In one of the first cases involving conflict of interest since the Supreme Court’s ruling last year, the Court of Appeals for the Fourth Circuit ruled that defendants did not abuse their discretion when they terminated disability benefits. Under the Supreme Court’s recent decision in Metropolitan Life Insurance Co. v. Glenn, 128 S. Ct. 2343 (2008), courts must consider a conflict only as a factor in determining whether a plan’s determination was reasonable.
Lisa Champion, a former employee of Black & Decker brought this action under the Employee Retirement Income Security Act of 1974 (ERISA) against the Black & Decker Disability Plan and Black & Decker as the sponsor and administrator of the Plan.
When Champion began working for Black & Decker in 1995, she came under the Plan, which Black & Decker both funds and administers. Black & Decker employed CIGNA Integrated Care as its claim administrator, but Black & Decker retained ultimate authority to make determinations of whether to pay disability benefits.
The Plan grants to the “Plan Manager,” a Black & Decker executive, specific powers and duties, including the responsibility “to decide all questions concerning the Plan and the eligibility of any person to participate in the Plan or to receive benefits.”
During the first 30 months, an employee is considered disabled if the illness or injury results in the employee’s “complete inability . . . to engage in his regular occupation with the Employer.” After 30 months, the employee is considered disabled only if the employee is completely unable “to engage in any gainful occupation or employment with any employer for which the Employee is . . . reasonably qualified by education, experience or training.” Additionally, after 30 months, the Plan terminates disability benefits for a mental health disability. The Plan defined a mental health disability as one “with a primary diagnosis in the range of 290 to 319 under the International Classification of Diseases, 9th Revision, Clinical Modification (ICD-9-CM).”
In 1999, Champion was diagnosed with a “complex partial seizure disorder.” Treating physicians noticed that Champion also reported seizure-like events that were not epileptic seizures. These events were sometimes characterized as panic attacks and sometimes as “pseudoseizures.” >
In January 2002, Champion had a seizure at work that required emergency room care. She never returned to work at Black & Decker. She applied for short-term disability benefits under the Plan. CIGNA assessed Champion’s condition and denied her application.
Champion appealed to the Plan’s Appeals Committee, composed entirely of Black & Decker employees, and the Committee reversed CIGNA’s denial and awarded benefits, which continued for 30 months. After 30 months, CIGNA terminated benefits, concluding that Champion’s disability resulted from mental illness and therefore, under the Plan, no benefits were payable after 30 months. On Champion’s appeal to the Plan’s Appeals Committee, the Committee affirmed CIGNA’s decision. Champion then retained counsel, who requested a second appeal.
The Appeals Committee granted counsel’s request and considered additional evidence submitted by Champion, but again denied further benefits. Champion brought this action under ERISA, seeking disability benefits beyond the first 30 months.
The district court concluded that there was substantial evidence to justify the Plan’s characterization of Champion’s pseudoseizures as a mental health disability and that Champion could not demonstrate she was unable to engage in “any gainful occupation” absent her pseudoseizures.
The district court found that the Plan did not act in a biased manner. The court found it significant that Plaintiff’s initial claim was denied by a third party administrator which lacked a direct financial interest in the matter, and that the initial denial was reversed by the Plan based on only minimal submissions by Plaintiff. The Plan allowed Plaintiff an additional untimely appeal, after her appeals were otherwise concluded. During the final appeal, the Plan presented the issue to two independent experts whose advice the Plan followed in its ultimate denial decision. The court found no evidence of bad faith or improper intent.
The district court reviewed the Plan’s determination and concluded that the Plan had not abused its discretion. Champion appealed contending that the Plan’s determination was unreasonable.
After the district court decided this case and Champion appealed, the Supreme Court decided Metropolitan Life Insurance Co. v. Glenn, which clarified when a conflict of interest exists and how a conflict is to be taken into account. The Glenn Court held that when the plan administrator serves in the dual role of evaluating claims for benefits and paying the claims, the dual role itself creates a conflict of interest.
As it now stands after Glenn, courts are to apply the abuse-of-discretion standard for reviewing discretionary determinations, even if the administrator operated under a conflict of interest. Under that standard, a discretionary determination will be upheld if reasonable.
The validity of the Plan’s determination to deny Champion further benefits turned on whether the ICD-9 classification was proper. Champion produced no evidence showing that she could substantiate her disability claim on just her epilepsy. In contrast, the Plan provided substantial reasons to believe that Champion would not be disabled without her mental health disabilities. The Fourth Circuit found no evidence to support Champion’s claim that the Plan abused its discretion.
The Fourth Circuit said the Plan provided a well-reasoned justification for its decision denying further benefits, based on the record and the Plan language. Utilizing the combination-of-factors method endorsed in Glenn, the Fourth Circuit concluded that the Plan did not abuse its discretion in terminating Champion’s disability benefits after 30 months.
The case is Lisa Champion v. Black & Decker.>
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