Litigating Long Term Disability Insurance - ERISA Claims

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At some point in time, regardless of the focus of your practice, you are going to have a client who is dealing with a long term disability claim that has been denied. The disability claim can arise from either an accidental injury or from a sickness (disease). While there may be overlap, long term disability claims are separate and distinct from worker compensation and Social Security disability claims. Long term disability claims are subject to policy specific disability definitions which in turn require different proof. This article series is intended to provide a basic understanding of the issues unique to litigating a long term disability claim.

Long term disability insurance is sold through a variety of distribution channels. The coverage can be sold directly to individuals – in person or online. Disability coverage can also be obtained through associations, including by way of example the American Bar Endowment (marketed and sold to ABA member attorneys). However, the bulk of disability coverage is obtained through group insurance policies sold to employers for the benefit of employees. And therein is the problem. Aside from a handful of exceptions, group long term disability insurance claims are subject to ERISA.[1] ERISA affects both the claims process and the litigation process.

A. Don't overlook the need to exhaust administrative appeals.

To begin, the obligation to exhaust the claims process cannot be emphasized enough. ERISA requires the insured (participant) not only file a claim, but also file an appeal of the claim denial – exhaustion of the administrative process. The federal courts, including the Sixth Circuit, have uniformly held that "although ERISA is silent as to whether exhaustion of administrative remedies is a prerequisite to bringing a civil action ... the administrative scheme of ERISA requires a participant to exhaust his or her administrative remedies prior to commencing suit in federal court."[2] If the participant does not exhaust (i.e. appeal a benefit denial), the courts are quick to dismiss the case.[3] Generally, the dismissal should be without prejudice so as "to allow [the claimants] the opportunity to pursue their [administrative] remedies."[4] However, do not assume the court will dismiss without prejudice. In some cases, the courts have taken it on themselves to determine whether the time to file an appeal has expired (notably without considering if the plan terms provide for a longer period, or if the insurer would have accepted the appeal). Those courts have dismissed "unexhausted ERISA claims with prejudice where the opportunity to pursue administrative remedies has expired."[5]

In general, a participant is only required to file one appeal. While some plans permit a second voluntary appeal, it is not required. However, a growing number of insurers have begun to include a mandatory second appeal in their policies. The law is unsettled on whether exhausting is required in this instance – especially where the plan's appeals process does not comply with the Department of Labor regulations. That said, it is better to err on the side of caution and file the "mandatory" second appeal.

B. The claims regulations are your friend.

ERISA controls the claims process through the Department of Labor claim regulations.[6] The regulations contain a number of requirements. The regulations detail what constitutes a "full-and-fair" review, including the contents of denial letters (both claim and appeal), the information required to be provided upon written request (not just the claim file), the obligation to administer the plan terms consistently for all participants, and the qualifications of any medical consultants. More importantly, the regulations specify the time frames in which the insurer must render a decision. If a decision is not made within the required time frame, the participant is "deemed to have exhausted the administrative remedies available under the plan and shall be entitled to pursue any available remedies under" ERISA.[7]

In the past, when evaluating whether an insurer complied with the claim regulations, the courts have been reluctant to require strict compliance.[8] Instead, the courts have applied a "substantial compliance test to determine whether [ERISA's] notice requirements have been met."[9] What was unclear in the substantial compliance cases was whether the timing requirements required strict compliance – similar to application of a statute of limitations. Fortunately, the U.S. Supreme Court clarified this question. In Heimeshoff v. Hartford Life & Accident Ins. Co.,[10] a case involving statute of limitations and accrual dates for ERISA insurance claims, the Court clearly held that if a plan "fails to meet its own deadlines under these procedures, the participant shall be deemed to have exhausted the administrative remedies." The "penalty for failure to meet those deadlines is immediate access to judicial review for the participant." Given this holding, participants should be very aware of the deadline for an insurer to make a timely decision. This will affect both the statute of limitations, as well as the evidence the court can consider.

