ERISA – Attorneys’ Fees and Social Security Disability Offset
In Stark v. Reliance Standard Life Insurance Co., the Tenth Circuit Court of Appeals affirmed a district court order dismissing ERISA claims brought by the guardian of the beneficiary of a long-term disability (LTD) plan.
The beneficiary suffered a hypoxic brain injury, leaving her totally disabled and unable to work. While receiving LTD benefits, the insurer sent a notice about deducting estimated Social Security disability (SSD) benefits from her monthly benefit payments. The insured’s guardian asked to waive the SSD deduction because of financial hardship, and the insurer agreed to the waiver while the insured’s SSD application was pending.
After an administrative law judge found the beneficiary to be totally disabled and entitled to backdated SSD benefits, the insurer sent her a letter in 2010 stating that it had overpaid benefits by nearly $27,676.73 because her LTD payments should have been reduced by the amount of her SSD payments. The insurer requested reimbursement.
The insurer continued paying LTD benefits for several years but determined in 2022 that recent testing did not support the conclusion that the beneficiary was totally disabled and terminated her benefits. Her guardian hired attorneys and submitted an administrative appeal, which resulted in the insurer reinstating her benefits. The guardian requested that the insurer pay her attorneys’ fees, and the insurer denied the request. This suit followed, alleging wrongful termination of benefits, breach of fiduciary duty for failure to produce records during the administrative appeal, and the improper deduction of SSD payments from monthly benefits.
The district court granted the insurer’s motion to dismiss. On appeal to the Tenth Circuit, and as a matter of first impression, the beneficiary’s guardian argued that ERISA obligates the insurer to make her whole for attorneys’ fees and costs for successfully appealing the termination of her LTD benefits under section 1132(a)(3)’s catchall provision. The court disagreed, explaining that ERISA contains a limited fee-shifting provision in section 1132(g) and agreeing with other circuits that attorneys’ fees are unavailable for pre-litigation administrative proceedings.
Next, the guardian claimed that she alleged a plausible claim under section 1132(a)(1)(B) for reimbursement of the SSD offset deductions that the insurer subtracted from her monthly benefits. The court did not address the merits of this claim because it was time-barred and the guardian had failed to exhaust her administrative remedies. The insurer had sent a letter explaining the SSD offset and the insured’s right to appeal under ERISA. The guardian never requested a review of the determination or responded to the letter.
Lastly, the court rejected the guardian’s argument that the insurer breached its fiduciary duty by failing to provide records she requested during her administrative appeal, agreeing with the district court that no concrete harm was pleaded because benefits had been restored.
ERISA – Short-Term/Long-Term Disability With COVID
The U.S. District Court for the District of Colorado in J.J.H. v. Unum Life Insurance Company of America affirmed the insurer’s denial of disability benefits stemming from COVID-19.
The plaintiff is an attorney and participant in her law firm’s employee benefits plan, which provides short-term disability (STD) and LTD benefits. After contracting COVID-19, she continued to work from home without taking formal leave or experiencing a reduction in pay. The participant applied for and received STD benefits based on “post-COVID fatigue” and “cognitive attention deficit” and later transitioned to LTD.
After an investigation, the insurer discovered that the participant was still working a reduced schedule but did not have a reduction in earnings. Thus, she was not eligible for LTD benefits under the policy. The law firm confirmed it would withhold future checks to recoup the overpayment, and the insurer continued its investigation by acquiring information about her position and medical records.
A clinical consultant later concluded that the participant would not be precluded from performing the full-time demands of her position. Numerous physicians communicated about her illness, and one physician advised that “no medical disagreement currently exists” as to the participant’s restrictions and limitations. The insurer ultimately determined that she was not disabled and that her benefits were to be terminated. After three denials and an appeal, the participant brought suit, alleging that the insurer denied her LTD benefits in violation of ERISA.
The court concluded that the insurer’s benefits decision was supported by substantial evidence. The record reflected a lengthy medical review process consisting of six levels of review by four medical professionals, all of whom agreed that the participant’s work restrictions or limitations were not supported.
