Saffon v. Wells Fargo & Co. Long Term Disability Plan, 2008 U.S.App.LEXIS 334 (9th Cir. 1/9/2008)(Issue: Scope of Review).  The plaintiff, who suffered from chronic back problems, initially qualified both for short-term and then long-term disability benefits.  However, MetLife, the insurer, terminated payments after one year, claiming Saffon no longer met the definition of disability.  After exhausting pre-suit appeals, Saffon brought suit which, in the district court, resulted in a judgment for MetLife after the court found the insurer did not abuse its discretion in denying benefits.  The court of appeals reversed.   

The court applied a discretionary standard of review over the plaintiff’s objection that MetLife was not properly identified by name as a plan fiduciary.  The court also rejected the plaintiff’s contention that the California Insurance Commissioner’s prohibition against discretionary clauses negated the policy terms precluded a deferential standard of review on the ground that the prohibition could not be applied retroactively.  Nonetheless, the court sided with the plaintiff, placing significant emphasis on a recent law review article.  John H. Langbein, Trust Law As Regulatory Law: The UNUM/Provident Scandal and Judicial Review of Benefit Denials Under ERISA, 101 Nw. U. L. Rev. 1315 (2007).  The court pointed out that deference is subject to diminution based on the insurer’s conflict of interest, and cited Professor Langbein for the proposition that a “danger pervades the ERISA-plan world that a self-interested plan decisionmaker will take advantage of its license under Bruch to line its own pockets by denying meritorious claims."  Id. at 1317.   

The Ninth Circuit reversed primarily because the district court had given no consideration to MetLife’s conflict after finding the plaintiff had failed to provide “material, probative evidence” of a conflict, which was the test prior to Abatie v. Alta Health & Life Ins. Co., 458 F.3d 955, 966-67 (9th Cir. 2006) (en banc).  Abatie determined that a court must always consider the "inherent conflict that exists when a plan administrator both administers the plan and funds it." Id. at 967. The conflict is weighed more heavily when a claimant presents evidence that the administrator has given "inconsistent reasons for denial," has failed "adequately to investigate a claim or ask the plaintiff for necessary evidence," or has "repeatedly denied benefits to deserving participants by interpreting plan terms incorrectly." Id. Weighing the conflict was also deemed as “something akin to a credibility determination about the insurance company's or plan administrator's reason for denying coverage under a particular plan and a particular set of medical and other records.” Id. at 969. 

Applying these principles to the facts of the case, the court cited the treating neurologist’s rebuttal to MetLife’s consultant which gave a detailed rationale of the objective clinical findings, discussed the significance of the MRI results, and described the efforts made to alleviate the plaintiff’s debilitating symptoms.  In response, MetLife’s consultant claimed the file "lacks clear, sequential, detailed, objective clinical information which would completely preclude Ms. Saffon from an attempt at return to work." MetLife accepted the consultant’s findings and terminated benefits. Although additional evidence was then submitted, MetLife had a new consultant review the file, and he, too, concluded there was “not enough objective medical findings” to support a disabling impairment. 

The court of appeals rejected MetLife’s rationale.  The court deemed the consultants’ findings were incomprehensible and uninformative by not giving any reasons why the evidence submitted was insufficient.  The court also was skeptical because “assuming that the MRIs document no ‘progression in degeneration,’ MetLife does not explain why further degeneration is necessary to sustain a finding that Saffon is disabled. After all, MetLife had been paying Saffon long-term disability benefits for a year, which suggests that she was already disabled. In order to find her no longer disabled, one would expect the MRIs to show an improvement, not a lack of degeneration.” *19.  The court also found it disingenuous that MetLife would suggest a functional capacity evaluation might be helpful, but that it failed to make such a suggestion before the final denial when the claimant would have had the opportunity to present such evidence. 

The court cited Abatie for the proposition that when a plan administrator presents a new reason for denial, it has to give the claimant an opportunity to respond.  The court explained:

In addition, the fact that the claims administrator presented a new reason at the last minute bears on whether denial of the claim was the result of an impartial evaluation or was colored by MetLife's conflict of interest. After all, coming up with a new reason for rejecting the claim at the last minute suggests that the claim administrator may be casting about for an excuse to reject the claim rather than conducting an objective evaluation. See Langbein, supra, at 1321 (noting that Unum-Provident claim administrators played on the deferential standard of review to deliberately deny meritorious claims). This is a matter to be resolved by the district court in the first instance, and we therefore vacate the district court's ruling and remand for this purpose.*20.

The court then furnished guidance for the remand.  It advised that Saffon should be given an opportunity to present a functional capacity evaluation or other objective evidence of disability, but added that she is not obligated to do so and may offer instead a medical opinion “that such evidence is not available or not particularly useful in diagnosing her ability to return to her job.” *21 (citing social security rulings pointing out that pain cannot be “objectively verified or measured”).  The court also admonished MetLife that if it “is turning down Saffon's application for benefits based on Saffon's failure to produce evidence that simply is not available, that too may bear on the degree of deference the district court shall accord MetLife's decision and on its ultimate  determination as to whether Saffon is disabled.” *21-*22.

The court of appeals also directed the district court to consider MetLife’s course of dealing with the plaintiff and her doctors with emphasis on MetLife’s taking doctor statements out of context and the insurer communicating directly with the physician and giving him an unreasonable deadline to respond to a request for information.  Finally, the court explained that after determining the degree of deference to be accorded MetLife’s decision, in deciding on whether Saffon is disabled, the court must take

into account not only the evidence presented in the record, but such additional evidence as Saffon may present (as discussed above) and any contrary evidence MetLife may present. If the parties wind up presenting significant  new evidence in the district court, it may be impossible for the court to grant any deference to the decision of the claims administrator, as that decision will perforce have been made without taking into account the new evidence. As a practical matter, therefore, it may be unnecessary for the district court to determine the degree of deference to give MetLife's decision, as the admission of significant new evidence will require a de novo reconsideration of the decision in any event. *24-*25.

Discussion:      Judge Alex Kozinski, the author of this opinion, threw out a number of points that will be instructive in future litigation, including his final point that the introduction of a new reason for the denial could trigger a sequence of proof and counter-proof that would eviscerate deference altogether.  While it would have been more preferable for the court to have simply prohibited the introduction of a new reason since §  503 of the ERISA law mandates that all reasons for the determination be communicated in the initial denial, the Ninth Circuit’s approach is sensible.

In addition, the court wisely observed that MetLife’s suggestion of an FCE may be nonsensical since there is no test that can measure pain.  However, the point that the new reason may just be a means of evading liability, and the chastisement of the insurer for its misrepresentations of the medical opinions and opaque medical opinions, as well as the point that evidence which justified the payment of benefits in the first place cannot be used as grounds for terminating the payments, will no doubt be cited in future rulings.