Every claim for group long-term disability benefits requires input from the claimant’s employer. While employers are not typically asked whether they support their employee’s disability claim, in some instances, employers have undermined an employee’s claim by asserting the employee was fired for performance issues rather than acknowledge the employee ceased working due to disability.

A recent federal court ruling authored by U.S. District Judge Douglas Woodlock of the U.S. District Court for the District of Massachusetts is an example of such a situation.

Judge Woodlock’s ruling in Host v. First Unum Life Insurance Co.[1] admonished a disability insurer for accepting an employer’s representations at face value rather than performing an independent investigation consistent with the Employee Retirement Income Security Act’s fiduciary obligations. The court determined the insurance company’s conduct was arbitrary and capricious and awarded benefits to the claimant, bringing an end to a long-running lawsuit.

The court’s ruling went beyond the facts of the case, though, and offered a number of important lessons about ERISA’s fiduciary duties that will be discussed below.

The Host decision involved a disability benefit claim brought by Brian Host, who spent more than 10 years trying to vindicate his entitlement to disability benefits when he suffered a career-ending back injury. Prior to October 2009, Host was employed at the managing director level at Deutsche Bank AG and his successful performance earned him significant annual bonuses on top of his salary.

Host traveled extensively for his work; and his misfortune began at Logan Airport in Boston in October 2009 when he herniated discs in his back and tore the labrum in his right hip while placing a suitcase on a conveyor. Due to the excruciating pain caused by his injury, Host became unable to travel or even work at his desk.

Although Host had received strong positive performance reviews matched by generous bonuses prior to the injury, within days of his injury, internal documentation from the employer recounted by the court showed that senior executives planned to terminate him.

When Host applied for disability benefits, Deutsche Bank’s portion of the claim documentation maintained that Host was terminated for poor performance and not on account of his injury. Relying on that report, Unum denied Host’s claim. In overturning the denial, the court was sharply critical of the insurer for “fail[ing] to conduct even minimal inquiry regarding the employer’s asserted grounds for termination” and awarded Host his past-due benefits, fees and costs.

Unsurprisingly, concurrent with his claim for disability benefits, Host filed a disability discrimination case against Deutsche Bank. Host also filed suit against Unum in 2013 relating to the benefit denial; however, the lawsuit was stayed pending the resolution of the suit against Host’s employer, which settled in 2015.

In 2016, U.S. District Judge George O’Toole, who was overseeing the Unum case in the District of Massachusetts, remanded the matter to Unum for a further investigation into the relationship between Host’s injury and his job loss other than the representations that had been made by Unum.

Unfortunately for Host, Unum came to the same conclusion following the remand and a second round of litigation ensued. The court framed the issue before it as follows:

The question before me then is whether Unum’s decision to continue to deny benefits is reasonable and supported by substantial evidence on the record as a whole. Framed somewhat differently, the question is “[t]o what extent has [Unum] conducted itself as a true fiduciary attempting to fairly decide a claim, letting the chips fall as they may?”[2]

The court began its analysis by chastising Unum for essentially ignoring the prior remand order, which mandated that Unum conduct a more thorough investigation of the inconsistency between Host’s account of his termination and what hat been reported by his employer.

Instead of complying with the prior order, the court observed that “Unum undertook a lackluster pro forma attempt to obtain information from Deutsche Bank — an attempt that proved fruitless due to Unum’s lack of diligence.”

Although Unum had requested further information from Host’s employer, Deutsche Bank’s counsel declined to provide the requested information, citing a confidentiality agreement with the plaintiff, but advised that it would respond to a subpoena.

