Smith v. Continental Casualty Co.

The casenote of the month is from the Disability E-News Alert! a monthly newsletter describing new disability insurance developments. For subscription information, e-mail Mark DeBofsky or visit .

Smith v. Continental Casualty Co., 2004 U.S.App.LEXIS 10579 (4 th Cir. 5/28/2004)( Issue: Pain ). This ruling overturned Smith v. Continental Casualty Co., 276 F. Supp. 2d 447 (D.Md. 8/4/03)( August 2003 ), which was probably the most thoroughly reasoned case ever issued on the subject of pain and disability, and the only case of which we are aware that cited Monty Python and the Search for the Holy Grail in an opinion (in its discussion of pain, the court noted that pain response was idiosyncratic and referenced the knight who described having both of his arms cut off as a ?flesh wound.?). The case involved the claimant's severe residual pain following three back surgeries. Although the insurer's own orthopedic consultant reported that Smith could not sit or stand for more than 1-2 hours, CNA declined the claim, asserting that Smith's pain complaints were out of proportion to his objective findings. The district court disagreed and overturned CNA's decision, awarding benefits and attorneys? fees. Reviewing the district court's summary judgment ruling de novo, the court found that under an arbitrary and capricious standard of review modified to take into consideration CNA's conflict of interest, the insurer's determination was not unreasonable.

The Fourth Circuit found that the district court improperly imported a Social Security ruling used to evaluate disability claims involving pain ? SSR 90-1p (based on Hyatt v. Sullivan, 899 F.2d 329 (4 th Cir. 1990). The court held that based on Black & Decker v. Nord, 538 U.S. 822 (2003), the district court erred ?by equating the determination of disability under the Social Security regime with the determination of disability under the ERISA plan at issue? *15. Since the Social Security disability program and the ERISA law serve different purposes, based on Nord, the Fourth Circuit ruled that the district court misused the Social Security framework for evaluating Smith's pain. The court explained:

The Supreme Court's reasoning is equally applicable to the question of whether to import SSR 90-1p into the ERISA area. As with the treating physician rule at issue in Black & Decker , the most recent version of the ERISA regulations was enacted long after SSR 90-1p was adopted, and the ERISA regulations do not reference the pain ruling. Moreover, ERISA does not mandate what benefits an employer must offer. ERISA benefits are a matter of contract. Accordingly, what qualifies as a disability for social security disability purposes does not necessarily qualify as a disability for purposes of an ERISA benefit plan -- the benefits provided depend entirely on the language in the plan. Thus, if the plan language provided that pain could never support a finding of disability (which, we are quick to note, is not the case here), then the plan language would control. Because the district court's grant of summary judgment rested entirely on its importation of SSR 90-1p into the ERISA context, we vacate the grant of summary judgment for Smith on the benefits issue and remand to the district court for reconsideration. *17-*18.

The court also vacated Smith's fee award and remanded the case for consideration of whether Continental Casualty ?abused its discretion in failing to apply the language of the Plan related to Self-Reported Symptoms? *18. The court noted that CNA conceded there was some objective support for Smith's complaints, although the insurer concluded there were not enough objective findings. The court further ruled that CNA apparently ignored the self-reported symptoms provision of the policy; and the district court was empowered to remand the case to CNA for further review or the district court could ?consider whether, apart from the Plan language regarding Self-Reported Symptoms, Continental Casualty's denial of benefits was supported by substantial evidence? *20-*21. The court also suggested that Smith's job duties exceeded his capacity, thus furnishing yet another ground to award benefits.

Discussion: Last month, we reported on Rigg v. Continental Casualty Co., 2004 U.S.Dist.LEXIS 8009 (N.D.Cal. 5/5/2004)( May 2004 ), which held that Social Security concepts were ?instructive? in evaluating ERISA claims. The Seventh Circuit, among other courts, also reached the same conclusion more than ten years ago in Halpin v. W.W. Grainger, Inc., 962 F.2d 685, 695 n.11 (7 th Cir. 1992). Further, the district court opinion in this case explained, ?the evidentiary assessment of pain cannot reasonably differ whether a claimant seeks disability benefits under a private plan of insurance or under the public scheme of Social Security? Since there were no particular contractual limitations in the CNA policy that would compel deviation from the lower court's analysis, the Fourth Circuit?s refusal to affirm the district court makes no sense, particularly in view of the broad and deliberate hints the court dropped at the conclusion of the opinion suggesting other reasons why the claimant should have won. It is a well-established principle of appellate law that a court of appeals can affirm for any reason supported by the record. McMahan v. International Ass'n. of Bridge, Structural & Ornamental Iron Workers, 964 F.2d 1462, 1467 (4th Cir. 1992) (Appellate courts may " affirm a judgment for any reason appearing on the record , notwithstanding that the reason was not addressed below."). Since the Court of Appeals so clearly ordained that the plaintiff should prevail, the court has needlessly delayed an award of benefits.

The Fourth Circuit should also have considered cases such as Hawkins v. First Union Corp., 326 F.3d 914 (7 th Cir. 4/22/03)( May 2003), Krizek v. CIGNA Group Insurance, 345 F.3d 91 (2d Cir. 9/24/03)( October 2003 ), or Gaylor v. John Hancock, 112 F.3d 460 (10th Cir. 1997) with respect to the evaluation of pain. Since there was apparently no evidence that Smith's complaints of pain were untruthful, even though the insurer thought the pain complaints exceeded the objective findings, there was no evidentiary support for that conclusion.

There is another troubling aspect to this decision. The court seems to believe the insurer could simply draft out of the policy claims involving disability due to pain. The more such freedom of drafting is afforded, the more illusory the policy becomes. As it stands now, the Illinois Department of Insurance has begun taking action against discretionary clauses in disability insurance policies because they violate ?143 of the Illinois Insurance Code (215 ILCS 5/143) which reads in part:

It shall be the duty of the Director to withhold approval of any such policy, certificate, endorsement, rider, bylaw or other matter incorporated by reference or application blank filed with him if it contains provisions which encourage misrepresentation or are unjust, unfair, inequitable, ambiguous, misleading, inconsistent, deceptive, contrary to law or to the public policy of this State, or contains exceptions and conditions that unreasonably or deceptively affect the risk purported to be assumed in the general coverage of the policy.

Given the fact that despite medical advances many medical conditions are as yet not amenable to laboratory or radiologic diagnostic verification, a policy excluding disability resulting from pain would defeat the purpose of the insurance. Professor John Langbein expressed concern about the limits of benefit plan drafting when he criticized the Supreme Court?s approach of adopting trust law rather than a contract law approach to ERISA benefits, since contract law would incorporate doctrines such as unconscionability and other means of protecting a party to a contract from overreaching by the other party. Langbein, ?The Supreme Court Flunks Trusts,? 1990 S.Ct.Review 207, 227. The Fourth Circuit?s ruling in Smith points in a dangerous direction.

View Decision (PDF)

This note appeared in the Disability E-News Alert! For subscription information, please go to .