The Self-Insurer                    September 2011

From the Bench                    By Thomas A. Croft

Clarcor, Inc. v. Madison National Life Inc. Co., No. 3:10-189, in the United States District Court for the Middle District of Tennessee, July 11, 2011.

Comment:  The Court got this one right.  Clarcor sued Madison National, the stop loss carrier, claiming that certain expenses paid by its Plan for the medical care of one of Clarcor’s employees were reimbursable under the stop loss contract.  The employee, identified in the Court’s opinion only as “I.K.,” was last “regularly scheduled” to work on October 20, 2007.  She elected FMLA, which preserved her eligibility through January 12, 2008.  At the end of the FMLA period, I.K. was not offered COBRA, but was instead placed on “short-term disability” until June 23, 2008 when she was terminated and offered COBRA.  Although not discussed in the Court’s opinion except in an oblique footnote, the Madison National stop loss policy appears to have had a “late COBRA” exclusion, based on a review of the parties’ briefing.  (See Majestic Star Casino, LLC v. Trustmark Ins. Co. at www.stoplosslaw.com for an example of a judicial enforcement of a stop loss policy “late COBRA” exclusion).The Clarcor Plan defined eligible employees as those “who are regularly assigned, full-time employees of Clarcor for at least 3 consecutive months and are regularly scheduled to work a minimum of 40 hours per week.”  In addition, the Plan had standard FMLA and COBRA provisions.  However, Clarcor maintained that it had a “corporate practice” of continuing benefit deductions for employees placed on short term disability and that its interpretation of its Plan allowed for continuation of coverage under such circumstances.

Unlike the Court in Diversatek v. QBE Ins. Co., which concluded that a stop loss carrier may not second-guess a plan’s eligibility determination, this Court agreed with the stop loss carrier, holding that the group’s interpretation of its Plan “cannot be correct.”  Because on language in the Plan supported the notion that coverage continued following a reduction in hours except via the Plan’s FMLA and COBRA provisions, short-term disability status was fatal to I.K.’s eligibility.

The Court’s opinion does not reveal whether I.K. actually elected COBRA when it was finally offered to her in June 2008.  Assuming she did so, it seems to me that a “late COBRA” issue is squarely presented.  Because the Plan is liable under federal law for retroactive COBRA benefits regardless of the late offer, the argument can be made that the stop loss carrier, too, must reimburse those required benefits.  See, for example, Zurich American Ins. Co. v. Wisconsin Physicians Services Ins. Co. at www.stoplosslaw.com.  However, if the stop loss policy has a “late COBRA” exclusion, as this one apparently did, then the issue becomes moot, and there is no carrier liability.

The group also advanced the familiar argument that it had paid stop loss premium for I.K. during the period she was on short-term disability leave, such that the carrier should be stopped to deny coverage.  Notably, unlike the typical case, the claim here was that I.K.’s name was actually on a list of Plan beneficiaries furnished to the carrier.  The Court did not expressly consider this argument, but implicitly rejected it, give the result in the case.

Clarcor also attempted to use the waiver of the “actively at work” provision in the stop loss policy to bootstrap itself into coverage.  The Court likewise rejected this claim, noting that this was a means of providing stop loss coverage for persons who were validly on COBRA or FMLA leave.

Finally, the group argued that a claim form used by the MGU that asked how eligibility was maintained and had a space for the claimant to indicate that it was continued by a “leave of absence” somehow validated its position that I.K.’s claims were covered.  The Court was not persuaded, noting that the form “suggests nothing about what the specific parameters” of the Plan or the policy were.

TPA’s Claimed Failure to Timely File Aggregate Claim Under Stop Loss Policy Does Not Implicate ERISA

Woodruff & Sons, Inc. v. The Covenant Services Group, Inc., No. 8:11-cv-1096, in the United States District Court for the Middle District of Florida, July 12, 2011. 

Comment:  This state law based case was filed against a TPA for allegedly failing to meet a stop loss policy deadline for the filing of an aggregate claim, with the result that the claim was denied.  The defendant TPA moved to dismiss the Complaint against it, arguing that ERISA pre-empted the group’s state law claims.

The Court’s analysis was straightforward.  Noting that, under the agreement between the group and the TPA, the latter was responsible for procuring and administering stop loss coverage, the Court observed:

“Plaintiff’s breach of contract claim relates to the recovery of monetary damages for Defendant’s alleged failure to timely file an aggregate claim relating to Plaintiff’s stop loss policy.  There are no allegations in this case seeking any ERISA benefits, enforcement of any provision of the ERISA plan, or requesting any equitable relief arising under ERISA or the ERISA plan against any alleged ERISA entities.  Accordingly, ERISA pre-emption does not apply to the facts of this case.”

The TPAs motion to dismiss was therefore denied, and it was ordered to file an Answer to the Complaint.

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