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ERISA and Life Insurance News Covering ERISA and Life, Health and Disability Insurance Litigation
INSIDE THIS ISSUE Administrator Not Required to Consider SSDI Award Made Two Years after Claim Decision............................................................4 Pension Plan Equitably Estopped to Deny Claim for Increased Benefits..........................5 Three-Year Contractual Limitation Period Enforceable in ERISA Disability Benefits Case...................................................................6 Change of Beneficiary Was Effective, Despite Agent’s Failure to Submit Form to Insurer.......6 Plaintiff ’s Deposition May Be Taken in ERISA Case Subject to De Novo Standard of Review...............................................................7 Denial of LTD Benefits Held Unreasonable Because Administrator Ignored Evidence Favorable to Employee....................................8 “Scintilla of Evidence” Not Enough to Support Claim Denial; Award of Attorney’s Fees Upheld......................................................9 Plan Not Required to Consider Social Security Determination That Is “Devoid of Reasoning”......................................................10 Plan Administrator Not Required to Obtain Independent Vocational or Medical Evidence to Decide LTD Claim......................................11
DECEMBER 2010
Attorney’s Fees under ERISA: Supreme Court Rejects Prevailing Party Rule In Hardt v. Reliance Standard Life Insurance Company, 130 S. Ct. 2149 (2010), the Supreme Court directly addressed whether a “fee claimant” must be a “prevailing party” in order to seek attorney’s fees under ERISA’s fee provision, 29 U.S.C. § 1132(g). The Court rejected the “prevailing party” rule, which had been adopted by the Fourth Circuit and by a few other circuits, concluding that such a rule was “contrary to § 1132(g)(1)’s plain text.” Questions surviving the decision include the continuing viability of the five-factor test traditionally applied in ERISA attorney’s fees cases and the extent to which the decision will aid insurers and self-funded plans in their own claims to recover fees.
The Hardt Decision Hardt submitted a claim for disability benefits under her employer’s plan. Reliance paid Hardt’s claim during the 24-month “own occupation” period, but determined that she was not disabled from “any occupation.” After Hardt sued, the district court concluded that there was “compelling evidence” that she was eligible for additional benefits. Moreover, the court concluded that the case presented “‘one of those scenarios where the plan administrator has failed to comply with the ERISA guidelines,’ meaning ‘Ms. Hardt did not get the kind of review to which she was entitled . . . .’” The court did not rule in her favor, however, instead remanding the case to Reliance “to address the deficiencies in its approach.” The court instructed Reliance to consider “all the evidence” within 30 days or “judgment will be issued in favor of Ms. Hardt.” On remand, Reliance reversed its original decision and found that Hardt was entitled to “any occupation” benefits. Hardt then sought fees under § 1132(g)(1) and the court awarded fees, concluding that she was a “prevailing party,” because the remand order had “sanctioned a material change in the legal relationship of the parties.” The court also concluded that a fees award was appropriate under the traditional five factor test. The Fourth Circuit reversed, holding that Hardt was not
a prevailing party, because the remand order “did not require Reliance to award benefits to Hardt,” and it did “not constitute an ‘enforceable judgment on the merits.’” The Supreme Court first rejected the Fourth Circuit’s decision because “[t]he words ‘prevailing party’ do not appear in this provision. Nor does anything else in § 1132(g)(1)’s text purport to limit the availability of attorney’s fees to a ‘prevailing party.’ Instead, § 1132(g)(1) expressly grants district courts ‘discretion’ to award attorney’s fees ‘to either party.’” (Emphasis added.) Accordingly, the Court concluded that “a fee claimant need not be a ‘prevailing party’ to be eligible for an attorney’s fee award under § 1132(g)(1).” Addressing next the criteria for an award of fees, the Court first announced that the five factors traditionally applied by the courts “bear no obvious relation to § 1132(g)(1)’s text or to our feeshifting jurisprudence” and thus are “not required for channeling a court’s discretion when awarding fees under this section.” Rather, looking to an earlier decision which addressed a similar fee-shifting provision of the Clean Air Act, the Court concluded that “a fees claimant must show ‘some degree of success on the merits’ before a court may award attorney’s fees.” Citing Ruckelshaus v. Sierra Club, 463 U.S. 680 (1983). According to the Court, a fee claimant would “not satisfy that requirement by achieving ‘trivial success on the merits’ or a ‘purely procedural victor[y],’ but does satisfy it if the court can fairly call the outcome of the litigation some success on the merits by conducting a ‘lengthy inquir[y] into the question of whether a particular party’s success was “substantial” or occurred on a “central issue.”’” Here, by obtaining the order of remand, along with the court’s initial finding of “compelling evidence” of total disability, the court’s instruction to Reliance to decide her claim within 30 days or face judgment, and the ultimate 2
reversal by Reliance of the claim denial, Hardt had achieved “far more” than “trivial success on the merits” or a “purely procedural victory.” Rather, she had gained “some success” on the merits sufficient to seek attorney’s fees. The Court expressly left open the question whether an order of remand, alone, would be sufficient to constitute “some success on the merits” for purposes of an attorney’s fees claim. To date, no published decision since Hardt has reached that issue.
