374.55 by offering optional coverage of up to $2,000 a year for half the cost of each group member’s infertility treatment, which Westmont College declined to purchase for cost-related reasons. The trial court granted summary judgment, and Yeager appealed.

The Court of Appeal held that section 1374.55 – which states that “every health care service plan contract . . . shall offer coverage for the treatment of infertility . . . under those terms and conditions as may be agreed upon between the group subscriber and the plan” – merely obligated Blue Cross to offer coverage for infertility treatment, and left the amount and cost of that coverage to agreement between Blue Cross and Westmont College. Thus, the court agreed that Blue Cross complied with the statute.

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In Sznewajs v. U.S. Bancorp Amended and Restated Supplemental Benefits Plan, ___ F.3d ___, 2009 WL 2004452 (9th Cir. July 13, 2009), the Ninth Circuit Court of Appeals addressed, for the first time, whether the standard of review analysis for “top hat” ERISA plans is the same as for other ERISA plans.

Franciene Sznewajs, the ex-wife of co-defendant Robert Sznewajs, challenged the Plan’s decision to treat Robert Sznewajs’ second wife, Virginia Sznewajs, as his surviving beneficiary. The Plan Administrator denied Franciene’s claim for benefits because it interpreted Robert’s “retirement” to have occurred when Robert started collecting benefits. Franciene argued that “retirement” meant the date of Robert’s termination of employment. The issues on appeal were the appropriate standard of review and the definition of retirement under the Plan.

The employee benefit plan in this case is known as a “top hat” plan. ERISA “defines a top hat plan as one which is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees.” Sznewajs at *4. Because of the specialized nature of “top hat” plans, Congress exempts such plans from certain ERISA regulations. Gilliam v. Nevada Power Co., 488 F.3d 1189, 1192-93 (9th Cir. 2007).

In most ERISA cases, the administrator’s claim decision is reviewed under the de novo standard of review unless the plan documents grant the administrator discretionary authority. Here, Franciene argued that, despite the discretion granted to the plan administrator, the district court should utilize the de novo standard of review because payments made to beneficiaries come directly from the company’s pockets and those payment decisions are made by the company’s executive committee. Franciene’s argument was consistent with holdings in the Third and Eighth Circuits, both of which have ruled that “top hat” plans are subject to a de novo standard of review despite the existence of a grant of discretionary authority for the very same reasons. However, the Ninth Circuit disagreed, explaining that applying a de novo standard of review to “top hat” plans “would create unnecessary confusion.” Therefore, in the Ninth Circuit, “top hat” plans are subject to the same standard of review analysis as other ERISA plans.

Finally, in making this ruling, the court found that the Plan did not abuse its discretion in its interpretation of the term “retirement.”

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Earlier this week, House Democrats introduced H.R. 3200: America's Affordable Health Choices Act of 2009 that seeks to make affordable health care available to an estimated 97% of Americans.

The key components of the plan are as follows:

• The plan mandates that employers provide health care coverage to employees. Employers that fail to provide health care coverage will have to pay fees or penalties based on the employer’s payroll (e.g., 8% for payrolls of $400,000). The plan does provide some exceptions to such penalties and fees, including small business with payrolls under $250,000.

• The plan also mandates that individuals maintain health care coverage or pay penalties in the form of a new tax based on his or her income. Individuals that meet a “hardship” exception would be exempted from the penalty.

• The plan provides credits for low- and moderate-income individuals and families to help fund the purchase of health care.

• The plan would create government-sponsored insurance to compete with the private sector. Those needing health care could shop for plans in a government-operated “exchange,” in which private carriers could participate if they meet standard benefit requirements designed by the federal government.

• To subsidize the plan, a surtax ranging from 1% to 5.4% would be imposed on the top 1.2% of income earners.

• The plan would introduce new regulations that would prohibit health care plans and insurers from excluding coverage based on pre-existing conditions.

Barger & Wolen LLP will provide continuous updates as the bill progresses through the House and Senate.

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Recently, in Harris v. Amgen, Inc., ___ F.3d ___, 2009 WL 202758 (9th Cir. July 14, 2009), the Ninth Circuit Court of Appeals held that a former employee who withdrew his assets from an ERISA-governed retirement contribution plan still had standing to assert a breach of fiduciary claim against the plan fiduciaries, on the grounds that his retirement account might have been worth more at the time of the withdrawal had there been no breach of fiduciary duty.

Initially, Steve Harris, a former employee of Amgen, who withdrew his assets from his retirement account in July 2007, and Dennis Ramos, another former Amgen employee who still maintained assets in his retirement account, sued Amgen and several officers and directors for breach of fiduciary duty, alleging that the fiduciaries improperly allowed the plan to purchase and hold Amgen stock despite knowledge that the stock price was artificially inflated because of improper off-label drug marketing and sales. The district court dismissed Harris’ claims, finding that because he had withdrawn his assets from the Plan, he did not have standing to sue the Plan. The district court dismissed Ramos’ claims because he failed to identify the proper defendants. Both Harris and Ramos were denied leave to amend the complaint.

