A man with Type I diabetes mellitus worked as a Senior Buyer–Planner for seven years until he was terminated. Three years after he started the job, his endocrinologist wrote a letter to his employer advising that his diabetes control had become aggravated due to substantial stress at work. The doctor recommended that his workweek be reduced to 32 hours. At work, the man struggled to balance his health needs with his position's demands. He battled fatigue and mood swings and struggled with retinopathy, neuropathy, calf-tightening, hypertension, hyperlipidemia, and carpal-tunnel syndrome. Four years after he started the job, the man was diagnosed with “hypoglycemia unawareness.” Over the following two years, his work performance declined significantly, and he began for the first time to receive low marks on his performance evaluations. In his sixth year, another endocrinologist noted that the man had less glucose variability and had been achieving “good results.” Nevertheless, this endocrinologist noted that recent layoffs at the employer had affected the man’s stress levels and “his ability to cope with his disease.”
The man's work-related stress continued into the following year. His endocrinologist continued to opine that the man’s job obligations contributed to his overall stress. The man's performance evaluations reflected his frustration and inability to interact with his co-workers. Despite his efforts to manage his health and improve his work performance, near the end of the year the employer terminated him.
The employer provided its employees a self-funded, self-administered long-term disability (LTD) plan. The LTD plan was designed to provide benefits for qualifying disabilities lasting longer than 26 weeks. Benefits began when the employee had been “Totally Disabled” for 26 weeks in a rolling 12–month period and had provided documentation satisfactory to the employer or its delegated claims administrator providing that the employee was “Totally Disabled.” The Plan defined “Total Disability and Totally Disabled” as follows:
During the 26–week elimination period and during the first year that you are receiving Long Term Disability Benefits, you are considered to be Totally Disabled if you are under the care of a Physician and prevented from performing each of the essential functions of your regular occupation because of an illness or accidental injury and you are not working at all. The one year period begins on the first day as of which you have been approved to receive Long Term Disability Benefits. To be considered Totally Disabled after this period of time, the illness or accidental injury must prevent you from working at any occupation for which you are, or could reasonably become, qualified by education, training or experience, and you are not working at all.
As the definitions of Total Disability and Totally Disabled indicate, the LTD plan broke up disability benefits into two categories: (1) “regular occupation” or as the parties refer to it “own occupation” LTD benefits and (2) “any occupation” LTD benefits.
In order to obtain LTD benefits under the plan, an employee was required to first submit an application to the Claims Administrator. The Claims Administrator would render a decision and notify the employee of the outcome. The LTD plan provided that the Claims Administrator “may secure independent medical or other advice and require such other evidence as it deems necessary to decide [a] claim.” If a disability claim was denied, the employee retained the right to appeal the Claims Administrator's decision. Throughout the process, the employee retained the responsibility to provide medical evidence, satisfactory to the employer or its delegated claims administrator of the employee's Total Disability.
As to the issue of discretionary authority, the plan stated:
The Plan Administrator has complete and total discretionary authority to interpret and administer the Plan. The Senior Vice President of Human Resources, Vice President of Compensation and Benefits or Director of U.S. Benefits, have the authority and responsibility to interpret the Plan, make rules, determine eligibility for benefits, determine coverage and benefit amounts, and resolve all claims and disputes regarding the Plan. The decisions of the Senior Vice President of Human Resources, Vice President of Compensation and Benefits or Director of U.S. Benefits are final and binding on all persons. The Senior Vice President of Human Resources, Vice President of Compensation and Benefits or Director of U.S. Benefits may further delegate any and all authority under the Plan as they deem appropriate.
The employer entered into an LTD benefit administration agreement (the Services Agreement) with an employee benefit service company. In the Services Agreement, the employee benefit service company agreed to evaluate and calculate LTD benefits under the plan. Moreover, the Services Agreement included an “Appeal Assistance” section under which the employee benefit service company agreed to assist the employer “in a nonfiduciary capacity, with denied claims on appeal.” The section specifically provided that the employee benefit service company did “not make final claim determinations on appeal.” Instead, the employee benefit service company would merely provide the employer a recommendation. The Services Agreement emphasized that the employee benefit service company only acted as a provider of services to the employer's LTD plan. The employee benefit service company did not insure the plan in any way, was not a fiduciary, and disclaimed any responsibilities to perform any of the functions required by the Employee Retirement Income Security Act (ERISA).
