The disability insurance policy at issue in a federal court decision acknowledged that the insurer was a fiduciary and had discretion to determine eligibility for benefits and construe the policy terms. The policy further stated that ERISA fiduciaries ''have an obligation to administer the plan prudently and to act in the interest of you and other plan participants and beneficiaries.''

Despite that language, the ruling in Wible v. Aetna Life Insurance Co., 375 F.Supp.2d 956 (C.D. Calif. 2005), shows that acting as the claimant's adversary rather than as her fiduciary results in a loss of discretion.

The plaintiff's decedent, Marianne Wible, worked for Boeing as a registered nurse in its health service unit, and in 1990, she was diagnosed with lupus by a leading expert on the disease, Dr. Daniel Wallace, chief of rheumatology at Cedars-Sinai Medical Center. With care and treatment, Wible was able to remain employed until early 2001, when she went on short-term disability.

Thereafter, she applied for long-term disability benefits, and on the attending physician statement, Wallace noted that Wible's condition had led to interstitial pneumonitis and that she had developed toxicity to steroid treatment, causing cognitive impairments.

The claim was approved, but shortly thereafter, the file was reviewed by Dr. Brent Burton, an in-house physician who acknowledged the lupus diagnosis but opined there was insufficient objective evidence to support disability due to breathing impairments and toxicity caused by steroids.

Consequently, Aetna requested an independent medical examination, which resulted in a determination that Wible was disabled from any and all occupations based on positive findings on objective testing and a biopsy. The exam found that the claimant had developed a seizure disorder, fibromyalgia and gastrointestinal impairments. The examiner also suggested the impairments were permanent.

Despite the examiner's findings, Aetna questioned why Wible could not work at a sedentary job. In response, the independent physician wrote that she was likely to become very tired after 3-4 hours. Aetna also performed surveillance over eight different days: during that period, Wible hardly ever left her home. The claimant also was awarded Social Security disability benefits at around that time, yet none of this evidence led Aetna to conclude Wible was disabled.

Instead, the insurer retained yet another physician to review the file. This doctor completely disagreed with both the treating physician and the independent examiner. The reviewing doctor even questioned the lupus diagnosis.

In response, the treating doctor wrote a rebuttal challenging the reviewer's qualifications since he was not a rheumatologist. The rebuttal asserted that the reviewer was ''extremely ignorant about lupus.''

Wallace detailed basic errors the reviewer made, wrapping up with this statement: ''To conclude, when you have a patient with documented seizures, organic brain syndrome with a mild dementia, hypertension, sun restrictions, inflammatory arthritis, immune suppression and scarred-down lungs, it does not take a rocket scientist to ascertain that this patient has significant restrictions.''

The reviewer wrote back, disagreeing with Wallace; Aetna terminated benefit payments shortly thereafter.

Wible commenced an appeal, but died soon after due to complications of lupus, according to the death certificate. Despite being provided with the death certificate and records showing evidence of a lupus flare, Aetna upheld the denial without contacting any of the physicians or having the records reviewed by a medical professional. The plaintiff immediately filed suit.

Shortly after commencing litigation, the plaintiff moved for a determination as to the appropriate standard of judicial review. As part of that motion, the plaintiff asked the court to take judicial notice of the California Department of Insurance opinion letter prohibiting discretionary clauses, as well as references to books about lupus written by Wallace, the treating doctor, along with a Web page for the American Academy of Allergy Asthma and Immunology.

Over the defendant's objections, the court took judicial notice of the documents. The court then turned to the plaintiff's motion to summarily determine the appropriate judicial standard of review. Despite language in the policy giving Aetna discretion, the court found that de novo review would still result if the insurer had acted under a serious conflict of interest with proof that the insurer was influenced in its claim decision by self-interest.

The plaintiff presented three grounds for eliminating Aetna's discretion:

• It breached its fiduciary duty by ''ignoring medical opinions, failing to obtain its own competent medical opinions and deliberately considering only evidence pointing to denial.''

• Failure to conduct an adequate investigation prior to terminating benefits.

• Based on California law prohibiting discretionary clauses.

