Perils of Non-Subscription

Though a lot of us have been crowing about the benefits of good non-subscriber plans, they are not without risk to the employer, some of the same issues with fair treatment and delivery of benefits still apply as in standard workers' compensation cases.

A Texas employer discovered that tough reality when the 5th District Court of Appeals at Dallas determined that the employer's alternative benefit plan wrongfully terminated its payments to a seriously injured worker less than three months after his near-fatal fall.

In B & S Welding Work Related Injury Plan v. Oliva-Barron, No. 05-13-00394-CV, Juan Pedro Oliva-Barron began working as welder for B & S in 2007, sustaining an injury in June 2009.

B&S is a Texas non-subscriber that provides its employees with a welfare benefit plan governed by and construed in accordance with the provisions of the Employee Retirement Income Security Act.

This plan paid benefits to Oliva-Barron after he had fallen from a height of more than 15 feet while working at a job site in Oklahoma City, landing in a sitting position on hardened concrete.

Oliva-Barron suffered compression fractures in his thoracic spine, as well as injuries to his wrists and right arm.

The B & S Injury Plan paid for Oliva-Barron's emergency care in Oklahoma, and for his housing and food. It also covered the cost of transportation to his home in Dallas, and for his surgery and rehabilitation.

The plan also began conducting video surveillance on Oliva-Barron.

Video showed Oliva-Barron driving a car, climbing stairs without apparent difficulty, carrying his walker and his wheelchair, pushing a child's stroller and maneuvering a shopping cart laden with groceries one-handed, while using his cell phone.

Meanwhile, Oliva-Barron had grown dissatisfied with his treating physician, complaining that he had to wait four to five hours before seeing the doctor at every appointment.

Oliva-Barron consulted an attorney in July 2009 to see about getting a new authorized treating doctor.

Just one week later, an attorney for the plan met with Oliva-Barron at the Belmont Hotel in Dallas. Oliva-Barron brought his wife to the meeting, but did not have an attorney with him.

The plan's attorney had made arrangements for Burl and Jo Anne Malicoat, the owners of B & S Welding, to be present, and a translator, since neither Oliva-Barron nor his wife could speak English.

The attorney for the plan presented Oliva-Barron with a document, written in English, that promised payment of $5,000 in exchange for a release of all of his claims against the plan and B & S. Oliva-Barron claimed he was told "things would change" if he didn't sign the form.

Oliva-Barron refused to sign the document, so the plan allegedly decreased his salary continuation benefits by 30%, without explanation and terminated his transportation services for doctor appointments.

On Sept. 18, 2009, attorney Jason January sent a letter to the plan informing it that Oliva-Barron had retained his services. That same day (11 weeks after Oliva-Barron's fall) the plan filed a lawsuit against both Oliva-Barron and his wife, accusing them of fraud, conspiracy to commit fraud and unjust enrichment.

The plan averred that Oliva-Barron had "grossly exaggerate(d)" his "purported need for medical benefits" and had "attempted to continue and increase those benefits" even though they were "no longer justified or necessary."

Even though the plan had paid no benefits to Oliva-Barron's wife, the plan contended that she had been "complicit" in assisting him "in exaggerating and creating alleged maladies and in obtaining benefits from the plan to which he is not entitled given his actual medical condition."

Nearly two weeks after the suit was filed, the plan served a notice of adverse benefit determination on Oliva-Barron and his attorney.

Oliva-Barron counterclaimed against the plan, seeking unpaid medical and indemnity benefits.

The plan sought dismissal of the counterclaims, asserting that it provided an administrative means for Oliva-Barron to appeal an adverse benefit decision and he had not exhausted this process.

Judge Ken Molberg of the 95th Judicial District Court in Dallas ruled that there was no need for Oliva-Barron to exhaust his administrative remedies.

In light of the "baseless hostility" exhibited by the plan towards Oliva-Barron, Molberg reasoned that any administrative appeal for the denial of benefits would have been futile.

Molberg then dismissed the plan's fraud claims and awarded Oliva-Barron $52,247 for unpaid medical care, $82,880 in unpaid indemnity and $177,784 in attorney fees.

The plan appealed, arguing that a trial judge shouldn't be able to "second-guess a plan administrator’s discretion when objectively verifiable facts support a reasonable basis for terminating plan benefits."

Based on a 2013 decision from the U.S. 5th Circuit Court of Appeals titled Truitt v. Unum Life Insurance Co. of America, the plan argued that ERISA plan administrators can make a benefits decision based on any "relevant information," which includes video surveillance, even in the face of conflicting evidence.

The plan also relied heavily on Truitt for the principle that it had no duty to undertake any investigation before making a benefits decision.

On appeal, the 5th District said there was no reasonable basis for the plan's benefit decision with regard to Oliva-Barron.

In Truitt, the court pointed out, there was no dispute that there was substantial evidence to support the plan administrator's decision to deny benefits. This decision also came after four years of investigation and administrative review.

By contrast, the court said, the B&S plan terminated benefits and filed suit for fraud less than three months after Oliva-Barron was injured and provided him no opportunity for administrative review.

While there may be no duty to reasonably investigate on the part of the plan, the court said, there still must be some "rational connection between the known facts and the decision or between the found facts and the evidence" to support the termination of benefits.

The 5th District said that in this case it was undisputed that Oliva-Barron had gotten hurt, and that his accident easily could have been fatal. It was also undisputed that he needed medical treatment and rehabilitation, including a back brace and a walker.

The record also indicated that all of Oliva-Barron's doctors – including his authorized treating physician – didn't expect him to be able to return to work for four to six months after his accident, and that he was progressing as expected after his injury and surgery.

None of the medical records reflect any misrepresentation by Oliva-Barron as to his physical condition, the court added.

As Oliva-Barron also was still undergoing treatment, and the estimated time for his recovery had not yet elapsed by the time the plan cut off his benefits, the court said the plan's actions were "arbitrary and capricious."

The court also said it felt there was sufficient evidence to uphold the trial judge's finding that an administrative appeal of the plan's decision would have been futile under the circumstances.

The 5th District reduced the damages award because Oliva-Barron failed to show evidence in the record as to the amounts expended for Oliva-Barron's treatment after the plan terminated his benefits, so the judgment in favor of Oliva-Barron had to be reduced to $14,102.02, to cover only his unpaid indemnity benefits and attorney fees.

The lesson? A) don't believe everything you see on video; B) ensure that mono-lingual claimants are presented documents in their native language; C) when an employer's attorney meets with a claimant, ensure that the claimant is also represented...

Oh, and when a claimant, make sure you have all of your evidence in the record to support your damages claim.