The casenote of the month is from the Disability E-News Alert! a monthly newsletter describing new disability insurance developments. For subscription information, e-mail Mark DeBofsky or visit www.disabilityenewsalert.com .
Glista v. Unum Life Insur.Co. of America, 2004 U.S.App.LEXIS 16518 (1st Cir. 8/11/2004)(Issue: Pre-Existing Condition). We were very critical of the district court's ruling in this case (2003 U.S.Dist.LEXIS 17457 (D.Mass. 9/30/03)(October 2003)); thus, we are pleased to report that the Court of Appeals overturned the lower court's ruling. The case involved an individual who was diagnosed with primary lateral sclerosis, a progressive neurological disorder. Although PLS was first diagnosed after Glista's coverage became effective, because he had seen a doctor for some generalized symptoms during the pre-existing condition period, Unum determined that benefits were excluded under the policy's pre-existing condition clause. The policy stated:
You have a pre-existing condition if:
- you received medical treatment, consultation, care or services including diagnostic measures, or took prescribed drugs or medicines in the 3 months just prior to your effective date of coverage [the Treatment Clause]; or you had symptoms for which an ordinarily prudent person would have consulted a health care provider in the 3 months just prior to your effective date of coverage [the Symptoms Clause]; and
- the disability begins in the first 12 months after your effective date of coverage.
The Plan's glossary defines "pre-existing condition" (the Glossary Definition) as a condition for which you received medical treatment, consultation, care or services including diagnostic measures, or took prescribed drugs or medicines for your condition during the given period of time as stated in the plan; or you had symptoms for which an ordinarily prudent person would have consulted a health care provider during the given period of time as stated in the plan.
When the claim was initially submitted in 2000, Unum rejected liability asserting that treatment and evaluation during the pre-existing condition period excluded liability. Glista appealed and submitted a report from his treating doctor who explained that the diagnosis was not made until 2000; and that earlier treatment was for a radiculopathy, not PLS, and that the earlier "abnormalities were not germane to what was subsequently proven to be his disabling disease, i.e., primary lateral sclerosis." On re-review, the same doctor who had made the initial findings at Unum noted the presence of "hyperreflexia" in the pre-coverage notes which is characteristic of PLS and not explained by radiculopathy. Unum's doctor also pointed out that Glista's evaluation was not limited to radiculopathy and the doctors were investigating an array of potential neurological problems. A second Unum doctor concurred that medical attention was sought during the pre-existing condition period for symptoms that were later diagnosed as PLS. Thus, Unum upheld its determination that Glista had received treatment for a pre-existing condition during the exclusionary period and was therefore not covered. In court, Unum argued for the first time that in addition to treatment for a pre-existing condition, Glista fell under what the court characterized above as the "symptoms clause." Plaintiff objected to the newly advanced reason for the claim denial. Plaintiff also sought to introduce deposition testimony and Unum's Risk Management Reference (RIMARE) manual which explains the application of Unum's pre-existing condition exclusion. The court explained the relevance of the RIMARE provision which states:
There must be a clear and direct relationship between the sickness or injury treated during the pre-existing period and that causing the insured to become disabled. A "possible" or "hypothetical" relationship is not a sufficient basis for denial of a claim.
RIMARE notes, though, that whether a condition has "manifested" itself during the Pre-Ex Period is "governed by the terms of the policy" and advises claims examiners to "see the specific terms of the particular contract, which can vary." n2
n2 RIMARE also informs Unum's claims examiners of Unum's views on this court's ruling in Hughes v. Boston Mut. Life Ins. Co., 26 F.3d 264 (1st Cir. 1994):
In this case, the court determined that an insurer (such as UNUM), in order to determine pre-x, needs to evaluate whether the physician and/or the claimant had knowledge during the pre-x period, that the treatment the insured was receiving was for the condition which is the cause of the disability.
RIMARE states that Hughes affects "all ERISA Plans in the 1st Circuit, with the exception of CXC contracts. This is due to the fact that the language in our policies, except CXC, is almost identical to language in the Boston Mutual policy cited in the case." Here, the Plan is one of Unum's series CXC contracts. *17.
