Smith v. Prudential Insurance Company of America

1
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
____________________________________
)
BRIAN SMITH, 	)
Plaintiff, 	)
)
v. 	) 	No. 1:21-cv-00121-MSM-LDA
)
PRUDENTIAL INSURANCE 	)
COMPANY OF AMERICA, 	)
Defendant. 	)
____________________________________)
MEMORANDUM AND ORDER
Mary S. McElroy, United States District Judge.
I. 	INTRODUCTION
Brian Smith (“Mr. Smith”) is a disabled accountant who has sued Prudential
Insurance Company of America (“Prudential”) for wrongfully terminating long-term
disability 	(“LTD”) 	benefits. 	He 	seeks 	$375,000 	in 	benefits 	he 	contends 	were
unlawfully denied him. 	The Policy is a group disability one, offered to members of
the American Institute of Certified Public Accountants (“AICPA”).1 	Mr. Smith, a
1 The policy language defined the group as “[a]ll Participants who . . . (1) are
members of the American Institute of Certified Public Accountants, or a qualified
State Society; and (2) are less than the Limiting Age . . .; and (3) have enrolled for
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former Certified Public Accountant (“CPA”), was at one time a member of AICPA.
Prudential has filed a Limited Motion for Summary Judgment (ECF No. 31) on the
sole ground that the relevant statute of limitations expired before Mr. Smith filed
this action. Mr. Smith has also moved for Summary Judgment on the same limited
ground. 	(ECF No. 39.) 	For the reasons described below, the Court GRANTS
Prudential’s Motion for Summary Judgment and denies Mr. Smith’s Motion for
Partial Summary Judgment.
II. JURISDICTION
Mr. Smith claims jurisdiction on two bases: 	diversity jurisdiction because he
is a Rhode Island resident and Prudential is a New Jersey corporation, 28 U.S.C. §
1332; and 28 U.S.C. § 1331 federal question jurisdiction under the Employee
Retirement Security Act of 1974 (“ERISA”), 29 U.S.C. § 1001
. As discussed below at
Part IV(C), the Court finds that Mr. Smith has produced no evidence that the AICPA
plan at issue is an ERISA plan and, therefore, that federal question jurisdiction is
lacking. There is, however, diversity jurisdiction.
III. BACKGROUND
Whether there is a limitations bar is a question of law unless there is a factual
dispute.
	Burke v. PriceWaterHouseCoopers LLP Long Term Disability Plan, 572
F.3d 76, 78 (2d Cir. 2009). 	In this case, the factual background is of minimal
significance to the issue before the Court and insofar as the statute of limitations is
Long Term Disability Coverage with an elimination period of 13 or 26 weeks.” (ECF
No. 8-2 at 6.)
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concerned, there are no facts in dispute.2 	Mr. Smith was employed as an accountant
for many years, working for at least five different employers. At the time of the onset
of his disability in August 2015, he was employed by Comverse, Inc. (“Comverse”).
Prudential paid disability benefits for two years until conducting a file review in 2018.
(ECF No. 40, ¶ 15.) As a result of that review, Prudential concluded that Mr. Smith
was not sufficiently impaired to collect on the Policy and it terminated benefits on
May 3, 2018.
See id. ¶ 16. In addition, by the time this action was filed, Mr. Smith’s
license as a CPA was no longer viable and his membership in the AICPA was
discontinued.3
The limitations period contained in the Policy is three years. (ECF No. 31-1, ¶
26; No. 37, ¶ 26; No. 8-2, at 24.)4 	It is calculated beginning with the onset of the
disability. 	(ECF No. 19, at 4 n.4.) 	Prudential contends the period expired on
February 24, 2020, well before the filing of the Complaint on March 12, 2021. (ECF
No. 1.)
2 The parties vigorously dispute the merits of this breach of contract action. 	Mr.
Smith contends he is disabled because of cognitive impairments that preclude his
working. 	Prudential, based on a file review, disputes that condition and maintains
that Mr. Smith is capable of working.
3 Prudential raised, in its earlier Motion to Dismiss, the argument that because Mr.
Smith’s membership in AICPA had lapsed while he was receiving benefits, he was no
longer eligible to receive them. Prudential offered no legal support for the proposition
that a disabled beneficiary had to remain an active member of the group during the
entire period of benefits (as opposed to at the time eligibility for benefits was first
determined) and the Court rejected that argument. (ECF No. 19, at 8-9.)