Rather than serve a subpoena, though, Unum requested an authorization from Host to obtain the information, but failed to exercise due diligence to establish a dialogue with Host’s attorney in order to secure further information. Although Unum tried to place the blame on the plaintiff’s counsel, the court rejected that tactic and found:

Mr. Host’s attorney is not on trial at this point regarding her cooperativeness vel non. The fact is that Unum said it needed additional information from Deutsche Bank to make an informed decision, yet it did not take productive steps to do so, despite reasonable options available and no clear reasons for not pursuing these options — except from all that appears in the record before me to be indolence and pretextual reallocation of responsibility induced by its inherent conflict of interest.[3]

The court focused its findings on ERISA’s fiduciary duties and concluded that Unum’s behavior failed to meet its obligations, noting that had Unum acted as a neutral actor, it would have behaved more diligently since the confidentiality agreement related to the settlement agreement between Host and Deutsche Bank, as well as the other documentation requested, had anything to do with that agreement.

Regardless, the court pointed out that Unum could have easily obtained the information by issuing a subpoena. Unum’s response was that it did not have to issue a subpoena. This argument was based on the hypothetical possibility that Host could have moved to quash the subpoena.

The court disagreed, stating that if Host had objected and his objections were overruled, Unum would have gotten the documents, but if the objections were sustained then Unum would have been satisfied it had no right to those records.

The court further concluded that Unum’s reliance on the employer’s assertions was undermined by internal communications the court quoted in the opinion, which strongly suggested that what Deutsche Bank had asserted was pretextual.

As the court then pointed out, Unum should have understood that the human resources employees it was in contact with would have known that if they admitted Host was terminated due to his disability, then the bank would have been exposed to liability for discrimination. For that reason, the court found it was unreasonable for Unum to have accepted the employer’s representations at “face value with no corroboration.”

The court further observed and concluded that since there was no evidence that Deutsche Bank was considering terminating Host prior to his injury, that serious discussions about terminating him began 10 days after he was injured, and that a decision was quickly reached to do so, Unum’s blind acceptance of the bank’s proffered reason was arbitrary and capricious and showed Unum’s bias.

After finding Unum’s actions arbitrary and capricious, the court discussed the appropriate remedy.

The court declined to remand the matter again based on its finding that Unum abused is discretion, which demonstrated to the court that Unum should not be given a third chance to decide Host’s eligibility to receive benefits since it had already shown it was unable to review his claim honestly and fairly.

The court buttressed that finding by pointing out that Host’s claim had been pending for 10 years and a prior remand resulted in a baseless assertion that Host was responsible for Unum’s own failure to obtain the records it needed to review his claim.

The court thus decided that Host was entitled to the benefits he was seeking based on a preponderance of the evidence. The court found the evidence was extensive and persuasive that Host was terminated on account of his disability and that the employer’s actions should not have led Unum to deny benefits and prevent Host from receiving the benefits he was due.

The court added:

Mr. Host does not need to produce an email stating, ‘Let’s get rid of Brian because he can’t travel anymore’ in order to prove by a preponderance of the evidence that he was laid off because of his injury.

The inference of pretext was so apparent, the court invoked the expression “trout in the milk,” attributed to Henry David Thoreau, who wrote: “Some circumstantial evidence is very strong, as when you find a trout in the milk.”[4]

The court concluded that the inference that Host was terminated due to his injury was so strong that it could be characterized as “a robust school of trout.” The court thus not only ordered Unum to pay Host the benefits he was owed, it also awarded him fees.

There are very clear lessons to be drawn from this ruling.

The first is that ERISA imposes distinct fiduciary obligations on plan administrators. Focusing on the need to render accurate claim determinations, the U.S. Supreme Court’s 2008 ruling in Metropolitan Life Insurance Co. v. Glenn characterized ERISA’s fiduciary obligations as requiring plan administrators to employ “higher-than-marketplace quality standards”[5] when adjudicating claims.

