Denmark v. Liberty Life Assur.Co. of Boston, 2007 U.S.App.LEXIS 7143 (1st Cir. 3/28/2007)(Issue: Fibromyalgia, Standard of Review-Conflict of Interest).  Although this ruling affirmed a district court decision entering judgment in favor of the insurer, it generated three separate opinions due to the complexity of the issues presented.  Even more, the decision begins by calling for en banc review to reexamine the standard of review applied to ERISA cases in the First Circuit.  The plaintiff sought disability benefits after she could no longer work due to fibromyalgia.  The claim began with a short-term disability benefit claim, which was denied following review by a nurse and a physiatrist who wrote they could find no evidence of a worsening in Denmark’s condition that would have justified her ceasing work.  Because the plaintiff suffered from fibromyalgia for several years, Liberty found no basis for the change in her work status, particularly with respect to the existence of any objective evidence supporting the cessation from work.  Denmark appealed the short-term disability benefit denial; and as part of that process, she underwent an independent medical examination.  The examiner reported that at least for the time being, Denmark was disabled.  In addition to pain and disordered sleep, the physician also deemed her incapable of performing activities of daily living.  After receiving the independent physician’s report, Denmark’s employer approved the claim for short-term disability and paid benefits for six months. 

Denmark then applied for long-term disability benefits; however, the same nurse who had reviewed the short-term disability claim again reviewed the file and reaffirmed her earlier conclusions.  The nurse gave little consideration to the independent medical examination because she deemed it related only to the date of the examination and found it irrelevant to Denmark’s condition six months later.  Liberty therefore denied the claim for long-term disability benefits.   

Denmark appealed and submitted even more evidence; however, Liberty continued to doubt the validity of the claim and placed her under surveillance.  Although the investigator claimed significant activities were observed on two of the four days during which surveillance took place, the investigator lacked a video camera and only shot still photographs.  The evidence was then turned over to a reviewing physician associated with Network Medical Review – Elite Physicians.  The doctor who examined the file questioned the fibromyalgia diagnosis and also doubted Denmark’s functional limitations based on the surveillance report which noted, among other things, that Denmark was able to lift a gallon of water with one hand. 

Concurrent with the Liberty claim, Denmark also filed for Social Security disability benefits.  Her claim was approved; and in the administrative law judge’s findings, he deemed Denmark’s testimony credible.  Although Denmark requested Liberty to reopen the claim based on the Social Security determination, the insurer refused, and Denmark then filed suit. 

On cross-motions for summary judgment, the district court applied the arbitrary and capricious standard of review.  Although the court acknowledged Liberty’s financial conflict inherent in its dual role of claim administrator and the funding source for benefits, the court found no evidence that Liberty’s actions were influenced by the conflict; and the court entered judgment in Liberty’s favor.  The court also applied a heightened standard of review to the opinion from the NMR physician based on Liberty’s refusal to comply with a discovery order, but that finding did not affect the court’s ultimate determination. 

The court of appeals affirmed the district court.  It began its discussion of the legal issues by asserting that summary judgment motions in ERISA cases are not treated the same way as in other civil action since the court reviews the reasonableness of “an administrative determination in light of the record compiled before the plan fiduciary.” *22 (citation omitted).  Further, the court found “the non-moving party is not entitled to the usual inferences in its favor.” Id. (citation omitted).  The court then examined de novo the district court’s application of a deferential standard of review, addressing three separate arguments asserted by the plaintiff challenging the appropriateness of that standard.

Acknowledging that the de novo standard of review is the default standard applicable in ERISA cases based on Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989), the court pointed out that plan language could trigger the application of a deferential standard of review.  The only “plan document” before the court was the Liberty policy which explicitly stated that Liberty had authority and discretion to interpret the plan and determine benefit eligibility.  Nonetheless, the plaintiff argued that Liberty could not appropriately grant itself discretion – it would need to be delegated by the plan sponsor; and there was no document before the court showing that such delegation was made.  The court rejected that argument, however, finding: “Although Liberty drafted the LTD policy, GenRad adopted the provisions of the policy -- including the grant of discretionary authority to Liberty -- by purchasing the LTD plan from Liberty.” *29.  In addition, the policy clearly assigned Liberty discretionary authority, and other courts have also found that the Liberty policy language is sufficient.   

The court likewise rejected the plaintiff’s argument that Liberty’s conflict of interest was sufficient to divest it of discretionary authority.  After citing several prior cases that have rejected the conflict of interest argument, the court pointed out:

We have continued to justify our adherence to arbitrary and capricious review in the face of such "structural" conflicts on the ground that "the market presents competing incentives to the insurer that substantially minimize the apparent conflict." Pari-Fasano, 230 F.3d at 418. Recently, however, we acknowledged that "other circuits have rejected the market forces rationale and specifically recognized a conflict of interest when the insurer of an ERISA plan also serves as plan administrator, although there is no consistent approach in accordingly adjusting the standard of review." Wright, 402 F.3d at 75 & n.5. *33-*34

Looking to other circuits for guidance, the court pointed out that the structural conflict has not been shown sufficient to overcome the language triggering a deferential standard of review, although seven circuits have held that the structural conflict warrants an alteration in the arbitrary and capricious standard.  In view of the differing viewpoints of the circuits, the court suggested it was “time to reexamine the standard of review issue in an en banc proceeding” (*39) with a suggestion that a sliding scale approach would be most appropriate.

