Choice of review standard often dictates outcome

March 6, 2013
By Mark D. DeBofsky

Mark D. 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 .

In Employee Retirement Income Security Act benefits litigation, the selection of the judicial standard of review often dictates the outcome of the case.

An example is the recent ruling issued in Deloach v. The Great Atlantic & Pacific Tea Company LTD Plan, 2013 U.S.Dist.LEXIS 12139 (E.D.Mich. Jan. 30, 2013). There, the plaintiff, Glen Deloach, worked as a warehouse supervisor for a grocery store owned by A&P until he became disabled in 2006 due to an autonomic neuropathy that caused his blood pressure to suddenly drop, resulting in dizziness and both syncope and near-syncope (fainting).

Following the onset of his disability, Deloach concurrently applied both for Social Security disability benefits as well as long-term disability insurance payments from his employer's long-term disability insurer, CIGNA. Social Security ultimately approved Deloach's claim as did CIGNA, however, the insurer terminated benefit payments after only eight months based on a medical record review performed by an in-house associate medical director which claimed he failed to present sufficient evidence to justify ongoing disability payments.

An initial round of litigation concluded with the district court remanding the case to the insurer for a redetermination of benefits. Although the remand resulted in CIGNA's approval of Deloach's claim under an "own occupation" definition of disability, the insurer refused to pay benefits beyond an initial 24-month period when the definition of disability became more stringent and required a showing of an inability to work in "any occupation."

CIGNA maintained that Deloach was capable of other employment even if he remained unable to perform his regular job. The refusal to pay additional benefits triggered a second round of litigation.

The first issue addressed by the court concerned the appropriate standard of judicial review. The benefit plan provided that the "plan administrator" and "appeals authority" had discretionary authority to interpret the plan and make benefit eligibility decisions, which normally would suffice to trigger a deferential standard of review under the authority of Firestone Tire & Rubber Co. v. Bruch, 480 U.S. 101 (1989).

However, the plan administrator was identified as the A&P vice president of benefits and the appeals authority was designated as the "A&P Benefits Committee." Since all of the decisions concerning Deloach's claim were made by CIGNA, and none of the parties designated in the plan documents as having discretionary authority were involved in decision-making, the court determined the de novo standard of adjudication was applicable.

The court rejected CIGNA's argument that it was the designated "claims administrator" and therefore possessed delegated authority. Absent any language in the plan documents devolving discretionary authority upon the claims administrator or identifying the insurer by name, the court found no support for the insurer's contention.

Turning to the merits, the court found the medical evidence, when viewed in full context, showed that while Deloach experienced some periods of improvement, he continued to experience ongoing "episodes of orthostatic intolerance including symptoms of extreme fatigue, shortness of breath, drenching sweats and diaphoresis, tremulousness and severe chest pain." Deloach had also fainted at least twice and had also suffered frequent episodes of near-syncope.

While CIGNA maintained that Deloach failed to provide objective measurements of his condition, the court pointed out that such evidence was not required by the plan. The court further agreed with Deloach's argument that his symptoms were not amenable to objective measurements. The court was also persuaded by Deloach's favorable Social Security determination.

Although the court agreed with CIGNA that the finding made by the SSA was not determinative, it was nonetheless deemed relevant evidence. Thus, the court ordered Deloach's benefits reinstated. However, in the conclusion to the opinion, the court reinforced the significance of the applicable standard of review:

"This case is one that turns on the applicable standard of review. While it appears to the court that an examination of the administrator's actions for arbitrary and capricious decision-making would result in a finding for defendants, under the de novo standard of review, the court is convinced that its weighing of the evidence requires reversal of Cigna's decision to terminate benefits."

That discussion by the court illustrates the importance of the judicial standard of review. But it also begs the question of why anything other than an objective judicial review standard that gives equal consideration to both parties would ever be permissible in litigation involving such crucial matters as health or disability insurance benefits or even pension benefits.

Indeed, more than 25 years ago, the 7th U.S. Circuit Court of Appeals remarked in Van Boxel v. The Journal Company Employees' Pension Trust, 836 F.2d 1048, 1052 (7th Cir. 1987) that "[benefits] are too important these days for most employees to want to place them at the mercy of a biased tribunal subject only to a narrow form of 'arbitrary and capricious' review, relying on the company's interest in its reputation to prevent it from acting on its bias." However, those words preceded the Supreme Court's Firestone ruling, which permitted employers and even insurers to grant themselves discretionary authority.

The Supreme Court since recognized in Metro. Life Ins. Co. v. Glenn, 554 U.S. 105 (2008) that insurers who both fund benefit payments and also decide who receives those benefits act under a structural conflict of interest that must be taken into consideration in litigation challenging benefit denials.

However, the possession of discretionary authority remains a potent weapon in the hands of insurers since, as this ruling illustrates, under the abuse of discretion standard, a wrong yet reasonable decision will still be upheld.

That is why the National Association of Insurance Commissioners promulgated a model law seeking to eliminate insurers' discretionary authority. In Illinois, 50 Ill.Admin. Code Section 2001.3 (2005) adopted the NAIC model rule, placing insurers and insureds on equal footing by barring the inclusion of discretionary language in health and disability insurance policies.

However, the battle continues.

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