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Plaintiff
Bettye Whitaker, an account executive with a communications company,
resigned her position in 2001 and applied for disability benefits
based on a claim that anxiety and depression prevented her from
working.
Defendant Hartford Life and
Accident Insurance Co., which insured her company's employees for
disability benefits, did not believe Whitaker's claim was severe
enough to qualify her to receive benefits and denied the claim.
Whitaker then asked Hartford to reconsider, but when that effort
resulted in affirmance of the denial, Whitaker filed suit.
Because Whitaker's claim was based
on disability insurance provided as a benefit, the Employee
Retirement Income Security Act, 29 U.S.C. §1001, et seq., governed
her claim. Moreover, because the Hartford policy contained a
provision declaring that the insurer had the discretion to determine
eligibility to receive benefits, in adjudicating the dispute, the
court applied the highly deferential arbitrary and capricious
standard of judicial review based on Firestone Tire & Rubber Co.
v. Bruch, 489 U.S. 101 (1989), which held that courts are to
apply a deferential standard of review if the benefit plan contains
a clause stating that the plan administrator has discretion to
determine claims. Bruch also pointed out that if the plan
administrator is acting under a conflict of interest, such conflict
would be a factor to consider.
In the case here, since Hartford
had an inherent conflict in its dual role as plan administrator and
payor of benefits, the 6th U.S. Circuit Court of Appeals stated it
would consider the conflict in applying the arbitrary and capricious
standard of review. Whitaker v. Hartford Life and Accident
Insurance Co., 2005 U.S. App. LEXIS 3492 (6th Cir., decided Jan.
24, released for publication March 2).
The main issue presented had to do
with the weight Hartford was required to give to a successful Social
Security disability claim. Under the Social Security law, the term
''disabled'' means the claimant is incapable of engaging in ''any
substantial gainful activity'' (42 U.S.C. §423(d)(1)(A)), meaning
the claimant is entirely precluded from working on a regular basis.
Under the administrative scheme
that governs Social Security disability determinations, a claim is
initially determined by an adjudicator who reviews the written claim
submissions.
A second level of review, known as
reconsideration, is also decided by an adjudicator based on review
of written documentation; however, a claimant who remains
dissatisfied with the claim determination following reconsideration
has the right to request a hearing before an administrative law
judge.
Such hearings are not adversarial
and inquisitorial in nature; however, to preserve the claimant's
rights to a full and fair consideration of the claim, the claimant
is allowed to submit testimony, to cross-examine the maker of
adverse reports, and to ultimately have the case decided by a
neutral, objective decision-maker who has no stake in the outcome of
the claim. See Richardson v. Perales, 402 U.S. 389 (1971),
the seminal Supreme Court decision on due process in Social Security
claim adjudications.
Administrative law judges are
independent of the Social Security Administration and are expected
to render objective decisions within the guidelines of the Social
Security statute and governing regulations.
In contrast, disability insurance
claims are decided by insurance companies, many of which are
publicly listed stock companies. Under the ERISA law and
regulations, a claimant dissatisfied with the claim decision is
entitled to a full and fair review of the benefit claim denial
pursuant to 29 U.S.C. §1133 and 29 C.F.R. §2560.503-1. Although the
regulations afford various procedural safeguards, unlike Social
Security cases, there is no right to cross-examination and the
ultimate decision is made by the inherently conflicted insurance
company.
Despite such marked differences
between Social Security and ERISA disability claims, the federal
courts treat them similarly, notwithstanding warnings against the
misuse of administrative law to decide ERISA cases issued by jurists
such as Judge Richard A. Posner of the 7th Circuit, who, in
Herzberger v. Standard Insurance Co., 205 F.3d 327, 332 (7th
Cir. 2000), explained:
''What may have misled courts in
some cases is the analogy between judicial review of an ERISA plan
administrator's decision to deny disability benefits and judicial
review of the denial of such benefits by the Social Security
Administration. Judicial review of the latter sort of denial is of
course deferential, and it is natural to suppose that it should be
deferential in the former case as well.
''But the analogy is imperfect,
quite apart from its having been implicitly rejected by the Supreme
Court in Firestone Tire & Rubber Co. v. Bruch when it
determined that the default standard of review in ERISA cases is
plenary review, and quite apart from the fact that the Social
Security statute specifies deferential ('substantial evidence')
review. 42 U.S.C. §405(g). The Social Security Administration is a
public agency that denies benefits only after giving the applicant
an opportunity for a full adjudicative hearing before a judicial
officer, the administrative law judge. The procedural safeguards
thus accorded, designed to ensure a full and fair hearing, are
missing from determinations by plan administrators.''
