In a recent case that should give pause to employers,  the Sixth Circuit Court of Appeals, in Linkletter v. Western & Southern Financial Group, Inc., No. 16-3265, 2017 U.S. App. LEXIS 5130 (6th Cir. Mar. 23, 2017), reversed the trial court’s dismissal and allowed a plaintiff’s suit to proceed whose job offer was rescinded when the potential employer discovered that two years prior to the job offer, she had signed a petition in support of a women’s shelter, with the which the company had had a lengthy property dispute. The ruling was based on the appeals court’s determination that the company may have retaliated against the plaintiff for her support of the shelter’s residents in violation of both the federal Fair Housing Act and the Ohio Civil Rights Act.

In 2012, Gayle Linkletter signed a petition in support of the Anna Louise Inn, a women’s shelter located near Western & Southern’s offices in the Lytle Park area of Cincinnati. At that time, the company was involved in an ongoing real estate dispute with the shelter over the shelter’s location in the neighborhood and the company’s alleged attempts to force the shelter to move. The shelter eventually sued the company under the federal Fair Housing Act and the dispute ended when Western & Southern agreed to purchase the property and removed the shelter from the neighborhood.

Linkletter had worked at Western & Southern from 1997 to 2006 when the employment relationship ended amicably. In May 2014, she applied for a job at the company and, after a series of interviews, was hired. In September 2014, just prior to her beginning work, a senior vice president in the company’s legal department contacted Linkletter and told her that the company was rescinding the employment offer because it discovered she had signed the petition, which Western & Southern stated was contrary to its position. After the job offer was rescinded, Linkletter sued the company, and the employee that had rescinded the job offer, for retaliation under the Fair Housing Act, particularly 42 U.S.C. § 3617, and the Ohio Civil Rights Act.

She claimed that the rescission of her contract was in retaliation to her supporting the housing rights of the shelter’s female residents in violation of § 3617 of the Fair Housing Act. That section states, in part: “it shall be unlawful to . . . interfere with any person . . . on account of his having aided or encouraged any other person in the exercise or enjoyment of, any right granted or protected by section 3603, 3604, 3605, or 3606 of this title.” (emphasis added). Specifically, she claimed that her petition-signing “encouraged” the residents of the women’s shelter in their rights granted by § 3604, involving discrimination in the rental or sale of housing. The district court dismissed the lawsuit for failure to state a claim because it determined, among other things, that she did not “aid or encourage” the shelter’s residents as contemplated by the statute and that the housing rights under § 3604 were not at issue. It also dismissed the claims under the Ohio Civil Rights Act for essentially the same reasons because the language of the Ohio act is virtually the same as the federal one. Linkletter appealed both rulings.

The Sixth Circuit began its analysis by stating that because the statute is a remedial one, its terms should be interpreted broadly. It noted that prior rulings had held that the rescission of an employment “contract” can qualify as “interference” under the statute because it “hampers” an employment process. Even though there does not appear to be any allegation that Linkletter and Western & Southern had entered into an employment contract, the court nonetheless extended the concept to a job offer.

The court then turned its attention to the “aided or encouraged” prong of the Act. It stated that while Linkletter’s signing of the petition in itself may have seemed innocuous, taking into account the timing and the language of the petition, it was clear that it existed to encourage the women to remain in the shelter in opposition to Western & Southern’s alleged discrimination. As such, it determined that the “aided or encouraged” prong was satisfied.

Finally, the court had to analyze whether the required nexus between her actions and the rights protected by § 3604 was present. Western & Southern argued that even if it fired Linkletter for signing the petition, its motivation in the underlying lawsuit was economic, not discriminatory. While the court acknowledged that past Sixth Circuit cases required a showing of discriminatory animus for § 3617 claims, that requirement only forces the plaintiff to show “some evidence” of discriminatory effect or intent on the defendant’s part to survive summary judgment and that a plaintiff can show either direct proof of discriminatory animus or proof of disparate impact or effect. It noted that Western & Southern’s alleged actions only affected one class of people – women, and that the existence of other non-discriminatory motivations “does not protect the defendants from housing discrimination claims when their actions had a clear discriminatory effect.” Therefore, taking the allegations in the complaint in the light most favorable to Linkletter, it determined that a trial court could conclude that the company’s efforts interfered with housing rights under § 3604 and that Linkletter encouraged those same rights under § 3617 by signing the petition. As such, it reversed the trial court’s dismissal of the § 3617 claim. Because the court determined that the Ohio Civil Rights Act mirrored the language of the Fair Housing Act, it similarly reversed the lower court’s dismissal of that claim as well.


