The starting point to keep in mind when analyzing disability insurance claims handling is that both the insurer and the insured share a desire for accurate claims processing so that meritorious claims receive payment. The recent Supreme Court ruling in Metro.Life Ins.Co. v. Glenn 1 reinforced the need for accurate claims processing, 2 and no one who works in the field of insurance would disagree. Thus, any practices and procedures that foster greater accuracy should be welcomed by insurers as they are by individual claimants and by organizations that purchase disability income protection. The working group has promulgated a number of proposals aimed at achieving fairness and accuracy in claims processing; and some commentary on many of the working group’s suggestions, informed both by research and by my experience gained over hundreds of claim adjudications is presented below.
The first set of proposals made by the working group relates to training of claims personnel and begins by recommending that claim staff should uniformly apply documented procedures. This suggestion is neither novel nor remarkable. Indeed, in promulgating the ERISA claim regulations that went into effect in 2002, the United States Department of Labor remarked:
- [A] plan’s claims procedures must include administrative safeguards and processes designed to ensure and to verify that benefit claims determinations are made in accordance with governing plan documents and that, where appropriate, the plan provisions have been applied consistently with respect to similarly situated claimants. Courts have long recognized that such consistency is required even under the most deferential judicial standard of review. 3
Thus, consistency in the application of procedures is a recognized hallmark of proper claims processing. Indeed, in a situation where an insurer deviated from established procedures, a federal appeals court found that the basis for overturning a claim denial. 4
The proposed best practices then turn to issues of potential bias and recommend that “pre-disposition or bias against a claimant is unacceptable.” This issue was the centerpiece of the Supreme Court’s Glenn ruling which reached the unremarkable conclusion that when an insurer both administers and funds the claims, it operates under an inherent conflict of interest. The Court further pointed out, though, that the conflict is only one factor to consider, and any conflict will be given far less consideration if the insurer can point to active efforts to minimize the conflict such as “taking] active steps to reduce potential bias and to promote accuracy, for example, by walling off claims administrators from those interested in firm finances, or by imposing management checks that penalize inaccurate decisionmaking irrespective of whom the inaccuracy benefits.” 5
To be sure, claim analysts are usually not physicians; however, that does not excuse claims personnel from not eliciting input from onsite medical personnel and more senior professionals to help explain medical terminology and the significance of clinical findings and test results in order to objectively weigh all of the evidence presented. Otherwise, a creeping bias is inevitable since the claim analyst has no function other than to rubber stamp opinions that disagree with the treating source, which courts have deemed an abrogation of the claim analyst’s responsibilities. 6 Toward this end, courts have remarked in the ERISA context, (although there is no reason why the statement should not be deemed universally applicable), “the administrator must weigh the evidence for and against, and ‘within reasonable limits, the reasons for rejecting evidence must be articulated if there is to be meaningful appellate review.’” 7
Claim Organization/Corporate Organization
The next area of best practices proposed by the working group has to do with claim organization. Here, too, the accuracy of claim determinations must be a paramount consideration. The lessons of the UnumProvident market conduct examination are instructive. Just as the multistate market conduct examination revealed a disproportionate number of improper claim decisions, there is no reason why every organization cannot perform an internal examination of its operations and create a “compliance-accountability” staff responsible to the Board of Directors to randomly sample claim files in order to assure the accuracy of claim determinations. While there is no case law or statute mandating such claim audits, the size of the fines imposed on UnumProvident, and the cost of reassessing claims should be convincing in and of itself of the importance of such internal audits. And again, the Glenn case would deem such measures a significant factor favoring the insurer in litigation.
The proposed best practices also suggest standards of claim processing and procedures. There has been an over-reliance on insurers’ use of both in-house and outside consultant physicians who merely review claim files in place of the traditional “independent medical examination.” Several courts have focused on this issue. Evidence uncovered in at least two cases revealed significant bias by claim reviewers. 8 In one case, a specific reviewer was cited for having recommended denials in 193 out of 202 cases she reviewed. 9 Another frequently-retained reviewer admitted in a deposition that he finds claimants restricted from working in only 5-10% of the files he reviews. 10 Indeed, there is now a cadre of physicians who are not engaged in the active practice of medicine and who do nothing but review claim files for disability insurers. This clearly raises questions about the validity, reliability, and appropriateness of their opinions. In-house physicians, whose reviews of the medical records are often utilized as the exclusive basis for claim determinations, are also open to charges of bias when their performance reviews and participation in bonus and other compensation structures are dependent on company profitability. In addition, such physicians have been criticized by courts for their focus on alleged inconsistencies in the records as the basis for a claim denial rather than a more general focus on the entirety of the record. 11
In one widely cited case, a physician who had performed a file review was criticized for generalizing that the majority of individuals suffering from a particular condition are able to work; and from that generalization, the physician saw no reason why the claimant was unable to work. 12 The court concluded that individualized assessments need to be performed in all cases.
