May 21, 2019
According to one U.S. Circuit Court of Appeal, the answer is a resounding "no." In an important decision today from the Seventh Circuit, Judge Frank Easterbrook writes for a unanimous panel in Krolnik v. The Prudential Ins. Co. of America. The trial court ruled that Paul Krolnik was prohibited from introducing affidavits in litigation to support his disability claim. Krolnik also attempted to conduct discovery but the trial court likewise cut him off at the pass. The trial court ruled that ERISA benefit denial cases, even those conducted under a de novo standard of review, simply involve a review of the insurer's actions rather than consideration of all the facts and arguments presented by both sides in litigation. After the court granted Prudential summary judgment, Krolnik appealed.UPDATE: I've place Krolnik in the website library.
Judge Easterbrook is known for his concise, direct and unequivocal writing style and this opinion is no exception. The reference in Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989), to "de novo review" is misleading: "[t]he law Latin could be replace 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."
Comparing the dispute before the court to non-ERISA insurance litigation, the opinion goes on to state, "[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." Where the evidence is conflicting, the court, rather than an insurer or other ERISA plan administrator, is obligated to weigh the evidence and make a final decision about whether the claimant is entitled to benefits.
Summing up, Judge Easterbrook takes pains to be clear:
"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."
This is the first Circuit court I'm aware of to explicitly state that there are no restrictions or limitations on the scope of review a trial court carries out when it undertakes de novo review of an ERISA benefit denial case. There is support for the argument not just in Firestone v. Bruch, as the opinion references, but also in the Court's statements last year in MetLife v. Glenn, 128 S.Ct. 2343 (2008). In that case the Supreme Court held that there are no special evidentiary or procedural rules trial courts are bound to follow in evaluating how an insurer's inherent conflict of interest affects a court's review.
As de novo review becomes more common in ERISA benefit denial cases (states are increasingly banning discretionary authority clauses from insurance policies), Krolnik has the potential to significantly shift the basic framework lawyers and judges have taken for granted in litigating ERISA benefit denial cases. The effect of greater discovery and opportunity to develop and present information in litigation will do two things. It will result in better, more fully informed and accurate decision making by the federal judiciary. And it will make litigating ERISA benefit denial cases more costly in time and money for the parties.
Yesterday's Washington Post article about Wendell Potter's testimony before the Senate Commerce Committee should come as no surprise to anyone who's dealt with health insurers. The former Cigna executive's message? Don't trust insurers. I don't think this is the bombshell that a lot of others seem to think it is. The idea that we should blindly trust any business is pretty naive. They are created to make a profit and short of that cease to exist. The problem with all insurers, however, is that consumers are at their mercy to a much greater degree than for most business transactions. And insurers know it. Indeed, they play on our vulnerabilties in their ad campaigns. Just think of their marketing: "like a good neighbor, State Farm is there." "You're in good hands with Allstate." They want us to know that they are there to protect us and we can trust them . Within ERISA the potential for abuse in the insurer/insured relationship is recognized and dealt with through that statute's fiduciary duty standards. A good argument can be made that there is nothing wrong with ERISA's language, only with the federal judiciary's refusal to enforce in a meaningful way those fiduciary standards.
It's nice to see an industry insider reminding Congress that we should be very wary of removing meaningful checks on insurers or gutting remedies for their misconduct. We need to provide in our healthcare reforms effective ways to ensure that insurers are held accountable when they overreach.
Over the next few months we'll likely see passage of new laws relating to how we deliver and finance healthcare in this country. One of the issues that is being hotly debated is whether the reforms should include the option for folks to choose a healthcare plan provided through the government. That "public option" could take the form of extending Medicare or some other type of government healthcare plan such as that provided for federal employees or those in the military. Private health insurers have made it clear they don't like the idea of having to compete against such a government plan. They may have some good reasons for feeling that way. How such a public option would affect both citizens and private insurers will depend on the details of the proposals. It's far from clear that a public option will be included at all in the final form of the legislation. One of the best discussions I've seen about the public option is this from the Anonymous Liberal blog.
