The effect of a Social Security disability benefit award on a disability insurance claim is an issue that is frequently litigated.

While some judges give little consideration to the findings made by the Social Security Administration, other judges recognize the arduous burden a claimant must overcome to prove an inability to engage in ''any substantial gainful activity'' — which is how ''disabled'' is defined under the Social Security disability program, 42 U.S.C. §423(d)(1)(A).

In sum, to qualify to receive Social Security disability benefits, a claimant must establish an inability to engage in any work that would earn more than $830 per month, the current level set by Social Security as constituting ''gainful'' work. ''Working While Disabled — How We Can Help,'' SSA Publication 95-10095 (January 2005), on the Web at www.ssa.gov/pubs/10095.html.

A recent decision from the 6th U.S. Circuit Court of Appeals thoughtfully recognizes the importance of a favorable Social Security disability determination in assessing the reasonableness of an insurer's denial of long-term disability benefits under the Employee Retirement Income Security Act. Calvert v. Firstar Finance Inc., 2005 U.S. App. LEXIS 8684 (6th Cir., May 17).

Linda Calvert, a mortgage loan officer, was a participant under a group long-term disability policy her employer purchased from Liberty Mutual Insurance Co.

In 1998, Calvert injured her back, and after undergoing surgery, she was unable to return to work and applied for benefits under her employer's insurance plan. Liberty initially approved the claim under a policy definition allowing benefits to be paid if the insured is incapable of working at her regular occupation. Benefits were continued following an independent medical examination performed by a neurosurgeon, who found limitations but suggested Calvert could possibly work after undergoing conditioning and with appropriate allowance for breaks.

Liberty further advised Calvert that continued benefits depended on her applying for Social Security disability. Calvert then successfully applied for benefits and received a ruling from Social Security that she was unable to return to her previous job and lacked transferable skills to perform any other work. The Social Security finding explicitly relied on the opinion of the treating physician, crediting the length of his treatment relationship, his specialization and his superior firsthand knowledge of Calvert's condition. The Social Security award resulted in an overpayment by Liberty due to coordination between Social Security and long-term disability benefit payments; and Calvert reimbursed Liberty for the overpayment.

Subsequently, in 2001, Liberty had Calvert undergo a functional capacity evaluation performed by an exercise physiologist; the testing established that sitting tasks could be performed ''only occasionally'' and that stooping and repeated bending should be avoided. The testing also showed that any work activity would depend on the need to change positions from sitting to standing frequently.

Based on the test results, a vocational specialist at Liberty identified several jobs she believed Calvert could perform, such as bank teller, customer service representative, security guard or cashier. A labor market survey showed the availability of such jobs within Calvert's geographic locale.

Consequently, Liberty advised Calvert that her benefits would terminate after 24 months of payment due to a change in the definition of ''disability'' from an inability to engage in one's own occupation to being unable to perform ''any occupation'' definition. And Liberty pointed out its determination that Calvert was capable of performing the enumerated occupations.

Calvert appealed that finding to Liberty and submitted additional medical records, reports and statements; however, Liberty upheld its conclusion based on a review of the file conducted by a physician it had retained, Dr. Morris Soriano, a neurosurgeon. Soriano concluded that Calvert presented no objective or clinical findings that would support her inability to work, and he further opined that there was never any reason Calvert should not have been able to work at her regular job.

Calvert then filed suit. The District Court upheld Liberty's findings. See Calvert v. Firstar Finance Inc., 2003 U.S. Dist. LEXIS 10047 (W.D. Ky., June 10, 2003). The court applied a deferential standard of review and determined the denial was reasonable. However, the appellate decision reached the opposite conclusion, finding potential conflicts of interest.

''Liberty's ultimate disability determination,'' the 6th Circuit explained, ''was based upon the FCE of Robert Pearse and the file review of Dr. Soriano, both of whom Liberty selected and paid to assess Calvert's claim. As the plan administrator, Liberty had a clear incentive to contract with individuals who were inclined to find in its favor that Calvert was not entitled to continued LTD [long-term disability] benefits. See, e.g., Darland v. Fortis Benefits Insurance Co., 317 F.3d 516, 527-528 (6th Cir. 2003).

''Considering Calvert's age, payment of this claim beyond the 24-month limitation period would be expensive for Liberty. As the District Court noted, there was an incentive for Liberty to terminate coverage or deny the claim. Under such facts, 'the potential for self-interested decision-making is evident.' University Hospitals of Cleveland v. Emerson Electric Co., 202 F.3d 839, 846 n. 4 (6th Cir. 2000).''

