April 4, 2011
By Mark D. DeBofsky
DeBofsky is a name partner of Daley, DeBofsky & Bryant. He handles civil and appellate litigation involving employee benefits, disability insurance and other insurance claims and coverage, and Social Security law. He can be reached at firstname.lastname@example.org.
A recent ruling from the 9th U.S. Circuit Court of Appeals illustrates the difficulty courts have in assessing claims involving medical conditions such as chronic fatigue syndrome. Salomaa v. Honda Long Term Disability Plan, 2011 U.S.App.LEXIS 4386 (9th Cir. March 7, 2011) involved a longtime employee of Honda, Samuel Salomaa, who was described by his supervisor as "without a doubt the best employee to have worked for me."
Salomaa had perfect attendance at work, was a dedicated family man and an exercise enthusiast who jogged two miles to and from work every day until he fell ill in 2003 with flulike symptoms that never went away. After an exhaustive odyssey seeking a medical diagnosis and treatment, Salomaa was eventually diagnosed with chronic fatigue syndrome, a condition for which there is no known cure or treatment. With the unequivocal support of his treating physicians, Salomaa applied for disability benefits from Honda's long-term disability plan administered by CIGNA Group Insurance.
Because there are no laboratory tests for chronic fatigue syndrome, the insurer relied on negative test findings to deny the claim. Salomaa sought reconsideration and submitted additional reports from his treating doctor describing his severe fatigue and explaining Salomaa "definitely could not work." Although the doctor was unable to report specific physical limitations, because there are none due to chronic fatigue syndrome, the physician documented his observation that Salomaa was unable to even sit up on the examining table without assistance. Again, though, the insurer rejected the claim.
Meanwhile, Salomaa also applied to the Social Security Administration for disability benefits, which approved his claim. However, CIGNA again rejected the claim and refused to provide benefits. The district court upheld that finding, but Salomaa successfully appealed.
The court began by discussing the abuse of discretion standard of review that had been applied by the district court. Although prior rulings had defined that standard as requiring affirmance unless a benefit plan administrator's decision is not grounded on "any reasonable basis," the court of appeals held the "any reasonable basis" test was no longer valid. First, the court noted the plan administrator's conflict resulting from the insurer's dual role as both the funding source and decision-maker. Based on prior rulings, including the Supreme Court's ruling in Metro Life v. Glenn, 554 U.S. 105 (2008), the court pointed out it was required to examine the extent to which the conflict influenced the determination. The court also noted that a more recent ruling, Conkright v. Frommert, 130 S.Ct. 1640 (2010), held that a "single honest mistake in plan interpretation" will not deprive a plan administrator of a deferential standard of review. However, Judge Andrew Kleinfeld, the author of the opinion, observed how difficult it is for judges to decide ERISA cases since "[i]t is much easier to state the words of the formula for the standard of review than to say what the formula means in practice."
The court described the problem as particularly acute "because of the special protection the statute gives to insurance companies against claims" brought under ERISA since there may be "an incentive to be more unfair" in deciding such claims than other insurance claims where insurers face potential punitive damages which are precluded under the ERISA regime. Moreover, by limiting review to the so-called "administrative" record, courts are entirely ignorant of factors that might put more weight on the scale such as whether promotions are based on claim denials or whether there may have been a bias against chronic fatigue syndrome cases by the claim adjuster or her supervisor. Fundamentally, the court observed "[t]he conflict of interest requires additional skepticism because the plan acts as judge in its own cause."
Turning to the merits, the court outlined five factors that caused the benefit denial to be deemed "illogical, implausible and without support in inferences that could reasonably be drawn from facts in the record:
(1) every doctor who personally examined Salomaa concluded that he was disabled; (2) the plan administrator demanded objective tests to establish the existence of a condition for which there are no objective tests; (3) the administrator failed to consider the Social Security disability award; (4) the reasons for denial shifted as they were refuted, were largely unsupported by the medical file and only the denial stayed constant; and (5) the plan administrator failed to engage in the required "meaningful dialogue" with Salomaa.
