Can Employer’s Transfer of Coverage Effect an Employee’s Disability Claim?
In the case of Cheryl L. Wallace v. Oakwood Healthcare, Inc. (Oakwood), Plaintiff was employed by Oakwood Healthcare, Inc. Health System as a registered nurse when she became ill in October 2012 and took medical leave. She returned to work on April 7, 2013, but stopped working again on May 13, 2013, and did not return.
Plaintiff filed a claim for long-term disability (LTD) benefits. There were some procedural hurdles she had to jump through since at the time she initially took medical leave in October 2012, Oakwood’s employee welfare benefit plan was funded and insured by Hartford Accident Life Insurance Company (Hartford). The Oakwood Hartford relationship ended on December 31, 2012.
Effective January 1, 2013, Reliance Standard Life Insurance Company (Reliance) became the administrator of Oakwood’s employee benefit plan. Reliance was in charge when Plaintiff returned to work in April 2013 and stopped working in May 2013.
There was some confusion about when, and with what company, Plaintiff filed her initial claim for LTD benefits. Ultimately, she filed a claim with Hartford, but her claim was denied. The denial letter told her that her “failure to request a review within 180 days of [her] receipt of this letter may constitute a failure to exhaust the administrative remedies available under [ERISA] and may affect [her] ability to bring a civil action under [ERISA].”
Plaintiff did not file an administrative appeal, but instead filed an ERISA lawsuit in the U.S. District Court for the Eastern District of Michigan at Flint. She initially named as defendants Hartford, Beaumont Heathcareformerly known as Oakwood Healthcare, and Reliance. Beaumont Helathcare and Hartford were dismissed and the case proceeded only against Reliance.
After reviewing the administrative record, the District Court held that:
1) exhaustion of remedies was not required since Oakwood’s Plan did not affirmatively require exhaustion;
2) Plaintiff proved she was entitled to LTD benefits and calculated the amount to which she was entitled; and
3) Plaintiff was entitled to attorneys’ fees and costs.
Reliance appealed the District Court’s decision to the U.S. Court of Appeals for the Sixth Circuit (Appeals Court). That Court held that Plaintiff had exhausted her remedies. As for the other issues, the Court determined the administrative record was not developed enough for it to make a decision and remanded to the lower court for further consideration consistent with the Appellate Court’s direction.
Exhaustion of Remedies
The Appeals Court noted that “the district court found that Plaintiff was not required to exhaust her administrative remedies because Defendant’s plan document did not affirmatively require exhaustion, but ‘[t]his court can affirm a decision of the district court on any grounds supported by the record, even if different from those relied on by the district court.’”
The Appeals Court carefully reviewed Reliance’s plan documents, ERISA rules and Sixth Circuit precedent and concluded that “because Defendant did not describe any internal claims review process or remedies in its plan document, the plan did not establish a reasonable claims procedure pursuant to ERISA regulations; therefore, Plaintiff’s administrative remedies must be deemed exhausted.”
The Appeals Court Found the District Court’s Decision Finding Plaintiff Covered Under the Transfer of Insurance Provision Was Not Based on Sufficient Evidence and Remand was Required to Develop the Record.
Plaintiff argued she was covered under the transfer of insurance provisions at the time that Hartford’s policy ended and Reliance’s went into effect. The district court agreed with her. Based on the dates of her disability and dates of the transfer of coverage, defendant argued she was not covered.
The Court of Appeals concluded that because the facts relied on by the district court were “insufficient to allow us to determine whether Plaintiff is covered under the transfer of insurance provision and the corresponding pre-existing conditions limitation credit, we vacate the district court’s judgment and remand for further factfinding.”
Areas the Appeals Court found need to be developed include:
- A determination of the last date upon which Plaintiff received treatment for the alleged pre-existing condition.
- Both parties agreed that Plaintiff was not actively at work on January 1, 2013, when the Reliance policy went into effect. The question was whether she was out of work due to “Injury” or “Sickness” and whether she could be considered an “active, Full-time employee as defined by the Reliance policy.
- Whether Plaintiff was insured by Hartford on the date of the transfer.
- Whether Plaintiff’s two leaves created two separate periods of “Total Disability” under the plan.
- Whether Plaintiff completed the elimination period during her first leave.
- A determination of whether Plaintiff was totally disabled “beyond May 27, 2014.
- What credit “Plaintiff had earned under Hartford’s pre-existing conditions limitation.”
The Appeals Court vacated the district court’s judgment and remanded for further factfinding on the issues as they were articulated by the Appeals Court. The Court instructed: “On remand, the district court may take what additional findings of fact it can based on the administrative record, but it may not look beyond the administrative record. If the district court remands the case to the plan administrator, in view of the court’s familiarity with the record, it may want to retain jurisdiction over future proceedings should the case subsequently return.”
This case was not handled by our law firm, but we feel it can be instructive to those who may have issues concerning the transfer of coverage when their employer changes insurance companies while the employee is on medical leave. If you have questions about this case, or any question concerning your short term disability (STD) benefits or LTD benefits, contact one of our disability attorneys at Dell & Schaefer for a free consultation.
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