C. Filing suit and national service of process.

When it comes to filing suit involving an ERISA disability plan, you have several options. To begin, ERISA provides for national service of process.[11] An insurer can be sued: (1) "in the district where the plan is administered"; (2) "where the breach took place"; or (3) "where the defendant resides or may be found." This broad venue provision provides the insured participant with several options on where to file suit and, to some extent, select the forum. Arguably, if an insurer is authorized by the Department of Insurance and admitted to sell its products in Kentucky, the insurer may be found in Kentucky.

D. Don't concede the standard of review.

A threshold issue in every ERISA benefits case is the standard of review the court should apply when reviewing the insurer's denial decision. In 1989, the U.S. Supreme Court held that "a denial of benefits ... is to be reviewed under a de novo standard unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan."[12] Because the norm is de novo review, the burden is on the insurer to prove that the standard of review was altered to the insurer's preferred arbitrary and capricious standard of review. To be clear, under de novo review, the court looks to see if the denial was right or wrong. Under the arbitrary and capricious standard, the court only looks to see if the decision was reasonable – a legal standard foreign to the vast majority of insured participants.

Too often, participants (and their counsel) concede the standard of review. This is a mistake and should be avoided. The defendant insurer has several hurdles to overcome. First, it must demonstrate that the necessary discretionary language is actually in the plan document. Too often, the language is only in the summary plan description. But the summary plan description is not a plan document and cannot alter the terms of the plan. The U.S. Supreme Court addressed this issue in Cigna Corp. v. Amara, holding "that the summary documents ... do not themselves constitute the terms of plan."[13] Absent the required language, the standard of review remains de novo.

Second, even if the plan contains the purported deferential language, the question then becomes whether the language provides for a "clear grant of discretion." After all, "discretion is the exception, not the rule and ... the arbitrary and capricious standard does not apply unless there is a clear grant of discretion to determine benefits or interpret the plan."[14] Recently, and inconsistently, insurers have been arguing phrases such as "satisfactory proof" are sufficient to grant discretion. The arguments are inconsistent because insurers concede the language does not convey discretion in one circuit, while arguing the same language in the same policy conveys discretion in another circuit. A key example is the Sixth Circuit. The Sixth Circuit is currently in a minority of courts that find similar phrasing sufficient. Further, the courts are trending against the use of such language. For example, the First Circuit recently rejected the use of "satisfactory proof" language as providing a clear grant of discretion.[15]

Third, even if the language is sufficient, there is the issue of whether discretion was actually exercised. In order for the court to defer to a decision, a decision has to have been made. "Where a plan administrator does not make the benefits decision, the plan administrator has not exercised its discretionary authority, and therefore a deferential standard of review is not justified."[16] An insurer fails to render a decision when the decision is not issued within the time proscribed by the Department of Labor claim regulations. More recently, an insurer fails to render a decision when it outsources its claims services to a third party – a party who is not a claims fiduciary and who has not been delegated discretionary authority by the plan sponsor.[17]

Finally, the state in which the policy was issued comes into play. Because insurance regulation is left to the states, and ERISA contains an "insurance savings clause," you should confirm whether the state has enacted any legislation or regulations prohibiting discretionary clauses. For example, "any insurer who wishes to provide insurance in Michigan must submit its insurance forms to the Commissioner for review and may not include a discretionary clause in such forms."[18] Kentucky has not quite gone to the point of banning discretionary clauses. Instead, the Department of Insurance has issued an Advisory Opinion concerning "discretionary clauses."[19] The opinion stated "discretionary clauses deceptively affect the risk purported to be assumed in any policy and as such, any forms containing discretionary clauses may be disapproved." This opinion, as well as the numerous states to have taken similar action, underscores the deceptive nature of discretionary clauses.

E. Common issues to address in briefing.

Litigating an ERISA disability claim necessarily involves discovery, claims and damage evaluations, as well as briefing on the merits. Given the space limitations, for this article, the focus will be on briefing. Unless the court has previously addressed the standard of review, or the insurer has conceded the issue, assume for the sake of briefing that the standard of review is arbitrary and capricious. Again, it is much harder to overcome this standard, but it is not an impossible task. There are a number of areas where the courts routinely find an insurer's decision arbitrary and capricious.