Despite such thoughtful
observations, as well as other criticism of the use of the
administrative law paradigm in ERISA cases such as that made by this
author in an article entitled ''The Paradox of the Misuse of
Administrative Law in ERISA Benefit Claims,'' 37 J.Marshall L.Rev.
727 (2004), courts persist in according the same discretion to
insurers' conclusions in ERISA cases that they give to the neutral
and objective determinations made by administrative law judges in
Social Security cases, as is the case in Whitaker v. Hartford.
The 6th Circuit concluded in
Whitaker that a disability insurer need not give the Social
Security determination binding weight since ''a claim for benefits
under an ERISA plan often turns on the interpretation of plan terms
that differ from SSA criteria.''
Distinguishing a prior 6th Circuit
ruling, the court held that Darland v. Fortis Benefits Insurance
Co., 317 F.3d 516 (6th Cir. 2003), differed because it involved
''a unique situation where it would be inconsistent for a plan
administrator to ignore the SSA's favorable determination, after the
administrator had expressly requested the claimant to apply for SSA
benefits. Nothing similar occurred in this case.''
[Also see, Ladd v. ITT Corp.,
148 F.3d 753 (7th Cir. 1998), where the 7th Circuit ruled that
an insurer that had retained counsel to represent the claimant in
Social Security proceeding was barred from disregarding the results
of that adjudication.]
Because the 6th Circuit determined
that Hartford's findings were based on reviews by an independent
neurologist and psychiatrist, the court held the insurer's decision
could not be ''arbitrary and capricious when a reasoned explanation,
based on the evidence, supports that determination.''
Although this decision appears
facially correct, it is troubling in a number of respects. First,
the criteria utilized by insurers are almost universally less
restrictive than the Social Security requirements for an award of
disability benefits. In most situations, disability insurance
policies will pay benefits for at least a limited period based on
the insured's inability to fulfill job duties.
Even if the insurer pays benefits
only when the insured is incapable of engaging in any occupation, as
Ladd v. ITT Corp., 148 F.3d 753, 754 (7th Cir. 1998)
recognized, the policy language ''is different from that of the
statute governing Social Security disability benefits, which defines
disability (so far as relevant here) as an 'inability to engage in
any substantial gainful activity.' 42 U.S.C. §423(d)(1)(A). But
MetLife was unable to articulate any difference in actual meaning
until the oral argument of the appeal, when its lawyer said that the
reference to 'any and every duty' means that an ITT employee is not
disabled unless he or she can't even do part-time work, whereas (he
thought) under the Social Security Act a worker who cannot work full
time is deemed totally disabled. That is not what the act says.
''As long as the worker can engage
in 'substantial gainful activity,' he is not disabled even if the
only work that he is capable of doing is only part time. E.g.,
Brewer v. Chater, 103 F.3d 1384, 1391-92 (7th Cir. 1997); 20
C.F.R. §404.1572(a). Of course, the work must not be so meager as
not to be substantial and gainful. See 20 C.F.R. §§404.1573(e),
404.1574(a), (b). But the same, it turns out, is true under ITT's
disability plan. For MetLife's lawyer quickly retreated from his
effort to distinguish the plan from the Social Security disability
law when asked whether a worker who could work 10 minutes a day was
thereby disentitled to total-disability benefits under the plan; he
said no.''
Thus, there is hardly any
functional distinction between the Social Security definition of
disability and the requirements of most insurance policies. Indeed,
even under a general standard of disability, which usually contains
a requirement that the insured demonstrate the inability to engage
in any occupation for which he or she is fit based on education,
experience and education, is still far less restrictive than the
Social Security definition since the insurance policy definition is
usually interpreted to require that the insured be capable of
earning an income commensurate with earnings before the disability.
See, e.g., Mossa v. Provident Life and Casualty Insurance Co.,
36 F.Supp.2d 524, 531 (E.D. N.Y. 1999). Under Social Security,
the capability of earning less than $1,000 per month would
disqualify an applicant from receiving benefits.
Admittedly, a recent ruling of the
U.S. Supreme Court does raise a distinction between Social Security
and insurance. Pursuant to a Social Security regulation developed
after the courts had initially formulated the concept, in
determining eligibility to receive Social Security disability
benefits, deference must be given to the opinions rendered by the
treating physician who also satisfies other requirements.
The regulations found at 20 C.F.R.
