Articles Posted in ERISA

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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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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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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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In an ERISA disability case, a claimant who challenges a denial of long-term disability benefits by filing a court action is generally not able to present evidence to the court that is not in the administrative record. The administrative record is legalese for all of 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.

For example, if a claimant in an ERISA long-term disability case has an important affidavit from her supervisor showing that her disability prevented her from performing her job, she will need to submit that affidavit to the plan administrator while her claim is being reviewed and before the final decision on appeal is made by the plan administrator. If she fails to submit the affidavit before the appeal process is concluded, a court likely will not consider her affidavit, no matter how compelling.  Rather, the court will only evaluate the materials that the plan administrator reviewed in determining whether the denial of benefits was proper. (This is why it is so crucial to ensure that the administrative record is complete).

Because courts are generally unwilling to consider any evidence which is not in the administrative record, plaintiffs are generally not entitled to discovery from the insurance company.

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