Life, Health and Disability Committee Newsletter - Life ... · Life, Health and Disability News ... Kenton J. Coppage Carter & Ansley LLP ... Knepper, P.C. 8 Headquarters Plz North

Life, Health and Disability News

The newsletter of the DRI Life, Health and Disability Committee

continued on page 5

Spring 2006

©2006 DRI. All rights reserved.

In This Issue…Courts Split Over Imposter

Defense When ContestablePeriod Has Expired .............. 1

Life, Health and DisabilityCommittee ............................ 2

From the Chair:Celebrating Our Successes ...... 4Video Surveillance Evidence

Raises Issues of Admissibilityand Potential Liability ......... 9

New York InsuranceDepartment FindsDiscretionary ClausesDeceptive and Unfair ......... 17

The Decision to Rescind anInsurance Policy: EssentialElements of Proof under TexasLaw ..................................... 20

ERISA Update ...................... 22Equitable Remedies Revisited –

Part II ................................. 22Network News ...................... 25

Colorado............................. 25Michigan ............................. 25First Circuit ........................ 25Fourth Circuit .................... 26Eleventh Circuit ................. 27District of Columbia District

Court ................................ 28Florida District Court ........ 30Maryland District Court .... 30Massachusetts District Court ................................ 32Michigan District Court .... 33Pennsylvania District Court ... 33Virginia District Court ...... 34

Courts Split Over ImposterDefense When ContestablePeriod Has ExpiredCRISTINA ALONSO

ANTHONY H. PELLE

Carlton Fields, P.A.Miami, [email protected]@carltonfields.com

Insurance fraud is a problem of stag-gering proportions. By some esti-mates, insurance fraud is now thesecond largest white-collar crime inthe nation, trailing only tax evasion.See Robert R. Googins, Fraud and theIncontestable Clause: A Modest Proposalfor Change, 2 CONN. INS. L.J. 51,74 & n. 106 (Spring 1996) (citingKathryn Baker & Herbert Edelhertz,Fighting the Hidden Crime: A NationalAgenda to Combat Insurance Fraud,Battelle Seattle Res. Ctr. (March1992)). Nationally, the cost of insur-ance fraud exceeds $120 billion ayear. See Frankie Sue Del Papa, Insur-ance Fraud is Not a Victimless Crime,NEVADA LAWYER, March 2000, at18.

It is well-recognized that the costs

of insurance fraud are borne by poli-cyholders who pay higher premiumsfor their policies. See Paul Revere LifeIns. Co. v. Haas, 644 A.2d 1098,1107 (N.J. 1994) (“‘[i]nsurance fraudis a problem of massive proportionsthat currently results in substantialand unnecessary costs to the generalpublic in the form of increased rates’”)(quoting Merin v. Maglaki, 599 A.2d1256, 1259 (N.J. 1992)). As such,insurance fraud presents a problemnot only for the insurance industry,but for innocent policyholders as well.

Recently, there has been a resur-gence of what has come to be knownas “imposter fraud,” which has re-sulted in litigation between life insur-ers and the beneficiaries of lifeinsurance policies. Imposter fraud oc-curs during the life insurance applica-tion process when someone other thanthe named insured appears for themedical examination that is a pre-req-uisite to obtaining the policy. For ex-ample, while Carlos Smith may fillout an application for life insurance,

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2 Life, Health and Disability News Spring 2006

Chair

Mark E. SchmidtkeSchmidtke Hoeppner

Consultants103 E LincolnwayValparaiso, IN 46383(219) 465-7368(219) 464-1401 – [email protected]

Vice Chair

Simeon D. RapoportStandard Insurance Co.900 SW 5th AveLaw Department C 14CPortland, OR 97204(503) 321-7223(503) 321-6407 – [email protected]

Membership/ MarketingChair

Ann-Martha AndrewsLewis and Roca40 North Central AvenuePhoenix, AZ 85004-4429(602) 262-5707(602) 734-3764 – [email protected]

Vice ChairEdward S. Rooney, JrEckert Seamans Cherin1 International Pl, 18th, flBoston, MA 02110(617) 342-6863(617) 342-6899 – [email protected]

Publications Chair

H. Sanders Carter, Jr.Carter & Ansley1180 W Peachtree St, Ste

2300Atlanta, GA 30309(404) 965-4950(404) 658-9726 – [email protected]

Vice ChairKenton J. CoppageCarter & Ansley LLP1180 W. Peachtree Street,

Suite 2300Atlanta, GA 30309404-965-4950404-658-9726 – [email protected]

Program Chair 2006

Sheila J. CarpenterJorden Burt LLPSuite 400 East1025 Thomas Jefferson

Street, N.W.Washington, D.C. 20007202-965-8100202-965-8104 – [email protected]

Program Chair 2007

Gary SchumanAon Corp1000 Milwaukee Ave 5th FlGlenview, IL 60025-2423(847) 953-1506(847) 953-2779 – [email protected]

Expert Witness Chair

Jay S. BlumenkopfAdorno & Yoss, P.A.700 S Federal Highway, Ste

200Boca Raton, FL 33432(561) 393-5600(561) 338-8698 – [email protected]

Legislative/RulemakingLiaison

TBD

State Liaison Chair

Randi F. KnepperDel Mauro, DiGiaimo &

Knepper, P.C.8 Headquarters Plz North

TowerMorristown, NJ 07960(973) 292-2277(973) 292-1551 – [email protected]

Co-Vice ChairsHelen M. KempRobinson & Cole LLP280 Trumbull StreetHartford, CT 06103860-275-8200860-275-8299 – [email protected]

Joshua BachrachRawle & Henderson LLPOne South Penn SquarePhiladelphia, PA 19107215-575-4200215-563-2583 – [email protected]

Andrew I. HamelskyWhite and Williams LLPThe Atrium, East 80 Route 4Paramus, NJ 07652201-368-7200201-368-7240 – [email protected]

Diversity Liaison

Cheryl A.C. BrownFunk & Bolton, P.A.36 South Charles St. 12th fl.Baltimore, MD 21201(410) 659-7700(410) 659-7773 – [email protected]

Web Page Chair

Michael H. BernsteinSedgwick, Detert, Moran &

Arnold LLP125 Broad Street, 39th

FloorNew York, NY 10004-

2400212-422-0202212-422-0925 – [email protected]

LIFE, HEALTH AND DISABILITY COMMITTEE

Subcommittee Chair

Special ProjectsErna A.P. WombleWomble, Carlyle, Sandridge &

RiceOne West Fourth StWinston-Salem, NC 27101(336) 721-3723(336) 733-8412 – [email protected]

Public RelationsContacts

EastJ. Snowden Stanley, Jr.Semmes, Bowen & Semmes250 W Pratt StBaltimore, MD 1201(410) 539-5040(410) 539-5223 – [email protected]

CentralMichael J. SmithMichael J. Smith & Associates39 S. LaSalle St, Ste 305Chicago, IL 60603(312) 541-0300(312) 541-0933 – [email protected]

WestThomas M. HerlihyKelly, Herlihy & Klein44 Montgomery St, Ste

2500San Francisco, CA 94104-

4712(415) 521-6504(415) 386-5130 – [email protected]

Young Lawyer Liaison

Heidi Eckel AlessiBullivant, Houser, Bailey PC1601 Fifth Ave, Ste 2300Seattle WA 98101-1618(206) 521-6504(206) 386-5130 – [email protected]





















3Life, Health and Disability NewsSpring 2006

Young Lawyer LiaisonVice Chair

TBD

Steering Committee

Linda M. LawsonMeserve Mumper Hughes300 S Grand Ave Ste 2400Los Angeles, CA 90071-

3185(213) 620-0300(213) [email protected]

Brooks R. MagrattenVetter & White20 Washington PlProvidence, RI 02903(401) 421-3060(401) [email protected]

Ann-Martha AndrewsLewis and Roca40 N Central AvePhoenix, AZ 85004-4429(602) 262-5707(602) [email protected]

Jay S. BlumenkopfH. Sanders Carter, Jr.Mark E. SchmidtkeErna A.P. WombleSimeon D. RapoportSheila J. Carpenter

Newsletter Editor

Kenton J. Coppage

Substantive CommitteeAdvisory Board Liaison

Thomas A. PackerGordon & Rees275 Battery St, 20th Fl.San Francisco, CA 94111(415) 986-5900(415) 986-8054 – [email protected]

Law Institute Liaison

William F. RayWatkins & Eager, PLLC400 East Capitol, Ste 300Jackson, MS 39201(601) 948-6470(601) 354-3623 – [email protected]

“““““DRI MEMBERS CAN CHOOSE FROM A RANGE OF INSURANCE PROGRAMS INCLUDING LIFE, DISABILITY, MAJOR

MEDICAL, AND LONG TERM CARE INSURANCE ADMINISTERED BY MARSH AFFINITY GROUP SERVICES.”






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FROM THE CHAIR Celebrating Our SuccessesMark E.Schmidtke

Schmidtke Hoeppner Consultants LLPValparaiso, [email protected]

As I write this column, we are still expe-riencing the euphoria of our highlysuccessful Life, Health, Disability &ERISA Conference in Washington,D.C. The topics were timely and in-formative. The speakers were topnotch. The weather was spectacular.The social and networking opportuni-ties were unparalleled. Oh, and wehad nearly 450 attendees!

Thanks go to many who contrib-uted to the success of this program –our advisory committee, the speakers,the DRI staff people, the technologypeople, CIGNA and Standard fortheir superb panel counsel meetings,and yes, the attendees. There is nomore sophisticated audience in thisarea of the legal practice than what wesee year in and year out at our annualconference. But let me once againthank the one person who spear-headed the entire effort – Sheila Car-penter, our 2006 Program Chair.

As many of you already know, theplanning for our annual conferences isongoing. The committee leadershiphas already met for an initial phoneconference to discuss the 2007 pro-gram. Gary Schuman of Aon, has gra-ciously agreed to serve as the 2007Program Chair. He is already knee-deep in the planning process as wemove toward formation of an advisorycommittee. Suggestions for topics

and speakers are welcome and alreadypouring in.

Next year’s conference will be alittle earlier than usual – March 28-30, 2007 — so mark your calendarsnow. The conference will be at theRenaissance Hotel in Chicago, the lo-cation of our 2005 conference. Thiswas a wonderful venue and we arelooking forward to next year’s event.

We also have other reasons to cel-ebrate. In the February 2006 issue ofFor the Defense monthly magazine, theLife, Health and Disability Commit-tee sponsored four substantive articlesby committee members. We appreci-ate the efforts of our PublicationsChair, Sanders Carter, in coordinatingthese articles. Thanks also to the au-thors – Byrne Decker, Jay Symonds,Sim Rapoport, Joshua Bachrach, andNikole Crow.

Speaking of Sanders Carter, thisnewsletter marks a milestone: Sandershas retired as chief editor of the news-letter and this is the first newsletteredited by Kent Coppage, a partner ofSanders. Kent is already doing an ex-cellent job of prodding authors (in-cluding yours truly!) to meet theirdeadlines. Committee members canbe assured that the quarterly newslet-ter is in good hands and will continueto be of the highest quality.

We also want to recognize our Tele-conference Subcommittee. Althoughthis subcommittee is barely a yearold, subcommittee chair BrooksMagratten and subcommittee vicechair Jay Symonds, recently coordi-nated their second teleconference pro-gram in February. The topic was, “Is

the California Department of Insur-ance Disabling the Disability Insur-ers?” Speakers, Josh Bachrach, C.Mark Humbert, and Ronald Dean,did a great job of presenting a compli-cated topic. Ron Dean is a plaintiff ’slawyer who is well known to many ofour committee members and his viewsprovided an excellent contrast to Joshand Mark. All in all, the Teleconfer-ence Subcommittee has met and ex-ceeded expectations, due in large partto its leadership.

As we all know from our experiencein the litigation business, successes areshort-lived. We need to continue topush the limits of our life, health, dis-ability, and ERISA law practices tobetter serve our clients and to stay astep ahead of the plaintiff ’s bar. Weneed to overlook our competitive na-tures and share information with eachother. We need to train our youngercolleagues so that they can carry on inproviding the highly competent rep-resentation that our clients need andexpect. We also need to pass on thesense that, at its core, our vocation isbased on service to others.

Wherever we go, whatever we do,we are servants who represent our cli-ents in the highest sense. To accom-plish this calling, we need to keepcurrent on the issues that impact ourclients. The DRI Life, Health andDisability Committee will continueto nobly serve this function.



Courts Split, from page 1

someone other than Carlos Smith ismedically examined. Such fraud isemployed so that policies may be ob-tained on the life of a person who isill, thereby allowing beneficiaries torecover on a policy that may not haveotherwise been obtained or thatwould have been obtained at a muchhigher premium. The imposter fraudschemes may be complex, involvingnot only the insured, but also thebeneficiaries who either procure theimposters or “buy into” the policy bypaying the premiums.

Imposter fraud presents a challengeto insurers because such fraud is diffi-cult to detect, especially during apolicy’s contestability period. Life in-surance policies contain incontestabil-ity clauses that limit the time inwhich an insurer may contest the va-lidity of an insurance policy based onmaterial misrepresentations made bythe insured during the applicationprocess. The clauses are designed to“address the perception that insurerstended to avoid paying benefits be-cause of minor misstatements in ap-plications for insurance.” Galanty v.Paul Revere Life Ins. Co., 1 P.3d 658,665 (Cal. 2000). Insurers began vol-untarily including incontestabilityclauses in policies in the middle of the19th century to promote sales to apublic that was “generally distrustfulof insurers.” Id. States began to re-quire that life insurance policies con-tain incontestability clauses in theearly 1900s. See id.; Mut. Life Ins. Co.of New York v. Ins. Comm’r for the Stateof Maryland, 723 A.2d 891, 894(Md. 1999); see generally Paul RevereLife Ins. Co. v. Haas, 644 A.2d 1098,1101-02 (N.J. 1994); Eric K.

Fosaaen, Note, AIDS and the Incontest-ability Clause, 66 N.D. L. Rev. 267,268-70 (1990).

It cannot be overly emphasizedthat in cases dealing with an imposterundergoing the medical examination,“imposter” refers to impersonation ofthe insured — not merely a false repre-sentation about the insured. The dis-tinction is significant because while aclaim of misrepresentation is generallybarred by contestability clauses,claims of imposter fraud may not bebarred.

The Imposter Defense to

Incontestability

A number of courts have allowed in-surers to contest the enforceability ofa policy, even after expiration of thecontestability period, in cases wherean imposter appears for the requisitemedical examination, thereby recog-nizing what is commonly referred toas the “imposter defense” to incontest-ability. These courts recognize thatthe insurer intended to insure the lifeof the person appearing for the medi-cal examination, not the life of theperson whose name appears on the ap-plication form. This precludes con-tract formation in the first place andrenders the insurance contract void abinitio. Under traditional principles ofcontract law, there was never a “meet-ing of the minds” between the insurerand the insured on an essential ele-ment of the contract — the insured’strue identity. These courts concludethat, if the insurer contracted withanyone, it was with the person whounderwent the medical exam. SeeCOUCH ON INSURANCE 3d § 87:23 (p.

46-47) (“A contract based upon amedical examination of one imperson-ating the insured is void ab initio.Stated otherwise, the fraud of the ap-plicant in substituting a healthy per-son for the purpose of the medicalexamination vitiates the policygranted on the faith of such examina-tion . . .”).

The imposter defense was first ar-ticulated in Maslin v. Columbian Na-tional Life Insurance Co., 3 F. Supp.368 (S.D.N.Y. 1932). In that case,the insurer issued two life insurancepolicies to the plaintiff ’s son, SamuelMaslin, naming the plaintiff as thebeneficiary. Id. at 368-69. After thecontestability period in the policiesexpired, the insurer discovered that animposter had signed the insurance ap-plication and posed as the insuredduring the medical examination. Id.at 369. The beneficiary moved forsummary judgment, arguing that theincontestability clause barred the in-surer from raising any defense. Id. at368-69.

