Although unpublished, a recent case from the 6th U.S. Circuit Court of Appeals presents a number of significant issues and should be reissued as a published decision.

Houston v. Unum Life Ins.Co. of America, 2007 U.S.App.LEXIS 18553 (July 27).

Houston involved a claimant who worked as a housekeeping supervisor for Ritz-Carlton Hotels for more than 20 years until she had to cease working at age 57 following treatment for breast cancer. Due to side effects from radiation and chemotherapy used to treat her cancer, Houston was unable to return to work and applied for disability benefits. Unum approved both short-term and then long-term disability payments. A year later, Unum reviewed the claim and determined that continued pain and edema justified continuation of Houston’s benefits. However, Unum shortly thereafter characterized Houston’s job as administrative and sedentary in exertional capacity; and even though Houston remained impaired in her ability to lift, Unum determined that she was capable of performing sedentary work and terminated benefits.

Houston appealed and responded directly to the reasons given by Unum for the termination. Her treating doctor completed a physical capacity assessment that restricted her to lifting no more than five pounds at a time; and additional evidence documented clinical observations of edema and ongoing pain treatment. As further support, Houston underwent a comprehensive vocational assessment, which included dexterity testing that showed an inability to reach with her right dominant arm and deficient dexterity due to pain. The evaluator also reported the plaintiff had difficulty sitting, standing or walking for prolonged periods of time. Thus, based on the clinical evidence and the vocational findings, Houston was deemed unable to perform a full range of sedentary work and also required assistance in performing activities of daily living such as laundry, cleaning and shopping. The vocational evaluator also assessed Houston’s regular occupation and disagreed with Unum’s classification, finding the job was not sedentary – it had far more demanding physical requirements since Houston was not only a supervisor but had to engage in a variety of housekeeping duties. Thus, the analyst concluded that Houston was unable to return to her past job.

Unum’s in-house vocational evaluator concurred with the plaintiff’s job classification and reassessed the job as requiring more strenuous exertion than sedentary work would require. However, Unum’s doctors still maintained that there was no medical reason she could not return to her job – one of the doctors concluded that Houston no longer exhibited edema, contrary to the treating doctor’s clinical finding. Then, Unum accepted its reviewing doctor’s report, did not address the vocational report other than its notation of the claimant’s low reading and math abilities, and upheld its decision, although it further advised that Unum’s quality performance support unit would conduct a final review. Quality Performance forwarded the file for review by an oncology surgeon at Pennsylvania State University who reported that Houston had received an inadequate workup; therefore, he could not conclude she was disabled. Subsequent to the issuance of that report, Unum issued its final denial, and after plaintiff brought suit, the district court upheld Unum’s determination.

The court of appeals disagreed, though. The court found Unum’s shifting rationale for terminating benefits violated 29 U.S.C. § 1133, and that the underlying determination was arbitrary and capricious. The ERISA statute requires, at 29 U.S.C. § 1133, that when a claim for benefits is denied in whole or in part, the employee benefit plan is required to set forth in writing ”the specific reasons for the denial,” and claimants are entitled to ”a full and fair review by the appropriate fiduciary of the decision denying the claim.” The regulations accompanying that provision reiterate those requirements. 29 C.F.R. § 2560.503-1(g).

The court further made the following key point before commencing with its analysis:

”ERISA requires insurance companies to act as fiduciaries: plan administrators ‘shall discharge [their] duties with respect to a plan solely in the interest of the participants and beneficiaries and for the exclusive purpose of providing benefits to participants and their beneficiaries … in accordance with the documents and instruments governing the plan insofar as such documents and instruments are consistent with the provisions of this subchapter.’ 29 U.S.C. § 1104(a)(1) (2007). The process is not intended to be adversarial. In addition, ‘[c]ourts should be particularly vigilant in situations where, as here, the plan sponsor bears all or most of the risk of paying claims.’ University Hosps. of Cleveland v. Emerson Elec. Co., 202 F.3d 839, 846 n.4 (6th Cir. 2000).

