Claimant with Fibromyalgia and CRPS Battles Sunlife for 5 Years Seeking Disability Benefits

Ms. G has been battling with SunLife for more than five years to get her long term disability benefits paid. Let’s take a look at this long time long term disability lawsuit in two parts. In a lengthy and complicated court ruling, the Appellate Court examines three interesting contentions raised by the claimant, Ms. G, on appeal: 1) that her claim is not governed by ERISA; 2) that the district court was incorrect in reviewing Sun Life’s decision under the “arbitrary and capricious” standard of review; and 3) that even using the incorrect standard of review, the district court erred in granting summary judgment in favor of Sun Life.

What is ERISA and how does it affect my disability claim?

ERISA stands for The Employee Retirement Income Security Act of 1974. It is a federal law that regulates and sets standards that apply only to private employers that offer employer-sponsored health insurance coverage and other welfare benefit plans (such as life insurance, short-term and long-term disability insurance) to employees. ERISA does not apply to privately purchased individual insurance policies or government employees or association issued policies. ERISA was established to help protect the interests of employees that participate in these plans offered by their employers. However, in terms of claims for disability benefits, this law tends to work in favor of the disability insurance companies and makes it very difficult for claimants whose disability benefits have been denied to bring successful lawsuits against disability insurance companies for wrongful denial of disability claims.

When a benefits plan is found to not be governed by ERISA regulations, it will instead be governed by the applicable state laws. State laws allow much more leeway for claimants: they can offer certain beneficial remedies; potentially allow for a beneficial standard of review; provide for different rules regarding admissibility of evidence; and provide the potential for a jury trial.

A welfare benefit plan is found to be governed by ERISA when it has the “five essential constituents: (1) a plan, fund or program (2) established or maintained (3) by an employer or by an employee organization, or by both (4) for the purpose of providing medical, surgical, hospital care, sickness, accident, disability, death, unemployment or vacation benefits, apprenticeship or other training programs, day care centers, scholarship funds, prepaid legal services or severance benefits (5) to participants or their beneficiaries.”

The claimant, Ms. G, attempted to argue in her case that her claim fell outside ERISA pursuant to the “safe harbor” provision. Under this provision, 4 criteria must be met: “(1) the employer makes no contributions on behalf of its employees; (2) participation in the program is voluntary; (3) the employer’s sole functions are to collect premiums and remit them to the insurer, and, without endorsing the program, to allow the insurer to publicize the program to its employees; and (4) the employer receives no consideration for its efforts, other than reasonable compensation for administrative services necessary to collect premiums.”

The appellate court rejected Ms. G’s argument for 2 reasons. The first reason was that Ms. G’s employer offered a benefits “package” that included life insurance, accidental death & dismemberment, long term disability and short term disability benefits. These group policies were treated as a unit and the benefits were managed as one policy and even had the same policy number. Ms. G attempted to separate out the LTD plan from the Life and AD&D plans, which were undisputedly governed by ERISA. However, the Court found that it is well-established that in cases where an employer offers multiple benefits, but said benefits are managed as one single policy and are treated alike, it would be impractical to allow certain benefits from the plan to be governed by ERISA and then for other benefits to fall outside ERISA and be governed by state laws.

Secondly, Ms. G argued that her claim fell under the “safe harbor” provision because 3 of the 4 criteria were met: 1) her employer did not contribute to the LTD policy; 2) her participation was voluntary; and 3) her employer did not receive any consideration connected to its employees participating in the LTD plan. Ms. G admitted that her employers’ functions relative to the administration of the policy could be disputed and the Court determined that her employer did, in fact, play more than a “bystander’s” role with regards to the LTD policy.

Moreover, though it was determined that the LTD policy did not qualify under the “safe harbor” provision, it did have the “five essential constituents” of an ERISA governed welfare benefit plan. As such, the Court ruled that the LTD policy, and Ms. G’s claim for disability benefits, would be governed by ERISA.

Two possible Standards of Review under ERISA: de novo or arbitrary and capricious

The de novo standard of review is the most beneficial to claimants because this permits the judge to review the medical evidence and other evidence contained in the administrative record and make his/her own judgment regarding whether or not the disability insurance company was wrong to deny disability benefits to the claimant.

The arbitrary and capricious (or abuse of discretion) standard is much more difficult for claimants. Under this standard of review, the judge is not allowed to substitute his/her own judgment about whether or not the insurance company was wrong in denying benefits. Rather, the judge reviews the insurance company’s decision-making process and whether the decision (right or wrong) was supported by the evidence that was available at that time. Even if the judge thinks the decision to deny benefits was wrong, if the decision was reasonably supported by the evidence, then the judge must rule to uphold the wrong decision.

A case will be reviewed under the arbitrary and capricious standard of review when the LTD policy specifically grants discretionary authority to the insurer or third-party administrator to determine whether a claimant is eligible for benefits and to interpret the terms of the plan. If discretionary authority is not clearly granted to the party that made the decision to deny disability benefits, then the case will be reviewed under the de novo standard of review.

The district court denied Ms. G’s motion for de novo review and Sun Life argued that the LTD plan grants discretionary authority based on 2 statements contained in the policy: 1) “Proof [of claim] must be satisfactory to Sun Life”; and 2) “Benefits are payable when Sun Life receives satisfactory Proof of Claim.”

In support of its argument, Sun Life cited to an old case that established the precedent that when a plan contains the phrase “satisfactory to us”, this phrase constituted the granting of discretionary authority, thus providing for the application of the arbitrary and capricious standard of review. However, the appellate court recognized that the “precedential landscape” has since changed and many courts no longer accept that the “satisfactory to us” phrase is sufficient to grant discretionary authority to a party. The policy language must clearly establish that Sun Life has discretion to grant or deny benefits. Instead, the appellate court determined that, at most, the 2 phrases Sun Life quoted from the LTD policy only established that Sun Life was permitted to determine what forms of proof must be submitted with a claim.

Because the court determined that the policy language did not specifically grant Sun Life discretionary authority to make benefit determinations and interpret the terms of the plan, it ruled that de novo standard of review was proper in Ms. G’s case. The Appellate Court was unable to determine whether the claim was justifiably denied and orders remand back to Sun Life for further evaluation and reconsideration. Click here to learn why the court decided to give Sun Life another chance to review the disability denial instead of just awarding disability benefits. No portion of this case was handled by our law firm.