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In lawsuits challenging an ERISA plan’s denial of long-term disability benefits, can claimants who have qualified for Social Security disability benefits use that as evidence in their case?  Or, to put it another way, can a decision from the Social Security Administration (SSA) on a claimant’s disability status be a factor in a court’s overall analysis of whether an ERISA plan improperly denied long-term disability benefits?

The answer to both questions is “yes,” although with caveats.  Courts are mindful that the standards for determining disability under the Social Security requirements may vary considerably from the standards for determining disability under a private ERISA plan.  However, as noted by the district court in Gellerman v. Jefferson Pilot Fin. Ins. Co.  (S.D.Tex.2005) “no court has held that an SSA determination is completely irrelevant” in an ERISA dispute over disability benefits.

In Glenn v. Metlife (2006), the Sixth Circuit found that the insurer’s failure to give any weight to the claimant’s SSA disability determination was “perplexing” and a “significant factor” in its analysis of the claimant’s claim for long-term disability benefits.  (The Sixth Circuit includes the federal district courts in Tennessee.)

In Glenn, the claimant qualified for the first phase of long-term disability benefits under her ERISA plan after she showed that she could not complete the material duties of her regular job.   In order to reduce the amount of disability payments it had to make to the claimant, the insurer hired a law firm to help her with her disability claim with the SSA.  The claimant then qualified for total disability benefits through the SSA, and the insurer deducted those government benefits from the disability payments that it was obliged to pay, as provided for under the policy.  (All long-term disability policies this author has seen and is aware of allow the insurance company a credit for Social Security benefits.)

After receiving long-term disability benefits for two years, the claimant then had to meet the more difficult standard in phase two of her disability plan.  Now, she had to show that she could not perform the material duties of any gainful occupation, as opposed to the specific material duties of her prior job.  Despite receiving repeated and detailed correspondence from her physician supporting her claim, the insurer determined that she failed to meet the “any gainful occupation” standard and terminated her benefits.  The claimant filed a lawsuit in district court challenging the decision, and the district court ruled in favor of the insurer.  She then appealed her case to the Sixth Circuit.

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Under what circumstances will a court rule that the named beneficiary under a life insurance policy is not entitled to receive the proceeds of the policy?  In Estate of Lane v. Courteaux (2017), the Court of Appeals of Tennessee wrestled with that issue, before ruling against the party who argued that a named beneficiary should not be entitled to any proceeds under the policy.  According to the court, a named beneficiary of a life insurance policy will almost always be able to recover the death benefit, even when there are compelling reasons to award the proceeds to another party.

The facts of Estate of Lane are tragic.  A wife had a $600,000 life insurance policy in which she named her husband the sole beneficiary. Later, she was diagnosed with terminal cancer.  Shortly after, her husband learned he also had terminal cancer.

Although the husband was not expected to outlive his wife, she passed away before he did.  Shortly before her death, the wife, while retaining her husband as a co-beneficiary, added her sister, Amanda Courteaux, as a co-beneficiary.  This caught the husband by surprise.  When he discovered, after her death, that his wife did add her sister as a beneficiary of the life insurance policy proceeds, he speculated that his wife wanted her sister to provide for their son, who was on the verge of losing both his parents.  Under the life insurance policy at issue, the wife’s sister was entitled to $300,000 of the policy proceeds.

Later, the husband believed Courteaux was going to use the proceeds for purposes other than his son’s welfare.  He then filed a complaint against Courteaux seeking to have nearly all of her share of the proceeds placed into a trust for the benefit of his son.  In his lawsuit, the husband sought relief, in part, under the legal principle of promissory estoppel.

