Court Strips Aetna of its Discretionary Authority in an ERISA long term disability litigation

In an ERISA New York disability litigation against Aetna, Riemer Hess successfully argued the Court should review the case under the plaintiff-friendly de novo standard – substantially increasing the Plaintiff’s chances of prevailing.  The Court, in following the Second Circuit Court of Appeals’ ruling in Halo vs. Yale Health Plan, stripped Aetna of its discretionary authority because it failed to to strictly adhere to the ERISA claims regulations, and its violations were neither inadvertent nor harmless.

Background

The Plaintiff is a former Chief Financial Officer for a large retail corporation  whose severe cardiac impairments forced him to step down and take on a less demanding occupation.  He applied for partial disability benefits under his company’s group Long Term Disability Plan through Aetna.  In his claim, the Plaintiff alleged he was entitled to partial disability benefits because he his medical condition rendered him unable to work in his own occupation, and he suffered a loss of income by taking on a less demanding job. 

 Aetna denied the Plaintiff’s claim – alleging he was not disabled within the terms of the plan, despite his inability to handle the high demands of his position as Chief Financial Officer.   

The Plaintiff appealed Aetna’s denial, but his appeal was denied.  On his behalf, Riemer Hess filed an ERISA disability litigation against Aetna to recover the partial disability benefits to which he was entitled.  The action was filed in the U.S. District Court, Southern District of New York.

The Standard of Review  

In any ERISA disability litigation, determining the Court’s standard of review is of the utmost importance.  By default, the Court will review the case under the Plaintiff-friendly de novo standard – whereby the Court will review the case to determine if the insurer’s denial was supported. 

However, if the long term disability plan contains a grant of discretionary authority (as most do), the Court will review the case under the more difficult arbitrary and capricious standard.  The arbitrary and capricious standard can ultimately make it difficult for the Plaintiff to ultimately win, so de novo review is almost always preferred.

In this case, there was no dispute that applicable long term policy contained a grant of discretion to Aetna.  So, under the general rule, the case would have been reviewed under the more difficult arbitrary and capricious standard. However, the Second Circuit Court of Appeals’ decision in Halo v. Yale Health Plan, set forth is a key exception to the general rule.  That is, the insurer forfeits its discretionary authority – thereby triggering de novo review –if the insurer fails to strictly comply with the Department of Labor’s ERISA claim procedure regulations, and its failure is neither inadvertent nor harmless to the Plaintiff.

Riemer Hess's Winning Arguments

Armed with in-depth knowledge of ERISA’s procedural regulations and the case law on the issue, Riemer Hess argued for de novo review on cross-motions for summary judgment.  Riemer Hess argued that Aetna violated the ERISA claim procedure regulations by:

1. Failing to make a decision on appeal within 45 days of its receipt, and failing to give “special circumstances” necessary to be granted an extension of that 45-day time deadline. According to the ERISA claims procedure regulations, an insurance company must render a decision with 45 days of its receipt of an appeal, but may request a 45 day extension only if there are “special circumstances” warranting additional time.

In the Chief Financial Officer’s case, Aetna received his administrative appeal on November 5, 2015.  However, Aetna took very little action in the 45 days following its receipt of the appeal.  Aetna then sent a letter on day 43 stating they need addition time to make a decision because they were in the process of referring the appeal for a “specialty matched medical opinion.”  Riemer Hess argued that the need for a medical review does not constitute a “special circumstance” permitting the extension of the 45 day deadline.  As a result, the failure to render a decision within the 45 days was a violation of the ERISA claims procedure regulations. 

2. Failing to consider a vocational assessment that was submitted by the Chief Financial Officer with his appeal. According to the ERISA claims procedure regulations, an insurance company must provide a review that takes into account all documents submitted by a claimant both during the initial claim determination and on appeal.

In the Chief Financial Officer’s case, he submitted a comprehensive vocational assessment with his appeal.  However, based on a review of the record, the only “consultant” that arguably reviewed the vocational report was Aetna’s file review physician.  Other than that, there was no evidence that Aetna considered the Chief Financial Officer’s vocational expert’s opinion.  Riemer Hess, therefore, argued that an alleged review of a vocational report by a medical doctor is insufficient, and Aetna could not meet its burden of proving it considered all of the evidence submitted with the Chief Financial Officer’s appeal.    

Aetna's Losing Arguments 

In response to Riemer Hess's argument, Aetna argued the following:

1. Regarding its failure to render a decision within ERISA’s 45 day time deadline, Aetna claimed: (a) if the Chief Financial Officer believed Aetna did not have a basis to extend its time to make a decision on appeal, he should have notified Aetna at that time; and (b) because the Chief Financial Officer requested, and was granted an extension later on in the appeal process, he cannot later contend Aetna’s initial request for an extension was invalid.

2. Regarding its failure to consider all of the evidence submitted with the Chief Financial Officer’s appeal, Aetna claimed that certain portions of its internal claim notes prove it considered the vocational assessment. For example, Aetna alleged: (a) at a meeting involving 5 Aetna employees, the insurer resolve “to clarify the vocational information;” (b) in a telephone conversation between Aetna’s initial appeal specialist and the Chief Financial Officer’s attorney, the vocational report was discuss; (c) Aetna’s referral of the appeal for further vocational review demonstrates the vocational report was considered;  (d) the file review physician’s report specifically listed the vocational report as one of the documents reviewed; and (e) the statement in Aetna’s appeal denial letter noting that its “review included all of the information included” with the Chief Financial Officer’s claim and appeal is sufficient to prove the vocational report was considered.

The Court's Decision

The Court ruled in favor of the plaintiff Chief Financial Officer – concluding that the de novo standard of review was applicable.  The Court rejected each of Aetna’s arguments. First, the Court explained Aetna’s desire to obtain a specialty-matched file review of the Chief Financial Officer’s appeal was not a special or extraordinary circumstance necessary to justify the 45 day extension of its deadline to make a decision – mainly because such a review is required in processing almost every Long Term Disability appeal.  Second, the Court explained that none of the evidence Aetna pointed to proves actually considered the vocational assessment when deciding the Chief Financial Officer’s appeal.  Third, the Court noted Aetna failed to prove its violations of the ERISA claims regulations were inadvertent and harmless, and resolved to review the ERISA Disability Litigation under the de novo standard.   

Conclusion

Despite the presence of discretionary language, Riemer Hess successfully convinced the court to apply the plaintiff-friendly de novo review standard.  This decision confirms courts in New York will not hesitate to strip insurers of their discretionary authority in an ERISA long term disability litigations where they violate ERISA’s claims procedure regulations, and such violations are neither inadvertent nor harmless to the plaintiff.