Words in an insurance policy actually mean something and ignoring them can have real consequences for an insured. That’s the direct message the Eleventh Circuit recently sent when it decided, Inc. v. Travelers Property Casualty Company of America, No. 14-10616, 2017 U.S. App. LEXIS 368 (11th Cir. Jan. 9, 2017). In that case, it held that a commercial general liability policyholder was not entitled to pre-tender litigation costs of more than $400,000 because it hired counsel on its own and then failed to notify Travelers of the litigation for more than 18 months.

In April 2010, EmbroidMe was sued in federal district court in Florida for copyright infringement. EmbroidMe had a commercial general liability policy through Travelers that provided both a defense and indemnification for such a claim but EmbroidMe chose not to notify Travelers of the suit or seek a defense. Instead, it retained a law firm on its own and, as noted previously, litigated the case for over 18 months, incurring fees of over $400,000. The policy contained an exclusionary provision that stated: “no insured will, except at that insured’s own cost, voluntarily make a payment, assume any obligation, or incur any expense, other than for first aid, without our consent.”

EmbroidMe finally tendered the matter to Travelers in October 2011. In a letter dated November 21, 2011, Travelers agreed to defend the case going forward and reserved its rights to ultimately challenge its duty to indemnify. It refused however, to reimburse the legal fees EmbroidMe had already paid, based on clear language in the policy. It also cited its right to choose counsel but it eventually agreed to retain the same firm that had been handling the case, although at a reduced rate from that paid by EmbroidMe. The plaintiff in the underlying lawsuit eventually filed a second suit after Travelers agree to take up the defense and it continued to defend both lawsuits. Ultimately, the claims made in both lawsuits were settled.

After the underlying suits were settled, EmbroidMe again tried to convince Travelers to pay the pre-tender costs, which it refused to do, and EmbroidMe filed a breach of contract action in Florida state court, which Travelers removed to federal court.

EmbroidMe contended that under Florida’s Claims Administration Statute (“CAS”), Travelers’ coverage defense was untimely because it was made 39 days after tender, nine days more than permitted under the statute. (There was some dispute about whether the reservation of rights letter was dated 39 or 42 days after tender). Among other things, the CAS estops an insurer from denying coverage unless it gives “written notice of reservation of rights to assert a coverage defense” to the insured “[w]ithin 30 days after the liability insurer knew or should have known of the coverage defense” and further requires an insurer disclaim coverage or provide its policyholder a defense within 60 days. Travelers contended that its refusal to reimburse the costs incurred without prior approval was not a coverage defense but instead was based on a policy exclusion not subject to the CAS. It filed a motion for summary judgment, citing case law from the Florida Supreme Court that had held that the CAS and its time limits applied only to coverage defenses, not policy exclusions, and the district court agreed.

Because the policy precluded the policyholder from “voluntarily assuming any obligation or incurring any expense without Travelers’ consent,” the appeals court held that Travelers’s refusal to pay for pre-tender defense costs was based on a policy exclusion, not a coverage defense and therefore the CAS’s 30-day requirement to communicate coverage did not apply. Specifically, the court stated “[a]ccording to Florida law, the assertion of a coverage defense comes within the CAS and its corresponding time limits, but a defense that a policy provision excludes coverage is not subject to the CAS’s deadlines or even to its requirement that notice be given.” It continued “because Travelers relied on an exclusion, not a coverage defense, its failure to notify EmbroidMe within the time period set out in the statute did not estop Travelers from relying on that ground in refusing to pay these unapproved expenses.”

The decision is both a cautionary tale for insureds and a reminder to insurers that courts routinely uphold clear policy exclusions.  In other words, if you want to take advantage of the policy you’re paying for, follow the provisions, especially the policy’s tender requirements.


In Geiger v. Aetna Life Insurance Company, No. 16-2790, 2017 U.S. App. LEXIS 245 (7th Cir. Jan. 6, 2017), the Seventh Circuit Court of Appeals upheld the U.S. District Court for the Northern Illinois’s grant of summary judgment in favor of Aetna on its decision to terminate long-term disability benefits under a policy that was part of an employee welfare benefits plan governed by the Employee Retirement Income Security Act of 1974 (“ERISA”). The appeals court also upheld the trial court’s denial of plaintiff’s attempt to conduct limited discovery to address an alleged conflict of interest in Aetna’s handling of the claim.