Obviously troubling to the court was that at least four doctors had personally examined Salomaa and found him disabled, yet despite the plaintiff's request that CIGNA have him examined by an independent physician, the insurer chose to rely instead on doctors who performed mere file reviews. The court remarked, "The medical record by physicians who actually examined Salomaa is entirely one sided in favor of Salomaa's claim. The plan rejected its opportunity to see if there was another side." Equally disturbing to the court was that the reasons for the denial kept shifting. Although the insurer relied on the absence of specific laboratory findings, the court found that rationale "illogical, because such objective measures as blood tests are used to rule out alternative diseases, not to establish the existence of chronic fatigue syndrome." Likewise, they held "that conditioning an award on the existence of evidence that cannot exist is arbitrary and capricious." And the court criticized the insurer for utterly disregarding the treating doctors' clinical observations, for not acknowledging criteria established by the Centers for Disease Control and CIGNA Health Care in relation to chronic fatigue syndrome and for ignoring the Social Security determination altogether.
The court acknowledged the difficulty insurers have with claims involving fibromyalgia and chronic fatigue syndrome because the absence of medical tests creates a risk that claimants will allege symptoms they don't have in order to secure benefits. However, the court pointed out: "The plan with a conflict of interests also has a financial incentive to cheat. Failing to pay out money owed based on a false statement of reasons for denying is cheating, every bit as much as making a false claim."
Finally, the court found CIGNA guilty of procedural irregularities. The ERISA statute requires a "full and fair" review of a benefit claim denial, but the court determined the process was unfair because Salomaa and his attorney were denied access to the medical reports used to deny the claim and because the insurer never told the plaintiff what evidence would provide satisfactory proof of loss. Although the insurer's communications with Salomaa suggested he provide X-rays, CT and MRI report, the court called that request "absurd" since such evidence is wholly irrelevant to the claimed disabling condition.
The court added, "A layman might be fooled by this statement of reasons into thinking he left something relevant out of his claim package, but fooling someone unfamiliar with the medical terms with irrelevant medical mumbo jumbo violates the statutory duty to write a denial 'in a manner calculated to be understood by the claimant.' "The court further suggested that the duty to provide documentation requires that such information be provided at a time when the claimant is given the opportunity to submit comments in response. The court also made it clear that the insurer's statements of "we are not persuaded" or "your evidence is insufficient" fall short of what the ERISA statute and regulations require. Accordingly, the court awarded benefits. A dissenting opinion was filed by Judge Cynthia Hall, who died between the time the opinion was authored and its issuance.
This outstanding ruling offers a yardstick against which future cases can be measured. The five factors cited by the court give other courts guidance in reviewing ERISA cases and removes some of the uncertainty in applying the amorphous test the Supreme Court imposed in Glenn. But at a much more fundamental level, the court indicts the entire ERISA scheme of having courts conduct an abuse of discretion review of factual findings rendered by a party judging its own cause. The conflict of interest in ERISA cases is not theoretical; it creates an incentive to cheat, a viewpoint that was also expressed in an influential articled authored by professor John Langbein of Yale Law School that was cited in the Glennruling - "Trust Law as Regulatory Law: The Unum/Provident Scandal and Judicial Review of Benefit Denials Under ERISA," 101 Nw.U.L.Rev. 1315 (2007). The incentive to cheat is minimized in non-ERISA governed insurance cases because claimants are afforded a panoply of discovery procedures, jury trials and the threat of punitive damages for insurance "bad faith." Salomaa demonstrates that while abuse of discretion review is not impenetrable, the Supreme Court's repeated citations in Glenn to Universal Camera Corp. v. NLRB , 340 U.S. 474, 490, 71 S. Ct. 456, 95 L. Ed. 456 (1951) was for a purpose directly applicable to adjudication of ERISA benefit cases. Universal Camera expressly rejected the notion that deferential review begins and ends with a search for evidence supporting the reasonableness of the decision under consideration. 340 U.S. at 488. Rather, a reviewing court must satisfy itself that the determination under review was based on "adequate proof" in the record. Id.
Finally, the court directed lower courts to "assume more responsibility for the reasonableness and fairness" of claim determinations, and that courts are "not to abdicate the conventional judicial function." 340 U.S.at 490. With that in mind,Salomaa opens the door to both fuller and fairer adjudication of ERISA claims.
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