Kentucky Employment Law Blog

Discovery & Trial In An ERISA Disability Benefits Case, Seventh Circuit Rules

Discovery and a jury trial are appropriate in an ERISA disability insurance benefits case indicates the United States Court of Appeals for the Seventh Circuit in Krolnik v. Prudential Insurance Company, 570 F.3d 841 (7th Cir. 2009)(slip opinion available here).  The procedures are applicable where the disability insurance policy does not endow the insurance company (or its administrator) with discretion and thus render applicable the "arbitrary and capricious" standard of review by the district court.   

The case represents a routine termination of disability benefits, followed by the claimant's, Krolnik, exhausting his administrative appeals.  The parties agreed that the policy contained no language granting interpretive discretion to the insurer.  Krolnik proposed to take discovery and present evidence regarding his "medical and mental conditions, and the extent (if any) to which his mental condition affects his ability to work."  The district court judge barred all discovery and struck from the record doctors' affidavits that Krolnik submitted. After the district court affirmed the termination of his benefits, Krolnik appealed and the Seventh Circuit reversed.

Judge Easterbrook writing for the court first criticized the standard of "de novo review" as misleading, explaining as follows:

Cases such as this show that
“de novo review” is a misleading phrase. The law Latin
could be replaced by an English word, such as “independent.”
And the word “review” simply has to go. For what
Firestone requires is not “review” of any kind; it is an
independent decision rather than “review” that Firestone contemplates.
The Court repeatedly wrote that litigation
under ERISA by plan participants seeking benefits
should be conducted just like contract litigation, for the
plan and any insurance policy are contracts.

Cases requiring such independent review under ERISA are no different than any other type of breach of contract litigation or insurance litigation, and

A judge would not dream of forbidding
the parties to take discovery, let alone of rejecting
affidavits that did not depend on discovery. Evidence
is essential if the court is to fulfill its fact-finding function.
Just so in ERISA litigation.

The court remanded the case for discovery and trial, if necessary, admonishing that

All in all, it would be best for judges and lawyers to
stop thinking about “de novo review”—with the implication
that the judge is “reviewing” someone else’s action—
and start thinking about independent decision,
which is what Firestone requires.

Robert L. Abell
www.RobertAbellLaw.com

Insurance Company's Failure to Consider Treating Doctor's Opinions Is Arbitrary

A disability insurance company is required by ERISA to provide a reasonable explanation for its decision on a claim and must address any reliable, contrary evidence the claimant presents.  The failure to explain why it is discounting or disregarding a claimant's evidence is arbitrary and capricious.  The Seventh Circuit made this ruling recently in Love v. National City Benefits Plan, No. 08-1722 (July 23, 2009).

The claimant, Love, a 20 year employee, developed multiple sclerosis and proved unable to continue working in August 2001.  She received disability benefits for more than four years before they were terminated in December 2005.  The benefits were terminated because the claims administrator, Liberty Mutual, had a medical consultant, a Dr. Jonathan Sands, do a file review; he concluded, despite the payment of benefits for over 4 years, that there were "no objective limitations in functional ability or capacity" noted in Love's medical files.  The court was clearly troubled by Dr. Sands' cursory dismissal of the substantial evidence generated by the doctors that had personally examined Love, observing:

In fact, every doctor that personally examined Love concluded that she was unable to work more than a few hours a day and that she could no stand, sit or walk for more than an hour at a time. Dr. Sands did not address any of these reports in his cursory report, which dedicated less than half a page to its analysis and recommendation. 

Love appealed the termination of her long-term disability benefits.  She submitted further evidence supporting her claim including a physical therapy evaluation, a functional-capacity evaluation and a vocational evaluation.  The court noted that "these reports showed that Love had significant impairments."  This evidence too was disregarded by Liberty Mutual, which hired another medical consultant, a Dr. Winkler, who "did not address the opinions of these other physicians." 

The court ruled that Liberty Mutual's claims process was arbitrary and capricious and violated ERISA.  First, the court noted that ERISA required an insurance company to provide "a reasonable explanation for its determination and must address any reliable, contrary evidence presented by the claimant."  Liberty Mutual failed to do so because it "did not explain why it chose to discount the near-unanimous opinions of Love's treating physicians."  Therefore, the court concluded that Liberty Mutual "acted arbitrarily by terminating Love's benefits without sufficiently explaining its basis for doing so." 

