Judgment An Incentive For Careful Claims Review

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Judgment an incentive for careful claims review

Chicago Daily Law Bulletin
September 19, 2005

by MARK D. DEBOFSKY

The choice of a standard of review can make a big difference in the ultimate disposition of a case, as a recent federal court decision illustrates.

In a fascinating opinion in Minix v. Liberty Life Assurance Company of Boston, 2005 U.S. Dist. LEXIS 15309 (N.D. Ind., July 22), plaintiff Guy Minix was awarded judgment upon the entry of findings of fact and conclusions of law issued following a trial on the papers, a procedure recommended in a case my office litigated, Crespo v. Unum Life Insurance Company of America, 294 F.Supp. 2d 980 (N.D. Ill. 2003).

The question addressed by the court was whether the plaintiff was disabled by ulcerative colitis, and whether the disability insurer, Liberty Life Assurance Company of Boston, correctly terminated benefit payments. Minix's treating doctor at the Mayo Clinic consistently reported throughout the claim process that Minix was disabled due to his need to have access to a bathroom at all times and that because stress increased the plaintiff's symptoms, he had unpredictable flare-ups. Based on that report, an earlier insurer, an affiliate of the Wausau Insurance Cos., found him disabled under both an initial ''own occupation'' definition of disability, as well as under an ''any occupation'' definition; Minix was also approved to receive Social Security disability.

In January 2000, Liberty took over the long-term disability benefits administration from Wausau and conducted surveillance, which showed Minix carrying hay and driving his truck, but the surveillance did not alter Liberty's continuation of benefits. Subsequently, a change in medications to a tincture of opium reduced the severity of Minix's symptoms, but his physician still reported he was disabled.

A second round of surveillance in 2002 showed Minix walking and bending over to pick up sticks for seven minutes, sitting and talking with someone for 40 minutes, and riding a horse for an hour and 20 minutes, all without needing to use a bathroom. Upon receipt of the surveillance, Liberty had the file reviewed by its consulting doctor, Steven Miszkiewicz, a family medicine practitioner, who concluded the plaintiff was not disabled. Liberty also performed a transferable skills analysis that found him capable for a number of alternative jobs; and benefits were thereafter terminated.

Minix appealed and submitted additional reports from his attending physician finding ongoing disability; Liberty had the file reviewed again by a second doctor who did not deem Minix disabled. The denial was upheld. Minix then filed suit.

Applying a de novo standard of review, the court analyzed the issues and overturned the denial.

With respect to surveillance, the court relied heavily on Osbun v. Auburn Foundry Inc., 293 F.Supp.2d 862 (N.D. Ind. 2003), in concluding the surveillance did not provide evidence showing Minix was capable of working. Surveillance performed in 1999 and in 2000 was obviously of no evidentiary value because benefits were continued after the surveillance was obtained. The 2002 surveillance, while showing greater physical activity, as in Osbun, did not establish how long Minix could perform tasks or whether he could perform them ''on a daily basis or continue them for an extended period of time.''

Nor did the court find the evidence of the Social Security approval useful because the decision was rendered well before benefits were terminated four years later. The court similarly rejected the transferable skills analysis, or TSA, as lacking strong evidentiary value because it ''did not properly take into account all of Minix's disability'' - the analysis assumed the symptoms were controlled if Minix took opium; nor did the evaluation ''factor in [the treating doctor's] diagnosis that while there may be times Minix is able to perform work, his flare-ups are unpredictable and uncontrollable, preventing continuous employment.''

The TSA also failed to ''factor in Minix's subjective complaints of dizziness, nausea and blurred vision that result from taking the opium.'' Hence, the court concluded: ''Therefore, because the TSA was based upon questionable conclusions and did not take into account the full nature of Minix's condition, the TSA is not useful in determining whether Minix was totally disabled.''

Accordingly, the case came down to the competing physicians' opinions. Because neither of Liberty's doctors examined Minix, and one of the physicians was not even a gastroenterologist, the court found the treating doctor, a gastroenterologist who has seen the plaintiff for more than eight years, ''is in a much better position to have fully evaluated Minix's condition than the two physicians who merely conducted file reviews, and as a result, gives greater deference to his opinion concerning Minix's disability.''

The one reviewing physician who was a specialist reported that Minix could work with accommodations; and Liberty relied heavily on Ross v. Indiana State Teachers Association Insurance Trust, 159 F.3d 1001 (7th Cir. 1998), for the proposition that accommodations could be considered.

However, the court easily distinguished that ruling and found that the employer in Ross ''had already agreed to implement these accommodations, and thus, the accommodations were not hypothetical possibilities of what might be done. ... Unlike Ross, Landres' assertions that reasonable accommodations could be made, while practical, are based on hypothetical possibilities and not actual agreements that either Modine or any other potential employer have agreed to implement. Thus, relying on any accommodations that could potentially be made would be pure speculation as to whether they would actually allow Minix reasonably continuous employment.''