would deter others acting under similar circumstances, (4) whether the party seeking fees sought to benefit all participants of the plan, or to resolve a significant legal issue regarding ERISA, and (5) the relative merits of the parties’ positions. Quesinberry v. Life Ins. Co. of N. Am., 987 F.2d 1017, 1029 (4th Cir. 1993). The courts addressing the issue since Hardt, including two circuit courts, have reaffirmed the utility of the five-factor test.
Ninth Circuit The Ninth Circuit was the first in line after Hardt, deciding in Simonia v. Glendale Nissan/Infiniti Disability Plan, 608 F.3d 1118 (9th Cir. 2010), that district courts “must consider” the five factors “after they have determined that a litigant has achieved ‘some degree of success on the merits’. . . .”
Future of the Five-Factor Test While concluding that the fivefactor test was “not required” for guiding the district court’s discretion, the Court in a footnote nonetheless appeared otherwise to preserve the viability of the test. “We do not foreclose the possibility,” the Court wrote, “that once a claimant has satisfied [the ‘some success’] requirement, and thus becomes eligible for a fees award under § 1132(g)(1), a court may consider the five factors adopted by the Court of Appeals . . . in deciding whether to award attorney’s fees.” As formulated by the Fourth Circuit, those factors are (1) the degree of the opposing party’s culpability or bad faith, (2) the ability of the opposing party to satisfy an award of fees, (3) whether a fees award
In Simonia, the plaintiff did not prevail in his claim for benefits against Hartford, the plan’s insurer. He did, however, obtain a voluntary dismissal of Hartford’s counterclaim to recover an overpayment created by the receipt of Social Security benefits. Hartford dismissed the counterclaim during the litigation when it learned from the plaintiff that Social Security had retroactively reduced his SSDI award. The district court denied the plaintiff’s subsequent claim for attorney’s fees based on the five-factor test (and prior to the Supreme Court’s decision in Hardt). Since the district court had not applied the first step subsequently enunciated in Hardt, the Ninth Circuit assumed, without deciding, that the plaintiff had achieved some degree of success on the merits. (In a footnote, the court implied that had it actually decided the matter, the mere voluntary dismissal of the counterclaim would not have met the test.) The Ninth Circuit then went on to affirm the district court’s denial of attorney’s fees based upon consideration of the five factors.
Fourth Circuit A few days later, in Williams v. Metropolitan Life Ins. Co., 609 F.3d 622 (4th Cir. 2010), the Fourth Circuit acknowledged that, after Hardt, “the category of litigants eligible for an attorneys’ fees award in an ERISA action is broader than under our prior standard.” Applying the first step, the court had no trouble finding “some degree of success on the merits,” since the participant had gained summary judgment on her claim for benefits. Proceeding to the next step – to determine whether the district court had properly exercised its discretion in awarding fees – the Fourth Circuit returned to the five factor test. The Supreme Court in Hardt had “simply cautioned against employing those five factors in the first step of the analysis, namely, in determining whether a party has satisfied the requirement of achieving ‘some degree of success on the merits,’” the Fourth Circuit reasoned. Otherwise, the Hardt decision “did not preclude our continued use of the five-factor approach,” the court wrote. Therefore, the Fourth Circuit concluded that “once a court . . . determines that a litigant in an ERISA case has achieved ‘some degree of success on the merits’ the court should continue to apply the general guidelines that we identified in Quesinberry when exercising its discretion to award attorneys’ fees to an eligible party.”
the law”); Quesenberry v. Volvo Group N., Inc, 2010 WL 2836201 (W.D. Va. Jul. 20, 2010) (applying five-factor test as second step of Hardt analysis). In Hewel v. Long Term Disability Income Plan for Choices Eligible Employees of Johnson & Johnson, 2010 WL 2710582 (D.N.J. Jul. 7, 2010), the court determined that it was not required to utilize the five-factor test after Hardt, but nonetheless buttressed its fee award with consideration of certain of the factors.