Robert L. Abell
www.RobertAbellLaw.com

Unum's Termination of Disability Benefits, After Paying for Five Years, Reversed

After paying disability benefits for five years to a OB/GYN doctor whose diminished use of her left arm left her unable to perform surgery and uninsurable, Unum terminated her benefits.  This decision was reversed by the Sixth Circuit in Kramer v. Paul Revere Life Insurance Company, No 07-1557 (April 8, 2009).  The court observed that "there is no explanation for the decision to cancel benefits that had been paid for some five years based upon the initial determination of total disability in the absence of any medical evidence that the plaintiff's condition had improved during that time."  

Dr. Lois Kramer, an OB/GYN, had disability insurance policies with Paul Revere Life Insurance Company and Provident Life and Accident Insurance Company (which later were acquired by Unum).  Beginning in the mid-1990's Dr. Kramer began experiencing back and spinal cord problems, eventually undergoing a C6-C7 laminectomy.  Further treatment including nerve root injections proved ineffective and she eventually lost full use of her left arm.  As a result, she struggled to perform routine office tasks and could not perform surgery and related procedures.  Her claim was approved and she began receiving disability benefits in late 1998.

Unum paid the benefits through 2003.  In the interim, at least two medical file reviewers reviewed Dr. Kramer's file and affirmed that she remained disabled and entitled to benefits.  Nonetheless, in late 2003, Unum terminated payment of the benefits based on two more reviews, one by a Dr. Phillip Mayer and another by a Dr. Geron Brown, both of whom opined that Dr. Kramer could resume working as a OB/GYN.  Dr. Kramer appealed the termination of her benefits, presenting additional medical evidence along with evidence that she could not obtain medical malpractice insurance because of her disability.  

Kramer filed suit for reinstatement of her benefits.  The district court ruled applied a de novo standard of review to the termination of benefits under the Provident policy and reinstated her benefits.  However, the district court applied an arbitrary and capricious standard to the Paul Revere policy and affirmed the termination of benefits.  

The Sixth Circuit ruled that Unum's termination of the benefits under the Paul Revere policy was arbitrary and capricious.  The court was disturbed by Unum's disregard for the opinions of numerous treating physicians and rejected its reliance on the opinions of the file reviewers it had hired:

there is no explanation for the decision to cancel benefits that had been paid for some five years based upon the initial determination of total disability in the absence of any medical evidence that [Kramer's] condition had improved during that time.  The best that can be said of the opinions of Dr. Mayer and the other company consultants is that they support the proposition that Dr. Kramer was, in fact, never disabled from her 'own occupation.'  But that conclusion flies in the face of all the other evidence in the record, and the plan administrator's reliance upon it can only be described as arbitrary and capricious.   

Robert L. Abell
www.RobertAbellLaw.com

Merrill Lynch Settles Employee ERISA Suit for $75 Million

Merrill Lynch has settled a class action ERISA lawsuit brought by its employees for $75 million according to a Reuters report, "Merrill Lynch Settles Employee Lawsuit for $75 Million." The employees claimed that Merrill Lynch breached its fiduciary duty to the plan by offering its stock as an investment vehicle for the individual employee accounts in the retirement plan at a time when the company's stock was plunging due to its investments in subprime mortgages and other bad debts. Merrill Lynch's stock lost more than 80% of its value from September 30, 2006, to December 31, 2008.

Robert L. Abell
www.RobertAbellLaw.com

Breach of Fiduciary Duty Suit Arising From Medical Insurance Overcharges Settled

Hospital employees, who were charged higher fees by a group health plan it owned than it charged employees of other client companies, have settled a lawsuit alleging that the overcharges violated the employer's fiduciary duties under ERISA reports the Winston-Salem Journal, "Baptist Hospital Settles Suit On Health Plan."

The lawsuit claims that the hospital, North Carolina Baptist Hospital (NCBH) charged its employees higher fees for services rendered at the hospital through a group health plan, MedCost, which was owned by the hospital, than those charged to employees of other corporate clients. The hospital employees also had higher co-pays and lower discounts.  The report is:

"NCBH selected its subsidiary, MedCost, as the network provider for the plan knowing that MedCost would include NCBH in its provider network at substantially inflated reimbursement rates," according to the lawsuit. "The selection was made not on the basis of quality or cost from a fiduciary standpoint, but rather was based on NCBH's own economic interests."

The settlement will allow employees to recover damages for their overpayments going back to 2002 and will limit their charges in the future.  

