Insurance adjuster wins bid for disability benefits

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Insurance adjuster wins bid for disability benefits

Chicago Daily Law Bulletin
June 4, 2007

by MARK D. DEBOFSKY

Becky Cooper, who worked as an insurance adjuster, injured her back in a work-related accident while on a business trip. Although she continued to work for two years following the accident, Cooper's condition worsened to the point where she finally required surgery.

While recuperating, Cooper received short-term disability benefits for a period of time from the Life Insurance Company of North America, or LINA, the underwriter of group short-term and long-term disability insurance for Cooper's employer. However, despite an unsuccessful effort to return to work after surgery, LINA cut off Cooper's short-term disability benefits before the maximum duration; and LTD benefits were denied.

Cooper appealed and submitted evidence that included a post-surgery MRI that showed ''extensive degenerative changes at all levels throughout the lumbar spine.'' Her physiatrist's report restricted Cooper from working at all until she underwent further treatment. Cooper also was involved in a head-on automobile collision; and test results following the accident revealed a large herniated disk in the cervical spine and significant degeneration at multiple levels of that region.

To evaluate her claim, LINA hired a neurologist to review the file. The neurologist agreed that it was appropriate to restrict Cooper from working for five months after surgery, but he concluded she was able to perform full-time light-duty work thereafter despite also finding reasonable the treating doctors' restrictions of no more than three hours of work per day and no more than 30 minutes of driving per day. Despite that inconsistency, LINA relied on the neurologist's findings as support for denying the claim.

A year later, the Social Security Administration found Cooper disabled based in substantial part on the findings of an independent consultative examination conducted for Social Security by an orthopedic surgeon, who found significant pathology throughout the lumbar spine accompanied by ''marked muscle spasms'' and ''restrictions in lumbar motion.''

Cooper then sought a new appeal and submitted the evidence from the Social Security claim. This time, LINA had the file reviewed by Dr. Eddie Sassoon, a physiatrist. In addition to having Sassoon review the file, LINA asked him to interview the treating doctors. Sassoon only reviewed the file, though, and reiterated the initial reviewing doctor's findings of an absence of acute orthopedic or neurological findings that would preclude light-level work on a full-time basis. LINA thus upheld its earlier decision.

Litigation ensued, and after reviewing the evidence under the arbitrary and capricious standard of review, the District Court ruled in LINA's favor, citing a lack of satisfactory ''objective medical evidence'' and quoting Sassoon's report at length.

The 6th U.S. Circuit Court of Appeals reversed. Cooper v. Life Insurance Company of North America, 2007 U.S. App. LEXIS 11408 (6th Cir., May 16).

While finding that the trial court properly applied the arbitrary and capricious standard of review, the court explained that even under such a lenient standard, the plan administrator's decision must be ''the result of a deliberate, principled reasoning process.'' Glenn v. Metropolitan Life Insurance Co., 461 F.3d 660, 666 (6th Cir. 2006)). The court is also obligated to review the ''quality and quantity of the medical evidence and the opinions on both sides of the issues.'' McDonald v. Western-Southern Life Insurance Co., 347 F.3d 161, 172 (6th Cir. 2003).

The court then turned to the merits of the dispute. As to the initial denial, the court concluded that LINA's decision was not arbitrary and capricious. The court found Cooper initially failed to provide satisfactory objective proof of her disability, and the records seemed to indicate that Cooper's condition was improving.

However, after Cooper appealed the initial determination, LINA's continued denial of benefits was deemed arbitrary and capricious.

The court found nothing per se wrong with LINA's reliance on a reviewing doctor's report, but it pointed to several problems with LINA's reliance on the reviewing neurologist's findings. First, the reviewing doctor was supposed to have contacted the treating doctor, but it did not appear he made more than a token effort to do so.

Second, the neurologist's report was contradictory. On the one hand, he stated that he found a restriction of working no more than three hours per day reasonable, but he then concluded that Cooper could perform full-time sedentary work. In addition, the court pointed out that Cooper's occupation was not ''sedentary'' but was ''light,'' meaning it was performed at a more strenuous exertional level.

''In sum,'' the court noted, ''Dr. Graulich failed to interview Cooper's treating physicians despite his explicit instructions to do so, misstated the exertional level of Cooper's job, and contradicted himself as to her ability to engage in full-time work. We thus conclude that LINA acted arbitrarily and capriciously when it relied on Dr. Graulich's report in denying Cooper's first appeal on the basis that the record lacked sufficient evidence to establish disability.''

The court likewise found LINA's denial of the second appeal was arbitrary and capricious.

The appeals court initially remarked, ''Dr. Sassoon failed to provide a reasonable basis for denying Cooper's claim and, in fact, compounded the errors in Dr. Graulich's report. LINA's request for a second independent physician review included the same three instructions as provided in its first request to Dr. Graulich, including a direction to interview 'the attending physician.' Contrary to the singular noun 'physician,' the request form provided the name, specialty and phone number for Drs. Boehm, Brown, Ford and Osborn, all being Cooper's treating physicians.''

The court criticized Sassoon for ignoring the objective evidence relied on by Social Security's examining physician and also selectively reviewed the treatment records and medical testing.

Like the first doctor, Sassoon also was reproved for failing to make more than a perfunctory effort to contact one of the treating doctors, despite being instructed to interview all the treating doctors. Consequently, LINA's reliance on Sassoon was deemed arbitrary. Although LINA had the authority to request ''satisfactory proof'' of disability, the court held it could not arbitrarily reject the findings of the treating doctors when their opinions were based on objective evidence.

