Kentucky Employment Law Blog

Disability Insurance Claims and File Reviews by "Independent" Medical Experts

A "file review" by a medical professional labeled "independent" by the insurance company is often a part of disability insurance claims process.  The Sixth Circuit recently considered the strengths and weaknesses of such a "file review" in Okuno v. Reliance Standard Ins. Co. This opinion yielded a number of interesting points to consider:

• While there is "nothing inherently improper with relying on a file review," we have observed that "the failure to conduct a physical examination, where the Plan document gave the plan administrator the right to do so," as Reliance's Plan expressly does, "raises questions about the thoroughness and accuracy of the benefits determination."
  
  
• File reviews are particularly "questionable as a basis" for an administrator's determination to deny benefits where the claim, as here, involves a mental illness component. Evaluation of mental health necessarily involves "subjective symptoms," which are most accurately ascertained through "interviewing the patient and spending time with the patient," such that a purely record review will often be inadequate where a disability claim includes a mental component.
  
  
• Another deficiency in Reliance Standard's file review is its "failure to consult with medical professionals with relevant expertise. See 29 CFR § 2560.503-1(h)(3)(iii)(requiring plan administrators, "in deciding an appeal of an adverse benefit determination that is based in whole or in part on a medical judgment" to "consult with a health care professional who has appropriate training and experience in the field of medicine involved in the medical judgment.").
  
  
• While ERISA does not demand an examination by the narrowest of specialists, we have noted its requirement that administrators retain health care professionals in the specific field of medicine at issue. ... Reliance's failure to consult with a mental health expert -- particularly when it denied Okuno benefits on the basis that her disability included a psychiatric component -- indicates a lack of deliberate and reasoned decision-making.
  
  
• The record contains no indication that Reliance's reviewing health care professionals ever consulted with Okuno's treating physicians, the only doctors to actually examine her.  ... While Reliance was not required to accord special deference to the opinions of Okuno's own doctors, "by the same token, it may not arbitrarily repudiate or refuse to consider the opinions of a treating physician."

In sum, a file review is not per se inadequate but its use raises questions where the claim has a psychiatric component. The disability insurance company should use medical consultants with expertise in the relevant medical field. Finally, there should be some communication with the claimant's treating physicians and there should be some reasoned discussion of their opinions.

For further reading: Has Your Claim for Disability Insurance Benefits Been Denied Based on a Preexisting Condition? and Has Reliance Standard Denied Your Disability Insurance Benefits Claim Based on a Mental Disorder or Condition?

Robert L. Abell
www.RobertAbellLaw.com

 

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"But For" Causation in ERISA Disability Insurance Benefts

Reliance Standard, as do many disability insurers, has a mental and nervous disorders limitation that restricts payment of disability insurance benefits to 12 months where a claimant's disability is "caused by, " "contributed to by," or "resulting from" mental or nervous disorder.  This language imposes a "but for" causation standard the Sixth Circuit held recently in Okuno v. Reliance Standard Life Ins. Co., joining the Fifth, Ninth and Third Circuits in so ruling.

The claimant, Patti Okuno, was diagnosed with narcolepsy, Crohn's disease and Sjogren's syndrome, an autoimmune disorder, after struggling for years with fibromyalgia and degenerative disc disease.  Okuno went through a total of three administrative appeals, while the insurance company determined that her disability benefits would be limited to 12 months because of anxiety and depression diagnoses in addition to her physical maladies. The benefits limitation was based on Eventually she filed suit and the district court, Hon. Gregory L. Frost of the Southern District of Ohio, ruled on the administrative record for the insurance company.   

Okuno argued that the mental or nervous disorders limitation did not apply  where "the evidence establishes that a claimant is 'disabled by physical conditions alone, then the mere presence of a 'psychiatric component' does not justify application of the one-year mental health limitation." 

The Sixth Circuit accepted this argument noting the Fifth Circuit's recent observation "that every federal circuit to consider the meaning of phrase 'caused by or contributed to by,' in the Mental or Nervous Disorders Limitation, has read it 'to exclude coverage only when the claimant's physical disability was insufficient to render him totally disabled." This "but for" test led the Sixth Circuit to conclude that "an application is not appropriately denied on the basis that a mental or nervous disorder 'contributes to" a disabling condition; rather the effect of an applicant's physical ailments must be considered separately to satisfy the requirement that review be reasoned and deliberate." This standard joined rulings by the Fifth, George v. Reliance Standard Life Ins. Co., 776 F3d 349 (5th Cir 2015), Ninth, Maurer v. Reliance Standard Life Ins. Co., 500 Fed.Appx. 626 (9th Cir. 2012), and Third Circuits, Michaels v. The Equitable Life Assurance Long-Term Disability Plan, 305 Fed.Appx. 896 (3d Cir. 2009). 

