In a stinging decision against an arm of the major worker disability insurer Unum Provident Corp., a federal judge charged that the Employee Retirement Income Security Act falls well short of its goals.

The plaintiff, Radford Trust to which a worker’s claim was assigned, brought an ERISA claim on behalf of the trust’s beneficiary, identified as ”Doe,” a former employee of a New York City law firm, alleging a wrongful denial of long term disability benefits. Reviewing the claim as a ”case stated” based on the parties’ stipulation that it could do so, the court reviewed the claim record as an evidentiary submission, weighing the evidence and drawing reasonable inferences in order to render findings of fact and conclusions of law in accordance with Federal Rule of Civil Procedure 52. Radford Trust v. First Unum Life Insurance Company of America, 321 F.Supp.2d 226 (D. Mass. 2004).

The claim related to disability due to schizophrenia. During a period of remission in that illness, Doe successfully completed law school and began working as an associate at a law firm in 1998.

Shortly after he began work as an attorney, however, the symptoms returned, and Doe was unable to perform his work satisfactorily. Consequently, Does employment was terminated in April 1999, although he remained on the payroll through June 30, 1999, which included payment of premiums for long-term disability through that date.

However, Unum disputed whether Doe remained an active employee through the end of June, although time sheets showed both billable and non-billable hours through May 21, 1999. As a result, the court determined that Doe was actively employed through May 21, 1999.

There was also a dispute as to whether the plaintiff’s symptoms were sufficiently acute to cause disability while he was still employed. The plaintiff contended that his schizophrenia prevented him from working; however, he did not mention his schizophrenia to a doctor until May 1999, when he visited his internist to complete immunization forms; actual psychiatric treatment did not start, though, until late June 1999, and Unum contended that the June 22, 1999, date was the first date he could be considered disabled, which was after Doe ceased active employment. However, the court determined that disability began by April 20, 1999; and that Doe was unable to work due to his disability.

Unum conducted two medical reviews of the claim: both of which concluded that while a current disability was supported, Doe was not under the care of a doctor on the alleged date of onset; and coverage had terminated by the date disability was supported. Doe’s appeals were unavailing.

On judicial review, the court first explained the standard of review. Following Recupero v. New England Telephone & Telegraph Co., 118 F.3d 820 (1st Cir. 1997), the court explained that all ERISA benefit decisions are reviewed de novo; however, where the plan grants discretion, the question is whether the decision was reasonable. If no discretion is granted, the question is whether the decision was correct.

The court then explained the procedure it would follow:

”ERISA cases based solely or even primarily on the administrative record are thus uniquely fit for pretrial resolution. In fact, when an arbitrary and capricious standard of review applies and review is based solely on an agreed administrative record, summary judgment ‘is merely a mechanism for tendering the issues and no special inferences are to be drawn in favor of a plaintiff resisting in summary judgment.’ Liston, 330 F.3d at 24. In cases where a de novo standard of review applies, however, the ordinary summary judgment standard applies. See Hughes v. Boston Mutual Life Insurance Co., 26 F.3d 264, 268 (1st Cir. 1994); see also Golden Rule Insurance Co. v. Atallah, 45 F.3d 512, 517 n. 6 (1st Cir. 1995) (noting that Hughes applied the summary judgment standard in such a case). Under that standard, the court would have to view the evidence in the light most favorable to the non-moving party and draw all reasonable inferences in its favor. Eastman Kodak Co. v. Image Technical Services Inc., 504 U.S. 451, 490, 119 L.Ed.2d 265 (1992).”

