The 2nd U.S. Circuit Court of Appeals recently issued a significant ruling involving disability benefits. In Durakovic v. Building Service 32BJ Pension Fund, 2010 U.S.App.LEXIS 12937 (2nd Cir. June 24, 2010), Bejaze Durakovic, a Yugoslavian emigrant with a grade school education, worked as an office cleaner in New York City until she stopped working in 2003 as the result of pain and weakness caused by injuries she suffered in a 1999 car accident. Durakovic submitted two attending physician reports, along with a notice of benefit award from the Social Security Administration, all supporting her entitlement to benefits. However, a third physician who conducted an examination on behalf of the fund, reported that Durakovic was not totally and permanently disabled. Based on that report alone, the fund denied Durakovic’s claim. When she appealed, the fund sent her to yet another doctor who also concluded that Durakovic should be able to perform a sedentary job. Durakovic then filed suit; however, before the matter was adjudicated, the fund reopened the claim based on the 2nd Circuit’s ruling in Demirovic v. Building Service 32 B-J Pension Fund, 467 F.3d 208 (2d Cir. 2006), which held that physical capacity alone cannot be the basis of a benefit denial; the fund is obligated to further determine whether the claimant is vocationally qualified to work at a job. Based on that ruling, the fund sent the two doctors’ reports to a vocational consultant who noted poor English language skills and an unskilled past work history. Durakovic obtained her own vocational report as well, which incorporated the results of vocational testing and concluded she was unable to perform any work. The fund’s vocational consultant disagreed and identified three jobs it believed Durakovic could perform; hence the fund denied the claim. The district court upheld that determination; Durakovic appealed.

The court’s ruling began by focusing on the fund’s potential for being a conflicted fiduciary in the wake of Metro.Life Ins.Co. v. Glenn, 489 U.S. 105 (2008); and whether that conflict would affect the deference given to the fund’s determination. The fund maintained there was no conflict because it was a trust managed equally by employer and employee representatives in accordance with the Taft-Hartley Act, 29 U.S.C. § 186(c)(5). The court of appeals disagreed. Applying Glenn, the court focused on the fact that the same entity was both paying benefits and deciding entitlement to receive benefits and further noted:

An administrator organized pursuant to 29 U.S.C. § 186(c)(5) should be treated no differently [than an employer that self-funds a benefit plan or an insurer]. Here, as in Glenn, the evaluation of claims is entrusted (at least in part) to representatives of the entities that ultimately pay the claims allowed. Cf. 128 S. Ct. at 2348. This is precisely the type of interest conflict to which Glenn applies: The employer representatives have fiduciary interests that weigh in favor of the trusts’ beneficiaries on the one hand, but representational and other interests that weigh to the contrary. Cf. id. That the board is (by requirement of statute) evenly balanced between union and employer does not negate the conflict. The existence of union representation should be considered, as the district court concluded, atGlenn‘s second step. And that the administrator is here a trust, rather than the employer itself or a third-party for-profit institution, does not control. The rejection of claims will reduce future employer contributions. See Holland v. Int’l Paper Co.Ret. Plan, 576 F.3d 240, 249 (5th Cir. 2009) (Rejection of claims will limit future increases in employer contributions.); Burke v. Pitney Bowes Inc. Long-Term Disability Plan, 544 F.3d 1016, 1026-27 (9th Cir. 2008); but see White v. Coca-Cola Co., 542 F.3d 848, 858 (11th Cir. 2008). All but one of the purportedly contrary persuasive opinions cited by the funds are non-precedential, outdated (pre-Glenn), or both. Only the 9th Circuit has held in a precedential post-Glenn opinion that funds organized pursuant to 29 U.S.C. § 186(c)(5) are not conflicted within the meaning of Glenn. Anderson v. Suburban Teamsters of N. Ill. Pension Fund Bd. of Trs., 588 F.3d 641, 648 (9th Cir. 2009). There may be cases in which the existence of a Glenn conflict is difficult to ascertain; but this is not one of them.

With respect to Anderson, the court determined that case rests on a “shaky foundation.” Among other reasons, Anderson conflicts with Burke v. Pitney Bowes Inc. Long-Term Disability Plan, 544 F.3d 1016, 1026 (9th Cir. 2008), which held that “even when a plan’s benefits are paid out of a trust, a structural conflict of interest exists that must be considered as a factor in determining whether there was an abuse of discretion.”

Turning to how the conflict is to be weighed, the court focused on the “likelihood that [the conflict] affected the benefits decision” (citing Glenn and the factors enumerated by the Supreme Court). Applying those concerns, the court found the fund’s consideration of the claim was “one-sided” since it had dismissed Durakovic’s vocational report summarily even though it was “vastly more detailed and particularized than the report on which the fund relied.”

Finally, the court addressed whether the claim decision was arbitrary and capricious. Although the court found the physical capacity determination was appropriate, the court deemed the vocational determination deficient, finding that based on the record, “no trier of fact could fail to find the fund’s vocational-capacity determination to have been arbitrary and capricious.” Two of the jobs identified by the fund’s evaluator required transferable skills; however, the court found:

She has no appreciable skills; she had an elementary education, largely if not exclusively in another country; she has little English; and her only employment for 35 years was as an office cleaner. It is arbitrary and capricious to expect her to develop skills for the first time at age 60, or to assume that an employer would invest money in skills training for an unskilled worker of that age. See Demirovic, 467 F.3d at 213 (noting that plaintiff “is in her late 50s”); 20 C.F.R. Pt. 404, Subpt. P, App. 2 (considering age as a factor in determining disability for Social security purposes).

The only unskilled job that was identified was “button assembler;” however, there was no evidence that Durakovic could earn a living from that occupation. Nor did the fund give consideration to the testing performed by the plaintiff’s vocational evaluator which included test results showing she lacked sufficient dexterity and mental acuity to perform any occupation. Hence, the court held, “Giving appropriate weight to theGlenn conflict, any rational trier of fact would conclude that the funds’ decision was unsupported by substantial evidence, and therefore arbitrary and capricious.”

This is a significant opinion for a number of reasons. First, the court recognized that just because a plan is administered through a trust does not insulate it from a potential conflict when the same entity both administers and funds the payment of claims. In addition, this ruling has to open the door to discovery on the issue of whether the plan possesses a financial motive to deny claims. Given the number of claims litigated against this fund, and the fund’s terrible track record in litigation despite discretionary powers, it has to be assumed that the fund is either underfunded or is motivated to reduce claims in order to maintain solvency rather than seek additional contributions.

The court’s focus on the vocational aspects of the claim is also critical. That was the point made in the earlier Demirovic ruling; i.e., just because someone may be physically capable of working at a job does not automatically justify a conclusion that such an individual is vocationally qualified. The genius in the Social Security disability program is in its recognition that vocational factors; i.e., age, education, work experience, and the ability to read and write in the English language also need to be taken into consideration in evaluating disability. Nor can those factors be ignored in private disability evaluations since virtually every disability insurance policy requires some consideration of vocational capability in addition to physical capability. The court’s ruling also guards against sham vocational evaluations that fail to perform a realistic assessment of vocational capability by contrasting the thorough evaluation obtained by the plaintiff with the superficial and unbelievable assessment the fund’s evaluator put together. Although Durakovic had to endure a seven year odyssey to finally receive justice, the lessons of this ruling will protect thousands of future claimants and insure they receive the benefits they are due.

This article was initially published in the Chicago Daily Law Bulletin.

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