Speak Very Clearly in ERISA

A recent line of court decisions has been placing ERISA plan drafters under a heightened duty to speak very plainly if they want to have courts uphold plan administrator discretion in making disability decisions. The importance of discretion; it will determine whether a reviewing court applies a de novo standard of review to the evidence in a case, or if the court must find an abuse of discretion to overturn a plan administrator’s decision.

In Cosey v. Prudential, 2013 WL 5977151, 4th Circuit (2013), the Fourth Circuit found that ERISA plan language stating that benefits will be paid to a claimant who “…submit(s) proof of continuing disability satisfactory to Prudential…” was ambiguous and therefore failed to grant the necessary discretionary power to the administrator.

Ms. Cosey offered a mixed bag of medical opinions to support her claim of both short and long term disability. Most of her complaints involved her own reported symptoms, with very little objective proof.

The Federal District Court below had found the plan language offered the degree of certainty necessary to give the administrator’s discretion in ruling on a claim. In fact, the District Judge bootstrapped the language so that the administrator could even require objective evidence to uphold a claim for disability even though there was no such requirement in the policy.

The Fourth Circuit Court of Appeals strongly disagreed, finding the plan language lacked the clarity ERISA requires to confer discretionary power in the administrator.

The major fault in the language, the Court found, was that “proof satisfactory to us” is ambiguous. It can mean proof must be provided in a certain form and the wording does not clearly confer discretion to the administrator to make a decision on the merits.

The extraordinary part of the opinion to our mind was the Court’s concern that an employee may not understand the meaning of the language in the plan and that an employee may make a choice of employer based on whether a plan gives an administrator’s decision deference.

In reality, such a chain of events is so far from what actually happens in real life that it makes us wonder how courts can conceivably think that an employee carries any weight in the ERISA plan his employer enters into. Further, it suggests a degree of sophistication regarding the nuances of ERISA jurisprudence that most laymen, even most lawyers, simply do not possess.

The insurance contract portion of an ERISA plan is not a contract the employee bargains for. It is a contract of adhesion. It is in place at the time of employment and the employee either takes it or leaves it. There is no input from the employee which can change its terms.

That’s why we are upset when the Supreme Court justifies, as it did in U.S. Airways v. McCutchen, 133 S. Ct. 1537 (2013), taking away important equitable remedies from employees on the grounds that the insurance contract is something they had a hand in bargaining for.

The decision in Cosey is to be applauded. Employers and insurance companies have all the say in the wording of an ERISA plan and its supporting insurance policy. It should be done correctly.

The worrisome part of Cosey is that some judges still think employees have any influence or knowledge of the ERISA plan and insurance policy which covers them. This is absolutely not so.

To believe it is so, gives the wrong slant to deciding future ERISA cases.





"Pingponging" An ERISA Claim

One of the new tricks of the trade in denying disability benefits was exhibited by AT&T playing ping pong with an employee’s short term disability (STD) claim and thereby not only denying the STD claim, but also ruling her out of time on making a later LTD claim. Guthery v. AT&T Umbrella Benefit Plan No. 1, 2013 WL 4510584 (W.D., Ark.).

This denial trick was accomplished by having no communication between the two separate departments which handled disability claims and workman’s comp claims for AT&T. This problem was compounded by the plan administrator relying on medical reports which threw little light on the medical issues in the case.

The claimant’s problems began when she fell off a ladder at work and was injured. Ms. Guthery went for medical treatment at a medical facility to which she had been referred by the AT&T department handling her claim. At the same time she was making her disability claim Ms. Guthery also filed for workman’s comp.

As each of the claims was handled by a separate department of AT&T, it made it easy to start a game of ping pong, with the claimant being caught in the middle.

When the AT&T disability claims department needed info or an exhibit from the workman’s comp claims department, it was requested, but the WC people didn’t send it. Requests between the departments were ignored until time limits set by the requesting department had long passed. And, who got the blame? Why, Ms. Guthery, of course.

All through claims process, Ms. Guthery kept in close contact with the claims department to follow up on whether information, totally in control of the plan, had been provided. It didn’t help. When time limits arbitrarily set by AT&T passed, her STD benefits were terminated even though the information was totally in the hands of AT&T people.

