Missouri District court must reconsider Dearborn's LTD denial under a de novo standard

A de novo review gives a disability claimant the ability to have the court review their claim denial without any deference to the disability insurance company’s denial. This case is an example of the extended legal battle and technical legal argument that took place in order to obtain a de novo review for Ms. Jobe. Ruth Jobe lost her ERISA lawsuit in District Court, because that Court sided with the disability insurance plan’s arguments that the plan summary which gave discretion to Dearborn National/Dearborn Group prevailed over the policy document.

Jobe’s disability attorney had argued that the plan summary clearly stated that if there was a conflict between the policy and the summary, the plan prevailed. The policy did not give Dearborn National/Dearborn Group discretion, thus Jobe’s lawsuit should have been reviewed de novo. A surface look at the court decisions used by Dearborn to convince Judge Laughrey of the Western District of Missouri’s Central Division that the plan summary prevailed seem convincing. The problem comes because a series of decisions that support the rights of disability plan participants were completely ignored. For a factual history of this case please see our article Dearborn denies long term disability benefits to woman with fibromyalgia and CFS.

Disability insurance plan argues that Summary Plan Description should prevail.

Typical of many disability insurance policies, Dearborn National/Dearborn Group’s long-term disability policy included several documents – a policy document, a certificate of coverage (Summary Plan Description) and an ERISA information statement. The policy stated that if the terms of the Certificate and the policy differed, the policy would govern. The ERISA information statement was attached to Summary Plan Description (SPD). It likewise stated that if something was not covered by the SPD or if something in the SPD conflicted with the Policy, the Policy would “always control.”

Yet, when Dearborn faced Jobe’s disability attorney in Court, Dearborn asked the Court to rule that the exact opposite applied. The disability insurance plan’s arguments had persuaded the District Court. Would they succeed before three judges on the Court of Appeals?

The ERISA information statement gave Dearborn National/Dearborn Group discretionary authority, while the Policy remained silent on this issue. Jobe’s disability insurance attorney argued that because the Policy did not give Dearborn discretionary authority, it should prevail as stated by both the SPD and the ERISA information statement. Dearborn National/Dearborn Group presented three Court decisions ruling in favor of Summary Plan Descriptions prevailing over the Policy.

In Jensen v. SIPCO, the Court ruled that summary plan descriptions are “considered part of the ERISA plan documents.” In this case, the Court also held that a provision in the Summary Plan Description prevailed when it conflicted with the Policy.

In Marolt v. Alliant Techsystems, Inc., the Court found that the SPD prevailed when it provided additional rights and privileges not included within the Policy. In Marolt, the SPD actually contradicted the Policy by providing a “bridge” to cover any break in service time. When the plan participant needed to use this “bridge” the ERISA plan administrator claimed the Policy prevailed. The Court ruled otherwise because ERISA mandates that summary disability plan descriptions must provide accessible and adequate descriptions of the Policy. The Court found that the employee was entitled to the bridging provision.

Dearborn National/Dearborn Group wanted the Court to rule that their SPD prevailed even though this directly contradicted the statement in the SPD that the policy prevailed. The disability insurance plan claimed the SPD secured additional rights for the plan administrator. To bolster this claim, Dearborn National/Dearborn Group cited Gamboa. This case revolved around the right of an ERISA health and welfare plan to recover benefits paid after the beneficiary of benefits received a settlement of $1 million after successfully suing the person who caused the automobile accident.

The Summary Plan Description was the only insurance plan document. When the health and welfare plan tried to collect the reimbursement as provided for in the SPD, the beneficiary tried to claim that in the absence of a formal plan document, there was no obligation to reimburse the plan. The Court found otherwise. Because no other document existed, the Court ruled that the SPD was the formal plan document. Because the employee had received benefits because of the terms within the SPD, the employee was also obligated to the terms of the SPD. The employee was ordered to reimburse the health and welfare plan for the $750,000 it had paid.

Court finds Gamboa does not apply.

Gamboa failed to apply to Dearborn National/Dearborn Group’s situation for two reasons. First, there were no conflicting documents. The SPD was the only document, making it the written policy required by ERISA. Second, the beneficiary of the policy was seeking to avoid the application of the reimbursement provision of the SPD, while simultaneously accepting benefits from the same SPD. Jobe’s disability attorney was not trying to evade one aspect of the SPD while benefiting from another.

