4 reasons that make a disability insurer's denial of benefits arbitrary and capricious
Anyone with experience with ERISA lawsuits knows the term “arbitrary and capricious.” The term, which describes the standard employed by courts in reviewing most ERISA governed claim denials, acts a shield for insurers and protects their decisions to deny claims as long as they are found to be “rational in light of the plan’s provisions.” So what does “arbitrary and capricious” actually mean?
An analysis of recent case law can help answer this question.
In Keegan v. Metropolitan Life Insurance Company (“MetLife”), a Kentucky district court found that MetLife’s denial of benefits to Mr. Keegan was arbitrary and capricious when MetLife terminated benefits in the absence of medical improvement, ignoring cognitive impairments, and failing to conduct an examination of the claimant, relying instead on file reviews.
History of Mr. Keegan’s disability claim
As a senior engineer for Samsung, Mr. Keegan held a demanding position that essentially required him to be on call 24 hours/day and sometimes required that he sleep at the office, if necessary, while working on a project.
In February 2009, he was diagnosed with Stage IV mantle cell lymphoma and underwent chemotherapy treatment. Mr. Keegan was treated with eight cycles of high-dose chemotherapy between February and August 2009 and as a result he suffered from weakness, fatigue, nausea, fevers, infections, bone pain, and other side effects.
In addition to the common physical side effects from chemotherapy, Mr. Keegan reported feelings of stress and anxiety as well as depression. Before his cancer diagnosis, he had been diagnosed and intermittently treated for bipolar disorder, depression, and anxiety, although these conditions had not previously interfered with his work. These conditions were exacerbated during his chemotherapy treatment and after.
Mr. Keegan started noticing changes in his cognition during the second and third cycle of chemotherapy, which worsened as treatment progressed. Those cognitive did not resolve after his chemotherapy treatments ended.
Mr. Keegan received the maximum amount of short-term disability benefits and MetLife subsequently approved Keegan’s claim for LTD benefits. Following his chemotherapy treatment, Mr. Keegan saw various doctors including his oncologist, neurologist, primary care and several mental health professionals. All of Mr. Keegan’s physicians noted Mr. Keegan’s significant cognitive impairments and found Mr. Keegan to be unable to work due to those impairments.
In early 2011 Mr. Keegan’s psychiatric symptoms began to improve and by April 2011 his treating physicians noted that his psychiatric symptoms were in remission. Importantly, Mr. Keegan reported that “his depression has improved but he doesn’t see much difference in his cognitive skills.” Despite these reports, during an interview with one of MetLife’s in-house psychiatric consultants on June 20, 2011, the consultant noted that “memory issues and cognitive issues are not currently documented in the medical records and there was not current information to support a Cognitive DO, NOS.”
In a letter dated July 13, 2011, MetLife informed Mr. Keegan that his claim was denied, because he no longer met the plan’s definition of disability. When Mr. Keegan’s appeal was denied he filed an ERISA lawsuit in a Kentucky Federal District Court.
After reviewing MetLife’s decision the court found that MetLife’s determination was arbitrary and capricious since MetLife terminated benefits in the absence of medical improvement, ignoring cognitive impairments, and failing to conduct an examination of the claimant, relying instead on file reviews.
Absence of Medical Improvement and Ignoring Cognitive Impairments
Mr. Keegan did not dispute that his psychiatric symptoms improved to the point that he stopped seeing his psychiatrist in April 2011, but maintained that his cognitive deficiencies were separate and had not improved at the time MetLife discontinued benefits.
The Court agreed and remarked:
“Cancellation of benefits in the absence of evidence showing that the claimant’s condition had improved and without an explanation for the apparent discrepancy from earlier assessments is arbitrary and capricious.”
Citing 6th circuit precedent the court explained that the plan administrator must have some reason for the change.
Failing to conduct an examination of the claimant
Additionally, the court noted that “MetLife’s failure to conduct a physical exam, where it had reserved the right to do so, is further evidence of an arbitrary and capricious decision”.
Relying on file reviews
Rather than conduct a physical exam, MetLife relied on the absence of current complaints of cognitive deficiencies demonstrated in a record review to deny Mr. Keegan’s benefits. Since MetLife was essentially making a credibility determination, the court concluded “the lack of a physical exam further supports a finding that the determination was arbitrary and capricious”.
Having determined that MetLife’s decision was arbitrary and capricious the court awarded Mr. Keegan retroactive benefits.
It is important to note that no factor alone was dispositive and that all factors weighed together supported the court’s finding that the insurer’s decision was arbitrary and capricious.
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