In a benefits dispute involving a supplemental LTD policy, the US Court of Appeals for the Third Circuit held that the DOL's regulatory safe harbor for certain voluntary benefits did not apply to the policy and that the dispute was governed by ERISA (McCann v. Unum Provident, (3d Cir. Oct. 5, 2018); see Practice Note, Voluntary Benefits). On the merits of the participant's claim, the court remanded for the district court to consider the participant's ability to perform the duties of an interventional, rather than diagnostic, radiologist.

The participant in this case, a radiologist certified in the specialty of interventional radiology, but who also performed the duties of a diagnostic radiologist, purchased supplemental LTD insurance coverage through an individual policy underwritten by a life insurance company. The participant was eligible to purchase the policy through a supplemental disability plan for hospital residents made available by the hospital where the participant worked. Later in his career, the participant was diagnosed with obstructive sleep apnea, hypertension, and a mildly dilated aortic root aneurysm, and he submitted a claim for disability benefits under the policy. The participant's claim was approved in September 2008. In December 2009, however, the insurer terminated the participant's benefits after concluding that the participant could perform the duties of a diagnostic radiologist, and therefore was not totally disabled. The insurer upheld this decision on administrative appeal.

The participant sued the insurer under ERISA, seeking reinstatement of his disability benefits and payment of past benefits (see Practice Note, ERISA Litigation: Causes of Action Under ERISA Section 502 and ERISA Litigation Toolkit). Despite relying on ERISA for federal jurisdiction, the participant argued in district court that the policy was not part of the hospital's plan for residents, or, alternatively, that the policy fit within the DOL's safe harbor for voluntary benefits and was not subject to ERISA. The district court held that the criteria of the DOL's safe harbor were not satisfied and that the hospital's plan was subject to ERISA. Asserting federal jurisdiction under ERISA, the district court granted summary judgment in the insurer's favor on the participant's benefits claim.

On appeal, the Third Circuit:

As the Third Circuit observes in this case, whether a benefits dispute is governed by ERISA can have a significant impact in litigated disputes – for example, regarding the availability of remedies and jury trials. ERISA's applicability may also mean that a court will apply the more deferential arbitrary and capricious standard of review – though that was not the case here because, owing to the absence of discretionary Firestone language, the de novo standard of review applied (see Practice Note, ERISA Litigation: Standard of Review and Standard Clause, Plan Language, Firestone Plan Interpretation). For a discussion of other advantages and disadvantages resulting from ERISA's applicability to a benefits dispute, see Practice Note, Voluntary Benefits: Why It Matters Whether ERISA Applies.

For an issue that can potentially determine the outcome of a litigated dispute, it may seem surprising that the applicability of the DOL's safe harbor for voluntary benefits is, as in this case, sometimes a close question that depends on the specific facts of the case. And in some respects, the Third Circuit's analysis here considers factors – such as representations made by an employer's broker – to which an employer expecting to rely on the safe harbor may not be paying close attention. Interestingly, the court also indicates that the employer's selection of only one provider of supplemental disability insurance (as opposed to offering individuals a menu of options) worked against the employer under the Third Circuit's "material involvement" endorsement standard. Factors such as these underscore the potential unpredictability of litigation involving the DOL's safe harbor for voluntary benefits.