Robert L. Abell
www.RobertAbellLaw.com

First Unum Slammed By Court For Deceptive Denial of Disability Benefits

Reciting First Unum's long history of abusive and deceptive claims-handling practices, as well as its conflict of interest as both claims decider and payor, the Second Circuit Court of Appeals has ruled that First Unum acted arbitrarily and capriciously in denying the claim and awarded back benefits, interest, attorney's fees and costs to the claimant. McCauley v. First Unum Life Insurance Company, No. 06-5100 (December 24, 2008).  

The claimant, McCauley, worked as a tax attorney and developed advanced colon cancer. He received radical treatments in 1991 that saved his life.  McCauley suffered additional medical problems over the next few years including liver cancer and the cancer treatments inflicted quite a toll.  He attempted bravely to continue working before realizing that he could not continue.  McCauley applied for long-term disability benefits to First Unum, which provided disability insurance to McCauley's employer and served as both its administrator and payor of benefits.  

First Unum denied McCauley's claim on May 19, 1995.  He appealed and submitted additional medical information.  Nonetheless, First Unum again rejected McCauley's claim on September 14, 1995.  McCauley then attempted to resume employment and converted the disability insurance policy by assuming payment of its premiums.  McCauley's health problems again proved insurmountable and he again filed a claim for long-term disability benefits which First Unum denied in 1996.  McCauley then filed suit.

The Court ruled that McCauley was entitled to benefits, although it ruled that First Unum's initial denial of his claim was not arbitrary and capricious based on the limited medical information presented in support.  That medical information indicated only that McCauley's cancer had been successfully treated and that his restrictions were only against very long hours and physical exertion.  

In support of his appeal from First Unum's denial of his claim, McCauley submitted a memorandum listing his medical conditions as (1) chronic diarrhea, (2) chronic and acute renal impairment, (3) progressive vascular sclerosis, (4) high cholesterol, (5) insomnia, and (6) incisional scarring and pain. The memorandum detailed how these conditions affected McCauley on a daily and continuing basis, at times leaving him unable to function in any capacity and in constant and substantial pain.

The Court observed that the memorandum "flatly contradicts First Unum's finding that McCauley was capable of performing a sedentary occupation and completing the ordinary tasks of a tax attorney." While First Unum claimed that the information in McCauley's memorandum had been considered in the initial denial of McCauley's claim, the Court asserted that "the record plainly reflects that they were not."  The Court also criticized First Unum's argument that the memorandum was not signed by McCauley's doctor, a deficiency it had never informed McCauley of until he filed suit.  

The Court strongly criticized First Unum's failure to consider McCauley's memorandum:

This kind of wholesale embrace of one medical report supporting a claim denial to the detriment of a contrary report that favors granting benefits was determined in Glenn to be indicative of an administrator's abuse of discretion. 

First Unum lied to McCauley that an on-site physician had reviewed his claim and supporting information.  "In fact, the court observed, "no records were reviewed by a physician at First Unum." This lie was additional evidence supporting McCauley's claim.

The Court also cited First Unum's long history of abusive and deceptive practices as further support of McCauley's claim:

First Unum is no stranger to the courts, where its conduct has drawn biting criticism from judges.  A district court in Massachusetts wrote that "an examination of cases involving First Unum ... reveals a disturbing pattern of erroneous and arbitrary benefits denials, bad faith contract misinterpretations, and other unscrupulous tactics. Radford v. First Unum Life Ins. Co., 321 F.Supp.2d 226, 247 (D. Mass. 2004), rev'd on other grounds, 491 F.3d 21, 25 (1st Cir. 2007).  That court listed more than thirty cases in which First Unum's denials were found to be unlawful, including one decision in which First Unum's behavior was "culpably abusive."  Id. at 247 n.20. Also, First Unum's unscrupulous tactics have been the subject of news pieces on "60 Minutes" and "Dateline," that included harsh words for the company. Id. at 248-49. First Unum has fared no better in legal academia. See John H. Langbein, Trust Law as Regulatory Law: The Unum/Provident Scandal and Judicial Review of Benefit Denials under ERISA, 101 Nw. U. L. Rev. 1315 (2007). In light of First Unum's well-documented history of abusive tactics, and in the absence of any argument by First Unum showing that it has changed its internal procedures in response, we follow the Supreme Court's instruction and emphasize this factor here. Accordingly, we find First Unum's history of deception and abusive tactics to be additional evidence that it was influenced by its conflict of interest as both plan administrator and payor in denying McCauley's claim for benefits.     

