In addition to the February opinions discussed below, we are also featuring the recent Fourth Circuit opinion in Carden v. Aetna Life Ins. Co. That case is significant because it essentially abolishes application of the plaintiff-friendly doctrine of contra proferentum in cases reviewed for abuse of discretion. It also resolves a novel question regarding whether other income benefits received as a result of unrelated medical conditions can be offset against disability benefits received for a different condition.
Evans v. Employee Benefit Plan, Camp Dresser & McKee, Inc., 2009 WL 418628 (3d Cir. Feb. 20, 2009): Plaintiff sued her employer and MetLife, the insurer of long term disability benefits under an ERISA plan, after MetLife denied Plaintiff's claim for benefits because her pulmonologist opined that Plaintiff's condition was not work related, her asthma was well controlled by medication and it was safe for her to return to work.
In making its decision, the Court explained that the heightened abuse of discretion standard, which it described as more favorable to plaintiff, was no longer appropriate under MetLife v. Glenn, 128 S.Ct. 2343 (2008). Rather, it reviewed the decision under the "new standard," which is simply the abuse of discretion standard, with the conflict of interest being considered as one factor in the courts review for abuse of discretion.
In addition to affirming the denial of benefits, the Court ruled that Plaintiff's employer, Camp Dresser & McKee ("CDM"), was not a proper defendant because it was not responsible for administering benefits or determining eligibility (having delegated its authority to MetLife), notwithstanding that the Plan identified CDM as the Plan administrator and conferred discretion on both MetLife and CDM to interpret the terms of the Plan and determine eligibility.
* It is encouraging to see more Court's interpreting Glenn in this manner instead of applying a more burdensome standard as some plaintiff's attorneys have suggested.
Though not determinative in the Court's analysis and holding, the Court referenced a New Jersey regulation effective January 1, 2008 that prohibits provisions that claim to reserve sole discretion to insurance carriers. The Court explained that because MetLife's policy did not reserve sole discretion and because the regulation did not go into effect until January 1, 2008, it did not impact its ruling in this case, but we encourage our clients writing policies in New Jersey to review their discretionary language provisions and seek counsel accordingly.
Carden v. Aetna Life Ins. Co., --- F.3d ---, 2009 WL 418628 (3d Cir. Feb. 20, 2009): The Fourth Circuit affirmed Aetna's decision to offset a lump sum workers' compensation settlement Plaintiff received as a result of asbestosis from long term disability benefits he received for vertigo under a long term disability Plan that was administered and insured by Aetna. The Court concluded that Aetna's interpretation of the Plan provisions pertaining to the offset of "other income benefits," including lump sum payments from workers' compensation, was reasonable, notwithstanding Plaintiff's argument that the Plan unambiguously provided for the offset of other income only if it was received as a result of the same disability. The Court also rejected Plaintiff's alternative argument that, because of Aetna's conflict of interest, the plan provisions on which Aetna relied, if ambiguous, should be construed in favor of Plaintiff and against Aetna under the doctrine of contra proferentum pursuant to the Court's prior opinion in Carolina Care Plan, Inc. v. McKenzie, 467 F.3d 383 (4th Cir. 2006).
The Court explained that "[s]ince we decided Carolina Care Plan and the other cases on which it relies, the Supreme Court decided Metropolitan Life Insurance Co. v. Glenn, ___ U.S. ___, 128 S.Ct. 2343 (2008)...," and under Glenn, courts are foreclosed from applying the rule of contra proferentum "to curb the discretion given an administrator by a plan..." The Court held that this "adjustment to...ERISA jurisprudence in light of Glenn" is further necessitated by the emphasis on resolving ERISA questions under principals of trust law, under which "[a] trustee may be given power to construe disputed or doubtful terms, and in such circumstances the trustee's interpretation will not be disturbed if reasonable."
Rather than construing plan provisions against a conflicted fiduciary, the Court explained that it should consider an administrator's conflict of interest as "'one factor among many' in determining the reasonableness of the administrator's decision exercising discretionary authority." The Court indicated that when a plan administrator "employs its interpretive discretion to construe an ambiguous provision in favor of its financial interest," such interpretation may weigh against the reasonableness of its decision, and vice versa, but in either case, its interpretation "is only considered with all of the other factors that may be brought to bear in determining whether an administrator abused his discretion."
