Articles Posted in disability claim

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An insurance company may waive its right to deny benefits when it accepts premiums for coverage that its policy did not actually provide. It may also waive its right to deny benefits where, even for a short period of time, it provides the very benefits it later seeks to deny and discontinue.

In O’Connor v. Provident Life & Acc. Co. (E.D. Mich. 2006), an employee received, through his employer, a life insurance policy covering his life with a death benefit of $273,000. After the insured employee died, the insurance company declined to pay $273,000 to the insured’s beneficiary. Under the terms of the policy, the insured was only eligible to receive basic and optional coverage of up to five times his annual salary. Because his salary rounded up to $24,000, he was eligible for a maximum death benefit of no more than $120,000.

Two years before the insured passed away, however, he filled out an enrollment form in which he opted for $250,000 in supplemental coverage, plus a core benefit equal to his annual salary, adding up to a total death benefit of $273,000. Importantly, the enrollment form the insured completed stated that premiums would not be deducted from his paycheck unless the coverage was approved. Nevertheless, the insured’s employer deducted premiums from his paycheck based on the $273,000 death benefit he elected to receive, even though he wasn’t eligible to receive it. As a result, the insured had no reason to believe that he did not qualify for the full amount of the benefit he selected.

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In an ERISA disability case, a federal district court reviews a decision to deny benefits under “an arbitrary and capricious” standard. Under this standard, a court will not overturn a denial of long-term disability benefits if a plan administrator can offer a “reasoned explanation” for its decision. Simply put, even if a denial of disability benefits is clearly wrong, a court will not overturn it if the plan administrator can provide some factual basis, however thin, for its decision.

Still, courts in the Sixth Circuit have said, repeatedly, that the arbitrary and capricious standard is “not a rubber stamp.” So what exactly constitutes an arbitrary and capricious decision? Unfortunately, there is no clear rule. However, the Sixth Circuit does have a substantial body of case law explaining reasons why a denial of disability benefits will not be upheld. Below are several important ERISA cases that can help Plaintiff’s lawyers attack a denial of long-term disability benefits:

In Calvert, the Sixth Circuit said that, while there is nothing inherently objectionable about a plan administrator using a file review of a claimant’s medical evidence, a plan administrator’s decision to conduct a file review, instead of a physical examination, is a “factor to consider in [the court’s] overall assessment of whether [plan administrator] acted in an arbitrary and capricious fashion.” According to the Calvert court, the lack of a physical examination “may raise questions about the thoroughness and accuracy of the benefits determination.”

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In an ERISA disability lawsuit, the plan administrator’s “denial letter” is one of the most important documents for a plaintiff. The letter is supposed to explain why the plan administrator denied a claim for disability benefits. A denial letter may also describe why the plan administrator rejected an administrative appeal of an earlier decision to deny benefits.

A denial letter should detail what evidence (medical exams, functional capacity evaluations, file reviews) the plan administrator relied on in making its determination that the claimant is disabled under the policy.  Too often, however, plan administrators craft denial letters to sound official by simply reciting the policy language and claimant’s medical diagnosesꟷwithout actually explaining the basis for their decisions. These letters may run 8-10 pages, but they often don’t say anything of substance.

A vague, conclusory denial letter is not merely irritating, it runs afoul of ERISA and Sixth Circuit case law. As a result, an attorney representing an ERISA disability plaintiff can use a defective denial letter against a plan administrator by arguing that the letter indicates an arbitrary and capricious review of the disability claim. Under ERISA, courts usually will only overturn a denial of disability benefits if the plaintiff can show that the decision was “arbitrary and capricious.” A flawed, incomplete denial letter can be evidence of just that.

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Plan administrators will often deny claims for total disability benefits on the basis that the claimant is still able to work. However, under precedent in Tennessee and in the Sixth Circuit, you can hold a full-time job and still qualify for total disability benefits, unless your policy says otherwise.

