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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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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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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