CASE LAW UPDATE
Prepared by: Debra L. Mackey, Esq.
In another “legal versus
equitable” relief case involving restitution, the Sixth Circuit held that a
health plan could not, in federal court, recover from a participant medical
expenses paid to the participant.
Applying Great West, the court found that the ERISA plan’s claim
for restitution was a legal claim because the plan did not allege that it gave
certain funds to the participant, trace those funds to the settlement received
from a third party, that the participant was unjustly enriched by retaining the
funds, and seek the return of funds in the participant’s possession. Because the plan essentially sought to impose
personal liability on the participant, the relief sought was legal and the
court did not have subject matter jurisdiction over the claim. Community Health Plan of
In another cash balance conversion case, the Ninth Circuit ruled that the conversion to a cash balance plan did not violate ERISA or the ADEA. First, the plan sponsor’s decision to change the structure of the plan from a traditional defined benefit plan to a cash balance plan was not a fiduciary act. Second, there was no evidence of a decrease in benefit accruals other than the conclusory statement of an expert that future study would show that participants would have received more under the traditional plan. Finally, there was no evidence of a disproportionate impact on older employees. Note, however, the plan provided enhanced benefits to participants who were over the age of 41. Godinez v. CBS Corp., 31 EBC 2221 (9th Cir. 2003) (unpublished).
The Tenth Circuit recently
established a new standard of review of a benefit denial where the fiduciary
acted under a conflict of interest, adopting a two-tier approach. Under the first tier, the fiduciary bears the
burden of proving the reasonableness of its decision under the traditional
arbitrary and capricious standard. Under
the second tier, the court must determine whether the conflict is so severe as
to warrant an additional reduction in deference. Where the plan administrator also is the
third party insurer who denies coverage, additional reduction in deference is
appropriate. Denial may be upheld only
if the administrator/insurer establishes by a preponderance of the evidence
that the denial is warranted. Prior to
this decision, a showing of substantial evidence was sufficient to uphold a
denial. Faught v. UNUM Life Ins. Co.
of
W0449187