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LTD Plan’s Mental Health Exclusion Applied Only If Physical Disability Not Total


A United States Army helicopter pilot was injured in a crash. His doctors were forced to amputate one of his legs at the knee. After retiring from military service, the man began flying helicopters for a private company. The private company purchased a long-term disability insurance policy for the man. After flying for the company for more than 20 years, the man began experiencing severe pain at the site of the amputation, which prevented him from safely wearing his prosthetic limb. As a result, he was no longer able to operate the foot controls of the helicopters, and he was forced to retire from flying. At that time he was earning over $75,000 per year. The man filed a claim for long-term disability benefits with the insurer.

 

The long-term disability insurance policy contained two definitions of “totally disabled” and “total disability.” During the first 24 months for which long-term disability benefits were payable, these terms meant that the insured could not perform the material duties of his or her regular occupation. After the first 24 months, these terms meant that the insured could not perform the material duties of any occupation which provided substantially the same earning capacity. The policy also contained an exclusion clause. The exclusion clause provided that monthly benefits for total disability caused by or contributed to by mental or nervous disorders would not be payable beyond an aggregate lifetime maximum duration of 24 months. The policy’s definition of mental or nervous disorders included anxiety disorders and mental illness.

 

The insurer denied the man’s claim for long-term disability benefits. The insurer found the man capable of sedentary work. The insurer also determined the man could work in at least three different alternative occupations. Because the man could fulfill duties of the alternative occupations, the insurer determined that the man was not totally disabled under the definition of that term that applied after 24 months. The man responded by arguing that none of the identified positions paid close to $75,000, the salary he was making when he stopped flying for the company. As proof of his contention, the man attached printouts from a website that showed the average salaries for the positions identified by the insurer were $36,000, $40,000, and $28,000 respectively. The insurer dismissed the man’s evidence because it could not ascertain if the materials were prepared by a vocational expert, and the man failed to attach any labor market studies completed to substantiate his argument.

 

The insurer also determined that the man’s psychiatric conditions of depression and posttraumatic stress disorder contributed to his overall impairment status since his retirement. Thus, the insurer determined that the man’s claim for long-term disability benefits was subject to a maximum duration of benefits of 24 months under the exclusion clause. The man argued that only his physical ailments contributed to his inability to continue in an occupation that paid substantially the same as his previous occupation.

 

The man sought review of the insurer’s decision under the Employee Retirement Income Security Act (ERISA) in the United States District Court for the Western District of Texas. The district court held that the insurer did not abuse its discretion by determining that the exclusion clause limited the man's right to benefits.

 

The Fifth Circuit United States Court of Appeals reversed and remanded to the district court to determine the amount of benefits to award to the man. The court held that it was limited on review to considering whether the record supported the reasons that the insurer provided to the man during his efforts to obtain long-term disability benefits; the insurer abused its discretion when it determined that the man was not totally disabled; on an issue of first impression, the court held that the plan’s “caused by or contributed to by” language excluded coverage only when a claimant's physical disability was insufficient to render him or her totally disabled; and the man’s mental disabilities did not cause or contribute to his total disability.

 

The court was limited on review to considering whether the record supported the reasons that the insurer provided to the man during his efforts to obtain long-term disability benefits. Allowing plan administrators to offer new justifications for a denial after the claims process has ended would undermine the claims system that Congress envisioned when it drafted ERISA's administrative review provisions. The court reasoned that even if the man bore the initial burden to show his right to benefits and did not carry that burden, the insurer did not deny the claim because he failed to carry his burden. The insurer denied his claim because it determined that there was sufficient evidence in the record to show that he was not totally disabled and that, even if he was totally disabled, his mental disorder contributed to that total disability. The court declined to consider whether the man carried his burden to show a right to benefits.

 

The insurer abused its discretion when it determined that the man was not totally disabled. Even if the man could do sedentary work, including the alternative occupations suggested by the insurer, there was no evidence in the record to show that he could earn a substantially similar salary in one of these alternative positions. The court found that the record suggested that the insurer attempted to ignore the policy’s similar income requirement. The insurer suggested that only a report from a vocational expert could persuasively show that the man was totally disabled under the policy. However, the court noted that it has never required either an administrator or the claimant to hire a vocational expert to support its case. There was no rational connection between the fact that the man could do sedentary work, including the alternative occupations put forth by the insurer, and the insurer’s conclusion that the man could earn a substantially similar salary in one of these alternative positions.

 

On an issue of first impression, the court held that the plan’s “caused by or contributed to by” language excluded coverage only when a claimant's physical disability was insufficient to render him or her totally disabled. The court noted that it had never considered the meaning of the phrase “caused by or contributed to by” in a similar long-term disability plan’s exclusion clause. The court interpreted the phrase to exclude coverage only when a claimant’s physical disability was insufficient to render him totally disabled.

 

The man’s mental disabilities did not cause or contribute to his total disability. The court found that the record showed that even if the man were completely healed of his mental disabilities, he would still be limited to sedentary jobs. The court reasoned that, as there was no evidence in the record that the man could have earned a salary in the sedentary job that was substantially similar to the one he earned as a helicopter pilot, there was no rational connection between the fact that his mental disabilities may have impaired his ability to hold down a sedentary job and the insurer’s conclusion that his mental disabilities caused or contributed to his total disability.

 

The Fifth Circuit United States Court of Appeals reversed the district court’s affirmation of the insurer’s denial of LTD benefits and remanded to the district court to determine the amount of benefits to award to the man.

 

See: George v. Reliance Standard Life Ins. Co., 2015 WL 216729 (C.A.5 (Tex.), January 15, 2015) (not designated for publication).

 

See also Medical Law Perspectives, December 2014 Report: Beyond the Holiday Blues: When Depression Leads to Liability

 

 

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