Other cases have pointed out physicians who perform paper reviews of psychiatric claims are particularly at a disadvantage:
- Courts discount the opinions of psychiatrists who have never seen the patient for obvious reasons. Unlike cardiologists or orthopedists, who can formulate medical opinions based upon objective findings derived from objective clinical tests, the psychiatrist typically treats his patient’s subjective symptoms. 13
Since so many disability claims are decided under the ERISA law, where claims are primarily adjudicated as review proceedings, the wisdom expressed by the Supreme Court in the analogous context of Social Security disability claim reviews, needs to be heeded. In Richardson v. Perales, 14 the Court ruled that medical reports may be deemed substantial evidence sufficient to support a claim determination only if the author of the report has performed a clinical examination. Thus, while file reviews may be useful, when they disagree with strongly held opinions by the treating sources, the only fair way to resolve the conflict is with an independent examination followed by continuation of the historic practice of sending the examination results to the treating physicians for review and comment prior to the issuance of a final determination.
Finally, vocational evaluations must take into consideration all relevant vocational evidence. Several courts have criticized insurers for “cherry-picking” the evidence in order to bias vocational assessments; i.e., disregarding or withholding evidence of vocational significance from the vocational evaluators. 15 Especially in situations where the ability to work at a particular job is at issue, it is not enough, as the courts have found in numerous cases, for a vocational evaluator to conclude that someone is capable of working at a “sedentary” occupation when the job requires significant cognitive skills that are clearly impacted by the disabling impairment. 16
Likewise, vocational assessments need to be based on a realistic evaluation of vocational opportunities. Numerous courts have found that insurers must consider the claimant’s age, education, work experience, and fluency in speaking the English language. 17 The concept of gainful activity derived from Social Security law has also been deemed useful in concluding that one need not be totally helpless in order to collect benefits; and that the assessment must determine whether the claimant is capable of “earn[ing] a reasonably substantial income rising to the dignity of an income or livelihood, even though the income is not as much as he earned before the disability.” 18
The suggestions made above bring this discussion full circle. The goal of a fair and accurate claim determination, which is shared both by insureds as well as insurers, drives the need for universally applicable standards and practices. While many insurers have taken steps aimed at meeting these goals, there remains more that can be done.
1) 128 S.Ct. 2343 (2008)
2) 128 S.Ct. at 2350
3)65 Fed.Reg. 70246, 70251 (November 21, 2000)(citing Lutheran Medical Center v. Contractors, Laborers, Teamsters and Engineers Health and Welfare Plan, 25 F.3d 616, 620-22 (8th Cir. 1994); De Nobel v. Vitro Corp., 885 F.2d 1180, 1188 (4th Cir. 1989)).
4) See, Glista v. Unum Life Ins.Co. of Amer., 378 F.3d 113 (1st Cir. 2004).
5) 128 S.Ct. at 2351.
6) See, Crocco v. Xerox Corp., 956 F.Supp. 129 (D.Conn. 1997); aff’d in part, rev’d in part, 137 F.3d 105 (2d Cir. 1998)
7) Halpin v. W.W. Grainger, Inc., 962 F.3d 685, 695 (7th Cir. 1992)(citations omitted).
8) Caplan v. CNA Financial Corp., 544 F.Supp.2d 984 (N.D.Cal. 2008); Wright v. Raytheon Co. Short Term Disability Plan, 2008 U.S.Dist.LEXIS 81951 (D.Ariz. September 17, 2008).
9) Caplan, supra.
10) Deposition of Philip Marion, M.D., October 5, 2006, Aragon v. Liberty Life Assur. Co., RG-05-0242470 at Page 210.
11) See, Merrick v. Paul Revere, No. CV-S-00-0731-JCM-RJJ (U.S.Dist.Court D.Nev.), “Findings of Fact and Conclusions of Law, November 17, 2008.
12) Hawkins v. First Union Corp. Long Term Disability Claim, 326 F.3d 914 (7th Cir. 2003).
13) Sheehan v. Metropolitan Life Insur.Co., 368 F.Supp.2d 228, 255 (S.D.N.Y. 2005)
14) 402 U.S. 389 (1971)
15) Spangler v. Lockheed Martin Energy Systems, Inc., 313 F.3d 356 (6th Cir. 2002); Lambert v. CWC Castings Div. of Textron, 255 F. Supp. 2d 739 (W.D. Mich. 2003)
16) See, e.g., Small v. First Reliance Standard Life Insur.Co., 2005 U.S.Dist.LEXIS 3153 (E.D.Pa. 2/28/2005); Rabuck v. Hartford Life and Accident Ins.Co., 2007 U.S.Dist.LEXIS 80246 (W.D.Mich. 10/30/2007) 17)Demirovic v. Building Service 32B-J Pension Fund, 467 F.3d 208 (2d Cir. 2006); Torix v. Ball Corp., 862 F.2d 1428 (10th Cir. 1988); Helms v. Monsanto Co., Inc., 728 F.2d 1416 (11th Cir. 1984)
18) Helms, supra.