McCauley v. First Unum Life Ins. Co., 2008 U.S.App.LEXIS 26094 (2d Cir. Dec. 24), recently issued by the 2d U.S. Circuit Court of Appeals, is the first major appellate ruling to fully appreciate the impact of Metropolitan Life Insurance Co. v. Glenn, 128 S. Ct. 2343 (2008), in evaluating benefit claim denials under ERISA. The plaintiff, John McCauley, was working as a tax lawyer for Sotheby’s when he was diagnosed with advanced colon cancer in 1991. McCauley underwent surgery and received intensive chemotherapy which saved his life but unfortunately triggered a number of other severe health problems resulting in his having to quit work altogether in 1994 and apply for disability benefits. When Unum denied the claim, McCauley filed suit and was ultimately successful in the Court of Appeals.
In its ruling, the court extensively discussed the impact of the Supreme Court’s Glenn decision, which found that a plan administrator that both evaluates and pays benefits claims acts under a conflict of interest. The 2d Circuit cited the Supreme Court’s rationale: ”[i]n such a circumstance, every dollar provided in benefits is a dollar spent by the employer; and every dollar saved is a dollar in the employer’s pocket. The employer’s fiduciary interest may counsel in favor of granting a borderline claim while its immediate financial interest counsels to the contrary. Thus, the employer has an interest conflicting with that of the beneficiaries, the type of conflict that judges must take into account when they review the discretionary acts of a trustee of a common-law trust.”
Despite the existence of a conflict, though, the Supreme Court ruled that the standard of review is unaltered. However, the court held: ”[W]hen judges review the lawfulness of benefit denials, they [should] take account of several different considerations of which a conflict of interest is one.” The weight given the conflict varies based on circumstances that ”suggest a higher likelihood that [the conflict] affected the benefits decision” such as cases where the plan administrative ”has a history of biased claims administration.”
Applying Glenn, the court found Unum’s initial rejection of McCauley’s claim was reasonable since it referenced medical records showing that the cancer was stable. However, in appealing the benefit rejection, McCauley submitted a memorandum summarizing his doctors’ opinions that he was not disabled due to cancer, but was unable to work due to the medical issues triggered by the cancer treatment. McCauley’s physicians explained that his acute renal impairments precluded work at any level, and that his vascular sclerosis, which was triggered by the chemotherapy, resulted in severe chronic headaches causing ”an inability to focus eyesight and a lack of concentration.” McCauley also suffered from marked fatigue due to persistent insomnia, as well as constant severe pain.
Despite this evidence, a nurse reviewer at Unum rejected the application again, claiming that no new medical evidence had been submitted. The court deemed that finding ”unreasonable and deceptive,” adding that Unum’s rejection of the claim ”mischaracterizes the quality and detail of the evidence McCauley had submitted on appeal.” The court thus considered Unum’s conduct as having been ”plainly exacerbated” by a conflict of interest, explaining, ”for what else would have influenced First Unum to avoid following up on simple inquiries prompted by McCauley’s June submission?” The court found that at a minimum further investigation was required – which was never done. Instead, Unum relied on its nurse’s review and disregarded McCauley’s submission, actions the court found akin to Glenn’s finding of an abuse of discretion when MetLife ”emphasized a certain medical report that favored a denial of benefits [and] had de-emphasized certain other reports that suggested a contrary conclusion.”
Finally, the court pointed to another relevant consideration cited in Glenn – a history of biased claims administration. The court related:
”First Unum is no stranger to the courts, where its conduct has drawn biting criticism from judges. A district court in Massachusetts wrote that ‘an examination of cases involving First Unum … reveals a disturbing pattern of erroneous and arbitrary benefits denials, bad faith contract misinterpretations, and other unscrupulous tactics.’ Radford Trust v. First Unum Life Ins. Co., 321 F. Supp. 2d 226, 247 (D. Mass. 2004), rev’d on other grounds, 491 F.3d 21, 25 (1st Cir. 2007). That court listed more than thirty cases in which First Unum’s denials were found to be unlawful, including one decision in which First Unum’s behavior was ‘culpably abusive.’ … Also, First Unum’s unscrupulous tactics have been the subject of news pieces on ’60 Minutes’ and ‘Dateline,’ that included harsh words for the company…. First Unum has fared no better in legal academia. See John H. Langbein, Trust Law as Regulatory Law: The Unum/Provident Scandal and Judicial Review of Benefit Denials Under ERISA, 101 Nw. U. L. Rev. 1315 (2007). In light of First Unum’s well-documented history of abusive tactics, and in the absence of any argument by First Unum showing that it has changed its internal procedures in response, we follow the Supreme Court’s instruction and emphasize this factor here.”
Thus, the court found Unum’s determination arbitrary and capricious and awarded benefits to McCauley.
This ruling from the influential 2d Circuit should significantly help to put an end to courts’ willingness to almost blindly defer to claim decisions made by insurers. In addition to the description of Unum’s biased history, the Supreme Court’s Glenn ruling noted MetLife’s comparable history; and like the stories about Unum’s conduct on ”60 Minutes” and ”Dateline,” ”Good Morning America” ran stories in April and June 2008 describing similar conduct by CIGNA. It would thus be a mistake to limit to Unum the list of insurers falling within the category of those with a history of biased claims administration. As Professor John Langbein pointed out:
”Unum could be such an outlier that the saga lacks legal policy implications. On this view, a rogue insurance company behaved exceptionally badly, it got caught and was sanctioned, and its fate should deter others. The other reading of these events is less sanguine: [C]onflicted plan decision making is a structural feature of ERISA plan administration. The danger pervades the ERISA-plan world that a self-interested plan decision maker will take advantage of its license under [Firestone v.]Bruch [489 U.S. 101 (1989)] to line its own pockets by denying meritorious claims. Cases of abusive benefit denials involving other disability insurers abound. Unum turns out to have been a clumsy villain, but in the hands of subtler operators such misbehavior is much harder to detect.” Langbein, Trust Law As Regulatory Law: The Unum/Provident Scandal And Judicial Review Of Benefit Denials Under Erisa, 101 Nw. U.L. Rev. 1315, 1321 (2007).
Professor Langbein’s article was cited repeatedly in Glenn, and was also cited in this ruling as well as another recent district court decision that mirrors the conclusions reached in this case, Ettel v. Unum Life Ins. Co. of America, 2008 U.S.Dist.LEXIS 103419 (W.D.Wash. December 10, 2008). The point being made is that it is antithetical to the pro-claimant philosophy of ERISA expressed in 29 U.S.C. section 1001(b) to give self-interested insurers unfettered discretion to decide benefit claims. The 2d Circuit has clearly recognized that the regime of lenient reviews of benefit claim is over; and it’s time for the other circuits to follow suit.
This article was initially published in the Chicago Daily Law Bulletin.