The Standard of Review in First Circuit ERISA Cases
The most important question that has to be answered from the very beginning of every ERISA disability insurance case is the standard of review that the court must follow when it reviews a decision to deny benefits. Most ERISA disability insurance policies and plans reserve discretion. This allows the carrier or plan administrator to interpret the terms of the policy or plan and decide if you are entitled to your benefits.
As a practical result, the federal judge must review the decision to deny your benefits under an abuse of discretion standard of review.
However, if the policy or plan does not reserve discretion or if your policy or plan is through a state, county or municipality or a church, the standard of review is “de novo.” That means the judge can look at the case with a fresh set of eyes.
In the First Circuit, a denial of benefits under an ERISA plan is reviewed under a “de novo” standard of review unless there is a clear “grant of discretion.” What does that mean in English? Language like “proof satisfactory to us” or “the administrator has exclusive control and authority to interpret the terms of the Plan” is sufficient for the court to apply the arbitrary and capricious standard of review. That means that the court must defer to the administrator’s exercise of that discretion. The standard of review is like a pair of golden handcuffs on the judge.
One of the key ways to show an abuse of discretion is to show that the policy or plan has a conflict of interest because it both decides and pays a claim. Any time the policy or plan denies a claim it saves money. That can be a conflict!
The First Circuit has made it clear that a “conflict of interest must be real. A chimerical, imagined or conjectural conflict will not strip the fiduciary’s determination of the deference that would otherwise be due.” Leahy v. Raytheon Co., 315 F. 3d 11, 17 (1st Cir. 2002)
One of the leading cases of conflict of interest comes from the First Circuit in Denmark v. Liberty Life Assur., 566 F.3d 1,8 (1st Cir. 2009). This case went through the court system twice and ultimately the court found conflict was only one factor to be considered. It would only consider the conflict if that conflict actually influenced the claims decision.
The First Circuit uses a multi-factorial test, including conflict of interest and procedural irregularities, in deciding your case.
A federal court has three options when deciding a case. The court can uphold a claims denial which means you lose. The court could award benefits but only for the period claimed which means you are placed back on claims diary and get to play the game again. The court has a third option which is not a real win for the policy holder. The court can remand a case back to the carrier for a claims determination which means the carrier gets another bite at the apple and another opportunity to perfect the claims denial. Ugh!
If that happens, the policy holder’s attorney may be paid a fee at the expense of the disability carrier and it is up to the court to determine if a fee is due and how much. In the case of Gross v. Sun Life Assurance Company of Canada, 763 F.3d 73 (1st Cir. Aug. 14, 2014), the court found that an award of attorney fees at the expense of Sun Life was appropriate. That is not always the case even with a remand!
You Pay Nothing Unless We Get Your Benefits or Achieve a Settlement
The Importance of Understanding the Definition of Disability in Your Policy
The key to getting disability insurance benefits, winning an appeal or winning in court is understanding the definitions in your policy. Two of the most important definitions of disability are “own occupation” and “any occupation.”
There is NO uniform definition of either term and it is defined differently in each policy. Most policies will pay “own occupation” benefits if the policy holder is unable to do the material and substantial duties of their own occupation but then the definition of disability changes to an inability to do the material and substantial duties of any occupation. Disability carriers play games with these definitions and one of the most common games is to fail to identify the policyholder’s occupation and the physical and mental duties of the insured’s occupation.
In the case of McDonough v. Aetna Life Ins. Co., 2015 WL 1684079 (1st Cir. April 15, 2015), Mr. McDonough worked for Biogen, Inc. as Senior IT analyst, Systems Administration, and was on call 24/7 365 days per year. It was a high pressured job and after 9 months on the job, he suffered stroke-like symptoms with right-sided numbness, dizziness, and blurred vision. He applied for and was paid LTD benefits by Aetna because he continued to suffer physical symptoms together with anxiety and panic attacks.
