The Eleventh Circuit Court of Appeals, in Stewart v. Hartford Life & Accident Insurance Company, has upheld a lower court’s decision to deny a plaintiff’s appeal for long-term disability (“LTD”) benefits, ruling that the LTD insurer’s conclusions, while potentially wrong, were entitled to deference.
Background. The plaintiff was diagnosed with Parkinson’s disease in 2007. She submitted a claim to the insurer for her employer’s LTD plan, which began paying her disability benefits.
In 2010, while the insurer continued to pay the plaintiff disability benefits, the employer canceled the disability insurance policy with the original insurer and switched to a new insurer. The new insurer’s disability policy vested it with full discretionary authority to decide benefit claims. Its policy also contained an exclusion for any employee who was receiving “benefits for a Disability under a prior disability plan that: 1) was sponsored by [her Employer] and 2) was terminated before the Effective Date of the Policy.”
The new insurer denied the plaintiff’s subsequent claim for disability benefits based on this policy exclusion. The new insurer reasoned that the eligibility exclusion applied to the plaintiff because she was receiving benefits under a policy issued by her employer’s prior LTD insurer, which it contended had been terminated before its new policy became effective. In response, the plaintiff filed a lawsuit in federal district court to challenge the new insurer’s adverse benefits determinations.
The district court sided with the insurer and dismissed the plaintiff’s claim for disability benefits. In turn, the plaintiff appealed the district court’s decision to the Eleventh Circuit.
Eleventh Circuit. As an initial matter, the Eleventh Circuit explained its six-step analysis for reviewing an ERISA plan administrator’s benefits determination:
- Decide whether the benefits-denial decision is wrong under a de novo review. If it is not wrong, that ends the inquiry and the decision is affirmed.
- If the decision is de novo wrong, determine whether the administrator has discretionary authority under the applicable policy. If it does not, that ends the inquiry and the decision is reversed in favor of the plaintiff.
- If the policy grants such authority to the administrator, determine whether “reasonable grounds” exist to support the administrator’s decision.
- If no reasonable grounds exist, the decision is reversed and the plaintiff wins. If reasonable grounds do exist, consider whether the administrator operated under a conflict of interest.
- If there is no conflict, the determination is affirmed.
- If a conflict exists, the conflict is one factor taken into account when determining whether the administrator’s decision was reasonable.
In the instant matter, at step one, the court found that the plaintiff had a better reading of the benefits eligibility exclusion, noting that the phrase “prior Disability Plan” referred to the employer’s ERISA plan and that the term “Policy” referred to the insurance contract that services the plan. The court observed that the new insurance policy used the terms “Policy” and “Plan” differently and the new insurer knew how to draw a distinction between the two.
Here, the court determined that because the employer’s LTD plan was never terminated, under a de novo review standard, the disability-benefits exclusion would not apply to the plaintiff. However, because the new insurer had discretionary authority under the LTD policy, the court was required to consider whether the new insurer’s interpretation of the benefits eligibility exclusion was reasonable. Here, the court found that reasonable grounds did exist to support insurer’s interpretation and decision, even if it wasn’t the best reading of the policy exclusion. The court explained that the terms “Plan” and “Policy” could be considered interchangeable. More importantly, the court clarified that it was reasonable for the insurer to interpret “prior Disability Plan” to refer to the prior LTD insurance policy “to prevent an insured from receiving payments from two different sources for the same disability.”