Robert L. Abell
www.RobertAbellLaw.com

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Retiree Benefits "Are Not A Form of Deferred Compensation" Supreme Court Rules, They Are ....

On its face, the Supreme Court's decision in M&G Polymers USA LLC v. Tackett is routine enough: the very pro-business Roberts Court reverses a lower court ruling that a group of retirees were contractually entitled to health care benefits for life.  The majority opinion written by Justice Clarence Thomas is critical of a lower court precedent that it claims leans toward the vesting of retiree health care benefits.  What a shame.  

The Court's solution is traditional contract principles. Ok, fair enough. Let's start with the traditional contract principle of mutual consideration: the consideration provided by the employee is work, compensation is the consideration provided by the employer. Is there something else to the employer-employee relationship?  Is it possible to consider retirement benefits as anything other than deferred compensation?

It is, according to the Supreme Court, although its explanation, shall we say, makes no sense:

In ERISA, Congress specifically defined plans that "result in a deferral of income by employees" as pension plans, and plans that offer medical benefits as welfare plans. Thus, retiree health care benefits are not a form of deferred compensation.

This assertion both misreads ERISA and abuses common sense.  But if there are 5 votes for it on the Supreme Court, it just does not matter.  The moon, it could be, is made of Green Cheese. 

And so it goes.

Robert L. Abell
www.RobertAbellLaw.com

 

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Fiduciary Communications By ERISA Trustee

ERISA fiduciaries owe a fiduciary duty to tell the truth to plan participants.  This "duty to inform is a constant thread in the relationship between beneficiary and trustee; it entails not only a negative duty not to misinform, but also an affirmative duty to inform when the trustee knows that silence might be harmful."  A fiduciary breaches his duty "by materially misleading plan participants, regardless of whether the fiduciary's statements or omissions were made negligently or intentionally."  

Dudenhofer v. Fifth Third Bancorp presented yet another installment of the floundering mess caused by the foray in this case of Fifth Third Bancorp into the subprime lending field.  The plaintiffs were employees and participants in Fifth Third's profit sharing plan. The participants can direct portions of their pay into the plan, and the bank matched up to 4% of those contributions, the matching contributions being invested initially in Fifth Third stock.  But the subprime mess caused Fifth Third stock to decline 74% from July 2007 to September 2009 costing the plan tens of millions of dollars.  

The plaintiffs sued claiming that the trustees' had breached their fiduciary duties.  One cited example were false or incorrect statements made in filings with the SEC that were expressly incorporated into the Plan's summary plan description (SPD).  The district court ruled that the SEC filings were not fiduciary communications.  

The Sixth Circuit reversed and framed the issue as "whether the express incorporation of SEC filings into an ERISA-mandated SPD is a fiduciary communication."  The SPD is "a document ERISA requires to be sent to plan participants to provide specified information about the plan [and] is unquestionably a fiduciary communication."  Since ERISA plan participants must be told the truth, SEC filings that are incorporated into the SPD must likewise be truthful and accurate:

The SPD is a fiduciary communication to plan participants and selecting the information to convey trough the SPD is a fiduciary activity.  Moreover, whether the fiduciary states information in the SPD itself or incorporates by reference another document containing that information is of no moment.  To hold otherwise would authorize fiduciaries to convey misleading or patently untrue information through documents incorporated by reference, all while safely insulated from ERISA's governing reach.  Such a result is inconsistent with the intent and stated purposes of ERISA -- to impose fiduciary duties 'which are the highest known to the law" -- and would create a loophole in ERISA large enough to devour all its protections.

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

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 

Employee May Recover Under ERISA Value of Wrongfully Withheld 401(k) Contributions Plus The Amount They Would Have Grown

Many individuals have 401(k) accounts through their employment and their employer contributes also to their account.  But what can an employee do if their employer does not make the contributions they have promised?  This question was answered in Leister v. Dovetail, Inc., Nos. 07-2242, 07-3615, 07-3671 (7th Cir. October 23, 2008).  Leister was employed by Dovetail and, after a few years employment, discovered that Dovetail had not made its matching contributions to her 401(k) account.  She brought suit to recover the value of these withheld contributions.  The court ruled that Leister was entitled to recover the unpaid contributions together with a reasonable estimate of how those contributions, had they been made, would have grown.  The court added that this calculation should also consider that the benefits would not have been taxable until withdrawn; therefore, the court directed that the valuation of the account should include this tax benefit minus the cost of the future tax liability discounted to present value. 

Robert L. Abell
www.RobertAbellLaw.com