The Friday Five: Five ERISA Litigation Highlights - September 2024

Will a court uphold an insurer’s denial of long-term disability benefits when the insured continued to receive their full salary during the period of alleged disability? Yes. In Zuckerman v. Fort Dearborn Ins. Co., the insured Plaintiff was a high wage earner, making over $9,000/week. The Plaintiff filed a claim under his employer’s long-term benefits disability plan due to the effects of chemotherapy to treat cancer. However, the record established that the Plaintiff’s employer continued to pay him his full wages even when he was not working due to his alleged disability. Defendant denied the Plaintiff’s claim, concluding that he did not qualify as disabled under the plan before the plan terminated. Plaintiff appealed, but Defendant upheld its denial decision. As part of its appeal decision, Defendant noted that the documentation in Plaintiff’s claim file did not establish that Plaintiff missed a full or partial day from work on the dates he received chemotherapy (or any other dates). The court applied an abuse of discretion standard to Defendant’s denial decision. In upholding the denial, the court applied a straightforward reading of the plan and determined that, because Plaintiff continued to receive 100% of his salary, he was not partially or totally disabled. The court explained:

"The entire purpose of LTD benefits is to help employees close the gap when a disability prevents them from working and earning their full salary. But if an employee continues to collect his/her full salary despite having a disability, then there is no gap to close. Because it is undisputed that [Plaintiff’s employer] continued to pay [him] his regular weekly salary until May 2021, there was substantial evidence to support [Plaintiff’s employer’s] conclusion that [Plaintiff] was not eligible for LTD benefits under the Plan."

Additionally, the court rejected the notion that Defendant abused its discretion in denying Plaintiff’s claim merely because Defendant “might have” had a financial conflict as the plan administrator and payor of benefits. Under Third Circuit law, Plaintiff was required to establish that the alleged conflict “actually infected the decision making” or that the conflict was “one last straw that calls a benefits determination into question,” which Plaintiff failed to do in this case. Zuckerman v. Fort Dearborn Ins. Co., No. 2:22-CV-01993-JDW, 2024 WL 3696469 (E.D. Pa. Aug. 7, 2024).

Is it reasonable for a plan administrator to rely on an employer’s records as part of its obligation to fully investigate a claim before denying benefits absent contrary evidence? Yes. Plaintiff, a general surgeon, was enrolled for coverage under his employer’s group insurance policy. The policy required an insured employee to be in “active employment,” which meant working at least thirty hours per week. Plaintiff underwent surgery for a shoulder injury in January 2020 but then returned to work from January 5-March 14, 2020, logging forty hours of work per week; thus, Plaintiff was “actively employed” under the policy during this period. However, from March 15-May 23, 2020, Plaintiff recorded only about 4.75 hours of work per week, which falls well below the required thirty hours for active-employment status under the policy. Then from May 24-July 18, Plaintiff resumed full-time work, logging around forty hours per week thereby resuming active employment status. On July 30, Plaintiff was placed out of work by his doctor and, three months later, he submitted a claim for long-term disability under the policy.

Defendant determined that Plaintiff’s coverage ended on March 15 – when Plaintiff began working hours below the required thirty hours – and began again with a new effective date under the policy of May 25 when he began working full-time again. This timing was important because the policy did not cover a disability that arose within the first twelve months following the effective date of the policy and was caused by a preexisting condition. Further, a preexisting condition was defined under the policy as one that was treated within three months prior to the effective date. Given that Plaintiff had consulted with a doctor on May 14 (within three months of the new effective date of May 25), Defendant concluded that his injury constituted a preexisting injury and denied Plaintiff’s claim.

On the issue of whether Defendant properly concluded that the plaintiff surgeon was not “actively employed” from March 15th to May 23rd, the court agreed with Defendant that Plaintiff was not actively employed during this time, namely because Defendant made several requests to Plaintiff for documentation to support that Plaintiff had continued to work full time between March 15-May 23 (as Plaintiff claimed) but, in response, Plaintiff only offered uncorroborated declarations from himself and his former colleague. Although the court acknowledged that ERISA requires plan administrator to “fully investigate a claim before denying benefits,” it found that Defendant’s reliance on documents from Plaintiff’s employer as to the hours he worked was reasonable, especially given the absence of any contrary evidence. As a result, the court agreed that Plaintiff’s new effective date under the policy was May 25 when Plaintiff began working full time again. On the issue of whether Plaintiff’s injury was a preexisting condition, the court agreed with Defendant that because Plaintiff was placed out of work (in July 2020) within twelve months of the new effective date (May 25, 2020) and sought treatment for his injury within the three-month lookback period, the condition was preexisting and precluded coverage. Tunkle v. ReliaStar Life Ins. Co., No. 2:23-CV-10-SPC-NPM, 2024 WL 3638011 (M.D. Fla. Aug. 2, 2024), appeal docketed Aug. 8, 2024.