I am confident that the political will doesn't exist for a single payer plan and I'm not sure it would be the best thing for the country even if it were a more realistic alternative. But given my own experience on a day to day basis wrangling with health insurers and self funded plans about denied medical claims, I'm skeptical about proposals that achieve universal coverage by simply extending the status quo through tax credits or subsidies. The amount of money we spend on lining the pockets of health insurance executives and shareholders is mind boggling. Compared to a single payer system, there are a number of ways in which our capitaliist approach to health insurance is inefficient.
Reforming our national healthcare delivery system is extraordinarily complex and I don't have any great insight into more than a few angles of it. While a single payer system would likely dry up a significant portion of my law practice, I wish we were debating it more seriously because I think there are some aspects of it that would create a lot more cost efficient way of getting healthcare provided to those that need it most. For example, see this excellent Phillip Longman article on the VA healthcare system in The Washington Monthly from a few years ago.
Yesterday the U.S. Court of Appeals for the First Circuit issued its long awaited decision in Denmark v. Liberty Life Ass. Co. The case involves Diane Denmark's assertion that Liberty Life wrongly denied her disability claim. The procedural history is long and torturous. The First Circuit ended up delaying a ruling in the case until MetLife v. Glenn, 128 S.Ct. 2343 (2008), was decided to get the Supreme Court's guidance on how an insurer's conflict of interest affects the standard of review a trial court should utilize in ERISA benefit denial cases.
The First Circuit reversed the trial court's ruling in Liberty Life's favor and remanded the case for additional consideration based on "refinements" Glenn required to First Circuit precedent on the appropriate standard of review for conflicted ERISA plan administrators. The court makes clear that Glenn requires a trial court to take the particular facts of an insurer's structural conflict of interest into account on a case by case basis. "[C]ourts are duty-bound to inquire into what steps a plan administrator has taken to insulate the decisionmaking process against the potentially pernicious effects of structural conflicts." In addition, depending on the facts of the case, the conflict may be so signicant that it justifies a ruling by the court that a claim denial was arbitrary and capricious.
But the most interesting aspect of the decision is its language about what discovery is available to claimants in ERISA benefit denial cases. The opinion acknowledges that discovery may be necessary to gather the information the Supreme Court identifies as relevant in Glenn. But, curiously, the majority opinion makes clear its hostility to the idea that the same scope of discovery ordinarily carried out in other types of civil litigation would be proper to flesh out the conflict of interest issues identified by the Supreme Court. Any discovery directed to conflict of interest in an ERISA benefits case ". . . must be allowed sparingly and, if allowed at all, must be narrowly tailored so as to leave the substantive record essentially undisturbed." This, despite the Supreme Court's statement in Glenn that it contemplates no "special procedural or evidentiary rules" different from other litigation as to how evidence of conflict of interest will be presented. Glenn, 128 S.Ct. at 2351.
The majority opinion then goes on to foretell what district courts in the First Circuit can expect the pre-litigation appeal record to contain by way of information that will make discovery as to conflict unnecessary in future cases. Quite honestly, the penultimate paragraph in Section III of Denmark is simply bizarre. Such soothsaying simply has no place in a judicial opinion. This paragraph is a badly concealed attempt to instruct insurance companies and other conflicted ERISA fiduciaries how they can curtail discovery into facts they would rather not have come to light and that could demonstrate they are ignoring their fiduciary duty of loyalty to ERISA plan participants and beneficiaries.
A concurring opinion from Judge Lipez shares some of my heartburn. That concurrence criticizes the majority opinion for its hasty and unwarranted discussion of complex legal issues that neither party to the litigation briefed or raised on their own. Courts are ". . . far more likely . . . to fashon defective rules, and to assert misguided propositions, which have not been fully thought through . . ." when they stray into territory based on their predilections. The majority opinion's language that discovery must be allowed sparingly is an "unwarranted signal that discovery into the existence of an actual conflict is disfavored." In future cases, First Circuit district courts "should not feel bound by the hostile attitude towards discovery that is improvidently reflected in dicta in the majority opinion."