Defendants’ Fee Claims after Hardt Will anything in Hardt aid insurers or self-funded plans in their own quest for attorney’s fees under § 1132(g)? The conventional wisdom, almost certainly true, is that defendants are rarely successful in obtaining fee awards in connection with ERISA benefits cases. If for no other reason, the first prong of the five-factor test – the ability to pay an award – generally provides a court with a ready rationale for the denial of such fees. On the other hand, defendants can at least point to the fact that the Supreme Court in Hardt recognized the potential appropriateness of fess for even a party with “some degree of success on the merits.” An insurer or a self-funded plan
which prevails on a benefits claim can legitimately assert more than “some degree” of success when presenting its own fee petition. Moreover, following Hardt, the courts may be less wedded to the five factors, including the first prong, although a great deal of flexibility in that regard existed even prior to Hardt. Nonetheless, the reality is that, absent a strong showing of fraud or other wrongdoing on the part of the plaintiff, an ERISA insurer or a self-funded plan is unlikely to recover fees, and that probably will not change as the result of Hardt.
Conclusion Following Hardt, the lower courts continue to look to the fivefactor test in deciding claims for attorney’s fees in ERISA benefits cases once the initial eligibility determination is made based upon the plaintiff’s degree of success. Although the Supreme Court stated that resort to the five factors was “not required,” the Ninth Circuit has held that the courts “must consider” those factors after they have found some degree of success on the merits. The Fourth Circuit, too, has expressly reaffirmed the utility of the five factor test. Whether the Hardt decision is of any aid to the attorney’s fees petitions of defendants remains to be seen.
Subsequently, in Rinaldi v. CCX, Inc., 2010 WL 2803915 (4th Cir. Jul. 16, 2010), the Fourth Circuit reaffirmed its holding in Williams. The court utilized the five-factor test in affirming the denial of fees to a successful claimant who nonetheless “had engaged in some dishonest conduct to the prejudice of his employer . . . .” A number of district courts have likewise retained the five-factor test since Hardt. See, e.g., Policaro v. Eaton Corp., 2010 WL 2933957 (W.D. Pa. Jul. 26, 2010) (the fivefactor test “retains vitality under 3
A Message from the editors
Sanders Carter
Kent Coppage
Aaron Pohlmann
Aaron Pohlmann of Smith Moore Leatherwood’s Atlanta office is the Program Chair for the 37th Annual Midwinter Symposium on Insurance and Employee Benefits, January 13-15, 2011, in Miami Beach. Several of the firm’s attorneys will attend the symposium, which is presented by the American Bar Association’s Tort Trial & Insurance Practice Section. It focuses on emerging issues and litigation relating to life, health, and disability insurance, insurance regulation, employee benefits, and reinsurance. As Chair of the TIPS Life Insurance Law Committee, Mr. Pohlmann has primary responsibility for planning and presenting the symposium. For program information please visit: http://www.abanet.org/tips/market/11MWSymposium.html
Administrator Not Required to Consider SSDI Award Made Two Years after Claim Decision Conley v. Cingular Wireless Employee Health and Benefits Plan, 2010 WL 3491223 (S.D. W.Va. Sept. 1, 2010)
additional information regarding Conley’s medical condition, but it was insufficient to extend her STD benefits. Conley submitted additional records in April 2005. Those records were considered by the claims administrator, which informed Conley that her claim for additional benefits was denied for failure to submit adequate proof of disability. As an employee of Cingular Wireless, Conley was insured under a group health plan sponsored by Cingular. In 2005, Conley suffered a heart attack. Shortly thereafter, she applied for short-term disability benefits, which were approved by Cingular’s claims administrator. In March 2005, Conley was required to submit evidence to support extended STD benefits. Cingular’s claims administrator received some 4
Following the denial of her claim, Conley continued to receive treatment for her heart condition. In August 2005, she appealed the April 2005 decision. Upon the receipt of additional medical evidence, the claims administrator referred Conley’s claim for peer review by three physicians. After the additional medical evidence had been reviewed, the claims administrator denied Conley’s appeal in January 2006.
Conley sued and filed a motion for summary judgment, arguing that the plan had abused its discretion in not finding her disabled, because she was declared disabled by the Social Security Administration. The district court noted, however, that the Social Security decision was made in January 2008, more than two years after the claims administrator issued its final decision. Because the Social Security determination was not part of the administrative record, the district court found it to be irrelevant. The district court granted the plan’s motion for summary judgment, finding that the claim review process was “the result of a deliberate, principled reasoning process” and that the decision was “supported by substantial evidence.” Further, the district court did not find a conflict of interest merely because the claims administrator was paid for its services.