Seeking to avoid misuse of summary judgment by resolving issues of fact, the court held that as an alternative, with the parties’ stipulation, it could decide the case on the record without applying a summary judgment standard. Next, before addressing the merits of the dispute, the court discussed the societal importance of private disability insurance to prevent disability from leading to poverty. The court pointed out the risks of relying on private disability insurance, though:

”Although the profit motive drives companies toward efficiency, it creates a substantial risk that they will cut costs by denying valid claims. The market is somewhat inapt to punish insurers for engaging in such practices, particularly if the denials are not too flagrant, because the complexity of the insurance market and the imperfect information available to consumers make it difficult to determine whether an insurer is keeping its costs down through legitimate or illegitimate means. An individual claimant who encounters an insurance company that is disposed to deny valid claims must struggle to vindicate his rights at a time when he is at his most vulnerable. Often a newly disabled person will simultaneously confront increased medical bills and either termination of employment or diminished pay.”

Thus, the court found it was the judiciary’s responsibility to act as a ”check on these potential abuses.” However, the ERISA law limits the power of the courts by limiting judicial review of benefits decisions in a manner similar to ”judicial review of governmental agency action, even though, unlike officials in governmental agencies, administrators and fiduciaries are not answerable to the public or to elected officials.” Because the courts have essentially eliminated jury trials, the judge decried the removal of ”one of the most important guarantees of fairness in the judicial process.”

”Without juries,” he added, ”the pursuit of justice becomes increasingly archaic, with elite professionals talking to others, equally elite, in jargon the eloquence of which is in direct proportion to its unreality. Juries are the great leveling and democratizing element in the law. They give it its authority and generalized acceptance in ways that imposing buildings and sonorous openings cannot hope to match. Every step away from juries is a step which ultimately weakens the judiciary as the third branch of government.”

Consequently, the court explained, ”to the extent that a judge decides an ERISA case differently than would a jury from the community, he may well be producing a factually erroneous result, likely to the detriment both of individual claimants particularly and of the integrity of the private disability insurance system generally.”

Turning to the merits, the court first rejected Unum’s claim that Doe’s release of his employer released his benefit claim as well. First, the defense of release was not pleaded as an affirmative defense; thus, it was waived. However, the court also found the defense without merit as a matter of law since Unum was not a party to the settlement between Doe and his employer.

The court next ruled that it was inconsistent with the policy for Unum to assert that Doe could not qualify for benefits because he was not being treated for his disability at the time he alleges the disability commenced. The court interpreted the policy to mean only that ”once a claimant had established disability and eligibility for receipt of benefits, to continue to receive benefits she had to continue to see a doctor and to submit proof of her visits to the company, in order to show that she remained eligible. First Unum could not rely on this provision to argue that failure to visit a doctor before active employment ended rendered an employee ineligible for benefits.” The court was critical of the insurer for importing ”the idea of regular attendance of a physician into the definition of ‘disabled,’ thus conflating the two provisions.”

The court further explained the absurdity of a requirement that the insured has to be under a doctor’s care at the time disability begins:

”Coverage under the policy terminated when active employment ceased. It is not uncommon for a disability to lead to the cessation of active employment, and unfortunately, it is far from unheard of for a company, in good faith or otherwise, to fire an employee when he becomes disabled. The availability of benefits under the policy cannot turn on the accident of whether the insured was fortunate enough to get to see a doctor before employment terminated. In many cases, even if an insured sought a doctor’s appointment immediately upon becoming disabled, there is no guarantee that the doctor could schedule him promptly. Moreover, given that employment termination is more likely to occur swiftly after the onset of a major disability than after the onset of a minor one, First Unum’s interpretation would make the most severely disabled the least likely to receive coverage. These are precisely the people whom the policy was most designed to protect, and often their impairments are the easiest to verify.”

The court further found that Doe was fired because his medical condition made him unable to perform the material duties of his regular occupation. Thus, the court determined:

”Under First Unum’s argument, a schizophrenic employee could not become ‘disabled’ until the moment he stopped working. Of course, if he had not yet seen a doctor regarding his condition, First Unum believed that he would become forever ineligible for benefits the moment he stopped working. This could not possibly be the correct interpretation of the policy.”

