Suits In The WorkPlace

Terminating Benefit Payments: What ERISA Really Says

    Because the federal ERISA statute is basically a tax law, many employment litigators stay as far away from it as possible.  ERISA cases continue to proliferate, however, and that trend should continue given:  (a) the "graying" (or, in my case, the "graying" and "balding") of the population; (b) the skyrocketing costs of disability medical care, making this a big target for reduction by the disability plan administrators; and (c) the corresponding skyrocketing value of the cases, which attracts lawyers like my mailbox attracts credit card offers.

     The 4th Circuit recently delivered an opinion on a very difficult denial of benefits case.  The opinion is remarkable for the clarity of its discussion as to what standards courts have to apply in evaluating these cases.  The plaintiff, a victim of severe rheumatoid arthritis, quit her job because her condition made it impossible to perform her work as an order processor.  After receiving benefits for five years, and after an intervening car accident caused serious injuries to her back, the disability benefits plan administrator determined that she was no longer eligible for disability and terminated her benefits. 

    No fewer than nine physicians reviewed her medical file on behalf of the plan, while the plaintiff had three highly qualified specialists, who also were her treating physicians, on her side of the table.  The plan physicians all determined that the plaintiff was no longer disabled under the terms of the plan and supported the termination of the benefits decision.  The three treating physicians -- and remember, none of the plan physicians had actually examined the plaintiff -- all opined that she did meet the definition of disability under the plan and that benefits should be reinstated.  Looking through all of this material over the course of two additional appeals, the plan administrator upheld the decision to terminate the disability benefits, and the plaintiff sued. 

     The trial court reversed the plan administrator, finding that the three examining physicians were substantially more persuasive than the plan's nine doctors who reviewed the file.  The plan administrator appealed.

     The 4th Circuit panel reversed the trial court and upheld the denial of benefits.  In doing so, the panel noted the key point for these types of cases -- namely, that the plan administrator is entitled to wide and deferential latitude when a court is reviewing the decision to deny disability benefits.  Under the language of most benefit plans, courts use what is referred to as an "abuse of discretion" standard of review.  This basically means that the plan administrator's decision should be upheld as long as the decision is supported by substantial evidence, careful reasoning, and adherence to the statute and the language of the plan document itself. 

     In other words, as long as the plan can show that it intelligently evaluated evidence both for and against its ultimate decision and has a reasonable basis for its action, a court may not disturb the plan's determination. 

     I can tell you from experience that these cases are some of the most difficult civil matters a company will ever deal with because of the equivocal evidence and often extremely sympathetic situations of the people whose benefits are being reduced or terminated.  The social policy basis for this logic is clear, however, in the court’s opinion.  "[W]hatever the call on our compassion in a particular case, ... the fact is that the 'price' [of greater coverage] would almost certainly [be] lower benefits levels and lower levels of plan formation."  ERISA judgments must take into account the fact that a compassionate yet improper award of benefits in one case will reduce the overall pool of benefits and ultimately runs the risk of dissuading employers from offering any plans at all.