Reinsurance Law Blog : Oklahoma Insurance Lawyer & Attorney : Stauffer & Nathan Law Firm

In  Spradley v. The Owens-Illinois Hourly Employees Welfare Benefit Plan,  the Plaintiff, Spradling retired from the company, and then sought ERISA plan benefits.  Plaintiff was denied benefits for permanent and total disability (PTD) life insurance benefits, because it was claimed that Plaintiff's benefit coverage ended when his employment ended.  In making this claim, the Plan cited part of the summary plan description which applied to healthcare benefits.  On administrative appeal, the Plan cited to another part of the summary plan description which stated that an employee was eligible to participate in the health care plan if the employee is a full time active hourly employee.  At the trial court, the Plan came up with another reason to support its denial of benefits based on language in the “Life and Accident Insurance Benefits” section of the Summary Plan Description which said that life insurance coverage ends when the employee retires. 

The trial court concluded that Plaintiff was entitled to benefits under the unambiguous language of the Plan or, alternatively, that Defendant’s interpretation of ambiguous Plan terms was arbitrary and capricious. The district court accordingly remanded the case for the Committee to reconsider Plaintiff’s claim in accordance with this conclusion.
 

On appeal, the Tenth Circuit notes that a plan administrator is required by statute to provide a claimant with the specific reasons for a claim denial along with a citation to the specific plan provision.  As a result, federal courts will consider only “those rationales that were specifically articulated in the administrative record as the basis for denying a claim.” The Tenth Circuit states: “The specific reasons and specific provisions supporting Defendant’s broad coverage argument have changed, and we will not permit Defendant to sandbag Plaintiff with its after-the-fact interpretation of an entirely different section of the Plan.”

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In Lucas v. Liberty Life Assurance Company,  Lucas was injured at his job and received 24 months of disability under the company’s long-term disability plan. The company’s policy required that the employees eligible to receive benefits for the first 24 months not be able to perform substantial and material duties of his own occupation. After the expiration of 24 months, Lucas applied for additional disability benefits.  Liberty Life, the company’s plan administrator and insurer, denied  Lucas’ application.  To be considered disabled and eligible to receive benefits after the first 24 months, one must  “... not be capable of performing substantial and material duties of any occupation comparable to his former position.” After losing an administrative appeal, Lucas filed suit against Liberty Life for violating the Employee Retirement Income Security Act of 1974 (ERISA).  The district court entered judgment in favor of Liberty Life and Lucas appealed. The appellate court considered whether the determination to deny benefits was arbitrary and capricious. The court explained that a decision is arbitrary and capricious only if it lacks a reasoned basis. The Court found that Liberty Life had a reasoned basis for denying the claim based on the following: three separate reviews of the claim; extensive citation to medical records and investigative  surveillance; and Lucas’ securing a full-time university teaching position.

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The Tenth Circuit clarified the appropriate standard for discovery related to a dual role conflict of interest in ERISA cases in Murphy v. Deloitte & Touche Group based on the recent Supreme Court decision of  Metropolitan Life Insurance Co. v. Glenn, 554 U.S. 105, 128 S.Ct. 2343 (2008). While the holding did not change Tenth Circuit law, the court felt it was appropriate to clarify its prior holdings.  

In an ERISA case where the plan “‘gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan,’” the  administrator’s decision is reviewed for an abuse of discretion – and in this context, abuse of discretion and arbitrary and capricious are the same standard.  

In reviewing a plan administrator’s decision under the arbitrary and capricious standard, the federal courts are limited to the administrative record.  As a result, discovery is generally inappropriate in these cases.  The court found that while case law prohibits courts from considering materials outside the administrative record where the extra-record materials sought to be introduced relate to a claimant’s eligibility for benefits, this general restriction does not conclusively prohibit a district court from considering extra-record materials related to an administrator’s dual role conflict of interest. Therefore, discovery related to the scope and impact of a dual role conflict of interest may, at times, be appropriate.  The appropriateness of such discovery is governed by Fed.R.Civ.P.  Rule 26(b).  A district court has substantial discretion in handling discovery requests under Rule 26(b).

 

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In Miller vs. Monumental Life Ins. Co. the trial court ordered (after remand from a prior appeal) that the ERISA based case be sent back to the plan administrator so the record could be completed.  The plaintiff, Miller, appealed from this order, claiming it was improper on various grounds.  The Tenth Circuit ruled that it was an interlocutory order over which it had no jurisdiction to determine. 

Aside from a few well-settled exceptions, federal appellate courts have jurisdiction solely over appeals from final decisions of the district courts of the United States.  A final decision is one that ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.  The order remanding the case to the plan administrator was not a final decision.

The court considers whether ERISA remand orders are reviewable on a case by case basis, and considers “practical finality.”  Neither the cost or delay associated with additional review of the “sole cause” defense, nor Miller’s unfounded fear about loss of his argument that Monumental was not entitled to raise this defense, justifies treatment of the remand order as a final order for purposes of review. Miller’s contentions are not “effectively unreviewable.” The appeal was dismissed for lack of jurisdiction.