To summarize the employer's review procedures, the employee benefit service company collected and processed LTD benefit applications and made the initial, benefit-eligibility determination. If the plan participant was unhappy with the employee benefit service company's decision, then the participant retained the right to appeal the decision to the employer. On appeal, the employee benefit service company considered the participant's argument, conducted further investigation if required, and recommended action for the employer to ultimately take. The employer exercised final authority to determine the outcome of any contested benefit claims.
Eight months after he was terminated, the employee filed his claim for LTD benefits with the employer. He attached to his application for LTD benefits his second endocrinologist's assessment of his condition. This endocrinologist opined that the man had no physical restrictions, but that he could not engage in predictable ongoing activity, of any type, without disruption by variation in his blood sugar. In a supplemental report, the endocrinologist stated that the man needed to self-monitor frequently and be vigilant with his sugar levels. Though the cause of the variations was “somewhat unclear,” the endocrinologist noted that blood sugar variability can lead to unexpected hypoglycemia, which in turn can alter concentration, mood, cognition, and judgment.
The employee benefit service company denied the man's claim for LTD benefits reasoning that he failed to produce evidence that he was disabled prior to his termination date. The man appealed the decision to the employer. He submitted additional doctors' notes with his appeal, and the employee benefit service company retained two doctors to review the file. The doctor who was board certified in internal medicine, endocrinology, diabetes, and metabolism, concluded that the man's only evidence of impairment stemmed from his own self-reporting. Moreover, according to this doctor, the man attributed the changes in his personality to his fluctuating blood sugar, but, he failed to rebut the converse, that “his blood sugars fluctuate due to his behavior.” Nevertheless, the employer overruled the employee benefit service company's recommendation to completely deny benefits and determined that the man was entitled to “own occupation” LTD benefits. Because of the stress inherent in his position at the employer, the employer determined that “own-occupation” benefits were justified. The employer determined that further investigation was required before a decision on “any occupation” LTD benefits could be made.
The employee benefit service company began its additional review by requesting an employability analysis report (EAR) to determine other potentially compatible positions for which the man was qualified. The EAR identified five occupations within the “closest” level, 38 occupations within the “good” level, 107 occupations within the “fair” level, and 95 occupations within the “potential” level. The employee benefit service company also retained an endocrinologist to review the man's medical records starting from the time the man's first endocrinologist wrote a letter to Medtronic advising that his diabetes control had become aggravated due to substantial stress at work. According to the employee benefit service company’s endocrinologist, the man was at minimal risk for hypoglycemia and his hypoglycemia awareness was good.
In the meantime, the man informed the employee benefit service company that the Social Security Administration (SSA) had approved his disability claim. The SSA afforded the opinions of the man's treating physicians controlling weight to reach its decision that he did not have the ability to sustain work activity for eight hours a day, five days a week. Nevertheless, based on the EAR and its endocrinologist’s review, as well as the earlier reviews performed by two other doctors, the employee benefit service company denied his “any occupation” LTD claim. The employee benefit service company acknowledged his diabetes but reasoned that work stressors appeared to be driving his overall decline in health.
The man appealed the employee benefit service company's denial of “any occupation” LTD benefits to the employer. Along with his appeal, he submitted assessments from three doctors. His doctors disagreed with the employee benefit service company's doctors. His doctors reasoned that he was unable to predict the occasion and severity of his hypoglycemic episodes. One of his doctors contended that his hypoglycemia could produce symptoms of fatigue and make it difficult for him to concentrate. The employee benefit service company responded to the appeal by retaining an additional reviewing doctor, who believed that the man could function in a low stress, “sympathetic” workplace. He concluded that he could operate in an environment with access to carbohydrates for snacking and freedom to take frequent breaks.
