The Federal Rules of Civil Procedure are intended to apply to all civil actions adjudicated in federal court.
However, without explanation, Employee Retirement Income Security Act(ERISA) cases receive different treatment, especially cases that involve disability insurance benefits. Although depositions of claim adjusters are routine in other insurance disputes, they are almost unheard of in ERISA cases.
In Charles v. UPS National Long Term Disability Plan, 2013 U.S.Dist.LEXIS 164218 (E.D.Pa. Nov. 19, 2013), the court permitted a deposition of the claim adjuster who denied a claim for disability benefits, overruling the claim administrator’s objection. The court’s rationale was that it was permitted to take into consideration “evidence of potential biases and conflicts of interest that is not found in the
administrator’s record.”
The court further remarked that the deposition would be permitted irrespective of the standard of review applicable to the claim.
The Charles ruling presents an interesting question – under the de novo ERISA standard of adjudication, why would bias or conflict of interest be relevant to the court’s consideration? If the insurer is biased but still renders a correct decision, what difference would it make as to whether a conflict infected the claim analyst’s determination?
Even if the conflict is irrelevant as to the correctness of the decision and although Variety Corp. v. Howe, 516 U.S. 489 (1996) found duplicative and unnecessary a stand-alone claim for breach of fiduciary duty in the garden variety claim for benefits, in Metro.Life Ins.Co. v. Glenn, the Supreme Court recognized that ERISA imposes a fiduciary obligation upon plan administrators to employ “higher-than-marketplace quality standards” to insure accurate claim decisions. 554 U.S. 105, 115 (2008). Most courts that have addressed the issue since Glenn have therefore permitted discovery into bias.
Permitting discovery into bias also illuminates whether an insurer has complied with its duty of good faith and fair dealing. Under the Restatement (Second) of Contracts, “Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.”
A comment on that section adds:
“Subterfuges and evasions violate the obligation of good faith in performance even though the actor believes his conduct to be justified. But the obligation goes further: Bad faith may be overt or may consist of inaction and fair dealing may require more than honesty.
“A complete catalogue of types of bad faith is impossible, but the following types are among those which have been recognized in judicial decisions: evasion of the spirit of the bargain, lack of diligence and slacking off, willful rendering of imperfect performance, abuse of a power to specify terms and interference with or failure to cooperate in the other party’s performance.”
A leading commentator adds, “if a party has conditioned a duty to pay on honest satisfaction with the other party’s performance, the condition is excused if the party to be satisfied refuses to look at the performance. Such a refusal would amount to a breach that would excuse the conditions and make the duty of pay unconditional.” 2 E. Allan Farnsworth, Farnsworth on Contracts: Third Edition 454 (2004).
The duty of good faith and fair dealing was also recently highlighted by a concurring opinion in a case involving an insurer’s duty to notify an insured as to whether a medical provider from whom treatment was being sought was within the insurer’s network of providers.
Although the majority found the insurer’s failure to notify constituted a breach of ERISA’s fiduciary obligations, the concurrence suggested that liability could be established under a contract law approach, even though, under Massachusetts Mutual Life Ins. Co. v. Russell, 473 U.S. 134, 105 S. Ct. 3085, 87 L. Ed. 2d 96 (1985), the Supreme Court established that extracontractual damages cannot be recovered due to a “breach of a plan’s obligation, whether fiduciary or contractual, explicit or implicit, to process claims in good faith.” Killian v. Concert Health Plan, 2013 U.S. App. LEXIS 22657, 54-67 (7th Cir. Nov. 7, 2013)(Posner, J., concurring).
Moreover, bias and conflict are important considerations in assessing an insured’s entitlement to receive an award of attorney fees pursuant to 29 U.S.C. Section 1132(g). Although eligibility to receive a fee award is triggered by achieving “some degree of success on the merits,” (Hardt v. Reliance Standard Life Ins.Co., 130 S.Ct. 2149 (2010)), most courts would still deny a request for fees in the absence of the defendant’s culpability or bad faith.
An alternative approach used in evaluating fee requests is whether the loser’s position was substantially justified. Under either standard, the insurer’s behavior is relevant.
A non-exhaustive catalogue of examples of “bad faith” can be found in the Supreme Court’s Glenn decision. There, the court used the term “procedural unreasonableness” to describe an insurer’s cherry-picking from the evidence presented only the evidence supporting a denial of benefits.
Another example was the insurer’s financial benefit from the claimant’s Social Security disability award while simultaneously denying the evidentiary significance of the disability determination. Hiring unqualified or biased consultants, rubber-stamping consultant’s findings without weighing the evidence or improperly assessing vocational issues are other examples that quickly come to mind. All of these issues are potential subjects of deposition inquiry.
It is not the role of the court to sit as a super-claims adjuster. Rather, under the de novo standard of adjudication, the court is to assess the accuracy of the claim decision and evaluate how that determination was reached. Even under a deferential standard of review, the court has to look at extrinsic factors, including financial bias and motivation, to decide whether the claim decision was reasonable.
Thus, consistent with the scope of discovery permitted by the Federal Rules of Civil Procedure, claimants should be permitted to inquire into whether the claim was evaluated honestly and fairly by allowing them to take the depositions of the individuals who rendered the claim decision.