Court considers premise behind additional decisions upholding SPD overruling Policy.

In Jensen, the Court determined that an SPD could prevail over a conflicting policy provision because of the importance of disclosure under ERISA. The decision cited other circuit courts of appeals decision to establish this rule but chose not to apply it because in Jensen’s case the plan document was specific and the SPD was silent on the matter under consideration.

In Barker, the Court applied the rule established in Jensen for the first time. The Court used the following reasoning to bind the employer to the promise made in the SPD. The Court found that one of ERISA’s major purposes is to guarantee adequate disclosure to plan participants. Because this requirement is so important, “in the event of a conflict between formal plan provisions and summary plan provisions, the summary plan description provisions prevail.”

The Court applied the rule again, in Marolt. In this case, the Court found that ERISA requires the SPD “be plainspoken for the benefit of average plan participants.” When it “says one thing, and an obscure passage in a transactional document only lawyers will read and understand says something else,” the Court held that terms in the SPD governed based on ERISA’s adequate disclosure mandate.

At the same time, the Court stated in Barker that when the plan administrator is the one seeking enforcement of an SPD provision, the Court assumes that the plan administrator knows all the terms present in the policy. To hold that the summary plan description prevails over the policy in such circumstances “would do little to enhance either party’s understanding of their legal rights and responsibilities.”

The Court has consistently held that the SPD should be a document that is easily interpreted by anyone. No one should need the skills of a disability attorney to determine whether the SPD agrees with the Policy. In Jobe’s case, the conflict over whether Dearborn National/Dearborn Group had the authority to interpret the plan could make the difference between receiving her rightful long-term disability benefits or not. The District Court had already found Dearborn National/Dearborn Group’s decision reasonable using the arbitrary and capricious standard of review.

For over 20 years, the Court has reviewed decisions to deny long-term disability benefits under the arbitrary and capricious standard when the plan documents give the administrator authority to interpret the plan. Under this standard, the disability benefit plan need only prove that it made a logical decision in light of the facts. In Jobe’s case, the Policy and SPD conflicted with each other.

In the absence of an SPD, the Court’s default standard of review would be de novo because the policy does not provide discretion. Only the summary does. A reasonable person reading the SPD would determine that the policy prevails over the SPD. After reading the policy, it would be reasonable to conclude that administrator did not have discretion to interpret the policy. This would strip the disability insurance plan of its entitlement to deferential review.

In light of these facts, the Court found that holding that “the summary plan description always prevails over the policy – even where the summary plan description indicates the policy prevails – would only invite further confusion” for plan participants. Indeed, none of the cases presented by Fort Dearborn to support their contention that the SPD should always prevail over the Policy squarely addressed the issue presented by Jobe’s disability attorney – Jobe’s right to protection from the disability insurance plan’s attempt to modify the formal policy by adding rights that benefit the plan and injure the participant.

Jobe’s disability attorney could cite at least three cases where the Court has ruled that clauses granting the administrator discretion in the summary plan description do not overrule a policy when it contains a procedure for amending or altering the plan. Dearborn National/Dearborn Group’s policy contained a formal amendment policy, a requirement under ERISA.

The Court recognized that if it were to rule that the SPD had the power to amend the Policy, then disability insurance plans could begin issuing policies that are silent on key provisions and start using their summary plan descriptions to add provisions that are favorable to the Plan. In Curtiss-Wright Corp., the Supreme Court concluded that while ERISA’s amendment requirement isn’t a disclosure requirement, it is there to establish formal amendment procedures. Otherwise, key terms could be changed by a summary plan description without being held accountable to the level agreed to within the policy.

In this case, the Court’s ultimate decision rested on what a reasonable person would conclude after reading the summary plan description. The Court concluded that the average disability insurance plan participant would have concluded that the policy prevailed if a conflict arose. It was reasonable for Jobe to conclude that Dearborn National/Dearborn Group did not have discretionary authority.

The Court of Appeals determined that Dearborn National/Dearborn Group’s decision to deny Jobe long-term disability benefits was reached using the wrong standard of review. Rather than perform the de novo review itself, the Court of Appeals reversed the District Court decision and sent the case back for review under the de novo standard. It will be interesting to see if this results in a reversal of Dearborn National/Dearborn Group’s denial of long-term disability benefits.