Donna Geiger worked as an account executive at Sprint Nextel from 2001 to 2009 and was a participant in the company’s employee welfare benefit plan, governed by ERISA. Aetna issued and was the claims administrator for the plan’s disability policy. In October 2009, Geiger stopped working at Sprint and claimed short term disability, which was approved by Sprint, due to lumbar back pain caused by a previous discectomy, and severe ankle pain. In January 2010, she had surgery on both ankles and eventually underwent a full ankle replacement in December 2010. During that time, Aetna determined that Geiger was disabled from her occupation as an account executive under the Plan and approved her claim for long term disability benefits.

To receive benefits during the first two years, the Plan required that Geiger be totally disabled from performing the duties of her own occupation. After two years, the Plan required that she be disabled from performing the duties of any occupation and as the two-year anniversary was approaching, Aetna began a review of the claim. The company terminated Geiger’s benefits in August 2012 after her initial 24-month period of LTD benefits expired which Geiger appealed. As part of the review, Aetna obtained peer reviews from two independent physicians, one of which concluded that Geiger’s ankle condition would not preclude her from sedentary work. It also consulted Geiger’s anesthesiologist, who agreed that Geiger was capable of sedentary work. The other independent physician reached the opposite conclusion, finding that Geiger could not perform sedentary work and on May 1, 2013, Aetna reinstated Geiger’s benefits, finding “sufficient medical evidence to support a functional impairment which precluded the employee from performing the material duties of her own occupation.”

In May 2014, Aetna again terminated Geiger’s benefits after determining that she was not totally disabled. The impetus for this termination was that Geiger had been observed on surveillance video getting into and driving an SUV, shopping at numerous locations and carrying bags during those activities, all with no apparent difficulty. Geiger again appealed, and the decision was once again upheld in February 2015, after which Geiger filed suit in the Northern District of Illinois.

Both parties moved for summary judgment and the court granted summary judgment to Aetna, holding that Aetna’s decision was not arbitrary and capricious under Section 1133 of ERISA because, among other things, Aetna had, during the process, conducted “an Independent Medical Examination, three Independent Physician Peer Reviews, a Comprehensive Clinical Assessment, a Transferrable Skills Assessment, activity report surveillance, multiple communications with Ms. Geiger’s team of physicians, and even reversed its first termination after a holistic review of Ms. Geiger’s medical history and claim application.” As such, the judge determined that the termination decision was reasonable. The court also denied plaintiff’s attempt to conduct limited discovery into Aetna’s alleged conflict of interest stating that Aetna took measures to ensure that it followed “a reasonable procedure with sufficient safeguards to prevent a detrimental conflict of interest,” including those mentioned above.

Geiger appealed claiming that the district court had erred both in granting summary judgment to Aetna and in denying discovery on the conflict issue. Geiger argued that Aetna’s termination of her benefits was arbitrary and capricious because it relied on the same evidence it had previously considered when reinstating her benefits, yet reached the opposite conclusion. The court disagreed determining that the new surveillance evidence supported one of the independent doctor’s opinions and refuted the other’s. It further noted that Aetna was entitled to seek and consider new information, change its mind in appropriate cases, and perform a periodic review of a beneficiary’s disability status. As such, it held that Aetna’s termination was not arbitrary and capricious and affirmed the district court’s decision.

The court also affirmed the lower court’s ruling denying discovery on the conflict of interest issue. It noted that a conflict of interest exists when, a plan administrator has both the discretionary authority to determine eligibility for benefits and the obligation to pay benefits when due, which was undisputed in this case. However, it also stated that discovery in a benefits case is only permitted under exceptional circumstances and that “it is thus not the existence of a conflict of interest—which is a given in almost all ERISA cases—but the gravity of the conflict, as inferred from the circumstances, that is critical.” It further noted that conflicts must be viewed considering the steps the insurer takes to minimize the potential bias and based on the district court’s finding that Aetna’s procedures were reasonable and sufficiently safeguarded against a detrimental conflict of interest and that that court has inherent broad discretion to control discovery, it determined that the district court did not abuse its discretion in denying Geiger’s request for discovery.

Broker not Liable in Fraudulent Policy Scheme because it hadn’t Placed the Policies

In M.G. Skinner & Associates Insurance Agency, Inc. v. Norman-Spencer Agency, Inc., No. 15-2290, 2017 U.S. App. LEXIS 63 (7th Cir. Jan. 4, 2017), the Seventh Circuit Court of Appeals affirmed the trial court’s ruling that Norman-Spencer Agency Inc., an insurance broker, could not be held liable for negligence or breach of fiduciary duty for its role, or lack thereof, in placing what eventually turned out to be fraudulent commercial property policies because it did not owe a duty of care to either of the plaintiffs under both an Illinois statute and common law.

