The relevance of a Social Security disability determination to the outcome of a long-term disability claim has become a hot topic with the courts and insurance regulators. CIGNA and its subsidiary, the Life Insurance Company of North America have been the subject of numerous court rulings as well as a recent regulatory settlement with state insurance departments, as exemplified by our discussion of the ruling issued in Melech v. Life Ins.Co. of North America, 739 F.3d 663 (11th Cir. January 6, 2014). There, the plaintiff, Diane Melech, worked for Hertz Corporation as a station manager until she became disabled in 2007 due to degenerative disk disease in her cervical spine and tendonitis in her right shoulder. After becoming disabled, Melech submitted a claim for disability benefits to the Life Insurance Company of North America (LINA), which denied her claim. Shortly after the denial, Melech was approved by the Social Security Administration to receive Social Security Disability Insurance Benefits; and she notified LINA of the approval. However, LINA denied Melech’s claim appeal without asking her to supply the SSA decision or any of the evidence submitted to Social Security.

Following the denial of Melech’s appeal, she filed suit; however, she lost based on the court’s determination that LINA’s decision was correct based on the record it had available when it rendered its decision. The court of appeals reversed, holding “that LINA had an obligation to consider the evidence presented to the SSA.” The court explained that the “crux” of its holding was the “relationship between LINA’s claim-evaluation process and the parallel SSA process” and the offset LINA gains from the Social Security award based on policy provisions coordinating the two benefits. The court further observed the SSA process does not just result in a payment – “it also may produce additional evidence that is relevant to the claimant’s physical condition and vocational capacity.” In addition, the court recognized that after Melech applied for benefits from CIGNA, she was referred by her insurer to Advantage 2000 Consultants, a vendor hired by LINA under its Social Security Assistance Program, to assist her in obtaining SSDI benefits. And as part of the Social Security process, two independent physicians evaluated Melech at SSA’s request. Based on the reports generated by those doctors, her claim was approved. Although the court of appeals deemed that evidence relevant, the court determined that LINA’s communications to Melech implied that the Social Security evidence was irrelevant to the insurer and that she need not submit that documentation.

The court explained that the general rule in ERISA cases is that courts should not consider evidence that was not presented to the claim administrator. Nonetheless, the court found that “[a]s a matter of common sense, we cannot evaluate LINA’s ultimate decision to deny Melech’s claim without first considering whether the record LINA had before it was complete.” The arbitrary and capricious standard demands that “all relevant factors” be taken into consideration. However, because Melech had the burden of proving her disability, it was not incumbent on LINA to “ferret out evidence in Melech’s or the SSA’s possession.” Moreover, because of the policy provisions that coordinate benefits with SSDI payment; and the insurer’s insistence on Melech’s application for benefits, the court pointed out that it was “troubled by the implication of LINA’s actions in Melech’s case, where it ignored her SSDI application and the evidence generated by the SSA’s investigation once it no longer had a financial stake in the outcome.”

The court took note of the fact that LINA is not a “passive observer” in the Social Security proceeding. Instead, “it tries to actively influence the outcome” of the proceeding and can compel an applicant to apply for benefits by offsetting an “assumed” amount of benefits if the applicant fails to seek SSDI payments. The court also deemed the evidence generated by SSA to be relevant to LINA’s determination; and such evidence could undoubtedly change the result. In any event, such evidence would still lead to a more informed decision to deny benefits under the Policy.” The court added,

In Melech’s case, LINA refused to wait for the SSA evidence, even though it could have relied on that same evidence to protect its SSDI deduction had it decided to pay Melech’s claim. LINA is not free to selectively use evidence in this manner. If LINA had sent Melech to another doctor for an independent evaluation, it could not have ignored the doctor’s opinion simply because it did not serve LINA’s interests. Similarly, having sent Melech to the SSA to seek alternative compensation, LINA was not free to ignore the evidence generated by the SSA process as soon as it no longer had a financial stake in the amount of money the SSA decided to award.

Relying on MetLife v. Glenn, 554 U.S. 105 (2008), as well as DeLisle v. Sun Life Assur. Co. of Can., 558 F.3d 440 (6th Cir. 2009) and Ladd v. ITT Corp., 148 F.3d 753, 756 (7th Cir. 1998), the court deemed it procedurally unreasonable to encourage the Social Security application, provide assistance through a vendor, and then disregard the results.