Applying those principles, the court found a violation of the statute. The initial termination was based on an erroneous classification of the exertional requirements of Houston’s job and a conclusion that she was capable of performing a sedentary job. Houston responded by demonstrating that her job was more exertionally demanding; and she provided the additional evidence requested at the time of the initial denial. Instead of correcting its mistake, Unum reiterated that Houston was not disabled from her regular occupation; and the final claim decision raised an altogether new reason for the denial – Houston’s failure to see the proper specialist in order to obtain the workup that the reviewing physician believed was necessary. The court therefore found: ”This process did not properly ‘notify [Houston] of [Unum’s] reasons for denying [her] claims and afford [Houston] a fair opportunity for review.”’ Elaborating, the court remarked:

”Full and fair review does not mean that an insurance company can simply mouth the same reason: ‘the persistent core requirements of review intended to be full and fair include knowing what evidence the decision-maker relied upon, having an opportunity to address the accuracy and reliability of that evidence, and having the decision-maker consider the evidence presented by both parties prior to reaching and rendering his decision.’ Halpin v. W.W. Grainger Inc., 962 F.2d 685, 689 (7th Cir. 1992) (emphasis added, quotation omitted). In violation of section 1133, Unum failed to provide an opportunity for Houston to respond, with argument or action, to Unum’s revised rationale for terminating her benefits, including Dr. Lipton’s opinion that ‘proper’ specialists see her, and, if indicated, to obtain the type of care Unum recommended in its final termination letter.”

In the court’s view, that was not all, though. Applying the test of examining to see whether the insurer’s decision is arbitrary and capricious, the court examines whether the decision ”is the result of a deliberate, principled reasoning process and [whether] it is supported by substantial evidence.” That examination requires review of both the conclusion and the insurer’s reasoning. When the lens of that examination was turned on Unum’s determination, the claim finding was completely undermined. First, the court was clearly bothered by Unum’s sudden reversal of its acknowledgement that Houston was suffering from post-breast cancer edema and considered the ”abrupt, inexplicable reversal” to be ”per se unreasoned an unprincipled.” The court cited the treating doctor’s clinical findings, which documented the continuing presence of edema and related symptoms of pain, tenderness and physical imitations.

The court was also dismayed that Unum failed to give full consideration to the vocational evidence. The court could find no basis for Unum’s discounting of the vocational evaluator’s observations, particularly since there was no explanation offered by the insurer as to why the vocational expert’s report was deficient. Without any conflicting vocational evidence, Unum had no basis to ignore the vocational findings.

The court also found ”many reasons to view with skepticism Unum’s medical reviewers’ conclusions.” The 6th Circuit looks at several factors when analyzing a non-treating doctor’s opinion, which include:

”(1)[W]hether the reviewing physician has a conflict of interest, Moon, 405 F.3d at 381-82; (2) whether the administrator decided that the physician should conduct a file review rather than a physical exam, particularly when it has the right to require a physical exam, Calvert v. Firstar Fin. Inc., 409 F.3d 286, 295 (6th Cir. 2005); and (3) whether the non-treating physician’s conclusion makes a ‘critical credibility determination regarding a claimant’s medical history and symptomology’ without observing the claimant. It is well-established that Unum is not required to defer to the opinions of treating physicians, Black & Decker Disability Plan v. Nord, 538 U.S. 822, 834, 123 S. Ct. 1965, 155 L. Ed. 2d 1034 (2003); it is equally clear that a plan administrator may not disregard those opinions. See Evans, 434 F.3d at 877.”

Examining Unum’s medical reports under those guidelines, the court pointed out that two treating physicians imposed restrictions based on their clinical findings, but Unum failed to consider those opinions. The court also found it unreasonable for the final reviewing doctor not to give credence to the treating doctors’ findings. Under the other factors considered, the court also deemed it significant that Unum’s reviewers were acting under a conflict and that they were making critical credibility determinations without having examined the patient or consulted with the treating doctors. Thus, the court concluded the totality of the evidence revealed internal inconsistencies that established that Unum’s decision was not supported by substantial evidence and was not the product of a deliberate principled reasoning process. Accordingly, benefits were reinstated.

