LONG TERM DISABILITY IMPORTANT RECENT DEVELOPMENTS
By: Richard Neuworth
The purpose of this article is to familiarize practitioners with important case law and other developments concerning long term disability benefit claims since January 1, 2002, when the new U.S. Department of Labor regulations became final concerning the handling of disability and other employee benefit claims arising under the Employee Retirement Income Security Act ("ERISA") See U.S. Department of Labor website claimsprov.reg.html.
The first and most important development to report is a settlement entered into by the UNUM companies with claimants that were denied disability benefits between 2000 and 2002. UNUM as part of this settlement is required to reopen and review claims that it previously denied regardless of whether or not the claimant filed litigation. See www.disabilityenewsalert.com for details concerning the settlement.
At the outset of a disability or other employee benefits claim, one must first determine whether or not the Employee Retirement Income Security Act of 1974 covers the benefit plan. In Raymond B. Yates, M.D. P.C. Profit Sharing Plan, v. Hendon, 124 S.Ct. 1330, (2004), the Supreme Court held that the retirement plan of a "working owner" that has no employees other than himself could still qualify as a plan -- covered by the Employee Retirement Income Security Act of 1974.
Employer Sponsored Plans - ERISA – CLAIMS PROCESS
1. 2002 U.S. Department of Labor Regulations – Do the regulations apply to the particular claims process and claim in question?
In DiCamillo v. Liberty Life Insurance Co., 287 F. Supp. 2d.616 (D. Md. 2003) Plaintiff DiCamillo began receiving his long term disability benefits in 2001 which continued into 2002 when they were suspended after he was viewed on film performing activities which indicated that he could perform activities at a level greater than what would be approved for disability. In addition, an independent medical examination was conducted and he was found not to be disabled.
An important issue in the case was the new 2002 DOL regulations applicable to the claims process that denied continuing long-term disability benefits to Mr. DiCamillo.
Chief Judge Motz held that the 2002 DOL regulations do not apply to the claims process unless the claim for benefits was filed after January 1, 2002.
In addition, Chief Judge Motz also held that a delay of eight days in deciding Plaintiff's appeal would not result in applying a different standard of review and applied a modified abuse of discretion standard.
Significance of Decision: The decision is significant on two important issues. Any claimant that begins receiving long-term disability benefits prior to January 1, 2002 will not be allowed to use the 2002 DOL regulations if benefits are subsequently suspended. Second, it is unlikely that the standard of review will change from abuse of discretion modified to de novo concerning judicial review of benefit claims arising prior to January 1, 2002 unless there is a significant unreasonable delay in deciding appeals by the insurer or self-insurer. The critical unanswered question is will the standard of review be lowered if there are significant violations of the 2002 DOL regulations or will the case be remanded back to the plan administrator. It would appear based on the latest Fourth Circuit decisions that the case will be remanded for reasons discussed infra.
2. TREATING PHYSICIAN - What is their role in the claims process and what weight must plan administrators give to their reports and opinion letters? In Black & Disability Plan v. Nord, 123 S.Ct. 1965, 1971 (2003), the important question before the Supreme Court was whether or not plan administrators of employer sponsored plans were required to give extra weight to the treating doctor's opinions and/or reports if there was a conflict between their opinions and the opinions of health care providers used by the insurer. In Nord, the treating doctor found the claimant disabled while the insurer's physician found that the claimant was not disabled under the terms of the policy. The Ninth Circuit found that where there was a conflict between the two that a lower standard of review applied found in favor of Nord and awarded disability benefits. The Ninth Circuit borrowed from Social Security case law and adopted the so-called "treating physician" rule. The treating physician rule provides, in short, that the opinion of a treating physician will normally be controlling, and that a rejection of it must be accompanied by specific findings.
The Supreme Court reversed and held that the Plan was not required to give extra weight to the opinions of treating physicians and that the Ninth Circuit erred by applying a lower standard of review. However, the unanimous Supreme Court also held that Plan Administrators, of course, may not arbitrarily refuse to credit a claimant's reliable evidence, including the opinions of a treating physician. See Black & Decker Disability Plan v. Nord at 123 S.Ct. 1972.