To begin, review the denial letters closely. Make sure the insurer has actually cited the correct policy language. Too often, the denial letter either misstates the definition of disability or cuts the definition short and fails to give meaning to all of the language. "In interpreting the provisions of a plan, a plan administrator must adhere to the plain meaning of its language, as it would be construed by an ordinary person."[20] A common error occurs where the disability definition has changed from own occupation (the inability to perform the duties of your job) to any occupation (the inability to perform the duties of any job for which you are reasonably trained and educated). The any occupation definition has an earnings requirement, typically equal to the disability benefit percentage (60%). Even if the insured can perform some duties on a regular (40 hour week) basis, if the earnings requirement is not met, the definition is still met.

Additional issues to address include the insurer's review of the medical evidence. Many insurers will not pay to have an insured actually examined. Instead, as has become common with worker compensation and PIP claims, insurers routinely use record reviews. While the courts permit insurers to do so, the courts have found the failure to obtain an actual examination to support finding the decision arbitrary and capricious. In Kalish v. Liberty Mutual, the Sixth Circuit held that "whether a doctor has physically examined the claimant is indeed one factor that we may consider in determining whether a plan administrator acted arbitrarily and capriciously in giving greater weight to the opinion of its consulting physician."[21]

Surveillance, Social Security findings, and job duties are also important factors to address. A common ploy of insurers is to obtain video surveillance and then use the surveillance as an excuse to deny or terminate benefits. The problem though is the surveillance only shows a snippet of the insured's activity. People have good days and bad days. Make sure to compare the actual time (length) the insured is active (sitting, standing, lifting, etc.) with the restrictions and limitations given by the treating physicians. As to job duties, make sure the insurer has obtained the insured's actual job title and job duties. Too often, insurers look to O-Net for jobs "close to" the insured's job – yet, these jobs often require less physical ability (i.e. sedentary strength v. light strength). Finally, make sure to address the insurer's representations to Social Security in support of the insured's disability. This is all the more the case where Social Security benefits have been awarded. Do not be taken in by the standard argument that the insurance policy uses different and stricter disability definitions. In a recent 2013 report, the Society of Actuaries confirmed that "the SSDI definition of disability is more stringent than most contractual definitions in LTD."[22]

F. Disability does not mean incapacitated.

Too often, insurers pander to the negative public stigma of disability. The insurers toss around the phrase "disability," implying one can only be disabled if they are incapacitated – unable to do anything. This pandering ignores that "disability" is a legal finding. It is a contractual term. Pursuant to the contract terms, the issue is not whether an insured is totally incapacitated, but instead whether the insured's restrictions and limitations (based on their diagnosis, prognosis and treatment) prevent full-time gainful employment.

Simply because an insured is able to perform some activities does not mean they are capable of performing all of the duties of their prior job or engaging in full-time gainful employment. Further, the ability to perform the substantial duties of a job does not suddenly disappear. There is not typically an "aha" moment. Instead, it's a gradual process whereby the insured reaches a point where continued work is unrealistic. People continue to work even when their body cannot continue. They do so out of pride and out of a desire to provide for their families. Receiving a portion of their earnings via disability insurance, and foregoing work benefits, is not a goal. It is a necessity. People work even while disabled so as to provide for their families. As the courts have recognized, "a disabled person should not be punished for heroic efforts to work by being held to have forfeited his entitlement to disability benefits should he stop working."[23] "There is no logical incompatibility between working full time and being disabled from working full time."[24]


[1] 29 U.S.C. §1001 et seq. ("Employee Retirement Income Security Act"); see also 29 USC §1003(b) defining five exceptions to ERISA coverage; 29 C.F.R. §2510.3–1(j) recognizing a regulatory "safe harbor" exception to ERISA.

