A Smorgasbord of Interesting Disablity Cases: Abuse of Discretion / Objective Evidence of Disability

Hagerty v. American Airlines Long Term Disability Plan, 2010 U.S. Dist. LEXIS 91995 (N.D. Cal. 2010)

Facts and holdingOn November 15, 2004, Brian Hagerty (“Hagerty”), a flight attendant, filed a claim for long term disability benefits with his employer’s ERISA-governed long term disability plan (the “Plan”) due to HIV, Hepatitis C, fatigue and various other conditions.

Hagerty’s claim was approved and he received disability benefits under the Plan for three years. On April 14, 2008, the administrator of the Plan terminated Hagerty’s benefits on the grounds that Hagerty did not provide sufficient evidence that he was disabled, in part because he had provided no objective medical evidence of his fatigue claims. Further, the administrator determined that based on the medical information reviewed, Hagerty would be able to work as a sales attendant, appointment clerk or cashier. Following Hagerty’s appeal and the final denial of his claim, Hagerty filed a lawsuit against the Plan. The Plan moved for summary judgment.

Applying an abuse of discretion standard of review, the Court denied the Plan’s motion on the following grounds:

  1. The Plan required Hagerty to provide it with objective medical evidence of fatigue when the Plan itself did not expressly require such proof; this suggested that the Plan abused its discretion;
  2. The Plan failed to inform Hagerty that he had not attached relevant medical information to his claim submission and instead decided his claim based on an incomplete file; this also suggested abuse of discretion;
  3. The Plan never considered whether Hagerty’s HIV status affected his ability to perform any occupation and did not contest the importance of doing so; and
  4. The Plan never obtained Hagerty’s Social Security file and never addressed the fact that although the Plan determined that Hagerty was not disabled, the Social Security Administration determined that Hagerty was disabled.

Therefore, the Court could not conclude as a matter of law that the Plan did not abuse its discretion in denying Hagerty’s claim for continued long term disability benefits. As a result, the Plan’s motion for summary judgment was denied.

Lessons LearnedAlthough this is a lesson most LTD insurers have at one time or another already learned, the conclusion is perhaps simply that the application of an “abuse of discretion” standard does not mean that courts will “rubber stamp” the insurer’s decision.

The question of whether an insurer can demand “objective” evidence of a disability is one that many cases have addressed. The above opinion was an LTD case that was ERISA-governed. However, certainly in the DI field, the issue provides a trap for the unwary. In the author’s opinion, while DI carriers may consider the lack of objective evidence of impairment or disability in making a claims decision, they cannot insist upon such evidence when the policy does not require it. The trap is set when the DI carrier denies a claim, but is “loose” with its language in the denial letter as to the role that a lack of objective evidence played in the decision. Given how often an insured claims that the insistence by the insurer of objective medical evidence constitutes bad faith, the author has long been an advocate in making the DI insurer’s position clear. As but one example:

 We also note that you failed to provide any objective evidence of your impairment. While objective evidence is not required in providing adequate proof of loss, and while we do not require that disability claims be established solely by objective evidence, your claim of [condition or impairment] is one for which we would typically expect to see such evidence. Thus, the lack of such evidence in the circumstances present here was one factor in our assessment.” 1

1. Lawyer’s exculpatory fine print: The author is not suggesting that the above language is appropriate for any particular claims decision, or that use of such language will exculpate a disability insurer from a claim of bad faith or abuse of discretion. It is provided simply to demonstrate that if an insurer is relying upon the lack of objective evidence in support of a claim, it should make clear the distinction between considering the lack of objective evidence (for whatever weight it is worth) and requiring such evidence to establish a valid claim.