In order to bring a suit under ERISA, a plaintiff must have standing as a plan participant, defined as “an employee or former employee of an employer … who is or may become eligible to receive a benefit of any type from an employee benefit plan which covers employees of such employer.” 29 U.S.C. § 1002(7). In Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 117 (1989), the United States Supreme Court expanded the definition of plan participant to include “former employees who have … a colorable claim to vested benefits.” In reversing the dismissal of Harris’ claims, the Ninth Circuit found that even though he previously cashed out his plan account, he still had standing to assert a claim under ERISA Section 502(a)(2). Specifically, the Ninth Circuit observed that “when employees withdraw their funds from a benefit plan, but claim that they would have had more to withdraw absent breach of fiduciary duty by those managing the plan, it is not difficult to see a common sense loss of benefits in their plan caused by the alleged breach of fiduciary duty.” Accordingly, “former” plan participants still have standing to recover losses caused by an alleged breach of fiduciary duty. The Ninth Circuit further explained that it agreed with the First and Third Circuits “in holding that an ERISA plan participant who no longer has assets in the plan has statutory standing to assert a fiduciary claims under Section 502(a)(2), even when relief is available under Section 502(a)(1)(B).”

Finally, the Ninth Circuit ruled that both Harris and Ramos were improperly denied the right to amend their pleadings, as courts “should normally permit at least one amendment of a complex ERISA complaint that has failed to state a claim where, as here, the Plaintiffs might be expected to have less than complete information about the defendants’ organization and ERISA responsibilities, where there is no meaningful evidence of bad faith on the part of the plaintiffs, and where there is not significant prejudice to defendants.”
 

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Arias v. Superior Court of San Joaquin (Angelo Dairy), 46 Cal.4th 969 (2009)

Amalgamated Transit Union, Local 1756, AFL-CIO v. Superior Court (First Transit, Inc.), 46 Cal.4th 993 (2009)

In a pair of cases, the California Supreme Court restricted the use of California Business & Professions Code Section 17200 et seq.   One case affirmed what many expected, that Proposition 64, a 2004 voter initiative, requires plaintiffs to follow strict class-action procedures when seeking to recover under California’s unfair competition law (Bus. & Prof. Code § 17200 et seq.) which prohibits “any unlawful, unfair or fraudulent business act or practice . . . .” 

Before 2004, any person could assert representative claims under the unfair competition law to obtain restitution or injunctive relief against unfair or unlawful business practices. Such claims were not required to be brought as a class action, and a plaintiff had standing to sue even without having personally suffered an injury. (See Former §§ 17203, 17204; Stop Youth Addiction, Inc. v. Lucky Stores, Inc., 17 Cal. 4th 553, 561 (1998)).

In 2004, however, the California electorate passed Proposition 64, amending the unfair competition law to provide that a private plaintiff may bring a representative action under this law only if the plaintiff has “suffered injury in fact and has lost money or property as a result of such unfair competition” and “complies with Section 382 of the Code of Civil Procedure . . . .” This statute provides that “when the question is one of a common or general interest, of many persons, or when the parties are numerous, and it is impracticable to bring them all before the court, one or more may sue or defend for the benefit of all.” The Court has previously interpreted Code of Civil Procedure section 382 as authorizing class actions. See Richmond v. Dart Industries, Inc., 29 Cal. 3d 462, 470 (1981).

In Arias v. Superior Court of San Joaquin (Angelo Dairy), __ Cal. 4th __ , 2009 WL 1838973 (June 29, 2009), the Court held that employees can pursue penalties for wage-and-hour violations under the Private Attorneys General Act, or (“PAGA”), without having to qualify their lawsuit as a class action.

Justice Joyce L. Kennard, writing for the majority, also analyzed the effect of Proposition 64. Plaintiff contended that because Proposition 64’s amendment of the unfair competition law required compliance only with “[s]ection 382 of the Code of Civil Procedure” and because that statute makes no mention of the words “class action,” his representative lawsuit brought under the unfair competition law need not comply with the requirements governing a class action. The Court rejected this assertion, explaining:

In light of this strong evidence of voter intent, we construe the statement in section 17203, as amended by Proposition 64, that a private party may pursue a representative action under the unfair competition law only if the party “complies with Section 382 of the Code of Civil Procedure” to mean that such an action must meet the requirements for a class action. (See Fireside Bank v. Superior Court, supra, 40 Cal.4th at p. 1092, fn. 9.)

In a concurring opinion by Justice Werdegar, she disagreed with the majority’s “nonliteral interpretation of Proposition 64 (Gen. Elec. (Nov. 2, 2004)), which forecloses a variety of representative actions the measure clearly permits. Unlike the majority, I do not believe we would frustrate the voters’ intent by enforcing the measure according to its plain language.”

Similarly, in Amalgamated Transit Union, Local 1756, AFL-CIO v. Superior Court (First Transit, Inc.), __ Cal. 4th __ , 2009 WL 1838972 (June 29, 2009), the Court ruled that the requirement that a plaintiff be one “who has suffered injury in fact,” combined with the PAGA requirement that a labor action be initiated by an “aggrieved employee,” prevents a union from bringing a UCL action based on associational standing.
 

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