Not a Member?  Become One Today!

10th Circuit: ERISA Permits Termination of Benefits Based on Challenged Report

   5/16/2008
 

1/11/08 4:45 PM

10th Circuit: ERISA Permits Termination of Benefits Based on Challenged Report

By Scott M. Wich

The Employee Retirement Income Security Act of 1974 (ERISA) makes available to plan administrators a wide degree of discretion in making decisions regarding the granting of benefits. As reviewed by the 10th U.S. Circuit Court of Appeals , a plan administrator’s discretion can extend to a refusal to grant benefits based on information in reports that may be unreliable.

Anthony Niedens was a medical salesperson for Stryker Corp. On Dec. 29, 2001, Niedens stopped working for Stryker. He suffered from Crohn’s disease and associated diarrhea and allegedly constant abdominal pain. He applied for disability benefits through a plan offered by his employer and issued by Continental Casualty Co.

After receiving short-term disability benefits, Niedens received long-term disability benefits through March 2004. At that point, for him to be eligible for continued benefits, the plan required Niedens to establish that he was unable to be engaged in any “gainful occupation,” defined as a new job yielding at least 60 percent of his indexed earnings within the first 12 months of work. In Niedens’ case, 60 percent of his earnings would have been approximately $105,000 annually.

After reviewing medical reports, engaging in surveillance of Niedens and obtaining a labor market survey from a third party, Continental determined that Niedens could engage in a gainful occupation and, consequently, terminated his long-term disability benefits. Continental also denied Niedens’ administrative appeal, which focused on the validity of the labor market survey.

Niedens filed suit in federal court, claiming that Continental violated ERISA and seeking to overturn Continental’s denial of benefits. The lower court sided with Continental, and the federal appellate court affirmed.

The 10th Circuit observed that the Stryker plan provided the plan administrator and other plan fiduciaries with “discretionary authority to interpret the terms of the plan and to determine eligibility for and entitlement to benefits in accordance with the plan.” The court found this language to be critical as, according to ERISA, it compelled a finding in Continental’s favor as long as the basis for denying benefits was not arbitrary and capricious.

The court stated that “when reviewing under the arbitrary and capricious standard, the administrator’s decision need not be the only logical one nor even the best one. It need only be sufficiently supported by facts within his knowledge to counter a claim that it was arbitrary and capricious.”

Applying this standard, the court concluded that Niedens failed to show that Continental’s reliance on the labor market survey was arbitrary and capricious. The court found that, in response to Niedens’ administrative appeal, Continental followed up with the third-party firm conducting the survey to determine its veracity and that supporting information was provided by the survey firm to Continental. Given the information available to the plan administrator and its effort to investigate the claims raised by Niedens on his administrative appeal, the court ruled that it was neither arbitrary nor capricious to credit the survey results.

Niedens v. Continental Casualty Co ., No. 07-3113 (Dec. 7, 2007).

Professional Pointer: While ERISA provides plan administrators with great latitude in decision-making, such discretion is not boundless. For example, plan administrators remain responsible for providing adequate notice of the basis for their decisions. Moreover, as was the case in Niedens (though not dispositive), when a plan administrator is also the plan’s insurer, an inherent conflict of interest can arise that will affect the application of the arbitrary and capricious standard. The significant advantages ERISA provides when making benefits determinations goes hand in hand with a knowledge of and careful adherence to the law’s intricate requirements.

Scott M. Wich is an attorney with the law firm of Clifton Budd & DeMaria LLP in New York.

Related Article:

Conflicts of Interest in Benefits Appeals Decisions: Beware of Costly New Risks , SHRM Online Compensation & Benefits Library, October-November 2004

Editor’s Note: This article should not be construed as legal advice.

Quick Link:

SHRM Online Workplace Law Focus Area

Table Of Contents

Copyright Image Obtain reuse/copying permission