May 21, 2019
The federal judiciary is not monolithic. While the Fifth Circuit recently remanded a case it shouldn’t have in Lafleur, yesterday the Eighth Circuit issued a decision in which it, properly, puts an end to the insurer’s game playing and requires the insurer to pay the claim.
The decision is Chronister v. Unum Life Ins. Co. involving denied disability benefits. Unum denied Sandra Chronister’s disability benefits after two years of "own occupation" coverage under the policy because it asserted her she was not disabled from "any occupation" as the policy required after the initial 24 month period. The trial court affirmed Unum’s decision under an arbitrary and capricious standard of review. When Chronister appealed the Fifth Circuit reversed.
First, the court ruled that MetLife v. Glenn establishes an insurer’s inherent conflict of interest and requires something less that unadulterated deference to the insurer’s denial. That’s a change in the law in the claimant’s favor in the Eighth Circuit. How much deference the insurer is entitled to depends on the facts of the specific case.
The court then identifies several reasons that Unum abused its discretion. First, Unum has the same conflict of interest that every insurer has as identified in Glenn. But in addition, Chronister discusses Unum’s "disturbing pattern of erroneous and arbitrary benefit denials, bad faith contract interpretations, and other unscrupulous tactics" (quoting Radford Trust v. First Unum Life Ins. Co., 321 F.Supp.2d 226, 247 (D. Mass. 2006)). The specific facts of Chronister’s claim history suggested to the court that Unum hadn’t changed its ways. It failed to follow its own claims procedure guidelines that required it to give substantial weight to a claimant’s social security disability award if one existed. But nothing in Chronister’s file indicated that Unum gave her social security disability award any weight at all.
The conclusion? Unum’s denial was an abuse of discretion. Then this: "Chronister urges us not to remand this matter for further proceedings, given that her benefits claims have been pending for more than a decade, and we agree that such a remand would needlessly delay the already long-delayed benefits payments."
We need more courts that hold insurer’s accountable for their wrongful denials.
UPDATE: The LEXIS cite for Chronister is 2009 U.S. App. LEXIS 9033.
It is not uncommon to find federal judges ruling that insurers violate ERISA’s claims procedure requirements. Insurers commonly ignore numerous facts demonstrating that a claim should be paid and rush to focus on the one or two relatively insignificant pieces of information the insurer believes justify denying the claim. The backstop for preventing systematic abuse by insurers in conducting themselves by the morals of the marketplace rather than their higher fiduciary duties is the commitment of the judiciary to enforce ERISA's fiduciary standards. One of the critical ways those standards are given meaning is my holding insurers accountable when they fail to provide a full and fair review of a denied claim.
Sadly, the recent case of Lafleur v. Louisiana Health Services and Indemnity Company, ___ F.3d ___, 2009 U.S. App. LEXIS 6104 (5th Cir. 2009), illustrates how our federal judiciary is actually providing an incentive to insurers to violate the claim procedure requirements of ERISA.
Dr. Richard Lefleur had a devastating anoxic event, a disruption of oxygen to the brain, during cardiovascular bypass surgery. He ended up living the rest of his days, over four years, in a skilled nursing facility. His insurer covered the cost of that care for about 18 months months but then cut him off claiming that Dr. Lafleur was receiving non-covered custodial care. From the time the insurer cut him off until his death, Dr. Lafleur’s providers charged approximately $500 per day to treat him accruing medical expenses of over $450,000.
Whether Dr. Lafleur's treatment was covered revolved around whether he required skilled nursing care rather than attention by unskilled, non-medical personnel. The estate of Dr. Lafleur sued to obtain coverage. The trial court ruled in favor of the insurance company but failed to address the allegations Lafleur’s estate raised about the insurer’s violations of ERISA’s requirements that it provide a full and fair review to his claims.
The Fifth Circuit reversed the trial court, ruling that the health insurer failed to comply with ERISA’s claims procedure requirements in several significant ways. It failed to obtain a review of Lafleur’s medical needs using a qualified physician. It failed to review Lafleur’s pre-litigation appeal using decision-makers that were not involved in the initial claim denial. It refused to tell Lafleur’s estate’s attorney who was reviewing the claim despite Lafleur’s request for that information. It failed to have a new physician review the claim after Lafleur appealed the insurer’s denial. It did not provide specific information to the claimant in its correspondence denying the claims to allow the Lafleur estate to intelligently appeal the denial. Finally, it improperly raised new grounds to deny the claim for the first time in litigation. Taken together, these problems caused the Fifth Circuit to hold that the insurer did not substantially comply with ERISA's procedural requirements.
With regard to the substance of the claim, the court noted in footnote 15 that "[t]he administrative record is replete with medical records suggesting that Lafleur suffered from various complications and medical conditions requiring skilled nursing on an ongoing basis." In short, the Fifth Circuit determined that on the core issue relating to the claim, whether Lafleur needed skilled nursing (and thus non-custodial care), it was not a close call. The insurer had wrongfully denied the claim.
Whew! Fortunately, the Fifth Circuit prevented a serious miscarriage of justice. Right? Alas, no. Amazingly, the court ruled that the appropriate remedy was not to order the insurer to pay the Lafleur family's medical expenses. Rather, it remanded the case to the insurer and told it to reconsider the claim. The court determined that despite the abundance of evidence demonstrating the insurer’s denial was improper, the proper remedy was to give the insurer a second bite at the apple. What reason does the Lafleur estate have to believe the insurer will do anything other than simply take the remand as another opportunity to shore up its denial of the Lafleur estate’s claim? Talk about the fox being sent off to guard the chicken coop.
Insurers are not inherently bad. They fill a vital role in protecting our financial security. But the events of the past few months have demonstrated quite clearly the need for these large entities to be closely regulated lest, in their eagerness to maximize profits, they end up sacrificing the interests of their clients to make a buck. A critical component of that regulatory system is the judicial system. Cases such as Lafleur, show that the federal judiciary is too often failing in this responsibility. The Fifth Circuit establishes binding precedent for federal courts throughout Texas, Louisiana and Mississippi. Following Lafleur, federal courts within the Fifth Circuit will now routinely allow insurers numerous opportunities to "fix" their procedural shortcomings. In the meantime, deserving claimants who are being jerked around by those insurers will suffer and usually end of simply giving up and walking away with nothing. Justice delayed is justice denied for these individuals. Rulings such as Lafleur provide no incentive for insurers to do anything other than cut procedural corners and deny meritorious claims.