In 2004 in Gaither v. Aetna Life Insurance Co., the U.S. Court of Appeals for the Tenth Circuit described ERISA’s fiduciary duties similarly:

While a fiduciary has a duty to protect the plan’s assets against spurious claims, it also has a duty to see that those entitled to benefits receive them. It must consider the interests of deserving beneficiaries as it would its own.[6]

Likewise, the Tenth Circuit’s 2003 ruling in Gilbertson v. Allied Signal Inc. made it clear that “if the plan administrators believe that more information is needed to make a reasoned decision, they must ask for it. There is nothing extraordinary about this: it’s how civilized people communicate with each other regarding important matters.”[7]

The Host court put two and two together and understood that employers may sometimes misleadingly deny that an employee’s termination was due to their disability. Here, the court inferred that Deutsche Bank did not want to admit it terminated Host due to his injury because that would have been tantamount to a concession that it discriminated against him on account of his disability.

Understanding that such an issue might be lurking in the employer’s communications, the court defined ERISA’s obligations as imposing a duty on the insurer to give the insured’s explanation for his inability to work the same consideration it gave to the employer’s communications.

Although a deferential standard of review requires a court to give deference to the plan administrator’s conclusion, the court explained that “does not mean mindlessly accepting the administrator’s decision.” Instead, the court viewed its duty as making sure the decision was supported by substantial evidence, especially where there is an inherent conflict of interest as there was in this matter since Unum was responsible for paying benefits in addition to deciding the claimant’s eligibility to receive benefits.

Citing the Supreme Court’s Glenn ruling on that issue, the court observed that “these are cases where judges should exercise considered judgment.”[8]

Applying that framework, the court was critical of the insurer’s acceptance of the employer’s statement and disbelief of the claimant in the absence of a further investigation. While the court’s “trout in the milk” expression was quaint, it was also directly on target.

Had Unum investigated further, it would have seen the same circumstantial evidence the court discerned. This is what distinguishes ERISA cases from other cases involving insurance, and imposes a higher standard on plan fiduciaries to fully and fairly evaluate claims and assess the evidence on its own merits rather than basing its determination on the employer’s say-so.

The court was rightfully critical of Unum’s conduct since the insurance company failed to thoroughly investigate the circumstances of Host’s termination as ERISA requires.

Additionally, this case joins a 2004 opinion written by one of Judge Woodlock’s colleagues, Senior U.S. District Judge William G. Young, in exposing a disability insurer’s bad faith conduct in denying disability insurance benefits to a deserving claimant. Judge Young’s opinion was in Radford Trust v. First Unum Life Insurance Co. of America.[9]

More importantly, though, this ruling sends a message to disability insurers that they need to be wary of communications from employers that undermine claims because the employer may have an ulterior motive. Instead, there is a duty to independently investigate each and every claim; and if additional evidence is needed to clear up any discrepancies, the duty firmly rests on the plan administrator and not the claimant to secure such evidence.

Mark D. DeBofsky is a shareholder at DeBofsky Law.

This article was first published by Law 360 on November 8th, 2021.

[1] Host v. First Unum Life Ins. Co., 2021 U.S. Dist. LEXIS 208160 (D. Mass. October 28, 2021).

[2] Citing Lavery v. Restoration Hardware Long Term Disability Benefits Plan, 937 F.3d 71, 79 (1st Cir. 2019).

[3] Citing Metro. Life Ins. Co. v. Glenn, 554 U.S. 105, 111 (2008).

[4] Journal 11 November 1850 (the reference is to the practice of some dairy farmers to water down their milk, which was detectable when the buyer found trout floating in the milk pail).

[5] Glenn, supra., 554 U.S. at 115.

[6] ., 394 F.3d 792, 807-808 (10th Cir. 2004).

[7] Gilbertson v. Allied Signal, Inc., 328 F.3d 625, 635 (10th Cir. 2003), quoting Booton v. Lockheed Medical Benefit Plan , 110 F.3d 1461, 1463 (9th Cir. 1997). [8] Citing Glenn, supra, 554 U.S. at 119.

[9] Radford Trust v. First Unum Life Insurance Co. of America , 321 F.Supp.2d 226 (D.Mass. 2004).

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