The employee benefit service company recommended that the employer should uphold the denial of the man's “any occupation” LTD claim. The employer agreed with the recommendation to uphold the denial. The man was informed by the employee benefit service company the employer had upheld its decision to deny his claim for “any occupation” LTD benefits. With the administrative process exhausted, the man filed suit. The United States District Court for the District of Minnesota granted summary judgment in favor of the plan administrator.
The United States Court of Appeals for the Eighth Circuit affirmed. The court held that the abuse of discretion standard of review applied to the employee benefit service company's denial of benefits; the district court properly considered supplemental evidence in determining the applicable standard of review; minor procedural defects in the claims process did not render the abuse-of-discretion standard inappropriate; substantial evidence supported the denial of “any occupation” LTD benefits; and the SSA’s decision to award the man social security disability benefits was not controlling.
The abuse of discretion standard of review applied to the employee benefit service company's denial of benefits. A plan administrator's denial of ERISA benefits is reviewed de novo unless the benefit plan gives the administrator discretionary authority to determine eligibility for benefits or to construe the terms of the plan. The court held that if the ERISA plan grants the plan administrator discretionary authority, then the plan administrator's decision to determine eligibility for benefits is reviewed for abuse of discretion. The court reasoned that the LTD plan stated that “[t]he Plan Administrator has complete and total discretionary authority to interpret and administer the Plan,” and this language was sufficient to trigger the abuse-of-discretion standard.
The district court properly considered supplemental evidence in determining the applicable standard of review. Generally, a court reviewing an ERISA plan administrator's decision to grant or deny plan benefits must focus on the evidence available to the plan administrator at the time of the decision and may not admit new evidence or consider post hoc rationales. This general rule is relaxed when evidence is admitted for the limited purpose of determining the proper standard of review. The court held that the district court properly admitted the affidavit of the employer's principal benefits analyst along with the exhibits attached for the purpose of determining the appropriate standard of review, even though the affidavit and exhibits were supplemental evidence that was not part of administrative record. The court reasoned that this evidence helped illuminate the internal communications and interactions throughout the handling of the claim, and was submitted in response to the man's allegations of procedural irregularity, which he argued rendered the abuse-of-discretion standard inappropriate.
Minor procedural defects in the claims process did not render the abuse-of-discretion standard inappropriate. The employer satisfied its obligation to conduct a meaningful review and render a final decision. The employer was permitted to delegate claims processing functions to the employee benefit service company and rely on its reasoning without compromising its obligation to provide a “full and fair review.” A plan administrator hires a claims administrator to streamline benefits review and add expertise to a process that can impose burdensome requirements. Requiring a plan administrator to duplicate the claim administrator's efforts would negate many of the benefits of hiring a third-party expert.
Substantial evidence supported the denial of “any occupation” LTD benefits. The court noted that the employer acknowledged and reviewed medical records indicating that the man experienced fluctuations in blood sugar and instances of hypoglycemia unawareness. The employee benefit service company’s doctor, who was board certified in internal medicine, endocrinology, diabetes, and metabolism, opined that “stressors from work are affecting his diabetes control, not the other way around.” Another doctor retained by the employee benefit service company to review the man’s claim opined that reasonable accommodations could be made at work to account for episodes of hypoglycemia. One of the man’s treating physicians agreed that he could function with significant accommodations in a sympathetic workplace. The court reasoned that after considering all of this evidence, the employer was entitled to decide that the man was not entitled to “any occupation” LTD benefits, even though a different decision could have been made.
The SSA’s decision to award the man social security disability benefits, while relevant, was not controlling. SSA disability awards are not binding on ERISA plan administrators. The employee benefit service company considered the SSA disability award, but did not find that it outweighed the rest of the evidence before it.
The United States Court of Appeals for the Eighth Circuit affirmed the district court’s grant of summary judgment in favor of the plan administrator.
See: Waldoch v. Medtronic, Inc., 2014 WL 3264187 (C.A.8 (Minn.), July 09, 2014) (not designated for publication).
See also Medical Risk Law, May 2014 Report: Diabetes and Its Complications: Malpractice and Other Liability Issues
See also Medical Risk Law, June 2013 Report: Independent Medical Evaluations: Legal Risks and Responsibilities