Fourth Circuit examines abuse-of-discretion review standard in ERISA case

By Gregory Froom, Editor
www.sclwayersweekly.com
January 21, 2008

A long-term disability plan administrator properly cut off benefits for an Upstate woman whose debilitating arthritis was improving even though there was "substantial" medical evidence that she was still unable to work, the Fourth Circuit has ruled.

The crux of the case: How does the abuse-of-discretion standard of review function in ERISA disputes?

When the District Court reinstated benefits for the plaintiff, the judge actually made a de novo review of the plan administrator's decision to terminate payments, even though he couched it as an abuse-of-discretion standard, according to the opinion.

In its Jan. 8 ruling, the appellate panel said there was good medical evidence to support continued benefits and also good evidence for terminating them. But the district judge should have analyzed the plan administrator's decision for abuse of discretion rather than weighing the evidence himself, according to the opinion.

The case is Evans v. Eaton Corp. Long-Term Disability Plan (South Carolina Lawyers Weekly No. 001-012-08, 15 pages). Judge J. Harvie Wilkinson III wrote the opinion. Judge Dennis W. Shedd and U.S. District Judge Claude M. Hilton, sitting by designation, concurred.

"What the court did, in our view, was to really make clear what we have thought the standard was all along," said the plan's attorney, Jeffrey David Zimon of Cleveland, Ohio. "That standard comes from the Supreme Court. Over time, because of different cir-cumstances, the standard had eroded a bit in its application."

Applying the proper standard of review to the plan administrator's termination of benefits, the Fourth Circuit said there was "not an abuse of discretion in any sense."

The ruling shines light on the proper procedure for courts to use in reviewing termination of benefits in ERISA cases: If the plan administrator's decision was reasonable, it must stand, according to the appellate panel, regardless of the reviewing court's own view of the evidence.

Zimon emphasized that the case dealt with an employer-run plan, not an insurance company with a profit motive.

"The law is designed to allow employers to run their plans pay benefits and deny them when justified," Zimon told Lawyers Weekly. "With respect to an employer who's really trying to do a complete and thorough job, the law says you give that company deference.

"I think that it's appropriate because, if you don't allow employers the ability to honestly and fairly manage these kinds of arrangements, these arrangements will cease to exist," he said.

The plaintiff's attorney, Robert Edward Hoskins of Greenville, viewed the fairness issue through a different lens.

"This decision underscores perfectly what is currently unfair to claimants about ERISA. You have a situation where this lady presented the more compelling evidence, but because of the standard of review, she loses. Any other standard of review, and she would have prevailed," Hoskins said.

"I think it's a travesty and I would hope that somebody would look at this and say, 'My gosh, how can the woman present the more compelling case and lose?'"

Facts

The plaintiff quit her job as an order processor with Eaton in 1998 due to severe rheumatoid arthritis. She then filed a claim for long-term disability benefits.

The plan paid until 2003, when questions arose over whether she was still disabled. Her doctor had prescribed new medication, which he said "helped her quite dramatically. She has very little joint pain now."

Though her doctor saw improvement in her arthritis, the plaintiff had an auto accident in 2002 that caused back injuries. The doctor said those were not getting better, but an MRI showed that the back problems were not severe, according to the decision.

In a questionnaire, the plaintiff said she could do household chores, shop and drive short distances.

In 2004, the plan administrator reviewed her medical records and cut off her benefits.

The plaintiff's appeal was denied by the plan administrator. The plaintiff filed a complaint in U.S. District Court in Anderson.

The trial court issued an opinion in October 2006. District Judge Henry M. Herlong Jr. ruled that the plan administrator abused its discretion when it terminated the plaintiff's benefits.

The administrator appealed.

Holding

The Fourth Circuit reinstated the cancellation of long-term disability benefits.

The appellate panel said that "the District Court's judgment, though abuse of discretion in name, was de novo in fact."

The panel said it was "notoriously difficult to venture a general definition of the term 'abuse of discretion.'" However, in ERISA cases, it amounts to reasonableness, according to the decision.

"We will not disturb an ERISA administrator's discretionary decision if it is reasonable, and will reverse and remand if it is not," the opinion stated.

The court said there was substantial medical evidence on both sides in what it described as a close case.

The court said that it was not unreasonable for the District Court to view the evidence in favor of the plaintiff as superior to that in favor of the plan administrator.

"Were we reviewing the District Court's own decision for abuse of discretion, we would sustain it," Judge Wilkinson wrote. "But we are reviewing the plan administrator's ruling under that standard, and its decision was not an abuse of discretion in any sense.

"Where an ERISA administrator rejects a claim to benefits on the strength of substantial evidence, careful and coherent reasoning, faithful adherence to the letter of ERISA and the language in the plan, and a fair and searching process, there can be no abuse of discretion even if another, and arguably better, decision-maker might have come to a different, and arguably a better, result," the opinion stated.

High Court Action?

Hoskins, the plaintiff's lawyer, said he is considering whether to pursue the case further. "If I do anything, it would be to just bypass the Fourth Circuit and prepare a petition for cert."

Another case from a different circuit might come before the justices first and could resolve the issue, according to Hoskins.

"The United States Supreme Court is deciding whether to accept cert and, last week, the solicitor general recommended accepting cert in a case out of the Sixth Circuit called Glenn v. Metropolitan Life Ins. Co., 461 F.3d 660.

"The issue in that case is the standard of review for ERISA benefit claims. That was a disability claim also. I don't know if that will impact this Evansdecision, but it certainly could," Hoskins said.