The Supreme Court held that the long-term disability case law is based on contract not statutory law borrowed from the Social Security Administration.
On remand, the Ninth Circuit reversed the earlier decision in favor of Nord.
Significance of Decision: The treating physician's findings and opinions are not sufficient to win a case for the claimant if there is a contrary opinion of an independent medical examination that is supported by other substantial evidence on the same condition or illness.
The Fourth Circuit since Nord supra in Stup v. UNUM Life Insurance Co., 390 F. 3d 301 (4th Cir. 2004) has also weighed in on the treating physician's role in the claims process and what weight must be accorded to the treating physician.
In Stup supra, there was a conflict between the treating physician and an in-house physician for UNUM as to whether or not the claimant was still disabled under the terms of the long-term disability policy.
Judge Motz held that an insurer such as UNUM had failed to adhere to the substantiality requirement by arbitrarily disregarding Stup's reliable evidence including the opinion of her treating physician, relying instead on ambiguous and insubstantial evidence favoring UNUM's own economic self-interest. It is thus UNUM not Stup, that has failed to follow an instruction of the Nord Court, i.e. that "plan administrators may not arbitrarily refuse to credit a claimant's reliable evidence including the opinions of the treating physician.
In Stup, unlike Nord, the only evidence to refute the opinions of the treating physician was a functional capacity evaluation that was ambiguous in terms of whether or not the claimant was capable of performing sedentary work.
See also, Collins v. Continental Casualty Co., 87 Fed Appx. 605 (8th Cir. 2004) (discussion of substantial evidence required to overrule treating physician)
There is one additional court of appeals decision that is noteworthy with respect to the role of the treating physician versus an independent medical examiner. In Hawkins v. First Union Corporation Long-Term Disability Plan, 326 F.3d 914, 917 (7th Cir. 2003), the Seventh Circuit stated that a treating physician's information would likely be superior to the information of a plan's medical consultant, if the consultant had not examined the claimant but had only spoken to the treating physician on the telephone.
In Hawkins, the Seventh Circuit in dicta observed that the procedures and rules of evidence including presumptions used by the plan might affect the weight given to the treating physician's opinions in a particular case. The unanswered question in Hawkins is what procedures in the plan's procedures would necessitate giving greater weight to the opinions of the treating physician or health care provider(s). Hawkins was cited with approval in Smith v. Continental Casualty Co. 276 F. Supp. 2d. 447 (D. Md. 2003)
Prior to Stup supra, a number of district courts emphasized the importance of obtaining an independent examination if the treating physician's opinions supported the claimant. In Laser v. Provident Life Ins. Co. Inc. 211 F. Supp. 2d. 645 (D. Md. 2002), Chief Judge Motz observed:
Several recent cases within this circuit have found an abuse of discretion by plan administrators affiliated with this defendant under circumstances in which the administrators did not utilize any independent examination or testing, yet reached medical decisions that contradicted that of the claimant's own physician. For example, just this year, Judge Davis of this court expressed concern over the decision by UnumProvident, this defendant's parent company, to rely only upon a "'paper' review of incomplete records by Unum's in-house personnel" without ordering an independent medical examination of a claimant whose treating cardiologist was "emphatically insistent" that she was disabled. Watson v. UnumProvident Corp., 185 F. Supp. 2d 579, 581-82 (D. Md. 2002). Judge Davis' decision to grant summary judgment to the plaintiff-claimant ultimately turned, however, on his finding that UnumProvident had failed to detect at any point during its review process that it had received the records of the wrong patient. Id. at 585. See also Hines v. Unum Life Ins. Co. of Am., 110 F. Supp. 2d 458, 463 (W.D. Va. 2000) (criticizing, inter alia, rejection by another UnumProvident subsidiary of a treating doctor's opinion without obtaining additional "medical evidence, opinions, or testing").
In Dunbar v. Orbital Sciences Corporation, 265 F. Supp. 2d. 572 (D. Md. 2003) the court held that the insurer could not ignore the opinions of the treating physicians on a condition that could be disabling while relying solely on their own consultant's opinion that the claimant was not disabled. The treating physicians' opinions were supported by diagnostic objective neuropsychological tests that had been performed on the claimant concerning his alleged cognitive impairments.