Western Consolidated Premium Properties, Inc. (“WCPP”) was a risk purchasing group through which commercial property owners could buy insurance, and M.G. Skinner & Associates Inc. (“Skinner”) acted as that program’s administrator. The program involved hundreds of commercial properties, including office buildings, shopping centers and multi-unit residential properties. In 2011, WCPP sought, through its various brokers, to renew the insurance for its properties and during the renewal process, one of the brokers suggested using Norman-Spencer as a sub-broker. Ultimately however, although Norman-Spencer expressed interest in becoming involved in the process, it played no role in the actual transactions. WCPP eventually procured insurance for the majority of its properties through a Michael A. Ward and his company, JRSO LLC, and a number of WCPP properties overseen by Myan Management Group separately procured insurance with Ward and JRSO. Norman-Spencer served as program administrator of the Myan program.

In the end, the “policies” that were issued to both WCPP and Myan were a sham and were not backed by a legitimate insurer. Ward was eventually convicted of wire fraud and sentenced to 10 years in prison. He was also required to pay $9 million in restitution to various victims of the fraud, including WCPP.

Once the scam was uncovered, Myan’s coverage was reincorporated into WCPP’s, and the new insurance it was forced to buy cost over $2 million more than the sham policies.

In May 2012, WCPP and Skinner sued Ward, JRSO, Norman-Spencer and several other insurance brokers and all the claims except those against Norman-Spencer were resolved either through settlement or default judgment. As to Norman-Spencer, WCPP sought to hold it liable for negligence under the Illinois Insurance Placement Liability Act (“IIPLA”) and a common-law breach of fiduciary duty claim, because it alleged that Norman-Spencer had failed to notify WCPP of certain “obvious signs that the ultimate provider of the insurance was dishonest.” These “facts” that Norman-Spencer became aware of included orders of both conservation and confiscation issued by a Cook County, Illinois court against Ward and/or JRSO and a “suspicious” alleged reinsurance agreement that Ward had provided to Norman-Spencer after several delays. Skinner made similar claims regarding the placement of the Myan policies.

Norman-Spencer moved for summary judgment on both WCPP’s and Skinner’s claims. The district court granted Norman-Spencer’s motion for summary judgment regarding WCPP’s claims concluding that Norman-Spencer did not owe a duty to WCPP under the IIPLA because neither WCPP nor any broker in the procurement chain ever requested Norman-Spencer’s assistance with that placement. The court also granted Norman-Spencer summary judgment on WCPP’s breach of fiduciary duty claim, concluding that Norman-Spencer could not be liable under that theory because it did not participate in the placement or receive any WCPP funds from that placement.

It also granted the motion as to Skinner’s claims concluding in part that Skinner was not an “insured” on the Myan policy for purposes of the IIPLA and that because Skinner was not the “insured” on the Myan Management policy and did not make any payment toward that policy, Norman-Spencer could not have breach a fiduciary duty.

Both WCPP and Skinner appealed. On appeal, WCPP argued that three different items, an unexecuted memorandum of understanding, an undocumented conversation and an email between Norman-Spencer and another broker, evidenced that Norman-Spencer had participated as a sub-broker and could therefore be liable under the IIPLA. The appeals court rejected that argument because, among other things, there was evidence that Ward had specifically prohibited Norman-Spencer from participating in the placement. As such, Seventh Circuit agreed with the district court that Norman-Spencer owed no duty of care to WCPP because it was never involved in placing insurance on that company’s behalf and that liability under the IIPLA can only arise once an insured has made a request for specific coverage from a broker. As to the Skinner claims, while the court acknowledged that Norman-Spencer had actively procured insurance for the Myan properties, it agreed with the lower court that Skinner could not maintain its negligence claim because Skinner was not listed as an insured on the policy issued to Myan, and therefore, essentially had no standing to bring a claim under the IIPLA.


In Milby v. MCMC LLC, No. 16-5483, 2016 U.S. App. LEXIS 23112 (6th Cir. Dec. 22, 2016), the Sixth Circuit Court of Appeals held that a negligence per se claim against a medical records reviewer based on a claim of practicing medicine without a license was completely preempted by ERISA.