[2] Coomer v. Bethesda Hospital, Inc., 370 F.3d 499, 504 (6th Cir.2003); see also Diaz v. United Agr. Employee Welfare Benefit Plan, 50 F.3d 1478 (9th Cir.1995); Conley v. Pitney Bowes, 34 F.3d 714 (8th Cir.1994); Berger v. Edgewater Steel Co., 911 F.2d 911 (3d Cir.1990); Curry v. Contract Fabricators, Inc. Profit Sharing Plan, 891 F.2d 842 (11th Cir.1990); Leonelli v. Pennwalt Corp., 887 F.2d 1195 (2d Cir.1989); Makar v. Health Care Corp. of Mid–Atlantic, 872 F.2d 80 (4th Cir.1989); Drinkwater v. Metropolitan Life Ins. Co., 846 F.2d 821 (1st Cir.1988); Dale v. Chicago Tribune Co., 797 F.2d 458 (7th Cir.1986).

[3] See e.g., Beamon v. Assurant Empl. Benefits, 917 F.Supp.2d 662 (W.D.Mich.2013); Saravolatz v. Aetna U.S. Healthcare, 51 F.Supp.2d 806 (E.D.Mich.1999); Riehl v. Hartford, 2014 WL 2612534 (W.D.Ky., June 11, 2014); Sullivan v. Appalachian Regional Healthcare, Inc., 2011 WL 5827323 (E.D.Ky., Nov. 18, 2011).

[4] Ravencraft v. Unum Life Ins. Co. of America, 212 F.3d 341, 344 (6th Cir.2000).

[5] Bird v. GTX, Inc., 2010 WL 883738 at *4 (W.D.Tenn., Mar. 5, 2010).

[6] 29 C.F.R. 2560.503-1.

[7] 29 C.F.R. 2560.503-1(l) ("Failure to establish and follow reasonable claims procedures.").

[8] Wenner v. Sun Life Assur. Co. of Canada, 482 F.3d 878 (6th Cir.2007)

[9] Id.

[10] Heimeshoff v. Hartford Life & Acc. Ins. Co., 134 S.Ct. 604 (2013).

[11] 29 U.S.C. § 1132(e)(2).

[12] Firestone Tire and Rubber Co. v. Bruch, 489 U.S. 101 (1989).

[13] Cigna Corp. v. Amara, 131 S.Ct. 1866, 1878 (2011)

[14] Wulf v. Quantum Chem. Corp., 26 F.3d 1368 (6th Cir.1994); Brown v. Ampco-Pittsburgh Corp., 876 F.2d 546, 550 (6th Cir. 1989).

[15] Gross v. Sun Life Assurance of Canada, 734 F.3d 1 (1st Cir.2013).

[16] Shelby County Health Care Corp. v. The Majestic Star Casino, LLC Group Health Benefit Plan, 581 F.3d 355, 365 (6th Cir.2009); Thompson v. J.C. Penney Co., Inc., 2001 WL 1301751, *3-4 (6th Cir., Aug. 7, 2001).

[17] Gavin v. Life Ins. Co. of N. America, 2013 WL 677886 (N.D.Ill., Feb. 25, 2013).

[18] American Council of Life Insurers v. Ross, 558 F.3d 600, 605 (6th Cir.2009).

[19] Advisory Opinion 2010-01.

[20] Shelby County Health Care Corp. v. Southern Council of Industrial Workers Health and Welfare Fund, 203 F.3d 926 (6th Cir.2000).

[21] Kalish v. Liberty Mutual/Liberty Life Assur. Co., 419 F.3d 501, 507–508 (6th Cir.2005).

[22] "Issues in Applying Credibility to Group Long-Term Disability Insurance", Society of Actuaries Health Section (2013).

[23] Hawkins v. First Union Corporation Long-Term Disability Plan, 326 F.3d 914 (7th Cir. 2003).

[24] Rochow v. Life Ins. Co. of North America, 482 F.3d 860 (6th Cir.2007).

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