In Nylander v. Unum Life Ins. Co. of Am. (M.D. Tenn. 2018), our firm represented the plaintiff, an experienced OB-GYN, who suffered an accident that prevented her from performing surgeries. Despite her disability, the plaintiff was still able to maintain a clinical practice.  After Unum denied her claim for total disability benefits, the plaintiff filed suit. In her suit, she requested an award of total disability benefits, or, alternatively, benefits for partial disability (sometimes referred to as “residual disability”).

Unum filed a motion for partial summary judgment asking the court to dismiss the plaintiff’s claim for total disability benefits in part because she was still able to work as a physician. The court, however, turned its attention to the language of the plaintiff’s policies. Under the policies at issue, the plaintiff entitled to total disability benefits if she could not perform the “important” and “material and substantial” duties of her occupation.

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In an ERISA disability case in which a plaintiff is challenging a plan administrator’s denial of long-term disability benefits, a court can do one of three things: (1) It can uphold the plan administrator’s decision; (2) it can reverse the decision and award the plaintiff disability benefits; or, (3) it can order the plan administrator to re-evaluate the plaintiff’s disability claim.

The third option is called a remand. Usually, in a remand, the court will order the plan administrator to follow specific instructions in re-evaluating the disability claim. The court’s instructions could require the plan administrator to evaluate medical evidence it previously ignored. A remand could also require a plan administrator to take a closer look at the physical and cognitive demands of the plaintiff’s occupation.

Although a remand may seem like an unsatisfactory conclusion to a lawsuit, it can prompt the plan administrator to make a reasonable settlement offer to the plaintiff, since the court has already determined that the plan administrator’s review of the disability claim was flawed. It is likely that the plan administrator will be influenced by the fact that, if it denies the claim again, it may be before the same court that previously found fault with its decision-making process.

An award of disability benefits is obviously preferable to a remand. Once a court decides to overturn a plan administrator’s denial of long-term disability benefits, how does it determine whether to order a remand or make an award of benefits? If the court is able to determine from the administrative record whether the plaintiff is clearly disabled under the terms of the Policy, it will award the benefits that the plan administrator should have awarded. If the court finds that the review of the disability claim was flawed but cannot determine from the record whether the claimant is disabled, it will have to remand the matter.

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Most ERISA disability plans require claimants to file an administrative appeal of any denial of long-term disability benefits prior to filing a lawsuit. Under Sixth Circuit case law, if you fail to file an administrative appeal (also referred to as failing to exhaust administrative remedies), the court will likely dismiss your action regardless of the merits of your case. There are exceptions, however, that allow you to challenge a denial of benefits in court, even if you did not exhaust your administrative remedies.

In a ruling that will provide immediate help to many ERISA disability claimants, the United States Court of Appeals for the Sixth Circuit recently held that a plan administrator cannot require a claimant to exhaust his or her administrative remedies unless the relevant plan document specifically discusses required internal appeal procedures. In its opinion in Wallace v. Oakwood Healthcare, Inc. (Mar. 31, 2020), the Sixth Circuit does not go so far as to hold that the plan documents “affirmatively require exhaustion.” Practically speaking, however, the Wallace decision will make it difficult for plan administrators to deny a disability claim due to a disability claimant’s failure to appeal a denial of benefits if the policy did not require the claimant to submit an appeal before bringing suit.

Recently, our law firm represented a client who was discouraged after her disability case manager told her it would be a “waste of time” to appeal her denial of long-term disability benefits since she had already been turned down for short-term benefits. Long after her appeal deadline had passed, the client contacted us to file a lawsuit challenging the insurer’s denial of her claim.

After we brought suit on behalf of the claimant, the plan administrator filed a motion for summary judgment requesting that the court dismiss her case due to her failure to exhaust her administrative remedies. In our response, we argued that the client’s lawsuit was allowed under the “futility doctrine” based on the case manager’s discouraging comments. Under the futility doctrine, you can be relieved of the obligation to file a mandatory appeal if you can show that your appeal would have been unsuccessful based on how the plan administrator handled your claim.