Samantha Milby worked as a nurse at the University of Louisville Hospital and was covered by a long-term disability insurance policy through that employment. In April 2011, she applied for and received disability benefits through her insurance policy for approximately 17 months based on her claim that she could no longer work for health reasons. During the claim, the plan hired MCMC, a Massachusetts-based third-party reviewer, to review Milby’s medical records and provide an opinion on whether the medical evidence she and her doctors had provided supported her claimed work restrictions. MCMC and its agent, neither of whom were licensed to practice medicine in Kentucky, opined that Milby’s treating physicians had not provided objective findings “which would support her inability to stand and move for more than just a few minutes, as well as repetitively bend, squat, kneel, and crouch.” MCMC’s eventual opinion was that Milby would have the capacity to perform sustained full time work without restrictions as of February 23, 2013, and, based in part on that recommendation, the plan terminated Milby’s benefits effective February 21, 2013.

Milby eventually filed two separate lawsuits regarding the claim denial, one against her disability insurance provider and this one, alleging a state-law claim of negligence per se against MCMC based on her claim that it was practicing medicine in Kentucky without the appropriate licenses. MCMC removed the case to federal court based on complete preemption under ERISA. The trial court denied Milby’s motion to remand the case to state court and granted MCMC’s motion to dismiss under Fed R. Civ. P. 12(b)(6) and Milby appealed.

In its review, the appeals court had to determine whether or not the claims were preempted under ERISA, and did so by applying the test set out by the Supreme Court in Aetna Health Inc. v. Davila, 542 U.S. 200 (2004), which held that a claim falls in the category of complete preemption under ERISA section 1132(a) when it  satisfies both prongs of the following test: (1) the plaintiff complains about the denial of benefits to which she is entitled only because of the terms of an ERISA-regulated employee benefit plan; and (2) the plaintiff does not allege the violation of any legal duty (state or federal) independent of ERISA or the plan terms.

As to the first prong, the court opined that a claim “likely falls within the scope of §1132(a) when the only action complained of is a refusal to provide benefits under an ERISA plan and the only relationship between the plaintiff and defendant is based on the plan” and determined that since MCMC’s conduct was indisputably part of the process used to assess Milby’s claim for benefits, the negligence claim was actually an alternative enforcement mechanism to ERISA’s civil enforcement provisions.

As to the second prong, the court looked to Kentucky law to determine whether MCMC owed an independent legal duty to Milby separate from ERISA or the Plan’s terms. Milby argued that the medical reviewers owed her an independent duty under Ky. Rev. Stat. § 311.560, which prohibits the practice of medicine without a license. The statute defined the practice of medicine as “the diagnosis, treatment, or correction of any and all human conditions, ailments, diseases, injuries, or infirmities by any and all means, methods, devices, or instrumentalities.” Based on a previous Sixth Circuit case that had determined that simply reviewing medical files was not the practice of medicine under Kentucky law because, among other things, it did not involve making determinations regarding the medical necessity of any treatment, the court held that MCMC was not practicing medicine within the meaning of the Kentucky licensing law and therefore did not owe an independent duty to Milby under the statute she attempted to invoke. It held instead that the allegations in Milby’s complaint implicitly relied on ERISA to establish the duty required for her negligence claim, thereby satisfying the second prong of the Davila test. As such, the appellate court affirmed the district court’s dismissal because the state-law negligence claim fit in the category of claims that are completely preempted by ERISA.


In Foster v. Sedgwick Claims Management Services, Inc., 2016 U.S. App. LEXIS 21274 (D.C. Cir. Nov. 29, 2016), the District of Columbia Circuit held, among other things, that the district court’s dismissal of plaintiff’s ERISA claim regarding short-term disability benefits was proper because that benefit fell under the “payroll practice” exemption under ERISA regulations promulgated by the Department of Labor.

Kelly Foster, who was employed as a mortgage loan closer at SunTrust Bank, submitted claims for short-term disability benefits in January and August 2012 after missing work for several ailments. Sedgwick, which was the third-party administrator for both SunTrust’s short-term and long-term disability plans, denied the claims based on its determination that Foster had failed to provide “sufficient objective medical documentation” to support her claim. In September 2012, Foster was terminated based on her work absences and she subsequently appealed Sedgwick’s decision to deny short-term disability benefits, which Sedgwick upheld in early 2013. After her termination, she also filed a long-term disability claim which was also denied and upheld on appeal.

