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Even Though Insurers Receive the Benefit of the Doubt in ERISA Litigation, They Don’t Get a Free Pass

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.

For example, in DeGennaro v. Liberty Life Assurance Company of Boston (W.D. Michigan 2008), the court noted that the insurer cannot merely examine each of a claimant’s conditions individually, and conclude that none of the conditions create a disability.  The insurer must also determine whether the totality of the claimant’s conditions result in a disability.

In DeGennaro, the claimant’s primary disabling condition was sleep apnea. However, she also had other medical problems including obesity, degenerative joint disease, migraine headaches and asthma.  In addition, for her ongoing pain the claimant took narcotics, which only aggravated her sleep apnea symptoms.

The insurance company in DeGennaro considered all of the claimant’s conditions, but nevertheless decided to deny her long-term disability benefits.  The court invalidated the determiniation stating that while the insurer’s review of the claimant’s condition was “thorough”, it failed to consider the disabling impact of all the claimant’s conditions.  Rather, the review essentially “siloed” the claimant’s individual conditions by evaluating each of them in isolation.  Such a review, the court determined, does not satisfy the arbitrary and capricious standard.

It is not easy to challenge an insurer’s denial of benefits in an ERISA disability case. These cases, however, can be won when claimants and their attorneys examine not just the insurer’s decision, but how the insurer arrived at its decision.