The Court then examined the eight non-exclusive factors identified in Booth v. Wal-Mart Stores, Inc. Associates Health & Welfare Plan, 201 F.3d 335 (4th Cir. 2000) and found that Aetna's interpretation of the plan, which provided, in part, for the offset of "disability benefits under any...workers' compensation law...which are meant to compensate the worker for...any degree of permanent impairment" was reasonable. In addition, the Court determined that Aetna's interpretation was consistent with the purpose of the plan "to assure an income stream for the disabled employee during the period of disability rather than an independent benefit quantified by a specific disability." Finally, the Court found Aetna's interpretation and application of the offset provision consistent with other terms in the plan. Although Aetna's conflict of interest was considered, when all of the relevant factors were considered and weighed together, the Court concluded that "Booth factors (1) (language of the plan), (2) (purposes and goals of the plan), and (4) (consistency with other terms in the plan) strongly evidence the reasonableness of Aetna's interpretation" and, therefore, Aetna did not abuse its discretion. As stated above, this case is significant because it essentially abolishes application of the plaintiff-friendly doctrine of contra proferentum in cases reviewed for abuse of discretion. It also resolves a novel question regarding whether other income benefits received as a result of unrelated medical conditions can be offset against disability benefits received for a different condition.
Smith v. Health Services of Coshocton, 2009 WL 481603 (6th Cir. Feb. 25, 2009): The Sixth Circuit held that insurer's decision to deny coverage for a panniculectomy (a surgery to remove hanging skin following weight loss surgery) was not arbitrary and capricious, notwithstanding Plaintiff's arguments that (1) she was not afforded a "full and fair" review, (2) the decision was improperly based on an unpublished internal policy, of which Plaintiff was not given notice until the final decision was rendered, and (3) the decision was arbitrary and capricious because the insurer relied on the opinion of an independent reviewing physician who did not examine Plaintiff, rather than the opinions of her treating physicians.
The Court held that the insurer substantially complied with the notice requirements of ERISA because it notified Plaintiff of the adverse decision, explained the reasons for denial and afforded her an opportunity to appeal, notwithstanding that the insurer failed to specifically reference the internal policy that set forth the criteria on which it relied. The Court also held that remand would be a useless formality because the reasons for the denial never varied and were reasonable. In response to Plaintiff's argument that the insurer "supplanted" the terms of the Plan with an internal policy that was not provided to her, the Court held that the policy was not inconsistent with the Plan in defining medically necessary procedures. It merely specified when surgery following weight loss may be medically necessary.
Finally, the Court held that the insurer's reliance on the opinions of a reviewing physician who conducted a paper review of the medical records was not arbitrary and capricious because the reviewing doctor was a neutral party not employed by the insurer and his conclusions were consistent with the objective evidence provided to him, including photographs and medical records submitted by Plaintiff's treating physicians. Moreover, the Court noted that only one of Plaintiff's four treating physicians who opined that the procedure was medically necessary was a board certified plastic surgeon. In response to an argument that the reviewing physician did not receive a complete copy of the record, the Court reasoned that, even if that were the case, Plaintiff did not describe the contents or importance of the documents she claimed were withheld from the doctor, nor did she demonstrate that his opinion would have changed if the missing pages of the record had been included.
* While at first blush it is surprising that the Court dismissed Plaintiff's argument regarding the incompleteness of the medical record submitted to the independent reviewing physician as easily as it did, in its discussion, the Court implies that it believed the procedure was clearly excluded and that the criteria relied on to interpret whether it was medically necessary was more generous in providing coverage for the procedure than the Plan itself. Thus, it appears that the Court concludes that the missing medical records would have had no impact on the decision.
Franke v. Poly-America Medical and Dental Benefits Plan, 2009 WL 260519 (8th Cir. Feb. 5, 2009): Participant in a plan of employee benefits acknowledged in writing his agreement to arbitrate any claims associated with his enrollment in the Plan. When the Plan denied Franke's request for payment of his medical bills, he filed suit in federal district court instead of demanding arbitration. The Plan sought to compel arbitration but the district court denied the request finding that the existence of unlawful provisions rendered the arbitration requirement in the Plan unenforceable.