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.
A couple of days ago the CBS affiliate in California's Bay Area aired a story about Melinda Carstens' battle with her disability insurer. The fight concerned the insurer's assertion that it could offset against the disability money it owed her funds the Social Security Administration paid her son because Melinda was disabled. You can see the story and read the transcript of it here. Fortunately for Melinda, the trial court agreed with her that the insurer had no ability to take the offset and reduce her disability benefits.
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.
A few basic truths of ERISA follow. First, when a claim is denied, generally claimants have to appeal that denial to the insurer or other plan fiduciary. If they don’t exhaust their pre-litigation appeal obligations, the court will throw them out when they file suit to recover those benefits. Second, when the claimant does end up in litigation, the court will generally consider only the arguments and evidence the claimant submitted in the pre-litigation appeal process. Thus, the pre-litigation appeal process is critical. The case the claimant can present in court is shaped by, and dependent on, the pre-litigation appeal process.
It’s in light of these realities that Kahane v. UNUM, __ F.3d ___, 2009 U.S. App. LEXIS 6957 (11th Cir. 2009), issued last week, is so troubling. 29 U.S.C. §1132(g)(1) states that a court may, in its discretion, award a reasonable attorney fee and costs to either party in a case to recover ERISA benefits. The trial court ruled that a claimant has no ability to recover fees and costs for the pre-litigation appeal work and the Eleventh Circuit affirmed. The court reasoned that, advisable though it may be, retaining an attorney during the pre-litigation appeal process is not mandatory for a claimant. In addition, the pre-litigation appeal process was not intended to be complex, expensive or time consuming. To provide for the possibility of a fee award in that context could hamper those virtues. Besides, every other Circuit decision to consider the matter had likewise denied the possibility of an attorney fee award for pre-litigation appeal work.
So, here’s the lay of the land in light of Kahane. Before they can file suit, claimants have to appeal the denial of their claims to the insurer or plan administrator who originally denied their claim. And any lawsuit they do file will likely stand or fall based on the quality of the arguments and evidence presented in that pre-litigation review. Those arguments and evidence are usually complex. The appeals are usually being made to persons or companies with inherent, significant conflicts of interest. They are charged with looking out for the interests of the claimants but they also are usually protecting their own bottom line. Those ERISA fiduciaries almost always have granted themselves discretionary authority that effectively insulates them from any searching review by a judge if litigation follows the denial. If anyone needed a knowledgeable lawyer in this situation, these claimants do. If the claimant, against all odds, ends up getting a court to reverse a denial of a claim, will the federal judiciary even allow for the possibility of a court awarding attorney fees and costs associated with the pre-litigation appeal process? No.
Durand v. Hanover Ins. Group, ___ F.3d ___, 2009 U.S. App. LEXIS 5749 (6th Cir. 2009), demonstrates limits to the obligation to exhaust pre-litigation appeals before bringing a suit for wrongly denied ERISA benefits. The case involves a pension plan participant’s challenge to the plan’s method of calculating lump sum benefits. The trial court dismissed the case because the plaintiff failed to exhaust her pre-litigation appeal obligations. The Sixth Circuit reversed.
While exhaustion of pre-litigation appeals is required for ERISA’s run-of-the-mill benefit denial claims, this case holds that challenges to a plan fiduciary’s interpretation of statute or the legality of actions administering the plan do not require the plaintiff to exhaust pre-litigation appeals. Interpretation of statute is purely within the authority of the judiciary. In addition, requiring plaintiffs to ask ERISA plan administrators to ignore the language of the plan terms because they are written in a way that violates the statute is futile. Likewise, to expect plan fiduciaries to judge the legality of their own actions is unreasonable. In these situations, plan participants and beneficiaries may bring their suits directly to federal court without exhausting "administrative" remedies.
The court’s rationale is closely related to the idea that language of a plan document granting discretion to a plan administrator does not insulate that person or entity from plenary, de novo review by a court when a plaintiff challenges the legality of the plan fiduciary’s action or its interpretation of ERISA's legal requirements.
