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The casenote of the month is from the Disability E-News Alert! a monthly newsletter describing new disability insurance developments.  For subscription information, e-mail Mark DeBofsky or visit www.disabilityenewsalert.com .

Neiheisel v. AK Steel Corporation, 2005 U.S.Dist.LEXIS 4639 (S.D. Ohio 2/17/2005)(Issue: Scope of Review).  The plaintiff, a physicist, became disabled by mental illness in 2001 and received benefits for two years until the company doctor determined he was no longer disabled under an “any occupation” definition of disability which went into effect after two years of benefit payments.  Plaintiff appealed and submitted reports from his treating psychiatrist along with a neuropsychological evaluation.  In response to the appeal, the plan hired a psychologist to conduct an examination, which was performed over the plaintiff’s contention that while the plan was allowed to consult with a health professional regarding the appeal, it had no authority to require an examination during the appeal.  The psychologist opined the plaintiff should “try” to return to work in “simple isolated jobs.”  Based on that report, the plan upheld the termination.  

Applying a deferential standard of review, the court nonetheless noted that a de novo review is applied to issues relating to the procedures followed in reaching a claim determination.  The court summarized the procedures both as set forth by the plan and in the applicable ERISA regulations:

Considered as a whole, the regulations provide for a procedure in which the claimant submits a claim and a plan fiduciary determines the claim. If the claim is denied, the fiduciary provides a specific reason for the denial and advises the claimant of the additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary. The claimant is then in a position to address any perceived deficiencies in his claim, if possible, when he submits his appeal. The appellate body, which is also a plan fiduciary, considers all of the materials that were before the original claim determiner, together with any additional materials the claimant has submitted. That appellate body consults with an independent health care professional with the expertise to review the materials that make up the appeal and advise the appellate body. The health care professional must not have been consulted in connection with the claimant's illness or claim and must not be a subordinate of anyone who has been so consulted. *18-*19. 

The plaintiff challenged the defendant’s procedures on four grounds: the failure to provide specific reasons for the denial of benefits, the plan retained a non-independent healthcare professional since the psychologist was hired by the doctor who had made the initial determination, that the psychologist lacked appropriate expertise, and because the plan did not consult with the psychologist, “but instead required Plaintiff to undergo an examination by Mr. Layne [the psychologist], thus adding information to the record to which Plaintiff was unable to respond.”  The court found three of the reasons “well-founded.” 

First, the court noted the denial was cursory and “did not advise Plaintiff of any additional material or information necessary to perfect his claim or otherwise notify him of the perceived deficiency in his claim. Because of the conclusory nature of Dr. Rutan's opinion [the plan’s reviewing physician], as repeated by the Benefits Manager, Plaintiff was left with no notification of the type of materials or information he might submit in order to perfect his claim.” *21.  The court further pointed out that providing Dr. Rutan’s report would not have helped because the report failed to support an inability to work in any occupation.  He merely suggested that Neiheisel’s condition would improve and stabilize over time. 

The court also criticized the manner in which the examining psychologist was retained.  Although the court rejected the plaintiff’s argument that the health care professional had to be a medical doctor since the ERISA regulations contain no such requirement (See: 29 C.F.R. §2560-503-1(m)(7)), the court was troubled by the manner of selection by the doctor whose opinion was the sole basis for the claim denial.  Because that physician selected the examiner, the court determined that the selection method calls the examiner’s independence into question.   

The court next turned to the heart of its opinion.  The court found:

Nothing in the language of the regulation requiring consultation with an independent health care professional or the case law interpreting it suggests that "consult with" means to receive a report based upon an independent examination of the claimant. Such an examination results in the insertion of new information into the record at the appeal stage after the claimant has had his final opportunity to address any perceived deficiencies in his claim as initially submitted.

Instead of acting as a consultant for the purpose of assisting the plan administrator in interpreting the medical information in the record, a consultant who examines the claimant and submits a report adds to the record. In that scenario, the appellate body does not "consult with" the health care professional at all. Rather, it considers the results of his examination of the claimant as another bit of information upon which to base its decision. The Court is convinced that the use of a health care professional in that manner is not what the Secretary contemplated in requiring that the plan administrator "consult with" an independent health care professional in considering an appeal from the denial of a claim. For that reason, the Court is persuaded that the BPAC erred when it permitted Christopher Layne to examine Plaintiff and to submit his report,  which was made a part of the record on appeal. The Court notes that the record includes no suggestion that the BPAC actually consulted with Christopher Layne in any fashion.

As a consequence, the court reversed and remanded the case for issuance of a revised denial and consultation with “an appropriate independent health care professional.” 

Discussion:      This issue has been coming to a head in several decisions on which we have reported in recent months.  First, in Kosiba v. Merck & Co., 384 F.3d 58 (3d Cir. 9/14/2004)(October 2004), the Third Circuit found a procedural irregularity in the plan’s request for an independent examination after benefits had been terminated despite consistent, unequivocal evidence favoring disability at the time of the termination.  Then, in Abram v. Cargill, Inc., 395 F.3d 882 (8^th Cir. 1/24/2005)(February 2005), the court ruled a plan’s failure to share evidence developed during appeal with claimant justified a remand.  Also see, Russo v. Hartford Life and Accident Insur.Co., 2002 U.S. Dist. Lexis 26566 (S.D.Cal.)(February 2002), the insurer cannot close the record to the insured but keep it open for itself (citing Killian v. Healthsource Provident Administrators, Inc., 152 F.3d 514 (6^th Cir. 1998)); Mindt v. Prudential Insur.Co. of America, 322 F.Supp.2d 1150 (D.Ore. 6/4/2004)(July 2004)(claimant justified in refusing to attend IME requested during appeal).  There is something deeply troubling to claimants when, after a claim decision has already been made and substantial evidence is submitted on appeal, the insurer then, for the first time, seeks an independent evaluation. 

Cases such as Neiheisel should give insurers pause before they simply terminate a claimant and then go looking for supporting evidence later.  Disability benefits are crucially important to insureds who count on the availability of benefits in their time of need.  Particularly if insurers are going to claim the right to a discretionary standard of review as a claim fiduciary, they need to act as claim fiduciaries and make decisions supported by evidence at the time the decision is made.  Any lesser standard of conduct is inconsistent with 29 U.S.C. §1104(a)(1) which compels fiduciaries to act exclusively in the interest of plan participants for the purpose of paying benefits. 

This note appeared in the Disability E-News Alert! For subscription information, please go to www.disabilityenewsalert.com .