The deferential standard of review given to insurance companies in ERISA cases was subject to a rigorous examination in Kramer v. Paul Revere Life Ins. Co., 2009 U.S.App.LEXIS 7387 (6th Cir. April 8, 2009)(unpublished). There, an obstetrician and gynecologist, Dr. Lois Kramer, had two disability insurance policies underwritten by the same insurer. She qualified for benefits under both policies in 1998 after being diagnosed with a herniated disk in the cervical spine causing nerve damage that precluded her from performing deliveries, surgeries, and other medical procedures. Benefits were paid without interruption for nearly five years; however, the lawsuit arose when benefits were terminated and Kramer brought suit. One policy contained language that triggered the deferential abuse of discretion standard of court review while the other did not. The district court found that the insurer wrongfully denied benefits under the policy (issued by Provident) subject to the de novo standard of adjudication, a finding that was not appealed. However, despite a nearly identical definition of ”disability” in both policies, the district court applied a deferential standard of review to the second policy and ruled in the insurer’s favor. The Sixth Circuit reversed the loss and awarded benefits under the Paul Revere policy as well.

The evidence cited by the court focused on the treating doctors’ concern about the severity of Kramer’s nerve damage, which objective testing showed had worsened since she initially became disabled, and how that condition would affect patient safety if she were to return to her occupation. The insurer based its determination on surveillance and a doctor’s opinion that claimed there was inadequate objective evidence to support the disability, and which the Sixth Circuit characterized as lacking an understanding of Kramer’s duties.

The court focused on whether Unum, Paul Revere Life Insurance Company’s parent, abused its discretion. Pointing out that Unum had initially approved the claim, and noting that Kramer’s condition had worsened, the court found the medical reports disputing disability were ”aberrational,” given the ”veritable mountain” of evidence establishing Kramer’s inability to perform her material job duties.

The court was also deeply disturbed by the absence of ”explanation for the decision to cancel benefits that had been paid for some five years based upon the initial determination of total disability in the absence of any medical evidence that the plaintiff’s condition had improved during that time. The best that can be said of the opinions of Dr. Mayer and the other company consultants is that they support the proposition that Dr. Kramer was, in fact, never disabled from her ‘own occupation.’ But that conclusion flies in the face of all the other evidence in the record, and the plan administrator’s reliance upon it can only be described as arbitrary and capricious.”

The court further found that working despite her restrictions and under the influence of narcotic pain medication would place Kramer’s patients at risk, and added: ”While engaged in her OB/GYN duties, it would not be possible for Plaintiff to take pain medication or to take breaks.” Thus, the court held that, even though it was obligated to perform a deferential review, such review should not be ”inconsequential” and added that ”the federal courts do not sit in review of the administrator’s decisions only for the purpose of rubber stamping those decisions.” (citing Moon v. Unum Provident Corp., 405 F.3d 373, 379 (6th Cir. 2005)). Further, the court determined that, since the evidence established Kramer’s disability under the Provident policy, which Unum did not contest, ”we conclude that the administrator’s contrary decision under the equivalent terms of the Paul Revere Life policy, based as it was on evidence substantially discredited by the district court in reviewing the Provident Life policy, cannot be described as reasoned or principled.”

It is logically conceivable that a benefit claim denial can be wrong from a de novo perspective but not an abuse of discretion. However, given the importance of employee benefits in life-and-death situations presented by health benefits claims, and as to economic security with respect to retirement and disability benefits, this case illustrates the important role played by the courts. Courts have intermixed the terms ”abuse of discretion” and ”arbitrary and capricious,” but those judicial standards have distinct meanings. Significantly, in the Supreme Court’s Metro.Life Ins. Co. v. Glenn, 128 S.Ct. 2343 (2008) ruling, the Court only referenced the abuse-of-discretion standard, which is grounded in trust law and is less deferential than the arbitrary and capricious standard according to Booth v. Wal-Mart Stores, Inc., 201 F.3d 335, 341 (4th Cir. 2000). Booth describes several factors to be considered in evaluating the lawfulness of the claim determination under ERISA:

”(1) the language of the plan; (2) the purposes and goals of the plan; (3) the adequacy of the materials considered to make the decision and the degree to which they support it; (4) whether the fiduciary’s interpretation was consistent with other provisions in the plan and with earlier interpretations of the plan; (5) whether the decision making process was reasoned and principled; (6) whether the decision was consistent with the procedural and substantive requirements of ERISA; (7) any external standard relevant to the exercise of discretion; and (8) the fiduciary’s motives and any conflict of interest it may have. With these principles in hand, we now turn to the Plan before us and the decision by the Plan’s administrator to deny benefits.” 201 F.3d at 342-43.

By keeping such factors in mind, a court may properly assess a claim determination, giving the claim determination the deference the Supreme Court has mandated be given, but also affording full consideration to the merits of the claim.

Here, the court did just that. Recognizing that the purpose of Kramer’s disability insurance was to provide her with financial protection in the event she became unable to perform the material duties of her occupation, the court looked at the evidence and weighed the consistent and unequivocal opinions of the treating doctors against the conclusory findings made by the doctors offering contrary evidence. Those findings were inconsistent with the objective evidence and the history of the claim; and also failed to appropriately assess Kramer’s functional abilities in relation to her occupational duties.

The Kramer opinion also reflects reason and common sense. The court took into consideration the history of the claim and Unum’s repeated acknowledgment of Kramer’s disability over a five-year period. If the evidence of disability had previously been satisfactory, and the evidence showed that Kramer’s condition was getting worse, the insurer’s determination that she was no longer disabled appeared absurd to the court. The court also focused on Kramer’s occupation and the risk her patients would face if an impaired physician were to perform delicate surgical procedures and deliveries. Nor was the insurer’s surveillance persuasive because it did not show Kramer engaging in the same type of physical activities and maneuvers performed at work; nor were the activities depicted nearly as long in duration. But what is most impressive about this ruling is that the court first looked at the evidence and weighed it from a de novo perspective, and only from that perspective did the court then determine whether a contrary finding would be an abuse of discretion. That approach is what removes claim reviews such as this one from a rubber stamp to a judicial process that truly examines whether the claim decision was ”reasonable and principled.”

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

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