Court of Appeals for Alaska, Arizona, California, Hawaii, Idaho, Nevada, Oregon, and Washington Finds LTD Carrier Abused Discretion In Denying LTD Benefits

Long-term disability (“LTD”) benefits claimant, “Barbara”, recently received good news from the United States Court of Appeals. The Ninth Circuit, which rules on cases decided in Alaska, Arizona, California, Hawaii, Idaho, Nevada, Oregon, and Washington, held that Barbara’s LTD carrier had abused its discretion in denying her benefits.

Barbara had undergone multiple hip revision surgeries following hip replacement surgery. After Barbara’s most recent total hip revision surgery, she developed postoperative complications, including sciatic pain and numbness and weakness in her right leg and foot. When Barbara had to stop working, the Social Security Administration (“SSA”) determined that Barbara was permanently disabled and awarded her benefits.

Barbara applied for long term disability benefits with HM Life, which was both the insurer and the administrator of Barbara’s plan. HM Life’s six reviewing physicians all concluded that Barbara was not disabled. HM Life denied Barbara’s claim concluding that the objective medical evidence did not support her disability claim.

Conflict of interest results in heightened scrutiny of carrier’s decision.

In long-term disability cases, abuse of discretion review is “informed by the nature, extent, and effect on the decision-making process of any conflict of interest that may appear in the record.” Thus, where, as here, a structural conflict existed because the insurance company administrator both funded and administered the Plan, “the court must consider numerous case-specific factors, including the administrator’s conflict of interest, and reach a decision as to whether discretion has been abused by weighing and balancing those factors together.” The record in this case, made it clear that HM Life abused its discretion in denying Barbara benefits, based on the five following factors.

Quantity and quality of the medical evidence supported disability.

First, the quantity and quality of the medical evidence supported Barbara’s disability claim. HM Life rejected Barbara’s claim stating there was no objective medical evidence supporting her disability, but the facts show otherwise. An EMG test confirmed that Barbara had right sciatic neuropathy after her last hip revision surgery. Two MRI exams revealed excess metal artifacts in Barbara’s pelvis region. Two x-ray exams revealed bone thinning in Barbara’s right foot. Barbara’s records showed consistent use of strong pain medication. A Functional Capacity Evaluation (“FCE”) submitted by Barbara’s treating physician reported that Barbara could not sit, stand or walk for more than 1-hour a day. Both of Barbara’s treating physicians concluded that she was permanently disabled, which was consistent with the evaluations of Barbara’s treating neurologist and two orthopedists. HM Life failed to credit this reliable medical evidence.

SSA determination was relevant evidence of disability.

Second, HM Life failed to distinguish or even acknowledge the SSA’s contrary disability determination despite having knowledge of it. While HM Life was “not bound by the SSA’s determination, [its] complete disregard for a contrary conclusion without so much as an explanation raises questions about whether [its] adverse benefits determination was the product of a principled and deliberative reasoning process”, the court said. “In fact, not distinguishing the SSA’s contrary conclusion may indicate [HM Life’s] failure to consider relevant evidence.”

No in-person exam indicated lack of thoroughness.

Third, HM Life failed to conduct an in-person medical evaluation of Barbara. Although the Plan did not require an in-person exam, HM Life’s choice to rely on a pure paper review, “raises questions about the thoroughness and accuracy of the benefits determination … as it is not clear the Plan presented [the six reviewing doctors] with all of the relevant evidence.” Not one of HM Life’s six reviewing physicians “mentioned the SSA’s contrary conclusion, not even to discount or disagree with it, which indicates that they may not have even been aware of it.”

Deficiencies of Barbara’s proof were not disclosed by HM Life.

Fourth, HM Life failed to adequately investigate Barbara’s claim and request necessary evidence. HM Life did not procure the SSA file or ask Barbara to do so. Nor did HM Life request any specific evidence that it, or its reviewing physicians, concluded was necessary to prove up Barbara’s claim. For example, one reviewing physician dismissed Barbara’s osteoarthritis diagnosis because no “bone density study” had been performed. Another dismissed Barbara’s FCE because it relied on unspecified exams, x-rays, and evaluations. HM Life’s medical director similarly discredited the FCE because it purportedly lacked an actual objective evaluation. Yet, HM Life failed to communicate these specific deficiencies to Barbara or ask her to supplement the record.

Barbara was denied opportunity to respond to new reason given for claim denial.

Finally, HM Life violated ERISA’s procedures by “tack[ing] on a new reason for denying benefits in [its] final decision, thereby precluding [Barbara] from responding to that rationale for denial at the administrative level.” HM Life’s reviewing physicians conceded that Barbara was in fact disabled during the time she was hospitalized in response to two mental breakdowns. In its final decision, HM Life added for the first time that Barbara’s hospitalizations did not entitle her to long term benefits because she was not deemed disabled at the onset of her disability effective date and because mental health coverage ends at 24 months. HM Life’s last-minute addition of a new reason for denial suggested not only a conflict of interest, but can also be “categorized as a procedural irregularity where, as here, [Barbara was] foreclosed from presenting any response to the new reason”, ruled the court.

These factors, taken together, showed that HM Life abused its discretion in denying Barbara’s benefits. This court decision provides the attorneys representing disabled people who live in Alaska, Arizona, California, Hawaii, Idaho, Nevada, Oregon, and Washington, with specific guidance as to what defects need to be attacked during the administrative appeal process, and if necessary, in a federal court action.


Alan Olson writes this web-log to provide helpful information regarding long-term disability cases. He practices long-term disability law throughout the United States from his offices in New Berlin, Wisconsin. Attorney Olson may be contacted at [email protected] with questions about the information posted here or for advice on specific disability benefit claims.


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