4 Mr. Smith denies that the limitations period is “clearly set forth” in the Policy, but
he admits its substantive provisions. (ECF No. 37, ¶26.)
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The dispute here is not over the date of accrual of the claim or expiration of the
limitations period but over
which statute of limitations applies. The contenders are
the policy provision or state law and, if the latter, whether New York or Rhode Island.
Prudential maintains the Policy period of three years governs but, if not that, then
New York state law. Mr. Smith contends that Rhode Island law applies because the
Policy provision is trumped by an ERISA exception that makes it inapplicable.
IV. 	ANALYSIS
A. The Dispute
In the ordinary course, the limitations period provided in a policy governs the
dealings between the parties.
	Heimeshoff v. Hartford Life & Acc. Ins. Co., 571 U.S.
99, 105-06 (2013). If that were the case here, Mr. Smith’s action would be out of time.
Mr. Smith contends, however, that an ERISA provision makes the Policy period
inapplicable and defaults to state law. 	If he were to succeed in that argument, his
second step is to persuade the Court that Rhode Island’s generous ten-year statute of
limitations applies, rendering his Complaint timely.
The ERISA provision at issue provides that when an insurer denies benefits,
it must notify the claimant
in the denial letter, of the right to bring a civil action
and
the date by which the action must be brought. 29 C.F.R. § 2560.503-1(g)(1)(iv). The
denial letter is part of the record here and it is undisputed that it did not inform Mr.
Smith of the date by which an action had to be filed. (ECF No. 10, at 23-27.) If the
denial letter is defective in this way the contractual limitations period is discarded
and state law controls.
	Santana-Diaz v. Metro. Life Ins. Co., 816 F.3d 172, 178 (1st
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Cir. 2016);
accord Stacy S. v. Boeing Co. Emp. Health Benefit Plan (Plan 626), 344 F.
Supp. 3d 1324, 1335-36 (D. Utah 2018).
Prudential does not dispute this general principle. What it contests, however,
is the applicability of ERISA at all to this Policy. It maintains that the plan covering
Mr. Smith is not an ERISA plan and that, therefore, ERISA’s exception to the rule
that the Policy provision governs is not applicable.
B. Motion to Strike
Before reaching the merits of the statute of limitations issue, the Court must
address Mr. Smith’s Motion to Strike four declarations5 and a contract between
Prudential and Bank of New York Mellon, filed in support of Prudential’s Motion for
Summary Judgment (ECF Nos. 35, 44.) 	Mr. Smith complains that the declarations
were untimely because the identity of the declarants and the information they
possessed were not disclosed during discovery in response to a specific request for
5 Kevin Morgan is Vice President of Business Development at Prudential; he averred
that the premiums were paid through third-party Affinity Insurance Services, Inc.,
that Prudential’s contract was directly with the American Institute of Certified Public
Accounts 	(AICPA) 	and 	that 	Prudential 	had 	no 	relationship 	with 	Mr. 	Smith’s
employer, Converse. Mark Thomas is Senior Vice President of Affinity and attested
that the AICPA Insurance Trust was established between AICPA and Bank New
York Mellon to provide benefits
outside the context of an employer-sponsored plan.
He also asserted that employers were not involved in the administration of the Policy.
Angela Hoffer, a Prudential employee, certified the authenticity of the case file
including the contract between Prudential and JP Morgan Chase, as Trustee for
AICPA Insurance Trust. She also asserted that Mr. Smith maintained LTD coverage
during five successive employers. 	Finally, Beth Sing, also employed by Prudential,
attested 	to 	the 	authenticity 	of 	the 	Group 	contract 	and 	program 	book. 	The
Declarations also establish the documents to be business records. 	(ECF Nos. 29-2,
29-3, 31-2, 31-3.)
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information related to the statute of limitations affirmative defense. (ECF No. 47-1,
at 5, Request No. 4.) Prudential responds that the disclosure was not very late, that
earlier disclosures gave sufficient hints about the identities of the declarants as to
suggest depositions that should be taken, that the information is highly relevant to
the Summary Judgment motion, and that Mr. Smith is not prejudiced by the lateness
of the revelations. (
See generally ECF No. 47.)
