Erisa: License to Cheat, Lie, and Steal for the Disability Insurance Industry
| Date | 01 September 2008 |
| Publication year | 2008 |
| Pages | 14 |
Vol. 21, No. 5, 14. ERISA: License to Cheat, Lie, and Steal for the Disability Insurance Industry
INTRODUCTION
There is an increasingly popular notion that modern litigation is an evil that must be stamped out at all costs. This belief has not only been propounded by the uninformed, but has been championed by some of our leading legal scholars, judges, and legislators. They have sought to rarefy litigation by creating unnecessary legal complexity, stripping litigation of its essential components, gutting administrative agencies of staff and money, limiting attorneys fees, and completely eliminating adjudication of some claims.
This trend is reminiscent of individuals who desire optimum physical health without exercise or moderate consumption. All that is needed is a bit of surgery, some electrical stimulation, copious amounts of cellulite reducing cream, and the latest magic pharmacopoeia. This same approach is applied to litigation. The power brokers propose that optimum justice can be obtained through radical surgery, intellectual sophistry, copious amounts of judicial neglect, and a magic statutory bullet here or there. The problem is that, just as optimal physical health requires consistent physical activity and disciplined consumption; adequate justice also requires vigorous intellectual labor and disciplined processes. This will be true as long as imperfect beings live in a defective world.
Hence, litigation, while less than perfect, should not be a byword to be whispered in quiet places beyond the hearing of the young, weak, and uneducated. Moreover, in the long run, modern litigation is neither inefficient nor evil. Litigation is the machine of justice, exquisitely crafted, well oiled, and highly refined through centuries of evolution and fine tuning. Many of its components are necessary elements in our modern world. Contrarily, trial by ordeal, used in past centuries, though quick to churn out resolutions, was inefficient, brutal, and arbitrary. To the other extreme, the dismantling and disfigurement of our modern system of litigation into some effete, feeble but seemingly more efficient administrative or arbitrative process controlled by insurance corporations or governmental agencies, is, in the long run, as inefficient, brutal, and arbitrary as was trial by ordeal except that the deepest pocket, and not the more cunning combatant, usually wins.
As will be argued, ERISA (the acronym for the misnamed, Employee Retirement Income Security Act) has created a brutal, arbitrary, and inefficient administrative process that is controlled by the insurance industry. ERISA governs employee welfare benefit programs, see 29 U.S.C. § 1001 et seq., that consist of "any plan, fund, or program. . .established or maintained by an employer," 29 U.S. C. § 1002 (1), to provide benefits through an insurance policy, see Donovan v. Dillingham, 688 F.2d 1367, 1371 (11th Cir. 1982). This article concerns ERISA's application to employment short term and long term disability plans (Plans). Supposedly, Congress created ERISA "to promote the interests of employees and their beneficiaries in employee benefit plans and to protect contractually defined benefits," Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 113 (1989) (internal quotation marks omitted); see also 29 U.S.C. § 1001 (listing the congressional findings and declaration of policy regarding ERISA); Dixon v. Life Ins. Co. of N. Am., 389 F.3d 1179, 1184 (11th Cir. 2004) ("ERISA's purpose [is] to promote the interests of employees and their beneficiaries."). However, this federal legislation would be more aptly named the "Enforcement of Revenues for Insurance Companies Security Act." The fact is ERISA does not secure employees' rights to disability benefits. Instead, it is ill-conceived legislation that gives insurance companies the opportunity to cheat, lie, and steal.
ESSENTIAL COMPONENTS OF MODERN LITIGATION
Adequate adjudication of a conflict has several essential fundamental components including: (1) the availability of the discovery process; (2) the right to probe the materiality, competency, and credibility of evidence; and (3) the right to present a dispute for resolution to an impartial fact finder. The elimination of any of these components in litigation invites deception and produces injustice.
DISCOVERY UNDER ERISA
Under ERISA, the insurance company has unfettered access to information regarding a claimant when evaluating his or her application for disability benefits. This information includes medical records through requests, peer-to-peer contacts, medical record reviews, medical evaluations, medical examinations, medical testing, employment record requests, Social Security record requests, and surreptitious surveillance.