The court had even more to say:

We are similarly struck by the procedural unfairness created by LINA’s approach. We conclude that LINA’s treatment of Melech’s SSA application is inconsistent with the fundamental requirement that an administrator’s decision to deny benefits must be based on a complete administrative record that is the product of a fair claim-evaluation process.

The court therefore remanded the case to the district court to remand to LINA to reconsider its decision with the Social Security evidence before it. Surprisingly, Judge Evans, who would have found in LINA’s favor, filed a dissent. The dissent maintained that the plaintiff should have understood LINA’s invitation to submit more evidence to require that she provide the Social Security decision and underlying evidence. Thus, the dissent blamed the plaintiff for the inadequate record and expressed concern “that the majority opinion promotes uncertainty in the already confusing law which surrounds ERISA disability cases.”

Discussion: CIGNA has created a significant amount of difficulty for itself by flagrantly disregarding Social Security findings. Raybourne v. CIGNA Life Ins.Co. of N.Y., 700 F.3d 1076 (7th Cir. 2012) was the culmination of a host of rulings that were sharply critical of CIGNA’s refusal to give consideration to the Social Security findings; and this case carried the issue forward in a manner that places the burden on the insurer to explicitly request the Social Security record. That determination recognizes that most ERISA claim appeals are submitted by laypersons who have no understanding that the record may be limited when the case gets before the court. This ruling also continues a trend started in Helton v. AT&T Inc., 709 F.3d 343 (4th Cir. 2013), where the Fourth Circuit ruled that the scope of review encompasses both the administrative record as well as evidence that was known to or should have been known to the plan administrator. And it ties in the fiduciary obligations expressed by the Supreme Court in Glenn and which was stated even more artfully by the Tenth Circuit in Gaither v. Aetna Life Ins. Co., 394 F.3d 792, 807-808 (10th Cir. 2004) which relied on Gilbertson v. Allied Signal, Inc., 328 F.3d 625 (10th Cir. 2003) in explaining the duties imposed on plan fiduciaries by the ERISA law:

Aetna’s position seems to be that as a plan fiduciary, it plays a role like that of a judge in a purely adversarial proceeding, where the parties bear almost all of the responsibility for compiling the record, and the judge bears little or no responsibility to seek clarification when the evidence suggests the possibility of a legitimate claim. The authority just cited suggests that Aetna has the wrong model. Indeed, one purpose of ERISA was “to provide a nonadversarial method of claims settlement.” (citation omitted). In Gilbertson v. Allied Signal, Inc., we explained what this nonadversarial process should look like:

[ERISA and its implementing regulations require] a meaningful dialogue between ERISA plan administrators and their beneficiaries. If benefits are denied . . . the reason for the denial must be stated in reasonably clear language, . . . [and] 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.

328 F.3d 625, 635 (10th Cir. 2003) (emphasis added)(citation omitted).

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. An ERISA fiduciary presented with a claim that a little more evidence may prove valid should seek to get to the truth of the matter. See Toland, 499 F. Supp. at 1193 (relying on analogous principles governing judicial review of administrative agency decisions).

The issues in Melech are also addressed by CIGNA’s Regulatory Settlement Agreement signed in mid-2013. Exhibit E to the RSA states:

With a commitment to integrity, quality and superior service, we will:

  • Make appropriate decisions by providing a thorough, fair and objective evaluation of all claims.

A critical aspect of the settlement is that according to the RSA, Ex. B, CIGNA must give “significant weight” to the Social Security determination when CIGNA is also provided the underlying claim record. CIGNA thus can no longer employ an ostrich-like approach to Social Security determinations and ignore critical evidence. Between the Melech ruling and the RSA, CIGNA is obligated to give careful consideration to the Social Security determination and underlying evidence; and the RSA contemplates a decision differing from Social Security’s findings only in unusual circumstances such as where later evidence overrides the earlier evidence or where the claimant’s condition is barred as a qualifying disability due to pre-existing condition exclusions or limited by provisions limiting benefits for psychiatric disorders.

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