Re-Determining Eligibility for Benefits
How Insurance Companies Take Multiple Bites of the Proverbial Apple in Deciding Disability Claims
By: Michael A. McKuin
Revised: December 2014
Even in those cases, where the insurance company has found that a claimant meets the "Any Occupation" ("Any Occ.") definition of "total disability" and even after "Any Occ." Long Term Disability (LTD) benefits have been paid by the insurer perhaps for years, it is not uncommon for the company to abruptly terminate benefits. This sometimes happens when a new claims representative is assigned to the file and takes a "fresh look" at the claim.
Typically, the process starts with the "claimant information update" form, which is sent to the claimant at least once a year. In addition to the annual Attending Physician’s Statement and Claimant Statement, the insurer may request ALL updated medical records, which it will have reviewed by its own physician (or nurse) reviewer. Sometimes this review will precipitate an "Independent Medical Exam" (IME), which will be followed up by a "Transferrable Skills Analysis" by an in-house vocational assessment. (See Article: The IME / TSA Swindle). It is not uncommon for the insurance company to arrange video surveillance of the claimant as he or she travels to and from the IME. At that point the private investigator, reviewing physicians, and claims personnel are looking for any kind of “activity” that they can construe in a way that will undermine a claim of disability. (See Article: The Magic of Surveillance).
When an insurance company conducts what is essentially a "re-review" of an existing claim, where it has already made an initial eligibility determination, and where there has been no material change in the claimant's physical condition, job skills, or employment status, it amounts to going back and taking a second bite at the proverbial apple. This practice is tantamount to saying that the claimant never met the "Any Occ." definition of "disability" in the first place. Thus, it is, in essence, a "re-determination" of the claimant's initial eligibility. As long as Courts permit insurers to engage in this practice, no "Any Occ." LTD claimant will ever be "safe" from some post hoc determination that he or she was never "totally disabled" in the first place. Not only does that defy common sense, but it is contrary to the very purpose of ERISA. Blau v. Del Monte Corp., 748 F.2d 1348, 1356 (9th Cir. 1984), cert denied 474 U.S. 865, 106 S.Ct. 183 (1985) ("[T]he evils against which ERISA was enacted to guard - insecurity, (and) lack of knowledge . . . are just the evils that appear in Del Monte's administration of its plan." Id at 1356).
Not only is such a re-determination practice indicative of "arbitrary and capricious" decision-making, but it is the height of absurdity. As the court stated in Vaughn v. The Centennial Life Insurance Company, Case No. C-91-4295, (decided and entered February 18, 1993), 1993 U.S. Dist. LEXIS 2108, at * 11 (1993): "In defending against this lawsuit Centennial can argue. . . that under the terms of the policy Ms. Vaughn is only entitled to two years of benefits. However, it would offend common sense to countenance Centennial's assertion that Ms. Vaughn is not entitled to further benefits because, in essence, she was never eligible for benefits in the first place." Also, as the District Court stated in Dishman vs. Unum 1997 U.S. Dist. LEXIS 22676; 98 Daily Journal DAR 10340; 21 E.B.C. 2941 (CD Cal, 1997): "UNUM determined in 1993, and subsequently on the basis of accurate and complete information provided by Mr. Dishman, his physician and employer, that Mr. Dishman's medical condition was such as to meet the definition of disability under the contract. The Court does not believe that UNUM has the right to now question its own determination." Id at *17. "No significant changes have occurred in Mr. Dishman's medical condition since UNUM's initial determination that he was disabled." Id at *23. "A claimant for disability benefits has the burden of demonstrating the existence of the disability. However, one relevant consideration in determining the existence of a disability is whether any significant changes have occurred in the individual's condition since the insurer's initial determination that the covered individual was disabled." "The Court is appalled by how UNUM handled Dishman's claim. When UNUM decided to discontinue Dishman's disability payments, it had no concrete knowledge about his financial situation. It had no reason to believe that Dishman and his wife had any means of support other than his monthly benefit. It had received no information which suggested that his medical condition or his capacity for full time employment had changed since the date upon which his disability claim was allowed. The decision to suspend payments was made on such clearly pre-textual bases, that it is impossible to avoid the conclusion that it made in bad faith." Id at *32-33.
More recently, the Ninth Circuit has weighed in, sort of. See: Montour v. Hartford Life & Accident Ins. Co., 588 F.3d 623, 635 (9th Cir. 2009) (“Given that Hartford found Montour disabled . . . '[i]n order to find [him] no longer disabled, one would expect the MRIs to show an improvement, not a lack of degeneration.'"), quoting, Saffon v. Wells Fargo & Co. Long Term Disability, 522 F. 3d 863, 871 (9th Cir., 2008). ("After all, MetLife had been paying Saffon long-term disability benefits . . . which suggests that she was already disabled. In order to find her no longer disabled, one would expect the MRIs to show an improvement, not a lack of degeneration." Saffon, at 871). Other circuits have reached similar results, McOsker v. Paul Revere Life Insur. Co., 279 F.3d 586, 589 (8th Cir. 2002).
(“. . . unless information available to an insurer alters in some significant way, the previous payment of benefits is a circumstance that must weigh against the propriety of an insurer’s decision to discontinue benefits.” 279 F.3d at 589); Levinson v. Reliance Standard Ins. Co., 245 F. 3d. 1321, 1331 (11th Cir. 2001) ("Because Levinson satisfied his obligations under the terms of the plan, Reliance had to produce evidence that Levinson was no longer disabled in order to terminate his benefits".).
An insurance company should certainly be entitled to "update" its records, to assure that there has been no material change in a claimant's disability status since its initial eligibility determination (e.g. a material medical improvement in physical condition, acquisition of additional job skills, etc.). However, in the absence of such a material change in status, (and/or the absence of some issue relating to a material misrepresentation by the claimant) an insurer should not be entitled to re-visit the issue of a claimant's initial eligibility. In other words, an insurance company should not be allowed to just change its mind, nor should it be allowed to go back and re-create the administrative record after the fact. Such a "re-determination" practice also arguably violates 29 CFR @ 2560.503-1 (i), which generally requires that a final determination be made on an administratively appealed claim within 45 days (90 days if "special circumstances" exist).
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