The Tenth Circuit & ERISA's Limited Scope of Review
Yesterday the U.S. Court of Appeals for the Tenth Circuit issued a comprehensive review of the scope of review for an ERISA benefit denial claim in the context of a de novo standard of review. You can read the case, Jewell v. Life Ins. Co. of North America, on the court's website here. The trial court awarded benefits to Jewell but the Tenth Circuit reversed that decision and remanded the case for additional consideration.
The case was written by Judge Michael W. McConnell, a well respected jurist who was on the short list of potential nominees for the most recent Supreme Court nominees. Lynn Jewell was receiving long term disability benefits from LINA, his employer’s ERISA plan’s disability insurer. Jewell suffered from a variety of symptoms, both mental and physical. LINA cut off his benefit and Jewell appealed that decision. He submitted additional medical information but LINA denied that appeal in January, 2003. Jewell appealed a second time in September, 2003, and submitted a list of head injuries he had suffered in the past. LINA denied that appeal in November, 2003. Jewell then filed suit in state court and LINA removed the case to federal court.
Once in federal court, in June, 2004, LINA filed a “motion for judgment on the administrative record.” The decision criticizes LINA’s characterization of its motion as creating confusion about whether the trial court faced with such a motion of ruling on summary judgment or conducting a bench trial “on the papers.” P. 4. In any event, Jewell responded by asking for an opportunity to supplement the record in LINA’s possession at the time the case was filed. Specifically, Jewell wanted to submit letters dated February, 2005, from his neurologist and psychiatrist and an affidavit from Jewell likewise signed in February, 2005.
The trial court accepted both the letters and the affidavit. It stated that while the general rule in de novo review ERISA cases for denied benefits prevents enlargement of the pre-litigation appeal record after suit is filed, Jewell’s materials contained information that was not in that pre-litigation appeal record and they “could assist the Court in understanding the medical issues in the case.” Thereafter, relying heavily on the February, 2005, materials, the trial court ruled in Jewell’s favor on the merits of the case. LINA appealed, arguing the trial court erred in expanding the pre-litigation appeal record. The case discusses at length the earlier Circuit decision of Hall v. UNUM Life Ins. Co. Of America, 300 F.3d 1197 (10th Cir. 2002), another ERISA benefits case reviewed under a de novo standard of review.
In Hall the Tenth Circuit established the general rule that, when dealing with a de novo standard of review, the court should generally not expand the materials it reviews beyond those exchanged by the parties before litigation. Yesterday’s decision expands on that analysis.
The case reiterates the well established principle that the federal judiciary should not function as substitute ERISA plan administrators in reviewing benefit claims. Restricting review to the materials the parties exchange before litigation encourages them to develop the facts and arguments as early as possible and facilitates resolution of disputes without bringing suit. It also avoids problems of loss or staleness of evidence, allows for a more effective review of the matter by a court should litigation ensue and promotes quicker, less adversarial settlement of claims. Consequently, the parties must not view litigation as a second bite at the apple.
Evidence outside the pre-litigation appeal record is permitted only in unusual circumstances and the party seeking admission of that information bears the burden of satisfying four requirements. First, the evidence must be “necessary to the district court’s de novo review." Second, the party must demonstrate that the information “could not have been submitted to the plan administrator at the time the challenged decision was made.” Third, the evidence must not be cumulative or repetitive. Finally, the information must be something more than simply “better evidence than the claimant mustered for the claim review.” Pp. 8-9. Even if these four proofs are made, the trial court may refuse to consider the evidence if it feels it has the ability to resolve the case with dealing with the additional delay and expense of considering the new information.
Jewell notes that specific examples of “exceptional circumstances” contained in Hall that may allow a trial court to expand the record do not make extra-record evidence automatically admissible. They are simply factors a court may consider in deciding whether or not to take into account additional information. In addition, and independent of the examples of exceptional circumstances, the four specific factors outlined above must exist.
The Tenth Circuit determined that the trial court’s explanation for why it admitted Jewell’s affidavit and his two extra-record doctors’ letters was inadequate to establish that the four elements of the Hall test were satisfied. While the documents were not cumulative or repetitive, (and, thus, the third requirement of the Hall test was satisfied), the other three Hall factors were not met.
In discussing the first requirement, that the evidence must be “necessary” to the trial court’s review, Jewell rejects an interpretation of that word on either end of the spectrum of meaning. “Necessary” does not denote that the evidence must be absolutely imperative. On the other hand, the information must be something more than simply helpful to the court’s review of the claim. The trial court’s characterization of the documents as containing information that “could” assist it in understanding the medical issues was too weak to satisfy the necessity requirement.
As to the second requirement, inability to present the evidence during the pre-litigation appeal process, the decision makes clear that Jewell could and should have presented the information contained in the two doctors’ letters and his affidavit before litigation.
Jewell also failed to satisfy the fourth requirement; the evidence must be something more than “simply better evidence” than what was presented during the pre-litigation appeal process. The decision gives more meaning to this opaque phrase by stating that new evidence which is simply the same kind of information as previously submitted but of a more persuasive character does not satisfy the fourth Hall requirement. Hall itself provides a good example of the different quality evidence the court has in mind.
In that case, the claimant asserted that ongoing, severe pain disabled her. After the pre-litigation record closed, she underwent surgery to seek relief from her condition. Evidence of the surgery was admissible under the circumstances of that case because it was “verifiable and hard-to-manipulate corroborating evidence of a kind to be found nowhere else in the record. . . . The surgeries were more than merely better or more convincing versions of Ms. Hall’s testimony and the conclusions of her doctors.” Jewell, P. 24.
A couple of aspects of the case are noteworthy from my claimant’s attorney perspective. The court recognizes that often a record is incomplete because of failures of the insurer to included facts necessary to support its denial of a claim. When that happens, “[t]he consequences of a record insufficient to allow meaningful review will be borne by the party responsible for the insufficiency.” P. 14-15. In my experience, insurers or other ERISA fiduciaries often fail to compile a record that justifies their actions. When information that is necessary to provide a reasoned basis to deny a claim is simply missing from a claim file, the loss will fall on the plan fiduciary responsible for putting together that record.
There is no question in my mind that if a claimant with a solid right to ERISA benefits gets their claim into the hands of an excellent ERISA claimant's attorney before the end of the pre-litigation appeal process, that attorney is likely to do a better job of building a record that will justify payment of a claim than the job an insurer is likely to do in building a record that justifies denial of the claim. Jewell reinforces the importance of getting a knowledgeable ERISA attorney involved in the pre-litigation appeal process early rather than late or not at all. When claimants don't do so, it's usually because they are ignorant. When fiduciaries don't do so, it's usually because they are arrogant or cheap. There is no shortage of each type of claimants and fiduciaries.