In July 2014, Foster sued both Sedgwick and the SunTrust plan under 29 U.S.C. § 1132(a), ERISA’s civil enforcement section, regarding the denial of both long-term and short-term disability benefits. Defendants filed a motion for summary judgment, claiming, among other things, that as to the short-term benefits, Foster could not seek review under ERISA because that plan was an “ERISA-exempt payroll practice,” under the DOL regulation set out at 29 C.F.R. § 2510.3-1(b)(2), which Foster conceded. Despite the concession however, the district court still analyzed defendants’ argument and independently determined that because the short-term disability benefits were “paid from SunTrust’s general assets and [were] ‘entirely separate’ from the Employee Benefits Plan,” it was a payroll plan, exempt from ERISA and since Foster’s complaint only invoked ERISA as the basis for her claims, it had no alternative but to grant summary judgment on the claim. Foster first moved for reconsideration in the district court and in that motion raised for the first time, the argument that the short-term plan was not an exempt payroll procedure and that was denied.  (The court also granted summary judgment to the defendants on the long-term claim).

The circuit court began its analysis of the short-term benefit denial by stating that without the Department of Labor’s regulation, the short-term benefit plan would be a welfare benefit plan under ERISA but that DOL exempts certain “payroll practices” from ERISA including: “[p]ayment of an employee’s normal compensation, out of the employer’s general assets, on account of periods of time during which the employee is physically or mentally unable to perform his or her duties, or is otherwise absent for medical reasons.”

Analyzing the facts that were before the district court, the circuit court noted that SunTrust’s short-term disability plan clearly fit within the regulatory definition of “payroll practices” because it 1) was payment of an employee’s normal compensation; 2) paid from the employer’s general assets; and 3) was paid on account of time during which the employee was absent for medical reasons. The court went on to opine that it appeared “that SunTrust drafted its short-term disability plan to match the regulatory exemption.” As such, the appeals court affirmed the district court’s grant of summary judgment based on the payroll practices exemption on the merits, while it also rejected the appeal because the argument had not been preserved in the district court because it had not been raised prior to the motion for reconsideration. (It is worth noting that the circuit court also affirmed the denial of long-term benefits based on Sedgwick’s discretion to interpret the terms of the plan and its determination using that Sedgwick had not abused that discretion when it denied those benefits).



In a ruling that should be welcomed by professional liability insurers involved in suits filed by third parties where the professional’s representation of a client is not at issue, the Fifth U.S. Circuit Court of Appeals recently reversed the trial court in Edwards v. Continental Casualty Company, No. 15-30827, 2016 U.S. App. LEXIS 19753 (5th Cir. Nov. 2, 2016), and held that the malpractice insurer had no duty to defend a lawyer under a professional liability policy because the underlying lawsuit by a defendant in a previous lawsuit sought restitution of legal fees paid to an opposing lawyer as part of a settlement and, therefore, did not allege any “acts or omissions” as defined by the policy.

Edwards represented Andrew Schmidt, a commercial diver, in a personal injury suit, against Schmidt’s employer, Cal Dive, for a brain injury he allegedly sustained during a work-related dive and the parties entered into a multi-million-dollar settlement agreement before trial under which Cal Dive and its insurer paid a lump sum to Schmidt and funded an additional payment through annuity contracts. As a part of the settlement, Cal Dive paid attorney’s fees to Edwards through an annuity contract.

A year after the settlement, Cal Dive and its insurer filed suit against Schmidt and Edwards alleging that Schmidt had exaggerated or fabricated the extent of his injuries, although they did not allege that Edwards played any part in the “scheme.” As to Edwards, Cal Dive sought its cost of funding the annuity contract to him based in its claim that it was fraudulently induced to settle and claimed that it was entitled to restitution from Edwards of all funds that he “unjustly received” under the “invalid” settlement agreement, based on claims for unjust enrichment and restitution. That case was eventually dismissed for failure to state a claim and that dismissal was affirmed by the Fifth Circuit.

Edwards’s law firm maintained a professional liability policy with Continental Casualty Company that named Edwards as an insured and Edwards timely notified Continental of the claims brought against him in Cal Dive’s lawsuit and sought defense and coverage, but Continental declined to provide either. Edwards filed a declaratory judgment action against Continental, seeking a declaration that his firm’s professional liability policy required Continental to defend him and Edwards filed a motion for partial summary judgment and Continental filed a motion for summary judgment. The district court granted partial summary judgment in favor of Edwards, holding that Continental had a duty to defend him and Continental appealed.

