February 08, 2006

Get ERISA Out of Me

by Armen

The indefatigable HBash pointed to this 9th Cir opinnion on the standard of review in ERISA denial of benefits cases that has now been vacated pending a rehearing en banc. ERISA cases are really common because it is one of the few areas of insurance claims where an individual can actually get a Federal court to review his/her claim de novo. Although really boring, they bring up a few issues that should be near and dear to everyone: (1) Proper role of Congress vs. the courts, (2) David vs. Goliath in a no sling-shot match, (3) I'm not a doctor, I only play one in chambers.

ERISA (Employee Retirement Income Security Act) governs a crap load of stuff, including long-term and short-term disability claims offered by most employers. This case involves a long-term disability claim and a life insurance claim, with the denial of benefits stemming from the life insurance policy, and the district judge is Judge Walter, whose chambers were adjacent to my own judge's chambers. The only reason I'm writing about this is because I had the pleasure of writing a bench memo on this precise issue during the past summer.

I know no one will do it, but if you are interested in the case law, then I suggest reading the opinion, which accurately summarizes the law. The only contention between the majority and the dissent is whether the conduct of the plan administrator/underwriter is "material, probative evidence" of a serious conflict of interest. This case, like most other ERISA cases, showcases some very serious shady dealings by the underwriter/administrator. It is no secret that the companies are putting their own financial interests far ahead of the fiduciary duty they owe to the claimants. They essentially operate these plans like they operate their other insurance plans, with minor lip service to the requirements of ERISA. (See, e.g., Unum settlement). At the same time, the law is the law, and the burden is on the plaintiff to bring forth evidence to show an actual conflict of interest (rather than an apparent one).

This creates the distasteful situation where a court has before it a plaintiff who is really sick (or dead in this case), but the court is powerless to review the case de novo because the evidence provided is insufficient. On the other hand, if Congress granted de novo review for all ERISA denial of benefits cases, then the Federal docket would be even more cluttered with these cases. At least now, most of the cases settle once the court determines the appropriate standard of review (as though the ruling is a sort of appraisal). On the other hand, it would force the insurance companies to administer the plans with more emphasis on their duty to the claimant, so that we'd see less cases like this one where life insurance benefits are denied because there is no proof of a form being filed.

My case was less disturbing. The administrator/underwriter denied benefits because it found no medical basis for her disability. While this is more of a question on the merits, the Plaintiff argued that the denial showed a serious conflict of interest because the insurance company ignored medical evidence. Thus to decide whether there was a conflict, I had to play doctor and decide the merits of the medical tests found within the administrative record. Based on my medical expertise, a decision was made on the plaintiff's claim. A bit disturbing.

Going back to the case at hand, I have a feeling the en banc will not require the circuit case law on this, but will hold that the conduct of the administrator/underwriter exhibited a serious conflict of interest or a breach of the fiduciary duty. My hunch is that they will go for the narrower, second option by holding that the plan administrator cannot articulate a new reason for denial of benefits in its final appeal because this does not allow the claimant to adequately appeal THAT ground. The net effect of the holding will probably mean some minor changes in internal procedures at the plan administrators but will not do much to address the problem of an insurance company's dual role of making profits and paying legitimate claims.

February 8, 2006 01:54 AM | TrackBack
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