The New York court recognized the“general rule” that “after passage ofthe stipulated time the insurancecompany is precluded from contestingthe policy on the ground of false rep-resentations by the insured, eventhose made fraudulently.” Id. at 369.The court nevertheless determinedthat the defense of an alleged imper-sonation of the insured by another atthe physical examination was notbarred by the incontestability clause.Id. The court relied upon contractlaw principles: “It is a rule applicableto contracts generally that where aman, pretending to be someone else,goes in person to another and induces


him to make a contract, the resultingcontract is with the person actuallyseen and dealt with and not with theperson whose name was used.” Id. at370. Because an imposter, rather thanthe named insured, presented himselffor the required physical examination,the insurance policy was never en-forceable vis-a-vis the named insured.Id.

The Pennsylvania Supreme Courtsimilarly held in Ludwinska v. JohnHancock Mutual Life Insurance Co.,178 A. 28 (Pa. 1935). The court ex-plained that, in insurance policies, asin any other contract, there must be ameeting of the minds on all essentialelements before any contract exists.Id. at 30. “Without this neither theincontestable clause contained in thepolicy nor the policy itself have anylife. The clause can rise no higherthan the policy; the incontestableclause cannot of itself create the con-tract.” Id. Because the plaintiff ben-eficiary applied for a life insurancepolicy using her sister’s name andposed as her sister at the physical ex-amination, there was no contract be-tween the insurer and the namedinsured. Id. at 30-31.

The Seventh Circuit subsequentlyfollowed Maslin and Ludwinska inObartuch v. Security Mutual Life Insur-ance Co., 114 F.2d 873 (7th Cir.1940), cert. denied, 312 U.S. 696(1941). There, the named insuredwas not aware of the policy and didnot submit to the medical examina-tion. “Thus there was no meeting ofthe minds — a fundamental requisiteof all contracts — the policies as is-sued were void and the incontestableclause without effect.” Id. at 878.Other courts have similarly held thatan insurer is entitled to rescind a

policy where an imposter submits tothe requisite medical examination.See, e.g., Valant v. Metropolitan LifeIns. Co., 23 N.E.2d 922 (Ill.App.Ct.1939).

In these particular cases, there wasevidence both that the named insureddid not sign the initial life insuranceapplication and that an imposter sub-mitted to the medical examination.However, subsequent courts have ap-plied the imposter defense to allow apolicy to be rescinded solely on thebasis that an imposter appeared at themedical examination.

For example, in Strawbridge v. NewYork Life Insurance Co., 504 F. Supp.824, 830-31 (D.N.J. 1980), the evi-dence indicated an imposter took thephysical examination. SeeStrawbridge, 504 F. Supp. at 830.The court determined that there ac-cordingly was no meeting of theminds between the insurer and thenamed insured with regard to theidentity of the insured, precludingcontract formation. Id. at 830-31.The court stated: “[I]t is a well estab-lished principle of insurance law thatthe [incontestability] clause does notbar such proof.” Id. at 830 (citingMaslin; Petaccio v. New York Life Ins.Co., 189 A. 697 (Pa.Super.Ct. 1937);12 Appleman, Insurance Law andPractice § 7123). The fact that thenamed insured signed the initial lifeinsurance application did not create acontract.

Similarly, in Blair v. Berkshire LifeIns. Co., 429 F.2d 996, 999 (3d Cir.1970), the named insured signed partI of the application and an impostersigned part II of the application. Thecourt held that, if an imposter tookthe physical examination and signedpart II of the written application, the

insurer would have a “complete de-fense” to the enforceability of thepolicy. Id. at 999. Here again, it wasimmaterial that the named insuredfilled out the initial application.

In Fioretti v. Massachusetts GeneralLife Insurance, 892 F. Supp. 1492(S.D. Fla. 1993), aff ’d, 53 F.3d1228 (11th Cir. 1995), the namedinsured, who was HIV positive, eitherarranged for an imposter to appear forthe requisite blood test or arranged forthe substitution of another person’sblood sample for his. Id. at 1493.There was no question that thenamed insured himself filled out andsigned the insurance applicationforms, including a statement of goodhealth. Id. at 1494. The districtcourt did not resolve whether Florida,New Jersey or New York law appliedto the case, determining that all threestates would recognize the imposterdefense, allowing insurers to contest alife insurance policy, even after expira-tion of the contestability period,where someone other than the namedinsured appears for the requisitemedical examination. Id. at 1496-97.

In reaching this conclusion, thedistrict court distinguished cases offraudulent misrepresentation on ap-plication forms from that of impos-ture, observing:

The medical examination is thelinchpin of the life insurance appli-cation. It is the determinativeevent for the formation of the con-tract. The substitution of an im-poster for the insured at themedical examination is such a seri-ous and shocking strain of fraudprecisely because it is so stealthilyingenious - - piercing right to theheart of the deal, and virtually im-possible for the insurance company


to detect through reasonable andordinary business procedures.

Id. at 1496. It determined that, be-cause of the difficulty of detecting thesubstitution of an imposter for the in-sured and “to prevent manifest injus-tice,” beneficiaries of such policiesshould not be protected by the incon-testability clause. Id. Moreover, itobserved that the incontestabilityclause is designed to promote stabilityby creating a reasonable expectationby the insured that a claim on a validpolicy will be paid: under an impostersituation, the beneficiary had no suchreasonable expectation of payment.Id.

In reaching its decision that Floridawould recognize the imposter defense,the court determined that a statementin Bankers Security Life Ins. Society v.Kane, 885 F.2d 820 (11th Cir. 1989),that Florida would not recognize theimposter defense could only be prop-erly viewed as dicta.

In Kane, the Eleventh Circuit waspresented with the question ofwhether Florida would recognize anexception to the incontestabilityclause where the named insured, whoentered a witness protection program,withheld information concerning hiscriminal background in his life insur-ance application. 885 F.2d at 821.In that case, the insurer sought to re-scind the policy on the basis of theinsured’s own written misrepresenta-tions - - not impersonation at themedical examination. Id. Conse-quently, although Kane noted thatFlorida law would not recognize theimposter defense, that observation canonly be properly viewed as dicta, asdetermined in Fioretti.

The Fioretti case was affirmed onappeal with respect to New Jersey law.

The Eleventh Circuit, however, de-clined to determine whether the courtproperly interpreted Florida law orthe scope of its opinion in Kane. SeeFioretti v. Massachusetts Gen. Life Ins.Co., 53 F.3d 1228, 1235 n.23 (11thCir. 1995).

Accordingly, the majority of casesinvolving an imposter posing as thenamed insured have allowed the in-surer to contest the policy, eventhough the named insured signed theinitial life insurance applicationforms.

Indeed, the imposter defense hasalso been extended to allow an insurerto rescind a policy where the namedinsured applied for and signed the ap-plication, but unlawfully interceptedmail sent to the doctor named as hisphysician, who was to verify hishealth, falsified the health informationrequested and forged that doctor’s sig-nature. See Unity Mut. Life Ins. Co. v.Moses, 621 F. Supp. 13 (E.D.Pa.),aff ’d, 780 F.2d 1015 (3d Cir. 1985).

The two most recent decisions con-sidering imposter fraud, however, havedeclined to recognize the imposter de-fense to incontestability.

Recent Decisions Declining to

Apply Imposter Defense

The case of Amex Life Assurance Co. v.Superior Court, 930 P.2d 1264 (Cal.1997), was the first reported casewhere a court declined to recognizethe imposter defense when faced withan imposter posing as the insured atthe requisite medical examination.The Amex case is factually similar toFioretti.

In Amex, the named insured knewhe was HIV positive, lied on the lifeinsurance application form, and sent

an imposter to take the mandatorymedical examination. Id. at 1265.Unlike Fioretti, however, the Amexcourt held that the parties’ intent wasto insure the person whose name ap-peared on the policy. Id. at 1271.Because the named insured did every-thing but take the medical examina-tion, the court determined that thefacts of the case did not come withinthose cases recognizing the imposterdefense. Id. In so holding, the courtconcluded that the fraud involved inhaving an imposter pose as the in-sured in the medical examination wassubstantially similar to other fraudscovered by the incontestability clause.Id.

Recently, in Allstate Life Ins. Co. v.Miller, 424 F.3d 1113 (11th Cir.2005), the Eleventh Circuit deter-mined that Florida would not recog-nize the imposter defense. In thatcase, the insurer sought a declaratoryjudgment that the policy was void abinitio, after expiration of thecontestability period, on the basis thatsomeone other than the named insuredappeared for the requisite medical ex-amination. Id. at 1114. The EleventhCircuit affirmed the district court’s de-cision granting summary judgmentagainst the insurer on the basis thatthe action was barred because thecontestability period had expired. Thecourt reasoned that there was no mate-rial difference between imposter fraudand fraudulent misrepresentations onthe insurance application. The courtwent on to liken the Florida statute re-quiring contestability clauses in insur-ance policies to a statute of limitations.As such, the court implicitly deter-mined that Fioretti was wrongly de-cided as to Florida law.


Public Policy Considerations

Incontestability clauses were designedto (1) encourage insurers to investi-gate facts promptly, (2) protectinsureds’ reasonable expectations ofrecovery, (3) prevent insurers from re-lying on minor misstatements to voidpolicies, and (4) preclude life insurersfrom making charges against deceasedindividuals who are unable to rebutthem.

None of these purposes is served byenforcing an incontestability clausewhen a life insurance policy is pro-cured through the use of an imposter.First, imposter fraud is virtually unde-tectable because it is the medical ex-amination itself that insurers relyupon to verify the representationsmade in the insurance applicationforms. Consequently, it is inequitableto punish the insurer for failing todiscover the fraud during the policy’scontestability period. Second,insureds and beneficiaries do not havea reasonable expectation of recoverywhen they have engaged in such a

fraudulent scheme. Third, the goal ofpreventing insurers from voiding poli-cies based on minor misstatements ortechnicalities is inapplicable when thepolicy was secured as a result of im-poster fraud. Finally, in most im-poster cases, unlike ordinarymisrepresentation cases, the perpetra-tors (typically, the beneficiaries andthe imposter) are still alive when aclaim is made on the policy and theinsurer seeks to challenge the policy’svalidity. Accordingly, there is nopublic-policy justification for enforc-ing incontestability provisions in suchcircumstances.

Indeed, declining to recognize anexception for imposter fraud would af-firmatively contravene public policy.In addition to being unfair to insur-ers, such a rule would reward, andthus encourage, insurance fraud andshift the costs of that fraud to bothinnocent policyholders and individu-als seeking coverage. If left defenselessagainst this increasingly commonfraudulent scheme, insurers will beforced to pass on the costs of fraudu-

EDITORIAL INFORMATION

Life, Health and Disability News is published quarterly by the DRI’s Life, Health and Disability Committee. Articles andcase summaries should be submitted for publication via e-mail to Publications Chair and Newsletter Editor KentCoppage of Carter & Ansley LLP in Atlanta (see p. 2). Submissions are encouraged and welcomed.

lent recoveries to current policyhold-ers through higher premiums, andwill be inclined to refuse to considerthe application of any individual whois unable to identify an attendingphysician who can confirm theapplicant’s medical history. Honestconsumers of life insurance will suffer.

Conclusion

In sum, if the Amex and Miller deci-sions result in a trend to refuse to rec-ognize an imposter exception toincontestability clauses, the end resultwill be to encourage insurance fraudand shift the costs of that fraud fromcriminal actors to innocent consumersof life insurance. This shift of costsdoes not promote any social good, butrather allows criminals to profit fromtheir fraudulent conduct.


Video Surveillance Evidence Raises Issues ofAdmissibility and Potential LiabilityLINDA M. LAWSON

RUSSELL G. GOMM

Meserve, Mumper & Hughes LLPLos Angeles, [email protected]@mmhllp.comGayle Flanders WeissUnumProvident CorporationWorcester, [email protected]

Video surveillance can be a powerfultool in investigating disability insur-ance claims, particularly in guardingagainst fraud. Courts generally recog-nize this fact and take the social util-ity of insurance investigations,including video surveillance, into ac-count when dealing with video sur-veillance evidence.

This article examines general trendsand factors in courts’ treatment ofvideo surveillance evidence – underwhat circumstances insurance compa-nies may admit it at trial, as well asunder what circumstances courts willevaluate insurers to be liable forabuses in conducting such surveil-lance.

Admissibility of Video Surveillance

Evidence

Video surveillance evidence regardingthe physical condition or abilities ofindividuals claiming injury or disabil-ity is commonly admitted into evi-dence in personal injury and disabilityinsurance cases. Trial courts have wide

discretion to admit or refuse to allowvideo surveillance evidence. See, e.g.,Clark v. Matthews, 891 So.2d 799 (La.App. 5th Cir. 2005); Gerbino v.Tinseltown USA, 13 A.D.3d 1068, 1070(N.Y.A.D. 4th Dept. 2004).

Courts have sometimes been justifi-ably wary of surveillance video due to itspotential for being manipulated and mis-representing a situation while appearingto present hard objective evidence. TheLouisiana Supreme Court stated that“evidence in the form of moving picturesor videotapes must be approached withgreat caution because they show only in-tervals of the activities of the subject,they do not show rest periods, and donot reflect whether the subject is suffer-ing pain during or after the activity.”Olivier v. LeJeune, 668 So.2d 347, 351(La. 1996).

Because of this caution, courts gener-ally pay particular attention to whetherthe probative value of this type of evi-dence is outweighed by its potentialprejudicial effect, and it is this basis thatis most often cited when video surveil-lance evidence is not admitted. Otherbases for objection to video surveillanceevidence, including hearsay, attorneywork product privilege, lack of authenti-cation and misconduct of the investiga-tor, are usually not successful at keepingout video surveillance evidence.

Admissible if Probative Value Not

Outweighed by Prejudicial Effect

Whether or not the probative value ofvideo surveillance evidence is out-

weighed by its prejudicial effect is ob-viously a very fact-specific determina-tion. In general, the probative valueis judged to be weightier, and the evi-dence is admitted, where the subjectindividual’s physical condition orabilities are a significant issue andwhere the video surveillance evidencefairly depicts that condition or thoseabilities.

A typical case where video surveil-lance evidence was held to have beenproperly admitted is Brokamp v. MercyHosp. Anderson, 726 N.E.2d 594(Ohio App. 1st Dist. 1999). Theplaintiff and his wife brought suit fornegligence and loss of consortium dueto nerve damage allegedly caused byan improper intramuscular injection.The appellate court held that the trialcourt did not err in admitting surveil-lance video of plaintiff playing golfover plaintiff ’s objection that it wasincompetent and highly prejudicial.The investigator’s testimony suffi-ciently authenticated the video, andbecause plaintiff ’s alleged damageswere directly related to his causes ofaction, the probative value out-weighed its prejudicial effect.

A similar case is Olivier v. LeJeune,668 So.2d 347 (La. 1996), where thedefendant had stipulated to liabilityand the trial was solely to determinedamages resulting from an automobileaccident. The trial court allowed thedefendant to introduce a surveillancevideotape showing the plaintiff per-forming activities the plaintiff hadpreviously stated in a sworn statement





he was unable to perform. On appeal,the plaintiff argued that because theplaintiff, at trial, described his physi-cal abilities consistent with the video-tape (in contrast to what he hadearlier stated in his sworn statement),the tape had no impeachment valueand had significant prejudicial effect.The Louisiana Supreme Court heldthat the trial court did not abuse itsdiscretion in admitting the videotapeand finding that its probative value asto the plaintiff ’s credibility was notoutweighed by its potential prejudi-cial effect.