Continental argued on appeal that it had no duty to defend Edwards in the underlying action because Cal Dive’s claims against Edwards were not the kind covered by the insurance policy. The policy provided that Continental “shall have the right and duty to defend in the Insured’s name and on the Insured’s behalf a claim covered by this Policy even if any of the allegations of the claim are groundless, false or fraudulent.” The pertinent policy language specified that a “claim” is one “arising out of an act or omission, including personal injury, in the rendering of or failure to render legal services, which were defined as “services . . . performed by an Insured for others as a lawyer.”

The appeals court first noted that it was undisputed that Louisiana law applied to the case and that under Louisiana law, “[t]he duty to defend is determined by examining the allegations of the injured plaintiff’s petition . . . and the insurer is obligated to tender a defense unless the petition unambiguously excludes coverage.” The court opined that Continental’s duty to defend was only activated by a claim covered by the policy but that the claims filed against Edwards in Cal Dive’s underlying action were not the type of claims that were covered by the Continental policy. It concluded that Cal Dive’s claims against Edwards did not “arise out of an act or omission . . . in [Edwards’s] rendering of or failure to render legal services” because Cal Dive did not allege “a single professional act or omission by Edwards that gives rise to such claims.” In fact, Cal Dive specifically alleged that it does “not believe that Edwards . . . [was] aware of Schmidt’s fraud.” In other words, the competency of Edwards’s representation of Schmidt, or lack thereof, was not at issue in the underlying suit and Edwards was only named in the suit because he received settlement funds from Cal Dive for his representation of Schmidt. While Edwards argued that the “arising out of” language of the policy should be applied broadly to provide coverage for Cal Dive’s claims and that this reading of the insurance policy “would result in professional liability policies only covering claims for malpractice and other attorney misdeeds,” the appeals court held that such an interpretation would effectively read the words “act or omission” out of the policy’s definition of a claim.


In Central States, Southeast and Southwest Areas Health and Welfare Fund v. American International Group, Inc., No. 15-2237, 2016 U.S. App. LEXIS 19165 (7th Cir. Oct. 24, 2016), the Seventh Circuit U.S. Court of Appeals joined at least six other circuits in ruling that under current ERISA law, a self-funded plan administered by Central States, Southeast and Southwest Areas Health and Welfare Fund (the “Plan”) could not seek reimbursement from other insurers under whose health insurance policies a plan beneficiary might also be covered, because such reimbursement is a legal, not equitable, remedy.

Defendants underwrote and/or administered health insurance policies issued to schools and youth sports leagues that covered student athletic injuries. The case arose when student athletes who were beneficiaries under the Plan and also covered by one of the defendants’ policies sustained injuries requiring treatment for which the Plan claimed it had paid $343,000 in medical bills. The Plan filed a declaratory judgment action under ERISA section 502(a)(3) (29 U.S.C. § 1132(a)(3)) seeking “appropriate equitable relief,” including reimbursement from the defendants under the Plan’s coordination-of-benefits provision “variously justified on restitution, unjust enrichment, and subrogation theories.” The trial court granted defendants’ motion to dismiss in its entirety but as to the reimbursement claim it held that the Plan had failed to state a claim because although the claims were phrased as equitable ones, they were not equitable within the meaning of section 502(a)(3).

The appeals court first noted that the Plan had filed virtually identical claims in six other circuits and all those circuits had reached the conclusion that the relief the Plan sought was legal, not equitable. It then analyzed the case under the framework established by the Supreme Court in Mertens v. Hewitt Associates, 508 U.S. 248 (1993); Great-West Life & Annuity Insurance Co. v. Knudson, 534 U.S. 204 (2002); Sereboff v. Mid Atlantic Medical Services, Inc., 547 U.S. 356 (2006); US Airways, Inc. v. McCutchen, 133 S. Ct. 1537 (2013); and Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan, 136 S. Ct. 651 (2016) wherein the Court explained that whether a remedy is available under section 502(a)(3) “depends on (1) the basis for the plaintiff’s claim; and (2) the nature of the underlying remedies sought” and requires that both must be equitable to proceed under section 502(a)(3). Under this well-established law, the Seventh Circuit determined that even though the Plan had phrased the claims in terms of equitable relief, it was actually seeking legal relief in the form of monetary damages, relief specifically not permitted under ERISA, thereby affirming the district court’s dismissal.

For what it is worth – nothing as it turns out – the court did recognize the dilemma this outcome created for the Plan because if ERISA plans cannot bring section 502(a)(3) suits or state-law claims to obtain reimbursement from other insurers with overlapping coverage obligations, “then they’re left with just one way to ensure that they don’t pay claims for which other insurers are primarily liable: refuse to provide coverage to beneficiaries who have other insurance and sue for a declaratory judgment that the other insurer is primarily liable.” It noted however, that “this approach leaves the ERISA beneficiary, ‘through no fault of his own, … considerably worse off for having two policies that coincidentally had conflicting language than he would be if he had only one.’”


