Employee Retirement Income Security Act civil procedure often departs in significant respects from the normal civil procedure utilized uniformly by federal courts in all civil actions in accordance with the Federal Rules of Civil Procedure. One aspect of ERISA civil procedure that is especially questionable despite its near-uniform acceptance by the federal judiciary is the practice of remanding ERISA benefit cases to the insurer or plan administrator.

After finding error in the claim denial, rather than awarding the claimant benefits, courts mostly give out mulligans that give the plan administrators another crack at denying the claim again.[1]

On the same day the U.S. District Court for the Central District of California ruled in favor of the plaintiff’s claim for ERISA-based disability benefits and refused to remand the case to the insurance company in Tam v. First Unum Life Insurance Co.,[2] the U.S. District Court for the Northern District of Texas on Sept. 30 applied a different approach to remands in Chavez v. Standard Insurance Co.,[3] which took Standard Insurance to task for requesting a remand.

After ruling in favor of the plaintiff earlier this year,[4] in Chavez, U.S. District Judge David Godbey overruled Standard’s objection that the award of benefits issued by the court should not encompass benefits falling within the “any occupation” period. The court determined that Standard waived its argument and thus overruled Standard’s request.

Under the policy in question, a benefit claimant is entitled to 24 months of benefits if he or she is unable to perform the duties of their regular occupation due to sickness or injury. For benefits to continue beyond 24 months, the insured must be incapable of working at any occupation.

Since the judgment previously awarded by the court applied to benefits extending well beyond the “own occupation” period, Standard sought an amendment of the court’s ruling to provide for a remand to Standard to determine Jose Chavez’s eligibility to continue receiving benefits beyond 24 months. The court soundly rejected Standard’s argument, explaining that benefit claimants are not required to follow “a two step benefit process: first, apply for ‘own occupation’ benefits and, second, later apply for ‘any occupation’ benefits.”

Instead, there is merely a single application for long-term disability benefits. The court also faulted Standard for its failure to request a medical examination since the own-occupation period ended on Sept. 21, 2018, and pointed out the insurer “made no administrative determination of ‘any occupation’ disability.”

As a result, the court determined Standard waived its right to determine Chavez’s eligibility to receive benefits under the any-occupation standard, explaining:

Standard knew Chavez in this case was seeking [long-term disability] benefits through the date of judgment. Standard knew nothing in the [summary plan description] required Chavez to make a separate claim for “any occupation” benefits. Standard knew it could request a new physical examination of Chavez to make an “any occupation”  determination of disability. Nonetheless, Standard elected not to take action. These actions constitute a classic example of waiver.[5]

The court made it clear, though, that it was not making a finding that Chavez qualified for benefits under the any-occupation standard. Nor was the insurance company precluded from conducting a review to determine whether Chavez was entitled to any benefits beyond the benefits encompassed by the judgment.

In addition, the court observed that ERISA’s notice requirements supported the waiver finding. Under ERISA, plan administrators are required to give written notice of the specific reasons for such denial of benefits.[6] No such notice was ever provided as to an any-occupation disability determination. Hence, the court concluded:

To permit Standard now to assert that basis for denial when it declined to assert it in the administrative level would violate the purpose of ERISA’s written notice requirement. In essence, when Standard elected not to raise “any occupation” at the administrative level, it in effect “doubled down” on the stated basis of its administrative denial. Having lost that bet, it must now pay up.

The court’s ruling in this case is much like the Central District of California’s ruling in Tam,[7] although the rationale is different. Both cases refused to remand for consideration of a disability benefit determination under the any-occupation standard.

In Tam, though, the court viewed the evidence as persuasive enough to satisfy that more demanding standard. Here, the court viewed the issue as one of waiver. After finding Standard had waived its argument in support of a remand, the only option the court had was to award benefits through the date of judgment.

It is risky for an insurer to stake its entire defense on a procedural issue, because losing on that issue results in a default on any other issue framed by the pleadings. The same thing occurred in the U.S. Court of Appeals for the Second Circuit’s 2002 ruling in Lauder v. First Unum Life Insurance Co. [8] There, the insurer’s only argument was that the insured was no longer covered by the policy on the date of disability. When Unum lost on that issue, it forfeited its right to contest whether the claimant was disabled.

Standard learned a painful lesson here; and in future cases, it can be expected that disability insurers will issue findings as to disability both under the own-occupation definition, as well as the any-occupation yardstick. Since the court proceedings extended well into the any-occupation period, perhaps the outcome would have differed had Standard done so since the court here stated it was not expressing an opinion as to whether Chavez would have qualified as disabled under the more demanding benchmark.

Under the de novo standard of review, though, since the plaintiff sought ongoing benefits, the court had no choice but to address Chavez’s any-occupation disability and could not have ignored the issue or its ruling would have been incomplete and nonfinal.

The court concluded its opinion by stating the party who is in the best position in the first instance to address whether a claimant is disabled under the any-occupation criterion is the plan administrator. While that statement may be true, as Judge Godbey recognized, the failure to fulfill that duty does not entitle the insurer to another bite at the apple.

If that were the case, insurers would have an incentive to routinely cut off disability benefits shortly before the end of the own-occupation period; and if that determination were to be overturned, the insurer would be permitted to start the process all over again. Such a scenario would be terribly unfair to claimants who need disability benefits to maintain their economic wherewithal while they are unable to work.

This ruling sends a message to insurance companies that such shenanigans will not be tolerated by the federal courts; and that the courts will use their authority to adjudicate all of the issues presented by the complaint and not punt on issues they may prefer not to address, sending the case back to the insurance company. If the court renders a finding that a fox is guarding the henhouse, how can it be fair or appropriate to return the chicken to the coop expecting a different outcome?

Mark DeBofsky is a shareholder at DeBofsky Law.

This article was published in Law360 on Novmeber 3, 2020 https://www.law360.com/articles/1323059/erisa-ruling-shows-reluctance-for-disability-claim-remand 

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] See, Fleet v. Independent Federal Credit Union , 2005 U.S. Dist. LEXIS 11778 *8 (S.D. Ind. May 18, 2005)(“If the procedure [of granting remands after overturning benefit denials] were to become routine, it would pose a serious risk of simply allowing ‘Mulligans’ to sloppy plan administrators — at the expense of both the courts and plan participants and beneficiaries.”).

[2] I recently authored a critique of ERISA remands in Law360, calling them extra-statutory and likely unconstitutional: “Disability Claim Ruling Correctly Discredits ERISA Remand,” Law360 (Oct. 20, 2020); available at https://www.law360.com/articles/1320721.

[3] 2020 WL 6255407 (N.D. Tex. Sept. 30, 2020) (no LEXIS available).

[4] Chavez v. Standard Ins. Co. , 443 F.Supp.3d 765 (N.D. Tex. March 10, 2020).

[5] Id. (citation and internal quotations omitted).

[6] 29 U.S.C. § 1133(1).

[7] 2020 U.S. Dist. LEXIS 186477, 2020 WL 5904804 (C.D. Cal. Sept. 30, 2020).

[8] 284 F.3d 375 (2d Cir. 2002).

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