Because the court agreed with the plaintiff as to the first two grounds, the court declined to decide the effect of the California ban on discretionary clauses.

Laying the groundwork for its opinion, the court first cited a 10th U.S. Circuit Court of Appeals case involving Aetna, which held that an ERISA fiduciary must conduct a good-faith investigation:

''While a fiduciary has a duty to protect the plan's assets against spurious claims, it also has a duty to see that those entitled to benefits receive them. It must consider the interests of deserving beneficiaries as it would its own. An ERISA fiduciary presented with a claim that a little more evidence may prove valid should seek to get to the truth of the matter.'' Gaither v. Aetna Life Insurance Co., 394 F.3d 792, 807-808 (10th Cir. 2004).

Moreover, the court explained that under California insurance law that is not preempted by ERISA, an insurer has a duty to fully investigate claims: ''It is essential that an insurer fully inquire into possible bases that might support the insured's claim.'' Egan v. Mutual of Omaha Insurance Co., 24 Cal.3d 809, 819, 169 Cal.Rptr. 691, 620 P.2d 141 (1979).

In applying those principles, the court criticized Aetna's rejection of the treating doctor's opinions. Noting that Wallace had treated Wible for more than 10 years, the court cited examples of Aetna simply disregarding the doctor's statements as to the side-effects of the medication she was taking. Contrary to Aetna's findings, the court considered Wallace competent to furnish opinions with respect to the mental impairments that resulted from steroid usage since such side-effects are well-known in medicine.

Even more problematic for Aetna, though, was its disregard of its own independent examiner. The court noted, ''Although Aetna did conduct such an independent examination, and this examination resulted in an unqualified opinion that Ms. Wible was disabled, Aetna essentially ignored this opinion, and it fails to explain substantially why.''

The court further explained that at best, the independent physician would have allowed limited, part-time sedentary work; however, that would not justify the termination of benefits. As the court pointed out in a footnote: ''Under unpreempted California law relating to regulation of insurance policies, the ability to work sporadically or part time is an insufficient ground on which to deny benefits under a 'total disability' policy: 'Recovery is not precluded under a total disability provision because the insured is able to perform sporadic tasks, or give attention to simple or inconsequential details incident to the conduct of business.' Erreca v. Western States Life Insurance Co., 19 Cal.2d 388, 396 (1942); see also Moore v. American United Life Insurance Co., 150 Cal.App.3d 610, 630, 197 Cal.Rptr. 878 (1984) (holding that employee is totally disabled unless he is capable of 'working with reasonable continuity in his customary occupation or in any other occupation in which he might reasonably be expected to engage.')'' (Emphasis in original.)

Likewise, Aetna was found to have ignored the surveillance that the court deemed showed that Wible ''lived the life of a seriously disabled person.'' The court also faulted Aetna for disregarding the Social Security finding, which while not binding ''is evidence of a claimant's disability.''

The most serious criticism, though, was saved for Aetna's paper reviewer, which the court described as follows: ''Aetna relied on a single physician who had not treated or seen Ms. Wible as opposed to the physicians who had treated and seen Ms. Wible. Besides the apparent problem with this, this court agrees with the two other problems asserted by plaintiff: (1) Dr. Bardana is an allergist/immunologist and not qualified to opine on the issue of Ms. Wible's disability from her Lupus and (2) a review of Dr. Bardana's report shows that he provided only reasons to deny Ms. Wible's claim.''

Indeed, Wallace's criticism of the reviewer's improper credentials was borne out by several specific criticisms of opinions that were contrary to current medical knowledge. Rejecting out of hand Aetna's assertion that it thoroughly investigated the claim, the court found that Aetna ''engaged in these actions may tend to support its claim of conducting some investigation; however, it cannot be said to be enough to merely engage in these actions if it then ignores the results, or picks and chooses which results it wants to follow, or initiates these actions merely to find a basis to deny benefits.''

As if that were not enough, the court ruled that Aetna's actions after Wible's death ''shows a continued intent to ignore evidence suggesting its denial was incorrect.'' The court appeared incredulous that Aetna disregarded the claimant's death certificate, which ascribed the cause of death to the condition she claimed as the basis of her disability particularly since no alternative cause of death was suggested. To compound this, the court pointed out the file was reviewed by a non-professional; and the court also expressed concern that Aetna failed to contact the treating physician despite requests that the insurer do so.