In Albrecht v. Dorsett, 508 S.E.2d319 (N.C. App. 1998), several occu-pants of a van brought a personal in-jury action against a motorist whostruck them. During the course ofthe litigation, the defendant hadvideo surveillance of the plaintiffs con-ducted. The video “depicted plaintiffsengaging in various physical activities,which was probative of whether andto what extent plaintiffs were disabledby the injuries they sustained in theautomobile accident.” Id. at 323. Inaddition to arguing that the video wasirrelevant, the plaintiffs objected onthe grounds that the video was preju-dicial because it was lengthy and re-petitive. The court reasoned that thevideo was relevant because the exist-ence and extent of the plaintiffs’ dis-abilities were at issue in determiningthe plaintiffs’ damages. Id. at 323.As to the prejudicial effect, the appel-late court held that the trial court waswithin its discretion to admit thevideo despite its length and repetitivenature.

In Luther v. Norfolk and Western Ry.Co., 649 N.E.2d 1000 (Ill. App. 5thDist. 1995), video surveillance evi-dence was held properly admitted

even though it merely corroboratedthe subject individual’s testimony andmedical testimony. This case wassomewhat unusual, though notunique, in that while the defendant inthe personal injury suit was the partywho had the surveillance conducted, itwas the plaintiff who offered the videobecause it confirmed rather than re-futed his claimed injuries. (More suchcases will be discussed below in thesection dealing with the risks of videosurveillance evidence.) Because the in-dividual depicted in the video was thesame party who was offering it into evi-dence, there was no basis for the defen-dant to claim prejudicial effect.

The court in LeMasters v. Boyd Gam-ing Corp., 898 So.2d 497 (La. App.5th Cir. 2005), did not articulate itsreasoning, but held that the trial courtwas not in error in admitting videosurveillance evidence even where theplaintiff had not testified she was un-able to perform the activities depictedin the video. The plaintiff allegedlysuffered a hand injury when the doorof a casino slot machine fell open andstruck her. Id. at 499. The plaintiffworked as a waitress at a coffee shopboth before and after the accident, andshe testified that pain from her injurydid not prevent her from performingmost of her job duties, just “heavywork.” Id. at 500. The defendant wasallowed to introduce video surveillanceevidence showing the plaintiff at herjob, using her allegedly injured hand.Because the plaintiff had not testifiedthat she could not perform the activi-ties depicted in the video, the proba-tive value in such a case would not beas great as where the subject individualhad clearly stated he or she was unableto perform the activities that theywere filmed performing.

Inadmissible if Prejudicial Effect

Outweighs the Probative Value

The similarity of the LeMasters case,898 So.2d 497, to other cases wherevideo surveillance evidence was heldinadmissible based on the prejudicialeffect outweighing the probative valuedemonstrates how fact-specific the de-termination is, as well as how wide atrial court’s discretion is in makingthat determination.

In Quinn v. Wal-Mart Stores, Inc.,774 So.2d 1093 (La.App. 2d Cir.2000), video surveillance evidencewas held inadmissible where theplaintiff had not said she was unableto perform the activities shown in thevideo. The plaintiff was injured whena television fell on her in defendant’sstore, striking her on the neck andshoulder, and she claimed that shesuffered from significant pain thatprevented her from performing certainactivities for very long. The defendantattempted to offer surveillance videoof the plaintiff performing some ofthe activities she had testified about,but the trial court ruled that the po-tential prejudicial effect of the videooutweighed its probative value. In af-firming the trial court’s ruling, theappellate court noted that the plain-tiff had not testified that she wascompletely unable to perform the ac-tivities, just that they caused her painand she could not do them for a pro-longed period. The court also notedthat:

the tapes do not fairly indicatewhether Mrs. Quinn did experi-ence pain after engaging in theseactivities. Accordingly, showingthese tapes to the jury withoutcontext or explanation, could, asthe trial court concluded, create a


prejudicial impression on the jurythat outweighs any probative valuethey may have to impeach Mrs.Quinn’s testimony.

Id. at 1098.Another case where the proffered

video surveillance evidence was notadmitted on the basis of potentialprejudicial effect is Gerbino v.Tinseltown USA, 13 A.D.3d 1068(N.Y.A.D. 4th Dept. 2004). The ap-pellate court held that the trial courtdid not err in refusing to admit videosurveillance evidence of the personalinjury plaintiff where the videotapewas not inconsistent with theplaintiff ’s testimony concerning hisinjuries. Id. at 1070.

In Franz v. First Bank System, Inc.,868 So.2d 155, 162 (La.App. 4thCir. 2004), the trial court was held tohave properly refused to admit videosurveillance evidence where there hadalready been sufficient testimony re-garding the plaintiff ’s credibility, andthe trial court felt that “‘the issue isgoing to be the medical testimony.’”The probative value of the evidencewas thus small and easily outweighedby even a small potential for preju-dice.

Reported cases include several otherbases on which parties have objectedto video surveillance evidence. Mostof these have generally been unsuc-cessful for reasons which would belikely to apply to most video surveil-lance evidence (as opposed to beingcase- or fact-specific).

Hearsay Objection to Surveillance

Is Generally Unsuccessful

Although it is certainly conceivablethat an individual depicted in a sur-veillance video would make some

statement in the video relevant to thepurposes for which the video is beingoffered, this is usually not the case.(Where this is the case, the party-ad-mission exception to the hearsay rulewould probably apply to most in-stances where the individual on thevideo is a personal injury or disabilityinsurance plaintiff and the video is be-ing offered by the defendant.) A largepart of the reason that video surveil-lance evidence is potentially powerfuland effective is that it does not rely onstatements but rather shows the indi-vidual actually doing the thing he orshe claimed she could not do. Thetypical testimonial infirmities ofmemory, sincerity, accurate expres-sion, and perhaps perception too, areby-passed by letting the jury see theindividual’s activities for themselves.The hearsay rule therefore usually isnot applicable to video surveillanceevidence and not a successful basis forobjecting to its admission.

In Hairston v. Metro-North Com-muter R.R., 6 Misc.3d 399 (N.Y.Sup.2004), another case where the subjectof the surveillance sought to introducethe video surveillance evidence herself,the personal injury plaintiff obtaineda copy of the surveillance video fromthe defendant in discovery. Presum-ably because the video showed theplaintiff “going through her life’s ac-tivities outdoors using a walker”, thedefendant did not seek to introducethe video into evidence and objectedwhen the plaintiff tried to do so. Id.at 400. The appellate court held thatthe trial court properly overruled thedefendant’s objections, among whichwas that the video was barred by thehearsay rule. Because the video hadno sound other than static and theplaintiff did not commit any nonver-

bal acts therein that could constitutea statement, the hearsay rule was in-applicable.

Work Product Privilege No Bar to

Surveillance Evidence

In cases such as Luther, 649 N.E.2d1000, and Hairston, 6 Misc.3d 399,where it is the plaintiff who is offeringthe video surveillance evidence eventhough the video was made by the de-fendant, some defendants have at-tempted to use the attorney workproduct doctrine to keep the videoout. In Constantine v. Schneider, 715A.2d 772 (Conn. App. 1998), the ap-pellate court held that it was error forthe trial court to refuse to admit sur-veillance video of the plaintiff, when itwas offered by the plaintiff, based onthe attorney work product doctrine.The appellate court explained thatthis was because the attorney workproduct doctrine was a valid objectiononly during discovery, not at trial.

Misconduct by Investigator Not a

Basis for Precluding Evidence

Although it may serve as the basis fora tort claim against the investigatorand/or the investigator’s hirer (dis-cussed in detail below), misconductby an investigator is not a basis forkeeping out video surveillance evi-dence.

In Tompkins v. VanOrden, 2003 WL22719331 (Pa.Com.Pl. 2003), a per-sonal injury plaintiff attempted to ex-clude video surveillance evidencebased on her assertion that the investi-gator who recorded the video tres-passed on her private property to doso. The court carefully examined pos-sible legal bases for excluding the evi-


dence on these facts but found nonethat would support such an exclusion.The court first looked at whetherthere was any Constitutional basis forexcluding the evidence. In a criminalmatter, of course, evidence wrongfullyobtained is generally excluded underthe Fourth Amendment and the poi-sonous fruit doctrine. The FourthAmendment and the poisonous fruitdoctrine only apply to state actors incriminal matters, however, not to pri-vate parties. The court next turned toany statutory basis for excluding theevidence and determined that therewas none under Pennsylvania law. Fi-nally, the court found no basis incommon law to exclude the evidence.

Failure to Disclose Surveillance

During Discovery Bars Admittance

The one basis on which video surveil-lance evidence has been excluded,other than because of prejudicial ef-fect, is when its proponent failed todisclose it during discovery. In Clarkv. Matthews, 891 So.2d 799 (La.App.5th Cir. 2005), a personal injuryplaintiff had requested, during discov-ery, “production of investigator’s re-ports.” The defendant had failed toproduce a surveillance videotape thathe had had made. The appellatecourt held that the trial court prop-erly found that the plaintiff ’s discov-ery request covered the surveillancevideotape, and therefore neither thetape nor information learned from itcould be used by the defendant attrial.

Similarly, in Chiasson v. ZapataGulf Marine Corp., 988 F.2d 513(5th Cir. 1993), the defendant in thepersonal injury action failed to pro-duce a surveillance videotape of the

plaintiff which showed the plaintiffengaging in various activities whichthe defendant argued were inconsis-tent with her claimed injuries. Thetrial court allowed the defendant topresent the videotape on the theorythat it was solely for impeachmentpurposes and therefore did not haveto be disclosed in discovery. The ap-pellate court held that this was revers-ible error because the tape was at leastin part substantive.

Proper for ERISA Administrators to

Utilize Surveillance

In the context of group disability in-surance policies governed by the Em-ployee Retirement Income SecurityAct of 1974 (“ERISA”), 29 U.S.C.§1001, et seq., the issue of admissibil-ity of video surveillance evidence attrial generally does not arise becauseERISA trials are usually bench trialsbased solely on the administrativerecord compiled by the claim admin-istrator. The issue of whether claimadministrators may rely on video sur-veillance in making claim decisionsdoes arise not infrequently, however.

Courts have consistently held thatit is not improper for an ERISA claimadministrator to rely on video surveil-lance in denying a claim. In the fol-lowing cases, courts held that relianceon video surveillance evidence did notconstitute an abuse of discretion:Briggs v. Marriott Intern., Inc., 368F.Supp.2d 461 (D. Md. 2005);DiCamillo v. Liberty Life Assur. Co.,287 F.Supp.2d 616 (D. Md. 2003);Vlass v. Raytheon Employees DisabilityTrust, 244 F.3d 27 (1st Cir. 2001);McGarrah v. Hartford Life Ins. Co.,234 F.3d 1026 (8th Cir. 2000). InSchindler v. Metropolitan Life Ins. Co.,

141 F.Supp.2d 1073 (M.D. Fla.2001), the court held that reliance onvideo surveillance evidence was notimproper under a de novo standard ofreview. In Delta Family-Care Disabil-ity and Survivorship Plan v. Marshall,258 F.3d 834, 841 (8th Cir. 2001),the court noted that “there is nothingprocedurally improper about the useof surveillance,” and held that relianceon a surveillance report did not war-rant a heightened standard of review.

While the fact that a claim admin-istrator relied on surveillance in deny-ing a claim is not improper, thesurveillance must support theadministrator’s decision. For example,in Dorsey v. Provident Life and Acc. Ins.Co., 167 F.Supp.2d 846 (E.D. Pa.2001), the court held that, under aheightened abuse-of-discretion stan-dard of review, the claim administra-tor did abuse its discretion when itdenied an LTD claim based on sur-veillance video that did not show sub-stantial evidence of the participant’sability to return to work.

Special care must be taken withconditions such as fibromyalgia syn-drome and chronic fatigue syndrome,where a claimant’s activities shown onsurveillance video may not necessarilyevidence his or her degree of disabil-ity.

In Morgan v. UNUM Life Ins. Co.of Am., 346 F.3d 1173 (8th Cir.2003), the claimant alleged that hewas disabled due to fibromyalgia.The claimant’s treatment recordsshowed, and the claimant stated in atelephone interview with the claimhandler, that he regularly engaged inlight exercise. The claim administra-tor subsequently approved the claimfor LTD benefits. Later, the adminis-trator obtained video surveillance


showing the claimant performinglight exercise. Because these were thesame activities the claimant had al-ready told the insurer he engaged in,the surveillance did not constitute anynew evidence and did not support theclaim administrator’s subsequent de-nial of benefits.

In Clausen v. Standard Ins. Co., 961F.Supp. 1446 (D. Colo. 1997), theclaimant alleged that she was disableddue to chronic fatigue syndrome. Al-though surveillance showed the claim-ant engaging in light activity, this wasnot inconsistent with her diagnosis ofchronic fatigue syndrome, and thecourt found that the claim adminis-trator abused its discretion in relyingon this surveillance to deny her LTDclaim.

On the other hand, video surveil-lance can be powerful evidence againsta claimant with alleged conditions offibromyalgia and chronic fatigue. InEpstein v. UNUM Life Ins. Co. of Am.,2004 WL 2418310 (C.D. Cal. Oct.13, 2004), the claimant and her treat-ing physician reported that the claim-ant was unable to work and wouldlikely never be able to work. Uponreceiving these reports, UNUM paidbenefits for over six years. UNUMperformed surveillance and discoveredthat the claimant left her residence ev-ery day to run errands or take herdaughter to school. UNUM also sawthe claimant running and pushing herdaughter in a stroller.

Upon further review of the medicalrecords and the completion of anIME, UNUM denied the claimantfurther benefits. At the ERISA trial,the court reviewed the video surveil-lance and found the “surveillance vid-eos to be powerful and persuasive newevidence that, especially with

Plaintiff ’s statements ... that shestayed home ‘almost all the time’ andshe experienced increased pain justwalking up and down stairs, justifiedUNUM’s conclusion that its previousacceptance of Plaintiff ’s claim was nolonger warranted.” To further punc-tuate the impact of the video, the trialjudge found that the suit had beenbrought “in bad faith” and awardedUNUM $10,000 in attorney fees.

Risks to Insurers Associated with

Using Surveillance

One potential risk of attempting touse video surveillance evidence at trialis that the insured may try to turn thetables and use the evidence to his orher advantage. This would only bethe case, of course, where the surveil-lance at least arguably does not sup-port the insurance company’sposition. Luther, 649 N.E.2d 1000,Hairston, 6 Misc.3d 399, andConstantine, 715 A.2d 772, dis-cussed above, are examples of this.Each of these was a personal injurysuit in which the defendant had sur-veillance conducted on the plaintiff,the surveillance video was disclosedduring discovery, and then the plain-tiff used or attempted to use the videoat trial to show that his activities wereconsistent with his claimed injuries.In each case, the defendant tried toprevent the plaintiff from using thevideo, but the appellate courts allheld that the defendants had no validbasis for doing so.

A more general risk associated withvideo surveillance evidence, that is notlimited to instances where the videomay arguably not support the insur-ance company’s position, is that theinsured may sue the insurance com-

pany for alleged torts committed bythe third-party investigator in thecourse of having the surveillance con-ducted and the video made, particu-larly invasion of privacy. Two majorquestions exist here: (1) whether theinsurance company can be liable forthe torts of the third-party investiga-tor; and (2) if so, when will surveil-lance give rise to an invasion ofprivacy.

