Merck's Laundry List

 A recent case caused Merck & Co. to go down swinging on every pitch served up by the Third Circuit when it comes to being arbitrary and capricious. 

Kosiba v.Merck & Company, 2011 WL 843927, set forth a procedural laundry list of errors by a plan administrator which would lead a court to find an administrator’s decision terminating LTD benefits to be arbitrary and capricious. 

In any other “world” but ERISA any procedural error from the following list would almost automatically call for an “arbitrary and capricious” reversal of a decision favoring an administrator, but in ERISA law, where the administrator is highly favored, such a reversal is news.

Here’s the Third Circuit list.  See if you don’t agree.

  • A reversal of benefits determination without additional evidence.
  • A disregard of opinions previously relied upon .
  • A self-serving selectivity in the use of evidence or reliance on self-serving paper reviews of medical files.
  • A reliance on the opinions of non-treating doctors over treating doctors without explanation.
  • A reliance on inadequate of incomplete investigation.
  • A failure to comply with notice requirements of Section 504 of ERISA.
  • Failure to analyze all relevant diagnoses.
  • Failure to consider claimant’s ability to perform actual job requirements.

With all of these strikes against it, one would think that the Court would automatically reinstate the claimant’s benefits without question.  Not so in ERISA.

Although the Court did restore claimant’s benefits, it took pains to declare that if the administrator had denied claimant’s “any occupation” LTD benefits from the start, it would have remanded the claim rather than reinstate her right to benefits.

How come?  Defendant had multiple swings at the ball. 

On this sorry record, why give it more?

A Downside For Insurers

“Disgorgement”, what a wonderful word.

If you are wondering at the sudden loud wailing in your ears, rest easy. It is only disability insurance companies and the ERISA defense bar waxing frenetic over a Sixth Circuit Court of Appeals decision which actually made a defendant insurance company pay for its obstinate, wrongful denial of an LTD claim. Rochow v. Life Ins. Co. of North America, 2013 WL 6333440 (6th Cir. (Mich.)).

Daniel Rochow was president of his company when he began suffering short term memory losses, and intermittent chills and sweats in 2001. In July of that year he was demoted to Sales Executive because he could no longer perform the duties of president. His medical difficulties continued, ultimately causing him to be terminated from his position at the company on January 2, 2002, because he was unable to perform his job duties.

In February, 2002, he suffered periods of amnesia, was hospitalized, and his condition was diagnosed as HSV-Encephalitis, a debilitating brain infection. Mr. Rochow applied for long term disability benefits under his former employer’s ERISA disability policy. LINA denied his application because he was no longer employed by his employer.

This case raises several interesting issues:

Why do insurance companies shoot themselves in the foot by trying to penalize claimants who try to work through their problems before applying for disability?

• This case points up the inordinate amount of money insurance companies make in their daily operations

• Insurance companies want to maintain the status quo. They want to hold onto benefit monies for as long as they can because there is no downside to them for doing so.

• Meanwhile, by withholding benefits, insurers put major pressure on claimants. By definition, claimants can’t work so they earn nothing. At the same time they and their families have to eat, need a place to live and frequently have ongoing medical expenses.


Insurers and their lawyers are screaming about “disgorgement” because it is the only downside for insurers for wrongfully withholding benefits from claimants.

The doctrine of “disgorgement” changes this picture. If the insurer acts wrongfully in the matter of paying a claim, the claimant may be entitled to disgorgement. Instead of paying interest on the benefits wrongfully withheld, a court may require the insurer to pay the claimant the amount the insurer earned on the withheld benefit plus the benefit itself.

The longer the period of time the insurer wrongfully withholds the benefit, the more the benefit monies may earn.

If, as in Rochow, the insurer earned a large amount of money, the claimant is entitled to receive its proportionate share of these earnings. This amount could be quite an amount larger than the actual benefit plus interest.

Although $3,797,867.92 is a large amount of money, it should be recalled that Mr. Rochow applied for LTD benefits in 2002 and the Rochow ruling was made in December, 2013, so that this amount accrued over a period of about 11 years.

Mr. Rochow died in 2010. During his lifetime neither he nor his family received any benefits from LINA. The only thing they received from LINA was interminable obfuscation and mounting legal bills. Hopefully the Rochows had assets upon which they could draw to live.

But, what if they hadn’t?