Pension Plan Equitably Estopped to Deny Claim for Increased Benefits Based on Informal Interpretation of Ambiguous Terms Waschak v. The Acuity Brands, Inc. Senior Mgmt. Benefit Plan, 2010 WL 2543137 (11th Cir. June 25, 2010) Waschak was a participant in Acuity’s Senior Management Benefit Plan, an unfunded retirement plan governed by ERISA with benefits paid from Acuity’s general assets. The plan included two periods – the Deferral Period and the Payment Period. The benefits paid to a participant were calculated under section 5.4 of the plan. For years, the plan had interpreted § 5.4 to guarantee that, during both the Deferral Period and the Payment Period, Waschak’s account would be credited with interest at the rate of Moody’s plus 3%, or at a minimum of 11%, whichever was greater. In 2006, the plan informed Waschak that this practice was the result of a “misinterpretation,” which had resulted in an overpayment of more than $12,000 in benefits. The plan proposed to recoup the overpayment by reducing future benefit payments to Waschak. Waschak filed a formal claim with the plan administrator, seeking to have the 11% minimum reinstated. When his claim was denied, Waschak appealed to the plan’s administrative committee, which upheld the denial. Waschak then sued in federal court. The district court found that the plan was ambiguous and that Waschak was entitled to the 11% minimum during the payment period under a theory of equitable estoppel. The court also awarded attorney’s fees to Waschak. On appeal, the Eleventh Circuit stated that it recognizes a “very narrow common law doctrine under ERISA for equitable estoppel,” and explained that the doctrine “is appropriate where ‘(1) the relevant provisions of the plan at issue are ambiguous, and (2) the plan provider or administrator has made representations to the plaintiff that constitute an informal interpretation of the ambiguity.’” The court then noted that, in determining whether the plan was ambiguous, “we bear in mind two principles. First, we apply the doctrine of contra proferentum when assessing the ambiguities in plans governed by ERISA …. Second, ERISA does not guide courts in interpreting benefits plans.”
Thus, the court looked to Georgia law, under which “courts do not analyze ‘what the insurer intended its words to mean, but rather what a reasonable person in the insured’s position would understand them to mean.’” Under that standard, the Eleventh Circuit affirmed “the district court’s finding that the Plan’s relevant language, which was subjected to two interpretations even by Acuity, which drafted it, is ambiguous.” The Eleventh Circuit found that “Waschak amply [met]” the second element of equitable estoppel – whether the plan administrator had made representations that “amounted to an informal interpretation of the ambiguous terms.” This finding was based on the plan’s own historical interpretation of the plan language at issue. Although the court affirmed the grant of summary judgment to Waschak on the equitable estoppel theory, it found that the district court should not have awarded attorney’s fees. Specifically, after recounting the five factors that guide a court’s discretion in awarding fees, the court stated that “in its treatment of the first and third factors, the district court exceeded the scope of its discretion.” With respect to the first factor – the degree of culpability or bad faith – the district court had observed that Waschak made no showing that Acuity acted in bad faith, but that Acuity nevertheless “had ‘demonstrated exceedingly grotesque selfishness in its treatment of retirees such as [Waschak].” Because the first factor “only properly concerns evidence of bad faith,” and the district court “offered no evidentiary support for its charge of selfishness,” the Eleventh Circuit held that the district court “exceeded the scope of its discretion as to this factor.” Regarding the third factor – deterrence – the district court “relied on two points that impermissibly created a presumption in favor of awarding fees,” according to the Eleventh Circuit. First, it gave too much weight “to the general preference for simpler plans,” and “[s]econd, the district court referenced the ‘more generic concern that attorney’s fees always deter the improper denial of benefits.’” Thus, “[b]ecause the district court misapplied [those] factors in a way that favored an award of attorney’s fees,” the Eleventh Circuit reversed the award of fees. 5
Three-Year Contractual Limitation Period Enforceable in ERISA Disability Benefits Case Bennett v. Metropolitan Life Ins. Co., 383 Fed.Appx. 870 (11th Cir. 2010)
The ERISA disability plan under which Bennett was covered provided that after 24 months of payments, an employee would not be considered disabled if he had not been approved to receive Social Security disability benefits. Bennett ceased work in September 2002. After he satisfied a 180-day elimination period, MetLife paid benefits to Bennett for 24 months, commencing in March 2003 and ending in March 2005. MetLife denied additional benefits because Bennett had not been approved for Social Security benefits. Bennett filed an administrative appeal in August 2005. MetLife affirmed the denial in September 2005. In June 2008, Bennett submitted a request for “reinstatement” of benefits under the plan, because
