Casenote of the Month

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.

Darland v. Fortis Benefits Insurance Company,

2003 U.S.App.LEXIS 937 (6^th Cir. 1/22/03)

(Issues: Treating Physician Rule; Conflict of Interest, Social Security). 

Darland is probably the most important decision we have seen since Regula v. Delta Family-Care Disability Survivorship Plan, 266 F.3d 1130 (9th Cir. 2001)(Disability E-News Alert! November 2001).  This decision snatched victory from the jaws of the plaintiff’s total defeat in the lower court which had not only ruled that Fortis was justified in terminating monthly disability benefit payments, but that the plaintiff also owed Fortis $14,000 due to an overpayment resulting from a Social Security award.  As a result of chronic low back problems, which interfered with Darland’s ability to work at an occupation requiring extensive sitting, Darland applied for disability benefits.  For two years, Darland received payments; however, the policy provided for discontinuation of benefits after two years under a “special conditions” limitation in the policy that limited benefits to a duration of 24 months of payments for back and neck conditions involving “soft tissue,” except for arthritis.  Although Fortis analyzed the medical evidence as showing that a diagnosis of spinal arthritis was “equivocal at best,” (*12), Fortis’s reviewing doctor conceded the prevailing diagnosis had always been degenerative disc disease.  Thus, benefits were terminated under the “special conditions” limitation. 

Darland appealed; and in response to the appeal, Fortis referred him for a functional capacity evaluation which demonstrated his incapacity to work.  In further support of the claim, Darland’s treating physician also reported an ongoing diagnosis of “osteoarthritis and degenerative disc disease.”  However, Fortis’s medical director maintained that there was insufficient evidence of arthritis and the special conditions limitation therefore excluded continued benefits.  Darland then appealed a second time.  He also applied for Social Security disability benefits at the insurer’s request, which resulted in a finding that Darland “suffered from degenerative disc disease, osteoarthritis, bone spurs, hiatal hernia, and coronary artery disease, that he was totally disabled as of July 15, 1996, and that "there are no jobs existing in significant numbers which he can perform."  

Upon receipt of this new information, Fortis utilized Network Medical Review to issue a report on the case.  NMR utilized a panel consisting of a Dr. Robert Petrie, a physiatrist, Dr. Saad Al-Shathir, an occupational physician, and Dr. Paul Anderson, a cardiologist.  None of those doctors personally evaluated Darland, though; and that panel found in favor of Fortis.  Darland then appealed a third time, and received a second NMR peer review by an orthopedist, an internist/rheumatologist, and the occupational physician who had been on the first panel.  As with the first NMR panel, the second panel also rejected Darland’s claim, determining that despite arthritis of the facet joints and degenerative disc disease, he could return to work. 

Despite an explicit grant of discretionary authority in the Fortis policy, the appellate court nonetheless ruled the evidence did not justify the decision reached by Fortis.  Notwithstanding an explicit grant of discretionary authority, the Court of Appeals rejected the lower court decision for its failure to consider the conflict of interest inherent in Fortis’s role as both plan administrator and payor of benefits which, under prevailing circuit case law, created an “actual, readily apparent conflict…not a mere potential for one.”  The court added, “As the plan administrator, Fortis had a ‘clear incentive’ to contract with a company whose medical experts were inclined to find in its favor that Darland was not entitled to continued LTD benefits. Regula v. Delta Family-Care Disability Survivorship Plan, 266 F.3d 1130, 1143 (9th Cir. 2001) (noting ‘the conflict of interest inherent when benefit plans repeatedly hire particular physicians as experts’ since ‘these experts have a clear incentive to make a finding of 'not disabled' in order to save their employers money and to preserve their own consulting arrangements’).  

As a result of its finding of a conflict, the Court of Appeals determined that Darland was entitled to summary judgment.  Among the court’s conclusions was a finding that Fortis conceded its initial application of the 24 month “special conditions” limitation was in error since it was apparent that Darland suffered from arthritis.  Thus, the question was whether Darland met the “occupation test” of his policy, which required him to prove his inability to perform at least one of the material duties of his regular occupation.  Nonetheless, Fortis imposed a different requirement that Darland prove he could not perform all the duties of his occupation. 