Insurance Companies’ Liability for

Actions of Investigators

In general, there is no vicarious liabil-ity for the torts of another, absent anagency relationship. Davis v. FultonCounty, 884 F.Supp. 1245 (E.D. Ark.1995), aff ’d, 90 F.3d 1346 (8th Cir.1996), rehearing and suggestion for re-hearing denied (1996); WashingtonMetropolitan Area Transit Auth. v.L’Enfant Plaza Properties, Inc., 448A.2d 864 (D.C. 1982). Some courtshave held, however, that the hirer ofan investigator may be liable for historts without reference to an agencyrelationship. Additional theories un-der which an insurance company maybe sued for the actions of a third-party investigator are that an agencyrelationship did exist by virtue of thecontrol the insurer exercised over theinvestigator or by ratification of theinvestigator’s actions, or that the in-surer is liable for negligent supervisionor entrustment.

Vicarious Liability

The court in Noble v. Sears, Roebuck &Co., 109 Cal.Rptr. 269 (Cal.App.1973), examined holdings of courts invarious jurisdictions on the issue ofwhether and under what theory the


hirer of an investigator may be liablefor the investigator’s torts. Courtshave reached a variety of conclusions.Id. at 273-74. Bases for distinguish-ing when the hirer of a third-party in-vestigator would be liable for theinvestigator’s actions includedwhether the hirer exercised controlover the investigator (Clinchfield CoalCorp. v. Redd, 96 S.E. 836 (Va.1918); Adams v. F.W. Woolworth Co.,144 Misc. 27 (N.Y. Sup. 1932);Inscoe v. Globe Jewelry Co., 157 S.E.794 (N.C. 1931)), whether the plain-tiffs were invitees of the hirer (Nash v.Sears, Roebuck & Co., 163 N.W.2d471 (Mich. App. 1968), reversed onother grounds in 174 N.W.2d 818(Mich. 1970); Halliburton-Abbott Co.v. Hodge, 44 P.2d 122 (Okla. 1935)),and whether the investigator washired for a single investigation or wasretained for general protection ofproperty (Milton v. Missouri Pac. R.Co., 91 S.W. 949 (Mo. 1906)).

The Noble court itself came to theconclusion, based on prior Californiacases, that the hirer of an investigatorcould be liable for his torts regardlessof the existence of an agency relationship,as long as those actions were withinthe scope of his employment. Id. at274. Another case reaching the sameconclusion is Ellenberg v. Pinkerton’s,Inc., 188 S.E.2d 911 (Ga. App.1972) (holding that where an em-ployer hired an investigator to con-duct surveillance of one of itsemployees, the employer could notdelegate its duty to conduct a reason-able investigation and therefore theindependent contractor theory, whichwould insulate the employer from li-ability for torts committed by the in-vestigator, was inapplicable).

Another avenue for establishing vi-

carious liability of an insurance carrierfor torts committed by a third-partyinvestigator is ratification. Cases find-ing vicarious liability through ratifica-tion include Great Atlantic & PacificTea Co. v. Federal Detective Agency,Inc., 157 So.2d 148 (Fla. App.1963), cert. denied, 165 So.2d 177(1964) (finding hirer of detectiveagency liable for acts of investigatorthrough ratification where investigatorwas told store was not interested in le-gal action to collect on bad check andstore took no steps to effect dismissalof charges filed against suspect);Dillon v. Sears-Roebuck Co., 253 N.W.331 (Neb. 1934) (finding vicariousliability based on ratification wherestore executives hired private detectiveand thereafter approved his restraintof suspect).

Negligent Supervision or

Entrustment

In Noble, 109 Cal.Rptr. 269, thecourt also examined whether the hirerof an investigator might be liablebased on negligent supervision or neg-ligent entrustment. As to negligentsupervision, the court found no au-thority “basing liability on lack of, oron inadequate, supervision, in the ab-sence of knowledge by the principalthat the agent or servant was a personwho could not be trusted to act prop-erly without being supervised.” Id. at275. As to negligent entrustment,the court stated that the hirer couldbe negligent in selecting the investiga-tor based on the particular facts of thesituation. Id.

Invasion of Privacy

The most common claim insureds

bring against insurance companies re-lated to surveillance is invasion of pri-vacy. The success of such claimsdepends on the circumstances of thesurveillance and the actions of the in-vestigator.

“Invasion of privacy” is generallyheld to encompass four distinctwrongs: (1) intrusion upon seclusionor solitude; (2) public disclosure ofprivate facts; (3) publicity whichplaces an individual in a false light;and (4) appropriation of name of like-ness. See Restatement (Second) ofTorts, §§ 652B-E (1977). Claims forinvasion of privacy against insurancecompanies based on surveillance areusually based on the first of these,wrongful intrusion.

The Restatement defines wrongfulintrusion as follows:

One who intentionally intrudes,physically or otherwise, upon thesolitude or seclusion of another orhis private affairs or concerns, issubject to liability to the other forinvasion of his privacy, if the intru-sion would be highly offensive to areasonable person.

Id., § 652B (1977).The comments to this section of

the Restatement make it clear thatwrongful intrusion does not requirepublicity or publication, but rather isbased solely on either a physical in-trusion into a place where a personhas a reasonable expectation of privacyor into an individual’s private affairs.Importantly, an intrusion may befound where an individual technicallyis in public, but observations aremade concerning “some matters ...that are not exhibited to the publicgaze.” Id. at comment c.

The key determination to be madeis whether the intrusion would be


“highly offensive to a reasonable per-son.” This is a very fact-specific deter-mination, but there are a number ofcommonly-occurring factors, both interms of the situation of the indi-vidual being observed and the actionsof the observer, that may strengthenor weaken a claim for wrongful intru-sion.

Factors Affecting the Expectation

of Privacy

In determining whether surveillanceconstitutes an intrusion highly offen-sive to a reasonable person, one of themost relevant factors is whether theperson had an expectation of privacyconcerning the observations made inthe surveillance. Many courts haveheld that where an individual brings apersonal injury action or a workers’compensation or disability insuranceclaim, that individual should expectan investigation of the claim, and sothe claimant has a decreased expecta-tion of privacy as to observationsmade relating to their claimed disabil-ity.

For example, in I.C.U. Investiga-tions, Inc. v. Jones, 780 So.2d 685,689 (Ala. 2000), the court stated thatpersons “making personal-injuryclaims must expect reasonable inquiryand investigation to be made of theirclaims and that to this extent their in-terest in privacy is circumscribed.”(Internal quotations omitted.) Be-cause the plaintiff there had a pendingworkers’ compensation case in whichthe key issue was the extent of his in-jury, the court found that he shouldhave expected a reasonable investiga-tion regarding his physical capacity.

In Furman v. Sheppard, 744 A.2d583 (Md. App. 2000), the court indi-

cated that the fact that the plaintiffwas also the plaintiff in a personal in-jury suit lessened his expectation ofprivacy as to investigations of hisphysical condition. Likewise, inMcLain v. Boise Cascade Corp., 533P.2d 343 (Or. 1975), the court stated,“It is also well established that onewho seeks to recover damages for al-leged injuries must expect that hisclaim will be investigated and hewaives his right of privacy to the ex-tent of a reasonable investigation.”

It is universally acknowledged thata person has less of an expectation ofprivacy when he or she is in publicthat when he or she is in a private set-ting such as the home. In Johnson v.Stewart, 854 So.2d 544 (Ala. 2002),the Supreme Court of Alabama stated“generally, the observation of anotherperson’s activities, when that otherperson is exposed to the public view,is not actionable under the wrongful-intrusion branch of the invasion-of-privacy tort.” Id. at 549.

In Digirolamo v. D.P. Anderson &Associates, Inc., 1999 WL 345592(Mass. Super. 1999), the court stated,“To the extent that the visual surveil-lance by the investigator consists ofobserving, photographing, or video-taping a person in a public place, itviolates no right of privacy.” Id. at *2(citing Cefalu v. Globe Newspaper Co.,391 N.E.2d 935 (Mass.App. 1979)).In Jones, 780 So.2d 685, the fact thatthe surveillance complained of by theplaintiff was conducted while theplaintiff was in his front yard, in pub-lic view, was a factor in the court’sfinding that the investigation com-pany should have been granted sum-mary judgment on the plaintiff ’swrongful intrusion claim. Id. at 689.

Other similar cases include Creel v.

I.C.E. & Associates, Inc., 771 N.E.2d1276 (Ind. App. 2002) (upholdingsummary judgment against LTDclaimant who was videotaped inchurch); Salazar v. Golden State War-riors, 2000 WL 246586 (N.D. Cal.2000) (dismissing wrongful intrusionclaim of employee who was videotapedusing drugs in a car parked in a publiclot); Furman v. Sheppard, supra, 744A.2d 583 (upholding dismissal ofwrongful intrusion claim of plaintiffwho was also plaintiff in a personal in-jury case and who was videotaped byan investigator who trespassed in a pri-vate yacht club but observed no morethan those who were not trespassing).

Cases where courts have found thatsurveillance did intrude on anindividual’s solitude or seclusion basedon the individual’s being in a privatelocation include Sanders v. AmericanBroadcasting Cos., Inc., 85 Cal.Rptr.2d909 (Cal. 1999) (holding that theplaintiff had stated a claim sufficient topresent to a jury where the plaintiffwas surreptitiously videotaped at herworkplace by a journalist posing as aco-worker); Tompkins v. Cyr, 202 F.3d770 (5th Cir. 2000) (upholding a juryaward for wrongful intrusion based on,among other actions, viewing and vid-eotaping the plaintiff when he was in-side his home).

Factors Affecting Reasonableness

of Investigators’ Actions

In addition to the circumstances sur-rounding the subject of surveillance,the actions taken by the investigator inconducting the surveillance constitutethe other major element taken into ac-count in determining whether an in-trusion would be “highly offensive toa reasonable person.”


While whether the investigatortrespassed on private property is oftenmentioned when discussing whethersurveillance was reasonable, mostcourts have held that trespass alonewill not convert an otherwise reason-able surveillance into a wrongful in-trusion. In Furman v. Sheppard, supra,744 A.2d 583, it was undisputed thatthe investigator trespassed into theprivate club to conduct surveillance,but this did not prevent the courtfrom dismissing the wrongful intru-sion claim. In McLain v. Boise Cas-cade Corp., supra, 533 P.2d 343, thecourt upheld the nonsuit of plaintiff ’swrongful intrusion claim where theinvestigator had trespassed on privateproperty in the course of conductingotherwise unobtrusive surveillance.The court stated that while “[t]respassto peer in windows and to annoy orharass the occupant may be unreason-able”, “[t]respass alone cannot auto-matically change an otherwisereasonable surveillance into an unrea-sonable one.” Id. at 347.

A factor similar to trespass thatsometimes, but not always, contrib-utes to the determination that surveil-lance was unreasonable is when theinvestigator uses enhanced audio orvisual devices to record video surveil-lance. In Digirolamo v. D.P. Anderson& Associates, Inc., supra, 1999 WL345592, the court stated that vision-enhancing devices would intrudeupon an individual’s expectations ofprivacy.

In contrast, in Salazar v. GoldenState Warriors, supra, 2000 WL

246586, the fact that the investigatorused “high technology surveillanceequipment, including night-vision in-frared high-powered scoping devices”did not prevent the court from dis-missing the plaintiff ’s wrongful intru-sion claim. Id. at *1. Likewise, inSwerdlick v. Koch, 721 A.2d 849 (R.I.1998), the court upheld a grant ofsummary judgment even though thedefendant had used a telephoto lensto photograph the plaintiff.

Another factor that sometimes en-hances the unreasonableness of sur-veillance is if the investigator useddeception in gathering information orobserving the individual. In Hawkesv. Private Investigation Services of Maineand New England, Inc., 2000 WL33721625 (Me.Super. 2000), the in-vestigator hired by the plaintiff ’s in-surance carrier twice gained access tothe plaintiff ’s home on false pretenses.The court ruled that this created asufficient question of fact, as towhether this would be highly offen-sive to a reasonable person, to defeatsummary judgment. In Sanders v.American Broadcasting Cos., Inc., 85Cal.Rptr.2d 909, the fact that thejournalist who videotaped the plaintiffbecame employed at plaintiff ’s work-place on a pretext in order to investi-gate the business was a factor in thecourt’s decision that the wrongful in-trusion claim was sufficient to go to ajury.

A contrasting case, however, isTurner v. General Adjustment Bureau,Inc., 832 P.2d 62 (Utah App. 1992),overruled on other grounds, in which

investigators posed as employees of aproduct marketing research companyand made regular visits to plaintiff ’shome over a period of three months.The court held that the jury couldhave concluded that this did not con-stitute a highly offensive intrusion.Id. at 67.

Conclusion

The admissibility of video surveillanceevidence is subject to the broad dis-cretion of the court but generallyturns on the relative weights of itsprobative value and potential prejudi-cial effect. Video surveillance is ap-propriate to use as evidence in anERISA claim decision, as long as thesurveillance evidence does in fact sup-port the decision.

Insurers should be aware of therisks involved in having surveillanceconducted, primarily the potentialthat the surveillance could be usedagainst them and the danger thatthey may be held liable in the eventthat the insured is able to bring a suc-cessful invasion of privacy claim.These risks can be mitigated to somedegree by giving guidelines to third-party investigators as to the circum-stances and particular methodsappropriate for conducting surveil-lance.


New York Insurance Department FindsDiscretionary Clauses Deceptive and Unfair

Daniel W. GerberKimberly E. WhistlerGoldberg Segalla, LLPBuffalo, [email protected]@goldbergsegalla.com

The State of New York Insurance De-partment has recently issued CircularLetter No. 8, dated March 27, 2006,whereby it determined that “the useof discretionary clauses violates Sec-tion 3201(c) and 4308(a) of the In-surance Law…” The letter furtherstates that “the Department believesthat the use of discretionary clauses isan unfair or deceptive act or practice,within the meaning of Article 24 ofthe Insurance Law…” Although thesubject of the letter includes “Disabil-ity Income Insurance”, the letter ap-pears to limit its scope by adding that“discretionary clause provisions in ac-cident and health insurance policesand in subscriber contracts will nolonger be approved by the Depart-ment.”

This action by the New York De-partment of Insurance may have tre-mendous ramifications in theinsurance industry. In addition to ac-cident and health insurance policies,most disability policies contain someform of discretionary language. Whilethere is limiting language in the cir-cular, the overall language used is verybroad and will, presumably, sweepacross all insurance policies. Twoquestions immediately come to the

forefront: first, whether there will beany retroactive effect on pending orpotential litigation stemming fromthis language; second, whether the In-surance Department has the authorityto make a unilateral determination.

The United States Supreme Courtheld in Firestone Tire and Rubber Co. v.Bruch, 489 U.S. 101 (1989) that adiscretionary clause limits the court’sreview of a claim determination to anarbitrary and capricious or abuse ofdiscretion standard. Similarly, discov-ery is limited to the administrativerecord. See, e.g., Miller v. United Wel-fare Fund, 72 F.3d 1066, 1072 (2dCir. 1995). Under this standard ofreview, denials of coverage are upheldas long as there is a single reasonablebasis. Absent an arbitrary and capri-cious standard, a court employs a denovo review, which allows the claimanta new review based on the court’s as-sessment of entitlement to benefits.Muller v. First Unum Life Ins. Co., 341F.3d 119 (2d Cir. 2003). Addition-ally, discovery outside the administra-tive record is permitted and the courtitself would determine whether theparticipant is or is not disabled.