by then he had been approved for Social Security benefits. MetLife denied the request. The plan provided that “[n]o lawsuit may be started more than 3 years after the time proof must be given.” Proof of claim was required within 90 days after the end of the elimination period. Bennett filed his lawsuit in October 2008. The district court held that his claim was barred by the threeyear contractual limitation period. On appeal, Bennett contended, among other things, that the plan’s limitations period was “unreasonable and/or unconscionable because it runs while benefits are being paid and while the Social Security Administration considers a claimant’s Social Security disability claim.” Thus, according to Bennett,
application of the limitation would permit a denial of benefits to him “on the basis that the Social Security Administration took too long to make its determination that he was disabled.” The Eleventh Circuit rejected this argument, noting that the court would “consider whether the limitations period is unreasonable and/or unconscionable in light of the facts and circumstances” of the case. Here, Bennett was injured in September 2002, but he did not submit a claim for Social Security disability benefits until April 2005. “Given Bennett’s delay in seeking Social Security disability benefits,” the court wrote, “we agree with the district court’s analysis concluding that the plan is neither unreasonable nor unconscionable as applied to the facts of this case.”
Change of Beneficiary Was Effective, Despite Agent’s Failure to Submit Form to Insurer Principal Life Ins. Co. v. Smith, 2010 WL 2600653 (11th Cir. June 30, 2010) This interpleader action involved competing claims of Alice Smith, the decedent’s wife, and Alma Sue Smith, the decedent’s ex-wife, to the proceeds of an ERISA-governed group life insurance policy issued to the decedent’s employer. The group policy provided that a participant could change his named beneficiary “by sending a written request to [the insurer]. A change will not be effective until recorded 6
by [the insurer]. Once recorded, the change will apply as of the date the request was signed.” The decedent originally designated Alma Sue Smith as the beneficiary of $50,000 in basic life insurance and $50,000 in supplemental life insurance. He later divorced Alma Sue Smith and married Alice Smith. In February 2007, the decedent completed a change of beneficiary form, designating Alice
Smith as the beneficiary. He returned the form to his employer, who forwarded it to the insurance agent. The agent failed to forward the form to the insurer. Thus, at the time of the decedent’s death in April 2007, the insurer’s file indicated that the ex-wife was the designated beneficiary. The wife, Alice Smith, sent a copy of the change of beneficiary form to
the insurer. Thereafter, the insurer informed both the ex-wife and the wife of their competing claims, and filed an interpleader action.
the policy proceeds because she was the beneficiary named in the insurer’s records at the time of the decedent’s death.
The ex-wife asserted that this case was controlled by Kennedy v. Plan Adm’r for DuPont Sav. & Inv. Plan, 129 S. Ct. 865 (2009), in which the Court held that an exwife’s waiver of her rights to life insurance benefits was insufficient to remove her as the beneficiary, when the decedent had failed to execute documents designating a new beneficiary in accordance with plan terms.
The Eleventh Circuit rejected this assertion, and agreed with the wife’s argument that the case was controlled by Liberty Life Assurance Co. of Boston v. Kennedy, 358 F.3d 1295 (11th Cir. 2004) (holding that the award of benefits under any ERISA plan is governed by the language of the plan itself).
The ex-wife, Alma Sue Smith, argued (1) that the decedent never provided any written notice of the beneficiary change, and (2) that she was the proper beneficiary of
Pursuant to Liberty Life v. Kennedy, the Eleventh Circuit looked to the terms of the plan to determine whether the decedent adequately changed the beneficiary before his death. The court stated that the plan clearly provided that any change of beneficiary would apply
as of the date the request was signed. Consequently, the fact that the ex-wife was the beneficiary of record at the time the decedent died was not determinative. The Court further reasoned that the beneficiary designation form submitted by the decedent satisfied the “written request” requirement under the terms of the plan. The fact that the insurer did not receive the form until after the decedent died did not make it ineffective. Accordingly, the Eleventh Circuit upheld the district court’s determination that Alice Smith, the decedent’s wife, was the proper beneficiary of the policy proceeds.