The participant argued that the insurer improperly relied on the legal premise that the ability to do some work precludes a later finding of disability. Although the insurer’s medical reviewers considered the participant’s work history after she contracted COVID-19 in their determinations, it was only one factor, and no medical opinion gave her work history considerable weight.
Lastly, the participant argued that the insurer failed to reconcile the contradictory position that she was disabled through the 90-day elimination period for STD but not for LTD. The court found that the insurer’s decision to engage in a more detailed review at the LTD stage was reasonable, especially given that the participant’s STD benefits were self-funded by her law firm. Thus, the court affirmed the insurer’s benefits determination.
Accidental Death Policy Exclusions
In Jensen v. Life Insurance Company of North America, the Tenth Circuit Court of Appeals affirmed the denial of accidental death benefits based on an exclusion for loss caused by medical treatment for sickness.
The insured was covered under an ERISA-governed group accident policy that provided benefits for accidental death and dismemberment (AD&D). The insured suffered from chronic pain and was prescribed oxycodone. Shortly before his death, he visited a different doctor and was prescribed clonazepam for anxiety. The insured died as a result of oxycodone and clonazepam toxicity. The insurer denied his wife’s claim for AD&D benefits. After conducting a de novo review, the district court entered judgment for the insurer, concluding that the policy’s exclusion for losses caused by medical treatment for sickness applied.
The medical treatment exclusion provided that benefits would not be paid for a covered loss that was caused by or resulted from “sickness, disease, bodily or mental infirmity, bacterial or viral infection or medical or surgical treatment thereof.” The appellate court rejected the plaintiff’s efforts to read ambiguity into and expand the policy’s language to provide coverage for the insured’s death. In construing the provision, the court noted that the “purpose of AD&D insurance is to provide benefits when death (or another covered loss) results solely from an accident; such insurance does not typically provide benefits for accidents that occur in the course of medical treatment.” The court also pointed out that the policy stated on its cover page that it did not pay benefits for a loss caused by sickness.
The court further rejected the plaintiff’s argument that the medical treatment exclusion was ambiguous because it conflicted with the policy’s voluntary ingestion exclusion. That exclusion stated that no benefits would be paid for voluntarily ingested drugs, “unless prescribed or taken under the direction of a physician and taken in accordance with the prescribed dosage.” Reading the policy as a whole, the court concluded that this clause “preserves benefits for loss caused by taking medications as prescribed for accidental injuries” and “does not conflict with the policy’s exclusion of benefits for loss caused by taking medications prescribed for sickness, illness, or bodily or mental infirmity.”
STOLI Litigation
In Wells Fargo Bank, N.A. v. Estate of Gold, the U.S. District Court for the Eastern District of New York applied Wisconsin law on stranger-originated life insurance (STOLI) to determine entitlement to the proceeds of a policy that was initially purchased through a STOLI transaction.
In Gold, the insured’s agent/son recommended that they take out a policy on her life using financing to pay the premiums. The insured and her agent/son took out the policy through a life insurance trust with the intent of relinquishing the rights to the policy to a third party in exchange for a $90,000 payment. Years later, the policy was sold on the secondary market. The owner at the time of the insured’s death — Wells Fargo Bank N.A.
as securities intermediary for Vida Longevity Fund LP — submitted a claim for the policy’s proceeds; the insured’s estate submitted a competing claim.
The court found that there was no insurable interest present at the inception of the policy because, from the outset of the transaction, “all of the involved parties expected and intended a third party to receive the proceeds of the policy.”
Unlike many states, which deem life insurance policies purchased without an insurable interest to be void ab initio, Wisconsin law allows a court to order the proceeds of a policy that lacks an insurable interest “to be paid to someone other than the person to whom the policy is designated to be payable, who is equitably entitled” to the proceeds. The policy was designated to be payable to Vida, and Vida/Wells Fargo showed that, given the intended STOLI transaction, the estate was not equitably entitled to the proceeds. Thus, the court granted Vida’s/Wells Fargo’s motion for summary judgment. The estate filed its notice of appeal to the Second Circuit Court of Appeals on July 29, 2025.
