Last week I blogged about a recent Fourth Circuit case, Evans v. Eaton Corp., ___ F.3d ___, 2008 U.S. App. LEXIS 263 (4th Cir. 2008). In reversing the trial court’s decision to award benefits to the claimant, the court of appeals in Evans stressed the deference to which the ERISA fiduciary was entitled from the court when the plan documents reserve discretion to the plan administrators to determine eligibility for benefits. I stated that if a plan uses boilerplate discretionary language in its ERISA documents to shield its final results from meaningful scrutiny, courts must then examine with greater scrutiny whether the fiduciaries have complied with ERISA’s claims procedure requirements. To the extent they fail to provide a “full and fair review” of the claim, as required by 29 U.S.C. §1133 and that statute’s underlying regulations, the denial should not be allowed to stand. Echoing that theme is a case decided last month from the same court that decided Evans v. Eaton Corp. In Guthrie v. National Rural Electric Cooperative Assoc. LTD Plan, ___ F.3d ___, 2007 U.S. App. LEXIS 28563 (4th Cir. 2007), the court was, as in Evans, dealing with an abuse of discretion (arbitrary and capricious) standard of review. Callie Guthrie had worked as a custodian for many years but over time she developed a variety of ailments including respiratory problems, carpal tunnel syndrome, arthritis, asthma, and other conditions. Her treating physicians initially indicated she was disabled only from her own occupation and she received long term disability benefits for two years. After the two year anniversary of coverage, she was entitled to continuing long term disability payments only if she demonstrated that she was disabled from working in any occupation. During the initial two year period, her condition continued to deteriorate and her physicians eventually concluded Callie was disabled from working in any occupation. The ERISA plan disagreed. Relying on the opinion of a pulmonologist retained by the plan to review Callie’s medical records, the plan concluded that Callie could work in some other job and denied her application for benefits after the first two years. Callie sued and the trial court sustained the ERISA plan’s denial. On appeal, the Fourth Circuit reversed that denial and granted benefits to Callie. The decision bores in on the court’s primary concern: the plan did not provide a full and fair review of Callie’s claim. In order to satisfy ERISA’s claims procedure requirements, the ERISA plan administrator’s decision must be “the result of a deliberate, principled reasoning process” and must be “supported by substantial evidence.” Applying that standard to the evaluation of Callie’s claim, the Fourth Circuit determined that denying her claim was unreasonable. The plan fiduciary failed to take into consideration the complete picture of Callie’s numerous physical, mental and cognitive limitations in evaluating whether she could work in any occupation. The claims procedure regulations called for the plan administrator to do more than refer Callie’s claim out to a pulmonologist for a review of only her asthma and other respiratory problems. Those regulations required the plan to “consult with a health care professional who has appropriate training and experience in the field of medicine involved in the medical judgment” relating to each of the claimant’s conditions that are asserted to be disabling. Beyond her respiratory problems, Callie had significant problems with osteoarthritis, depression, anxiety, skin lesions, esophageal disease, hyperlipidemia, and hypertension. Her physicians made clear that, especially in combination, these conditions were disabling independent of Callie’s asthma and other respiratory problems. The plan failed to consider any of these other conditions in evaluating whether Callie could work in any occupation. There was no evidence that, entirely apart from her respiratory problems, the other conditions were not completely disabling. The court reversed the plan’s denial and directed that the trial court enter judgment for Callie and order the plan to provide her LTD benefits. Moral of the story? Courts may defer to an ERISA plan fiduciary's decision to deny benefits. But they should never allow plan administrators to cut corners in providing a claimant anything less than a full and fair review of a claim. Those claim procedures identified under ERISA must be examined especially closely when a deferential standard of review insulates the plan’s final decision from searching scrutiny by the court.
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Don Levit 11/17/2008 01:47 PM
Brian: Thanks for providing this case. Yes, if there is some method behind the madness, the insurer may be given the benefit of the doubt. However, there are times, such as this case, in which only madness is evident. I have a question concerning the existence of a separate trust not posing an inherent conflict into claims decisions. The decision noted a case in which employee benefits are paid out of a segregated ERISA trust fund rather than an employer's operating budget. It was decided there was no structural conflict of interest. It went on to state that "unlike an insurance company that insures and administers a plan, NRECA's trust fund structure removes the inherent incentive to deny claims because the funds do not come from NRECA or CBA's assets." The funds, after being segregated, do not come from their assets. However, if fully insured, and the group is experience rated, premiums will increase the following year. And, if self-funded, the claim will force the company to increase payments into the trust fund the following year, if the reserve is too low, or, the claim is ongoing. It does seem, though, that when the funds are segregated into a trust, that the trustees have greater resonsibilities to pay grey area claims for self-funded plans, than if the plan was fully insured. Am I correct here? Don Levit
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Brian S. King 11/17/2008 01:47 PM
Hi Don-- Courts are scattered across the board in how they handle your questions. But I would say there are a couple of tendencies. First, courts tend to give greater deference to self funded plans than insurers. This is because insurers entire business activities focus on doing what they can to make sure they are competitive in the market and that necessarily involves denying rather than paying claims that provide a justification for denial. To the contrary, the sponsor of a self-funded plan is almost always involved in some other business and the decision as to whether to pay or deny one particular claim isn't going to make or break the plan or the employer. At least that is the rationale according to these courts. I think the stronger rationale for the difference I see in how courts treat self funded and fully insured plans is the identity of the administrator of the plan. If the decision maker for a self funded plan is a board of trustees with representatives from both employees and employers represented (as is common for union trust funds), a court will feel it is more justified in being fully deferential to that decision maker rather than where an insurer is involved.
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