14 months later, his PCP indicated he could work in a sedentary job, 5 days per week and 8 hours per day. Aetna terminated his benefits and hired 4 doctors who all opined McDonough could work in his sedentary job. The denial was upheld by the federal district court and he appealed to the First Circuit. The Court held that Aetna’s denial was “not a reasoned determination” because none of the 4 Aetna doctors compared McDonough’s symptoms or impairments to any description of the physical and cognitive demands of his own occupation as the term was defined in the plan documents.
The policy definitions are key!
Can a Disability Carrier in the First Circuit Reduce LTD Benefits by the Receipt of VA Benefits?
Let me tell you the story of Mr. Hannington who contracted a blood disease when he received a vaccination serving in the U.S. Air Force. After his discharge, he became employed at GE and was offered disability benefits through a plan administered by Sun Life. The plan reduced his long term disability benefits by the receipt of “other income” which was defined to include any “amount of disability or retirement benefits under a) the United States Social Security Act, b) the Railroad Retirement Act or c) any other similar act or law provided in any jurisdiction.”
Sun Life had the sole discretion to construe the terms of the plan and make a benefits determination. That, as you know, is an arbitrary and capricious standard of review.
Sun Life approved the payment of benefits and then reduced the amount of those benefits by the amount Mr. Hannington got from the VA. Sun Life determined that VA benefits were “similar” to Social Security benefits.
The First Circuit held in Hannington v. Sun Life and Health Ins. Co., 711 F.3d 226 (1st Cir. March 29, 2013) that VA benefits are not linked to employment, like Social Security or Railroad benefits, but to past service in the Armed Forces and were funded by Congress. The court found that his service connected VA benefits were not offsettable.
You might be surprised to learn that the federal district court in Kansas held just the opposite and let Sun Life offset VA disability benefits for a veteran in the case of Holbrooks v. Sun Life Assurance Co. of Canada, 2013 U.S. Dist. Lexis 156208 (D. Kansas October 31, 2013.
Where you live can make all the difference about how your benefits are determined.
How About a Social Security Disability Offset?
Most ERISA disability insurance policies allow the disability carrier to reduce the amount of the disability insurance benefits dollar for dollar if the policy holder and/or their dependents get Social Security disability benefits. Is the offset based on the gross pretax amount or the net post-tax amount of the Social Security disability benefits?
The First Circuit ruled in Troiano v. Aetna Life Ins. Co., 844 F.3d 35 (1st. Cir. December 16, 2016), that the calculation was to be based on the gross amount since the policy permitted an offset for Social Security disability benefits that were “payable.” The court reasoned that the gross amount was what was payable and looked to an example of the offset calculation found in the policy.
What about the Statute of Limitation to File a Law Suit in the First District?
If your case is denied, you must file a law suit timely or the case is time-barred and can’t be revived. ERISA does not have a statute of limitation for bringing a civil suit and, as a result, many federal courts apply the most closely related statute of limitation period in the state where the law suit is filed. But, did you know that a disability policy may have an internal statute of limitation that overrides the state statute of limitation period?
For example, in the case of Santana-Diaz v. Metro Life Ins. Co., 2016 WL 963830 (1st Cir. March 14, 2016), the policy had a 24-month limitation on the payment of disability benefits for mental nervous conditions and Metro Life denied the payment of ongoing benefits. Santana-Diaz appeal twice and none of the denial letters told him what the statute of limitation date was. The policy had a 3 year limitation period which provided that “no legal action of any kind may be filed more than 3 years after proof of disability must be filed.” That period expired during the appeals process timeframe provided in the policy.
When he ultimately filed suit, the time had expired under the 3 year internal clock and Aetna claimed that law suit was time barred.
This is an incredibly confusing area of ERISA law and, fortunately, the First District saved the day by holding that Metro Life violated ERISA regulations which require that an insurer explains in the final denial letter the date it believes the statute of limitation expires. Making a mistake about when a lawsuit must be filed can destroy a claim.