Prior to the trial, the husband passed away, and his executor and estate were substituted in his place.  Before he died, the husband gave a deposition in which he testified about a document created by his wife that he discovered after her death.  According to the husband’s testimony, the document indicated his wife wanted Courteaux to have only $30,000 of the proceeds for herself, with the remainder of her share to be transferred to her husband to use for their son’s benefit. (It is not clear from the court opinion what exactly this document was, or what it said.)  At trial, the deceased wife’s half-sister also testified wife wanted Courteaux to receive only a $30,000 share of the proceeds.

At trial, Courteaux conceded that she and her sister both promised to take care of each other’s children if anything ever happened to one of them.  Nevertheless, she testified that the life insurance proceeds were “my money.”

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Even when plaintiffs win ERISA disability lawsuits, their attorney’s fees can cut into their awards.  In some ERISA disability cases, however, plaintiffs can recover their attorney’s fees (and costs) under federal law.

What do plaintiffs need to show in order to be awarded their attorney’s fees in an ERISA disability lawsuit?  In Sec’y of Dep’t of Labor v. King (1985), the Court of Appeals for the Sixth Circuit, the circuit which includes federal courts in Tennessee, set out five guidelines for district courts to apply when deciding whether to award attorney’s fees under ERISA. They include:

(1) the degree of the opposing party’s culpability or bad faith;

(2) the opposing party’s ability to satisfy an award of attorney’s fees;

(3) the deterrent effect of an award on other persons under similar circumstances;

(4) whether the party requesting fees sought to confer a common benefit on all  participants and beneficiaries of an ERISA plan or resolve significant legal questions regarding ERISA; and

(5) the relative merits of the parties’ positions.

Sixth Circuit courts regularly use the above guidelines–referred to as the “King Factors”– in evaluating claims for attorney’s fees. For example, in Moon v. Unum Provident Corp. (2006), the Sixth Circuit applied the King Factors in awarding the plaintiff attorney’s fees even though the lower court initially ruled against her claim for long-term disability benefits.  After the Sixth Circuit reversed the district court’s ruling (Moon 1), the case was remanded to the district court to decide whether the plaintiff was entitled to attorney’s fees.

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What happens in life insurance policy litigation when an insured intended to change the beneficiary of his or her policy from an ex-spouse to a current spouse, but did not correctly fill out and/or submit all the necessary paperwork before his or her death? Can the current spouse make a successful claim to the life insurance policy proceeds?  Or, can the ex-spouse prevail by arguing that the insured cannot change his or her beneficiary without following all of the life insurance policy’s procedures?

In the Sixth Circuit (the circuit which includes Tennessee), courts will usually recognize a change in beneficiary even when the insured did not “strictly comply” with all of the life insurance policy’s rules on how to designate a new beneficiary.  Still, courts will not award proceeds to a current spouse if he or she can do no more than show that the insured merely intended to designate a new beneficiary.  The general rule in the Sixth Circuit, and in Tennessee state courts, is that the insured must be in “substantial compliance” with the terms of the life insurance policy for the beneficiary change to be effective.

The courts in the Sixth Circuit have admitted that there is no easy definition for the term “substantial compliance.” Making matters even more confusing, courts in the Sixth Circuit usually, but not always, apply the substantial compliance test in examining an insured’s flawed beneficiary designation for life insurance policies governed by ERISA.  That complexity aside, this much is clear: If the intended beneficiary seeks to collect policy proceeds, he or she will have to establish that the insured completed several critical steps in designating a new beneficiary.

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In an ERISA disability case, a court will not overturn an insurer’s decision to deny a claimant benefits unless it is clear from the administrative record that the decision was “arbitrary and capricious.” This can be a tough bar for someone covered by a disability policy.  In fact, courts in the Sixth Circuit (the circuit which includes Tennessee) have noted that the arbitrary and capricious standard is “highly deferential”, and “the least demanding standard of review of an administrative record.”

Even still, an insurer must justify its decision to deny long-term disability benefits to a claimant. In fact, Sixth Circuit courts have stressed that the arbitrary and capricious standard of review still “has teeth.” As one court noted, “merely because our review must be deferential does not mean our review must also be inconsequential.”