Will a court find a plan administrator’s denial to be arbitrary and capricious if the determination does not strictly comply with ERISA claims regulations and otherwise fails to provide sufficient explanation for the denial? Yes. Plaintiff is a physician who participated in her employer’s short-term disability (“STD”) and long-term disability (“LTD”) plans. During her employment, Plaintiff was diagnosed with and treated for a variety of medical conditions, including severe postural orthostatic tachycardia syndrome (“POTS”). In June 2022, Plaintiff submitted a claim for STD benefits related to her POTS and went on leave beginning July 1, 2022. On July 27, 2022, the plan administrator denied the STD claim because Plaintiff’s illness fell under the pre-existing condition exclusion in the STD policy. But the administrator then opened an LTD claim – which would not be barred by a pre-existing condition exclusion – but subsequently denied the LTD claim, too, because the administrator determined that Plaintiff did not meet the policy definition of “Totally Disabled.” Plaintiff, through counsel, sent letters requesting her files (which she received) and asked questions about the denials and appeal processes, but she did not appeal either decision.

Given Plaintiff’s failure to appeal, Defendant first argued that Plaintiff failed to exhaust her administrative remedies. The court denied this argument because Defendant’s determination notice did not strictly comply with ERISA claims regulations; specifically, the determination did not discuss the decision and explain any disagreement with or choice not to follow the view of the claimant’s treating physician. As a result, the court held that ERISA regulations deemed Plaintiff’s administrative remedies exhausted.

The court also held that Defendant’s LTD determination was arbitrary and capricious because it was not the product of a deliberate, principled reasoning process, as required by the law. In so holding, the court highlighted the fact that Defendant’s denial: (1) recited Plaintiff’s medical history without analyzing whether she could perform her job duties, and (2) did not address a treating physician’s opinion that Plaintiff needed disability benefits and would need work modifications for the rest of her life.

Finally, the court similarly held that Defendant’s denial of Plaintiff’s STD claim was not the product of a deliberate, principled reasoning process because Defendant merely concluded that POTS was a pre-existing condition without explanation, which is arbitrary and capricious. As a result, the court remanded the claim back to the administrator for a “full and fair review.” Halleron v. Reliance Standard Life Ins. Co., No. 3:22-CV-00633-GNS-CHL, 2024 WL 3585139 (W.D. Ky. July 30, 2024).

Will a court enter judgment in favor of an insured plaintiff who sought long-term disability where the plaintiff’s age and underlying medical impediments placed them at severe risk of COVID infection and their particular work responsibilities and the nature of her employment rendered them disabled? Yes. Plaintiff was a pediatric physician whose last day of work was February 27, 2020. On March 3, 2020, Plaintiff underwent surgery for uterovaginal prolapse and a hysterectomy. Plaintiff’s doctor advised that Plaintiff would be disabled following her surgery until at least May 21, 2020 to recover from the procedure. On March 4, 2020, a state of emergency was declared in California due to the rising number of COVID-19 cases, followed shortly by the national emergency on March 13, 2020 and a statewide “Stay at Home Order,” issued on March 19, 2020.

In addition to the risks of COVID-19 posed by her job, Plaintiff suffered multiple medical issues placing her at heightened risk of a severe COVID-19 infection, including conditions that the CDC had listed as COVID-19 risk factors that had the potential to lead to severe infection. Further, Plaintiff’s advanced age (69) at the onset of her disability also put her at increased risk of COVID-19. Given these risk factors and Plaintiff’s potential exposure, she sought coverage under her plan’s long-term disability insurance policy on May 22, 2020.

Defendant denied Plaintiff’s claim for benefits on November 10, 2020, stating that the risks of COVID infection could be reduced with personal protective equipment and other preventative measures and, as a result, its physician opined that Plaintiff was not precluded from performing the full-time duties of the occupation. Plaintiff provided Defendant with further information in January of 2021, largely regarding medical concerns other than those that would put her at risk for COVID-19, and filed a formal appeal in March of 2021 to no avail. After another review, Defendant denied Plaintiff’s appeal, again concluding that the possibility of preventative and protective measure would diminish the risk of COVID exposure.

Given that there was no controlling law on whether a present condition that puts a beneficiary at high risk of COVID-19, but would not otherwise prevent them from completing their usual occupational responsibilities, constituted a disability, the court had to closely analyze the facts of this specific case and the plain language of the policy. In doing so, the court concluded that (1) Plaintiff’s age and underlying medical impediments placed her at severe risk of infection; and (2) Plaintiff’s particular work responsibilities and the nature of her employment rendered her disabled. The court also rejected Defendant’s argument that Plaintiff could have relied on preventative and protective measures given the timeframe of Plaintiff’s claim (early 2020 when vaccines were not available), Defendant’s failure to specify what measures would have reasonably mitigated Plaintiff’s risk of COVID infection and resulting injury or death. Therefore, the court entered judgment in favor of Plaintiff. Downs v. Unum Life Ins. Co. of Am., No. 23-CV-01643-RS, 2024 WL 3908106 (N.D. Cal. Aug. 19, 2024), appeal docketed Aug. 30, 2024.