§404.1527(d) enumerate those criteria, which include the length of
the treatment relationship, consistency between the treating
doctor's opinion and the clinical and laboratory diagnostic
techniques, specialization by the treating doctor, detail in
explanation provided in support of an opinion, consistency with the
record as a whole, and a demonstrated understanding of the
evidentiary requirements necessary to prove disability.
In Black & Decker v. Nord,
538 U.S. 822 (2003), the court rejected giving deference to a
treating doctor's opinion.
Nonetheless, a decision issued by
the 7th Circuit just a few weeks prior to Nord suggests that
while there is no need in ERISA for a rule giving deference to the
treating doctor, when that doctor's opinion is weighed against that
of a consultant hired by a disability benefit plan, who may ''have a
financial incentive to be hard-nosed in his claims evaluation in
order to protect the financial integrity of the plan and of the
employer that funds it,'' the superior knowledge possessed by the
treating doctor, particularly when the plan's consultant has not
examined the patient, may favor the treating doctor's opinion.
Hawkins v. First Union, 326 F.3d 914, 917 (7th Cir. 2003).
However, based on Nord, if
the insurer can articulate the Social Security decision was based on
deference given to the treating physician, that would constitute
grounds for not giving significant weight to the Social Security
finding.
In other cases, though, decisions
rendered by the Social Security Administration, particularly if they
utilize the same evidence as that submitted to the insurer, should
be given substantial weight, especially given the fact that the
determination is being made by a neutral, objective government body.
That proposition was obviously recognized by the world's largest
disability insurer, UnumProvident Corp., which recently reached a
settlement agreement with all 50 state insurance commissioners, the
U.S. Department of Labor and the N.Y. attorney general's office in
which it bound itself to give substantial weight to Social Security
findings.
Therefore, Whitaker should
not be read to convey that Social Security decisions may be ignored,
since such decisions are carefully rendered by objective
fact-finders who conduct evidentiary proceedings; and the
determination is, for the most part, made under criteria that are
functionally identical to those used by disability insurers.
Particularly in view of the fact that the insurance system affords
no opportunity for a hearing, denies cross-examination and involves
a decision made by a financially biased tribunal, a careful
examination of the Social Security decision as a check against
unwarranted abuse of the claimant by the insurer is consistent with
ERISA's goal of protecting promised benefits by insuring that
meaningful rights and remedies are available to claimants. See 29
U.S.C. §1001(b).
Further, all group disability
insurance coordinates benefits with Social Security and reduces the
monthly benefit by the amount of Social Security benefits received
by the claimant. Consequently, most insurers make it a requirement
of continued receipt of benefits that the insured apply for
disability benefits. If the insurer demands the insured apply for
benefits and wishes to benefit from the reduction, the insured
should be able to gain credit for the Social Security award, a point
made in Ladd.
Whitaker
's comment about the independent claim reviewers is also disturbing
since there is no evidence that the claimant was examined and, as
pointed out in the quote from Hawkins set forth above,
so-called independent reviewers may be anything but. Even the
Supreme Court cautioned in Nord that physicians repeatedly
retained by benefits plans may have an '''incentive to make a
finding of 'not disabled' in order to save their employers money and
to preserve their own consulting arrangements.'' 123 S.Ct. at 1971.
Thus, courts need to be more wary of the potential for mischief when
the same party who determines claim eligibility and who is also
responsible for paying claims blindly defers to its reviewing
doctors.
That said, there is no doubt that
insurance fraud is a serious problem and insurers must be vigilant
against deceitful claimants. Thus, many of the doctors hired by
insurers to review claims perform an important gatekeeper function
in identifying fraudulent claims. No doubt, there are also treating
doctors who go out of their way to assist their patients that is
why the Social Security system has placed so many restrictions on
when a treating doctor's opinion will be given deference.
Nonetheless, for a court to simply
conclude that utilization of a reviewing doctor is sufficient to
show that the decision was not arbitrary and capricious points to a
fundamental problem with the entire notion of applying ERISA
concepts to disability benefit claims. What has happened is that
disability insurers are allowed to stand in a privileged position
that no other insurers enjoy just by declaring in policies that they
themselves draft that the insurer has discretion to determine a
claimant's eligibility to receive benefits.
Although the Supreme Court ruled in
Firestone that such language is sufficient to require a
deferential standard of review under which a claimant must prove the
insurer is not only wrong but has made an irrational decision, it is
hard to fathom a rational policy basis for such a conclusion. Can
there really be a valuable societal purpose or policy behind
granting broad-based discretion to insurers that owe a greater duty
to their shareholders than to their insureds? |