The Court of Appeals also cited Unum training materials that refer claim analysts to the RIMARE for further information on how to handle pre-existing condition issues. Based on the importance and relevance of the evidence, the court ruled that the district court had erred in holding that Unum's discretionary authority meant that the insurer was not bound by its reference manual in interpreting the policy and that the court was not required to consider such evidence. Distinguishing a severance case involving Unum, Liston v. Unum Corp. Officer Severance Plan, 330 F.3d 19 (1stCir. 2003), the court ruled that the plaintiff in that case was trying to put before the court evidence as to how others were treated. In contrast, the plaintiff in Glista was seeking to introduce "the plan administrator's own documents interpreting the language of the Plan and providing the standard for evaluation of the facts presented. The documents here are more analogous to an administrative agency's guidelines or regulations, which are routinely considered in evaluating whether the agency's actions were arbitrary or capricious. The documents here shed light on the "legal" rule the Plan applies, not the underlying facts presented to the Administrator." *23.
The court also noted that Department of Labor Regulations require disclosure of "relevant" documents which include statements of policy or guidance in order to ensure "appropriate decision making and consistency." 65 Fed.Reg. 70,246, 70,252 (Nov. 21, 2000). Although the regulations went into effect after Glista's claim was submitted, the court still deemed the regulations applicable since the Federal Register discussion of the regulations made it clear the new regulations merely clarified existing law.
Nonetheless, although the court concluded that the RIMARE and training materials were admissible in Glista, "The weight and admissibility of internal documents, whether those documents are offered in support of the interpretation of the plan administrator or that of the claimant, will vary with the facts of each case." To offer instruction in that regard, the court explained:
Such documents are most likely to be relevant where they have been authenticated, have been generated or adopted by the plan administrator, concern the policy in question, are timely to the issue in the case, are consistently used, and were known or should have been known by those who made the decision to deny the claim. *25.
The court expressly ruled that when a court considers internal guidelines, such action does not "impermissible narrow" a plan administrator's discretionary authority since the plan has already exercised its discretion to interpret the plan document as stated in the guidelines. Citing both a Third Circuit and a Seventh Circuit case, the court also noted that examination of internal guidelines is useful in determining whether a plan has abused its discretion since acting inconsistently with respect to similarly situated claimants is evidence of abuse of discretion.
Turning to the merits of the claim, the court first determined that the standard of review based on a district court's grant of judgment on the "administrative record" is de novo. *32 (citing Spangler v. Lockheed Martin Energy Sys., Inc., 313 F.3d 356, 361 (6th Cir. 2002). Parsing the pre-existing condition exclusion into a separate "treatment clause" and "symptoms clause," the court had no trouble finding that Glista had not received any treatment for primary lateral sclerosis during the pre-existing condition period since that condition was not diagnosed until much later.
The court also rejected the claim made by Unum for the first time in the litigation that the "symptoms" clause triggered the pre-existing condition exclusion. Because Unum did not rely on that provision during its communications with its insured, it could not raise the defense in court. The regulations accompanying 29 U.S.C. §1133, which provide for a "full and fair review" of denied claims, mandate that the plan give specific reasons for denial and specific reference to the plan provisions on which the denial is based.
The court took note that different courts have adopted different ways of dealing with the failure to raise an issue which range from a loss of deference in consideration of the unarticulated reason to a waiver of the defense altogether. Other courts urge a remand to consider new factual evidence or new plan interpretations. Based on the circumstances of the case, the First Circuit chose to simply bar Unum from raising the symptoms clause for the first time in litigation. Several rationales were advanced:
First, traditional insurance law places the burden on the insurer to prove the applicability of exclusions such as the Pre-Ex Clause. See 2 Law and Prac. of Ins. Coverage Litig. § 1.3 (describing as "well-settled" the rule that "the burden of proving that an exclusion defeats coverage rests with the insurer"); GRE Ins. Group v. Metro. Boston Hous. P'ship, Inc., 61 F.3d 79, 81 (1st Cir. 1995) (under Massachusetts law, insurer bears burden of proof on exclusions). Although background rules of state law are not controlling, they are reinforced here by ERISA's statutory command that the administrator articulate specific reasons for a denial of benefits. 29 U.S.C. § 1133; see also McGee v. Equicor-Equitable HCA Corp., 953 F.2d 1192, 1205 (10th Cir. 1992) (ERISA insurer bears burden of proof in demonstrating applicability of exclusion); Farley, 979 F.2d at 658 (same).