Thus, the potential conflict of interest was a factor that needed to be taken into account. Indeed, the court urged, in footnote 2 of the opinion, that discovery would provide ''a better feel for the weight to accord this conflict of interest,'' and the court encouraged plaintiffs to take discovery on the issue of bias.

The court next turned to consideration of the effect of the Social Security determination of disability. An earlier 6th Circuit ruling, Darland v. Fortis Benefits Insurance Co., 317 F.3d 516 (6th Cir. 2003), found that Social Security determinations were significant, particularly where the insurer had requested the claimant to apply for Social Security to reduce its payment obligation.

Following a 7th Circuit ruling, Ladd v. ITT Corp., 148 F.3d 753 (7th Cir. 1998), Darland ruled that such circumstances effectively created an estoppel precluding the insurer from arguing that the Social Security finding was inaccurate. Darland also ruled that deference ought to be given to the opinions of the treating physician supporting disability if those opinions were consistent with the objective test results.

However, Calvert had to recognize that in Black & Decker v. Nord, 538 U.S. 822 (2003), the Supreme Court rejected giving deference to the treating physician's opinion in disability benefit claims governed by the ERISA law.

Nonetheless, the court pointed out that the Social Security finding was far from meaningless, as Liberty had contended:

''This is not to say, however, as Liberty argues, that the SSA determination is meaningless and should be entirely disregarded. While it is true that the SSA must apply the 'treating physician rule' in its determinations, that rule provides that deference is to be given to the opinions of treating physicians (over those of non-treating or reviewing physicians) where, and only where, there is objective support for those opinions in the record. See Cutlip v. Secretary of Health and Human Services, 25 F.3d 284, 286-87 (6th Cir. 1994); Harris v. Heckler, 756 F.2d 431, 435 (6th Cir. 1985).

''Hence, the SSA determination, though certainly not binding, is far from meaningless. As the court said in Black & Decker, a plan administrator may not arbitrarily disregard the medical evidence proffered by the claimant, including the opinions of her treating physicians. 538 U.S. at 834. Here, the SSA determination, at a minimum, provides support for the conclusion that an administrative agency charged with examining Calvert's medical records found, as it expressly said it did, objective support for Dr. Hester's opinion in those records.''

''It is worth noting, moreover,'' the 6th Circuit pointed out in a footnote, ''that the Supreme Court's decision in Black & Decker, like this court's decision in Whitaker, was premised on the concern that it would be improper for courts automatically to impose the same standards on a plan administrator which they impose on the SSA, because the definitions of 'disability' employed by those decision-makers might differ. See Whitaker, supra, 121 Fed. Appx. at 88 ('a claim for benefits under an ERISA plan often turns on the interpretation of plan terms that differ from SSA criteria'). That concern is not at play in this case, however. To the extent there is any difference between the definitions of 'disability' in the Liberty plan and that employed by the SSA in its benefits determinations, it is actually the SSA definition which is arguably narrower.'' (Emphasis in original.)

The court also pointed out that although Liberty required Calvert to apply for Social Security disability benefits, which counsels ''a certain skepticism of a plan administrator's decision-making,'' the fact that Liberty benefited from the award does not estop the insurer from denying benefits, although the SSA determination to award benefits is a factor to consider in evaluating whether the insurer's decision was arbitrary and capricious.

The court next found when the insurer conducts a file review, rather than arranges for an independent medical examination, is yet another factor to consider in deciding if the insurer acted arbitrarily and capriciously.

The court explained, ''Thus, while we find that Liberty's reliance on a file review does not, standing alone, require the conclusion that Liberty acted improperly, we find that the failure to conduct a physical examination — especially where the right to do so is specifically reserved in the plan — may, in some cases, raise questions about the thoroughness and accuracy of the benefits determination.''

Thus, in evaluating Liberty's decision against the entire record, the court concluded that ''Liberty's benefits determination was not based on a reasoned or rational reading of the record before it.''

The court deemed Soriano's review ''inadequate'' since the doctor did not describe the data he reviewed and made no mention of the surgical reports, X-rays or CT scans contained in the record. It also appeared to the court that Soriano never reviewed the FCE that had been performed since that report concluded there were functional limitations. The court also found that Soriano failed to mention the SSA determination, ''even to discount or disagree with it, which indicates that he may not even have been aware of it.'' Moreover, while the treating doctors were mentioned, Soriano never explained why their conclusions ''were rejected out-of-hand.''

Thus, the court found Soriano's conclusions ''incredible on their face.'' Without having met or examined the plaintiff, he simply dismissed her complaints as ''subjective exaggerations,'' even though the examining doctors reached an entirely different conclusion. The court also noted that Soriano's claim of a lack of objective evidence ''does not square with the verifiable objective results of her X-rays and CT scans,'' as well as the restrictive findings on the FCE.