In Machovec v. Prudential Life Ins. Co. of America, 2004 U.S. Dist. Lexis 12496 (D. Md. 2004), the Court held that if the treating physician's opinions were not based on objective medical evidence or insufficient objective medical evidence and the Plan had other substantial evidence, the opinions of the treating physician could be rejected.
Significance of Decisions: A treating physician's opinions generally cannot be rejected if there is only tentative and ambiguous evidence to the contrary. The failure of the carrier to have the claimant seen for an independent medical examination or to contact the treating physician will likely result in a reversal of the denial decision even under the ERISA abuse of discretion standard.
3. What role, if any, do Social Security Administration regulations and disability decisions play in the ERISA claims process for long term disability benefits?
In Smith v. Continental Casualty Co., 369 F. 2d 412 (4th Cir. 2004), the Fourth Circuit restricted the use of Social Security pain regulations in determining whether or not a claimant satisfied the requirements of disability under a disability benefits plan covered by ERISA.
In Smith, the claimant was a vice-president of sales in the floor-covering department at J.J. Haines Co. Smith had a long history of back problems including three surgeries.
The insurer's policy had a provision that allowed for benefits based on Self-Reporting Symptoms. Specifically, benefits could be paid to a claimant based on symptoms reported to a treating physician including but not limited to pain, fatigue and other conditions.
Claimant argued before the district court that the Social Security pain regulations 90-1p regarding subjective evidence of pain satisfied the requirement for Self-Reporting symptoms. The Court agreed. See, 276 F. Supp. 2d at 447.
The Fourth Circuit reversed relying on Nord supra to hold that the district court could not base its decisions on Social Security pain regulations because ERISA regulations do not reference the pain ruling. ERISA doe s not mandate what benefits that an employer must offer. ERISA benefits are a matter of contract. Accordingly, if the plan language provided that pain could never support a finding of disability (which, we are quick to note, is not the case here), then the plan language would control.
Significance of decision: This decision is significant in two respects. First, Social Security decisions and regulations cannot be relied upon as a basis for arguing disability. The regulations may support other evidence in the claims file but standing alone are clearly insufficient to prove disability. Second, there is no requirement to pay disability benefits based on pain, fatigue or other subjective conditions unless there is express language in the plan that permits benefits based on these subjective conditions.
4. Narcotic(s)/Opiates and other types of medication(s) – Is required use of narcotics and opiates and other types of medications use provide sufficient evidence of disability in the claims process or is more required regardless of whether or not there is a pain provision in the insurance policy?
In Adams v. Prudential Ins. Co. of America, 280 F. Supp. 2d. 731 (N.D. Ohio 2003), claimant was required to take multiple narcotic pain relievers on a daily basis as a result of his medical condition that would impede his ability to perform any type of job. The Narcotic medications were recommended for moderate to severe pain.
The insurer did not consider the use of the narcotic pain relievers on claimant's ability to perform his job duties.
The Court held that the insurer's refusal to consider evidence of how the use of narcotic analgesics on a daily basis would affect a claimant's ability to perform a job was erroneous and awarded disability benefits to the claimant. The Court made this determination after analyzing all activities that would be affected by the use of the narcotics.
See also, Godfrey v. BellSouth Telecoms, 89 F. 3d. 755, (11th Cir. 1996) Dirnberger v. UNUM Life Insurance Co. of America, 246 F. Supp. 2d. 927 (W.D. Tenn. 2002) Stvarka v. Eastman Kodak Co., 945 F. Supp. 1532, 1547 (M.D. Fla. 1996) (plan failed to take into account effects of potent anti-depressant and antipsychotic medications that Plaintiff had to take on a daily basis.
Significance of decisions: Despite the Smith decision regarding pain provision in a policy, if a claimant can prove that the use of pain medications, such as narcotic analgesics on a daily basis would affect ability to perform a substantial number of activities then claimant may still prevail. An insurer must consider this evidence before denying a claim for additional benefits.
5. Alcohol and Drug Abuse Issues – When do either alcohol or illicit drug use bar the claimant from receiving long term disability benefits?
