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Discovery in ERISA Cases

A recent court ruling from Pennsylvania involving ERISA Discovery permitted depositions to be taken in an ERISA disability insurance case, but applied a rationale that raises concerns about a misuse of administrative law procedures that attorneys and disability insurance claimants should be aware of.

In Cipriani v. Liberty Life Assur.Co., 2014 U.S.Dist.LEXIS 69613 (M.D.Pa. May 21, 2014), the court addressed whether the plaintiff in the case would be allowed to take two depositions.  The case arose after Liberty terminated the plaintiff's disability payments after he reached the two year change in definition from "own occupation" to "any occupation."  Liberty Life objected to the depositions on the grounds that the depositions related to the merits of the claim decision, which it claimed was not an appropriate subject of discovery.

 

The court began its opinion by expressing the principle that discovery is generally limited in ERISA actions; and usually does not permit discovery beyond the "administrative record."  The court then acknowledged that the Liberty policy vested the insurer with discretionary authority, thus triggering a deferential standard of review.  Under that standard, the court generally limits its review to the administrative record, although the court may consider evidence outside the record that demonstrates the plan administrator's bias and conflict of interest.

Although Metro.Life Ins.Co. v. Glenn, 554 U.S. 105 (2008) did not discuss the scope of permissible discovery in ERISA actions, by recognizing that when an insurance company both funds the payment of benefits and determines a claimant's eligibility to receive benefits, a structural conflict exists, which becomes "but one factor among many that a reviewing judge must take into account." Id. at 116. That factor becomes more important if there is evidence that the conflict "affected the benefits decision."  Id. at 117.  Hence, in order to make that showing, courts have permitted plaintiffs to pursue discovery aimed at the potential impact of the inherent structural conflict.

But the court also recognized that in addition to structural conflicts, Glenn also recognized the potential for procedural conflicts with respect to the review process.  In such matters, courts have permitted investigation of such conflicts so long as the discovery does not "reexamine the merits" of the determination.

With that framework in mind, the court permitted the depositions, but narrowly tailored them.  The court explained that the primary event he sought to investigate was a telephone conversation between the treating physician, Dr. DiSimone, and Dr. Philip Marion, Liberty's consultant.  Plaintiff maintained that Dr. Marion, who conducted an unannounced ex parte conversation with the treating doctor, misrepresented the results of a functional capacity evaluation to Dr. DiSimone, without showing him the actual findings, in order to manipulate his opinion.  The court found that there was sufficient basis to permit further investigation as to that conversation.

Concerning the deposition of the claim adjuster, the court permitted a deposition but significantly tailored the permissible interrogation.  For example, the court would not permit questioning as to what records the claim adjuster relied on to support her determination.  However, the court did allow a request to examine the claim adjuster on "how frequently the medical expert/experts named in Liberty Mutual claims file are used by Liberty Mutual to review Long Term Benefits, and how frequently Liberty Mutual uses the individual or facility that performed Cipriani's FCE together with whether Liberty uses other individuals or facilities."  The court found that such questioning is aimed at exploring bias and conflict and not directed at the merits.  Likewise, the court permitted interrogation on whether the claim adjuster asked Dr. Marion to contact the treating doctor.  The court found the proposed question "addresses potential actions which may indicate an attempt to manipulate the administrative record and the Plaintiff may appropriately explore it."  However, the court disallowed questions about the details or reviewing the file or the claim adjuster's interpretation of documents.

The court also permitted the treating doctor's deposition by the plaintiff, not for the purpose of supplementing the record, but for pointing out flaws in the FCE that he would have noted to Dr. Marion had he been shown the FCE before being asked about it.

Commentary and Analysis: This opinion illustrates how problematic ERISA has become due to the imposition of artificial rules that stem from a citation that appears early in this opinion -

 A fundamental goal of ERISA is to provide "a method for workers and beneficiaries to resolve disputes over benefits inexpensively and expeditiously." Accord Semien v. Life Ins. Co. of N. Am., 436 F.3d 805, 815 (7th Cir. 2006) (quoting Perry v. Simplicity Eng'g, 900 F.2d 963, 967 (6th Cir. 1990)) (internal quotations omitted).