Plaintiff ’s Deposition May Be Taken in ERISA Case Subject to De Novo Standard of Review Zorn v. Principal Life Ins. Co., 2010 WL 3282982 (S.D. Ga. Aug. 18, 2010) Zorn sued Principal Life after the company denied his claim for long-term disability benefits under an employee welfare benefit plan governed by ERISA. Because the plan did not include language of discretion, the applicable standard of review was de novo. Because the Eleventh Circuit historically has not limited the scope of review to the administrative record in de novo cases, Principal Life sought to conduct certain discovery, including taking Zorn’s deposition and obtaining by subpoena certain accounting records pertaining to his former businesses. Zorn filed a motion for protective order to preclude the taking of his deposition. Additionally, some of his former businesses filed a motion to quash the subpoena for accounting records. Zorn argued that he should not be deposed because he already had given a sworn statement during the claims process, and that Principal Life was “unduly burdening if not harassing him” by requesting a deposition. Principal Life argued that it had obtained additional information concerning Zorn’s activities, after the administrative decision had been made, and that it should be allowed to question him about those matters.
court conducting a de novo review of an Administrator’s benefits determination is not limited to the facts available to the Administrator at the time of the determination.” Noting the “core ERISA policy” of “cost-containment by constraining parties to try and resolve their coverage disputes administratively,” the court also concluded that “a district court conducting de novo review … should make a particularized determination of whether and why specific evidence outside the administrative record should be admitted.” The court added that it “should be ‘the unusual case in which the district court should allow supplementation of the record,’ with the burden placed on the moving party to show that such evidence is necessary to the district court’s de novo review.” A “full good cause showing” was not required at the discovery stage, the court wrote, “but [the party seeking the discovery] must show a reasonable chance that the requested discovery will satisfy the good cause requirement.” Here, Principal Life made such a showing. The court also rejected as “baseless” Zorn’s contention that “more restrictive discovery standards should be applied to insurers than to beneficiaries.”
The court agreed with Principal Life, noting that “a district 7
Denial of LTD Benefits Held Unreasonable Because Administrator Ignored Evidence Favorable to Employee Scott v. Eaton Corp. Long Term Disability Plan, 2010 WL 3522400 (D.S.C. Sept. 3, 2010) From 1996 to 1998, Scott worked as an assembler for Eaton. Her position required her to “wire, fit, and modify items in the manufacturing of products.” In 1998, Scott stopped working due to chronic pain, reflex sympathetic dystrophy, anxiety, and depression. She received short-term disability benefits and was approved for longterm disability benefits. After paying LTD benefits for nine years, the claims administrator informed Scott that she no longer satisfied the “any occupation” definition of disability, and that additional LTD benefits would not be paid. The claims administrator based this decision, in part, on a physical capacity evaluation form completed by Scott’s physician and on a telephone conversation with the physician. The physical capacity evaluation was ambiguous, however, because it indicated that Scott was capable of sitting, standing, and walking for eight hours each day, but that she was capable of working “zero” hours per day. The claims administrator asserted that any confusion created by the form was resolved by the telephone conference with the doctor, during which he said that Scott could perform sedentary work. After Scott received the denial letter, however, the physician wrote to the claims administrator and opined that “she is completely and totally disabled from performing any job on a full time basis.” Scott sued under ERISA, challenging the termination of LTD benefits. The federal district court noted that, while the claims administrator was granted significant discretion to decide whether benefits were owed under the plan, the claims administrator nevertheless “ignored relevant evidence favorable to the employee.” The court thus held that the termination of benefits was unreasonable. The court relied heavily on a 2006 Fourth Circuit decision, which held that a denial of ERISA benefits was unreasonable, based on the claims administrator’s “wholesale disregard” of evidence supporting the plaintiff’s claim. Donovan v. Eaton Corp. Long Term Disability Plan, 462 F.3d 321 (4th Cir. 2006). In Donovan, a treating physician reported that the plaintiff was capable of performing sedentary work, but later stated that she was totally disabled. According to the court, the claims administrator failed to adequately address the physician’s second opinion, which was favorable to the plaintiff.
