ERISA: A Frankenstein made up of different laws
Chicago Daily Law Bulletin
January 4, 2010
by MARK D. DEBOFSKY
Conflict of interest in the administration of benefit claims is a topic that has long concerned Judge William Acker Jr. of the Northern District of Alabama.
Blankenship v. Metropolitan Life Insurance Co., Civ. No. 08-AR-0639-S (N.D. Ala., Dec. 30) is merely the latest in a series of rulings critical of the manner in which courts have treated ERISA cases. In Florence Nightingale Nursing Service, Inc. v. Blue Cross and Blue Shield, .832 F. Supp. 1456, 1457 (N.D. Ala. 1993), affirmed, 41 F.2d 1476 (11th Cir. 1995), Acker suggested that "ERISA stands for 'Everything Ridiculous Imagined Since Adam'" and Blankenship shows his opinion remains unchanged. Blankenship was a disability benefits case involving a claimant who alleged that advanced heart disease prevented him from continuing to work as a store manager for Sears, Roebuck. Although MetLife initially denied Blankenship's claim, it later reversed course after documenting in its claim diary that due to Blankenship's "significant cardiac history" it was unlikely that he would be able to return to work.
However, MetLife decided just a few months later that no further benefits were due allegedly on account of an absence of "objective" evidence supporting a disability. Blankenship appealed; and with his appeal, he submitted unequivocal findings from his treating doctors reporting he was unable to work. In response, based on the opinion of a doctor retained to conduct a file review, MetLife upheld its decision. Shortly thereafter, though, Blankenship underwent knee surgery, which led MetLife to reinstate benefits on the basis of that condition. The insurer continued to review the claim, ostensibly both as to the cardiac and orthopedic impairments, although a vocational assessment commissioned by MetLife looked solely at Blankenship's knee injury and ignored the cardiac impairment altogether. The vocational specialist identified jobs Blankenship could perform within the limits of his orthopedic impairments, but which his heart condition would have precluded.
However, in reliance on the vocational assessment, MetLife again terminated Blankenship's benefits. When Blankenship started a new appeal process, MetLife retained yet another cardiologist to review his file. However, that cardiologist was never asked about a significant aspect of what the plaintiff's treating doctors had reported - the effect of stress in the workplace on Blankenship's heart condition. Based on that doctor's report, MetLife upheld the denial.
Nearly a year later, Blankenship was awarded Social Security disability benefits retroactive to when he ceased working. Shortly thereafter, he sued MetLife seeking reinstatement of his benefits; and MetLife counterclaimed seeking reimbursement of an overpayment that resulted from policy provisions coordinating benefits between long-term disability insurance and Social Security disability.
The court began its analysis with a discussion of the evolution of ERISA jurisprudence and an expression of disappointment that the courts have failed to comply with the Congressional purpose behind ERISA. The court noted: "Instead of recognizing the patently obvious Congressional intent, the ERISA courts have contrived ersatz administrative procedures, with an inlay of trust law, for the judicial review of denials of ERISA benefits." Opinion at 9.
Continuing, the court expressed its concern with the procedural vehicle chosen by the parties - a "motion for judgment as a matter of law." Finding no provision of the Federal Rules of Civil Procedure supporting the invocation of such a procedural vehicle, and determining Rule 56 summary judgment inapt for disposition of ERISA cases, the court bemoaned that "under ERISA, trial courts, despite never having seen a live witness, routinely make, or purport to make, credibility determinations to resolve disputes between irreconcilable unsworn written testimony." Opinion at 11.
The court then remarked, "Even Dr. Watson, without Sherlock's help, could deduce from this procedural dilemma either that a new procedural rule should be created for ERISA cases, or that ERISA should be applied as it was written by Congress." Id.
The court then turned to the insurer's conflict of interest and catalogued cases in which discovery had been allowed in order to give benefit claimants the opportunity to explore the degree to which the insurer's conflict may have affected the claim determination. However, since no discovery had been sought in the case before the court, Acker wrestled with how to decide the claim based solely on the claim record. Ironically, this case involved the identical Sears, Roebuck plan insured by MetLife that was at issue in MetLife v. Glenn, 128 S.Ct. 2343 (2008).
The court began by discussing the first of Glenn's two holdings; i.e., that an insurer which both pays benefits and determines eligibility to receive benefits acts under a conflict of interest. Despite the Court's finding of the existence of a conflict, in trying to ascertain how to assess the conflict, the court expressed its concern that the Supreme Court "shortchanged the lower courts when it offered no concrete advice as to how to weigh this conflict." Glenn's finding that the conflict was "merely a factor" to be taken into consideration left the court confused, and provoked the following comment:
The seminal mandate from Glenn, namely, that courts must consider an administrator's structural conflict as one "factor," has left courts scrambling not only to decide how this "factor" should be, or can be, weighed in a particular case, but what additional evidence, if any, should be considered to evaluate this "factor". Opinion at 17.