That statement is entirely misplaced.  The quotation is derived from the Senate Report on a predecessor to what became the ERISA law and references a section that was dropped from the final bill that provided for an administrative hearing of pension claims by the Department of Labor.  Nor is administrative law the appropriate paradigm for resolving ERISA benefit disputes since Congress authorized aggrieved claimants to bring a "civil action."  29 U.S.C. § 1132(a).  See, DeBofsky, "The Paradox Of The Misuse Of Administrative Law In ERISA Benefit Claims," 37 J. Marshall L. Rev. 727 (2004); DeBofsky, "How Courts Interpret the Meaning of 'Civil Action' as Applied to Benefit Disputes Under ERISA," http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2385710 (revised and retitled as "A Critical Appraisal of the Current State of ERISA Civil Procedure -- An Examination of How Courts Treat 'Civil Actions' Brought under the Retirement Income Security Act," scheduled for publication in 18 Chicago-Kent Employee Rights & Employment Policy Journal (2014). 
Thus, since the scope of discovery is broader than the scope of admissibility in accordance with Fed.R.Civ.P. 26(b), the artificial restrictions on discovery that bar exploration of the merits of the claim decision in a proceeding where cross-examination is prohibited is grossly unfair.  One of the seminal cases that imposed a bar on examining the process by which the claim decision was reached was Perlman v. Swiss Bank Corp., 195 F.3d 975, 982 (7th Cir. 1999), where the court pronounced, "the mental processes of the plan's administrator are not legitimate grounds of inquiry any more than they would be if the decisionmaker were an administrative agency."  However, in a striking dissent, Judge Diane Wood wrote:
Guarding against bias in a decisionmaker is one way of assuring that the decision making process itself was not structured in an unfair manner. It is, by the way, a routine part of review of administrative agency decisions, even when those decisions are entitled to some form of deferential review, such as the substantial evidence standard or the "arbitrary, capricious, and unreasonable" standard. As I discussed above, I think that the analogy to Social Security disability cases is both strained in theory and foreclosed by the Supreme Court. However, even accepting the majority's conclusion that "we have no reason to think that the actual decisionmakers at UNUM approached their task any differently than do the decisionmakers at the Social Security Administration," ante 195 F.3d 975, 1999 U.S. App. LEXIS 28143 at *17, there is no justification for refusing to examine how UNUM went about denying Perlman's claim.
Generalizing from this rule, it follows that deferential review of plan administrator decisions does not preclude all consideration of the process by which the administrator came to its conclusion. To the contrary, that is precisely the point on which a court should be focusing, in order to give content to the rights conferred by §  1132 and at the same time avoid micromanaging particular plan decisions. The panel's approach appears to foreclose such an inquiry, at least as long as the administrator does something other than toss the claimant's application into the trash, flip a coin, and announce a decision. This cannot be right. In this case, Perlman has raised a serious challenge to the procedure UNUM followed after she submitted her 1994 claim for benefits. Specifically, she argues that it was arbitrary and capricious for UNUM to deny her benefits without collecting any expert medical evidence to support its decision and instead to assume that the fact that Perlman had been working after her injuries meant that she was not disabled.
195 F.3d at 986-87 (Wood, J., dissenting).  There is a difference between deferring to a decision (a dubious proposition as it is considering that the decision is made by a profit-seeking organization) and rubber-stamping it, which is what occurs when no consideration is given as to how the decision was reached.  The court should focus on the evidence and whether the medical findings support a decision in favor of the plaintiff or in favor of Liberty in this case.  But since the court does not possess medical expertise, the only way in which a fair decision can be reached is by letting the parties challenge the validity of that evidence.  Courts are not strangers to this process - this is how they go about deciding all civil disputes.  Given the rights at issue in ERISA employee benefit disputes, why should a lesser process be employed in such cases?


 

 

  For further information, contact Mark DeBofsky ([email protected])

 

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