The main lesson taught by a recent federal court ruling issued in Florida, Wilson v. Walgreen Income Protection Plan, 2013 U.S.Dist.LEXIS 62021 (M.D.Fla. April 29, 2013), is that the Employee Retirement Income Security Act (ERISA) imposes duties of good faith and fair dealing that preclude deceptive and unreasonable claim handling tactics.

The plaintiff, Deborah Wilson, was employed at Walgreens as a staff pharmacist until 2010, when she ceased working due to spinal impairments caused by chronic lower back problems that had begun in 2004.

Despite undergoing surgical intervention at that time, Wilson’s problems worsened over the following years to the point where she could not longer tolerate the standing and walking required by her occupation. After failed efforts to improve her pain with conservative treatment, Wilson underwent a second, more extensive, back surgery in 2010, which involved a two-level fusion. Unfortunately for Wilson, her problems were not resolved and her treating doctors deemed her disabled.

After she could no longer work, Wilson initially applied for short-term disability benefits from her employer. Walgreens utilized a third-party administrator, Sedgwick, to adjudicate claims under both its short-term and long-term disability programs. The short-term disability claim was incrementally approved for a total of six months, the maximum duration for such benefits, and Wilson was advised to apply for long-term disability benefits.

The long-term disability claim was also initially approved and continued in increments of several weeks to a month until January 2011, when Wilson was notified her benefits had been retroactively terminated as of December 2010.

Sedgwick based its determination on a file review that concluded Wilson was able to work, although the reviewing doctor offered no opinion specific to Wilson’s occupation even though the governing standard was whether she was unable to perform her regular occupational duties. Wilson appealed that decision, submitting updated medical records and reports. However, Sedgwick obtained additional file reviews concurring with the original review.

None of the reviewing doctors were furnished with all of Wilson’s treatment notes, though. Moreover, none of the doctors furnished an occupation-specific opinion. Based on the file reviews, Sedgwick upheld its determination.

Wilson then submitted a second appeal, providing Sedgwick with updated records and also including a fully favorable Social Security disability benefit determination. Sedgwick assigned two new reviewing doctors to review the medical data and offer their opinions with respect to Wilson’s employability.

One of those doctors found Wilson was not disabled, while the other, Dr. Charles Brock, authored a report in February 2011 finding the plaintiff disabled due to persistent pain and recommending a re-evaluation in two months. Based on that report, benefits were reinstated, however, Sedgwick construed Brock’s report to support a conclusion that benefits were not payable for more than two months after he furnished his opinion.

The court overturned Sedgwick’s decision.

The court first looked at the case from a de novo perspective in accordance with a procedure unique to the 11th U.S. Circuit Court of Appeals pursuant to Williams v. BellSouth Telecomms., Inc., 373 F.3d 1132 (11th Cir. 2004). The court found the record contained ample evidence supporting Wilson’s disability claim – MRI, X-ray and other findings confirmed the plaintiff’s diagnosis and the fact she underwent two spine surgeries was persuasive to the court, as was the Social Security finding.

The court then ruled it did not have to go any further in its analysis to assess the claim from an abuse of discretion perspective because the defendants failed to prove that Sedgwick was properly vested with discretionary authority. The only “plan document” introduced into evidence was a summary plan description. Based on Cigna Corp v. Amara, 131 S.Ct. 1866 (2011), the court found the plan description could not imbue Sedgwick with discretionary authority because only the plan itself contains operative plan terms. Thus, although the plan purported to grant Sedgwick discretion, the court found that document was ineffective to trigger a deferential review.

The court explained that ERISA requires that employee benefit plans be established pursuant to a written instrument containing mandatory provisions describing funding, allocation of responsibilities for the operation and administration of the plan, procedures for amending plans and provisions setting forth the basis upon which payments are made to and from plans.

Since the plan introduced into evidence failed to conform to all of those requirements, the court ruled that Sedgwick, the party that administered the plan’s benefits and rendered the claim decision, lacked discretionary authority as a plan administrator or fiduciary.

However, the court added that even if discretion was properly granted, Sedgwick abused its discretion. The court pointed to several grounds supporting that conclusion: The failure to provide the consultants with all of the medical evidence, the performance of a selective review of the evidence, the arbitrary rejection of clear medical evidence as well as Sedgwick’s disregard of the Social Security determination after it had encouraged the plaintiff’s application for Social Security benefits.

The court also criticized the plan’s tactic of denying benefits based on the claimed absence of sufficient proof when the plan never provided notice of Sedgwick’s unannounced decision to reinstate benefits and then terminate them again as of a date prior to the claim decision.

Finally, the court pointed to Sedgwick’s disregard of its own claim procedures. Despite promulgating extensive claim management procedures, Sedgwick ignored its own internal requirement that once it approves a claim, “peer review medical doctors should be asked if the claimants’ medical condition has improved before a determination is made that the claimant is not disabled.” Thus, the court ordered Wilson’s benefits reinstated and awarded fees and prejudgment interest as well.

ERISA’s deferential standard of review can create a climate that encourages corner-cutting despite the Supreme Court’s emphasis in Metro. Life Ins. Co. v. Glenn, 554 U.S. 105, 115 (2008) on the fiduciary obligations imposed on plan administrators, including the need to employer “higher-than-marketplace quality standards.”

This ruling overturned a dubious claim decision finding it wrong both from an even-handed assessment as well as a second view with a thumb on the scale in defendant’s favor. And in subsequent cases, Wilson’s finding that Sedgwick lacks discretionary authority should deter future misbehavior.

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