In the aftermath of the United States Supreme Court holding in Metropolitan Life Ins. Co. v. Glenn, 554 U.S. 105, 128 S.Ct. 2343, 2348 (2008), the courts have struggled to apply this holding. The Ninth Circuit did so in Montour v. Hartford Life & Accid. Ins. Co., 582 F.3d 933 (9th Cir. 2009). In turn, the District Courts have applied Montour in several decisions.
One of the latest is the unpublished opinion in Sterio v. HM Life, 2010 U.S. App. LEXIS 4615 (E.D. Cal., Mar. 4, 2010) which represents the first case out of the Ninth Circuit Court of Appeals to substantively discuss the application of the conflict of interest analysis set forth in Montour. This case provides valuable insight into how may courts will apply the factors set forth in Montour.
In Sterio, the plaintiff Barabara Sterio, sought long term disability benefits under an ERISA benefits plan sponsored by her former employer, Diabetes Well. Sterio suffered post-operative complications following total hip replacement surgery which she claims left her permanently disabled. HD Life, the insurer and administrator of the ERISA plan , eventually concluded that the medical evidence did not support Sterio’s claim. HD Life denied benefits and Sterio sued in federal court. At issue on appeal was the proper standard of review and the weight to give the conflict of interest.
As with many insurance cases, the ultimate benefits decision was made by HD Life, who was also the insurer of the plan. This situation creates a structural conflict of interest. In Glenn, supra, the Court held that the presence of a conflict of interest does not change the standard of review, but instead becomes a factor in determining whether an administrator abused its discretion. Here in Sterio, the court discussed five factors which it held, demonstrated that HD Life abused its discretion. The first was HD Life’s failure to address what the court believed was reliable medical evidence. This conflicted with HD Life’s claim that there was no objective medical evidence supporting her disability. Second, HD Life failed to address or even acknowledge the Social Security Administration’s determination that Sterio was permanently disabled. Although the SSA’s determination would not be binding on HD Life, their failure to even address the issue was suspect. The third factor was the failure to conduct an in-person medical evaluation. Independent medical exams are not required but in this case, HD Life engaged six different independent reviewing physicians, each of whom conducted only a paper review of the evidence. The fourth factor addressed by the court is the failure of the administrator to communicate to the claimant the specific evidence necessary to establish the claim. Here, HD Life discounted Sterio’s Functional Capacity Evaluation because there was no bone density study performed. However, HD Life failed to communicate to Sterio that information which prevented her from taking steps to prove her claim by undergoing a bone density study. The final factor discussed by the court was HD Life’s violation of ERISA procedures by “tacking on a new reason for denying benefits in its final decision, thereby precluding Sterio from responding to that rational for denial at the administrative level.” (internal citations omitted). This action, the court reasoned, was evidence of the conflict of interest and demonstrated that the decision may not have been entirely based on the medical evidence.
Based on the abovementioned factors, the court held that HD Life abused its discretion when it denied Sterio’s LTD benefits. For the purposes of future litigation, this case highlights the application of the conflict of interest analysis and is useful to both plaintiffs and defendants, by discussing in detail the Ninth Circuit’s desired application of Montour.