Contrarily, the claimant is mostly barred from obtaining any information through discovery about the insurance company's decision-making process. A claimant challenging a denial of benefits is only permitted to obtain what the Plan Administrator, the insurance company, or both designate as the administrative file. Hence, the first disfigurement to the machine of justice in an ERISA case is its jettison of the discovery process.
Importance of Discovery
"The objectives (of discovery) are to enhance the truth-seeking process. . ., to eliminate surprises. . .. Its legitimate function is to furnish evidence, and the ultimate objective of pretrial discovery is to make available to all parties, in advance of trial, all relevant facts which might be admitted into trial." 27 C.J.S. Title Discovery § 2b (1999).
The Standard of Review in ERISA Administrative Appeals
When a claimant appeals an insurance company's denial of disability benefits under ERISA, the Federal District Court reviews the claimant's cause of action under either: (1) an arbitrary and capricious standard of review, (2) a "sliding scale/conflict of interest" arbitrary and capricious standard of review, or (3) a de novo standard of review. In Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989), the Supreme Court held that "a denial of benefits. . .is to be reviewed under a de novo standard unless the benefit plan gives the administrator. . .discretionary authority to determine eligibility for benefits or to construe the terms of the plan." 489 U.S. at 115. If discretionary authority exists, which is usually the case (due to the case law established in Firestone, most insurance companies through the Plan Administrators have, by the stroke of a pen, granted themselves discretionary authority and it is rare that the de novo standard of review, which allow the claimant more parity, applies), then the proper standard of review is abuse of discretion. See id.
In Lunt v. Metro. Life Insurance Co., 2007 U.S. Dist. LEXIS 47967 (D. Utah June 29, 2007), Judge Tena Campbell of the Federal District Court of Utah, in a memorandum decision, stated, "[b]ecause the Tenth Circuit has been `comparatively liberal in construing language to trigger the more deferential standard of review under ERISA," plan language which requires a claimant to offer proof of disability satisfactory to the [P]lan [A]dministrator [and thereby the insurance company] triggers the arbitrary and capricious review." Id. (citation omitted). Consequently, any language in the Plan indicating that the Plan Administrator (and thereby the insurance company) has discretion to interpret and apply the Plan creates this rather lenient standard of review.
1. Arbitrary and Capricious Standard of Review
Under the arbitrary and capricious standard of review, the court's review is limited to the evidence and arguments that were presented during the administrative claim and appeal process with the insurance company, see e.g., Allison v. UNUM Life Ins. Co. of Am., 381 F.3d 1015, 1021 (10th Cir. 2004); Chambers v. Family Health Plan Corp., 100 F.3d 818, 823-24 (10th Cir. 1996); Sandoval v. Aetna Life & Cas. Ins. Co., 967 F.2d 377, 380-81 (10th Cir. 1992). "In effect, a curtain falls when the fiduciary completes its review, and for purposes of determining if substantial evidence supported the decision, the district court must evaluate the record as it was at the time of the decision." Id. at 381. The Tenth Circuit has justified this bar to discovery, stating:
A primary goal of ERISA was to provide a method for workers and beneficiaries to resolve disputes over benefits inexpensively and expeditiously. Permitting or requiring district courts to consider evidence from both parties that was not presented to the [P]lan [A]dministrator would seriously impair the achievement of that goal.
Consequently, when the appropriate standard of review is arbitrary and capricious, a claimant's right to discovery is limited to the administrative record, which record the claimant, the insurance company, and Plan Administrator generate prior to litigation. Most short-term and long-term disability plans have a two- to three-step administrative appeal process.
Ostensibly, one may surmise that an adequate remedy to any discovery deficiencies would be to submit any information during the administrative process that was arguably supportive of a claim for disability and to also request discovery information from the insurance company and the Plan Administrator. Although there are exceptions, in practice, this strategy is inadequate for several reasons.
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