Another recent disability case out of the Sixth Circuit warrants notice. The case, Rochow v. Life Ins. Co. of North America
, ___ F.3d ___, 2007 U.S. App. LEXIS 7599 (6th Cir. 2007) involves a high level executive of a company who, over the course of a few months, developed debilitating cognitive loss. LINA, the insurer, denied his disability claim. The trial court reversed that denial, granted Rochow benefits and the Sixth Circuit affirmed that decision.
The case shows that insurers may not ignore common sense in enforcing the terms of a disability policy. The backdrop is a sad fact scenario but one that also illustrates the quirks of disability insurance. Rochow was President of Arthur J. Gallagher & Co. for ten years. Suddenly, in 2001, within a period of a little over six months, he was demoted from President to sales executive-account manager and then terminated because of poor performance. A few weeks after being terminated he was involuntarily committed to a psychiatric hospital and was finally diagnosed with HSV-Encephalitis, an extremely rare form of herpes that can cause brain damage similar to that associated with strokes or traumatic brain injuries.
Rochow, through a personal representative, filed a disability claim about a year after losing his job. LINA, the insurer, denied it for a couple of different reasons. First, the policy indicated that disability coverage ended as of the date the employee was no longer in “active service” with the company. In addition, a claimant qualified for disability benefits if they were unable to perform the regular duties of their own occupation or a qualified alternative. LINA pointed out that Rochow had worked up to the date of his termination and did not file a disability claim until many months after he lost his job. LINA reasoned that if he was working with the company in one capacity or the other until his last day on the job, how could he have been disabled at any time when he was in active service? No denying there is some superficial appeal to the argument.
As the second basis for denial, LINA asserted that Rochow failed to submit sufficient medical evidence to establish that he could not perform the regular duties of his own occupation. Finally, LINA relied heavily on the old deferential standard of review, asserting that unless its denial was arbitrary and capricious, the court should not disturb its decision.
The trial court disagreed. The problem for LINA was that the employer had made clear through its actions that Rochow couldn’t perform the regular duties of his job either as President or as sales executive-account manager. The fact that he was collecting pay and was on the job until termination didn’t address the critical issue of whether he could adequately perform the duties of his job. On the latter point, the trial court felt Rochow had clearly presented adequate evidence to carry his burden of proof.
The Sixth Circuit affirmed the trial court ruling that LINA had been arbitrary and capricious:”the fact that Rochow remained on the payroll [until he was terminated] . . . is not determinative as to whether or not he was disabled during that time; there is no ‘logical incompatibility between working full time and being disabled from working full time’” (citing Hawkins v. First Union Corp LTD Plan, 326 F.3d 914, 918 (7th Cir. 2003). While Rochow was not diagnosed with the illness that caused his cognitive loss until after his employment terminated, the evidence of the incapacitating effects of that illness at the time he was terminated was very clear. The Sixth Circuit also noted that under ERISA, 29 U.S.C. §1104(a)(1)(A), the statute’s fiduciary duty of loyalty, LINA was obligated to act solely in the interest of its insureds and for the exclusive purpose of providing them benefits.
In its succinct conclusion, the court states that “the entire record, viewed in perspective,” indicates that LINA was arbitrary and capricious in denying benefits, that its decision was unsupported by substantial evidence, that the process by which the decision was reached was not the result of deliberate and principled reasoning and that LINA violated ERISA’s duty of loyalty when it denied Rochow’s claim.
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