Payment Delays Merely Encourage Denials

Payment Delays Merely Encourage Denials

Chicago Daily Law Bulletin
August 3, 2009

by MARK D. DEBOFSKY

After a district court overturned Liberty's termination of disability payments in Gerhardt v. Liberty Life Assur.Co. of Boston,2009 U.S.App.LEXIS 16170 (8th Cir. July 23), it remanded the claim to Liberty for further proceedings. Instead of proceeding with the remand, Liberty sought to appeal the ruling. However, the 8th U.S. Circuit Court of Appeals concluded the remand order was not a "final decision" under 28 U.S.C. section 1291; thus, the court of appeals found it had no jurisdiction to review the matter and dismissed the appeal.

The court's instructions on remand were that Liberty "consider not only Gerhardt's physical impairments, but also her mental impairments, the side effects of any necessary medications, her age, and other considerations contained in the administrative record." The district court also directed the parties "to consider obtaining a new transferable skills analysis report." Based on those instructions, the court of appeals deemed the remand interlocutory in nature and thus not immediately appealable, citing Borntrager v. Central States, Southeast & Southwest Areas Pension Fund, 425 F.3d 1087 (8th Cir. 2005), along with Bowers v. Sheet Metal Workers' Nat'l Pension Fund, 365 F.3d 535, 537, & 537 n.1 (6th Cir. 2004); Rekstad v. First Bank Sys. Inc., 238 F.3d 1259, 1262 (10th Cir. 2001); Williamson v. Unum Life Ins. Co. of Am., 160 F.3d 1247, 1250-52 (9th Cir. 1998); Petralia v. AT&T Global Info. Solutions, Inc., 114 F.3d 352, 354 (1st Cir. 1997); andShannon v. Jack Eckerd Corp., 55 F.3d 561, 563 (11th Cir. 1995)).

The 8th Circuit found Borntrager applicable since that matter also involved a claim brought under ERISA seeking to redress a multi-employer pension fund's expulsion of certain employers for violating the plan's "adverse selection" policy. The district court remanded the claim to the trustees for further development of the adverse selection issue and to allow additional discovery. The fund appealed, and the employers and union members successfully moved to dismiss the appeal, convincing the court that the remand order was not a final decision under section 1291 or an appealable collateral order. The court explained that under the collateral order doctrine, an interlocutory order would be immediately appealable "if it conclusively resolves an important issue completely separate from the merits of the action and is effectively unreviewable on appeal from a final judgment." However, the court in Borntrager deemed that doctrine inapplicable to the remand order under consideration, finding,

The court said: "While there may be factors unique to the world of administrative law that justify a somewhat broader final order exception for orders remanding to federal agencies, in our view no such factors apply to orders remanding to private ERISA plan administrators. Therefore, we hold that Central States must satisfy the Supreme Court's collateral order standard . . . to justify an immediate appeal." 425 F.3d at 1091-1092 (emphasis added).

Thus, in analyzing the district court's order, the 8th Circuit found the ruling non-final even though there was no statement in the opinion retaining or reserving jurisdiction. There was never even an explicit finding that Liberty had abused its discretion. Hence, the court concluded the case was not terminated with finality. Nor did the court apply the collateral order doctrine because "this was not a remand to a federal agency." In particular, though, the court explained, "The district court never decided that Gerhardt was eligible for benefits; it only concluded that Liberty must consider mental impairments in conjunction with Gerhardt's physical impairments." In addition, although the district court entered a judgment pursuant to Fed.R.Civ.P. 58, the court held it was required to look at the substance of the district court's order, "not its label or form."

The federal appellate circuits are divided on the issue of appellate jurisdiction following a remand of an ERISA benefit case. For example, the 7th Circuit found in Perlman v. Swiss Bank Corp., 195 F.3d 975 (7th Cir. 1999), that remand orders are appealable. There, the court framed the issue as follows:

"Although it is doubtful as an original matter that a district court may 'remand' ERISA claims, as if to administrative agencies, we have held that courts may treat welfare benefit plans just like administrative law judges implementing the Social Security disability-benefits program. Quinn v. Blue Cross & Blue Shield Ass'n, 161 F.3d 472, 476-78 (7th Cir. 1998);Schleibaum v. Kmart, 153 F.3d 496, 503 (7th Cir. 1998). That makes it necessary to determine whether a remand is appealable as a final decision under 28 U.S.C. § 1291." 195 F.3d at 978.

The court concluded that a remand order was appealable, analogizing such orders to remands of Social Security disability cases or, alternatively, to remands to an arbitrator. A dissenting opinion by Judge Diane P. Wood asserted the majority erred in analogizing to Social Security law as the basis for appellate jurisdiction. Instead, Wood found jurisdiction because the remand order directed the parties to take concrete steps and the order directing further action was, in effect, an injunction.

The fundamental question asked in Perlman, though, is an important one. ERISA cases are not subject to administrative law; and unlike 42 U.S.C. § 405(g) which governs judicial review of social security claims, there is no statutory authority whatsoever for remanding ERISA claims. And there is also a practical reason to eschew remands: "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). Or as Judge David Hamilton colorfully remarked in Fleet v. Independent Credit Union, No. 1:04-cv-00507-DFH-TAB, 2005 U.S.Dist.LEXIS 11778 *8 (S.D.Ind. 5/18/05): "If the procedure [of granting remands] were to become routine, it would pose a serious risk of simply allowing 'Mulligans' to sloppy plan administrators -- at the expense of both the courts and plan participants and beneficiaries."

If the claim decision is defective, even if not necessarily wrong, the claimant deserves an award of benefits until the benefit plan adduces a proper basis to terminate benefits. After all, the purpose of disability benefits is to provide economic security in the event of a loss of earning capacity due to unforeseen illness or accident; and to constantly delay the issuance of payments merely encourages more denials. An insurer that knows it will get another bite at the apple even if it loses is hardly compelled to act appropriately in paying benefits in the first instance. And claimants will be unable to secure legal representation and vindication of their rights if taking cases to the court of appeals only means another trip back to the insurance company even when the court finds the insurer committed an abuse of discretion. It's well nigh time to fix a broken system.