The Absence Of A Serious Conflict Of Interest Affecting A Plan Administrator's Judgment Results In Affirmance Of Benefits Termination

Posted on November 20, 2009 by Michael Rigney

MARRS v. MOTOROLA, INC. (August 14, 2009)

Years ago, Michael Marrs developed a psychiatric condition that forced him to leave his job at Motorola and go on disability leave. Six years after he started his leave, Motorola amended its disability plan. It imposed a two-year limit on disability benefits resulting from mental, rather than physical, conditions. Marr's benefits were terminated by Motorola two years after the amendment. Marrs brought a class action under ERISA. The district court granted summary judgment to Motorola. Marrs appeals.

In their opinion, Chief Judge Easterbrook and Judges Bauer and Posner affirmed. ERISA limits a plan's ability to amend its terms. It provides that no amendment can adversely affect benefits with respect to periods of disability prior to the date of the amendment. The Court rejected Marrs' interpretation under which a plan could not affect any benefits for a period of disability that began before the amendment, but continues to run. The Court also addressed and rejected Marrs' argument that the Supreme Court's Glenn decision required a different outcome. Normally, the Court stated, if the plan administrator is given discretion to interpret the terms of the plan, a court will only reject its interpretation if it is unreasonable. That discretion exists in Motorola's plan. In Glenn, the Supreme Court addressed the situation when a plan administrator is laboring under a conflict of interest. Here, however, the Court concluded that the record did not establish that the administrator had a serious conflict of interest.
 

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Summary Judgment Upholding Denial Of Long-Term Disability Benefits Requires A Remand When Lower Court Did Not Adequately Explain Its Treatment Of The Then-Recent Supreme Court Opinion In Glenn

Posted on November 13, 2009 by Michael Rigney

RAYBOURNE v. CIGNA LIFE INSURANCE COMPANY (August 6, 2009)

After 23 years on the job, Edward Raybourne went on long-term disability. He was about to have the first of four surgeries on the big toe of his right foot. His disability plan provided payments for 24 months upon a showing that he was unable to perform his regular job. After 24 months, he had to show that he was unable to perform any job in order to continue receiving benefits. After an independent medical examination concluded that Raybourne could return to work, Cigna terminated his long-term disability benefits. Raybourne's treating physician continued to state that he was unable to return to work. After his internal appeals were unsuccessful, Raybourne brought suit under ERISA. The district court granted summary judgment to Cigna, concluding that it had not abused its discretion. Raybourne appeals.

In their opinion, Judges Rovner, Wood and Williams vacated and remanded. An abuse of discretion standard, stated the Court, is appropriate when the plan administrator has discretionary authority. The Court found that Cigna had such authority, notwithstanding Raybourne's contention that the grant of discretion is not included in a plan document. Under that standard, an administrator's decision will be upheld as long as it is supported by evidence in the record and specific reasons are communicated to the claimant. Here, however, the Court noted that the Supreme Court released its opinion in Glenn just a few days before the district court's summary judgment decision. Glenn held that one factor in the abuse of discretion analysis is the structural conflict of interest when a plan administrator is both the arbiter of claims and the payor of successful claims. The Court concluded that the district court's passing reference to Glenn required a remand for a proper analysis of the structural conflict.

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The Absence of Any Factual Allegations Which Could Be Resolved to Preclude Insurance Coverage Defeats Insured's Claim for Independent Counsel

Posted on September 15, 2009 by Michael Rigney

NATIONAL CASUALTY COMPANY v. FORGE INDUSTRIAL STAFFING INC. (June 3, 2009)

Forge Industrial Staffing, Inc. is an employee staffing company. It has insurance coverage through National Casualty Company (NCC) that insurers it, among other things, from intentionally discriminating against its employees. When several of Forge's former employees brought anti-discrimination charges before the EEOC, NCC agreed to defend Forge but reserved the right to deny coverage later. Given NCC's reservation of rights and the exclusion in the policy of coverage for punitive damages or claims arising from Forge’s intentional or reckless disregard of the law, Forge requested independent counsel. NCC refused. After Forge hired its own counsel, NCC brought a declaratory judgment action to resolve the issue. The district court found no actual conflict and concluded that NCC did not have to pay for Forge’s own counsel. Forge appeals.

In their opinion, Judges Cudahy, Williams and Tinder affirmed. The Court noted that Illinois law provides a broad duty to defend as well as a right to direct the defense. Only if an actual conflict exists does the insured have a right to have the insurer pay for independent counsel. The Court looked to the allegations of the complaint and the terms of the policy to determine whether an actual conflict existed. An actual conflict exists if the underlying complaint contains two mutually exclusive theories of liability, only one of which is covered by the policy. Here, the Court held that neither the possibility of punitive damages in future litigation nor the policy exclusion of willful conduct created an actual conflict. The possibility of punitive damages was too speculative. With respect to the policy exclusion, there were no allegations of willful conduct and there were no allegations which would preclude coverage if resolved a certain way. Thus, the requirements for independent counsel were not met.

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