Under Fourth Circuit law it is clear that for purposes of interpreting insurance policies subject to ERISA, injury or death "that occurs the result of driving while intoxicated, is not an "accident" because that result is reasonably foreseeable. See Lamm v. Provident Life Insurance Co., 2004 U.S. Dist. Lexis 15303 (D. Md. 2004) citing Poeppel v. Hartford Life Insurance Co. 87 Fed. Appx. 665, 886 (4th Cir. 2004) Evidence of intoxication based on alcohol toxicology screen requested within two hours of an accident and doctor's report is sufficient evidence of intoxication despite test results of .07 taken within two hours after injury occurred.
6. Functional Capacity Evaluations ("FCEs") – what role if any can either a claimant or insurer ascribe to FCE findings in the claims process?
In Stup supra, the Fourth Circuit limited the use of functional capacity evaluations when there was other available evidence. Specifically, the Court noted the limited time for the test in that case of two and one-half hours and the ambiguous nature of the results of the test. In order for functional capacity evaluations to constitute substantial evidence, the results must be clear and unequivocal and it must actually have some bearing on the type of disability being asserted such as sedentary or light duty work that requires substantial sitting.
7. Videotapes Of Claimant's Activities – When will videotape evidence prevent a claimant from receiving benefits? In Dicamillo v. Liberty Life Ins. Co., the videotape demonstrated activities performed in excess of what the claimant maintained that he could perform. The insurer's decision to suspend continuing benefits was upheld on a modified abuse of discretion standard. See also, Coffman v. Metropolitan Life Ins. Co., 217 F. Supp. 2d. 715 (S.D. W.Va. 2002)(same result) Contra, Smith v. Continental Casualty Co. 276 F. Supp. 2d. 447 (D. Md. 2003)(activities not in excess of those claimed on forms – claimant awarded benefits under an abuse of discretion standard)
II. EMPLOYER SPONSORED PLANS – ERISA-LITIGATION
1. Standard of Review – Is the standard of review abuse of discretion modified or de novo based on the terms of the insurance policy and did the insurer act within the scope of that discretion?
In Gallagher v. Reliance Standard, 305 F. 3d 264, 268 (4th Cir. 2002) the Fourth Circuit applied a de novo standard because the insurer did not properly reserve discretionary authority. The Court held that the following language in the policy was insufficient to reserve the delegation of authority:
We will pay a Monthly Benefit if the Insured… submits to Reliance satisfactory proof of Total Disability to us.
The Fourth Circuit explained that there were two possible ways to interpret this language. (1) that Gallagher must submit to Reliance satisfactory proof of his disability or (2) that he must submit proof satisfactory to Reliance.
The Fourth Circuit held that the grant of discretion must be clear and unambiguous. The Fourth Circuit went on to find that the mere statement that "proof" or "satisfactory proof" is required does not clearly or unambiguously confer discretion.
Nevertheless, Gallagher was unable to prevail on a de novo standard because he could not prove by objective evidence that he was totally disabled.
In Stup v. UNUM Life Insurance Co, 390 F. 3d. 301 (4th Cir. 2004) the Court applied a modified abuse of discretion standard. The Court in Stup supra, noted that the policy provided UNUM with "the discretionary authority both to determine an employee's eligibility for benefits and to construe the terms of the policy. The Fourth Circuit held that although this grant was not as broad as others, it still satisfied the standard in Gallagher of a clear and unambiguous grant of discretion.
According to Stup supra, the insurer's decision will be upheld if it was supported by substantial evidence in the record and was the product of a principled reasoning process. In Stup supra, the Fourth Circuit cited its previous holding in Elliott v. Sara Lee, 190 F. 3d. 601, 606 (4th Circuit 1999) that under an abuse of discretion standard that if the record contains conflicting medical reports that an administrator may uphold the denial of benefits. However, the Fourth Circuit in Stup supra also held that the medical evidence relied upon for a denial of benefits must be "substantial", especially when the administrator has an economic incentive to deny benefits. The Court in Stup supra, citing its previous decision in Ellis, 126 F. 3d at 233-34 (finding administrator acted reasonably in denying benefits because the several doctors who reported that the claimant was disabled could not agree on the proper diagnosis and three independent medical panels "concluded that there was no conclusive diagnosis").
