The plaintiff, Gary Rittenhouse, won this case in the district court; however, he suffered a crushing defeat in the Court of Appeals. Rittenhouse, an officer of UnitedHealth Group, began experiencing progressive hearing loss beginning in the 1980s.

In 2002, Rittenhouse’s hearing loss had advanced from moderate to severe, and further deterioration occurred in 2003 at about the time Rittenhouse was laid off from his job after his department was eliminated. Shortly after being terminated from employment, Rittenhouse filed a long-term disability benefit claim in which he described his difficulties hearing on the job, particularly when using the telephone and in meetings.

AIG, the insurer, retained a physician who spoke with Rittenhouse’s treating doctor and summarized that physician’s opinions as indicating that Rittenhouse had ”excellent speech discrimination” and that he could perform his job ”with appropriate accommodations.” Based on the consulting physician’s conclusions from that conversation, the claim was denied.

Rittenhouse appealed and submitted additional evidence, including the granting of a life insurance waiver due to disability and a finding from the social security administration deeming him disabled from performing his regular occupation. Rittenhouse also offered to submit himself to testing and evaluation; however, AIG never sought an evaluation.

Instead, it retained a second consulting physician to review the file, and based on that doctor’s report, the appeal was denied and AIG refused to reopen the claim thereafter when an attorney who had been retained by Rittenhouse submitted additional updated test reports. Litigation ensued.

Rittenhouse v. UnitedHealth Group Long Term Disability Ins. Plan, 2007 U.S.App.LEXIS 3737 (Feb. 21)

The 8th U.S. Circuit Court of Appeals first addressed the standard of review. After acknowledging that the de novo standard of review is the default standard unless the plan contains explicit discretion-granting language, the court determined that the district court erred in applying a de novo standard. Rittenhouse argued that AIG was not entitled to a discretionary standard of review because a different insurer was identified as the plan administrator and benefit insurer. Further, the summary plan description identified UnitedHealth Care Services Inc., and not AIG, as the plan administrator. Although the policy was written by AIG, the court found it was ”rife with ambiguous language.” Nonetheless, under a provision entitled ”Allocation of Authority,” the court cited language stating, ”We [AIG] reserve full discretion and authority to manage the Group Policy, administer claims and interpret all Group Policy terms and conditions.” The court found that language sufficient to trigger abuse of discretion review even though AIG had argued in the district court that different terms, which were far more ambiguous, granted discretion. Only on appeal did AIG cite the allocation of authority language. Despite the usual rule that new arguments cannot be raised for the first time on appeal, the court deemed the argument ”purely legal” and accepted it.

The court then turned to the scope of its review and examined whether the district court properly considered evidence submitted following AIG’s determination of Rittenhouse’s appeal. The evidence consisted of a new hearing test, letters from three treating doctors, and a letter from a former supervisor. AIG refused to consider the evidence, writing to Rittenhouse’s counsel that its appeal determination was final.

The court of appeals explained that in ERISA cases, evidence not contained in the ”administrative record” may be considered only if good cause is shown for the omission. Finding that Rittenhouse failed to explain why he could not have provided the information sooner, the court ruled the lower court had abused its discretion by considering the documents. The court’s rationale was that ”[o]nce the claimant has had a ‘full and fair review,’ the process is complete, and the administrator may close the record and issue a final decision. See Davidson v. Prudential Ins. Co. of Am., 953 F.2d 1093, 1096 (8th Cir. 1992) (‘the administrative [review] process must end at some point,’ i.e., after a ‘full and fair review’).”

Accordingly, the court found AIG was ”justified in closing the administrative record when it did.”

Finally, the court addressed the merits of the dispute. Although Rittenhouse attacked the basis for AIG’s findings, the court found sufficient evidence to support AIG’s conclusion and held that because the evidence was disputed as to ”the extent and timing of Rittenhouse’s hearing impairment, and AIG does not rely primarily on the fact that he continued to work until discharged,” AIG’s findings were not arbitrary and capricious.

Despite the comment quoted above, it appears that the basis for the court’s decision was ”the fact that [Rittenhouse] continued to work until discharged.” However, the court was evidently unaware of the 7th Circuit’s observation on that issue from Hawkins v. First Union Corp. Long Term Disability Plan, 326 F.3d 914, 918 (7th Cir. 2003):

”The plan’s bad argument is that because Hawkins worked between 1993 and 2000 despite his fibromyalgia and there is no indication that his condition worsened over this period, he cannot be disabled. This would be correct were there a logical incompatibility between working full time and being disabled from working full time, but there is not. A desperate person might force himself to work despite an illness that everyone agreed was totally disabling. Perlman v. Swiss Bank Corp. Comprehensive Disability Protection Plan, 195 F.3d 975, 982-83 (7th Cir. 1999); Wilder v. Apfel, 153 F.3d 799, 801 (7th Cir. 1998); Wilder v. Chater, 64 F.3d 335, 337-38 (7th Cir. 1995); Jones v. Shalala, 21 F.3d 191, 192-93 (7th Cir. 1994). Yet even a desperate person might not be able to maintain the necessary level of effort indefinitely. Hawkins may have forced himself to continue in his job for years despite severe pain and fatigue and finally have found it too much and given it up even though his condition had not worsened. A disabled person should not be punished for heroic efforts to work by being held to have forfeited his entitlement to disability benefits should he stop working.”

Particularly since Rittenhouse would have known that his unit was being shut down, as a leader, he would naturally have wanted to direct that process to the end despite his hearing difficulties.

