The Problem with ERISA | Zalma on insurance

Carol Stewart sued Hartford Insurance Company to get two insurance benefits she believes it owes her:

1. long-term disability benefits and
2. exemption from life insurance premiums.

IN Carol H. Stewart v. Hartford Life and Accident Insurance CompanyNo. 21-11919, United States Court of Appeals, Eleventh Circuit (August 10, 2022), the Eleventh Circuit found itself bound to follow the statute rather than its own conclusions regarding the availability of coverage for Ms. Stewart.

Hartford argued that although she was insured, it concluded that she was not entitled to the benefits she sought.

Hartford’s policy, pursuant to the statutory ERISA statute, unquestionably gave it the ability to make benefit determinations.

In 2007, prominent Birmingham attorney Carol Stewart’s doctor diagnosed her with Parkinson’s disease. At the time, Burr Forman LLP, Stewart’s employer, provided her with health insurance through its ERISA health care plan. Sun Life Assurance Company of Canada, which administered that plan, began paying Stewart partial and later total disability benefits. In 2010, Burr Forman canceled his insurance with Sun Life and switched the administration of his ERISA health plan to Hartford Insurance.

The new Hartford policy contained an exclusion clause that specified that a member of the company was not eligible for disability insurance if she received:

benefits for a disability under a previous disability plan that: 1) was sponsored by [her] Employer; and 2) was terminated prior to the effective date of the policy.

Because Sun Life was still paying Stewart disability benefits, Hartford found that Stewart “was compensated for [a] Disability under a prior disability plan” that had been “discontinued” before its own policy took effect and, consequently, that she was not eligible for Hartford disability benefits.

Hartford also provided life insurance. Its life insurance policy specified that one who was “disabled” need not pay premiums for coverage, and it defined “disabled” in relevant part as being unable to perform “a few work for which [one is] qualified by: 1) education; 2) training; or 3) experience.”

Hartford determined that Stewart was not “disabled” under its policy and that she was therefore required to pay life insurance premiums.

Stewart sued only to have the district court grant Hartford summary judgment.

ANALYSIS

When reviewing a plan administrator’s benefit decision,” this court performs the following six-step analysis:

• Apply de novo standard for determining whether the claims administrator’s decision to deny benefits is “wrong” (ie, the court disagrees with the administrator’s decision); if it is not, then close the investigation and confirm the decision.
• If the administrator’s decision is in fact “de novo erroneous,” then determine whether he had standing to litigate claims; if not, terminate the legal investigation and set aside the decision.
• If the administrator’s decision is “de novo erroneous” and he had discretion to review claims, then determine whether “reasonable” grounds supported it (therefore review his decision under the more deferential arbitrary and capricious standard)
• If there are no reasonable grounds, then close the investigation and overturn the decision of the case officer; if reasonable cause exists, then determine whether he operated under a conflict of interest
• If there is no conflict, then close the investigation and confirm the decision.
• If there is a conflict, the conflict should be only one factor for the court to consider in determining whether an officer’s decision was arbitrary and capricious.

Disability

Because Burr Forman’s plan gave Hartford discretion in reviewing claims (step 2), that Hartford’s interpretation of the provision and its decision in Stewart’s case were “reasonable” (step 3), and that any conflict of interest Hartford had (step 4) and 5) did not lead it to make an arbitrary and capricious decision (step 6) ERISA required the Eleventh Circuit to agree with the district court that Hartford is entitled to summary judgment.

The relevant policy language states the following, with emphasis added by the Eleventh Circuit:

If you receive or are eligible for disability benefits under a previous disability plan such as:

1) was sponsored by your employer; and

2) was terminated before the effective date of the policy; no benefits will be paid for the disability according to the insurance.

The Eleventh Circuit noted that, acting as a trial judge, it tended to disagree with Hartford’s decision.

ERISA itself seems to recognize that a “plan” is separate from insurance policy that serves it. However, because this is an ERISA benefits case, the analysis requires the Eleventh Circuit to consider five additional steps.

• Step 2: Has Hartford’s policy afforded it discretion in reviewing benefit claims.
  • It did – the policy expressly states that Hartford has “full freedom and authority to determine eligibility for benefits and to construe and interpret all terms and provisions of the policy.”
• Step 3: Were “reasonable” grounds to support Hartford’s interpretation and decision.
  • They did. Although it might not be best Reading the exclusion from the policy, it was reasonable for Hartford to interpret the phrase “prior disability plan” as a reference to the Sun Life policy. Given an unfortunate inaccuracy, the words “plan” and “policy” may be interchangeable.
• Step 4. Did Hartford have a conflict of interest, and if so, the court must jump to Step 6 and ask whether that conflict led to an arbitrary and capricious decision.
• Step 6: Requires the Eleventh Circuit to determine whether the conflict resulted in an arbitrary and capricious decision. As a matter of common sense, it was reasonable for Hartford to interpret its policy to prevent an insured from receiving payments from two different sources for the same disability.

Hartford therefore had discretion to determine whether Stewart was entitled to benefits under its policy, and it exercised that discretion reasonably.

Accordingly, the Eleventh Circuit affirmed the district court’s decision to deny Stewart’s claim for disability benefits.

Did Hartford correctly deny Stewart a waiver of life insurance premiums.

It did. Applying the plain meaning of the words in the contractual definition, Stewart was not “disabled” and was therefore not entitled to a premium exemption.

First, “work”. In this context, it seems clear to us that the term “work” denotes an effort made to achieve one’s income or livelihood. Thus, to be entitled to premium relief, Stewart must have been unable (1) to engage in any form of income (2) for which she was competent based on her knowledge or skills acquired over time. Then Stewart where able to perform work for which she was qualified by her education, training and experience since she was educated, trained and experienced as a lawyer. But she also graduated from high school and college and was thus qualified to do jobs that require less specialized skills as well.

And here the record shows that Stewart could sit for a couple of hours, stand for half an hour and walk for half an hour. It also shows that while Stewart suffered from mild cognitive impairment, she retained the ability to perform less demanding tasks that did not require high-level analytical or organizational skills.

Although Stewart may not have been able to practice law, the record supports Hartford’s decision that her ability to perform less demanding sedentary work was not unreasonable.

Even assuming Stewart could only work part-time, that counts as “any work”. The word “any”, that is, expresses a lack of restriction when choosing something from a specified class. Because Hartford’s interpretation was not erroneous on review, the Eleventh Circuit closed the inquiry at Step 1 and affirmed the decision.

In any event, as already explained, Stewart’s insurance policy gave Hartford discretion in determining benefit claims, and Hartford did not abuse that discretion in determining that Stewart could perform “any work” consistent with her education or experience. Construing “any work” broadly to mean any work was at least reasonable.

In sum, Stewart was not entitled to disability benefits because Hartford’s interpretation of the disability exclusion was reasonable, and its conflict of interest did not cause it to make an arbitrary or capricious decision. Likewise, Stewart was not eligible for a life insurance premium waiver because she was not disabled under Hartford’s life insurance policy.

ERISA is a special statute that allows employers to create a thorough and relatively inexpensive series of benefits for their employees. The result may seem unfair, but the decision meets the requirements of the statute.

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