In Machovec v. Prudential Life Insurance Co. of America, 2004 U.S. Dist. Lexis 12496, (D. Md. 2004), the district court held that in order to preserve discretionary authority:
A plan does not need to contain specific phrases or an explicit grant of discretionary authority, however as long as "the terms of the plan indicate a clear intention to delegate final authority to determine eligibility to the plan administrator.
Significance of decisions: The standard of review is the most important issue in determining the likelihood of prevailing in court on appeals of the denial of benefits to a plan participant. The Fourth Circuit decisions have expanded the number of plans that will be reviewed based on a de novo standard rather than an abuse of discretion standard. However, even under a modified abuse of discretion standard, the medical evidence relied upon by the insurer to deny benefits must satisfy a substantiality requirement.
2. ADDITIONAL EVIDENCE
The normal presumption concerning abuse of discretion cases is that the reviewing court may consider no new or additional evidence. However, in Harvey v. Astra Merck Long Term Disability Plan, 2004 U.S. Dist. Lexis 25400 (M.D. N.C. 2004), the Court held that additional or new evidence could be considered to explain medical procedures or notes, but could not be used to explain conflicting medical evidence.
3. REMAND OR NO REMAND - Should judgment be entered in favor of the claimant or the case be remanded back to the Plan for further findings?
There were several decisions on this key issue. The Fourth Circuit's most important decisions were in Smith, Stup and Evans. In Smith supra, the Fourth Circuit provided two options to the district court:
If the district court concludes that Continental Casualty failed to consider this Plan language, [Self-Reporting Symptoms] it can remand the case to Continental Casualty for further administrative review. Cf. Evans v. Metropolitan Life Ins. Co., 358 F. 3d. 307, 312 (4th Cir. 2004)
The district court may also choose to consider whether, apart from the Plan language regarding Self-Reporting Symptoms, Continental Casualty's denial of benefits was supported by substantial evidence. For example, the doctor engaged by Continental Casualty to review Smith's file concluded that because of his three back surgeries, Smith would need to avoid sitting or standing for prolonged periods of time over 1-2 hours. Continental Casualty relied on this statement to deny benefits. Continental Casualty considered this evidence that Smith could perform the material and substantial duties of his regular occupation.
In Evans v. Metropolitan Life Insurance Co., 358 F. 3d. 307, 312 (4th Cir.2004), the Fourth Circuit remanded the case back to the Plan because there was no consideration of when the claimant's disability began despite forms completed by the claimant and his counsel.
We are aware that Evans stated in his initial claim form seeking benefits that his disability began on December 2, 1999, and that his lawyer relying in part on the award of benefits by Social Security, also represented during the administrative appeal that Evans's disability commenced December 2, 1999. Nevertheless, MetLife was not allowed, under the Plan, to necessarily limit its disability determination to the date claimed by Evans and his lawyer. The Plan requires MetLife to review all evidence it receives to determine disability. MetLife admittedly had evidence before it throughout its administrative review that Evans's s alleged disability may have begun after his last day of work, July 27, 2000.
Because MetLife refused to consider the evidence and the claim as of August 2000, we conclude that MetLife refused to consider the evidence and the claim of August 2000; we conclude that MetLife abused its discretion. See James v. Jacobson, 6 F. 3d 233, 239 (4th Cir 1993) (stating that "failure or refusal, either express or implicit, actually to exercise discretion" constitutes an abuse of discretion
In Stup supra, the Court entered judgment in favor of the claimant because UNUM's evidence was not substantial or the product of a principled reasoning process. Specifically, although UNUM relied on an in-house physician, the physician could point only to an ambiguous functional capacity evaluation that lasted only two and one-half hours. An equivocal opinion-especially one based on ambiguous test results-simply does not provide "substantial evidence". The physical therapist hedged her negative interpretation of the test results. In addition, the in-house physician used by UNUM relied on the FCE results without ever seeing or examining Stup or even acknowledging the physical therapist's warning that it would not be prudent to use the FCE results.
In Dunbar v. Orbital Sciences Corp. 265 F. Supp. 2d. 572 (D. Md. 2003), the Court remanded the case back to the Plan.