The court covered a variety of crucial procedural and substantive issues in this important ruling. Clearly, Unum got off on a bad foot by offering an entirely different reason for its final decision as the one stated initially. Several other rulings have been critical of insurers for ”hiding the ball” or ”sandbagging” claimants by withholding the ultimate reasons for the denial until the final decision is rendered. Abram v. Cargill Inc., 395 F.3d 882 (8th Cir. 2005) is the seminal case ruling holding that insurers cannot surprise the claimant with the final denial and not give the claimant an opportunity for rebuttal. However, Metzger v. Unum Life Ins.Co. of America, 476 F.3d 1161 (10th Cir. 2007), takes a contrary approach due to concerns about the lack of finality in ERISA claims if the claimant has the right to rebut. The problem with Metzger’s approach, though, is that the court seems to forget that it is almost universal practice in ERISA cases for courts to close the record and not allow new evidence to be introduced during litigation. Coupled with a refusal to allow plenary court proceedings or even discovery, if the last word belongs to the plan administrator, it is often impossible to show defects in the claim decision.

The court’s emphasis on the fiduciary obligation of the insurer, and the insurer’s disregard without explanation of the evidence submitted, is also significant. This is the second ruling this year from the 6th Circuit emphasizing the fiduciary obligation of insurers administering benefits under the ERISA law. See, Rochow v. Life Ins. Co. of North America, 482 F.3d 860 (6th Cir. 2007). In view of the scandalous behavior of insurers who seem to have been perversely incentivized to deny benefits when ERISA governs the claim (See, Langbein, ”Trust Law as Regulatory Law: The Unum/Provident Scandal and Judicial Review of Benefit Denials Under ERISA,” 101 Northwestern L.Rev. 1315, 1321 (2007)), the emphasis on the fiduciary obligation of insurers cannot be understated. Professor Langbein of the Yale Law School is particularly critical in his article of the 7th Circuit’s hands-off approach to insurers’ determinations and encourages the courts to engage in more penetrating evaluations of benefit claims consistent with both the ERISA statute and trust law, which infuses much of ERISA.

Finally, the 6th Circuit’s synthesis of its prior caselaw regarding deficiencies in reviewing doctors’ findings is the most significant part of this opinion. In contrast to the 7th Circuit, which has not been as skeptical of reviewing doctors, as witnessed by the opinion inDavis v. Unum Life Insur. Co. of America, 444 F.3d 569 (7th Cir. 2006), where the opinions of Unum’s reviewers trumped the clinical findings of two treating doctors, the 6th Circuit has been leery of reviewing physicians, particularly where they are rendering credibility findings with respect to claimants’ symptoms. Again, so long as courts are going to perpetuate the quasi-administrative law scheme used in the adjudication of ERISA cases where courts simply review a claim record and no discovery or cross-examination is allowed, unquestioned acceptance of the reviewing doctors’ findings appears unwarranted, particularly in view of the circumstances related by Professor Langbein in discussing Dr. Patrick McSharry, ”who had worked as a staff physician in Unum’s claims review operations. He alleged that Unum made him review so many claims that he could not analyze them properly; that he was instructed ‘to use language … [to] support the denial of disability insurance’; that he was not allowed ‘to request further information or suggest additional medical tests’; and that he was ‘not supposed to help a claimant perfect a claim for disability insurance benefits.’ 101 NU L.Rev. at 1319.”

It is hard to understand how a law enacted for the protection of participants in employee benefit plans and their beneficiaries (29 U.S.C. § 1001(b)) could be turned on its head and serve as an almost impenetrable shield for insurers and a license to engage in the type of behavior described above. Perhaps the thinking was that reducing the cost of litigation could hold down premiums and encourage more employers to offer more and better benefits, but we have gotten to the point where a rising judicial chorus has begun questioning whether cost savings is a fair tradeoff for a regime in which the benefits themselves have become nearly illusory. The Houston ruling goes a long way toward restoring necessary fairness and balance in ERISA litigation.

I was counsel in the Davis v. Unum case cited above.

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

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