Other States Attempt to Bar

Discretionary Language

New York’s recent position is not thefirst across the country. In fact, Cali-fornia has issued a similar opinion andthe legal action that has arisen inCalifornia with respect to the opinion

is illustrative of potential conflictsthat may arise out of the position thatNew York has taken. In 2004, theCalifornia Department of Insurance(“DOI”) issued an opinion findingthat discretionary clauses in disabilitypolicies deprive insureds of the protec-tions afforded under state law andthat such language would render thepolicy “fraudulent or unsound insur-ance” under the California InsuranceCode. The California DOI also statedthat discretionary clauses are “unintel-ligible, uncertain, ambiguous, or ab-struse, or likely to mislead a person towhom the policy is offered, deliveredor issued.” The opinion by the DOIstemmed from a case in the NorthernDistrict of California, Rowe v.Planetout Partners and Unum Life Ins.Co., No. C03-1145 WHA (N.D. Cal.Apr. 14, 2004), concerning whetherdiscretionary clauses in disability in-surance policies were appropriate un-der California law.

On February 27, 2004 the DOIissued a Notice to Withdraw Ap-proval to a number of disability in-surers doing business in California.This Notice, among other things, es-sentially withdrew the DOI’s priorapproval of eight disability insurancepolicy forms, issued by five differentinsurers, which contained the discre-tionary clauses.

The DOI sent a letter to the judgein the Rowe case stating that it hasregularly begun disapproving discre-tionary clauses, but that any said lan-




guage in disability insurance policieswould be effective “prospectively andnot retroactively.” Subsequently, inRosten v. Sutter Health Long-Term Dis-ability Plan, No. C03-4597 JSW(N.D. Cal. Jun. 18, 2004), anothercourt in the Northern District ofCalifornia found the California DOI’sopinion to be persuasive and ruledfrom the bench that the discretionaryclause used in the particular policyviolated California law. The court fur-ther held that the California DOI’sdetermination, and statutory author-ity, was not preempted by ERISA.

Interestingly, a decision contrary toRosten was subsequently issued withinthe same federal district. In Firestonev. Acuson Corp. Long Term DisabiltyPlan, 326 F.Supp. 2d 1040 (N.D.Cal. 2004), the court rejected theplaintiff ’s argument that the courtmust use a de novo standard to reviewthe denial of her disability benefits asa result of the California DOI’s opin-ion letter. The court found that be-cause the insurance company was notamong the companies listed in theDOI’s Notice to Withdraw Approval,the California DOI’s initial approvalremains valid. It further held thatthe contract is binding and governsthe obligations of the parties until theDOI revokes such approval.

ERISA Preemption May Be

Applicable

Still to be determined is whetherstates have the authority to limit thelanguage in a disability policy orwhether such efforts are preempted byERISA. In deciding whether preemp-tion applies, it must first be deter-mined whether the policies that arebeing regulated by the states are the

type of plan governed under ERISA.Plans that are excluded under ERISAinclude those issued by governmentemployers, religious organizations,and plans where no employees partici-pate – such as those solely for thebusiness owners. Additionally, a ben-efit plan may escape ERISA if, under29 C.F.R. §2510.3-1(f ), the em-ployer does not contribute to theplan, does not endorse the plan, andreceives no consideration in connec-tion with the plan, and where em-ployee participation is completelyvoluntary.

If a plan is encompassed underERISA, claims arising out of the planmay be preempted under ERISA.Under 29 U.S.C. §1144, ERISA lawsupersedes state law “insofar as theymay now or hereafter relate to anyemployee benefit plan.” State law isdefined to include “all laws, decisions,rules, regulations, or other State ac-tion having the effect of law.” See§1144(c). Additionally, under§1132, as well as §1144, ERISA pre-empts efforts to use state law to regu-late employee benefits plans.

On the face of the statute, it wouldappear that the courts would not havethe authority to limit the discretion-ary language from a disability benefitplan. This has not been found to bethe case, however. ERISA contains aprovision that exempts from preemp-tion any state law regulating insur-ance. The Supreme Court’sapplication of this “saving” provisionhas been demonstrated under variouscircumstances. Illustrative of theCourt’s application of the saving lan-guage and upholding state laws arethe following: the Massachusetts lawthat mandated minimums for healthcare benefits to be included in poli-

cies, Metropolitan Life Ins. Co. v. Massa-chusetts, 471 U.S. 724 (1985);California’s“notice-prejudice rule,”UNUM Life In-surance Company of America v. Ward, 526U.S. 358 (1999); the Illinois statute pro-viding for independent medical reviewsof determination of medical necessity byHMOs, Rush Prudenital HMO, Inc. v.Moran, 536 U.S. 355, 122 S.Ct. 2151(2002); and the Kentucky law that al-lowed any provider in a managed carenetwork to treat patients. Kentucky Asso-ciation of Health Plans, Inc. v. Miller, 538U.S. 329, 123 S.Ct. 1471 (2003).

The question now becomeswhether a state law regulating the lan-guage of an employee benefit plan,such as the model law promulgatedby the National Association of Insur-ance Commissioners (“NAIC”), wouldescape ERISA preemption if adoptedby the states. While insurance com-missioners in states such as California,Cal. Ins. Code §§ 10291.5 and12921.9, Utah, Utah Code Ann. §31A-21-201(3), Illinois, Ill. Ins.Code § 143, and Hawaii, Haw. Rev.State §431:13-102, have applied pro-hibitions against discretionary clauses,whether they are preempted underERISA, has not yet been challenged,nor answered by the Supreme Court.

There are very real concerns thatare emerging from these new statelaws, such as in New York and Cali-fornia, with respect to the unintendedconsequences. It seems inevitable thatcosts of disability insurance will riseand so will the number of uninsured.On November 14, 2005, Milliman,Inc., engaged by American’s HealthInsurance Plans on behalf of its mem-ber companies who sell disability in-come insurance policies, issued areport entitled “Impact of DisabilityInsurance Policy Mandates Proposed


by the California Department of In-surance.” The report estimates thatthe cost of premiums will increase byas much as 46 percent for group dis-ability insurance policies and 33 per-cent for individual coverage as a resultof higher incidence of litigation,higher cost per litigated claim andlower claim recovery rates. In addi-tion, the report also surmises that therange of products will decrease, theamount of protection insured under a

policy will be reduced, claimants willbe discouraged from returning towork, and financial security will de-crease overall.

Conclusion

The impact that the State of NewYork Insurance Department’s CircularLetter No. 8 will have is unknown.The breadth of its reach will only bedetermined as the issues arise. Will

parties attempt to void discretionaryclauses in policies issued prior to thisopinion? Will cases already deter-mined under an arbitrary and capri-cious standard have to be re-triedunder a de novo standard? The letterleaves these questions unanswered.


The Decision to Rescind an Insurance Policy:Essential Elements of Proof under Texas Law

JAMES “J.R.” POTTS, JR.Christopher A. Neal and AssociatesBedford, [email protected]

The insurance application has beensubmitted and the underwriting de-partment has approved issuance of theinsurance coverage. The certificate hasbeen sent to the insured and claimsbegin to arrive. Suddenly, you realizethat the insured’s application was lessthan truthful in the disclosures con-tained therein. What is an insurer’snext step?

The initial reaction would be toundertake a further investigation intothe insured’s medical history to deter-mine whether the claims that are ar-riving are the result of a conditionthat was pre-existing and, subse-quently, not disclosed on the insured’sapplication.

It is settled Texas law that issuinginsurance to cover a loss that has al-ready occurred or is in the process ofoccurring is against public policy.Scottsdale Ins. v. Travis, 68 S.W.3d 72,75 (Tex.App. 2001), pet. denied. Un-der the fortuity doctrine, attemptingto purchase or issuing insurance tocover a loss that has already occurredor is occurring is void. Further, it pre-cludes coverage for both a “knownloss” or a “loss in progress.” Id.

Therefore, the determination mustbe made as to whether the loss forwhich the claims are being made wasin existence prior to the purchase of

the insurance. Once it is determinedthat the condition resulting in theclaims was in existence at the time ofthe insured’s application for insur-ance, the decision must be madewhether to rescind the coverage.

Five Elements of Proof Required

for Rescission

In Texas, in order for an insurer toavoid a policy because of a misrepre-sentation on the application, five ele-ments must be proved. These are:

(1) That the insured made a rep-resentation;(2) That the representation wasfalse;(3) That the insurer relied on therepresentation;(4) That the insured intended todeceive the insurer through makingthe representation; and(5) That the representation wasmaterial to the insurer’s decision toissue coverage.

Mayes v. Massachusetts Mut. Life Ins.Co., 608 S.W.2d 612, 616 (Tex.1980).

The first two prongs of the test canbe shown by the fact that the insuredcompleted the application and signedit, thus verifying that the responses tothe questions on the application weretrue and correct. If the insured fails todisclose that he or she has a certainmedical condition, or has a history ofa certain medical condition, he or shehas falsely represented that there is no

medical condition or history of thatmedical condition.

The third prong of the test is ful-filled if the insurer relied on theinsured’s application in issuing cover-age on the insured. It is sufficient toshow reliance if the policy or certifi-cate includes the language that thecoverage is issued “in consideration ofthe premium shown above and therepresentation of good health.” Estateof Harvey Diggs v. Enterprise Life Ins.Co., 646 S.W.2d 573, 575 (Tex.App1982).

Similarly, reliance upon theinsured’s application can be shownthrough the testimony of the under-writing department that if the truephysical condition had been disclosed,coverage would not have been issued.Bates v. Jackson Nat’l Life Ins. Co., 927F.Supp.2d 1015, 1019 (S.D. Texas1996).

The more problematic prong of thetest is showing that the insured in-tended to deceive the insurer by mak-ing the false representations on theapplication. The intent to deceivecannot be inferred as a matter of law.Further, the intent to deceive cannotbe presumed from the existence ofmaterial misrepresentations alone. Id.

However, if the insured has war-ranted the accuracy of the representa-tions in the application, or if collusionbetween the insurance agent and theinsured can be shown, the intent todeceive can be established as a matterof law. Estate of Harvey Diggs, 646



S.W.2d 573, at 576 (Tex.App. 1982).Moreover, the insured’s intent can beinferred by the fact finder, based uponthe totality of the evidence and thereasonable conclusions that can bedrawn therefrom. Id.

The final prong of the test, whetherthe misrepresentation was material tothe decision to issue coverage, can beshown from the facts of the specificcase. If the misrepresentation relatesto a condition or history of a condi-tion that, if disclosed, would have

cause the insurer to deny coverage,the misrepresentation was material.However, if the misrepresentationwould not have altered the insurer’sdecision to offer coverage, it is imma-terial and, therefore, not subject toavoidance through rescission of thepolicy.

Conclusion

A final note: the notice of intent torescind and an offer to return premi-

ums paid must be timely made. Incases filed prior to April 1, 2005, theTexas Insurance Code Art. 21.17 pro-vided that 90 days would be a reason-able time, once the insurer discoversthe misrepresentation.

In conclusion, rescission is a valu-able option for insurers that have beendeceived into covering a person with acondition that, if revealed, would havecaused the insurer not to have coveredthe person.

FOR PREVIOUS ISSUES OF THIS NEWSLETTER . . .

Previous issues of Life, Health and Disability News are available via the Internet at the home page of the Life, Health andDisability Committee. To access every issue since Winter 1999, go to DRI’s website at www.dri.org.

http://www.dri.org


ERISA UPDATE

Equitable Remedies Revisited – Part IIMARK E. SCHMIDTKE

Schmidtke Hoeppner Consultants LLPValparaiso, [email protected] J. COPPAGE

Carter & Ansley LLPAtlanta, [email protected]

As anticipated in our previous col-umn, on May 15, 2006, the UnitedStates Supreme Court issued its deci-sion in Sereboff v. Mid-Atlantic MedicalServices, Inc., 126 S. Ct. 1869 (2006)The issue was whether an ERISA-gov-erned health plan could bring an ac-tion for constructive trust or equitablelien with respect to funds obtained bya participant in a personal injury ac-tion, pursuant to the plan’s reim-bursement provision. The SupremeCourt held in Sereboff that such an ac-tion constitutes equitable relief underERISA, §502(a)(3).

While the fact that the Courtgranted certiorari in Sereboff may havebeen a surprise, the decision was not.The result is largely supported by caselaw that has existed since the Nine-teenth Century, as evidenced by thefact that the Court relied on numer-ous cases from that era. Nevertheless,some interesting issues are resolved inSereboff that may provide guidance toERISA plans seeking to enforce subro-gation and reimbursement provisions.

Background

The decision in Sereboff follows closelythe decision in Great-West Life & Ann.

Ins. Co. v. Knudson, 534 U.S. 204(2002), in which the Court held thatequitable relief under ERISA,§502(a)(3) is limited to the types ofrelief that were typically available inequity in the days of the dividedbench. Specifically, in Knudson, theCourt held that an ERISA plan fidu-ciary could not pursue a claim fordamages against the plan participant,where there was no identifiable fundover which relief could be asserted.

In that case, personal injury settle-ment proceeds were placed in a trustfund that was not named as a defen-dant in the ERISA reimbursement ac-tion. The participant, who was thenamed defendant, did not possess anyof the funds. The health plan insteadsought damages from the participant’sgeneral assets.

Some have criticized the plan inKnudson for not asserting any claimsagainst the trust fund or against theparticipant’s personal injury attorney,who also possessed some of the settle-ment proceeds. Nevertheless, sinceKnudson, most ERISA plans haveevaluated their reimbursement rightsbased on whether an identifiable fundexisted over which they could assertsome type of equitable remedy.

This was exactly the situation inSereboff. The health plan paid acci-dent-related medical bills totaling$75,000. The Sereboffs eventually re-covered $750,000 from the tortfeasor,but refused to reimburse their healthplan. After the health plan fiduciaryfiled suit, seeking a temporary re-straining order and a preliminary in-

junction, the Sereboffs agreed to pre-serve $75,000 of the settlement fundsin an investment account. The dis-trict court granted summary judg-ment to the fiduciary, ruling thatbecause the reimbursement claim wasasserted against an identifiable and ex-isting fund, it constituted equitablerelief under section 502(a)(3). TheSereboffs appealed.

The Fourth Circuit affirmed, hold-ing that the fiduciary’s claim was inthe nature of equitable restitution andtherefore proper under section502(a)(3). Specifically, the court heldthat the remedy sought by the fidu-ciary was equitable because the fidu-ciary was pursuing an identifiablefund that in good conscience be-longed to the fiduciary under theterms of the ERISA plan. In so hold-ing, the Fourth Circuit joined theFifth, Seventh, and Tenth Circuits, allof whom have held that where anERISA plan fiduciary seeks to obtainreimbursement where there is anidentifiable fund over which the de-fendant has control, the remedy isconsidered equitable under Knudson.The Fourth Circuit acknowledgedthat its decision conflicted with rul-ings in the Sixth and Ninth Circuits.

The Supreme Court’s Ruling in

Sereboff

The issue phrased by the Court was“whether the relief [the health plan]requested . . . was ‘equitable’ under§502(a)(3).” Discussing its previousdecision in Knudson, the Court noted




that “[w]e explained that one featureof equitable restitution was that itsought to impose a constructive trustor equitable lien on ‘particular fundsor property in the defendant’s posses-sion.’”

In contrast to Knudson, the healthplan in Sereboff “sought ‘specificallyidentifiable’ funds that were ‘withinthe possession and control of theSereboffs.’” The fact that the healthplan was asserting its action against adefendant who controlled an identifi-able fund was sufficient basis to showthat the health plan was seeking anequitable remedy:

[The health plan] alleged breach ofcontract and sought money, to besure, but it sought its recoverythrough a constructive trust or eq-uitable lien on a specifically identi-fiable fund, not from the Sereboffs’assets generally, as would be thecase with a contract action at law.ERISA provides for equitable rem-edies to enforce plan terms, so thefact that the action involves abreach of contract can hardly beenough to prove relief is not equi-table; that would make§502(a)(3)(B)(ii) an empty prom-ise. This Court in Knudson did notreject Great-West’s suit out of handbecause it alleged a breach of con-tract and sought money, but be-cause Great-West did not seek torecover a particular fund from thedefendant. Mid-Atlantic does.