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In our firm’s experience, administrators of ERISA plans (“insurers”) are quick to disregard subjective conditions when evaluating individual claims for long-term disability benefits. Although conditions like chronic pain, stress and fatigue can make it impossible for people to work a full-time job, insurers will regularly discount medical evidence that cannot be measured by an X-Ray, MRI, blood test or other objective measurements. There is good news for claimants, however.  In the Sixth Circuit, which includes the federal district courts in Tennessee, courts have repeatedly stated that insurers cannot ignore subjective evidence in support of a disability claim−unless the policy at issue allows them to do so.

For example, in Evans v. Unumprovident Corp.  (6th Cir.2006), a claimant applied for long-term disability benefits on the basis that her epileptic seizures prevented her from working at her job as a nursing home administrator. Her treating physician stated that the stress from her job led to the severity and frequency of her seizures. While on medical leave, the claimant’s condition improved.  As a result, her treating physician determined that it would be in her best interest not to return to work.

However, the insurer denied the claim finding it unreasonable for the claimant’s physician to opine that a return to work would exacerbate the claimant’s condition.  In reaching this decision, the insurer relied heavily on its own physician’s review of the claimant’s medical records, in which that reviewing physician determined that the impact of stress on the claimant’s condition was entirely self-reported and had not been corroborated by medical studies.

Finding that the insurer’s decision was arbitrary and capricious, the Sixth Circuit affirmed the district court’s re-instatement of disability benefits.  It also affirmed the district court’s award of past-due benefits and attorney’s fees. In explaining its ruling, the court observed that, while the insurer’s physicians described the plaintiff’s stress as “unverifiable,” her disability policy “does not state that self-reported occurrences are to be accorded lesser significance when considering whether a person is able to work.”

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When we are retained by a new ERISA disability client, one of the first documents we review is the letter from the plan administrator denying long-term disability benefits, or, as it is most often called, the “denial letter.” Most denial letters, regardless of the disability at issue, follow the same formula: A general description of the claimant’s physical or mental condition, a brief explanation downplaying the severity of the claimant’s condition, and a conclusory sentence stating that the claimant is able to meet the occupational standard of the policy.

This type of letter can be challenged in court as evidence that the plan administrator’s denial of disability benefits was arbitrary and capricious, and should be overturned. For example, in Elliott v. Metro. Life Ins. Co. (2006), the Sixth Circuit examined a denial letter that noted that the plaintiff’s medical documentation “does not support a condition of a severity that would prevent you from working.” The court took issue with the defendant’s denial letter. It noted that the denial letter included “no statement or discussion” of the plaintiff’s occupational duties or her ability, or inability, to perform them. The court also observed that the physician who reviewed the claim on behalf of the defendant gave no opinion as to how the plaintiff’s “medical condition” related to the demands of the job.

As the Elliot court saw it, the defendant’s denial letter was evidence that the defendant did not make a “reasoned judgment” in evaluating the plaintiff’s claim for long-term disability benefits. More specifically, the defendant failed to rely on medical evidence that assessed the plaintiff’s physical ability to perform her job. Because of the defendant’s flawed review, the court overturned the defendant’s denial of long-term disability benefits.

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In a post from a little over a year ago, we discussed that, if you have an ERISA long-term disability claim, you generally cannot file a lawsuit challenging an insurer’s denial of benefits until you have exhausted your administrative remedies. So, even if the insurer, or plan administrator, denied your claim for long-term disability benefits, you still must file an administrative appeal. In most cases, if you do not file an appeal and exhaust your administrative remedies, you will be barred from bringing a lawsuit in court.