Ninth Circuit Clarifies Application of Abuse of Discretion Review When Insurer Has a Conflict of Interest

The Ninth Circuit Court of Appeals in Montour v. Hartford Life & Accident, 582 F.3d 933 (9th Cir. 2009), adopted a new standard of reviewing ERISA abuse of discretion cases where the insurer has a conflict of interest. The court held that a “modicum of evidence in the record supporting the administrator’s decision will not alone suffice in the face of such a conflict, since this more traditional application of the abuse of discretion standard allowed no room for weighing the extent to which the administrator’s decision may have been motivated by improper considerations.”

Robert Montour was a telecommunications manager for Conexant Systems, Inc. His employer provided him with a group long-term disability plan governed by ERISA. Hartford was both the insurer and claims administrator of the plan. The plan granted Hartford discretionary authority to interpret plan terms and to determine eligibility for benefits.

Montour applied for and received disability benefits, initially for an acute stress disorder, in 2003. In 2004, Montour consulted an orthopedic surgeon, Dr. Kenneth Kengla, about knee and back pain and subsequently underwent surgery. Dr. Kengla diagnosed Montour with degenerative changes in both areas and notified Hartford that Montour was suffering from physical disability which prevented him from returning to the labor force. Dr. Kengla listed numerous restrictions on Montour’s physical activities.

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No Special Treatment For "Top Hat" ERISA Plans In The Ninth Circuit

In Sznewajs v. U.S. Bancorp Amended and Restated Supplemental Benefits Plan, ___ F.3d ___, 2009 WL 2004452 (9th Cir. July 13, 2009), the Ninth Circuit Court of Appeals addressed, for the first time, whether the standard of review analysis for “top hat” ERISA plans is the same as for other ERISA plans.

Franciene Sznewajs, the ex-wife of co-defendant Robert Sznewajs, challenged the Plan’s decision to treat Robert Sznewajs’ second wife, Virginia Sznewajs, as his surviving beneficiary. The Plan Administrator denied Franciene’s claim for benefits because it interpreted Robert’s “retirement” to have occurred when Robert started collecting benefits. Franciene argued that “retirement” meant the date of Robert’s termination of employment. The issues on appeal were the appropriate standard of review and the definition of retirement under the Plan.

The employee benefit plan in this case is known as a “top hat” plan. ERISA “defines a top hat plan as one which is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees.” Sznewajs at *4. Because of the specialized nature of “top hat” plans, Congress exempts such plans from certain ERISA regulations. Gilliam v. Nevada Power Co., 488 F.3d 1189, 1192-93 (9th Cir. 2007).

In most ERISA cases, the administrator’s claim decision is reviewed under the de novo standard of review unless the plan documents grant the administrator discretionary authority. Here, Franciene argued that, despite the discretion granted to the plan administrator, the district court should utilize the de novo standard of review because payments made to beneficiaries come directly from the company’s pockets and those payment decisions are made by the company’s executive committee. Franciene’s argument was consistent with holdings in the Third and Eighth Circuits, both of which have ruled that “top hat” plans are subject to a de novo standard of review despite the existence of a grant of discretionary authority for the very same reasons. However, the Ninth Circuit disagreed, explaining that applying a de novo standard of review to “top hat” plans “would create unnecessary confusion.” Therefore, in the Ninth Circuit, “top hat” plans are subject to the same standard of review analysis as other ERISA plans.

Finally, in making this ruling, the court found that the Plan did not abuse its discretion in its interpretation of the term “retirement.”

Insurer Abused Discretion by not Considering Medical Report Created After Date of Disability

Fontana v. The Guardian Life Insurance, 2009 WL 73743 (N.D. Cal. January 12, 2009)

Fontana, a software product manager, sued The Guardian Life Insurance Company for denying her claim for long-term disability benefits under an ERISA-governed plan. Guardian gave two explanations for its claim decision: (1) that a medical report based on examination conducted five months after the date the operative definition of disability changed cannot demonstrate Fontana’s disability; and (2) that Fontana’s activities as a graduate student dispute her claim. On cross motions for summary judgment on the Administrative Record, the Court ruled that both of these reasons constituted an abuse of discretion, and remanded the matter to Guardian for a new determination of Fontana’s administrative appeal.