In other words, a court will not rubber stamp an insurer’s decision to deny benefits, even in an ERISA disability case. Rather, they will take a close look at, not only the the insurer’s decision, but also  the process the insurer followed in making its decision.

For example, in Calvert v. Firstar Fin., Inc. (6th Cir. 2005), the court observed that an insurer’s failure to conduct a physical examination of the patient “may, in some cases, raise questions about the thoroughness and accuracy of the benefits determination.”  In that disability case, the plaintiff maintained that her insurer acted arbitrarily and capriciously when it denied her claim for long-term disability benefits without examining her in-person, and instead, merely relied upon a physician’s cursory review of her medical file.

The Calvert court did not hold that a file review can never take the place of an in-person evaluation.  In fact, it noted that there is nothing “inherently objectionable” about an insurance company basing its decision on a physician’s review of the file, even when that review results in a different determination than the claimant’s treating physician.

Still, the Calvert court made it clear that the file review has to be rigorous, especially when it contradicts the opinions of the treating physician.  In Calvert, the court noted that the physician’s review of the file did not describe the data he reviewed.  In fact, the physician’s review made no mention of the surgical reports, x-rays or CT scans in the record.  He also did not discuss the claimant’s functional capacity evaluation.  As a result of the physician’s lax review of the claimant’s medical file, the court determined that the insurer acted arbitrarily and capriciously in denying benefits.

If there is a larger takeaway from Calvert, it is that a court’s “deferential” standard of review of an insurer’s denial of benefits does not mean that insurers can offer up a simplistic defense of their decision.  Insurers still have to show that they based their determination on an extensive and contextual evaluation of the claimant’s medical condition.

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A serious and important question in a life insurance policy case can be: Is a death caused by a drug overdose an “accident” or is it an intentional act that can permit an insurer to deny benefits under the terms of the policy?

Courts in the Sixth Circuit have wrestled with this issue for decades, but they now appear to agree that, barring evidence that the insured intended to commit suicide, a drug overdose should be deemed an accident, and not an intentional act. (Federal district courts in Tennessee are in the Sixth Circuit)

In Andrus v. AIG Life Ins. Co., (N.D. Ohio 2005), the Plaintiff was the beneficiary of her husband’s life insurance policy. The life insurance policy was governed by ERISA.  The Plaintiff was denied benefits after her husband overdosed on prescription medication, including OxyContin.  Under the terms of the life insurance policy, coverage was available only in the event her husband’s death was an accident.  The policy did not define the term “accident;” however, it excluded coverage from death caused by intentionally self-inflicted and suicidal acts.

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If you have a disability insurance policy governed by ERISA and you are challenging an insurance company’s denial of disability benefits, you’ll have to convince a court that the decision was “arbitrary and capricious” and not just incorrect.

This is a tough bar to meet in disability insurance cases in Tennessee, or anywhere else. Even if a court believes that the claimant is entitled to benefits, it will still uphold the insurer’s denial as long as it is based on a “reasoned explanation.”  As the Sixth Circuit has explained, this “is the least demanding form of judicial review of administrative action.”

There is one area of good news for disability claimants. If an insurer denies disability benefits due to an exclusion listed in the disability insurance policy, then the insurer will have the burden of showing that the exclusion applies.

Insurance policies include exclusions which allow insurers to deny benefits under certain defined conditions. For example, many insurers will not pay benefits if the insured engaged in an unlawful, reckless or dangerous activity that resulted in the disability, death or accident at issue.  Under this type of exclusion, for example, an insurance company may not have to pay if the insured individual is injured or dies in a hang gliding accident.

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Many disability insurance policies provide two eligibility standards for benefits. The first is sometimes referred to as the “Your Occupation” (or “Own Occupation”) standard.  Under this standard, a claimant is eligible for benefits only if the disability prevents him or her from performing the essential duties of his or her own occupation

The second standard is referred to as the “Any Occupation” standard.  Under this standard, a claimant is eligible for benefits only if the disability prevents him or her from performing the “essential duties of any occupation.”

