The plaintiff in this case was involved in a tragic sledding accident in 1997 that resulted in the death of the plaintiff’s grandson and severe injuries to himself. Fulayter v. Prudential Insur. Co. of America, 2007 U.S.Dist.LEXIS 8394 (D.Ariz. Feb. 6).

After a significant period of rehabilitation, Fulayter was able to return to work; however, the injuries eventually resulted in Fulayter’s development of degenerative arthritis, along with a number of other impairments, including reflex sympathetic dystrophy, that ultimately caused him to stop working in 2003 due to severe pain for which he was taking Neurontin, ibuprofen, Endocet and Percocet. Fulayter then successfully applied for disability benefits from both Prudential and the Social Security Administration.

However, even though Fulayter’s condition continued to decline, Prudential cut off the benefits at the end of two years when the definition of disability changed and he was required to prove his inability to work at any occupation even though a preliminary review of the claim acknowledged ”chronic intractable pain” and that Fulayter’s impairments were ”progressive in nature” rendering it ”extremely unlikely” that he could secure gainful employment. After exhausting presuit appeals, Fulayter brought suit under the ERISA law.

The court adjudicated the claim under a deferential standard of review requiring that the determination be upheld unless shown to have been arbitrary and capricious.

However, the court explained the deference accorded Prudential’s determination had to be tempered in accordance with Abatie v. Alta Health & Life Ins.Co., 458 F.3d 955 (9th Cir. 2006), which identified circumstances that would require a higher level of scrutiny to diminish the deference accorded the claim decision. In applying Abatie, the court identified three reasons why a higher level of scrutiny was necessary.

First, Prudential had a structural conflict of interest because, as the payor and administrator of benefits, it had an ”incentive” to pay as little as possible in benefits in order to enhance its profitability. Second, the court noted that Prudential relied on new evidence and new reasons for denying the claim after the initial determination had already been rendered, and Fulayter was given no opportunity to respond.

The court characterized this as a ”procedural irregularity” and cited Abatie for the proposition that when ”an administrator tacks on a new reason for denying benefits in a final decision, thereby precluding the plan participant from responding to that rationale for denial at the administrative level, the administrator violates ERISA procedures.” Third, the court applied a higher level of scrutiny due to the insurer’s ”failure to conduct an even-handed investigation of Fulayter’s condition.” The court found the insurer’s selective review of the evidence, ”failed to credit trustworthy evidence of Fulayter’s chronic pain and injury” and ”uncritically accepted even questionable evidence to the contrary.”

The court therefore concluded that the records documenting the severity of the plaintiff’s pain were prevalent; and ”Prudential provides no explanation as to how a fair evaluation of Fulayter’s claim could possibly have disregarded such evidence of disability.”

Moreover, the court examined Prudential’s reviewing doctor reports and found that they ”cherry picked helpful pieces of information while failing to credit substantial documentation showing the severe nature of Fulayter’s condition.” The court also cited examples of Prudential’s ready reliance on questionable hearsay such as an alleged neighbor’s report that Fulayter was mowing his lawn when the record showed Fulayter did not even have a yard.

The court added that Prudential made conclusions with respect to the medical diagnosis that were plainly contradicted by the record such as a conclusion that reflex sympathetic dystrophy had resolved when it was acknowledged the condition was permanent and progressive.

Moreover, the court pointed out that Prudential’s emphasis on selected portions of the record was ”clearly erroneous in light of a broader context of persuasive, contrary evidence.” The court also cited other instances supporting documentation of ongoing, severe pain that Prudential simply ignored, disregarding the findings of ”the only medical personnel who made any direct observations” relating to Fulayter’s condition as supporting the severe pain complaints.