While this game of intercompany ping pong was going on, time was passing. Ms. Guthery did not file her claim for long term benefits because of the STD benefits brouhaha. When she did try to press her LTD claim, AT&T defended by claiming she had not exhausted her administrative remedies by first completing her claim for short term benefits.

Even though this was a “deference” case, the Court found the denial arbitrary and capricious and restored Ms. Guthery’s STD benefits along with her right to make an LTD claim.

In its opinion, the Court in Guthery specifically pointed out the trap that medical “generalizations” lay for claimants. Insurance companies take advantage of this trap and send claimant’s doctors forms which are designed to get the doctors to “speculate” on the length of time it might take for a disability to end. As the Court pointed out, this makes an assumption that a claimant is no longer disabled because “generally” a disability ends after such a period.

The actuality may be far from the truth, as each case is different. Some patients recover slower than others with the same illness of injury.

We have warned physicians about being constrained in reporting on patient on the forms insurance companies send them, boxed.

In the interest of their disabled patients, we do so again.




The "Sole" Of Discretion

Lawyers sometimes have a habit of using more words than necessary. Many times this just bores the audience. Sometimes, it really, really hurts.

A case in point is the rule banning the use of the discretionary clause in health insurance policies in New Jersey. Discretionary clauses have been used by courts since the 1980s to require ERISA claimants to show that disability income claim denials by employers and insurance companies are “arbitrary and capricious” before the merits of the claim can be considered. This sea change in ERISA jurisprudence was based upon the Supreme Court decision in Firestone v. Bruch, 489 U.S. 101 (1989).

In 2006, the New Jersey Department of Banking and Insurance responded to our request to do something about this unfair burden on plaintiffs in a relatively prompt manner for a state agency. (As an aside, it has taken the State of New York years longer to respond).

But, in drafting the regulation, the New Jersey Department of Banking and Insurance felt it necessary to insert the unnecessary word “sole” before the word “discretion”, and to add language about review which accomplishes nothing as the law now stands. So, now the regulation (N.J.A.C. 11:4-58.3) reads as follows:

“ No individual or group health insurance policy or contract, individual or group life insurance policy or contract, individual or group long-term care insurance policy or contract, or annuity contract, delivered or issued for delivery in this State may contain a provision purporting to reserve sole discretion to the carrier to interpret the terms of the policy or contract, or to provide standards of interpretation or review that are inconsistent with the laws of this State. A carrier may include a provision stating that the carrier has the discretion to make an initial interpretation as to the terms of the policy or contract, but that such interpretation can be reversed by an internal utilization review organization, a court of law, arbitrator or administrative agency having jurisdiction.”

Why is it worded this way? Who knows? The word “sole” adds nothing and opens wide the door to confusion.

When we first saw the proposed regulation, we thought that the word “sole” was unnecessary and was very likely to cause a problem in the courts. We wrote to the Department of Banking and Insurance and objected to this language – to no avail. So, the word “sole” remained in the regulation, lying in wait for some poor claimant to fall prey to its tendency to confuse.

Lo and behold – it happened.

In the case of Evans v. Employee Benefit Plan, et als, 2009 WL 418628 (3rd Cir. 2009), which was decided on other grounds, the Court posited that the New Jersey ban on giving deference in insurance policy language only applied to policies which gave “sole” discretion to the administrator. Since the policy language used only the word “discretion” and did not use the word “sole”, the Court reasoned that the regulation would not apply, even though the policy gave no discretion to make decisions to any other person or entity!

What is “discretion” but the authority to decide an issue? If you are the only one with authority to decide an issue, what can the word “sole” add to your power of discretion? If more than one person has discretion to decide an issue, then none of them, alone, has discretion without the other(s).

As we had previously pointed out to the NJ Banking and Insurance Commission when N.J.A.C. 11:4-58.3 was proposed, amendment to N.J.A.C. 11:4-58.3 is required forthwith. The NJ Department made it clear in 2006 that giving deference to the administrator is against public policy. N.J.A.C. 11:4-58.3 was undoubtedly intended to ban the discretionary language from disability income insurance policies in the State. Why let the unnecessary word “sole” cause any confusion so as to threaten the policy rights of New Jersey citizens when they become disabled?

We intend to pursue the issue of amendment with the State until it goes into effect. Otherwise, there will be cases in which New Jersey disability income claimants are deprived of what is due them, because of an unnecessary extra word in the regulation.