The declarations are without doubt highly relevant to the issue of whether the
AICPA disability policy is an ERISA plan and, consequently, whether ERISA’s denial-
letter exception to the applicability of the Policy’s statute of limitations applies. An
ERISA plan is one established for the welfare of employees by an employer. 	The
employer’s involvement in the establishment or maintenance of the plan is crucial.
Wickman v Northwestern Nat. Ins. Co., 908 F.2d 1077, 1082-83 (1st Cir. 1990);
see
Donovan v. Dillingham, 688 F.2d 1367, 1371 (11th Cir. 1982) (en banc
) (examining
whether the employer paid for the plan). 	It must involve “the undertaking of
continuing administrative and financial obligations by the employer to the behoof of
employees or their beneficiaries.”
	Belanger v. Wyman-Gordon Co., 71 F.3d 451, 454
(1st Cir. 1995);
Demars v. CIGNA Corp., 173 F.3d 443, 447 (1st Cir. 1999) (not an
ERISA plan where the employer “does not make contributions to and receives no
consideration from the insurer”);
see Prudential Ins. Co. v. Thomason, 865 F. Supp
.
762, 767 (D. Utah 1994) (where employee bought the policy from AICPA on his own
separate from his employment, plan was not an ERISA plan). The declarations speak
directly to these criteria.
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But Prudential offers no justification for the late disclosures. 	And, as Mr.
Smith points out, even though the declarations were not disclosed until July 14, 2022,
they are all dated between January and May 2022. 	(ECF Nos. 29-2, 29-3, 31-2, 31-
3.) 	Why they were in Prudential’s possession for up to seven months without being
disclosed is unexplained. Prudential’s defense to the Motion to Strike is, in essence,
that the lateness does not matter because the plaintiff could have figured out the
identities of the declarants and because the information is useful. That ignores both
the clear language of Fed. R. Civ. P. 37(c) and the policy behind it. 	Rule 37(c)(1) is
clear that the presumptive sanction for a failure to disclose is preclusion: “(1)
Failure
to Disclose or Supplement. If a party fails to provide information or identify a witness
as required by Rule 26(a) or (e), the party is not allowed to use that information or
witness to supply evidence on a motion, at a hearing, or at a trial, unless the failure
was substantially justified or is harmless.” The “baseline” rule is that “the required
sanction in the ordinary case is mandatory preclusion.”
Harriman v. Hancock Cnty,
627 F.3d 22, 29 (1st Cir. 2010). 	The Rule requires that the failure to disclose be
“substantially justified,” even if harmless. 	Prudential, a large company with the
resources to comply with deadlines, has failed to offer any justification, much less a
substantial one. If Rule 37 is to have any credibility, its presumptive sanction must
be applied in circumstances such as these. 	Therefore, the Court GRANTS Mr.
Smith’s Motion to Strike. (ECF Nos. 35.)
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C. Statute of Limitations
Without 	the 	declarations 	that 	the 	Court 	has 	stricken, 	the 	record 	lacks
information to support a conclusion that the plan is, or is not, an ERISA plan whose
denial-letter 	exception 	would 	render 	the 	Policy’s 	three-year 	limitations 	period
inapplicable. 	Both parties were on ample notice that the record at the time of the
Motion to Dismiss was insufficient upon which to rest a determination that the
AICPA plan is an ERISA plan. (ECF No. 19.) For that reason, the Court postponed
consideration to give the parties an opportunity to fill in the evidentiary gap.
The Statute of Limitations is an affirmative defense, and the burden of proving
it rests with its proponent.
	Ouellette v. Beaupre, 977 F.3d 127, 135 (1st Cir. 2020);
Lutz v. Chesapeake Appalachia, L.L.C., 717 F.3d 459, 464 (6th Cir. 2013). 	In this
case, that is Prudential. 	However, once the defendant has presented a prima facie
case, the party seeking an exception bears the burden of proving it.
	Ouellette, 977
F.3d at 135 (applying Maine law);
Feddersen v. Garvey, 427 F.3d 108, 112 (1st Cir.