Citing Marrs v. Motorola, 577 F.3d 783 (7th Cir. 2009) for the proposition that the conflict is a "dynamic factor" given "greater significance if the circumstances show the conflict was likely to have influenced the administrator," the court examined the record and identified ound a number of factors pointing to the insurer's conflict. For one, the size of the claim, while not huge in comparison to MetLife's worth, was something the court found would have an effect on the claim decision. The court also pointed to MetLife's initial determination that the claim lacked "objective" support, when no policy provision required such proof and where that assertion was simply wrong since there was an abundance of clinical proof supporting Blankenship's cardiac impairment. The insurer's encouragement of the Social Security application was also a factor - even though the determination from Social Security came after the claim appeals were exhausted, MetLife filed a counterclaim seeking to reap the benefit of the Social Security award.
The court described such conduct as "having your cake and eating it too." Yet another factor pertinent to the court's finding was MetLife's reliance on "pure paper" or "file" reviews rather than a physical examination of the insured. The court pointed out its concern that the doctors utilized by MetLife were frequently retained, and the court added,
Most hired hands don't go contrary to the boss's best interest. Paid experts, more often than not, are, in this court's experience, "predisposed" or "preconditioned." Courts have consistently expressed their skepticism of benefits administrators' reliance on pure paper medical reviews, and have often held that such reviews are evidence of a shallowness and transparency that is the essence of arbitrariness and capriciousness. See Bennett v. Kemper Nat. Svcs., Inc., 514 F.3d 547, 554-55 (6th Cir. 2008); Montour v. Hartford Life & Acc. Ins. Co.,____ F.3d ____, No. 08-55803, 2009 WL 3856933, at *10 (9th Cir. Nov. 19, 2009). Opinion at 23-24.
In addition, the court was struck by the conflict between the reviewing doctors' findings and the findings made both by the treating doctors and by the Social Security Administration, suggesting that "MetLife's decision was the culmination of a structurally conflicted process." Opinion at 24.
The court also cited MetLife's vocational decision which gave no consideration to Blankenship's cardiac impairments, along with the reviewing cardiologist never being asked about the vocational impact of Blankenship's susceptibility to stress. The court asked sarcastically: "Can a heart patient with angina, working under severe stress, be expected to earn up to 60 percent of what he earned before his heart condition, that is, until he drops dead?" Opinion at 25.
By never inquiring about the impact of stress, the court found the insurer "steered" its consultant away from the central medical issue and concluded that misdirecting its physician was fundamentally arbitrary conduct. Opinion at 26. Hence, the court determined that benefits were due, although subject to offset by the Social Security payments.
Blankenship was authored by an obviously frustrated federal judge. In addition to its other observations, in assessing the findings made by MetLife's medical and vocational consultants, it was obvious that the court had in mind the maxim that "It is difficult to get a man to understand something, when his salary depends upon his not understanding it." Upton Sinclair's "I, Candidate for Governor: And How I Got Licked" (1935).
But there is another, much larger issue at play here as well. Political commentator Peggy Noonan recently wrote a column in the Wall Street Journal entitled, "Look Ahead with Stoicism - and Optimism" (Jan. 2, 2010). Noonan focused her column on the phrase, "They forgot their mission," and recounted how government, Congress, Wall Street, schools and other institutions seem to have lost sight of their raison d'etre .
The same could be said for the courts and ERISA. The entire purpose behind ERISA is that people who are entitled to benefits ought to receive them. Instead, ERISA has become a Frankenstein monster, made up of slapped together parts of trust law, contract law, and administrative law, reflecting the worst of those areas of law and operating in a way that elevates procedure above substance. The late Edward Becker, former chief judge of the 3rd U.S. Circuit Court of Appeals, wrote beseechingly in his concurring opinion in DiFelice v. Aetna U.S. Healthcare, 346 F.3d 442 (3d Cir. 2003) that either the Supreme Court or Congress needed to immediately fix ERISA in a way that would meet ERISA's salutary goal of affording employee benefit plan participants and their beneficiaries appropriate rights and remedies. That goal remains elusive, but if we look forward both with stoicism and optimism, we may yet look back on this new decade as one in which the mission was fulfilled.
Note: I was counsel for the plaintiff in Marrs v. Motorola, which was cited.