In Dunbar, the Court specifically found that the insurer did not discuss the opinions of the treating physicians and why they were afforded no weight on the issue of cognitive impairment. By completely ignoring the treating physician's findings and conclusions and basing its denial on the independent consultant that did not examine or interview the claimant, the plan failed to use a deliberate, principled reasoning process and did not comply with the modified abuse of discretion standard.
In addition, the Court found that job performance evaluations were not obtained which would shed light on whether or not the claimant could perform the material and substantial duties of his regular job as required under the terms of the Plan.
In Laser v. Provident Life Ins. Co. Inc. 211 F. Supp. 2d. 645 (D. Md. 2002), Chief Judge Motz ordered a remand. Judge Motz stated a remand is appropriate in this case for just the reason cited by the Elliott court. First, defendant failed to consider plaintiff's disabilities in light of his physically demanding occupation, as the plan itself obligates defendant to do. Second, it is not clear that defendant had adequate evidence upon which to deny benefits, considering its disregard of the treating physician's opinion and the evidence he submitted. Additionally, remand is warranted in light of the error defendant made regarding a physician's identity, which could have led it to minimize the significance of an opinion as plaintiff's primary treating cardiologist or to engage in a less searching review than it otherwise would have.
In Machovec v. Prudential Life Ins. Co. of America, 2004 U.S. Dist Lexis 12496 (D.Md. 2004), the Court in dicta noted that a remand could also be ordered if the denial of benefits was based on evidence developed after the issuance of the denial or if insufficient objective evidence was developed during the claims process.
An additional important decision from outside the Fourth Circuit involving remands to the plan occurred when the plan relied on a new medical report that served as a basis for the Plan's decision to deny benefits and then closed the claims record. See Abram v. Cargill Inc. 395 F. 3d. 882 (8th Cir. 2005) The court ordered a remand so that the claimant could produce additional medical evidence to counter the new medical evidence. See also, Blankenship v. Liberty Life Assurance Co. of Boston, 2004 U.S. Dist Lexis. 17116 (N.D. Cal. 2004)
Significance of decisions: A remand to the Plan is a remedy that the courts have previously determined should be used ‘sparingly'. However, a remand has become more frequently used in a variety of circumstances as noted above. The federal district court must first consider whether or not the medical evidence relied upon by the insurer is "substantial or not" based on Stup and Smith supra. If that evidence is not substantial, judgment must be entered in favor of the claimant and no remand is appropriate.
4. RECOUPMENT OF OVERPAID BENEFITS
In Eubanks v. Prudential Ins. Co. of America, 336 F. Supp. 2d. 521 (M.D. N.C. 2004), the Court upheld a decision by the defendant insurer to recoup overpaid benefits and credit the overpayment to future payment of benefits. The Court held that crediting of overpaid benefits was permissible under Treasury Department regulations.
5. PREJUDGMENT INTEREST ON UNPAID BACK AWARDS
In Great West v Knudson, 122 S.Ct. 708 (2002), the Supreme Court held that monetary damages were not permissible in actions brought under Section 502 (a)(3) for breach of fiduciary duty actions. An action to recoup disability benefits is an action brought pursuant to Section 502 (a) (1)(b) and not 502 (a)(3). Therefore, Great West's prohibition should not apply to awards of monetary interest. See also, Skretvedt v.. E. I. Dupont de Nemours, 372 F. 3d 193 (3rd Cir. 2004), Dunnigan v. Metropolitan Life Ins. Co. 214 F. R.D. 125 (S.D. N.Y. 2003) both rejecting the argument that Great West precludes an award of prejudgment interest on benefit claims.
In Smith v. Continental Casualty, 276 F. Supp. 2d 447 (D. Md. 2003), Judge Quarles also in another post Great West case awarded monetary interest based on the failure to examine all of the evidence in the claims record before suspending and denying continuing benefits where claimant's condition had not materially changed.
6. ATTORNEYS FEES
In Smith v. Continental Casualty Co. 2003 U.S. Dist. Lexis 19945. (D. Md. 2003), Judge Quarles ruled that claimant's counsel could obtain an hourly rate in excess of the fee guidelines established by the United States District Court for the District of Maryland – Appendix B. The Court held that the difficult nature of claims for disability benefits under ERISA, among other factors, justified an enhancement in excess of the fee guidelines.