Second, the Plan here expressly provides that participants "must receive a written explanation of the reason for the denial" of benefits. It states that "Unum will notify you [of a denial of benefits] in writing within 90 days after your claim form was filed" and that this "notice of denial shall include . . . the specific reason or reasons for denial with reference to those policy provisions on which the denial is based." The Plan also provides that in Unum's internal appeals process, "the final decision on review shall be furnished in writing and shall include the reasons for the decision with reference, again, to those policy provisions upon which the final decision is based." Unum could hardly be caught by surprise by an insistence that it comply with its own plan.
Third, Unum, by claiming that it did raise the Symptoms Clause, has taken the position that it had sufficient information to raise the Symptoms Clause during the claims review process. No information was withheld from it. Indeed, in arguing in this litigation that the Symptoms Clause applies, Unum has relied exclusively on the administrative record created during the claims review process. Unum has offered no explanation for why it did not explain earlier to Glista that the Symptoms Clause was a basis for the denial of benefits. Congress intended ERISA insurers to speak clearly, in plain language, to plan recipients.
Fourth, Glista's medical condition calls for resolving this controversy quickly. Glista, who is unable to work, filed his application for benefits on February 6, 2000. Almost two months later, his application was denied. The administrative appeal process took nearly eight more months. Litigation in the district court, unfortunately, added another thirty months. As we write, it has been over four years since Glista applied for benefits. PLS is degenerative and can be terminal. Dr. MacBride, on reviewing Glista's medical file in March 2000, estimated that Glista had three to four years to live; Glista has already reached that point. *50-*52.
Therefore, the court determined the "appropriate equitable relief" was "to hold Unum to the basis that it articulated in its internal claims review process for denying benefits, i.e., the Treatment Clause." *52. The court rejected remand as an appropriate remedy in this case since "Unum failed to raise the Symptoms Clause in the claims review process even though it had the burden, obligation, and opportunity to do so." Accordingly, benefits were ordered paid.
Discussion: Together with McLeod v. Hartford Life and Accident Insur.Co., 372 F.3d 618 (3d Cir. 6/22/2004)(July 2004) and Sanders v. CNA Group Life Assur.Co. 322 F.Supp.2d 1142 (D.Ore. 5/5/2004)(July 2004), which both held that conditions not diagnosed during the pre-existing condition period and which only present symptoms that cannot be specifically characterized as symptoms of the later-diagnosed condition, Glista illustrates how courts are having difficulty accepting the deferential standard of review. Since insurance common law places the burden of establishing the applicability of a policy limitation or exclusion on the insurer, cases such as Glista show how unfair the ERISA law is to claimants when an insurer can choose to interpret its policy in disregard of the common law and in a manner that favors its self-interest. McLeod resolved the dilemma by simply diminishing the degree of deference accorded Hartford. In Glista, the court constrained the insurer's deference by Unum's creation of a claim manual that established rules of policy interpretation that differed from its claim determination, a fact that obviously troubled the First Circuit. Together with the Fought v. Unum ruling discussed in this issue, a strong message is being sent to insurers by the federal judiciary that ERISA will not allow unfettered discretion to be granted to for-profit insurance companies. The tide is definitely turning on the grant of discretion to insurance companies; and with the ongoing efforts of the National Association of Insurance Commissioners, the days of discretionary review for insurance companies are clearly numbered.
This note appeared in the Disability E-News Alert! For subscription information, please go to www.disabilityenewsalert.com .