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No Abuse of Discretion Where Insurer Requires Objective Evidence

Salomaa v. Honda Long Term Disability Plan, 542 F. Supp. 2d 1068 (C.D. Cal. 2008).

An insurer denied the ERISA plan participant’s disability claim, in part, because he failed to support his claimed disability from CFS with “objective test results.”  During the participant’s initial appeal of his LTD benefits, his attorney asked the insurer if there were any tests the participant should undergo in order to help establish his disability.  The participant’s attorney did not receive a response and yet the insurer, citing a lack of medical documentation that Plaintiff was afflicted by CFS or that he was unable to perform the duties of his occupation, denied his claim. 

After explaining that a factor tending to show a potential conflict of interest is the failure to engage in meaningful dialogue during the review process, the court found that decision to deny benefits due to the absence of objective test data while opting not the request a SPECT scan was an indication of “evasiveness during the review process, and a conflict of interest.”  Nevertheless, noting the distinction between a medical condition and the effect of that condition on an employee's ability to perform occupational duties is well established, the court “affirm[ed] a plan administrator's right to require objective evidence that employees are totally disabled by the medical condition which afflicts them, regardless the condition at issue.”

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Claim Remanded To Claims Administrator Initially Terminated Before Providing Participant With Requested Plan Documents

Hoskins v. Metropolitan Life Ins. Co., 551 F. Supp. 2d 942 (D. Ariz. 2008)

An employee submitted a claim for benefits through his employer's ERISA governed disability plan. After approving the payment of both short-term and long-term disability benefits, MetLife requested that the participant apply for Social Security benefits. Through her attorney, the participant requested that MetLife provide all information relating to plaintiff's claim, including a copy of the Plan, policy, summary plan description and copies of all internal notes concerning MetLife’s consideration of plaintiff's claim. Travelers Insurance, the plaintiff’s employers and plan administrator, took the position that the plan documents were not to be disclosed absent a subpoena and directed MetLife to not comply. Upon instructions by Travelers, MetLife subsequently terminated benefits for failure to apply for Social Security benefits and for failure to provide proof of continuing disability.

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The Failure to Disclose Information to the Participant Justified an Increased Level of Scrutiny and the Court's Review of "New" Evidence Not Offered During The Claim

Torres v. Reliance Standard Life Ins. Co., 551 F. Supp. 2d 1221 (D. Or. 2008)

Both the Plan Administrator and Participant moved for summary judgment on a cause of action challenging the denial of long-term disability benefits under ERISA.  Noting that the Plan contained discretionary language and citing Abatie, the District Court rejected the Participant’s contention that the claim decision should be reviewed de novo.  However, the court stated that a “moderate level” of scrutiny of the Defendants’ claim decision was justified due to the structural conflict of interest and because, during the claim review process, the Plan Administrator failed to disclose information regarding the Participant’s activities it obtained from the Internet.  Additionally, the Court ruled that because of the administrator’s failure to disclose the information, the Participant was denied the opportunity to present counter evidence that might further support her claim for benefits, and, thus, the Court allowed Torres to submit information responding to the new “internet information”

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Hearsay Exception Required for Certain Documents Outside the Administrative Record

Bartholomew v. Unum Life Ins. Co. of America, 588 F. Supp. 2d 1262 (W.D. Wash. 2008.)

A Plan participant brought suit under ERISA challenging the claim administrator’s decision to terminate long term disability benefits. On a motion for summary judgment, the District Court held that the hearsay rule barred the court from considering documents that discussed the administrator’s past claims handling practices. In its decision, the Court acknowledged that a history of biased claim administration was a key factor in weighing the conflict of interest. Nevertheless, the court held that documents containing a recitation of the defendant’s past administrative abuses did not fall under any of the hearsay exceptions. The court also considered the Regulatory Settlement Agreement (“RSA”) with the Department of Labor and found the report admissible as an admission of a party opponent. However, while the RSA could not be offered as evidence of claims handling in this case, the RSA warranted a more “elevated level of skepticism” with regard to the structural conflict of interest.