The Supreme Court emphasized that,in addition to seeking an equitableremedy, a plaintiff under §502(a)(3)must also “establish that the basis forits claim was equitable.” The Courtdistinguished between equitable liensas a matter of restitution and equi-

table liens by agreement or assign-ment.

An equitable lien as a matter of res-titution requires that the plaintifftrace the funds at issue to the fundagainst which the lien is asserted. Anequitable lien by agreement or assign-ment does not require tracing of thefunds. The Supreme Court held thatthe health plan in Sereboff was assert-ing an equitable lien by agreement orassignment, and that it was not re-quired to trace the specific funds at is-sue. The only requirement of such aclaim is that the lien be assertedagainst the fund identified by thecontract. The agreement (i.e. thehealth plan) in Sereboff identified thefund that was the target of the lien(i.e. “[a]ll recoveries from a thirdparty”). As a result, the Court re-jected the Sereboffs’ argument that inorder for the health plan’s action to beequitable, it was required to show thatthe fund against which the lien wasasserted contained the actual healthplan benefits originally paid by thehealth plan. In pursuing an equitablelien by agreement or assignment, “thefund over which a lien is asserted neednot be in existence when the contractcontaining the lien provision is ex-ecuted.”

Issues Left Open in Sereboff

For those looking to Sereboff forbroader guidance on issues other thanthe narrow issue of whether assertinga lien against an identifiable fund ispermissible under §502(a)(3), theremust be some disappointment. Forexample, as in Knudson, there was nodiscussion about whether reimburse-ment claims by ERISA plan fiducia-ries are or are not governed exclusively

by ERISA. Sereboff was limited to thequestion of whether such an actionwas cognizable under ERISA, andthere was no discussion, one way orthe other, about whether such a claimis also cognizable under state law. See,e.g., Providence Health Plan v.McDowell, 361 F.3d 1243 (9th Cir.2004) (discussing possible reimburse-ment claim under state law).

There also was no discussion, assome plaintiffs had hoped, that wouldbroaden the types of relief generallyavailable under §502(a)(3). Someviewed Sereboff as an opportunity forthe dissenters in Knudson, who ap-peared to support a broader “makewhole” relief under §502(a)(3), to es-tablish their view. The Knudson dis-senters did join the majority inSereboff, but that case is clearly in-tended to follow the remedial bound-aries established in Knudson andearlier in Mertens v. Hewitt Associates,508 U.S. 248, 251 (1993). For nowat least, ERISA’s remedies remain lim-ited to something short of “make-whole” relief.

Finally, the Court declined toaddress whether and under whatcircumstances the equitable lien as-serted by the health plan was “ap-propriate” equitable relief in thatcase. The Sereboffs argued that theplan’s assertion of a lien over theentire amount of the benefits previ-ously paid violated principles suchas the make-whole doctrine. Underthe make-whole doctrine, the planwould have been required to com-promise its reimbursement claim tothe extent the Sereboffs were re-quired to compromise their per-sonal injury action. The SupremeCourt pointed out that theSereboffs did not raise this issue in


either the district court or thecourt of appeals, and the SupremeCourt declined to address it in thefirst instance.

Practical Advice Following

Sereboff

In general, the decision in Sereboffserves to reinforce the kinds of advicethat most ERISA plans found appro-priate after Knudson:

1. ERISA plan fiduciaries shouldassert reimbursement claims soonerrather than later. Once personal in-

jury and other settlements are spentby the participant, equitable relief un-der ERISA §502(a)(3) is very diffi-cult.

2. ERISA plan fiduciaries mustidentify a specific fund in order to as-sert equitable reimbursement claims.

3. When asserting reimbursementclaims, ERISA plan fiduciaries mustpursue the proper defendants, i.e., thepersons or entities who have controlover the identified fund.

Followers of the Supreme Court inthis area of the law, have been at a lossas to why the Court granted certiorari

in Sereboff. The issue was certainlythe subject of a circuit split and im-portant in its own right. However,there are much more divisive and im-portant issues under ERISA that de-serve the Court’s attention. Therewere some who theorized that byagreeing to review Sereboff, the Su-preme Court was heading in a new di-rection. Such speculation turned outnot to be true. The result in Sereboffwas not surprising and flows nicelyfrom previous decisions such asKnudson and Mertens.


Network News

Kenton J. CoppageCarter & Ansley LLPAtlanta, [email protected]

Colorado

Preexisting Condition ExclusionDoes Not Violate State StatuteIn Usick v. American Family Mut. Ins.Co., 131 P.3d 1195 (Colo. App.2006), plaintiff purchased fromAmerican Family a policy of indi-vidual health insurance that specifi-cally excluded coverage forendometriosis.

Beginning in 2002, plaintiff un-derwent treatment for endometriosisand submitted claims to AmericanFamily, which rejected the claims asrequesting payment for an excludedpreexisting condition. Plaintiff thenbrought an action against AmericanFamily, alleging that the exclusionviolated a Colorado statute.

The trial court rejected plaintiff ’sarguments and granted summaryjudgment for American Family. Plain-tiff appealed, but the Colorado Courtof Appeals affirmed the trial court.The statute in question provides:

[A]n individual health benefit plan... shall not deny, exclude, or limitbenefits for a covered individual be-cause of a preexisting condition forlosses incurred more than twelvemonths following the effective dateof coverage and may not define apreexisting condition more restric-tively than an injury, sickness, orpregnancy for which a person in-curred charges, received medicaltreatment, consulted a health care

professional, or took prescriptiondrugs within twelve months.

C.R.S. §10-16-118(1)(a)(II).The Court of Appeals found this

statutory provision to be ambiguousand held that, properly interpreted, itallows the exclusion from coverage forspecifically defined preexisting condi-tions. The legislative history of thisprovision and case law from other ju-risdictions support this interpretation.ANDREW D. RINGEL

Hall & EvansDenver, [email protected]

Michigan

Misrepresentation SupportsRescission, Despite Claim ThatAgent Knew True HistoryIn Montgomery v. Fidelity & GuarantyLife Ins. Co., 269 Mich. App. 126,713 N.W.2d 801(2005), the Michi-gan Court of Appeals held that a ma-terial misrepresentation in anapplication for life insurance will sup-port the rescission of a policy, even ifplaintiff claims that an agent of theinsurer was aware of the misrepresen-tation.

Plaintiff and her decedent husbandapplied for a life insurance policy.The decedent claimed that he had notused tobacco in the last five years,even though he had a significantsmoking habit. After the decedentwas killed in an automobile accident,plaintiff sought death benefits underthe policy. The insurer discovered thedecedent’s smoking habit and re-scinded the policy.

In challenging the rescission, plain-tiff argued that the insurance agent

actually completed the applicationand that neither the decedent norplaintiff read it before signing it. TheMichigan Court of Appeals rejectedthis argument, noting that plaintiff ’s,and decedent’s, signatures on the ap-plication attested to the accuracy ofthe information in the application.The court noted that failure to readan agreement is not a valid defense toenforcement of a contract.

The court likewise rejectedplaintiff ’s argument that the agenthad actual knowledge of thedecedent’s smoking habit. Plaintiffpresented evidence that the decedent’shome had ashtrays and that the housesmelled of cigarette smoke. Thecourt, however, concluded that plain-tiff failed to present evidence that theagent saw the decedent smoking orhad knowledge that he was a smoker.Importantly, the court concludedthat, even if plaintiff had presentedevidence that the agent actually knewthat the decedent was a smoker, plain-tiff and decedent had the opportunityto review the insurance applicationand correct any errors before submit-ting it.D. ANDREW PORTINGA

Miller JohnsonGrand Rapids, [email protected]

First Circuit

Denial Was Arbitrary When Basedon Mischaracterization ofClaimant’s Medical ReportsIn Buffonge v. Prudential Ins. Co.,426 F.3d 20 (1st Cir. 2005), plain-tiff was a “field logistics coordinator”who injured his back and neck whilemoving computer parts. He was diag-





nosed with cervical disease and radi-culitis.

A second physician diagnosed oneand possible two herniated discs, anda third physician diagnosed cervicaland lumbar disc disease. Plaintiff at-tempted to return to work, but couldnot continue due to pain, and he sub-mitted a claim for benefits under anERISA-governed disability plan.

The insurer had a physician reviewthe medical records, including the re-ports of the three examining physi-cians. The reviewing physicianconcluded that a “consensus exists”that plaintiff could perform sedentarywork. The insurer relied on this con-clusion and denied the claim.

The court ruled that the medicalreview mischaracterized the reports ofthe three treating physicians, who hadconcluded that plaintiff was disabled,and that the claim denial was arbi-trary and capricious.PHILIP M. HOWE

Lecomte, Emanuelson and DoyleQuincy, [email protected]

Showing of Prejudice RequiredFor Remand, Despite Failure toProduce FileIn DiGregorio v. Hartford Comprehen-sive Emp. Ben., 423 F.2d 6 (1st Cir.2005), the First Circuit addressedwhether a claim under ERISA mustbe remanded if the plan administratordoes not provide the entire claim fileupon the request of the claimant.

Plaintiff claimed to be disabled dueto carpel tunnel syndrome. WhenHartford denied her claim she re-quested the claim file. Hartford re-sponded by providing the documentsthat it used to make its determina-tion.

The district court upheldHartford’s decision that plaintiff wasnot disabled from any occupation.The district court also found thateven if plaintiff was correct that shewas entitled to her complete file, shemust show she was prejudiced byHartford’s failure to provide it. Plain-tiff obtained the complete file duringthe litigation.

The district court found that plain-tiff was not prejudiced and that thereasons she advanced to show preju-dice were simply a post-hoc rational-ization. The court found plaintiffcould have provided additional infor-mation in her administrative appealand did not identify any evidence thatwould have changed Hartford’s rea-sonable decision to deny her claim.

On appeal, the only issue plaintiffraised was whether the district court,instead of granting judgment in favorof Hartford, should have remandedher claim to Hartford for supplemen-tation of the record because Hartfordfailed to provide her with a copy ofher entire claim file during its internalreview process. She also claimed sheshould not have to show prejudice inresponse to Hartford’s failure to pro-duce the entire file.

The First Circuit held that plaintiffdid need to show prejudice becauseshe was essentially seeking a secondchance to prove her disability basedon Hartford’s failure to produce hercomplete claim file the first timearound. Plaintiff must show prejudicein a relevant sense, meaning she hadto show that because of Hartford’sfailure to disclose her complete fileshe did not understand the evidencethat she had to provide to disputeHartford’s conclusion that she was notentitled to benefits.

The court held that plaintiff didnot demonstrate that Hartford’s fail-ure to disclose her complete claim fileprevented her from submitting evi-dence necessary to dispute the denialof her claim for benefits, impacted onher meaningful participation in theinternal review process, or impairedher ability to prepare an informed re-sponse to Hartford’s decision.JOSEPH M. HAMILTON

JOAN O. VORSTER

Mirick O’ConnellWorcester, [email protected]@modl.com

Fourth Circuit

Court Upholds Rescission of LifePolicy and Rejects Waiver andEstoppel TheoriesIn Chawla v. Transamerica OccidentalLife Ins. Co., 440 F.3d 639 (4th Cir.2006), the Fourth Circuit affirmedthe district court’s summary judg-ment award for the insurer on the ba-sis of misrepresentations in theapplication for a life insurance policy.

When the policy was applied for inMay of 2000, the insured did not dis-close the nature of his brain surgery toremove a portion of a meningioma (atumor invading the dura and skull) inOctober 1999, his shunt surgery inDecember 1999 to drain excess fluidfrom his brain, or his two hospitaliza-tions in January and February 2000,during the latter of which the insuredwas principally diagnosed with “alco-hol abuse unspecified use.”

On appeal, although the FourthCircuit noted that it was somewhatunclear on the point, plaintiff ap-





peared to advance two theories onwhy the insurer was not entitled tothe misrepresentation defense: first,the insurer had waived any such de-fense, and second, the insurer was es-topped from asserting it.

Applying Maryland law, the FourthCircuit noted that a waiver is the vol-untary and intentional relinquish-ment of a known right. Because awaiver must be intentional, a partycannot waive a misrepresentation un-less it has actual knowledge that themisrepresentation is false. The courtconcluded that the insurer was notaware of the meningioma surgery, theshunt surgery, or the insured’s hospi-talizations, and thus it could not anddid not waive the defense of misrepre-sentation.

As to estoppel, the Fourth Circuitnoted that, under Maryland law, equi-table estoppel is comprised of threebasic elements: (1) a voluntary mis-representation by one party, (2) thatis relied on by the other party, (3) tothe other party’s detriment. In orderto claim the benefit of estoppel, aparty must demonstrate that itchanged its position for the worse inreliance on the other party’s represen-tation.

The Fourth Circuit observed thatwhere an insured seeks to estop an in-surer from rescinding an insurancepolicy, he is obliged to show that hecould have obtained insurance else-where, in order to satisfy the essentialelement of detrimental reliance. Inthis case, plaintiff offered no proofthat any other insurer, properly ap-prised of the insured’s true physicalcondition, would have issued a policyon his life. Plaintiff therefore failed tocarry her burden of establishing theelements of estoppel.

E. FORD STEPHENS

Christian & Barton, L.L.P.Richmond, [email protected]

Administrative Power to InterpretAmbiguous Plan Terms UpheldIn Colucci v. AGFA Corp. Severance PayPlan, 431 F.3d 170 (4th Cir. 2005),the trial court entered judgment in fa-vor of a former employee, ruling thatthe severance plan administrator hadabused its discretion in awarding ben-efits to the former employee calcu-lated on the basis of the first day ofhis second period of employment, af-ter he voluntarily resigned to work fora competitor and was later rehired,rather than the first day of his originalemployment.

The Fourth Circuit remanded thecase with instructions to enter judg-ment for the plan. The court notedthat the plan conferred discretion onthe administrator to interpret its pro-visions and to resolve any ambiguities.Plaintiff had worked for 17 years forAGFA before resigning to join a com-petitor. However, several monthslater, plaintiff was rehired.

Two years after rejoining the com-pany, plaintiff was involuntarily ter-minated for economic reasons. Theplan administrator ruled that he wasentitled to severance benefits basedupon his second (two-year) period ofemployment, rather than the entire19 years of his total employment, be-cause the plan stated that benefitswere to be calculated commencing onhis “first day” of employment.

The Fourth Circuit examined theterms of the plan and concluded thatthe term “first day” of employmentwas reasonably subject to several in-terpretations. In the face of this am-

biguity, the court ruled that the planadministrator had properly applied itsdiscretion and reasonably interpretedthe plan provisions in a manner con-sistent with its terms. Consequently,the court reversed the decision of thetrial court and remanded the casewith instructions to enter judgmentfor the plan.J. SNOWDEN STANLEY, JR.Semmes, Bowen & SemmesBaltimore, [email protected]

Eleventh Circuit

De Novo Prong of HeightenedStandard is Distinct from De NovoReviewIn Reeve v. UNUM Life Ins. Co. ofAm., 170 Fed. Appx. 108 (11th Cir.Mar. 8, 2006), plaintiff appealedfrom the entry of summary judgmentin UNUM’s favor on his ERISA claimfor disability benefits. Plaintiff con-tended that the district court haderred in limiting its review to the factsavailable to UNUM at the time of itsbenefits denial, even though it wasundisputed that the policies at issueprovided UNUM with discretionaryauthority.

Citing Moon v. American HomeAssur. Co., 888 F.2d 86 (11th Cir.1989), plaintiff asserted that a de novoreview of documents beyond thoseavailable to UNUM would have re-vealed a genuine issue of material factas to whether he was disabled underthe policies. In Moon, where the plandid not confer discretionary authority,the Eleventh Circuit stated that to ex-amine “only such facts as were avail-able to the plan administrator at the




time of the benefits denial is contraryto the concept of a de novo review.”