Earlier this week the Sixth Circuit affirmed that Michigan’s Commissioner of Insurance has the regulatory power to ban discretionary authority clauses and that ERISA does not preempt that action. The case is American Council of Life Insurers v. Ross, 2009 U.S. App. LEXIS 5748, ___ F.3d ___ (6th Cir. 2009).
Ross is important. Say you are about to enter a financial transaction involving a significant amount of your money. You are dealing with someone who knows a lot more about the ins and outs of finance than you do. He asks you to let him insert language in the contract that gives him alone the ability to interpret the terms of that contact and determine whether you and he have performed the obligations under it. He also tells you that if a dispute arises, that same language will allow a court to reverse his decision only if the Judge determines he has been completely unreasonable in his interpretation of the contract or his determination about whether the contract has been performed as required.
Would you agree to do a deal with that person? Of course not. Yet that is what insurance companies do every day with employee benefits. Fortunately, the Sixth Circuit decision makes it clear that the state insurance commissioners in Michigan, Ohio, Kentucky and Tennessee can prohibit these types of overreaching discretionary authority clauses in an insurance contract.
I’ve been out of commission for the last month and a half with the 45 day Utah state legislative session. My first session as a member of the House of Representatives was very interesting. It reminded me of law school: trying to get a drink out of a fire hydrant. But I'm going to stay away from politics, at least on this blog.
I did have one success in an opinion issued from the Utah Supreme Court shortly after the session began and that I’m just getting around to commenting on. Mellor v. Wasatch Crest, 2009 UT 5, involves a fight about coordination of benefits between a health insurer and Medicaid for expenses arising out of a tragic near drowning of Chris Ann Mellor's young son, Hayden Williams. More on that in the next post.
More about Mellor v. Wasatch Crest, 2009 UT 5, and its coordination of benefits discussion. About a year before his drowning accident, Hayden’s father’s employment terminated and Dad elected COBRA coverage for his family, including Hayden. The accident brought weeks of hospitalization and mounds of medical expenses. Hayden’s mother applied for Medicaid coverage and coverage was approved retroactively to two days before the accident. Mom continued to pay COBRA premiums for the insurance coverage. But when the insurer got wind that Hayden was on Medicaid, it argued that the terms of its policy made it secondary to Medicaid. Medicaid disagreed. The trial court ruled in favor of the insurer. That’s when I got involved in the case and appealed to the Utah Supreme Court.
The decision from that Court made short work of Wasatch Crest’s argument. Both the language of COBRA and the terms of the insurance policy made it clear that while the insurer may have been able to cut off its obligations to provide primary coverage for its insured if he began to collect Medicare, the same is not true of Medicaid. As between that needs based taxpayer funded benefits program and private insurance, the insurer will always be required to provide primary coverage.
Mellor v. Wasatch Crest makes clear that insurers of Medicaid eligible insureds are not able to shift the costs of medical care to taxpayers. That’s a good thing for the taxpayers.
Last week I blogged about the Nolan case from the Ninth Circuit. Expanding on the theme of discovery in ERISA benefit recovery cases, a couple of post-Glenn federal district cases provide more detail on the specifics of what conflict of interest discovery is permissible by plaintiffs who seek court review of their denied claims. The cases are Burgio v. The Prudential Life Ins. Co. of America, 253 F.R.D. 219 (E.D.N.Y. 2008), from a few months ago and Santos v. Quebecor World Long Term Disability Plan, from last week. I’ve place the two rulings in the website library.
They are both worth some study for the specific types of information claimants should be seeking to determine the extent to which an insurer’s inherent conflict of interest has tainted the decision-making process for any particular ERISA claim. One of the real advantages for claimants about the conflict of interest discovery allowed by the Supreme Court in Glenn and followed up by Cross-Hogan, Burgio and Santos is that it has little downside. The discovery doesn’t allow the insurer to get additional information that bolsters its denial. But it does allow the plaintiff to get information that, potentially, calls into question a plan fiduciary’s commitment to ERISA’s stringent fiduciary duty and claims procedure requirements.
