Articles Posted in ERISA

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In a dispute over long-term disability benefits, it’s important to determine if the disability policy falls within the scope of the Employee Retirement Income Security Act of 1974 (ERISA).

ERISA is a federal statute that applies to claims for employee benefits, including disability benefits.  All else being equal, a claimant will have an easier time overturning a denial of disability benefits if the employee’s disability plan is not governed by ERISA. That is because claimants making claims under policies governed by ERISA face significant hurdles not faced by claimants who have non-ERISA policies.

The most consequential difference between ERISA and non-ERISA disability cases is that federal courts decide ERISA cases under the “arbitrary and capricious” standard of review.  What that means is that courts will not overturn a denial of disability benefits unless they find that the denial was without a factual basis.  This is a highly deferential standard of review and requires a court to uphold a plan administrator’s denial of benefits if it is supported by only modest evidence in the record.

As well, ERISA claimants cannot recover extra-contractual damages that otherwise may be available under state law.  In addition, ERISA claimants typically cannot avail themselves of discovery to learn more about their denial of benefits.  Rather, they can only rely on what is in the administrative record, or the claim file, in arguing that they are entitled to long-term disability benefits.

Because it is so important to know if a disability case will be subject to ERISA, one would think that it would be relatively easy to figure out if the policy at issue is subject to ERISA.  Unfortunately, that’s not always the case.  For example, in Alexander v. Provident Life & Acc. Ins. Co (E.D. Tenn. 2009), the plaintiff’s policy bore the hallmarks of both an ERISA and a non-ERISA policy. In that case, the plaintiff, a doctor, had an individual disability policy through his employer, a medical practice. After he left the medical practice that employed him, he continued the policy and paid all the premiums.

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In an ERISA case, at the center of any dispute over a claimant’s eligibility for long-term disability benefits is the administrative record.

The administrative record is legalese for all the medical records, documents and other information obtained by, and submitted to, the plan administrator during the initial stages of the claim and through the appeal process.

One reason the administrative record is so important is that a claimant who challenges a denial of long-term disability benefits by filing a court action generally cannot present evidence to the court that is not in the record.  Another reason is that disability insurers and plan administrators can—and will—take information from the administrative record out of context to justify denying a claim for disability benefits.

Here is a real-life example: A claimant filled out an “Activities Questionnaire” for her plan administrator and answered questions about her abilities.  In the questionnaire, the claimant reported that she walked two miles a week on an underwater treadmill.  One key advantage of the underwater treadmill is that it can make it easier for a person experiencing joint pain to walk because the water diminishes the pounding on the person’s knees, hips and neck.  In addition, the person can hold onto the handlebars of the treadmill for support.  Given these features, it is much easier to walk on an underwater treadmill than on a sidewalk or around a high school track.

The plan administrator denied the claim.  In its letter explaining why it rejected the disability claim, the plan administrator specifically mentioned that the claimant was able to walk two miles a week, while neglecting to point out that she did so on an underwater treadmill.  This omission was obviously self-serving because it gave an exaggerated depiction of the claimant’s abilities and condition.

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If you have an ERISA long-term disability claim, you 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 need to take the time to file an administrative appeal, unless you do not want pursue your right to disability benefits.

There is an exception, however, to the rule that you must appeal the initial denial.  If filing an appeal 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).

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For claimants, it is not easy to challenge an insurer’s denial of long-term disability benefits in court, particularly in an ERISA case.  Courts review the insurer’s or administrator’s decision under an “arbitrary and capricious” standard meaning that they will uphold the decision as long as it was the result of a “deliberate, principled reasoning process.”  To put it simply, a court will uphold a decision to deny long-term disability benefits even if it disagrees with it, so long as the insurer can point to some facts justifying the denial.

Because no two disability cases are alike, courts have not, and cannot, set out clear rules on what constitutes an arbitrary and capricious denial of benefits.  However, a recent decision from the United States Court of Appeals for the Sixth Circuit (the circuit that includes all the federal courts in Tennessee) provides important guidance on when an insurer’s disability determination, under the arbitrary and capricious standard, will be reversed. Continue reading

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If you’re applying for long-term disability benefits, not much of your private life is off limits. Whether you’re mowing your lawn or posting on your Facebook page, your disability insurer can monitor your activities in search of any reason to deny your claim for benefits.  And, it may well do so.

In O’Bryan v. Consol Energy, Inc., (2012), the Sixth Circuit (which includes all federal courts in Tennessee) held that there is nothing improper with a plan administrator conducting surveillance on a claimant for long-term disability benefits.  In that case, Liberty Life Assurance Company (“Liberty”) paid an investigator to put a disability claimant under surveillance.  The investigator then observed the claimant performing common daily tasks, such as getting in and out of his vehicle, putting fuel in his vehicle, and mowing the lawn. Because of the investigator’s findings, Liberty denied the disability claim.  When the Plaintiff challenged the company’s decision, the court upheld Liberty’s decision to deny benefits, specifically citing Liberty’s argument that the investigator’s surveillance report contradicted the symptoms the claimant reported to his medical examiners.

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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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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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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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