In Richardson v. Wal-Mart Stores, Inc., No. 15-1142, 2016 U.S. App. LEXIS 15565 (6th Cir. Sept. 9, 2016) the Sixth Circuit Court of Appeals recently upheld the district court’s grant of summary judgment in favor of Wal-Mart in an age-discrimination suit based at least in part on the much litigated and maligned — but still available — honest-belief rule because it determined that the store manager honestly believed that the former employee’s disciplinary record justified her firing.

Reva Richardson had worked at a Wal-Mart store in Lansing, Michigan in various capacities, including as a department manager and customer service manager, for approximately 12 years prior to being fired at age 62. Wal-Mart employs a progressive discipline system whereby the company provides levels of “coaching” if an employee’s job performance does not meet company expectations. The first three levels are “written coachings,” and levels two and three require the employee to develop an action plan to correct the problems and concerns. The fourth level requires that the employee be terminated and all four levels require two managers, the one issuing the coaching and another as a witness, to meet with the employee.

Richardson received a first level coaching in January 2011 regarding her attempts to influence the exchange of her daughter’s damaged laptop for a working one, a second level coaching in September 2011 for mishandling a regulated hazardous-material item that had been returned, about which she submitted an action plan and a third level coaching in August 2012 for absenteeism.

She claimed that in November and December 2012 she began to perceive that she was being mistreated by management, including allegations that she had been humiliated, screamed at and embarrassed in front of fellow employees. She also claimed that one former manager had told her son, also a Wal-Mart employee, that she was told old to work there and that she had been asked several times when she was going to quit.

In March 2013 she broke her wrist when she fell while stacking merchandise on a pallet and when three separate members of management reviewed a surveillance tape they determined that she had created a workplace safety hazard by failing to follow proper workplace-safety standards. Because this was her fourth “coaching,” she was terminated. She filed a lawsuit in Michigan state court alleging age discrimination, race discrimination and intentional infliction of emotional distress. The case was removed to federal court where Richardson eventually dismissed the race discrimination and emotional distress claims and the district court granted Wal-Mart’s motion for summary judgment on the age discrimination claim, which Richardson appealed.

Because the appellate court found that Richardson had not presented any direct of evidence of discrimination, it applied the circumstantial evidence burden-shifting McDonnell Douglas test wherein the plaintiff must first prove that she has a prima facie case of age discrimination, which then shifts the burden to the employer to offer a legitimate, nondiscriminatory reason for the firing, which then shifts the burden back to the employee to show that that reason was pretextual. It was undisputed that Richardson had established a prima facie case for age discrimination but Wal-Mart argued that Richardson’s violation of Wal-Mart’s workplace safety practices, which brought her to the fourth and final step of its progressive disciplinary process, was a legitimate, nondiscriminatory reason for the termination.

Richardson rebutted Wal-Mart’s argument by essentially attempting to delegitimize the coachings by claiming, among other things that the coachings were unverifiable, that the documentation was not authentic and that even if it was, they should be excluded from evidence under Michigan law because copies of them were not in her personnel file. The court disposed of each of her arguments because it determined that they were not supported by the record. However, the court also noted that even if she could successfully challenge one or more of the coachings, Wal-Mart was still entitled to summary judgment under the honest-belief rule, which allows an employer to avoid a pretext claim if it can “establish its reasonable reliance on the particularized facts that were before it at the time the decision was made.” In order to overcome an honest-belief justification, the employee “must put forth evidence which demonstrates that the employer did not ‘honestly believe’ in the proffered non-discriminatory reason for its adverse employment action.”

The court determined that Richardson had not done so because she had not shown that the manager who ultimately terminated her did not honestly believe that her coaching history justified her termination. In reaching this conclusion, the court noted “[t]he honest-belief rule provides that an employer is entitled to summary judgment on pretext even if its conclusion is later shown to be mistaken, foolish, trivial, or baseless.” (emphasis added).

Because it determined that Richardson had not offered any direct or circumstantial evidence that would support her claim, Wal-Mart was entitled to summary judgment and it affirmed the district court.

The continued availability of this defense makes it all the more important for employers to not only closely follow their progressive discipline protocol but also carefully document so that can be argued that the company reasonably relied on the process when it took an adverse job decision.