In Caplan v. CNA Financial Corp., 2008 U.S.Dist.LEXIS 28290 (N.D.Cal. April 4), David Caplan, who worked for CNA Financial supervising workers' compensation claims, suffered a neck injury, which caused severe pain, and spasms that significantly interfered with his ability to work at a computer, his primary job function. Initially, Caplan tried to deal with his pain with medication and the use of voice recognition software; however, he was ultimately terminated when he could no longer perform his principal job duties and there was no reasonable workplace accommodation that could be provided.

Caplan initially applied for short-term disability, but following a review conducted by Philip Marion, M.D., the benefits were denied. Caplan appealed, and submitted a functional capacity evaluation, additional medical records, and supporting witness statements, all attesting to his inability to work at his regular occupation. Hartford, which purchased CNA's disability insurance business, sent the file to the University Disability Consortium, which had the file, reviewed by Dr. Suresh Mahawar. Mahawar disagreed with the plaintiff's evidence and found the treating doctors' workplace restrictions were unsupported by objective evidence. Based on Mahawar's opinion, Hartford upheld the denial and litigation ensued. Resolving cross-motions for judgment, the court ruled for the plaintiff.

The court began its discussion by detailing the relationship between UDC and Hartford, which revealed that 75 percent of UDC's revenue was derived from Hartford and that it had earned more than $13 million from reviewing Hartford files. The court also cited UDC's marketing materials, which appeared biased against claimants.

The court also noted that Mahawar had performed more than 200 file reviews for UDC between Jan. 1, 2005, and Sept. 30, 2007. Out of 202 claims reviewed, he opined that 193 were capable of full-time employment. The court also noted that Mahawar had told the treating doctor that anyone can work in a sedentary occupation and it was his opinion that only objective findings such as atrophy would be an acceptable indication of disability.

From this evidence, the court concluded that Hartford not only had a structural conflict, which encouraged claim denials, but that its relationship with UDC furthered the conflict.

The court found that ''Hartford knows that UDC has an incentive to provide it with reports that will increase the chances that Hartford will return to UDC in the future … in other words, reports upon which Hartford may rely in justifying its decision to deny benefits to a Plan participant. UDC's marketing material also suggests that it offers insurers and plan administrators services that will support a parsimonious approach to administering claims.''

The court added that Mahawar also stood to benefit financially from repeat business ''that might come from providing Hartford with reports that were to its liking.''

Consequently, the court found ''the reliability of Mahawar's report as a neutral evaluation of Plaintiff's condition is dubious, given that it was in UDC's and Mahawar's interest to provide Hartford with a report that would justify denying benefits to Plaintiff.''

The court added that Dr. Mahawar's report showed ''a total disregard for the conclusions of Plaintiff's treating physicians and for Plaintiff's subjective reports of pain.'' The court held the complete disregard of the plaintiff's evidence violated 9th U.S. Circuit Court of Appeals precedent regarding pain such as Saffon v. Wells Fargo & Co. Long Term Disability Plan, 511 F.3d 1206, 1216 (9th Cir. 2008) (noting that ''individual reactions to pain are subjective and not easily determined by reference to objective measurements''). The court also rejected a contention that the plaintiff's ability to take a vacation was inconsistent with his claim, finding that there was no evidence that the plaintiff sat or used a keyboard for an extended period of time while on vacation. Thus, the court awarded own occupation LTD benefits.

The court also addressed plaintiff's claim for breach of fiduciary duty, which sought an injunction to preclude Hartford from using UDC and Mahawar for at least five years; however, the court denied the request, finding:

''In any event, an injunction prohibiting Hartford from contracting with UDC or removing Hartford as the Plan's administrator would not be appropriate under the circumstances. Plaintiff has cited no case in which a court has granted such far-reaching injunctive relief under circumstances similar to those here. While several aspects of UDC's relationship with Hartford are troubling, there will always be some degree of conflict when an independent company is paid to review medical records for a claims administrator. While Plaintiff has shown that the conflict in this case is great enough to warrant skeptical treatment of Dr. Mahawar's report, he has not shown that it is so great as to warrant an injunction preventing Hartford from contracting with UDC. Nor has Plaintiff shown that Hartford's use of UDC is a breach of fiduciary duty of the magnitude that would call for Hartford's removal as claims administrator. Accordingly, Plaintiff's claim for injunctive relief under § 1132(a)(3) must be denied.''

This ruling exposes a situation that is only beginning to come to light. A leading ERISA scholar has written about the scandalous manner in which ERISA disability cases are adjudicated — John H. Langbein, Trust Law As Regulatory Law: The UNUM/Provident Scandal and Judicial Review of Benefit Denials Under ERISA, 101 Nw. U. L. Rev. 1315 (2007). Professor Langbein's expose, along with other evidence that has emerged, shows that the situation here involving Mahawar and UDC is far from unique. For example, the 7th Circuit has recognized the close relationship between one of UDC's competitors, Network Medical Review/Elite Physicians and the Metropolitan Life Insurance Company. See, Ladd v. ITT Corp., 148 F.3d 753 (1998). The same organization was found to favor Liberty Mutual denials in Denmark v. Liberty Life Assur.Co. of Boston, 2005 U.S.Dist.LEXIS 27180 (D.Mass. Nov. 10, 2005); rev'd on other grounds 481 F.3d 16 (1st Cir. 2007). The other physician mentioned in this ruling, Philip Marion, M.D., admitted in a deposition taken in the case of Aragon v. Liberty Life, No. RG-05-0242470 (Alamada County, CA Oct. 5, 2006), that he has performed hundreds of file reviews for insurers and that in the file reviews he has done, he has found claimants disabled no more than 10 percent of the time (Deposition of Philip Marion at 210). In yet another example, it appears another UDC competitor may have altered an independent physician's report to dramatically change his conclusions. See, Hall v. MLS National Medical Evaluations Inc., 2006 U.S.Dist.LEXIS 57965 (E.D.Ky. 8/15/2006). Anecdotal reports have also emerged that the physicians reviewing disability files are explicitly instructed to reject or disregard any so-called ''subjective'' complaints of pain or fatigue, even though cases such as the Saffon case cited in Caplan, as well as Diaz v. Prudential Ins.Co. of America , 499 F.3d 640 (7th Cir. 2007), have pointed out that such complaints are corroborated by a course of treatment and therapy for such symptoms.

Although the ongoing viability of the arbitrary and capricious standard of review will soon be addressed by the Supreme Court in the Metropolitan Life v. Glenn case, which will be decided this term, the availability of a deferential standard of review coupled with draconian restrictions on discovery merely encourages this type of behavior. Insurers and their vendors know that a minimal level of judicial review will allow the reports of doctors who have never even seen the claimant to hold the same, if not greater weight and authority, than specialist treating doctors who have performed extensive examinations and evaluations. Paradoxically, courts reviewing decisions rendered by the largest disability program in the world, the Social Security disability program, would never allow medical reports, such as the one authored by Mahawar, to constitute substantial evidence. Under the ruling in Richardson v. Perales, 402 U.S. 389 (1971), the hearsay rule that would generally bar a court from considering medical reports is relaxed, but only where the physician has conducted a personal examination and is subject to cross-examination. Courts have allowed ERISA claims to be adjudicated without even these basic requirements. While it can be argued that Congress enacted the Social Security law with these due process guarantees in mind, why should the courts assume that Congress intended any lesser protection for ERISA claimants?

I was counsel in the Ladd v. ITT and Diaz v. Prudential cases cited in this article.