New Jersey Disability Lawyer Blog

An error made by the fiduciary to a defined contribution pension plan had to abide by a judgment requiring it to reimburse the plan participant whose funds were incorrectly distributed. In the recent Second Circuit case of Milgram v. The Orthopedic Assoc. Defined Contribution Pension Plan, even if the plan could not recoup the money it had wrongfully paid out, it must still honor its legal obligation to pay the pension participant.

The pension at issue was a Defined Contribution Plan. The plaintiff divorced his wife, and based on a property settlement agreement, the plan administrator erroneously transferred half of the plan funds to her, resulting in an overpayment to her of $763,847.93. The husband sued the plan under ERISA to recoup this money.

The plan argued, it could not distribute the money without first being repaid by the ex-wife, since doing otherwise would reduce the plan assets, which they refer to as alienating the benefits of other plan members.

The Court cited the concurring opinion in LaRue v. DeWolff, Boberg & Assoc., Inc., and explained that "all of the Plan's undistributed assets are legally owned by the trustee and managed for the benefit of all plan participants, with gains and losses shared by them on a pro rata basis. A single participant's 'account' is merely a bookkeeping entry that is used at the time of his retirement to determine what benefits he is entitled to receive." The Court thus distinguished Guidry v. Sheet Metal Workers National Pension Fund, and Kickham Hanley P.C. v. Kodak Retirement Income Plan, 558 F.3d 204 (2d Cir. 2009), as those cases enforced the anti-alienation provision in the face of benefits that members were entitled to.

The plan's final key argument rested on the distinction between defined contribution pension plans and defined benefit plans. A defined contribution plan guarantees that an employer makes a fixed contribution, while a defined benefit plan guarantees the beneficiary a fixed amount of benefits upon retirement. Since the plan at issue was a defined contribution plan which did not guarantee members a fixed payment on retirement, the defendants argued that it would be inequitable to allow those funds to be used to satisfy liabilities. However, the Court rejected this argument, stating that ERISA's anti-alienation provision "does not protect [beneficiaries] against the risk that poor management decisions will expose the plan's assets to liability."

You have specific rights as a member of an employee benefit plan. We at Bonny G. Rafel handle disability matters which often coincide with other benefits. Contact us to provide legal assistance on your claim.

- By Sara E. Kaplan, Esq.

Many health and disability group insurance contracts contain discretionary clauses---clauses that provide the company writing the contract with the discretion to determine the meaning of contractual terms or to determine the insured's eligibility for benefits. If your disability insurance policy is subject to ERISA, meaning it was purchased by your employer as part of a group plan, it most likely includes a discretionary clause. In order to prevail in court against an insurer, the claimant must demonstrate not just that the insurer's decision was wrong, but that the insurer abused its discretion in making that decision. Insurers use these clauses to deny claims, with knowledge of the added difficulty these clauses provide for their customers to succeed in court.

State legislators are reacting to these unfair clauses. California recently enacted a law, making discretionary clauses in disability and life insurance policies void and unenforceable. Starting January 1, 2012, for California residents challenging the denial of disability benefits, that denial may now be subject to de novo review by the court--the court would decide whether given all the evidence the person is disabled.

New Jersey Insurance regulations contain a weaker version of this California prohibition. New Jersey Administrative Code section 11:4-58.3 prohibits provisions that reserve "sole discretion" to the insurer, but permits discretionary clauses as to the insurer's "initial interpretation of the policy." Why did the Department of Banking and Insurance decide to place the word "sole" before discretion? The meaning of the word "sole" is not apparent and could lead to unfair interpretations, such as in Evans v. Employee Benefit Plan, 311 Fed. Appx. 556 (3d Cir. 2009) and Baker v. Hartford Life Ins. Co. This regulation should be revised to unequivocally state that discretionary laws are void as a matter of public policy.

We at Bonny G. Rafel are experienced in interpreting insurance contracts and will continue to pursue fairness and justice by using the New Jersey Regulation and its progeny to protect your rights.
--By Julie Gendel, Esq.

Medical providers often serve as intermediaries between their patients and insurance carriers in order to secure payment for their services. This spares the patient the burden of negotiating the waters of insurer red-tape. The recent District of New Jersey case of Cohen v. Independence Blue Cross makes clear that, in the case of an out-of- network provider, the language in an insurance policy can make all the difference in determining the efficacy of this intermediary role.

In Cohen, the insured underwent spinal surgery by an out-of-network physician, and then issued the surgeon an assignment of benefits under his health insurance plan. The defendants (the insurer, the plan and the plan administrator) paid a fraction of the doctor's bill directly to the insured, but refused to pay the rest of the doctor's bill, which was $143,626.00. This fractional amount represented a substantially higher patient obligation for out-of-network services. The defendants grounded their non-payment on an anti-assignment clause in the insured's policy, which read, in pertinent part, "The right of a Covered Person to receive benefit payments under this coverage is personal to the Covered Person and is not assignable in whole or in part to any person, Hospital, or other entity nor may benefits of this coverage be transferred."

The Court found that the clause was not preempted by ERISA, and distinguished Neuner v. Horizon Blue Cross Blue Shield of New Jersey, 301 B.R. 662 (Bankr D.N.J. 2003) (providers have standing to demand payment in the absence of an anti-assignment clause), and Ambulatory Surgical Center of New Jersey v. Horizon Healthcare Services, 2008 U.S. Dist. LEXIS 13370 (D.N.J. Feb. 21, 2008) (finding that providers could be valid assignees, without addressing whether ERISA permits anti-assignment clauses in insurance contracts). Additionally, the defendants had not waived their right to enforce the anti-assignment clause by corresponding with the doctor directly during the claim process, because Pennsylvania State law, which governed that issue, required a "clear, unequivocal and decisive act" of waiver, which the defendants had not shown.

The Court did not address the doctor's recourse to payment of his full bill. Therefore, the combination of this provision with the procurement of out-of-network services may have created a precarious situation for both the doctor and the insurer in the Cohen case.

Consumers in need of medical care welcome the assistance of their doctors to obtain payment of their medical bills. However, the Cohen case makes clear that there can be problems attendant to placing medical providers in this role. Insureds need to check the language in their policies, as they in fact may not be able to assign their rights to benefits to their doctors.

Fighting insurance company denials can be stressful, but we at Bonny G. Rafel can help.

- Sara Kaplan, Esq.