On appeal, applying the Federal Arbitration Act, the Eighth Circuit first stated that they have "found no compelling basis to treat agreements to arbitrate ERISA claims differently" from other claims - if the agreement is valid and the dispute falls within the agreement, the agreement is enforceable. The provisions that the district court found to be unlawful as violating ERISA were (1) the assertion in the agreement that arbitration is binding and (2) the requirement that arbitration costs be shared. The Eighth Circuit found that the severability clause was applicable which severed the invalid terms, resulting in a valid arbitration agreement. The Court reversed and remanded with instructions to compel arbitration.
* It is significant to note that rather than wholesale rejection of the arbitration provision because of defects in certain terms, the Court applied a severability clause to disregard terms which violated ERISA thereby validating the provision. This evidences a willingness on the part of the Court to follow the established policy of enforcing Plan terms.
Pichoff v. QHG of Springdale, Inc., et. al., --- F.3d ---, 2009 WL 465951 (8th Cir. Feb. 26, 2009): In this case, the administrator of a deceased employee's estate sued the employee's former employer for breach of fiduciary duty seeking to recover benefits under life insurance coverage that lapsed when the employee was terminated without notice following a medical leave of absence. The district court dismissed plaintiff's complaint for failure to state a claim reasoning that the monetary relief plaintiff sought was unavailable under ERISA. The Eighth Circuit affirmed after concluding that the monetary relief sought, though properly characterized as restitution, did not constitute "other appropriate equitable relief" available under section 1132(a)(3)(B).
The Court explained, "[t]o determine whether a plaintiff requests legal or equitable relief, 'we ask whether the value of the harm done that forms the basis for the damages is measured by the loss to the plaintiff or the gain to the defendant, and whether the money sought is specifically identifiable as belonging in good conscience to the plaintiff.'" Pichoff, at *2, citing Calhoon v. Trans World Airlines, Inc., 400 F.3d 593, 596-97 (8th Cir. 2005). Here, the defendants did not benefit from the lapse and retained no funds belonging to the plaintiff. In addition, the plaintiff sought compensation for benefits that would have been paid but for the lapse of the policy. The Court held that the relief sought was compensatory in nature and, therefore, unavailable under ERISA.
* The Pichoff Court acknowledged that it reached its decision to uphold the denial of benefits reluctantly, sharing plaintiff's concern that the "'regulatory vacuum' created by ERISA's broad preemption of state law claims and the Supreme Court's narrow interpretation of 'other appropriate equitable relief'" left plaintiff without a remedy. This is a good result for insurers, administrators and other plan fiduciaries.
Disability Plan's "Under the Care of a Physician" Requirement Te'o v. Morgan Stanley & Co., Inc., 2009 WL 323247 (10th Cir. Feb. 11, 2009): In this case, the Tenth Circuit, under an arbitrary and capricious standard of review, affirmed the denial of short term disability benefits based on the Plan's requirement that the insured "must be under the regular care of a physician who provides medical information to support the determination that you are disabled and who is qualified to treat the type of injury or illness for which your claim is made."
The insured-employee was diagnosed with congestive heart failure by a primary care physician who opined that he should not return to work until he was examined by a cardiologist. His claim for STD benefits was denied for failure to submit objective evidence to support his disability. During the administrative review of the denial of benefits, he submitted an echocardiogram co-signed by an attending cardiologist, which concluded that "[i]f clinically appropriate, [he] might be considered for ventricular reconstructive surgery." The medical records were reviewed by an independent physician board-certified in cardiology who noted that the absence of a note from a cardiologist but, nonetheless, opined that the employee was totally disabled and unable to work, and he stated further that he understood the employee's reluctance to undertake surgical treatment. Notwithstanding this opinion, however, the Court upheld the denial of benefits on the basis that the insured was not under the regular care of a physician qualified to treat his illness and, as such, the plan administrator did not have "the opinion of a treating specialist on which to base an informed disability determination."
* Although the requirement that an employee be under the care of a physician is fairly common in disability plans, the Court's interpretation of the provision here appears to impose a more burdensome requirement that an employee be treated by a physician certified in the field or specialty relevant to the employee's specific condition.