Under many disability policies, claimants seeking long-term disability benefits must only meet the “Your Occupation” standard in order to collect benefits for a pre-defined period, usually 18 months to two years. At the end of that period, claimants will then have to qualify for the more rigorous “Any Occupation” standard in order to continue receiving disability benefits.

To understand how the standards work, consider the following scenario: A UPS driver with permanent and chronic back pain cannot lift objects heavier than ten pounds.  She will likely qualify for disability benefits under the “Your Occupation” standard.  The reason is simple.  If she cannot handle most of her packages, then she cannot perform the “Essential Duties” of a delivery driver.

After a two-year-period, however, under many policies the driver will then have to qualify under the “Any Occupation” standard in order to continue receiving benefits.  Here, the insurer’s determination is more complicated:  Can the driver work as a dispatcher, customer representative, or any other occupation in which she did not have to lift heavy objects?

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Under Tennessee law, a life insurance company can deny a claim for benefits if the insured individual was less than honest in his or her insurance application. Specifically, Tennessee Code Annotated § 56–7–103 provides that a misrepresentation in an application for an insurance policy can void the policy if the misrepresentation “increases the risk of loss.”

So what exactly does that mean?

Let’s take an easy example: If the applicant fails to disclose a known heart condition on his or her application, and then dies of a heart attack, the life insurance company likely will be able to deny any claim for the proceeds.

What happens, however, if the applicant dies of a heart attack after failing to disclose a DUI conviction? The Tennessee Court of Appeals dealt with these same facts in Smith v. Tenn. Farmers Life Reassurance Co. (2006) and held that the insurance company’s refusal to pay benefits under the policy was allowed under Tennessee law.  As the court noted, the misrepresentation in that case did not need to involve a “hazard that actually produced the loss in question.” Rather, the issue was whether the misrepresentation would have increased the risk of loss.  In Smith, the court determined that the insured’s misrepresentation influenced the insurance company’s decision to issue the policy and, therefore, increased its risk of loss.

It may seem like, based on the ruling in Smith, that it is fairly easy for life insurance companies to use a supposed misrepresentation on an application as a reason to deny benefits.  Another Tennessee Court of Appeals decision, however, indicates that life insurance companies will have to support their misrepresentation claims with direct evidence, and cannot simply ask the court to infer that the applicant was less than forthcoming on his or her application.

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In an ERISA disability case, an insurance company cannot deny a claim without any explanations. Instead, under 29 U.S.C. §1133, it has to provide written notice of the “specific reasons” for the denial, and it must allow a “full and fair review” of any denial, i.e., an administrative appeal.

An important regulation from the United States Department of Labor provides some guidance on §1133.  Specifically, 29 C.F.R. § 2560.503–1 (the “claims procedure regulation”) requires, in part, that any denial of a claim include the following information:

(1) The specific reason or reasons for the denial;

(2) Specific reference to pertinent plan provisions on which the denial is based;

(3) A description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and

(4) Appropriate information as to the steps to be taken if the participant or beneficiary wishes to submit his or her claim for review.

The claims procedure regulation, in particular, provides notable protections for claimants:  An insurance company must not only explain its reasons for denial, but also, it must inform the claimant what information or documents he or she needs to submit in order to appeal.  The insurance company also cannot withhold important documents from the claimant.  For example, in Hamall-Desai v. Fortis Benefits Ins. Co. (N.D. Ga. 2004), the district court held that the requirement of a “full and fair review” of a denial meant that the insurance company had to provide the claimant with copies of all the documents, records and other information it relied on in making its decision to deny the claim. The court explained that, by failing to provide this information, the insurance company prevented the  claimant from preparing an adequate appeal because she could not respond to the evidence the insurance company used to support its decision.

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