Insurer’s flip-flop on disability claim causes a finding for plaintiff

This article was initially published in the Chicago Daily Law Bulletin on January 10, 2018

By Mark D. DeBofsky

Mark D. DeBofsky is a name partner of DeBofsky, Sherman & Casciari P.C. He handles civil and appellate litigation involving employee benefits, disability insurance and other insurance claims and coverage, and Social Security law. He can be reached at [email protected].

Is the ability to work only on a part-time basis enough to deny disability benefits? The answer is no, according to the 10th U.S. Circuit Court of Appeals.

The case of Van Steen v. Life Insurance Company of North America, 2018 WL 256806 (10th Cir., Jan. 2, 2018), involved Carl Van Steen, who worked as a systems integration business analyst at Lockheed Martin Corp. until he suffered a traumatic brain injury that impacted his cognitive abilities.

After a period of complete absence from work, Van Steen was cleared to return to part-time work. However, he experienced ongoing cognitive fatigue and headaches, resulting in an inability to stay organized, keep track of deadlines and remain on task.

The Life Insurance Company of North America, or LINA, approved Van Steen's claim for benefits, but then terminated his benefit payments a year later despite being informed by the treating doctor that the impairments were "not likely to improve."

Van Steen's prelitigation appeal was unsuccessful; however, the U.S. District Court found the benefit termination arbitrary and capricious and overturned the benefit denial. The court refused Van Steen's request for a fee award, though. The 10th Circuit affirmed both of the district court's determinations.

The court framed the merits issue and summarized its conclusion as follows: "[I]n order for this court to uphold LINA's decision to terminate Mr. Van Steen's long-term disability benefits, there must be substantial evidence in the record supporting the determination that Mr. Van Steen is able to perform each and every material duty of a systems analyst for eight hours a day. A thorough review of the record reveals no such evidence."

The court recounted that when benefits were initially approved, LINA acknowledged the significant cognitive demands of Van Steen's occupation and determined he was disabled due to "deficits in executive functioning, attention, memory and higher level attention/speed of processing."

Yet when benefits were terminated, there was no evidence of significant improvement in Van Steen's condition. If anything, the evidence showed the limitations were permanent.

Although LINA maintained that it based its decision on reports from outside consultants who had reviewed the claimant's records, the court pointed out that "none of these reviewers actually determined from the medical evidence that Mr. Van Steen was capable of performing all of his material job duties on a full-time basis."

Since Van Steen had already been working on a part-time basis, opinions from LINA's medical consultants that work was not entirely precluded were deemed "hardly revelatory" and provided "no insight into Mr. Van Steen's ability to perform all of his material job duties on a full-time basis."

The court also critiqued an otolaryngologist's finding that Van Steen could lift 10 to 20 pounds occasionally and sit, stand and walk throughout an eight-hour workday by pointing out that such opinions failed to address the plaintiff's cognitive limitations and their impact on his ability to perform a cognitively demanding occupation. LINA's vocational consultants' findings were also deemed deficient since they failed to connect Van Steen's ability to sustain his ability to fulfill his job requirements on a full-time basis.

Thus, the court determined, "LINA would have us believe that Mr. Van Steen has the cognitive stamina to sustain an eight-hour work day for five days a week, yet offers no evidence to support that conclusion." In contrast, the doctors who reported on Van Steen's limitations consistently found him incapable of performing full-time work due to his cognitive limitations.

Although the court recognized LINA's discretionary authority to interpret and administer the benefit plan, the court concluded that LINA's decision was deficient because it was unsupported by substantial evidence establishing that "Mr. Van Steen is capable of performing each and every material duty of his occupation as a [s]ystems [a]nalyst on a full-time basis." Thus, the district court's decision was upheld.

The court then turned to the district court's denial of a fee award. Under circuit precedent, the court was required to examine the following five factors in assessing whether to award fees:

  • The degree of the opposing parties' culpability or bad faith.
  • The ability of the opposing parties to personally satisfy an award of attorney fees.
  • Whether an award of attorney fees against the opposing parties would deter others from acting under similar circumstances.
  • Whether the parties requesting fees sought to benefit all participants and beneficiaries of an Employee Retirement Income Security Act plan or to resolve a significant legal question regarding ERISA.
  • The relative merits of the parties' positions.

The district court found the evidence failed to establish that LINA had acted culpably or in bad faith and that the claim did not benefit all participants or resolve a significant legal question.

The lower court had also determined that LINA's arguments were not "wholly without merit." Under an abuse of discretion standard, the 10th Circuit thus determined the district court had made a clear error of judgment or abused its discretion and upheld the fee denial.

While the decision on the merits was completely justified, the decision to uphold the fee denial is surprising. Both the district court and the court of appeals found LINA's decision was arbitrary and capricious.

The U.S. Supreme Court has defined the meaning of that term, which derives from administrative law: "Normally, an agency rule would be arbitrary and capricious if the agency has relied on factors which Congress has not intended it to consider, entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise." Motor Vehicle Manufacturers Association of the United States Inc. v. State Farm Mutual Automobile Insurance Co., 463 U.S. 29, 43 (1983).

Given the determination that LINA's decision was arbitrary and capricious, LINA's actions were plainly culpable, and the only fee award criterion that would arguably not have been met was the fourth, although the finding in Van Steen's favor would likely enhance the protective value of the disability plan for all Lockheed Martin employees who experience disability.