The court summarized by stating, ''LINA sought documentation of Cooper's functional capacity, such as the amount of time that she could sit, stand, walk or drive, but did not inform her that it would accept only one form of such evidence - an FCE. Even after Cooper submitted the requested documentation, including physician office-visit notes, MRI and other test results, and the report of the examining physician for her Social Security benefits, LINA continued to maintain that her claim was insufficiently documented.''

After finding two remaining procedural challenges were moot in light of the court's determination regarding the arbitrariness of the claim determination, the court turned to the appropriate remedy. While finding that a remand is appropriate where the ''integrity of the plan's decision-making process'' is the problem, benefits are due when the evidence shows the claimant is clearly entitled to receive them. Elliott v. Metropolitan Life Insurance Co., 473 F.3d 613, 622 (6th Cir. 2006)). The court found no need to remand because Cooper ''clearly established that she is disabled under the plan.''

''Plan administrators,'' the appeals court added, ''should not be given two bites at the proverbial apple where the claimant is clearly entitled to disability benefits. They need to properly and fairly evaluate the claim the first time around; otherwise they take the risk of not getting a second chance, except in cases where the adequacy of claimant's proof is reasonably debatable. That is not the case here.''

Because the evidence showed that, at best, Cooper could not work more than three hours per day, she could not fulfill the ''material duties'' of her occupation, which was a full-time position. Accordingly, benefits were ordered to be paid.

A separate decision filled by Judge Jeffrey S. Sutton agreed with the conclusion that the benefit denial was arbitrary and capricious, but disagreed with the award of benefits, finding that a remand to the insurer would be more appropriate. The dissent was especially troubled by awarding benefits for a ''back-pain case.'' The judge explained that the court should be reluctant to ''don the white coats ourselves and say that the record permits just one medical conclusion.'' Hence, the dissent argued that the insurer should review the claim again.

In an article I wrote about the decision issued in White v. Airline Pilots Association, 364 F.Supp.2d 747 (N.D. Ill. 2005), entitled ''Why Remanding ERISA Cases Verges on Absurd,'' Chicago Daily Law Bulletin (May 23, 2005), I commented about the absurdity of remands to insurers and plan administrators and the lack of statutory authority under the ERISA law for courts to remand claims.

I believe the 7th U.S. Circuit Court of Appeals explained the issue best, though, in a ruling on a severance benefit case where it wrote, ''It would be a terribly unfair and inefficient use of judicial resources to continue remanding a case to [the plan administrator] to dig up new evidence until it found just the right support for its decision to deny an employee her benefits.'' Dabertin v. HCR Manor Care Inc., 373 F.3d 822, 832 (7th Cir. 2004), citing Vega v. National Life Insurance Services Inc., 188 F.3d 287, 302 n. 13 (5th Cir. 1999) (en banc) (parties must make their full records before coming to federal courts and not allow the case to ''oscillate between the courts and the administrative process'').

However, there is also a constitutional reason why remands should be disallowed in ERISA cases. A remand of an ERISA claim when the record is fully developed and all pre-suit appeals are complete is antithetical to the final judgment rule and the directive in Article III, section 2, of the Constitution that courts are to decide cases and controversies. Remand orders amount to little more than impermissible advisory opinions.

According to Preiser v. Newkirk, 422 U.S. 395, 401-402, 95 S.Ct. 2330, 45 L.Ed.2d 272 (1975), ''The exercise of judicial power under Article III of the Constitution depends on the existence of a case or controversy. As the court noted in North Carolina v. Rice, 404 U.S. 244, 246 (1971), a federal court has neither the power to render advisory opinions nor 'to decide questions that cannot affect the rights of litigants in the case before them.' Its judgments must resolve 'a real and substantial controversy admitting of specific relief through a decree of a conclusive character, as distinguished from an opinion advising what the law would be upon a hypothetical state of facts.' ''

Remands thus fail to constitute resolution of a controversy because they do not present ''a decree of conclusive character.'' They merely perpetuate the litigation and almost guarantee that a second round of proceedings will occur.

Nor do remands fulfill the congressional intent expressed in the preamble to the ERISA statute. Unquestionably, the ERISA law was enacted to secure for participants in employee benefit plans and their beneficiaries ''appropriate remedies, sanctions and ready access to the federal courts.'' 29 U.S.C. §1001(b).

Perpetual remands hardly constitute an appropriate remedy, particularly when a medical treatment is postponed or necessary financial protection against disability is deferred. Thus, unlike Social Security cases where the governing statute explicitly provides for remands (42 U.S.C. §405(g)), there is no legal justification for remands of ERISA claims.

While Sutton expresses appropriate concern about an appeals court making a factual determination, a remand, if there is to be one, should be to the district court to conduct an evidentiary hearing. As the majority made clear, LINA has full authority to determine Cooper's continuing eligibility to receive benefits. However, after utterly failing to fulfill its responsibility to conduct a review that is both full and fair as required by 29 U.S.C. §1133, LINA should not get a second bite at the apple when the treating doctors consistently and unequivocally deemed the plaintiff disabled, and the court could have confidence in its award of benefits as the result of the Social Security determination which was based on the results of an actual physical examination, rather than a review conducted by physicians who lack any firsthand knowledge of the claimant's condition.