Mere presence of ‘psychiatric component’ not enough to limit LTD benefits

An ERISA plan administrator abused its discretion in capping an insured’s long-term disability benefits at 12 months under the plan’s “mental disorder” limitation after finding that her disability included a “psychiatric component,” the U.S. Court of Appeals for the Sixth Circuit ruled, reversing the district court. In addition, the administrator’s determination that the insured’s physical ailments did not prevent her from working was not based on substantial evidence. Accordingly, the case was remanded to the district court for further consideration regarding whether the insured’s physical disabilities, apart from any alleged mental component, rendered her “totally disabled” after the initial 12 months of benefit payments.

The insured had been working as an art director with a clothing company for several months when she began to experience vertigo, extreme headaches, memory loss, and abdominal pain. She eventually was diagnosed with narcolepsy, Crohn’s disease, and Sjogren’s syndrome, an autoimmune disease. After continuing to struggle with her symptoms and side effects from the treatments, she stopped working and applied for benefits under her employer’s LTD plan, which was administered by Reliance Standard Life Insurance Co.

Reliance determined that the insured was impaired due to “depression and anxiety,” and approved her claim for benefits for a 12-month period under the plan’s coverage limitation for mental and nervous disorders. However, the administrator also concluded that the insured was not “totally disabled” as a result of her Crohn’s disease, narcolepsy, or Sjogren’s syndrome. Reliance rejected the insured’s administrative appeals, asserting that her medical records supported the “continued presence of a psychiatric component” to her disability. The insured filed suit.

Mental/nervous disorders limitation. The plan imposed a 12-month limit on LTD benefits for disabilities “caused by or contributed to by” mental or nervous disorders. The limitation included “depressive disorders” and “anxiety disorders.”

Reliance’s assertion that the insured’s symptoms did not rise “to a level that would prevent [her] from performing her sedentary occupation” was not supported by the administrative record. The administrator’s primary rationale for terminating her benefits was not an independent assessment of her physical symptoms apart from any alleged mental health challenges but, rather, was based on the presence of a psychiatric component.

In the court’s view, an application for LTD benefits should not be denied on the basis that a mental or nervous disorder “contributes to” a disabling condition. The effect of an applicant’s physical ailments must be considered separately to satisfy the requirement that the review be reasoned and deliberate. In this case, therefore, Reliance’s decision was not rational in light of the plan’s provisions.

Physical disability. Reliance also acted arbitrarily and capriciously in determining that the insured’s physical conditions did not render her “totally disabled” within the meaning of the plan. For example, the administrator relied almost exclusively on file reviews conducted by its own physicians, who never examined the insured. According to the court, file reviews are particularly questionable as a basis for denying benefits when the claim, as here, involves a mental illness component.

Moreover, Reliance did not use medical professionals with the relevant expertise. Although ERISA does not mandate an examination by the narrowest of specialists, it does require administrators to retain health care professionals in the specific field of medicine at issue. Reliance’s failure to consult with a mental health expert—particularly when its denial of benefits was based on a psychiatric component—indicated a lack of deliberate and reasoned decision-making.

In addition, the record contained no indication that Reliance’s reviewing physicians ever consulted with the insured’s treating physicians, the only doctors who actually examined her. Finally, Reliance had provided shifting rationales in support of its denial of benefits. Thus, the court concluded that Reliance’s decision was not based on substantial evidence.

Remedy. As a remedy, the court agreed with the insured that the matter should be remanded to the district court for a determination regarding whether the insured’s physical disabilities, apart from any mental component, disabled her from performing “the material duties of any occupation” as specified by the plan’s definition of “total disability” after the initial 12 months of benefit payments.

SOURCE: Okuno v. Reliance Standard Life Insurance Co., (CA-6), No. 15-4043, September 7, 2016.

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