2005) (applying New Hampshire state law in diversity case);
J. Geils Band Emp. Ben.
Plan v. Smith, Barney, Shearson, Inc., 76 F.3d 1245, 1265 (1st Cir. 1996) (plaintiff
had burden to show that the ERISA fraud exception to the statute of limitations
applied);
Drazan v. United States, 762 F.2d 56, 60 (7th Cir. 1985). 	That is Rhode
Island law as well.
Lee v. Morin, 469 A.2d 358, 360 (R.I. 1983) (where more than six
years had elapsed, plaintiff had burden of proof to show reasonable discovery tolling
of limitations period);
Kenyon v. United Elec. Rys. Co., 151 A. 5, 8 (R.I. 1983) (plaintiff
had 	burden 	of 	showing 	exception 	to 	statute 	of 	limitations);
	accord 	54 	C.J.S.
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Limitations of Actions § 427 (2022) (once the defendant makes out a prima facie case,
the burden shifts to the plaintiff to show an exception).
Prudential made out a prima facie case by presenting the Policy with its three-
year limitations period. 	It is incumbent upon Mr. Smith, who relies on the ERISA
denial-letter exception, to prove that the exception applies by virtue of the plan being
an ERISA plan. 	Mr. Smith, however, has produced no evidence at all showing that
his employer at the time of his disability had created, offered, or administered the
disability plan. 	There is no evidence at all showing that Comverse was in any way
involved with the maintenance of the plan.
D. Alternative ERISA Basis
Mr. Smith puts forth an alternative argument for applying ERISA’s denial-
letter exception. 	He argues that even if the plan is not an ERISA plan, Prudential,
because of the terms of its internal manual for adjudicating claims is bound to comply
with ERISA’s substantive regulations. He relies on a document entitled “GI Claims
Std Ltd Appeals Process.” 	(ECF No. 39, at 32-35.) 	In that document, Prudential
advises its employees that even when dealing with non-ERISA plans, compliance
with ERISA procedures “is consistent with Prudential’s group claim philosophy.”
Id.
at 32. It then directs its employees to “apply these [ERISA claims] procedures to both
ERISA controlled cases, and to non-ERISA cases.”
Id.
Mr. Smith maintains that Prudential’s compliance with ERISA is made
mandatory 	by 	its 	internal 	policies. 	Presumably, 	that 	voluntary/mandatory
compliance would be double-barreled: it would (a) require that denial letters include
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the date by which an action must be filed; and (b) it would invalidate the Policy
statute of limitations in favor of state law when the denial letter was defective.
Mr. Smith cites no law, however, for the proposition that Prudential is bound
to 	treat 	him 	in 	accordance 	with 	its 	internal 	policies, 	absent 	at 	least 	some
incorporation of those guidelines into the Policy or other binding contract between
them. Mr. Smith simply asserts that Prudential “admits” in its internal manual “that
ERISA governs Mr. Smith’s disability claim” and “that there is no question that under
ERISA, the three (3) year contractual limitations period provision in the Policy is
ineffective.” 	(ECF No. 39, at 5.) 	The language in the Manual, however, is not an
“admission” that ERISA controls this case. 	It is, instead, a policy statement
gratuitously affording ERISA procedural benefits to claims where Prudential is under
no legal obligation to do so. At least in the absence of some support in law proffered
by Mr. Smith, the Court cannot enforce those voluntary guidelines against Prudential
in favor of Mr. Smith. The Manual provides no alternative basis for applying ERISA’s
denial-letter exception to the Policy statute of limitations.
V. CONCLUSION
There is no evidence before the Court from which it could conclude that the
AICPA disability plan is an ERISA plan. Therefore, the Court cannot as a matter of
law apply the denial-letter exception to the limitations period clearly stated in the
Policy. 	For that reason, the Court holds that the lawsuit was filed too late.
Consequently, 	the 	Court 	GRANTS 	Prudential’s 	Limited 	Motion 	for 	Summary
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Judgment (ECF No. 31) and DENIES Mr. Smith’s Motion for Partial Summary
Judgment. (ECF No. 39.)
IT IS SO ORDERED:
____________________________________
Mary S. McElroy,
United States District Judge
Date: January 23, 2023
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