The Fifth Circuit Court of Appeals, in Bunner v. Dearborn Nat’l Life Ins. Co., has held that a disability insurer properly denied a claim for long-term disability (“LTD”) benefits based on the plan’s pre-existing condition exclusion. In particular, the Fifth Circuit found no support for the claimant’s argument that the insurer had waived its right to assert the pre-existing condition exclusion because it did not correct her employer’s misrepresentation that her pre-existing condition would not preclude LTD coverage.
Law. In general, to prevail on an ERISA estoppel claim, a plaintiff must demonstrate: (i) the defendant made a material misrepresentation; (ii) the plaintiff reasonably and detrimentally relied on the misrepresentation; and (iii) “extraordinary circumstances.” Courts have typically held that to prove extraordinary circumstances, a plaintiff must show: (i) bad faith; (ii) fraud or concealment; (iii) that the plaintiff repeatedly and diligently inquired about the benefits and was repeatedly misled; or (iv) that the misrepresentation was made to an especially vulnerable plaintiff.
Background. In Bunner, prior to starting work for her employer, the plaintiff was diagnosed with a brain tumor. Her doctors removed the tumor and she received radiation and chemotherapy which caused some cognitive problems. Despite these problems, the plaintiff was able to maintain adequate daily functional capacities at work.
The plaintiff subsequently began to work for the employer and attended a benefits meeting at the start of her employment. The employer’s Benefits Coordinator told participants that they could receive LTD benefits regardless of pre-existing conditions and they would not be questioned about pre-existing conditions when the employer was determining eligibility. This was despite the LTD policy’s clear and unambiguous exclusion of coverage for pre-existing conditions. An insurance representative was at that meeting and did not correct or qualify the statements made about the employer’s LTD coverage. Based on these statements, the plaintiff enrolled in short-term disability (“STD”) and LTD benefits.
After a few months working, the plaintiff struggled to complete her work on time and experienced various cognitive impairments. She applied for STD benefits, which the insurer initially denied based on her pre-existing condition. The employer requested that the policy exclusion be waived, and the insurer ultimately paid her STD claim. However, the insurer denied the plaintiff’s subsequent LTD claim based on the policy’s exclusion for pre-existing conditions. In response, the plaintiff sued the employer and insurer in federal district court.
District Court. Before the district court, the plaintiff argued that the defendants should be estopped from enforcing the LTD policy’s pre-existing condition exclusion due to the defendants’ prior representation that this provision would not be enforced. Although the district court found that the defendants made material misrepresentations upon which the plaintiff reasonably and detrimentally relied, it concluded that she did not rely upon them under extraordinary circumstances. Accordingly, the district court dismissed the plaintiff’s claim, and the plaintiff appealed to the Fifth Circuit.
Fifth Circuit. Upon review, the Fifth Circuit upheld the district court’s decision in the matter, finding that the plaintiff had failed to show extraordinary circumstances. The Fifth Circuit observed that the misrepresentations in the instant case occurred in a single month and were made by two individuals. The court further explained that none of the later conversations that the plaintiff had with the defendants’ representatives involved affirmative misrepresentations.
The Fifth Circuit also rejected the plaintiff’s assertion that she was particularly vulnerable due to her brain tumor. The court noted that at the time the plaintiff relied on the defendants’ misrepresentations, she did not believe she had suffered any debilitating effects from the treatment and had no difficulty performing her duties for the employer.
Based on the foregoing, the Fifth Circuit affirmed the district court’s decision to dismiss the plaintiff’s ERISA estoppel claim.