ERISA plans and their fiduciaries have almost invariably asserted that, for ERISA benefit recovery cases, district courts are limited to the pre-litigation appeal record, sometimes referred to by the misnomer of "administrative" record. Insurers and plan administrators want to limit claimants to the information they present before litigation begins for a number of reasons. But one big factor in their thinking is that insurers recognize the claimants usually do a relatively haphazard job of appealing the denials before litigation.
However, hard and fast application in litigation of the "no facts beyond the record" rule took a big hit MetLife v. Glenn, 128 S.Ct. 2343 (2008). That case quite clearly allows for discovery and production of facts outside the pre-litigation appeal record relating to conflict of interest. Yesterday the U.S. Court of Appeals for the Ninth Circuit issued a decision, Nolan v. Heald College, the builds on Ninth Circuit precedent and Glenn to more definitively establish that, at least as to conflict of interest, future ERISA benefit recovery cases will not be limited to a pre-litigation appeal record.
Jeanne Nolan had a disability claim against her employer’s disability insurance carrier, Metropolitan Life. MetLife paid her claim for the first two years but when the policy’s definition of disability switched from "own occupation" to "any occupation," MetLife asserted Nolan could work in a sedentary occupation and terminated her benefits. MetLife relied on the opinions of two file reviewer physicians who worked with an outside consulting company, Network Medical Review, in denying Nolan’s claim. In litigation, Nolan presented for the first time information to the trial court showing that the two reviewing physicians and NMR received a substantial portion of their income doing file reviews for MetLife. She argued that under Ninth Circuit precedent and Glenn, the trial court needed to take this information into account as a reason to substantially reduce the deference a court would otherwise accord MetLife’s denial.
The trial court ruled that an abuse of discretion standard of review, untempered by skepticism based on the information of bias that Nolan presented, applied and that MetLife was entitled to summary judgment in its favor. Nolan appealed and the Ninth Circuit reversed and remanded the case to the trial court for full consideration of the facts relating to conflict of interest and bias in an evidentiary context to determine the appropriate degree to which deference to the insurer’s decision needed to be reduced.
The Ninth Circuit stated, ". . . the precise . . . [standard of review in abuse of discretion] cases where the plan administrator is also burdened by a conflict of interest is only discernable by carefully considering the conflict of interest, including evidence outside of the administrative record that bears upon it." Slip op., p. 487. The trial court erred by evaluating the evidence relating to bias of NMR and its reviewers without the benefit of an evidentiary hearing or bench trial. As the decision puts it, "[t]here is no such thing as . . . findings of fact, on a summary judgment motion." To determine whether MetLife was entitled to summary judgment, the trial court had to initially consider the information about conflict of interest and bias introduced for the first time in litigation and evaluate how, if at all, that information changed the standard of review from undiluted abuse of discretion to something closer to de novo. Making this inquiry without an evidentiary hearing was improper.
While the Ninth Circuit relied primarily on circuit precedent for its decision, it made clear that Glenn was consistent with its ruling. There is little question that Nolan is correct on this point. The case will likely serve as a guidepost for other circuit and district courts as they wrestle with how to properly apply the language of Glenn.
John McCauley applied for disability benefits through his employer’s insurance carrier, First Unum Life Insurance Company. First Unum denied the claim and when McCauley sued, the trial court, utilizing an arbitrary and capricious standard of review, upheld that denial. The appeals court reversed and granted McCauley benefits. Its decision, McCauley v. First Unum, decided a couple of days ago by the U.S. Court of Appeals for the Second Circuit, teaches many lessons.
First, the factual background for the case. McCauley was a senior vice president and director of Sotheby’s tax department when he was diagnosed with advanced colon cancer. Fortunately, an aggressive treatment regimen of extensive surgery and subsequent experimental chemotherapy saved his life. The downside was that he was left with significant residual impairments. He tried working at Sotheby’s and several other positions but could not handle the demands of a full time job, even one with sedentary physical requirements.