Robert L. Abell

www.RobertAbellLaw.com

MetLife Must Pay Accidental Death Benefits Where Car Accident Not Seizure Caused Death

Where an insured's death was caused by a car accident rather than a seizure that may have contributed to the accident, MetLife was required to pay accidental death benefits the United States Court of Appeals for the Tenth Circuit has ruled in Kellogg v MetLife, No. 07-4213 (10th Cir. December 4, 2008).  

The insured's van suddenly careened out of control and crashed into a tree.  Despite wearing a seat belt, the driver, Brad Kellogg, suffered severe head injuries from blunt trauma and died.  The coroner did an autopsy and concluded that it was an accidental death.  MetLife denied the claim for accidental death benefits, asserting that medications the driver was taking had caused a seizure, which, in turn, caused him to lose control of the vehicle, crash and die from the crash.  Since the medications were for a physical illness, MetLife argued that benefits were not payable because death from physical illness was excluded from coverage.

The court rejected MetLife's argument, noting that insurance policies must be construed against the insurance company and that numerous courts had rejected MetLife's position.  Therefore, the court ruled that benefits must be paid because the insurance policy "does not contain an exclusion for losses due to accidents that were caused by physical illness, but rather excludes only losses caused by physical illness."  

Robert L. Abell

www.RobertAbellLaw.com 

Insurance Company's Payment Of Claim Is Notice of Claimant's Condition

More than three years after its initial payment to treat a claimant's hemophilia an insurance company brought suit seeking to recover its payments.  The Sixth Circuit ruled in Medical Mut. of Ohio v. k. Amalia Enterprises, Inc., No. 07-4422 (6th Cir. December 2, 2008) that the suit was untimely and ruled that the initial claim provided "sufficient information to place it on notice" that the claim's coverage should be investigated.  

Medical Mutual of Ohio provided group health insurance to employees of k. Amalia Enterprises.  An employee, Loan A. Tran, and her husband, Khanh B. Luu, submitted forms, as part of the initial application process that did not indicate that their son had a pre-existing condition, hemophilia.  Four months after coverage began the insurance company paid the first of a series of claims to treat the child's hemophilia.  About two and a half years later and after having paid some $525,000 in claims, the insurance company did an audit and claimed that only then did it realize the child had a preexisting condition.  It filed suit seeking to recover some or all of its payments.

The court ruled that the insurance company waited too long to file its suit, ruling that "it reasonably should have discovered the fact" of the child's preexisting condition when it paid the first of many claims more than three years before it filed suit.  

Robert L. Abell

www.RobertAbellLaw.com  

Retirement Plan Stock Losses Are Basis For Employees' Suit Against The Hartford

Employees, who have seen the value of their retirement accounts plummet as the stock value of their employer, The Hartford, has nosedived, have filed suit alleging mismanagement of their 401(k) retirement plans and failure to fairly and truly disclose the company's financial condition reports the Hartford Courant, "Employees Sue The Hartford Over Retirement-Plan Stock Losses."  At the end of 2007, the company's stock was valued at $87.19 and 21.4% of the employees' retirement plan holdings were invested in the company stock.  This year the stock has dropped to $10.46 per share amid continuing disclosures of poor investments by the company.  As a consequence, the value of the employees' retirement accounts has also dropped.

The suit claims that the company failed to prudently manage the plan as required by ERISA, the Employee Retirement Income Security Act, which governs the management of employee retirement accounts. 

Robert L. Abell
www.RobertAbellLaw.com 

Failure To Fully Pay Life Insurance Benefits Breached UNUM's Fiduciary Duty Under ERISA

Beneficiaries of group life insurance policies must be fully paid the policy benefits upon proof of their claim, the First Circuit has ruled in Mogel v. UNUM Life Ins. Co., No. 08-1334 (November 6, 2008).  UNUM issued group insurance policies to employees at a number of companies.  Plaintiffs were beneficiaries of those policies and presented proof substantiating their benefits claims.  However, instead of paying the policy benefits, UNUM sent the beneficiaries a checkbook and a letter advising them that (1) their benefits had been deposited in a "UNUM Security Account"; (2) checks from $250.00 up to the balance of the account could be written; and, (3) interest on the account would be paid at a varying rate.

The court ruled that UNUM breached its fiduciary duty by retaining control and use of the beneficiaries' money in what the court referred to as a "euphemistically named 'Security Account.'"  Sending the beneficiaries a checkbook "was no more than an IOU which did not transfer the funds to which the beneficiaries were entitled" and constituted a breach of UNUM's fiduciary duties under ERISA.

Robert L. Abell

www.RobertAbellLaw.com