Nevertheless, even in light of the structural conflict of interest, the court found that Unum afforded the Plaintiff an opportunity for a “full and fair review” of her claims. Therefore, the administrator’s decision was upheld because it was based on a reasonable interpretation of the plan’s terms and made in good faith.

Structural Conflict Exists Even When Benefits Paid Out of a Trust

Burke v. Pitney Bowes Inc. Long-Term Disability Plan, 544 F.3d 1016 (9th Cir. 2008).

The Plan terminated benefits because it determined that the employee was not totally disabled from any occupation. After appealing their decision and exhausting all administrative remedies, the employee sued in federal court. In light of the recent Supreme Court holding in Glenn, the court vacated the grant of summary judgment and remanded back to the district court to allow the discovery of documents outside the administrative record in order to properly evaluate the structural conflict of interest. The court came to this conclusion even though the employer had no direct financial incentive to deny claims because benefits were paid out of a trust. However, the court disagreed with the holdings in Post v. Hartford (3d Circuit) and Gilley v Monsanto (11th Circuit). Instead, the court reasoned that since the employer would ultimately need to contribute to the trust in order for it to maintain its solvency, it had an incentive to keep claims as low as possible. Therefore, a structural conflict of interest existed.

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It is an Abuse of Discretion to Ignore Contrary Evidence

Caplan v. CNA Financial Corp., 544 F.Supp.2d 984 (2008).

In what appears to be a relatively standard claim for benefits under ERISA, the District Court ruled that it was an abuse of discretion to ignore contrary evidence. When the participant in this case made a claim for disability benefits, Hartford submitted his file to an independent medical evaluation service. The IME opinion, which conflicted with the treating physician opinion, was the basis for Hartford to deny the claim.

The court noted that the participant had submitted a “wealth of evidence” to support his contention that he was disabled. Hartford claimed that their decision was based on the “totality of the medical information provided.” However, the only information that supported the decision was the IME opinion. The court factored the discrepancy in the amount of medical support for Hartford’s decision with the evidence of financial incentives for the IME and found an abuse of discretion in this case.

 Judicial Opinion Available Here

Abuse of Discretion to Rely on Employer's Accommodation that Materially Altered Participant's Job Duties

Garrison v. Aetna Life Ins. Co., 558 F. Supp. 2d 995 (C.D. Cal. 2008)

This case addressed the issue of an employer’s accommodation of an employee’s disability, and how the claim administrator considered that factor when assessing disability. Here, a Boeing employee submitted a claim for benefits under the “own occupation” definition of disability. At the time of her disability, her position was described as “light,” requiring 12-hour shifts and a great deal of travel. In response to the onset of the employee’s disability, Boeing attempted to make accommodations by eliminating the travel requirement and reducing the number of hours worked. Based on the accommodations, the claim administrator reclassified the participant’s occupation from “light” to “sedentary,” and finding that she was capable of sedentary work, denied her claim.

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Structural Conflict of Interest Warrants Discovery of Statistical Information on Claims

Walker v. Metropolitan Life Ins. Co., 585 F. Supp. 2d 1167 (N.D. Cal. 2008.)

Plaintiff sued MetLife and Kaiser Permanente Benefits Plan for denying his claim for long-term disability benefits.  The court denied cross motions for summary judgment on the grounds that the Administrative Record did not contain sufficient information regarding MetLife’ relationship with a company, NMR, retained to conduct independent medical reviews such that the court could assess the impact of MetLife’s undisputed structural conflict of interest.  In order to obtain this information, the court ordered MetLife to provide the number of claims that were approved and denied after a review was conducted by an NMR-retained physician.

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