If you recall the post a few weeks ago on the Stewart v. Hartford case, you will remember that discretion in an ERISA disability benefit plan was a big problem. With discretion, the court allowed the insurance company to interpret policy terms inconsistently and against the insured. Insurance companies love discretion because it gives them nearly absolute power, as they have greater control over their own profitability.
You will recall the discretion afforded to an insurance company's ERISA claim decision means that a court must give deference to that decision, and even a wrong decision with a reasonable basis is good enough to win the day for the insurance company. That discretion, however, does come with a few obligations as articulated by the court in a recent case, Brewer v. Unum, a new case decision from the Northern District of Alabama (case 1:21 – CV – 00694– CLM) August 22, 2022.
Facts of the Case:
- Ms. Robin Brewer was a store manager for CVS and was covered by a pretty good benefits package including short-term and long-term disability benefits with Unum.
- Brewer started in 2002 and worked her way up to the position of Store Manager.
- By the time she was in her mid-fifties, she began to have some physical problems, including back and neck pain, severe headaches, increased arthritic problems, osteoporosis, and COPD.
- She was on medication and took pain blocks, but finally, it was obvious that she could no longer perform her job as required. Surgery was offered on her neck and back, but she was greatly concerned over the risks.
- Brewer filed a claim for short-term disability benefits, and that was paid.
- She then filed a claim for long-term disability, which was paid a short while, but then her claim was terminated.
- She could not understand why Unum reversed course. She hired counsel, and it was fairly apparent upon review of the information provided, that the claim was denied simply because Unum could do it.
- In other words, it really did not need a legitimate reason to deny the claim. It has discretion in its plan, so it could engage in “arbitrary and unprincipled outcome-based decision-making.” That did not concern Unum, however, because it knew that whatever it did, if it could come up with some sort of reasonable basis for decision, a court had to go along with it.
- Brewer very carefully followed all the plan requirements and the deadlines, and with the assistance of counsel, submitted an appeal. That triggered the time deadlines for Unum to decide the appeal.
- That timeframe generally is 45 days from the receipt of the appeal, and that is not to be extended unless there are special circumstances requiring an extension of time.
- In this case, Unum did not have special circumstances. It simply stated that it needed additional time to finish a medical review.
- A medical review is commonly performed on every appeal involving disability insurance benefits wherever review of medical records is necessary. That was not “special”.
- The time for making the decision passed, and Ms. Brewer filed a lawsuit. After Unum learned of the lawsuit, it quickly denied the claim in three days flat.
- During litigation, a partial summary judgment was entered against Unum, finding that the de novo standard of review was applicable to the case.
- The plan in this case gave Unum discretion to determine eligibility for benefits and construe plan terms but associated with that is the fiduciary duty to follow the rules regarding the minimum standards of the claim procedure.
- The ERISA statute only states that a full and fair review must be provided, but it leaves it to the Department of Labor to define what constitutes a full and fair review.
- One of those rules is that benefit plan administrators must decide claims within the deadlines, and they are supposed to strictly adhere to those time frames. When they do not, then the fact that they did not exercise their discretion during the time frame allowed means that there was no discretion exercised at the time the lawsuit was filed. No deference is afforded to a non-decision or an untimely decision.
The court stripped Unum of its discretion, finding that it did not comply with the minimum standards of a full and fair review. The de novo review would be applicable, allowing for the case to proceed like an ordinary insurance contract case governed by state law. This case is a good example of how to strip away discretion when unfairness is evident. Deference may be reserved in a plan document, but that does not excuse an insurance company from following the rules of fairness.