Blogging Employee Benefits

February 22, 2006

Two Disability Benefit Denials Affirmed

Filed under: Disability, Litigation — Fuguerre @ 9:39 pm

The 7th and 8th Circuits have affirmed district court decisions on disability benefit denials under the abuse of discretion standard. In Groves, the 8th Circuit found it reasonable for the insurer to reject the opinion of the individual’s treating physician. In Rud, the 7th Circuit rejected the individual’s contention that the insurer’s denial of benefits had been adversely influenced by conflict of interest.

In Groves, the 8th first found that the district court had not erred by using the ERISA plan’s booklet to evaluate plan terms. Since the plan booklet had granted the plan sponsor discretionary authority, and since the plan sponsor had delegated discretionary authority to the insurer, the appellate court agreed with the district court on application of the abuse of discretion standard. After reviewing the individual’s medical records, the insurer obtained a contrary opinion from an independent physican, who concluded the individual capable of sedentary or light work. Response from the individual’s doctor was contradictory, opining both that the individual was “able to perform at the sedentary level” yet was “incapable of even the most sedentary occupation.” Since the opinion of the individual’s doctor also provided no reliable objective evidence or other convincing medical proof, the court found the insurer’s denial of benefits not unreasonable. [Groves v. Metropolitan Life Insurance Company, CA8, 05-2173]

In Rud, although the individual had alleged an ERISA violation, the individual disputed the district court’s abuse of discretion standard, in part arguing that the insurer was not an ERISA fiduciary. The court observed that if the insurer were not an ERISA fiduciary, then there would be no basis for the ERISA claim, but that the point was moot since the insurer was a fiducary by virtue of discretionary authority over disbursement of plan assets. Like Groves, the plan document itself had not been introduced into the record, but the court similarly found ample evidence that the insurer had been granted discretion over benefit determinations. The individual argued that a conflict of interest existed insofar as any benefits paid to a claimant reduced the insurer’s profit. On that issue, seemingly unhappy with other circuits too easily demanding more than the abitrary and capricious standard implies, the 7th explored the conflict claim to some length, repeating previous 7th precedent that recognizes that “so attenuated a ‘conflict of interest’ is found in every contract.” Pointing to a sliding scale used in other cases to characterize between two extremes of possible conflict, the court found no evidence offered in the current case to indicate where in that spectrum any potential conflict might be. Absent “existence of a real and not merely a notional conflict of interest,” the court was left with an abuse of discretion review of benefit denial, which the court found not unreasonable. [Rud v. Liberty Life Assurance Company of Boston, CA7, 04-3655]

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