The court then turned to the surveillance evidence and found it inconclusive. Just because the plaintiff could play poker and shop occasionally did not mean he could perform consistent sedentary work, particularly in view of the evidence that the plaintiff required assistance in dressing and grooming, and that his short-term memory was impaired. The court was equally critical of Prudential’s reviewing doctors finding that they apparently did not review all of the records and they simply disregarded the observations of the doctors who had ”directly observed” the plaintiff. Hence, the court concluded:

”In sum, Prudential abused its discretion by concluding that Fulayter can perform sedentary employment. Closely scrutinized, that conclusion was clearly erroneous. The central defect in Prudential’s determination was that it exclusively valued indicia of non-disability, however inaccurate or incomplete or plainly suspect those indicia may have been, and disregarded a broader context of contrary evidence. The evidence disregarded informs the proper interpretation of the evidence on which Prudential relied and establishes that Fulayter is incapable of sedentary employment.”

This decision provides a thoughtful application of what the 9th U.S. Circuit Court of Appeals was trying to get at in Abatie, which acknowledged the Supreme Court’s admonition in Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989), that a conflict of interest is a factor that must always be considered. The 7th Circuit, in Rud v. Liberty Life Assur. Co., 438 F.3d 772 (7th Cir. 2006) presented a contrasting viewpoint, finding that the structural conflict of interest noted by the court in this case is belied by the ubiquity of insurance and that employers would be unlikely to continue paying premiums to an insurer with a ”parsimonious claims granting history” and would find a different insurer. The court also expressed concern about destabilizing freedom of contract if a court could override the discretion written into a benefit plan. Under the 9th Circuit’s standards, though, the court was able to target deficiencies in the claim record that raised doubt and suspicion about the determination made by the insurer.

By weighing the conflict, the court was also able to point out that merely having a medical report is not the same thing as providing a reasoned basis for the conclusions reached in that report. In contrast, the 7th Circuit has adopted a standard in cases governed by the arbitrary and capricious standard of review that ”it is enough, in situations such as this, for the doctors to review the file and render a professional, medical opinion.” Davis v. Unum Life Ins.Co. of America, 444 F.3d 569, 579 (7th Cir. 2006); cert. denied. The opinion provides a graphic illustration of why it is important for a court to be assured of the quality of the report presented and that it accurately evaluates all of the relevant evidence and not just a selected portion of the medical records.

Along the same lines, it cannot be emphasized enough that the ERISA law requires a ”full and fair” review of claims. 29 U.S.C. ‘§ 1133. This means the plan administrator must weigh the evidence both ”for and against.” Halpin v. W.W. Grainger Inc., 962 F.2d 685 (7th Cir. 1992); also see, Crocco v. Xerox Corp., 956 F.Supp. 129, 140 (D. Conn. 1998) aff’d 137 F.3d 105 (2nd Cir 1998) (holding that plan administrator abrogates its duty by abjectly deferring to its consultant without weighing the evidence.)

The court in this case alluded to this by criticizing Prudential for its blind acceptance of its reviewing doctors’ findings without giving equal, and perhaps greater consideration to the clinical findings made by the doctors who actually had first-hand knowledge of Fulayter’s condition.

At the end of the ruling the court also discredited a vocational report obtained by Prudential as not realistically evaluating Fulayter’s ability to work. However, the court’s discussion of that issue could have been expanded. It was apparent that Prudential merely supplied as a predicate to its vocational consultant that Fulayter could perform a sedentary job without restrictions; however, since the evidence showed he could not sit for more than 15 minutes at a time and was in so much pain he could not concentrate or utilize short-term memory, no honest vocational evaluator could have logically concluded that he was capable of working in any capacity whatsoever. Numerous rulings that have explicitly made this point include Spangler v. Lockheed Martin Energy Systems Inc., 313 F.3d 356 (6th Cir. 2002), which, like this ruling, found the insurer ”cherry picked” the evidence and biased the outcome of a vocational review by not supplying all relevant evidence. Also see, Moon v. Unum Provident Corp., 405 F.3d 373 (6th Cir. 2005); Lambert v. CWC Castings Div. of Textron, 255 F. Supp. 2d 739, 743 (W.D. Mich. 2003); and Omasta v. Choices Benefit Plan, 352 F.Supp.2d 1201 (D.Utah 12/23/2004), all of which reached similar findings.

I was counsel of record in the Davis case cited in this column.

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

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