A ruling in U.S. District Court for the Southern District of New York found Reliance Standard Life Insurance Company (“Reliance”) acted in an arbitrary and capricious manner when it denied Elizabeth Diamond long-term disability benefits. Here is her story.
Ms. Diamond worked for Paine Webber as a desktop publisher. Coverage from Reliance through a Group Long Term Disability (LTD) Insurance Policy paid for by her employer was included in her benefits package. Ms. Diamond fell ill and ceased working on September 9, 2000. She first applied for long-term disability benefits in early March of 2001.
She received a letter dated March 26, 2001, instructing her to apply for Social Security disability insurance benefits if she thought that she would be ill for more than 12 months. She followed these instructions and on August 24, 2001, she received a letter from the Social Security administration finding that she was disabled and awarding her benefits accordingly. Two years later, her disability was re-evaluated. Social Security found that her disability was continuing.
Diamond’s attending physician, noted in her file on September 8, 2004, that his diagnosis for her condition was “Bechet’s disease”, with other symptoms being present such as fibromyalgia, hyperlipidemia, hypothyroidism, migraine headaches, metabolic syndrome, depression and gastritis. He noted that diamond suffered from daily debilitating headaches and frequent breakouts the painful sores in both her GI tract and on the outer surface of the body. It should be noted that Bechet’s disease is a chronic disorder that causes inflammation of small blood vessels throughout body. So it’s understandable that her doctor’s notes indicate that there were many days when she was so tired she couldn’t even take a shower or get out of bed. About the same time, another doctor diagnosed Diamond with chronic migraines which did not respond to medication.
Almost a year later, her doctor indicated she only had 20% of her functional abilities. He noted that her symptoms were so severe they troubled her even when she was resting. At the same time, she went to a headache specialist that found that she had intractable migraines and a degree of neurological impairment but still has the ability to carry out “most of the activities of daily living.”
Set against this background, Reliance initially denied benefits to Diamond on June 14, 2002, claiming that she suffered from no physical impairment that would prevent her from performing the duties of her sedentary occupation. Reliance argued that Diamond could perform the material duties of her regular occupation, and thus was not entitled to long-term disability coverage. Diamond appealed and was denied once again.
After she had exhausted her administrative remedies, Diamond filed an action in Federal Court in 2003. Litigation was settled in July of 2004, with Reliance agreeing to pay Diamond disability benefits with interest and attorney’s fees.
But the story wasn’t over yet. After the settlement, Reliance once again denied Long-term disability benefits effective October 8, 2005. Reliance stated that Diamond was capable a performing the duties of her own occupation.
Diamond appealed, pointing to the various diseases her doctors had diagnosed and how the symptoms from these diseases were preventing her from returning to even a part time work schedule. Reliance’s response was to have her file reviewed by a doctor who did not examine her, but evaluated that there was no evidence in her file to suggest that her impairment would prevent her from performing sedentary work. The doctor went on to state that he saw nothing in the file to indicate what might be causing Diamond’s self reported chronic fatigue. Based on this doctor’s review, Reliance refused to reverse their decision to terminate Diamond’s disability payments.
Diamond then filed her second lawsuit against Reliance, claiming that the denial of her appeal and termination of her LTD benefits was arbitrary and capricious. She asked that her LTD benefits be reinstated retroactively and that she be compensated for her attorney fees, costs and prejudgment interest.
When the Court reviewed Diamond’s case, they considered whether Reliance’s decision was “based on a consideration of relevant factors.” And their decision had to be limited to the reasons given by Reliance at the time of the denial. During this process, they observed procedural irregularities that suggested a failure to consider the relevant factors.
In this case, they found that Reliance’s claim to have “lost” Diamond’s file demonstrated procedural irregularities that were unacceptable. The Court also found that Reliance emphasized the findings of a physician who had never seen Diamond over the findings of several physicians who had.
They also found the Reliance had failed to conduct an independent medical evaluation before reversing their position, and reverting to their denial of her first disability claim. In fact, there was no evidence that Reliance had even reviewed the updated information that Diamond had supplied, even though three years had passed since she had filed originally.
The Court also found that Reliance failed to give weight to the fact that Social Security had found Diamond was disabled, not only initially, but after a second review, two years later.
In the light of these facts, the Court issued summary judgment in Diamond’s favor, ordering Reliance to reinstate Diamond’s long-term disability benefits.