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How Lenient is the ERISA Arbitrary and Capricious Standard of Review in Disability Insurance Cases?

From time to time we comment on court opinions relevant to disability insurance and ERISA litigation -

Gerhardt v. Liberty Life Assur.Co. of Boston, 2013 U.S.App.LEXIS 23912 (8th Cir. November 29, 2013)(Issue: Independent Medical Examinations; Transferable skills analysis). Lisa Gerhardt, a nurse, applied for disability benefits from her employer's group long-term disability insurance company in 2000 due to osteoarthritis. Gerhardt's claim was approved under the initial "own occupation" definition of disability applicable to the first 24 months of benefits. However, benefits were terminated after 24 months of payment based on the results of two independent medical examinations finding sedentary work capacity, and a vocational assessment that identified five occupations that met both Gerhardt's qualifications and the policy's wage requirements. A functional capacity evaluation requested by Liberty also determined Gerhardt's ability to work at a sedentary occupation.

Gerhardt appealed unsuccessfully, and then brought suit. The district court overturned Liberty's determination. Although the court agreed with Liberty that the evidence supported a conclusion that Gerhardt could physically perform a sedentary occupation, the court remanded the case to Liberty because the insurer gave no consideration to whether Gerhardt could mentally perform the identified occupations. Liberty appealed; however, the court dismissed the appeal, finding the remand order was not a final order. Gerhardt v. Liberty Life Assurance Co. of Boston, 574 F.3d 505 (8th Cir. 2009). On remand, Liberty reaffirmed its decision after obtaining further medical assessments; and the district court upheld that decision. The Eighth Circuit affirmed the district court's second ruling.

Applying a deferential standard of review, the court overruled Gerhardt's principal arguments that Liberty ignored critical evidence - Gerhardt's loss of her registered nurse's license and lack of a bachelor's degree, the initial original IME report, and Gerhardt's age. The plaintiff pointed out that all but one of the identified occupations required a valid current registered nurse's license or a bachelor's degree; and the only remaining listed occupation - ambulance/emergency service dispatcher - was not a job she was fit to perform by reason of education, training or experience. The court disagreed, finding that since it came down to a choice between vocational experts, Liberty reasonably chose to rely on its own transferable skills analysis. The court explained:

Liberty had the discretion to weigh the evidence, and Gerhardt has not established that Liberty's reliance on the TSA was unreasonable. That Liberty rejected the conclusion of Gerhardt's rehabilitation counselor does not render its reliance on the TSA unreasonable. Similarly, although Gerhardt argues that a dispatcher works in the field of law enforcement and that law enforcement is unrelated to the fields of nursing and healthcare, Liberty relied on its experts' opinions to the contrary.

The court next looked at the IME report obtained through a vendor, MLS, which initially determined that Gerhardt had variable work capacity and could not perform sedentary work on a day in/day out schedule. However, in a later version of the report, the sentence about Gerhardt's inability to work on a regular and consistent basis was removed. The Eighth Circuit excused Liberty's reliance on the sanitized report by observing:

On remand, Gerhardt specifically requested that Liberty consider the original IME report and submitted a copy of the report to Liberty. In its initial post-remand letter maintaining its decision to terminate benefits, Liberty acknowledged Gerhardt's request. Thereafter, Liberty repeatedly confirmed that it had reviewed Gerhardt's file, along with the additional evidence that she had submitted after remand. Therefore, although we do not know the exact weight Liberty afforded the original IME report, the record establishes that Liberty did not entirely ignore the report.

The court added, "Moreover, to the extent the original IME report and the final IME report are inconsistent, nothing in the record indicates that the final IME report did not represent Dr. Safman's final opinion. Liberty thus was in a position where it had considered the original IME report, it knew whether the reviewers had the original IME report, and it could weigh all of the evidence accordingly."

Finally, the court dismissed Gerhardt's argument that her age was a factor. The plaintiff was 52 when her benefits were terminated; and the record showed her age was taken into consideration. Accordingly, the benefit denial was affirmed.

Discussion: The arbitrary and capricious standard of review is lenient, but this decision may represent a new low. Liberty's TSA was obviously flawed. When all but one of the identified jobs required qualifications the plaintiff lacked, there has to be suspicion about the validity of the remaining occupation, particularly since the plaintiff, a registered nurse who worked in the field of drug treatment, obviously lacked the training to work as a dispatcher. When Liberty's conflict of interest is taken into consideration, along with its history within the Eighth Circuit of conflicted behavior in engaging in a selective review of the evidence (Willcox v. Liberty Life Assur.Co. of Boston, 552 F.3d 693 (8th Cir. 2009)), a point that was unmentioned in the decision, the court should have shown skepticism concerning the TSA.

The court's acceptance of a report that appears to have been "scrubbed" by the vendor, MLS, to remove the portion favorable to the plaintiff, also displayed flawed logic. MLS has a history of having been accused of altering reports - Hall v. MLS National Medical Evaluations, Inc., 2006 U.S.Dist.LEXIS 57965 (E.D.Ky. 8/15/2006). Moreover, as an ERISA fiduciary, Liberty should have directly questioned the doctor or the court should have permitted a deposition or hearing to inquire about the alteration to the doctor's report.

If the initial report had been utilized, Liberty would have been required to find Gerhardt disabled. An employee who is incapable of working on a consistent basis is disabled. See, Ruggerio v. Fedex, 2003 U.S.Dist.LEXIS 14048 (D.Mass. 8/14/03), recognizing the plaintiff was an "unreliable worker [because her symptoms] do not manifest in a linear fashion and, at worst, totally disable her for unspecified and unpredictable periods of time." Also see, Holler v. Hartford Life and Accident Insur.Co., 2005 U.S.Dist.LEXIS 25099 (S.D.Ohio 10/26/2005)(fibromyalgia produces good days and bad days); Thivierge v. Hartford Life & Accident Insur.Co., 2006 U.S.Dist.LEXIS 25216 (N.D.Cal. 3/28/2006) (good days and bad days prevent consistent work); Bauer v. Astrue, 532 F.3d 606 (7th Cir. 2008)(variability of bipolar disorder symptoms). Peterson v. Federal Express Corp. Long Term Disability Plan, 2007 U.S.Dist.LEXIS 41590 (D.Ariz. 6/4/2007)("a total-disability determination cannot reasonably hinge on whether an employee is minimally capable, on a good day, at the right hour, of fulfilling her job duties in barely tolerable fashion. Qualification for employment requires an ability to work effectively and to be reliable.").

For further information, contact Mark DeBofsky - mdebofsky@debofsky.com

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