As a consequence, the court ruled:

''In sum, this court concludes that plaintiff has 'come forward with material, probative evidence, beyond the mere fact of the apparent conflict, tending to show that the fiduciary's [Aetna's] self-interest caused a breach of the administrator's fiduciary obligations to the beneficiary,' and Aetna has failed to present any evidence to rebut the resulting presumption. The record reflects that Aetna ignored, or at best, discounted the opinion of Ms. Wible's longtime treating physician, Dr. Wallace. Aetna then sent Ms. Wible for an IME with a physician of its own choosing, Dr. Damle. It proceeded to discount Dr. Damle's opinion. Aetna ordered surveillance of Ms. Wible for eight full days and discounted the results of the surveillance. It ignored the fact that Ms. Wible was found to be disabled by the Social Security Administration.

''Instead, Aetna chose to focus on the file review of Dr. Bardana, a physician who never met or spoke to Ms. Wible. Significantly, Aetna failed to take the fact of Ms. Wible's death, within six months of the denial of her claim, into account. The sum of this evidence shows that Aetna was 'bent on denying [Ms. Wible's] claim' and 'oblivious to [its] fiduciary obligations as an administrator of the LTD Plan.' Friedrich v. Intel, 181 F.3d 1105,1110 (9th Cir. 1998). Because Aetna failed to act as a fiduciary, it should not be entitled to a deferential standard of review to which a fiduciary is normally entitled. Accordingly, this court concludes that the proper standard of review of the plan administrator's decision to deny benefits is de novo as a matter of law.''

This opinion cannot be characterized as anything other than an indictment of Aetna's claims practices. The court's disgust with Aetna is evident on every page of this ruling. One has to ask, though, why Aetna acted this way. Clearly, the insurer had no legitimate excuse for not paying this claim. Moreover, each legitimate step the insurer took to investigate the claim proved the claimant's disability. Yet the insurer persisted in selecting a reviewing doctor whose final opinion was obviously predetermined, and Aetna even went so far as to disregard the claimant's death.

Several years ago, another federal judge in California wrote the ruling in Dishman v. Unum Life Insurance Company of America, 1997 WL 906147 (C.D. Calif., May 9, 1997), where the court stated:

''[T]he facts of this case are so disturbing that they call into question the merit of the expansive scope of ERISA preemption. UNUM's unscrupulous conduct in this action may be closer to the norm of insurance company practice than the court has previously suspected. This case reveals that for benefit plans funded and administered by insurance companies, there is no practical or legal deterrent to unscrupulous claims practices. Absent such deterrents, the bad-faith denial of large claims, as a strategy for settling them for substantially less than the amount owed, may well become a common practice of insurance companies.

''Consequently, ERISA may need to provide a greater deterrent to bad-faith conduct in the administration of ERISA plans. The court continues to believe that providing for punitive, 'bad faith' or compensatory damages beyond the amount of the claimed damages would adversely disturb the balance struck by ERISA. However, for the first time, it believes that at least in the case of insurance-funded and -administered plans, the public interest would be advanced if ERISA contained a statutory penalty which could be imposed by the court in extraordinary cases.''

It is now more than eight years since the Dishman ruling, and the perverse incentives in the ERISA law continue to encourage unjustified claim denials. On Aug. 21, Los Angeles Times writer Peter Gosselin published an expose about the ERISA law entitled ''The Safety Net She Believed in Was Pulled Away When She Fell.'' The theme of the article is that the ERISA law fails to encourage good-faith claims handling despite the fiduciary obligations set forth in the statute. The Wible decision thoroughly supports the thesis of the L.A. Times story, and makes it evident that there is a need for immediate reform.

To think that a claimant had to die to prove the bona fides of her disability claim, yet even that was not enough to satisfy the insurer suggests that the system is badly broken. Congress needs to take notice of how the ERISA law is administered in the courts; perhaps the recent publicity will spur legislative change.