The court added in a footnote that while there is ''nothing inherently improper'' in conducting a file review, when the conclusions include ''critical credibility determinations regarding a claimant's medical history and symptomology, reliance on such a review may be inadequate.'' Thus, in its summation, the court held, after comparing the file review to ''the thorough objectively verifiable determinations of the SSA and Calvert's treating physician, and [taking into] consider[ation], as we must, both Liberty's conflict of interest and the benefit it received from encouraging and relying upon the SSA disability determination that Liberty acted arbitrarily and capriciously and that its decision denying long-term disability benefits to Calvert must be reversed.''

This ruling injects a heavy dose of common sense into an area of the law that is growing increasingly illogical based on the application of an arbitrary and capricious standard of review. Although we consider functional capacity evaluations of dubious value (King, et al., ''A Critical Review of Functional Capacity Evaluations,'' Physical Therapy 1998; 78:279; Stup v. Unum Life Insurance Company of America, 390 F.3d 301 (4th Cir. 2004) (See ''Fourth Circuit Joins Chorus in Questioning Tactics,'' Lawyers' Forum, Chicago Daily Law Bulletin, Dec. 20, 2004)), the conclusion reached by initial independent examiner and by the testing in this case is identical to findings the 7th Circuit deemed grounds for continuing benefits in Govindarajan v. FMC Corp., 932 F.2d 634 (7th Cir. 1991) (statement that insured might be able to work with work-hardening insufficient grounds to terminate benefits). Thus, the insurer had no legitimate basis to even question Calvert's ongoing entitlement to benefits.

Another important point made by this decision was its determination that discovery is appropriate on the issue of bias. It seems self-evident that it is impossible to prove a decision arbitrary and capricious when the court bars the plaintiff from obtaining evidence to convince the court of that proposition, but many courts deny discovery in ERISA cases.

For example, the 7th Circuit stands alone among the federal circuits in rejecting the notion that insurers act under an inherent conflict of interest, exemplified by the decision in Perlman v. Swiss Bank Corp., 195 F.3d 975 (7th Cir. 1999), which presumed an insurer's neutrality and barred discovery in cases governed by the arbitrary and capricious standard of review, notwithstanding a stinging dissent by Judge Diane P. Wood.

The Calvert ruling, however, leaves no doubt as to where the 7th Circuit stands on the issue, and makes sense given the potential biases of insurers and the consultants with whom they contract to review files.

Moreover, Calvert highlights two very significant issues that the courts frequently overlook: Social Security determinations and the weaknesses often found in reviewing doctors' opinions.

Whenever there is a disparity between the Social Security finding and the insurer's conclusion, it is worth examining the basis for the discrepancy, rather than to simply disregard the Social Security finding.

The court also made an important observation that many other courts have not been astute enough to realize. After Nord, courts have generally ruled as the basis for rejecting Social Security findings as relevant that Social Security applies a presumption of deference to the treating doctor's opinion, which is not the case in ERISA adjudications. However, as the 6th Circuit pointed out here, all Nord does is reject an automatic deference to the treating doctor's findings.

Thus, as in this case, where the treating doctor's conclusions are supported by objective evidence and consistent with the record as a whole, such evidence carries great weight. Further, the court's recognition that the Social Security definition is ''narrower'' than the disability insurance policy's definition of ''disabled,'' and the fact that a claimant has met the Social Security definition is an important consideration.

The other important lesson from this case is the court's recognition that the insurer ''had a clear incentive to contract with individuals who were inclined to find in its favor that Calvert was not entitled to continued LTD benefits.''

The 7th Circuit reached a similar conclusion in Hawkins v. First Union Corporation Long-Term Disability Plan, 326 F.3d 914, 917 (7th Cir. 2003), where the court noted that a consultant hired to review a claim file may ''have a financial incentive to be hard-nosed in his claims evaluation in order to protect the financial integrity of the plan and of the employer that funds it.'' Thus, the opinion of a reviewing doctor must be given very close scrutiny; and when the magnifying lens was applied by the 6th Circuit to Soriano's opinions, the poverty of his conclusions became immediately apparent.

Another 6th Circuit case, McDonald v. Western-Southern Life Insurance Co., 347 F.3d 161 (6th Cir. 2003), pointed out that a deferential standard of review should not be used as a ''rubber stamp.'' This opinion makes it clear that an insurer seeking the benefit of an arbitrary and capricious standard of review needs to come forward with a reasoned decision consistent with the record as a whole; and that an opinion from a doctor who performs a paper review must be reasonable, logical and consistent with the record as a whole. Anything less fails the test.