Signing a severance agreement or settlement agreement with an employer that contains a general release may unintentionally bar a claimant from pursuing a disability benefit claim under ERISA.  That was the lesson learned by Dr. Thomas Gonda, Jr., who worked as a thoracic surgeon at Kaiser Permanente until he became disabled due to cognitive impairments and substance abuse problems following treatment for a subdural hematoma.

Dr. Gonda received disability benefits under Permanente’s group insurance plan from 2007 through 2010; however, the insurer, Life Insurance Company of North America, cut off the benefit payments in 2010 and refused to reinstate payments despite two appeals.  Permanente also refused to allow Dr. Gonda to return to work.  Subsequently, Dr. Gonda brought actions against both LINA relating to his benefits and Permanente, alleging wrongful termination.  The suit against the employer was subsequently settled; and the settlement agreement contained a general release which recited that Dr. Gonda was releasing all known and unknown claims, including claims under the Employee Retirement Income Security Act (ERISA).

LINA pled that the release barred Dr. Gonda from pursuing his claim for disability benefits.  The court agreed and entered summary judgment in LINA’s favor.

The court examined whether the circumstances allowed it to find an ostensible waiver of ERISA benefits, which must be knowing and voluntary, which requires a review of six factors:

1) the plaintiff’s education and business experience, 2) the amount of time the plaintiff had possession of or access to the agreement before signing it, 3) the role of plaintiff in deciding the terms of the agreement, 4) the clarity of the agreement, 5) whether the plaintiff was represented by or consulted with an attorney, [as well as whether an employer encouraged the employee to consult an attorney and whether the employee had a fair opportunity to do so] and 6) whether the consideration given in exchange for the waiver exceeds employee benefits to which the employee was already entitled by contract or law.

(citing Finz v. Schlesinger, 957 F.2d 78, 82 (2d Cir.1992) and Upadhyay v. Aetna Life Ins. Co. (Upadhyay I), No. C 13-1368 SI, 2014 WL 186709, at *4 (N.D.Cal. Jan. 16, 2014) (applying Finz test)).

Before addressing those issues, the court rejected Dr. Gonda’s claims that LINA waived its right to assert the release because it wasn’t raised in a timely affirmative defense.  The court permitted LINA to amend its answer.  The court also found that LINA’s willingness to consider Dr. Gonda’s claim appeals was not a bar to later asserting the claim.  The court then turned to the merits.

First, the court determined that Dr. Gonda was highly educated and had sufficient time to review and consider the settlement agreement, which he reviewed with an attorney who was representing him in the employment case.  Dr. Gonda also received consideration for the release, which explicitly referenced ERISA claims against his employer and related parties.  The court expressed concern that disability benefits were not discussed during the settlement negotiations and LINA also waited for three years while internal appeals were pending before raising the issue. The court remarked that “Defendants’ behavior was not what one would expect of parties that have been released.”  However, the court refused to bar CIGNA from raising the issue.

The court acknowledged that the “most compelling extrinsic evidence in Dr. Gonda’s favor is the subsequent conduct of the parties.”  While such evidence is often allowed to be considered, because the settlement agreement contained an integration clause, the court refused to consider any evidence regarding the parties’ intent since the release “unequivocally and unambiguously releases TPMG from all of Dr. Gonda’s ERISA’s claims.”

The court was also persuaded by the fact that Dr. Gonda was represented by counsel during the settlement negotiations and had 21 days to consider the agreement before he executed it.  Those facts compelled the court to implement the agreement’s plain and unambiguous language.  The court further observed, “Any reading of the contract that includes an exception for the claims Dr. Gonda brings in this case would contradict the explicit language of the Settlement Agreement.”

The result in this case is incredibly unjust under ERISA’s scheme, which requires plan administrators to provide claimants with the reasons for denying benefits pursuant to 29 U.S.C. § 1133(1).  In addition, 29 C.F.R. Sec. 2560.503-1(g)(1) mandates that the claim denial letter provide the claimant with specific reasons for the denial.  LINA got away with advancing a prohibited post hoc rationale when it is clear from the facts and circumstances recounted in this decision that the settlement of the wrongful termination case had nothing whatsoever to do with Dr. Gonda’s disability claim.  As a result, LINA received an undeserved windfall.

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