The court then unleashed an attack on Unum in general:

”First Unum’s conduct in denying Doe’s claim was entirely inconsistent with the company’s public responsibilities and with its obligations under the policy. This is not the first time that First Unum has sought to avoid its contractual responsibilities, and an examination of cases involving First Unum and Unum Life Insurance Company of America, which like First Unum is an insuring subsidiary of Unum Provident Corp., reveals a disturbing pattern of erroneous and arbitrary benefits denials, bad-faith contract misinterpretations, and other unscrupulous tactics. These cases suggest that segments that have run in recent years on ’60 Minutes’ and ‘Dateline,’ alleging that Unum Provident ‘regularly declines disability claims as a way of boosting profits,’ may have been accurate. See Edward D. Murphy, ‘Unum Corp. Retirees Feeling a ”Sense of Loss,” ‘ Portland Press Herald, Apr. 29, 2003, at 1C.

”This court cannot tell whether First Unum and other Unum Provident companies are considered pariahs in the industry, or whether their ability to retain customers is a result of low prices, market inefficiency or other factors. In either case, employers have a duty to select insurers for their employees with care, and to avoid hiring insurers with reputations for shoddy and hostile claims administration, although it may well be that suits based on violation of this duty are preempted under ERISA.”

The court also rejected Unum’s request for a remand. Following Cook v. Liberty Life Assurance Co., 320 F.3d 11 (1st Cir. 2003), the court held it had ”remedial discretion [regarding remand] regardless of whether the case involves denial or termination of benefits.” Accordingly, benefits were awarded along with prejudgment interest at the state statutory rate, along with attorney fees.

This ruling is a potent indictment of the Unum Provident Corp., although the decision offers even a stronger criticism about the failures of the ERISA law to promote social welfare. Chief U.S. District Judge William G. Young was obviously incensed by what he viewed as improper conduct by a particular insurance company, though, and his catalog of cases raising similar concerns will no doubt be cited with frequency by plaintiff attorneys.

One of the cases mentioned by the court as an example of prior Unum bad-faith conduct was Newman v. Unum, 2000 WL 1593443 (N.D. Ill. 2000), which bears great similarity to Radford Trust. There, too, Unum attempted to argue that because the insured was not being treated for a mental disorder at the time of his alleged onset of disability (the day of Newman’s job termination), the claim was not covered. However, U.S. District Judge Robert W. Gettleman ruled that since all of the evidence pointed to an onset of disability as of that date, the plaintiff satisfied the ”care of a physician” clause because he was being treated by a doctor when he submitted his disability claim.

A similar conclusion was reached in Kaplan v. Northwestern Mutual Life Insurance Co., 115 Wn.App. 791, 65 P.3d 16, 2003 Wash.App.LEXIS 270 (Feb. 24, 2003) (published in part), as well as in Eichhacker v. Paul Revere Life Insurance Co., 354 F.3d 1142 (9th Cir. 2004), where the court held that due to an unbroken chain of causation, the insured’s initial treatment by a psychiatrist after the alleged disability onset date did not disqualify the plaintiff from receiving benefits.

The most interesting part of the ruling, though, was the court’s discussion about the social value of disability insurance and the function of the judiciary in overseeing the behavior of private disability insurers. The court’s open questioning of a deferential standard of review and an unjustifiable denial of a jury trial right will perhaps open a debate on these issues, which are both creations of the courts, even though Judge Young only blamed the judiciary for denial of jury trials.

Because the ERISA law is silent about standards of review or court procedures, it is obvious that the wholesale importation of administrative law was a mistake that needs to be fixed since, as the court pointed out, insurers lack the expertise and accountability of administrative agencies, nor are claimants afforded the same due process protection that they would receive before an agency such as the Social Security Administration.

Young quite appropriately expressed doubts about what other courts have too easily accepted. Perhaps more judges will join him in asking the same questions, including the fundamental question as to why persons insured under ERISA plans receive significantly less security than they receive under privately purchased policies when the ERISA law was enacted to provide even more protection.

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

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