Finding Moon inapposite wherediscretion was granted, the Reeve courtdistinguished the de novo standard ofreview from the first step of theheightened arbitrary and capriciousstandard of review (sometimes called“the de novo review prong”). Thecourt explained that, under the firststep of the heightened arbitrary andcapricious standard of review, “a re-viewing court reviews only ‘the plandocuments and disputed terms denovo.’” Because the district court hadappropriately limited its review inReeve, the Eleventh Circuit affirmedthe grant of summary judgment inUNUM’s favor.

Further, the Eleventh Circuitagreed with the district court thatUNUM’s decision was correct. Plain-tiff, a vice president for an electricalcontractor, claimed disability in 2001due to his heart condition. However,although he had a heart attack in1993, he continued to work in his oc-cupation for the next eight years andclaimed disability without any changein his medical condition.

In finding that UNUM’s decisionwas correct, the court noted an in-house medical review which con-cluded that plaintiff had not had anycardiac event or occurrence in 2001that was different from anything thathappened in the years since his heartattack. The Eleventh Circuit also ap-proved UNUM’s reliance on a labormarket survey to determine thatplaintiff ’s regular occupation, on a na-tional basis, was a light duty occupa-tion (even though he argued that hisparticular job required more exertionthan light duty).

Accordingly, based on a review of

the information available to UNUMat the time of its decision, the courtconcluded that plaintiff had failed tomeet his burden of demonstratingthat UNUM’s determination was ar-bitrary and capricious.Jeannine C. JacobsonPett, Furman & JacobsonBoca Raton, [email protected]

District of Columbia District Court

No Abuse of Discretion in ClaimDenial and No Penalties Awardedfor Withholding InformationIn Doley v. Prudential Ins. Co. of Am.,2006 WL 785374 (D.D.C. Mar. 28,2006), plaintiff brought an actionagainst Prudential, alleging a wrong-ful denial of long-term disability ben-efits, as well as statutory penalties forwhat plaintiff alleged was the wrong-ful withholding of information by theplan administrator. The district courtinitially found that the ERISA plancontained a clear grant of discretionto Prudential and held that there wasno abuse of discretion in Prudential’sdenial of disability benefits to theplaintiff.

Plaintiff was covered under a groupLTD insurance policy issued by Pru-dential through her employment withAutomatic Data Processing, Inc.Plaintiff applied for disability benefits,complaining of macular dystrophyand myopic degeneration. Prudentiallater advised plaintiff of its determina-tion that she was not entitled to con-tinue receiving LTD benefits. Threeappeals followed within the adminis-trative appellate structure establishedby the plan. After an unsuccessful

fourth appeal, plaintiff brought thisaction.

The court found no evidence thatany conflict of interest influencedPrudential’s decision. Moreover, thecourt held that it was not an abuse ofdiscretion for Prudential to determinethat plaintiff was not disabled becauseshe could perform her duties usingavailable technology to accommodateher vision problems. The court alsoconcluded that there was no impro-priety on Prudential’s part in relyingupon the opinion of an expert that re-futed the opinion of plaintiff ’s expert.

Plaintiff also asserted that Prudential’sdelay in making claims guidelines andother documentation available to herduring the administrative appeal processprejudiced her by denying her “addi-tional insight into the insurer’s reviewprocess,” and that Prudential was there-fore subject to statutory ERISA penalties.

However, the court stated that theissues raised by this argument wereraised and disposed of in the contextof plaintiff ’s motion to compel discov-ery, where the court invited the plain-tiff to take a Rule 30(b)(6) depositionof Prudential if she was not satisfiedwith Prudential’s statement that thedocuments plaintiff sought either didnot exist or were not used in handlingplaintiff ’s claim. Plaintiff was unableto show any prejudice with regard tothis issue, and this claim was deniedas well.SCOTT M. TRAGER

Semmes, Bowen & SemmesBaltimore, [email protected]

Summary Judgment Denied, ButJudgment Entered Pursuant toFederal Rule 52In Mobley v. Continental Cas. Co., 405




F.Supp.2d 42 (D.D.C. 2005), thecourt denied the insurer’s motion forreconsideration of its denial of sum-mary judgment in favor of the planbecause plaintiff ’s treating physicianhad determined that plaintiff was un-able to perform any occupation, whilethe independent medical examinationon behalf of the plan had reached theopposite conclusion.

However, the court noted that Fed-eral Rule of Civil Procedure 52 estab-lished a mechanism by which thecourt could make findings of fact ondisputed issues before ruling on themerits of a case. Noting that bothparties agreed that the de novo stan-dard of review should be applied, thecourt stated that its task was “to un-dertake a comprehensive review of theadministrative record to determinewhether plaintiff is totally disabledwithin the meaning of the plan ... asif it had never been reached by Conti-nental, and Continental’s findings areentitled to no judicial deference.”

The court then proceeded to exam-ine the evidence in the administrativerecord and concluded that it was notpersuaded by plaintiff ’s treatingphysician’s opinion of total disability.By contrast, the court stated that itcould find no reason to doubt thecredibility of the conclusion of the in-dependent medical examiner who hadexamined plaintiff on behalf of theplan.

The court concluded that the evi-dence in support of plaintiff ’s claim oftotal disability was scant and ques-tionable, while the evidence support-ing a conclusion that plaintiff couldperform some form of sedentary jobfunction was “somewhat more robustand, more importantly, free fromdoubt as to its credibility.” Conse-

quently, the court entered judgmentin favor of the plan under Rule 52.J. SNOWDEN STANLEY, JR.Semmes, Bowen & SemmesBaltimore, [email protected]

Administrator Neither AbusedDiscretion by Denying Claim NorInterfered with RightsIn Plain v. AT&T Corp., 424F.Supp.2d 11 (D.D.C. Mar. 24,2006), plaintiff asserted a claimagainst her former employer, AT&T,under the Labor Management Rela-tions Act for wrongfully terminatingher following a period of sickness dis-ability leave, and a claim against theadministrator of her employee benefitsplan, Metropolitan Life InsuranceCompany, under ERISA for wrong-fully denying her claim for long-termdisability benefits. The court grantedthe summary judgment motions ofthe employer and plan administrator.

Plaintiff claimed that MetLifebreached its fiduciary duty as a resultof its decision to deny plaintiff ’s claimfor LTD benefits, and interfered withher protected rights in violation of§510 of ERISA. The court, findingthat the benefit plan conferred discre-tion on MetLife, granted MetLife’smotion for summary judgment as toboth of plaintiff ’s claims.

MetLife stated that there were twobases for its denial of plaintiff ’s claim:(1) her claim was untimely; and (2)she failed to provide sufficient medicaldocumentation that she was disabledas defined by the plan.

Addressing the first basis, the courtfound that MetLife did not abuse itsdiscretion when it concluded that, be-cause plaintiff ’s application for LTDbenefits was not filed within 90 days

of the expiration of her sickness dis-ability benefits, her application wasuntimely. The policy made clear thatfailure to timely submit an applica-tion could result in ineligibility. Itwas uncontroverted that plaintiff ’s ap-plication was not filed within thetime allotted by the policy, and ac-cordingly, MetLife acted reasonably indenying the application.

As to the second basis, the court againfound that the record supported MetLife’sdetermination. Plaintiff ’s application ac-knowledged that she was able to workeight hours per day and that she had beenadvised to return to full-time service in herregular occupation. Even if plaintiff wereto have complied with the timeline for fil-ing an LTD claim, MetLife would nothave abused its discretion had it deniedher application for the independent reasonthat plaintiff had not demonstrated thatshe was “disabled.”

Finally, plaintiff maintained thatMetLife interfered with her protectedrights in violation of §510 of ERISA whenit played a role in AT&T’s termination ofher employment and subsequent failure toreinstate her. The court, however, statedthat a plaintiff must demonstrate that theinsurer coerced an employer to fire an em-ployee. The court found that the recorddid not support such an inference. Fur-thermore, other portions of the record evi-denced a lack of coordination betweenMetLife and AT&T with respect toplaintiff ’s termination.SCOTT M. TRAGER





Florida District Court

Normal Summary Judgment Rulesare Inapplicable to ERISABenefits CaseIn Crume v. Metropolitan Life Ins. Co.,417 F.Supp.2d 1258 (M.D. Fla.2006), the court granted summaryjudgment in favor of MetLife, whilerelying on cases in the First, Ninth,and Eleventh Circuits to concludethat the normal rules governing sum-mary judgments do not apply inERISA benefits cases. The court re-jected plaintiff ’s argument that thereshould be a bench trial because therewere disputed issues of fact.

The court explained the general ra-tionale for abandonment of the Rule56 summary judgment tests by quot-ing with approval a decision by theFirst Circuit: “In an ERISA benefitdenial case [subject to deferential re-view], ... in a very real sense, the dis-trict court sits more as an appellatetribunal than a trial court. It doesnot take evidence, but, rather, evalu-ates the reasonableness of an adminis-trative determination in light of therecord compiled before the plan fidu-ciary.” Leahy v. Raytheon Co., 315F.3d 11, 17-18 (1st Cir. 2002)(quoted with approval in Curran v.Kemper Nat. Servs., Inc., 2005 WL894840, *7 (11th Cir. Mar. 16,2005) (unpublished per curiam opin-ion)).

The court provided further practi-cal reasons why the usual constraintsof Rule 56 should not apply:

In a case like this, where the ulti-mate issue to be determined iswhether there is a reasonable basisfor a claims administrator’s benefits

decision, it is difficult to ascertainhow the “normal” summary judg-ment rules can sensibly apply. Af-ter all, the pertinent question is notwhether the claimant is truly dis-abled, but whether there is a rea-sonable basis in the record tosupport the administrator’s deci-sion on that point. In other words,conflicting evidence on the ques-tion of disability cannot alone cre-ate an issue of fact precludingsummary judgment, since anadministrator’s decision that rejectscertain evidence and credits con-flicting proof may nevertheless bereasonable. More fundamentally,perhaps, if the “normal” summaryjudgment rules apply to thesekinds of cases, and it is determinedthat an issue of material fact exists,thereby precluding summary judg-ment, what is the next step in thecase resolution process? In otherkinds of cases, the next step wouldbe a trial. But what is this Courtto “try” when it ordinarily cannotconsider evidence outside the ad-ministrative record, and the ulti-mate issue to be determined iswhether there is a reasonable basisin that record for the fiduciary’s de-cision?

The court observed that the EleventhCircuit frequently applies the normalsummary judgment rules in ERISAbenefits claims, but correctly notedthat these cases did not address the is-sue. Crume does not specifically statethat a motion for judgment based onthe administrative record is the properprocedure to follow in an ERISA ben-efits case, instead of a Rule 56 motionfor summary judgment, but this isclearly implied.

RALPH C. LOSEY

Akerman SenterfittOrlando, [email protected]

Maryland District Court

ERISA Plan Administrator NotBound by Job Description inDetermining Material DutiesIn McCready v. Standard Ins. Co., 417F.Supp.2d 684 (D. Md. 2006), theissue was whether Standard abused itsdiscretion in denying plaintiff ’s claimfor long-term disability benefits underan ERISA-governed plan through heremployer, Piper Rudnick, LLP, whereshe was employed for over 13 years asa legal secretary.

Plaintiff left Piper because of severalailments. After receiving short-termdisability benefits from Standard,plaintiff applied for long-term disabil-ity benefits under the plan. Followingeach of its three levels of review, Stan-dard determined that plaintiff was noteligible for long-term disability ben-efits under the plan, basing its denialon the specific definition of “OwnOccupation” and “Material Duties,”and finding that her “Own Occupa-tion” was not limited to her specificjob with Piper.

Under the plan, plaintiff wouldmeet the definition of “Disabled” forpurposes of long-term disability if shewere disabled from her “Own Occu-pation,” which was defined as “anyemployment, business, trade, profes-sion, calling or vocation that involvesMaterial Duties of the same generalcharacter as your regular and ordinaryemployment with the Employer.Your Own Occupation is not limited



to your job with your Employer.”The term “Material Duties” was de-fined as “the essential tasks, functionsand operation, and the skills, abilities,knowledge, training and experience,generally required by employers fromthose engaged in a particular occupa-tion.”

Plaintiff provided a detailed de-scription from Piper of her duties as alegal secretary at the firm. However,Standard determined that plaintiffdid not qualify as “Disabled” from her“Own Occupation” since she couldfulfill the “Material Duties” requiredby the general economy for legal sec-retaries.

Standard determined that the jobdescription Piper provided was in ex-cess of a legal secretary position in thegeneral economy, as described by theDepartment of Labor’s Dictionary ofOccupational Titles. Standard furtherdetermined that plaintiff performedduties in excess of the DOT’s defini-tion of “Legal Secretary” and wouldbe better considered as a “Legal Secre-tary/Secretary” under the DOT.

Standard determined that it wasappropriate to consider plaintiff ’s“Own Occupation” as consistent withthe general economy’s definition ofthe occupation as found in the DOT,and therefore considered plaintiff ’s“Own Occupation” as sedentary. Ac-cordingly, Standard held thatplaintiff ’s “Material Duties” did notrequire frequent walking or standing,and that the more active duties de-scribed by Piper were not essentialtasks generally required by employersfrom those engaged as a Legal Secre-tary.

The court found that Standard’sdetermination that plaintiff ’s “OwnOccupation” and “Material Duties” as

defined under the plan were sedentaryin nature was not an abuse of discre-tion and its determination was sup-ported by substantial evidence. Thecourt held that Standard was notbound by Piper’s description ofplaintiff ’s job in determiningplaintiff ’s “Own Occupation” and“Material Duties” under the clearterms of the plan. The definition of“Own Occupation” under the planindicated that Standard was to evalu-ate plaintiff ’s position as legal secre-tary against professions of the samegeneral character as her position atPiper, but not limited to her job withPiper.

Furthermore, the medical evidencedid not indicate that plaintiff wouldbe unable to perform a sedentary oc-cupation. The court also acknowl-edged that plaintiff had the samehealth problems while she was work-ing at Piper, prior to submitting aclaim for long-term disability, andthat some of her conditions had im-proved prior to her stopping work.SCOTT M. TRAGER


Court Upholds Denial of Benefitsto Nurse Who Could Perform Oneof Her Material DutiesIn McKeldin v. Reliance Standard LifeIns. Co., 2006 WL 890759 (D. Md.Apr. 14, 2006), plaintiff, an R.N. andnurse manager in a private physician’soffice, filed an application for long-term disability benefits under a groupplan issued by Reliance, based on thesymptoms of deep vein thrombosis,fibromyalgia and chronic fatigue syn-drome.

The plan defined total disability as,

(1) during the elimination period, theinability to perform “each and everymaterial duty” of one’s regular occupa-tion; and (2) for the first 36 months,the inability to perform the materialduties of one’s regular occupation;and (3) after 36 months, the inabilityto perform “each and every materialduty” of any occupation that one’seducation, training or experiencewould reasonably allow.

Reliance approved plaintiff ’s appli-cation in April 2001. In October2001, however, the Social SecurityAdministration denied disability ben-efits based on the same conditions,concluding that plaintiff had the abil-ity to return to her regular occupationof R.N. In October 2002, Reliancerequired her to take an independentpsychiatric examination and foundher disability to be due to psychologi-cal conditions. It advised her that amental/nervous disorder exception,which limited benefits to an aggregatelifetime maximum of 24 months, ap-plied to her claim.

