Welch v. Unum Life Insur.Co. of America

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Welch v. Unum Life Insur.Co. of America, 2004 U.S.App.LEXIS 18507 (10th Cir. 9/1/2004)(Issue: Effect of Post-Disability Modifications) In this matter, the plaintiff became disabled due to fibromyalgia in 1998 and was approved to receive benefits. However, after the claimant became disabled, the policy was modified to reduce the duration of benefit payments to two years for "self-reported" illnesses defined to include fibromyalgia, and benefits were terminated based on that modification. Welch challenged the applicability of the policy amendment after she had already qualified and begun receiving benefits and she won in the district court. On appeal, however, the Tenth Circuit reversed. The court found there was no right to vesting of "welfare" benefits (which include disability insurance) under ERISA. The court held the plan amendment continued the plan with modifications. The court also rejected the argument made by the plaintiff that plan benefits vested once she qualified to begin receiving benefits, finding that an employer or plan sponsor has the right to unilaterally modify or terminate welfare benefit payments unless it contractually agrees to vest such benefits. Here, the policy stated it "may be changed in whole or in part." Thus, since the policy allowed for amendment, the change did not deprive her of vested benefits.

The court then turned to the question of whether the limitation was properly applied. Although numerous cases have approved the payment of disability benefits for fibromyalgia and have recognized that the widely-accepted trigger point test is objective, the court found that the evidence presented in the claim record before the court was inconclusive. Further, since the issue had not been ruled on by the lower court, the case was remanded.

Discussion: This opinion was even criticized by the Employee Benefits Institute of America in its weekly electronic newsletter which stated:

Courts generally agree that welfare benefits do not vest absent plan language to that effect. But the Tenth Circuit's decision in this case is inconsistent with other decisions that generally hold that welfare benefits cannot be changed after a participant has qualified for and begun receiving benefits. (See, for example, our article at http://www.ebia.com/static/weekly/articles/2002/ERISA021017Feifer.html (Premium Access subscription required).) For more information, see EBIA's ERISA Compliance manual at Section XII.E ("Certain Benefits May Be Vested and Thus Protected From Amendment").

Although as a general proposition there is little dispute that welfare benefits are not vested absent a contractual agreement to do so, several courts have ruled that while welfare benefits may be modified, such changes will not affect a beneficiary whose right to receive benefits has accrued prior to the modification. Filipowicz v. American Stores Benefit Plans Committee, 56 F.3d 807, 815 (7th Cir. 1995); Confer v. Custom Engineering Co., 952 F.2d 41 (3d Cir. 1991); and Barker v. Ceridian Corp., 122 F.3d 628 (8th Cir. 1997). Thus, the amendment should have applied only prospectively to individuals not yet disabled at the time the amendment went into effect.

However, other cases have held that post-disability modifications to insert a deferential standard of review are applicable: Grosz-Salomon v. Paul Revere, 237 F.3d 1154 (9th Cir. 2001); Hackett v. Xerox, 315 F.3d 771 (7th Cir. 2003)(January 2003); Sapovits v. Fortis Benefits Ins.Co., 2002 U.S. Dist. LEXIS 24987 (E.D.Pa. 12/30/02)(January 2003); and Mizzell v. Paul Revere Insur.Co., 2003 U.S.Dist.LEXIS 14839 (C.D.Cal. 8/25/03)(September 2003).

It will also be interesting to see how the "self-reported" illness limitation will be ruled upon on remand since there still is little caselaw on that issue. Morgan v. Unum Life Insur.Co. of America, 2002 U.S.Dist.LEXIS 17663 (D.Minn. 9/16/02)(October 2002), aff'd Morgan v. Unum Life Insur.Co. of America, 346 F.3d 1173 (8th Cir. 10/22/03)(November 2003) rejected Unum's efforts to apply the "self-reported illness" limitation in the policy (the issue was only discussed in the district court opinion); and, as this opinion pointed out, Russell v. Unum, 40 F.Supp.2d 747 (D.S.C. 1999), held that the treating doctor's detection on examination of trigger points constituted objective evidence. Also see, McArdle v. Unum, 2001 U.S.Dist.LEXIS 20541 (D.Minn. 2001); Robinson v. Unum Life Insur.Co. of America, 2003 U.S.Dist.LEXIS 4023 (D.N.H. 3/12/03)(April 2003) held to the contrary, though.

This note appeared in the Disability E-News Alert! For subscription information, please go to www.disabilityenewsalert.com .