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“Scintilla of Evidence” Not Enough to Support Claim Denial; Award of Attorney’s Fees Upheld Williams v. Metropolitan Life Ins. Co., 609 F.3d 622 (4th Cir. 2010) Williams was employed by Cingular Wireless in September 2000 as a customer services clerk. Her primary duties were speaking with customers on the telephone and typing data into a computer. Since the mid-1990s, Williams had experienced medical issues with her hands and wrists, including “trigger finger” disorder, tendinitis, and carpal tunnel syndrome. Despite nine medical procedures, these conditions made it difficult for her to use her hands for work activities such as typing without experiencing pain. Beginning in April 2003, Williams submitted claims for both short-term disability and long-term disability benefits under Cingular’s ERISA plan. MetLife was the claim administrator, with discretionary authority to make claim decisions and also the responsibility to pay benefits. MetLife paid STD benefits to Williams through the maximum benefit period, and then paid LTD benefits until August 2005. After having her medical records reviewed by two independent physicians, MetLife ended the payment of benefits, telling Williams that her medical records “do not substantiate” her claimed disability. After exhausting her administrative remedies, Williams sued in federal district court. The court granted Williams’ motion for summary judgment, Williams v. Metropolitan Life Ins. Co., 632 F.Supp.2d 5215 (E.D.N.C. 2008), and also awarded her attorney’s fees of $18,240 and costs. MetLife appealed. The Fourth Circuit affirmed, even though the district court had applied the “modified abuse-of-discretion” standard, which had been rejected by the Supreme Court in Metropolitan Life Ins. Co. v. Glenn, 554 U.S. 105 (2008). Two weeks after the district court’s order was entered, the Fourth Circuit in Champion v. Black & Decker (U.S.), Inc., 550 F.3d 353 (4th Cir. 2008), abrogated its earlier “modified abuse-of-discretion” standard. Nevertheless, the Fourth Circuit concluded that a remand to the district court for consideration under the correct standard was not necessary, because the potential impact of MetLife’s structural conflict of interest had been significantly reduced by its use of two independent physicians and the fact that it initially paid LTD benefits to Williams. This suggested that MetLife “was not inherently biased in making its decision,” the court said.
Additionally, the district court had considered the factors for reviewing the reasonableness of a claim decision set out in Booth v. Wal-Mart Stores, Inc. Associates Health & Welfare Plan, 201 F.3d 335 (4th Cir. 2000), and approved in Champion. The Fourth Circuit concluded that “even under the deferential standard of review prescribed by Glenn and Champion, MetLife’s rationale in terminating Williams’ benefits was not reasoned and principled, and was not supported by substantial evidence.” Rather, the court said, “[i]n the face of overwhelming evidence concerning Williams’ continued pain and difficulty in attempting to use her hands and wrists, MetLife relied on a scintilla of evidence that did not directly address these problems.” The court upheld the judgment granting LTD benefit to Williams, and also affirmed the award of attorney’s fees and costs, relying on Hardt v. Reliance Standard Life Ins. Co., 130 S.Ct. 2149 (2010). Before Hardt, the rule in the Fourth Circuit had been that only a “prevailing party” could recover fees. The Supreme Court held in Hardt, however, that a party is eligible for fees in an ERISA case if the party has achieved “some degree of success on the merits.” The court found in Williams’ case that “the degree of success was very high,” and that the award of fees was justified under the five factors the court had traditionally applied, as set out in Quesinberry v. Life Ins. Co. of N. Am., 987 F.2d 1017 (4th Cir. 1993).
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Plan Not Required to Consider Social Security Determination That Is “Devoid of Reasoning” Roberts v. American Electric Power Long-Term Disability Plan, 2010 WL 2854299 (S.D. W.Va. July 19, 2010)
In 1988, Roberts fell from a 45foot power pole, resulting in two operations to his knee. Shortly after the accident, Roberts began receiving disability benefits from the American Electric Power LongTerm Disability Plan. Benefits were paid until July 2005, when additional benefits were denied.
was not totally disabled from any work and, instead, that he was simply unmotivated to return to work.
Roberts appealed the denial, and the payment of benefits was reinstated in February 2006. The claims administrator then conducted an additional review, and terminated the payment of benefits a second time in May 2006. The second denial was upheld at all levels of administrative appeal. When a new claims administrator took over the claim in April 2006, it reviewed the record and terminated benefits effective July 2006. The plan provided long-term disability benefits until the retirement age of 65, if the claimant was disabled from any occupation for which he was reasonably qualified. The plan also provided that benefits would be terminated if the claimant was no longer disabled, or if he failed to provide satisfactory proof of continuing disability. After his accident in 1988, Roberts received a Class 5 physical impairment rating, and his prognosis for returning to work was described as “poor” or “never” by his physicians. In 1990, Roberts applied for Social Security disability benefits. His claim was denied twice, but in 1995 he was awarded SSDI benefits retroactive to 1992. Thereafter, Roberts continued to receive treatment and therapy for his injuries. He also participated in functional capacity evaluations in 1994, 2002, and 2006, and had two independent medical examinations in 2002. The majority of those evaluations showed that Roberts 10
sedentary level. In his motion for summary judgment, Roberts argued that the second claims administrator was conflicted because it participated in a competitive market and received compensation for its services. The district court noted, however, that because “this must be the situation for nearly every independent claims administrator, the Court cannot conclude that [the claims administrator’s] role creates a significant degree of conflict.” Roberts also argued that the claims administrator abused its discretion by failing to consider the decision of the Social Security Administration finding him disabled. The district court noted that “[t]he Supreme Court has made clear that the factors which must be weighed in an analysis of Social Security Disability are not necessarily the same factors which must be weighed in an analysis of disability under an ERISA plan.”