Ultimately, the court relied on Hawkins v. First Union Corp., 326 F.3d 914 (7th Cir. 2003), to conclude that the treating doctor's superior knowledge, particularly where the consultant does not examine the patient, entitles the doctor's opinion to deference. Although Black & Decker v. Nord, 538 U.S. 822 (2003), holds that no presumption exists giving the treating doctor's opinion deference, the court concluded in this case that the treating doctor's opinions are more persuasive than the consultant's opinions, and the treating doctor ''is in a much better position to assess and appreciate Minix's condition and subjective complaints of the opium's side effects and to assess his daily physical capabilities.''

The court further explained that even though the treating doctor reported improvement, he consistently assessed Minix as totally disabled. Moreover, even with some functionality, ''Because Minix's ulcerative colitis requires him to immediately drop whatever he is doing due to a sudden urge to use the bathroom numerous times a day and because of the unpredictable nature of his flare-ups, the persuasive evidence shows that even if Minix could occasionally perform these duties, there is nothing to suggest that he can perform them with reasonable continuity which would allow him to acquire gainful employment.''

Hence, the court ordered benefits reinstated and also ordered reinstatement of life insurance under a waiver of premium. The court also awarded the plaintiff attorney fees. The court gave its rationale:

''While Liberty is correct in its assertion that there is no evidence of bad faith, the other remaining factors weigh heavily in favor of the imposition of fees. First, there is no question that Liberty will be able to personally satisfy the award. In addition, there is no evidence that requiring Liberty to pay the award would deter future plaintiffs from filing actions contesting the termination of their LTD benefits. While this particular benefit is specific to this individual plaintiff, an overall benefit to all policyholders may enure if the plan administrator thoroughly reviews each case in an attempt to avoid future liability. Finally, in examining the merits of the parties' position, while this was a close case, Liberty's reliance on information which was questionable under 7th Circuit precedent weakened the merits of its position.''

Finally, the court found that prejudgment interest was appropriate under Fritcher v. Health Care Service Corp., 301 F.3d 811 (7th Cir. 2002), especially in view of the following finding:

''Liberty has no doubt benefited from retaining these funds for nearly three years while Minix has been forced to use his own funds to pay for his care. If this court merely reinstated of Minix's benefits, Minix would not be wholly compensated for the wrongful termination of his benefits. Thus, in the interest of fairness, this court grants Minix's motion as it relates to prejudgment interest. Liberty shall pay Minix prejudgment interest on the amount of unpaid benefits from the date the benefits were terminated, Aug. 20, 2002, until the date of today's order at the rate of 3.59 percent.''

This case presents a catalog of issues, but the most important once, which was only touched on by the court, is the difference between a de novo review and a deferential standard of review. The court suggested the outcome might have been different had the arbitrary and capricious standard of review applied - but why should it be on an issue as important as disability benefits?

The ERISA statute is completely silent on the standard of court review applicable to benefit claims; insurers' ability to gain a deferential standard of review in disability benefit claims governed by ERISA is based entirely on court rulings, particularly the case of Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989), a seminal ruling that found insurers, as well as self-funded plans, may simply dictate a deferential standard of review by writing a sentence reserving discretion into its disability policy. That regime may now be over in Illinois, since the Illinois Department of Insurance has banned discretionary clauses. 29 Ill.Reg. 10172 (July 15, 2005).

However, other than a small handful of states that prohibit discretionary clauses, review of disability claims under an arbitrary and capricious standard of review will undoubtedly continue; and future claimants such as Guy Minix will be denied benefits under scenarios identical to the one presented here simply due to a different standard of review.

This opinion exemplifies a court giving cogent, logical reasons for its rulings on each of the issues presented, eliminating the collateral issues and focusing eventually on the competing doctors' opinions which the court carefully weighed. It is also evident in the rulings on attorney fees and interest that the court recognized the ERISA law gives insurers a disincentive to conduct a careful evaluation and to rely instead on hard-nosed consultants, misleading surveillance, and biased vocational reports, which is often enough to win the day when a deferential standard of review applies, but did not succeed in this ruling.

The court further recognized that the only way to send a message to insurers to conduct appropriate evaluations in cases governed by the ERISA law is to award fees and interest to the prevailing plaintiff since the ERISA law has been held by the courts to entirely preclude awards of extracontractual, consequential or even compensatory damages. Only if such awards are made are insurers called to account for their actions, plaintiffs made whole, and attorneys given an incentive to litigate these difficult cases.

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