The court also rejected the plaintiff’s contention that the entire decisionmaking process was infected with a conflict, but it did examine one issue with particular care – the relationship between Liberty and NMR.  In discovery, the plaintiff had propounded an interrogatory to explore the potential financial bias in that relationship and Liberty responded by admitting between 2001 and 2003 it had paid NMR over two million dollars and referred over 1200 files.  However, Liberty refused to disclose how many of the reviews were favorable to the claimant, citing the burden involved in reviewing the files.  As a sanction for Liberty’s refusal, the court drew the inference that NMR had never found in favor of the claimant in the reviews it performed for Liberty; and that there was a clear incentive for Liberty to contract with NMR to obtain peer reviews supporting a benefit denial.  Thus, the court applied a heightened examination of the NMR reviewer’s report.  The author of the main opinion disagreed with the district court’s approach, finding a piecemeal approach to the standard of review unsupportable.

The court then turned to an examination of the entire record.  The first issue was whether Liberty could favor the non-examining medical personnel over the examining doctors.  The plaintiff relied heavily on Calvert v. Firstar Finance, Inc., 409 F.3d 286, 295 (6th Cir. 2005), where the court found that while "reliance on a file review does not, standing alone, require the conclusion that [the insurer] acted improperly, we find that the failure to conduct a physical examination . . . may, in some cases, raise questions about the thoroughness and accuracy of the benefits determination."  However, the court rejected that approach finding “the absence of a physical exam is not determinative.” *48.  Nor did the court find it improper for Liberty to rely on a nurse’s evaluation questioning the independent examiner’s opinion, rejecting district court opinions to the contrary, finding that the nurse’s report “evinces a full evaluation of the evidence in the record.” *51-*52.  Nor would the court discredit the opinions of the NMR physician, although it found, “while his conclusion that she can perform the duties of her occupation does not follow necessarily from the surveillance evidence, it is not contradicted by objective evidence of Denmark's functional limitations.” *54.  Likewise, the court found no impropriety in Liberty’s contention that there was a lack of objective evidence, particularly since the plaintiff contended that her condition worsened when she stopped working but failed to supply evidence showing a change in her condition.  The court also pointed out that while it may be improper to require objective evidence of a diagnosis, the court distinguishes between that and requiring “objective evidence that the plaintiff is unable to work.”  Thus, Liberty was free to “require Denmark to provide objective evidence of functional limitations or restrictions that would prevent her from working.” *57.  The court then noted, 

Denmark argues that Dr. Schur's findings provide the objective evidence that was lacking in Boardman. However, while Denmark is correct that Dr. Schur's evaluation does provide some objective support for her physical restrictions, it does not demonstrate objectively her inability to work because the evaluation does not sufficiently relate those restrictions either to the specific physical requirements of her job or to her overall stamina. Consequently, Liberty's emphasis on objective evidence was not impermissible. *58. 

Turning then to the surveillance, the court also found that evidence relevant because it showed the plaintiff performing activities she claimed she could not engage in.  The court also found that Liberty had no obligation to give consideration to the Social Security finding because it was issued long after the claim was finally denied.  Hence, the court deemed Liberty’s decision supported by substantial evidence. 

Judge Selya concurred with Judge Lipez, finding “the benefits determination made by Liberty, qua plan fiduciary, was within the universe of plausible outcomes. Consequently, that determination was neither arbitrary nor capricious.” *63.  However, the court expressed two areas of concern.  First, Judge Selya concurred with the sanction issued by the district court for Liberty’s failure to further elucidate NMR’s role, and found the sanction within the district court’s discretion since it was “custom-tailored to fit a unique set of circumstances.” *64.  Judge Selya also disagreed with the main opinion on the standard of review issue and expressed his opinion that heightened review is appropriate if the circumstances dictate it.  Nor did Judge Selya believe that en banc review was warranted. 

Finally, Judge Howard dissented.  He expressed his agreement with Judge Lipez that the First Circuit should reexamine its jurisprudence regarding the arbitrary and capricious standard of review, but noted that even with the existing standard, he would reverse the district court and award benefits.  Judge Howard explained his principal disagreement with Liberty’s conclusions:

In spite of this consensus among the doctors who had examined Denmark [that she was disabled from work and even from performing activities of daily living], Liberty concluded that she was not, in fact, disabled because "there was no significant change in [her] condition" on the date she stopped working. This rationale, however, bears no relationship to any requirement for long-term disability benefits imposed by the plan itself. Instead, it amounts to an argument that, because Denmark has suffered from fibromyalgia since at least 1996 but continued working nonetheless, she cannot rely on fibromyalgia as a reason for not working in 2001 unless she can show that her condition has worsened. The argument does not survive even minimal scrutiny.  *69-*70.