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In Graham v. Hartford Life & Accident, the Tenth Circuit held that a health and disability plan provided to US postal employees was not a governmental plan – therefore it was subject to ERISA.  The plan was apparently offered through the National Rural Letter Carriers Association, the exclusive bargaining agent for rural letter carriers.  Since the plan was governed by ERISA, there was no right to a jury trial.  The court affirmed the ruling of the trial court that the denial of benefits was not arbitrary and capricious
 

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In Rasenack vs. AIG Life Insurance Company, the Tenth Circuit ruled that AIG’s delays in deciding Rasenack’s claim for benefits under an accidental death and dismemberment policy (ADD policy) were substantial enough to result in a de novo review of the claim by the trial court.  Generally, under ERISA, claims decisions by administrators such as AIG are reviewed by the courts under an arbitrary and capricious standard.  Under the arbitrary and capricious standard, so long as the decision is supported by evidence, it will be upheld, while under a de novo standard, no weight is given to the claims administrator’s decision.  Summary judgment for AIG was reversed, and the case was remanded.

Mr. Rasenack was severely injured as a pedestrian by a hit and run vehicle.  He was in a coma for three weeks and remained hospitalized for months.  He claimed he was entitled to paralysis benefits under the AIG policy because he lost the use of both legs and his left arm.  The plan says that claims will be determined in 90 days, or under special circumstances, within 180 days; AIG took 16 months to deny the claim.  Rasenack appealed.  Appeals were to be decided in 60 days.  Seven months later, with no decision by AIG on the appeal, Rasenack sued.  AIG then denied the appeal.

First the court held that the claims administrator’s decision was entitled to no deference where the decision was made by operation of law, rather than the use of discretion.  Then the court found that the policy was ambiguous.  The policy’s definition of hemiplegia as “complete and irreversible paralysis” is wholly dependent on the meaning of “paralysis,” which the policy does not define. AIG claimed that the definition of hemiplegia carries a plain meaning, i.e., that the entire arm and leg of one side of the body must be “completely paralyzed,” and that “anything less than ‘no movement at all’ would not be ‘complete’ paralysis.”  While complete absence of movement may be a reasonable interpretation of ‘paralysis’, it was not the only interpretation, as found in various medical texts.  And the summary plan description defined hemiplegia as the loss of “use of both upper and lower limb on same side of body.”  The language was strictly construed against AIG, the drafter of the policy.

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In Miller v. Monumental Life, the Tenth Circuit found that an ERISA plan requirement that an insured “present proof of a Social Security Disability Award” was ambiguous.  After an accident, the insured had applied for Social Security disability under both Title II (insurance)  and Title XVI (welfare).  The court explains: 

Although the Social Security Administration (SSA) administers both programs, the Supreme Court has outlined their distinctions: “Title II is an insurance program. Enacted in 1935, it provides old-age, survivor and disability benefits to insured individuals irrespective of financial need. Title XVI is a welfare program. Enacted in 1972, it provides [Social Security Insurance] benefits to financially needy individuals who are blind, or disabled regardless of their insured status.”

www.ca10.uscourts.gov/opinions/05/05-2247.pdf

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ERISA and long term disability benefits

In Meraou v. The Williams Companies, Case No. 06-5051, the Court was faced with the issue of whether an ERISA plan properly terminated long term disability (LTD) benefits.  The Plan provided that benefits could be terminated if the participant either ceased to be disabled, or failed to provide current medical information.  The claims administrator sought current medical information from the participant, Meraou, on February 27, 2002.  Some but not all of the requested information was supplied.  The administrator then asked Meraou to see a physician it had paid to get the requested information.  Meraou responded by stating she was seeing a different doctor, and that doctor would supply the information. No information was received by July 30, 2002, and Meraou was warned that her benefits would be terminated for failure to supply the information. Benefits were terminated effective August 1, 2002, for failure to provide the information. After an appeal was filed, additional information was provided.  The appeal was denied because it was determined that Meraou was no longer disabled. Another appeal resulted in an affirmance of the denial because Meraou was no longer totally disabled. 

The trial court found that the Plan’s decision was based on substantial evidence and was not arbitrary and capricious. It therefore upheld the decision terminating benefits.  The Tenth Circuit found the arbitrary and capricious standard of review applied, and reviewed the trial court’s determination de novo.  The court found that it was not unreasonable to require objective evidence of the disability; that the Plan had considered the combined effects of the claimed impairments to determine whether she was disabled; that the Plan was not estopped from contesting disability simply because she was receiving social security disability benefits; and the Plan was not estopped from terminating her benefits based on its prior determination of disability.  The grant of benefits did not foreclose subsequent review of her claims, and determination of disability under social security does not equate to disability under the Plan.  The denial was affirmed.

Read the case:
http://www.kscourts.org/ca10/cases/2007/02/06-5051.htm

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