In our prior post, we discussed one exception to the exhaustion requirement.  If filing a disability claim would be futile, a court will allow a disability lawsuit to proceed even if the claimant did not exhaust his or her administrative remedies.  This exception is called the “futility doctrine,” and it is recognized by the United States Court of Appeals for the Sixth Circuit (the circuit that includes all the federal courts in Tennessee). So, even if your policy requires that you exhaust your administrative remedies before filing suit, a court will not dismiss your lawsuit if you can show that your appeal would have been unsuccessful based on how your insurer handled your claim.

There is another exception to the exhaustion requirementꟷif your policy simply does not require you to file an administrative appeal before filing suit.  We came across this situation recently with one of our disability clients who decided not to appeal her denial of long-term disability benefits. The client, let’s call her Jen, was discouraged after her disability case manager told her it would be a “waste of time” to appeal her denial of long-term disability benefits since she had already been turned down for short-term disability benefits. After about a year had passed, Jen decided to file a lawsuit challenging the insurer’s denial of her claim.

After she brought her lawsuit, the insurer filed a motion for summary judgment asking the court to throw out her case because she failed to exhaust her administrative remedies. In our response, we argued that Jen’s lawsuit was allowed under the “futility doctrine” based on the negative comments of her disability case manager.

Additionally, we argued that Jen’s policy did not require her to exhaust her administrative remedies by appealing the denial of long-term disability benefits. The basis for this was the language in Jen’s policy which provided that a claimant could not initiate any legal action:

(1) Until 60 days after Proof of claim has been given; or

(2) More than three years after the time Proof of claim is required.

Because Jen’s lawsuit complied with the above terms and because she had no obligation under the policy to file an appeal, we argued the insurer’s summary judgment motion should be denied. Although the Sixth Circuit does require that claimants exhaust their administrative remedies before bringing suit, we argued that rule shouldn’t apply if the policy didn’t actually include an exhaustion requirement.

The court agreed. In recommending that the insurer’s motion for summary judgment should be denied, the magistrate judge cited, among other reasons, the policy’s failure to include a requirement that claimants file an administrative appeal before filing a lawsuit. Continue reading

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Nearly all employee benefit plans are governed by the Employee Retirement Income Security Act of 1974, or ERISA.  ERISA is a federal law.  As a result, claimants who sue their plans for a denial of disability benefits usually will have to try their cases in federal courts.

More importantly, in an ERISA case, a claimant must show the court that a denial of disability benefits was not merely incorrect, but “arbitrary and capricious.”  That’s a difficult standard.  In an ERISA case, it’s not enough for claimants to show that the plan’s decision to deny them benefits was incorrect; they must also show that the decision had no factual basis.

Despite the broad scope of ERISA, it expressly exempts from its provisions any “governmental plan.” What that means for a government employee, or anyone else covered under the exception, is that he or she can bring a lawsuit challenging a denial of disability benefits without having to contend with ERISA’s strict standards and procedural requirements. Usually, that will be an advantage to the claimant bringing the disability lawsuit.

Further, in Tennessee, a claimant exempted from ERISA by the governmental exception can raise state law claims against the disability insurer or plan administrator including a bad faith failure to pay claim. Under Tennessee’s bad faith failure to pay law, a claimant could be awarded up to 25 percent of his or her claim as a bad faith penalty.  In contrast, claimants cannot avail themselves of state law remedies in a standard ERISA action.

As you might expect, under ERISA, a governmental plan includes any plan established by the federal government or by any state government.  However, the definition of a governmental plan does not stop there. ERISA also extends the definition of a governmental plan to include any plan established by a political subdivision or any agency or instrumentality of the government, state or federal.

In most cases, it’s fairly easy to determine if you have a governmental plan.  However, because ERISA does not provide any definition of the terms “political subdivision” or “instrumentality of government,” there are some gray areas as to when an employer’s disability plan meets the governmental exception. What’s important to remember, for claimants and practitioners alike, is that private entities may still be considered an “instrumentality of government,” particularly if they contract with a municipal organization or body.

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