From the U.S. Court of Appeals for the Ninth Circuit comes an important new case about the effects of an ERISA fiduciary’s failure to provide a full and fair review of a claim. The day before yesterday the court issued Saffon v. Wells Fargo & Co. Long Term Disability Plan, ___ F.3d ___, 2008 U.S. App. LEXIS 334. You can find the decision on the Ninth Circuit website here. The case involves Graciela Saffon’s application for long term disability benefits. Her claim was denied by MetLife, the disability insurer of the Wells Fargo ERISA plan. Reviewing the case under a deferential standard of review, the trial court determined that MetLife had not abused its discretion. Ms. Saffon appealed and the Ninth Circuit reversed. Chief Judge Alex Kozinski, who wrote the opinion, is known for his sharp mind and stylish writing. He made it clear that he thought little of the methods MetLife used in reviewing Saffon’s claim. As I wrote the other day in reviewing the Evans v. Eaton Corp decision out of the Fourth Circuit, if a court is reviewing a denial of benefits under an arbitrary and capricious standard of review, the result is largely insulated from meaningful scrutiny by a federal court. In such a case, the focus often shifts to whether the plan fiduciary provided a “full and fair review” of the claim as required by ERISA’s claims procedure section. Saffon demonstrates that an insurer's violation of ERISA's full and fair review requirements justifies reversing a claim denial. Judge Kozinski’s analysis builds on a case that he wrote a decade earlier, Booton v. Lockheed Medical Benefit Plan, 110 F.3d 1461 (9th Cir. 1997), long a favorite of claimant’s lawyers. In Booton, the Ninth Circuit emphasized the importance of ERISA fiduciaries carrying on a “meaningful dialogue” in directly and fully telling claimants why a claim is denied and disclosing what information is necessary for claimants to perfect their claims. Commenting on the plan fiduciary’s execution of this mandate for Saffon's claim, Kozinski states: "MetLife cannot be faulted for taking our instructions in Booton too seriously. Its communications with Saffon and her doctors are hardly a model of clarity; they certainly do not explain 'in a manner calculated to be understood by the claimant' what Saffon must do to perfect her claim. For example, . . . [MetLife’s reviewing physician’s] statement that Saffon’s file 'lacks clear, sequential, detailed, objective clinical information which would completely preclude Ms. Saffon from an attempt to return to work' is little more than a long series of unconnected adjectives. How an absence of information could preclude Saffon from returning to work, what function the word 'sequential' plays in this litany, or why . . . [Saffon’s treating physician’s] report and attached MRI did not amount to 'objective clinical information' or was not 'clear' is left to the imagination." In addition, the court notes that MetLife ignored or mischaracterized information in the medical records about Saffon’s medical condition. Going further, the decision faults MetLife for raising a basis to deny the claim, Saffon’s failure to provide a functional capacity evaluation which could have provided greater assessment of her disability, without giving her a chance to respond to that point by either getting an FCE or demonstrating that it was unnecessary: “[i]nsofar as MetLife believed that a Functional Capacity Evaluation, or some other means of objectively testing Saffon’s ability to perform her job, was necessary for it to evaluate Saffon’s claim, it was required to say so at a time when Saffon had a fair chance to present evidence on this point.” The court also noted that objective evidence for such things as individual reactions to pain may not be available to Saffon and she should not be penalized for the failure to present evidence that simply does not exist. Finally, the court made clear that it was remanding the case not to MetLife but to the trial court for a full and fair review of Saffon’s claim. And in doing so, the Ninth Circuit requires that the trial court take into account MetLife’s procedural flaws to reduce the deference it would otherwise show to an ERISA fiduciary vested with discretion who had acted properly in carrying out a full and fair review as required by the statute. This is a welcome aspect of the case. As I’ve noted before, one of the awful effects of remands to insurers after a court determines that the insurer has violated ERISA’s claims procedure is that it effectively rewards the fiduciary for its bad behavior. Claimants rarely get “do-overs” in ERISA litigation. But when a court simply remands a case to an insurer after the court determines that the insurer has violated ERISA, it creates no incentive whatsoever for the insurer to get the claims procedure right the first time. The court relied heavily on a law review article by John Langbein published last year about the UNUM/Provident scandal and how an insurer’s inherent conflict of interest compromises its ability to carry out its fiduciary duties under ERISA. You can find my discussion of, and a link to, Professor Langbein’s article here.
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