In 2006, the claims administrator sent the claim for a peer review, which concluded that the medical records did not support a finding that Roberts was precluded from returning to any occupation. In September 2007, Roberts filed a complaint in federal court, which ordered an additional administrative review. After Roberts submitted more medical evidence, a new claims administrator arranged for a second peer review. The second peer review mirrored the first, and led the claims administrator to uphold the termination of benefits.
The district court held that “[w]ith the existence of such difference between Social Security and ERISA, the claims administrator is justified in discounting a Social Security Administration decision devoid of reasoning.” The only information in the administrative record from the Social Security Administration was a letter from the Commissioner of Social Security to Roberts regarding its final decision. According to the district court, without further information from the Social Security Administration, “it was not an abuse of discretion not to grant greater weight to the Social Security decision.”
Roberts then submitted a second appeal in December 2008. The claims administrator submitted the records to four medical providers who had not previously seen them. The four providers all agreed that Roberts could at least work at the
The district court grated the plan’s motion for summary judgment, finding that the record clearly supported the claims administrator’s decision, and that the administrator did not need to rely on the Social Security decision.
Plan Administrator Not Required to Obtain Independent Vocational or Medical Evidence to Decide LTD Claim
Piepenhagen v. Old Dominion Freight Line, Inc., 2010 WL 3623225 (4th Cir. Sept. 16, 2010)
In 2005, Piepenhagen suffered a heart attack while operating his tractor-trailer. He never returned to work as a truck driver. In October 2005, the Social Security Administration awarded him benefits, based on its determination that he was totally disabled. Piepenhagen received benefits under his employer’s ERISA-governed disability plan as part of its short term and “same occupation” long-term disability program from February 2005 through December 2005, when the payments ended. The termination of benefits was based on the plan’s determination that certain psychological or psychiatric “comorbidities” (which were not covered by the plan) were causally related to his inability to work. Piepenhagen exhausted his administrative remedies and filed a state court action in 2006. After the case was removed to federal court, the parties agreed to a settlement of the “same occupation” disability benefits. The district court then remanded the claim to the plan to review Piepenhagen’s “any occupation” disability benefits claim. During post-remand proceedings, the plan determined that Piepenhagen was not totally disabled. He then filed another state court action in 2008, which also was removed to federal court. On cross-motions for summary judgment, the district court entered judgment for the employer. On appeal to the Fourth Circuit, Piepenhagen argued that the medical evidence he submitted established a prima facie case of total disability, and that the plan abused its
discretion by denying his claim without obtaining its own independent evidence. The Fourth Circuit first noted that when an ERISA plan administrator totally disregards some portion of a physician’s opinion that is favorable to the employee’s claim, and seizes upon that portion which is adverse to the employee’s claim, such decision-making is unreasonable. Nevertheless, the Fourth Circuit agreed with the district court that the plan had engaged in a “deliberate and principled reasoning process in analyzing [Piepenhagen’s] long-term disability claim.” Significantly, the court determined that the plan neither ignored evidence supportive of the alleged total disability nor distorted statements made by any of the physicians. Turning to Piepenhagen’s argument that the plan failed to obtain vocational evidence of his occupational skills, the Fourth Circuit noted that “a plan is not required as a matter of law to obtain vocational or occupational expertise in its evaluation of an employee’s claim.” Likewise, the court concluded that “a plan administrator has no duty to develop evidence that a claimant is not disabled prior to denying benefits.” Finally, the Fourth Circuit dismissed Piepenhagen’s argument that the district court failed to give appropriate weight to the award of Social Security disability benefits, holding that “barring proof that the disability standards for social security and the plan in question are analogous, we would not consider an SSA award in an ERISA case.” 11
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