Remember that old saying from undergrad computer class – garbage in – garbage out? The 11th Circuit recently ruled that is not true for ERISA under certain circumstances. In a per curiam opinion, the ERISA disability claim heard was denied with garbage, but the decision was held to be reasonable after the court considered evidence that showed it to be a reasonable result. Sounds fair enough until you recall that typically courts will not consider new medical and vocational evidence proffered during litigation because the claim record is closed. The court is only to review the “facts known” to the claims administrator. But now the court lifted the lid on that rule, and let the claims administrator admit new evidence to fix a mistake it made during the claim process – which showed its decision to be reasonable nonetheless.

In Lopez v. Standard Ins. Co., No. 17-11012, 2018 WL 3694821 (11th Cir. Aug. 3, 2018), the court recounted how Mr. Lopez ceased work in September 2005 due to injuries form heavy lifting. He attempted to return to work on November 22 but was terminated the next day. For some reason he waited until October 13, 2006, to file a long-term disability claim. For some reason it took Standard almost 10 years to figure out the Mr. Lopez was disabled as to his own occupation. (This is rather astounding and indicates Mr. Lopez did not have experienced ERISA counsel during the claim process. This time frame is about nine years outside the minimum requirements of a full and fair review. It also defeats the purpose of having income protection.) In February 2015 Standard paid the two years of benefits and refused to pay any further money. It found Mr. Lopez was able to perform other sedentary occupations making 60% of what he previously made.

Mr. Lopez challenged this, but Standard refused to change its position. Mr. Lopez filed a lawsuit and pointed out the flaw in the vocational information relied upon by Standard to deny the claim. It used wage information from 2013 when the relevant time was 2007. In response, Standard simply attached to its motion for summary judgment the 2007 information (which was new evidence) and stated that there was no harm here because the result would have been the same. (I am wondering if the Consumer Price Index was part of the calculation here possibly making this incorrect- the 60% would increase – but it was not brought out.) The magistrate permitted the evidence and found that Standard did not act unreasonably. No one objected to the magistrate's report, and so the district court entered the report as an order disposing of the case. An appeal followed to the 11th Circuit.

Mr. Lopez argued that the district court committed plain error, a very high standard to meet. This was the only ground for appeal due to the lack of objection to the report. The plain error was the court's considering evidence generated after the administrative record was closed. The 11th Circuit recalled its rule that “…we consider only ‘the material available to the administrator at the time it made its decision.' (citing to Blankenship v. Metro. Life Ins. Co., 644 F.3d 1350, 1354 (11th Cir. 2011)). This rule prevents post-hoc relitigation of the substantive claim and encourages a full development of the record before the administrator.” Bloom v. Hartford Life & Accident Ins. Co., 917 F.Supp.2d 1269, 1277 (S.D. Fla. 2013). Based on this rule alon, Mr. Lopez was right since the vocational report was based upon garbage – data from 2013. The rule garbage in — garbage out would apply, and the benefit should have been paid with leave for Standard to consider the claim going forward.

The 11th Circuit, however, disdained the lack of objection to the Magistrate report, and said “ … it was not plain error for the court to note that the analysis turned out the same no matter which data was used. This was not an example of an insurer initiating a post-hoc relitigation of Lopez's claim based on new evidence. See Bloom, 917 F.Supp.2d at 1277. … Plain error review is a difficult standard to meet.” Lopez v. Standard Ins. Co., No. 17-11012, 2018 WL 3694821, at *3 (11th Cir. Aug. 3, 2018)

In case you are wondering about plain error, the 11th Circuit articulated the standard recently in United States v. Ruckstuhl, 719 F. App'x 897, 902 (11th Cir. 2017) quoting United States v. Hall, 314 F.3d 565, 566 (11th Cir. 2002 “Plain error occurs where (1) there is an error; (2) that is plain or obvious; (3) affecting the defendant's substantial rights in that it was prejudicial and not harmless; and (4) that seriously affects the fairness, integrity or public reputation of the judicial proceedings.” ). At least the first three prongs were met (I hardly think the rule only applies to defendants). Implicit in the ruling then is that the court felt that there would be no harm to the fairness and integrity or public reputation of the judicial proceeding by affirming the decision.

Insurers will no doubt argue that this opinion gives them the right to correct mistakes after their final decision – post hoc rationales. Claimants also will argue that they too should have a right to correct prior mistakes from the claim process during litigation. However, the real holding is that counsel best object to a magistrate's report or face the consequences for failing to preserve the issue. I do not believe the court has opened Pandora's box, but we will see…