Plaintiff appealed the terminationof benefits after the change in defini-tion, claiming that fibromyalgia washer primary disability and that de-pression was only a secondary conse-quence of pain. Despite her illness,she was able to work two part-timejobs in nursing, one administering flushots and the other as a forensic nursefor sexual assault victims. Reliancehad a peer review performed, and thereviewing physician concluded thatplaintiff was capable of full time sed-entary light level work. This wasbased in part on her ability to worktwo part-time jobs.

Reliance also had plaintiff undergoan IME, including a musculoskeletalexam in which it was concluded that



since she was performing activity at asedentary level at home, there was nomedical contraindication for her per-forming at such a level at work. InApril 2005, Reliance advised plaintiffthat the appeal was denied because(1) the mental/nervous disorder ex-ception applied; and (2) she did notqualify as “totally disabled.”

In the suit filed by plaintiff in thedistrict court, the parties filed cross-motions for summary judgment. Thecourt granted Reliance’s motion forsummary judgment and deniedplaintiff ’s. The court upheldReliance’s decision that plaintiff didnot meet the definition of “totally dis-abled” and therefore, did not reachthe issue of whether the mental/ner-vous disorder exception applied.

Because Reliance paid plaintiff formore than 36 months, the court wasrequired to examine the meaning of“totally disabled” that applied after36 months. At issue was the meaningof the inability to perform “each andevery material duty” of any occupationthat one’s education, training or expe-rience would reasonably allow. SinceReliance had presented substantialevidence that plaintiff was able to per-form at least one of the material du-ties of a suitable occupation, the courtconcluded that Reliance had notabused its discretion in finding thatshe was not totally disabled.

In interpreting the meaning of“each and every” material duty, thecourt looked to Gallagher v. v. RelianceStandard Life Ins. Co., 305 F.3d 264(4th Cir. 2002), as well as Carr v. Re-liance Standard Life Ins. Co., 363 F.3d604 (6th Cir. 2004). In these cases,the Fourth and Sixth Circuits inter-preted the same language in other Re-liance policies to mean that an insured

is eligible to receive benefits only if heestablishes that he is unable to per-form all of the material duties of anoccupation.KATHLEEN M. MAYNARD


Massachusetts District Court

Uncontradicted Evidence FromTreating Physicians WarrantsAward of BenefitsIn Ghose v. Continental Cas. Co., 2005U.S. Dist. LEXIS 13470 (D. Mass.July 15, 2005), the court reversedContinental’s decision on plaintiff ’sdisability claim, finding that the re-view of his medical records under-taken by a committee of laypersons,without the input of a medical con-sultant, was arbitrary and capricious.

Plaintiff submitted a claim for dis-ability benefits after undergoing car-diac by-pass surgery. He returned towork for 10 months and then soughtadditional disability benefits due tochest wall pain. He supported hisclaim with opinions by several physi-cians who stated that he had chronicpain as a consequence of the surgeryand should stay out of work for a fewmonths while undergoing therapyand pain management treatment.Continental denied the claim, findingthat plaintiff ’s condition did not im-pair him to such a degree that he wasunable to perform his occupation.

Recognizing that a plan adminis-trator is not required to obtain theopinion of a third party medical con-sultant and may render a decisionbased on medical records alone, the

court nevertheless concluded that therecords and opinions of the five spe-cialists who treated plaintiff reflectedno material internal inconsistencies orquestions about the veracity of hiscomplaints. It found that Continen-tal denied plaintiff ’s claim not be-cause it doubted that he was disabled,but because the panel of lay adminis-trators who reviewed his records werenot persuaded that he was disabledenough.

The only evidence supporting thisconclusion was plaintiff ’s ultimatelyunsuccessful attempt to return towork. The court determined that thisis not the type of reliable rebuttal evi-dence that would allow an administra-tor to credit one form of medicalevidence over the other, nor as a mat-ter of public policy is it desirable thata disabled worker be penalized for hisefforts at rehabilitation.Joseph M. HamiltonJoan O. VorsterMirick O’ConnellWorcester, [email protected]@modl.com

Attorney Acting Pro Se as PlaintiffIs Not Entitled to Fees underERISAIn Radford Trust v. First UNUM LifeIns. Co. of Am., 399 F.Supp.2d 3 (D.Mass. 2005), the court awardedattorney’s fees to the plaintiff trust inan ERISA action against a disabilityinsurer on the ground that theinsurer’s denial of the disability claimhad been in bad faith.

But the court declined to awardattorney’s fees to the individual plain-tiff, who was himself an attorney pro-ceeding pro se, and who had asserted





that he was disabled from performingthe work of an attorney.PHILIP M. HOWE

Lecomte, Emanuelson and DoyleQuincy, [email protected]

Michigan District Court

Injuries Resulting from DrivingWhile Intoxicated Held Not “Self-Inflicted” under ExclusionIn Harrell v. Metropolitan Life Ins. Co.,401 F.Supp.2d 802 (E.D. Mich.2005), the court held that injuriescaused by driving while intoxicatedwere not “self-inflicted” and that theERISA administrator’s denial of ben-efits on that basis was arbitrary andcapricious.

Plaintiff ’s decedent was killed in acar crash. At the time, her blood al-cohol level was 0.17, an amount thatexceeds the legal limit in Michigan.Plaintiff testified that the decedentwas a regular drinker and that shecommonly drove after drinking.

Plaintiff applied for death benefitsunder a personal accident insurancepolicy provided by his employer, Gen-eral Motors. The policy excludedbenefits for any loss caused by “sui-cide, attempted suicide or self-in-flicted injury while sane or insane.”The administrator denied plaintiff ’sclaim for benefits, stating, “[T]he vol-untary consumption of alcohol consti-tutes intentionally self-inflictedinjuries under the General MotorsPlan.” Plaintiff appealed, and the ad-ministrator upheld the prior decision,stating that “the dangers of drinkingand driving are sufficiently well-known.”

The court noted that the adminis-trator did not contend that thedecedent’s car accident was a suicide,and the court further noted that term“intentionally self-inflicted injury”was not defined in the plan. Althoughthe court held that the plan gave theadministrator discretion to interpretthe terms of the plan, the court alsoheld that the administrator’s interpre-tation of “self-inflicted injury” to in-clude injuries caused by drunk drivingwas arbitrary and capricious, requiringreversal of the denial of benefits.

The trial court reasoned that volun-tarily partaking in risky behaviorcould not be equated with an intentto injure one’s self. The court notedthat the plan contained other exclu-sions for injuries caused by high-riskactivities, such as stunt flying or act-ing as a test pilot. These exclusions,the court stated, would be unneces-sary if the “self-inflicted injury” exclu-sion applied to all risky behavior.

The court also rejected defendant’sargument that the decedent did notdie from an “accident,” because injurycaused by drunk driving is reasonablyforeseeable. The court noted that thisrationale had not been advanced bythe administrator, and such a post hocjustification could not be used as abasis for the denial of benefits.

The court further noted that drunkdriving deaths constitute less than onepercent of the number of people ar-rested for drunk driving and that“[c]onduct that increases the risk ofdire results does not make those re-sults inevitable.” Thus, even if thecourt had considered defendant’s posthoc argument that injury caused bydrunk driving is not the result of an“accident,” it would have rejected it.

D. ANDREW PORTINGA

Miller JohnsonGrand Rapids, [email protected]

Pennsylvania District Court

Court Rules That ProviderUnderpayment Claims AgainstHMO Are Preempted by ERISAIn Temple Univ. Children’s MedicalCenter v. Group Health, Inc., 413F.Supp.2d 530 (E.D. Pa. 2006), thecourt grappled with an interesting is-sue of ERISA preemption concerninga provider claim for alleged underpay-ment of benefits.

Plaintiff, Temple UniversityChildren’s Medical Center(“TUCMC”), a major hospital centerin Philadelphia, filed a state lawbreach of contract claim againstGroup Health, Inc. (“GHI”), anHMO, claiming that it had been sub-stantially underpaid for hospital andmedical services rendered to three pa-tients who were beneficiaries underthree separate group health plans in-sured and/or administered by GHIbetween 2002-2003.

TUCMC claimed that GHIbreached a PPO discount agreementthat required it to pay 90% of thehospital’s full-billed charges within30 days of the date of invoice.TUCMC alleged that GHI underpaidthe invoices for these three patientsand also made late payments, therebyrequiring GHI to pay 100% of thefull amount invoiced by the hospital.

GHI had refused to pay theamounts in question because thehospital’s charges were excessive and




did not comport with usual and cus-tomary charges for the services ren-dered in the same or similarcommunities. Instead, GHI paid theinvoices pursuant to the non-partici-pating provider compensation guide-lines set forth in the respective plans.

GHI moved for summary judgmenton the grounds that, for two of thepatients, TUCMC’s claims were pre-empted by ERISA §514(a) becausethe patients’ health insurance wasprovided pursuant to ERISA-regu-lated employee welfare benefit plansand that the hospital had no standingunder ERISA §502(a) to pursue aclaim for the patients’ benefits. GHIalso argued that regardless of ERISApreemption considerations, there wasno contract privity between TUCMCand GHI because GHI had notelected to access the PPO discountagreement in question, which was anon-exclusive arrangement.

In the third claim, GHI arguedthat it was merely an administrativeservice provider to a self-funded plan,and therefore was not financially re-sponsible for payment of the hospital’sclaims.

The court granted GHI’s motionfor summary judgment, holding thatthe hospital’s claims were preemptedby ERISA §514(a), and noted thatthe hospital had no standing to pur-sue its claims against GHI underERISA §502(a)(1)(B). The court re-jected TUCMC’s argument, based onPascack Valley Hosp. v. Local 464AUFCW Welfare Reimbursement Plan,388 F.3d 393 (3d Cir. 2004), thatERISA §502 did not provide groundsfor complete ERISA preemption, find-ing that the court had diversity juris-diction. The court also rejectedplaintiff ’s attempt to confuse “com-

plete” ERISA preemption, which isessentially jurisdictional, with theERISA “conflict” preemption, whichis a complete defense on the merits.

In addition, the court held thatTUCMC’s state law breach of contractclaims failed due to the lack of con-tract privity with GHI. The courtfound that the hospital’s attempts tocreate the appearance of privitythrough the PPO network agreementscould not be sustained because GHI’sPPO access agreement was non-exclu-sive, thereby permitting GHI to accessthe PPO discounts at its discretion.

Lastly, the court granted summaryjudgment on the claim arising fromthe self-funded plan because GHI wasmerely a claim administrator with nofiduciary authority or insurance obli-gations. Summary judgment was alsogranted to the PPO, which had ar-gued that it was not the insurer, butsimply the network in which the hos-pital and insurer had agreed to par-ticipate.MICHAEL H. BERNSTEIN

Sedgwick, Detert, Moran & Arnold LLPNew York, [email protected]

Virginia District Court

Court Addresses Fiduciary’sDuties Where Administrator IsConfronted with BankruptcyIn DiFelice v. Fiduciary Counselors,Inc., 398 F.Supp.2d 453 (E.D. Va.2005), the court addressed the natureof an independent fiduciary’s duties toparticipants in a 401(k) retirement planafter it was appointed to manage pen-sion investments in US Airways’ stockshortly before its bankruptcy filing.

US Airways, in consideration of itspossible bankruptcy filing, appointedFCI as an independent fiduciary withresponsibility for managing certain planinvestments, including US Airways’401(k) retirement plan. One of theavailable investment options for theplan was the US Airways Group, Inc.Common Stock Fund (“Company StockFund”), a unitized fund that consistedprimarily of the publicly traded sharesof US Airways Group, Inc., the parentcompany of US Airways; the remainderof the Company Stock Fund’s assetswere held in cash. Approximately sevenweeks after appointing FCI with respon-sibility for making investment decisionswith respect to the Company StockFund, US Airways filed for bankruptcyunder Chapter 11.

This action was filed by plaintiff pur-suant to ERISA on behalf of the plan torecover losses to the plan which oc-curred as a result of FCI’s allegedbreaches, including (1) failure to informplan participants; and (2) failure to ex-ercise prudence in the management ofplan assets. FCI moved to dismiss pur-suant to Rule 12(b)(6), arguing thatplaintiff ’s complaint failed to state aclaim as a matter of law.

The court first held that FCI was aplan fiduciary because it assumed USAirways’ role as the named fiduciarywith respect to the Company StockFund, with the authority to continueor terminate the Company StockFund as a plan investment option andwith the authority to alter the mix ofcash and stock in the Company StockFund.

With regard to plaintiff ’s claims al-leging failure to inform plan partici-pants, the court stated thatcompliance with the express disclosurerequirements of ERISA will generally



satisfy a fiduciary’s duty to provide in-formation to participants. However,the court acknowledged that there arenarrow circumstances in which afiduciary’s general obligations underERISA trigger a further obligation todisclose information.

The court, citing Griggs v. E.I.DePont de Nemours & Co., 237 F.3d371 (4th Cir. 2001), stated that theaffirmative duty to provide informa-tion to ERISA participants arises onlywhen the fiduciary has fostered themisunderstanding of facts material toparticipants’ investment decisions.The court distinguished this casefrom Griggs because it determinedthat FCI had no reason to suspectthat plan participants were unaware ofthe risks of investing in US AirwaysGroup stock, nor did FCI misrepre-sent the risks of doing so.

The court held that FCI’s duty todisclose information beyond that spe-cifically required by ERISA was lim-ited to instances in which it hasfostered a material misunderstandingof plan benefits or investment optionsand then failed to correct that misun-derstanding. However, no such factswere alleged. Moreover, FCI’s disclo-sure to participants was found to havebeen timely. Therefore, the court dis-missed plaintiff ’s claims for failure todisclose information.

With regard to plaintiff ’s claims al-leging a failure to exercise prudence inthe management of plan assets, thecourt, applying the Department ofLabor’s “prudent man” standard,found that a plan fiduciary is re-quired, at a minimum, to examine thecharacteristics of an investment, in-cluding the risk characteristics and itsliquidity, to ensure that it is an appro-priate plan investment and that it is

in the best interests of the plan par-ticipants. The court held that FCI’sactions upon appointment as fiduciarycould not be deemed imprudent inlight of the difficult circumstancesconfronting it at the time of its ap-pointment. The court, therefore,granted FCI’s motion to dismiss.Scott M. TragerSemmes, Bowen & SemmesBaltimore, [email protected]

Court Refuses to Vacate PublishedOpinion to Aid Post-JudgmentSettlementIn Neumann v. Prudential Ins. Co. ofAm., 398 F.Supp.2d 489 (E.D. Va.2005), the parties jointly moved forpost-judgment vacatur pursuant to apost-judgment settlement agreementbetween the parties which was condi-tioned in part on vacatur of the judg-ment entered in favor of the plaintifffor long-term disability benefits underan ERISA plan.

Relying significantly on BancorpMtg. Co. v. Bonner Mall Partnership,513 U.S. 18 (1994), and its progeny,the court noted that there was a gen-eral presumption against vacaturwhich could be overcome only by theshowing of extraordinary circum-stances. The parties contended thatvacatur was warranted because theirsettlement was conditioned upon itand the plan did not wish to contendwith the opinion in dealing with fu-ture benefit disputes. They also ar-gued that vacatur would conservejudicial resources in making the ap-peal which had been filed by the planunnecessary.

Although encouragement of settle-ment of disputes is desirable, thecourt ruled that none of these reasons

amounted to the extraordinary cir-cumstances necessary to overcome thepresumption against vacatur. It fur-ther suggested that vacatur of a judg-ment on the basis of post-judgmentsettlement might induce parties toforego settlement early in a litigationprocess hoping to win at trial or bar-gain away an adverse decision with asettlement conditioned upon vacatur.The court further commented thatwhile the plan’s desire to eliminateany precedential effect the opinionmay have is understandable, the ap-propriate means for doing so wouldbe an appeal.J. SNOWDEN STANLEY, JR.Semmes, Bowen & SemmesBaltimore, [email protected]



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