Judge Howard relied primarily on several rulings finding no “logical incompatibility between working full time and being disabled…because [a] desperate person might force himself to work despite an illness…” *70 (citing Hawkins v. First Union Long-Term Disability Plan, 326 F.3d 914, 918 (7th Cir. 2003); Seitz v. Metro. Life Ins. Co., 433 F.3d 647, 651 (8th Cir. 2006); Lasser v. Reliance Std. Life Ins. Co., 344 F.3d 381, 392 (3d Cir. 2003); and Marecek v. BellSouth Telecomms., Inc., 49 F.3d 702, 706 (11th Cir. 1994).  Moreover, Hawkins further found, "[a] disabled person should not be punished for heroic efforts to work by being held to have forfeited his entitlement to disability benefits should he stop working." 326 F.3d at 918.

Accusing the majority of “sidestepping” the issue, the entitlement to disability did not depend on Denmark’s condition worsening at the time she left work; it focused on whether she was unable to perform the material duties of her occupation at that time.  Since the treating doctors and the independent medical evaluator confirmed that was the case, “Liberty could not have reasonably reached the opposite conclusion based on Denmark's failure to prove a fact that is inessential, and logically unconnected, to her contractual right to long-term disability benefits.” *71.

The dissent was equally as harsh in its criticism of the objective evidence issue.  Not only did Liberty fail to assert such a defense, the evidence also contained objective findings such as the independent examiner’s notation of trigger points and decreased range of motion on clinical examination.  Moreover, Judge Howard related those findings to a condition that precluded Denmark from working and deemed the case nearly identical to Cook v. Liberty Life Assurance Co. of Boston, 320 F.3d 11 (1^st Cir. 2003), where the court overturned a benefit denial in a case involving chronic fatigue syndrome based on the court’s criticism of a non-examining doctor’s findings.  The dissent was also extremely dismissive of Liberty’s grounds for rejecting the IME determination, finding that criticism of the timeliness of the examination was misplaced:

Under this logic, however, a medical examination -- which, by its nature, always occurs "on a specific date in time" -- can never "accurately assess" the patient's condition prior to having walked into the examination room. Either that premise is demonstrably false, or a patient is subjected to a pointless exercise every time she undergoes an IME. Cf. Cook, 320 F.3d at 23. Liberty's reasons for spurning Dr. Schur's opinion here, then, are no more supportable than its reasons for spurning the treating doctor's opinion in Cook. n23

 

n23 The lead opinion finds Liberty's criticism of the IME "not unreasonable given that Dr. Schur himself had limited his evaluation to 'the time being.'" While Dr. Schur's report indeed contains the phrase "at least for the time being," it is clearly not intended to limit Dr. Schur's opinion retrospectively, but prospectively: in both the paragraph immediately preceding the phrase and the sentence immediately following it, Dr. Schur suggests interventions for Denmark that "hopefully will improve matters, so that she can get her stamina back and get back to work." Accordingly, I do not see how the phrase "for the time being" can reasonably be read to support Liberty's exceedingly narrow view of Dr. Schur's opinion. *76.

Finally, Judge Howard pointed out:

I recognize, as we did in Cook, the possibility of "cases where the opinion of the claimant's treating physician can be rejected without reliance on any contradictory medical evidence developed by the plan administrator." 320 F.3d at 23. But rejecting the opinions of the claimant's treating physicians, and the corroborating view of an independent medical examiner, ought to require a considerably stronger justification than the one relied on here. n24 Accordingly, I would overturn Liberty's denial of long-term disability benefits to Denmark, even under our present standard of review.

 

n24 While Liberty also relied on its surveillance of Denmark to support its decision, I agree with the district court that this evidence does not speak to whether she can consistently work full days as her job requires. Denmark was observed leaving her house on only two of the four days she was being watched and, even then, was out for only a few hours. 

Discussion:      This opinion stands as an indictment of how courts adjudicate cases under the ERISA law.  Beginning with the court’s unjustified suspension of Rule 56 of the Federal Rules of Civil Procedure and continuing through the logically faulty analysis of the evidence, it is clear that the plaintiff was entitled to long-term disability benefits.  Only in the twisted world of ERISA would a court find a denial contrary to the opinions of every doctor who has examined the plaintiff, including an independent examiner, and contrary to a determination reached by a federal administrative law judge who found the claimant a credible witness, would a court find Liberty’s determination reasonable.  This case presents a stark example of an insurer whose conclusions were not only influenced by a financial motive, but were entirely the product of bias.  A rehearing en banc should be granted.