Should courts be giving deference to benefit decisions made by insurance companies? Although the U.S. Supreme Court ruled in Firestone Tire v. Bruch, 489 U.S. 101 (1989), that deference was permissible in Employee Retirement Income Security Act (ERISA) benefit claims disputes, the court pointed out that the default standard of adjudication should be de novo, which means a court weighs the evidence afresh and gives equal consideration to both plaintiff and defendant.

Nonetheless, Firestone unleashed a veritable land rush of insurance companies quickly amending their policies to include the magic words that would trigger their highly prized deferential standard of review.

The Supreme Court revisited the issue in Metro. Life Insur. Co. v. Glenn, 554 U.S. 105 (2008), which found that even if deference is mandated by the benefit plan terms, courts should take into consideration the conflict of interest that exists when the same entity both administers and funds the benefits plan.

A recent 8th U.S. Circuit Court of Appeals ruling, Carrow v. Standard Ins. Co., 2012 U.S.App.LEXIS 604 (Jan. 11, 2012), reveals the profound impact of deferential review. The plaintiff, Don Carrow, was a technical sales representative who became disabled following complications of hip-replacement surgery. Although Carrow was able to temporarily return to work following a second operation, a cascade of other maladies involving his hips, back and knees as well as neuropathy, caused him to cease working altogether a few months later. A new disability claim was approved in 2006 and Carrow was also awarded Social Security disability benefits, a federal program with statutory qualification standards requiring claimants to prove their inability to work at any job.

Standard Insurance Co.’s disability payments continued for 24 months, but at the end of that period, the insurance policy’s definition of disability became more stringent and required Carrow to demonstrate an inability to work at any job he was suited to perform. Although Carrow met an even more rigorous test for Social Security, Standard claimed that Carrow could work and terminated his benefits.

Carrow appealed, but Standard upheld its determination after a physician’s file review concluded he should be able to perform sedentary work. Carrow’s treating doctor responded that in addition to his orthopedic and neurological problems, Carrow had also developed cardiovascular disease and gout as well as a sleep disorder. The treating doctor also pointed out that while none of Carrow’s ailments may have been disabling “in and of themselves,” when viewed in combination, Carrow could not perform even sedentary work. Standard disagreed and upheld its denial following a subsequent file review.

Both the district court and the appellate court upheld the insurer’s finding. The appellate court pointed out the insurer’s finding was entitled to be accorded “considerable discretion.” Although Carrow argued the examination findings deemed him disabled, the court pointed out that its precedent allowed the insurer to rely on reports of non-examining physicians. Thus, even though Standard had the right to compel Carrow to undergo an examination but deliberately chose not to do so, the court of appeals gave the reports of the non-examining doctors more weight than the findings of the treating physicians, regarding those reports as “substantial evidence” establishing the reasonableness of the insurer’s determination.

The court rejected the plaintiff’s arguments about conflict and bias and suggested that none of Standard’s consultants had financial ties to the insurer even though discovery showed one of the reviewing doctors had received about $80,000 in compensation during the year the claim arose, while another consultant was paid about $180,000 that year. The court also gave little consideration to the Social Security finding, explaining: “Plan administrators are not bound by SSA findings of disability.”

The ruling in Carrow is brief, so it is difficult to determine whether there were other inconsistencies in the evidence that might have led the court to question the plaintiff’s credibility. From the evidence discussed in the opinion, though, this was a valid claim presented by a claimant who suffered from multiple physical impairments affecting his cardiovascular, musculoskeletal and nervous systems. It is hard to imagine what kind of work Carrow could perform and the Social Security Administration objectively found him unemployable.

This ruling bucks a growing trend. Despite the high level of deference utilized in ERISA cases, there has been increasing skepticism expressed about insurers’ reliance on reviewing doctors and the courts have begun giving more weight to Social Security findings. See, e.g., Montour v. Hartford Life & Accid. Ins. Co. 588 F.3d 623 (9th Cir. 2009); Salomaa v. Honda Long Term Disability Plan. 642 F.3d 666 (9th Cir. 2011); Holmstrom v. Metro. Life Ins. Co. 615 F.3d 758 (7th Cir. 2010);Evans v. Unum Provident Corp. 434 F.3d 866 (6th Cir. 2006).

Regardless of one’s views about the propriety of deferential reviews, it is obvious that such reviews will remain a part of employee benefit claim disputes absent an act of Congress or a complete reversal by the Supreme Court.

However, there is a way of putting more teeth into the review process that would meet Glenn’s emphasis on the importance of achieving accurate claim determinations. Instead of simply accepting the non-examining doctors’ reports as substantial evidence, such reports should be rejected as inadmissible hearsay unless the claimant is given the right to cross-examine the doctors who author such reports.

Since ERISA litigation is conducted like judicial review proceedings in administrative law, taking guidance from that area of the law, courts might consider applying Richardson v. Perales, 402 U.S. 389 (1971) within the context of ERISA. In normal civil litigation, doctor reports are deemed hearsay, but according to Perales, in administrative law, such reports may be admissible, but only if the doctor has utilized standard clinical examination techniques and the doctor is available for cross-examination.

So long as the courts defer to insurers’ findings, wouldn’t it be fairer to claimants, more consistent with the salutary purposes of ERISA and give courts more confidence that they have adequately performed their judicial function by adopting the requirements of Perales?

Note: I represented the plaintiff in the Holmstrom case.

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