In Lavery v. Restoration Hardware Long Term Disability Benefits Plan, 2019 WL 4155038 (1st Cir. September 3, 2019), Plaintiff John Lavery (“Lavery”), who was disabled following a diagnosis of malignant melanoma, brought claims under the Employee Retirement Income Security Act (“ERISA”) against Defendants Restoration Hardware Long Term Disability Benefits Plan (“the Plan”) and Aetna Life Insurance Company (“Aetna”) who denied his benefits claiming he suffered from a pre-existing condition. The district court overturned the benefit denial and the 1st Circuit has affirmed.
The Plan states that “Long Term Disability Coverage does not cover any disability that starts during the first 12 months” of coverage if it is “caused or contributed to by a ‘pre-existing condition.'” The Plan further states that “a disease or injury is a pre-existing condition if, during the three months before the date you last became covered: it was diagnosed or treated; or services were received for the disease or injury; or you took drugs or medicines prescribed or recommended by a physician for that condition.”
On April 25, 2014, Lavery had an office visit with his primary care physician, Dr. Anthony Lopez and presented Dr. Lopez with a lesion on his back. Dr. Lopez suspected that the lesion might be a basal cell carcinoma and recommended that Lavery consult with a dermatologist. On June 10, 2014, Lavery treated with Dr. Eileen Deignan, a dermatologist, about the lesion. Dr. Deignan biopsied the lesion and diagnosed Lavery with malignant melanoma on June 19, 2014. On September 29, 2014, Lavery ceased working and sought to commence disability leave on September 30, 2014, due to impairments caused by the treatments for his malignant melanoma. Lavery applied for and received short-term disability benefits under RHI’s Short Term Disability Plan (“STD Plan”), also administered by Aetna. In the context of the request for short-term disability benefits, RHI communicated to Aetna that Lavery’s date of hire was May 12, 2014 and the effective date for coverage under the STD Plan was June 1, 2014.
On or about March 26, 2014, Pedro Cortero, an Aetna Clinical Consultant, conducted a “pre-existing assessment” of Lavery’s claim. Cortero wrote a note in Lavery’s LTD file that considered Lavery’s April 2014 visit to Dr. Lopez, his primary care physician, and concluded that “[t]here is no evidence of a definitive diagnosis and management rendered for his malignant melanoma during the look back period.” That same day the Disability Benefit Manager (“DMB”) Therese Leimback, wrote that she “will recommend approval of claim.” Despite Cortero’s assessment and Leimback’s note, Aetna sent Lavery a denial letter on or about March 30, 2015, which stated that Lavery had a pre-existing condition due to his April 2014 visit with Dr. Lopez. Lavery appealed.
On appeal, Aetna requested a review by Tyler Thornton, another clinical consult, of the pre-existing condition issue. Thornton concluded that “[t]he documentation supports overturn of the prior pre ex decision.” Thornton referred to “the clinical review dated 3/25/15 by P. Cortero thoroughly and accurately reviewing the record including” the April 2014 visit with Dr. Lopez. Subsequently, DBM Leimback added another note stating that she would “rec[ommend] approval and reinstatement.” Yet, on September 9, 2015, a note was entered in Lavery’s file indicating, for the first time in Aetna’s records, that the effective date of Lavery’s coverage was not June 1, 2014, but July 1, 2014. The apparent rationale for the change was a Summary of Coverage (“SOC”) that issued on June 23, 2014, with an effective date of May 1, 2014, which laid out that an employee’s eligibility date is “the first day of the calendar month following the date you complete a probationary period of 30 days of continuous service for your Employer.”
Based on Lavery’s date of hire (May 12, 2014) his effective date under the revised SOC would have been July 1, 2014. On September 11, 2015, Aetna issued its final decision denying Lavery’s claim for LTD benefits explaining that the effective date for Lavery’s benefits was July 1, 2014, and that the look-back period therefore included both the April 2014 visit with Dr. Lopez and the June 2014 visit with Dr. Deignan, both of which served as bases for its final decision to deny Lavery’s claim under the pre-existing condition exclusion. Lavery filed.
District Court’s Decision
After review of the administrative record, the District Court concluded that Aetna’s two unexplained reversals of the recommendations to award benefits by Cortero, Thorton and Leimback, in the absence of new information and in the face of a detailed explanation for the awarding of benefits, weigh heavily toward a finding that the administrator acted unreasonably in denying benefits. Accordingly, the Court held that the April 2014 visit was not an adequate ground on which to deny benefits under the pre-existing condition provision.
Finally, in refusing to remand the claim back to Aetna for further investigation, the Court found that not only did Lavery have no opportunity to challenge the claim below that he had been an employee as of an earlier date, a remand to allow him to make that claim would be unfair. Lavery made the decision to visit Dr. Deignan on June 10, 2014, and at that point in time, he reasonably understood – based on the Summary of Coverage in effect at that time – that any diagnosis he received from Dr. Deignan would not be considered a pre-existing condition subject to exclusion from long-term disability coverage. The record on remand would therefore be shaped by the reasonable decisions that Lavery made in reliance on a Summary of Coverage that was retroactively changed by Defendants, resulting in prejudice to Lavery.
1st Circuit Court of Appeal’s Decision
The 1st Circuit framed the issue as follows:
Our assessment of this argument turns in the first instance on the Plan’s language. In accordance with that language, the pivotal question is whether at that April 2014 office visit (or at any point between March 1 and May 31) any of the following occurred: (1) Dr. Lopez “diagnosed or treated” the melanoma; (2) Lavery “received” services “for the” melanoma; or (3) Lavery “took drugs or medicine prescribed or recommended” by Dr. Lopez “for [the] condition.”
As a preliminary matter, the Court conceded that Aetna had discretionary authority to interpret its policy; and its decision could only be overturned if it was deemed arbitrary and capricious. However, the Court also noted that because Aetna served as both the claim administrator and funded the benefits Aetna operated under a structural conflict of interest in deciding Lavery’s claim. And after considering the totality of the facts and evidence the Court concluded that Aetna’s decision-making was motivated by that financial conflict, including claim notes replete with documentation that the claim examiners did not believe the pre-ex exclusion applied while claim managers making the final decision – without any meaningful rationale or explanation – concluded that it did apply. In fact, the Court concluded that because Aetna’s decision was motivated by its financial conflict of interest and “an arbitrary attempt to justify a preferred result,” the court stripped Aetna of deference.
In a last ditch effort to brief life into it unreasonable decision making, Aetna argued that the Court should remand – or return – the case to Aetna for further investigation because it had never actually made an initial determination as to whether Lavery was disabled. The Court, however, concluded that remand was neither necessary nor appropriate, finding:
There is ample, indeed compelling, evidence to conclude that, at least at the time his benefits claim was denied, Lavery was disabled.
Similarly, the Court refused Aetna’s request for remand on the issue of entitlement to ongoing benefits, finding:
[W]e find that several factors weigh in favor of precluding Aetna from completely asserting their “no disability” defense as a means for achieving remand… First, Lavery’s medical condition (i.e., Stage IV malignant melanoma) “calls for resolving this controversy quickly”… Second, and importantly, the unfortunately unsurprising picture of a worsening illness suggests that Aetna’s assessment of Lavery as disabled would have been unlikely to change as time went by… Third, it is now August of 2019. It is impossible to do contemporaneous exams or to document with specificity Lavery’s day-to-day activity over the now past few years… Aetna’s wrongful denial rather than Lavery’s delay has caused the inability to do contemporaneous assessments of his condition… with these factors in mind – especially considering the fact that the record suggests that it is unlikely that Lavery’s disability has lessened – we conclude that it would be inequitable to [remand].