Based on the reports of all the physicians who saw and evaluated Darland, including an evaluation conducted by a physician retained by Fortis to perform an independent medical examination, along with a functional capacity evaluation, it was evident he was incapable of performing at least one of his material occupational duties since both standing and sitting were limited, and the effects of his medications would interfere with concentration and attention.  That conclusion was further reinforced by the Social Security determination of disability.  The court cited Ladd v. ITT Corp., 148 F.3d 753 (7^th Cir. 1998) to conclude that when all examining physicians concurred about the plaintiff’s disability, and when Social Security benefits were granted after the insurance company’s encouragement and assistance in obtaining benefits, it would be arbitrary and capricious for an insurer to refuse payments.  Like Darland, Ladd also rejected conclusions from Network Medical Review.  The court added that Ladd had further instructive value: 

It is equally inconsistent in the present case for Fortis to ignore the Social Security Administration's determination that Darland is disabled. As in Ladd, Fortis requested that Darland apply for Social Security disability benefits so as to reduce the amount of monthly disability payments that it paid Darland under the plan. Although Fortis claims that the statutory criteria and factors considered by the Social Security Administration may be markedly different from the criteria and factors considered by an insurer in determining whether a claimant is disabled, it is plainly evident that the Social Security standard for a disability determination is much more stringent than that required by Fortis' insurance policy. Moreover, after the Social Security Administration determined on July 8, 1998 that Darland was totally disabled as of July 15, 1996, Fortis then requested that Darland reimburse it for overpayment of insurance benefits, even though Fortis terminated payment of disability benefits to him under its policy on August 16, 1998. As in Ladd, it is totally inconsistent for Fortis to request that Darland apply for Social  Security disability benefits, yet avail itself of that Social Security determination regarding disability to contend, at the same time, that he is not disabled. Ladd, 148 F.3d at 753. Though not directly applicable in this case, the principles of judicial estoppel certainly weigh against Fortis taking such inconsistent positions.  *39-40.

The court then turned to a discussion about the validity of the “peer review” panels.  Recognizing that none of the physicians participating in the review had seen Darland, and that their opinions were expressly contradicted by the doctors who had examined and treated Darland, the court turned to the “treating physian rule.”  Although the Sixth Circuit had not previously addressed the issue in the context of ERISA cases, the court found Regula presented the more persuasive viewpoint on the applicability of that rule.  The reasoning of Regula that the basis for the treating physician rule (i.e., that it promotes greater consistency and accuracy in determinations) in Social Security claims applies equally to ERISA claims according to the court.  Thus, the court concluded, “Applying the treating physician rule in this case, the district court should have deferred to the opinions of Darland's treating physicians absent substantial evidence in the record contradicting those opinions.” *48.  Moreover,

The treating physician rule has particular applicability to the factual circumstances of this case where there is such a stark dichotomy between the opinions of the treating physicians who possessed an abundance of first-hand knowledge of the patient's medical condition and those of the non-treating medical consultants who were hired by a company selected by Fortis, the plan administrator, which had a financial stake in the matter as the insurer who ultimately pays the benefits. Although we do not dispute the concurrence's assertion that the treating physician's opinion does not "trump" all other evidence, we do maintain that the treating physician's opinion is entitled to deference particularly when, as in the matter at hand, there is an absence of substantial evidence to the contrary.  *49-50.

Alternatively, the court also found that the substantial evidence required a conclusion in Darland’s favor even without applying the treating physician rule.  Apparently, the alternate holding was in answer to a concurrence agreeing with the result, but deeming it unnecessary to adopt the treating physician rule.

Discussion:       From the plaintiff’s perspective, Darland is the complete package.  Moreover, since the Supreme Court has granted certiorari in Nord v. Black & Decker (Disability E-News Alert! July 2002), Darland signals the Supreme Court that the Circuits are showing greater acceptance of the treating physician rule and should encourage either affirmance of Nord or dismissal of the certiorari petition filed by MetLife.  The court’s reliance on Ladd is also significant.  When we litigated Ladd, we were surprised that no other case had considered the judicial estoppel issue created when the insurer encourages the Social Security application, benefits from a favorable outcome due to the coordination of benefits between Social Security benefits and LTD benefits, and then the insurer attempts to disavow the results of the Social Security victory, even though the statutory definition of “disability” under that program requires the claimant to be unable to perform “any substantial gainful activity.”  42 U.S.C. §§416, 423(d)(1)(A).  The court’s attack on Network Medical Review also continues a trend started in Ladd and which was continued in Vartanian v. Metropolitan Life Insur.Co., 2002 U.S.Dist.LEXIS 5459 (N.D.Ill. 3/29/02)(Disability E-News Alert! April 2002), Reipsa v. Metropolitan Life Insur.Co., 2002 U.S.Dist.LEXIS 13188 (N.D.Ill. 6/10/02)(Disability E-News Alert! June 2002) and Austin v. Continental Casualty Co., 2002 U.S.Dist.LEXIS 16654 (W.D.N.C. 8/23/02)(Disability E-News Alert! September 2002).  Although there is nothing wrong with “independent review,” the financial relationship between NMR and MetLife, in particular, has been so strong that no independence exists; and the insurers are going to need to locate a truly independent reviewer, although Darland makes clear, there is no substitute for an examination.