He applied for disability benefits but First Unum denied the claim, in large part because his physician simply filled out a form provided by First Unum that did not provide the doctor the opportunity to flesh out his relatively short and terse answers. Although McCauley could not carry out some strenuous physical activities, his physician made clear that McCauley could carry out some of the physical requirements of a sedentary job.
McCauley appealed First Unum’s denial and submitted a more detailed and complete statement of the nature of his limitations. He had chronic diarrhea which he had to work hard to control by carefully timing ingestion of food. Even so, his intestinal problems kept him from being fully functional. He had chronic and acute renal problems which caused blood in his urine and the formation of kidney stones every two weeks. During the time he was passing these stones he was unable to do anything. He had progressive vascular sclerosis as a result of the chemotherapy which resulted in severe chronic headaches. This caused an inability to focus eyesight and a lack of concentration. He had chronic insomnia that caused lethargy and required him to take naps during the day. He had near constant incisional pain which required the regular use of Percocet, an opiate.
First Unum was not persuaded by this more detailed information. A nurse at First Unum provided her conclusion to others in the company that the nurse felt this additional information did not constitute new medical information and that it was not verified by McCauley’s attending physician. First Unum then sent a letter to McCauley maintaining its denial. It stated that the information McCauley provided was not different than the information presented in his physician’s statement accompanying the initial request for benefits. The letter also represented that McCauley’s detailed statement had been reviewed by First Unum’s in house physician who concluded that McCauley’s restrictions and limitations did not prevent him from working. Finally, the letter did not inform McCauley that First Unum’s denial of McCauley’s appeal was based largely on the fact that the detailed statement McCauley submitted was not signed by a physician.
The trial court’s ruling in favor of First Unum was largely based on the deferential, "arbitrary and capricious" standard of review. The Second Circuit discussed the proper standard of review in light of MetLife v. Glenn, 128 S.Ct. 2343 (2008), decided after the trial court’s decision. The Second Circuit makes clear that, like all insurers acting both as payers of benefits and as ERISA fiduciaries administering plans, First Unum acted under an inherent conflict of interest that courts have to factor into a case by case evaluation of whether the insurer acted in an arbitrary and capricious manner in denying a claim.
In this particular case, the Second Circuit was particular irked by First Unum’s deceptive statements to McCauley in its response to his appeal. These "deceptions" included 1) the insurer’s assertion that the detailed statement McCauley provided to the insurer about his ailments and their effect on his activities of daily living were no different that what had initially been provided by McCauley, 2) its failure to tell McCauley that a primary reason for rejecting McCauley’s appeal was that the detailed statement was not verified by McCauley’s physician, 3) its refusal to consider and investigate the detailed information provided by McCauley, 4) its self-interested and selective reliance on the earlier, relatively incomplete, statement of McCauley’s physician’s statement of McCauley’s limitations in preference to McCauley’s later more detailed and complete statement, and 5) its statement to McCauley that First Unum’s physician had reviewed McCauley’s detailed statement and found it wanting as proof of disability.
Finally, the Second Circuit picked up on the language of Glenn that courts could properly consider whether an insurer has a history of biased claims administration. The Second Circuit was concerned with the fact that First Unum has a long and well-established history of "erroneous and arbitrary benefits denials, bad faith contract misinterpretation, and other unscrupulous tactics." This "well-documented history of abusive tactics" together with the absence of any evidence to show that the company had mended its ways was yet another factor that caused the Second Circuit to reverse the denial of benefits and order payment of the funds McCauley sought.
I’d like to report that insurer's cherry picking of information, misleading communications to claimants, willful disregard of information and plain refusal to acknowledge undisputed facts is unusual when insurance claims are filed. But in my experience, it is not unusual at all.
McCauley was fortunate to have one of the greatest plaintiff’s insurance lawyers of the last half century, Eugene Anderson, as his attorney. My hearty congratulations to Gene for his work in helping to get a just result for his client. But it’s sobering to realize that few individuals with wrongfully denied insurance claims will be able to find counsel as skilled and tenacious as Gene. And often the highest quality advocacy is necessary to successfully challenge an insurer’s wrongful denial of insurance claims.