Most disability insurance companies have an inherent conflict of interest: they both administer the benefits plan through which the disability insurance policy is available to the employee and pay any benefits that they deem an employee eligible to receive. As such, they stand to gain from every denied claim. The importance of this conflict of interest is illustrated by the recent decision of the United States Court of Appeals for the Fifth Circuit in Schexnayder v. Hartford Life, No. 08-30538 (March 12, 2010)
The claimant-employee, Schexnayder, worked for over 20 years as a chemical operator therefore debilitating back problems made surgery necessary and the complications that followed left him disabled. Hartford, which was the benefit plan's administrator and insurer, paid him disability insurance benefits for 24 months, conceding that he was disabled from his "regular occupation." During these 24 months, Schexnayder was found by the Social Security Administration to be totally disabled from any occupation and was awarded Social Security disability benefits. As a result, he had to repay Hartford some of the benefits that Hartford had paid to him. Nonetheless, Hartford ceased paying Schexnayder and asserted that its experts said he was not disabled from any occupation. He appealed unsuccessfully and then filed suit. Hartford never addressed the Social Security decision finding Schexnayder disabled from any occupation in its decisions terminating his benefits.
The court first noted, in accordance with the Supreme Court's decision in Met Life v. Glenn, 128 S.Ct. 2343 (2008), that Hartford's conflict of interest was but one factor taken into consideration on the issue of whether Hartford had abused its discretion in terminating Schexnayder's disability insurance benefits. Second, the court noted that Hartford's conflict of interest would be given more weight "because Hartford's decision here suggests procedural unreasonableness." The court then explained the import of the decision by the Social Security Administration finding Schexnayder totally disabled:
The SSA determined that Schexnayder is fully disabled and unable to perform any work, but Hartford did not address the SSA award in any of its denial letters. Because Hartford failed to acknowledge an agency determination that was in direct conflict with its own determination, it's decision was procedurally unreasonable. ... Having benefited financially from the governments determination that [Schexnayder] was totally disabled Hartford should at least acknowledged SSA award.
This procedural unreasonableness "justifies the court in giving more weight to [Hartford's] conflict"because it suggests financial bias may have affected Hartford's decision. We also consider the failure to address the SSA's decision in it own right. Although substantial evidence supported Hartford's decision, the method by which it made the decision was unreasonable, and the conflict, because it is more important under the circumstances, acts as a tiebreaker for us to conclude that Hartford abused its discretion.