Further, the contention that Rittenhouse could have worked with reasonable accommodations was also not a tenable basis for denying benefits. Saffle v. Sierra Pacific Power Company Bargaining Unit Long Term Disability Plan, 85 F.3d 455 (9th Cir. 1996) remains the leading authority for the proposition that unless the benefit plan explicitly allows workplace accommodations to be factored into the disability determination, hypothetical accommodations cannot be considered. The 7th Circuit, as well, has held that a prescription for ”work hardening” does not mean that the claimant is no longer disabled – the program must be successfully completed first. Govindarajan v. FMC Corporation, 932 F.2d 634 (7th Cir. 1991).

Turning to the issues analyzed by the court, though, the 8th Circuit’s conclusion both as to the standard of review and with respect to the scope of review have disturbing implications. The allocation of authority language cited by the court means nothing more than that the insurance company, not some other party, will decide claims. As the discussion in Herzberger v. Standard Ins. Co., 205 F.3d 327 (7th Cir. 2000) points out, reserving the authority to decide claims is not the same as making a clear and unambiguous statement about the scope of judicial review. For that reason, Herzberger suggested a formulation that would unmistakably signal the intent to trigger a deferential standard of review: ”Benefits under this plan will be paid only if the plan administrator decides in his discretion that the applicant is entitled to them.” 205 F.3d at 331.

Insurers administering benefit plans governed by the ERISA law have known since the Supreme Court issued Firestone Tire & Rubber v. Bruch, 489 U.S. 101 (1989) what they are required to show; the failure to write the appropriate language into the plan, nearly 20 years after Bruch, should not lead a court to strain to find discretionary authority. This point was driven home even more explicitly in both Reilly v. Standard Ins. Co., 2004 U.S.Dist.LEXIS 18313 (N.D. Cal. 2004), and in Bode v. St. Joseph’s Health Systems, 298 F. Supp.2d 918, 920 (C.D. Cal. 2003), where a section of the policy titled ”allocation of authority,” which incorporated language similar to the one at issue in this case was found insufficient to justify departure from the default de novo standard of review in ERISA cases.Reilly explains:

”In this case, the relevant language in the section of the Policy entitled ‘Allocation of Authority’ does not expressly give Standard discretionary authority in making benefit eligibility determinations – indeed, the word ‘discretion’ is never even used. Rather, the language only allocates to Standard the full and exclusive authority to administer claims, including the right to determine entitlement to benefits and the amount of information it may reasonably require to determine entitlement to benefits. Exh. A at 00035. As the 9th Circuit has squarely held, however, ‘an allocation of decision-making authority … is not, without more, a grant of discretionary authority in making those decisions.’ [Ingram v. Martin Marietta Long Term Disability Income Plan for Salaried Employees of Transferred GE Operations, 244 F.3d 1109, 1112-13 (9th Cir. 2001)]; see also Bode v. St. Joseph’s Health Systems, 298 F. Supp.2d 918, 920 (C.D. Cal. 2003). Indeed, in Bode, the Court found that the exact language at issue here did not satisfy the standard inIngram for expressly conferring discretionary authority upon the Administrator. It further found thatIngram, which post-dates the case relied on by defendants – Bendixen v. Standard Ins. Co., 185 F.3d 939 (9th Cir. 1999) – controls in this case.”

Had the court in Rittenhouse similarly concluded that the de novo standard of review applied, there would have been no reasonable basis to dispute the scope of the record under consideration. In the seminal 4th Circuit ruling issued in Quesinberry v. Life Ins. Co. of North America, 987 F.2d 1017, 1027 (4th Cir. 1993), additional evidence is properly considered in ERISA claims adjudicated under the de novo standard of review in the following circumstances:

”[C]laims that require consideration of complex medical questions or issues regarding the credibility of medical experts; the availability of very limited administrative review procedures with little or no evidentiary record; the necessity of evidence regarding interpretation of the terms of the plan rather than specific historical facts; instances where the payor and the administrator are the same entity and the court is concerned about impartiality; claims which would have been insurance contract claims prior to ERISA; and circumstances in which there is additional evidence that the claimant could not have presented in the administrative process.”

Almost all of those exceptions would have been applicable in this case as well.

While the court here was concerned about maintaining the integrity of the ”administrative record,” despite the widespread use of that term in ERISA cases, it is a misnomer to view ERISA claim records in the same manner as administrative records. Given the absence of the due process procedural protections found in administrative claims, there is no justification for applying an administrative law paradigm to ERISA cases, as explained in my article, The Paradox of the Misuse of Administrative Law in ERISA Benefit Claims, 37 John Marshall Law Review 727 (2004), which cited to cases such as Herzberger, which recognized the inaptness of an administrative law framework in ERISA civil actions. The evidence presented here was relevant and probative and gave the treating doctor a chance to explain or refute the comments that had been attributed to him. As one court noted in a comparable circumstance: ”Little significance can be attributed to Dr. Avin’s unresponsiveness to Defendant’s request for comments as the lack of response could as likely be a result of inadvertence or inattention due to other pressing demands in a physician’s schedule.” Brenner v. Hartford, 2001 WL 224826 (D.Md. 2001).

Further, at least one federal appellate court has recognized the potential unfairness of a closed record in ERISA cases and ruled that evidence can be submitted at any time until suit is filed. Vega v. National Life Ins. Services, 188 F.3d 287 (5th Cir. 1999). Such a philosophy is consistent with the remedial purposes of the ERISA statute and the notion that the claimant is entitled to a ”full and fair review” guaranteed by 29 U.S.C. § 1133, not a review that is limited by gamesmanship on the part of the insurer.

I was counsel of record in Herzberger v. Standard Ins. Co.

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

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