An interesting case involving accidental death and dismemberment benefits was recently issued by the 10th Circuit.

In Rasenack v. AIG Life Ins. Co., 2009 U.S.App.LEXIS 24027 (10th Circuit. Nov. 2, 2009), the court discussed a number of issues affecting claims arising under the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1001 et seq.

Hand-Gerd Rasenack was severely injured when he was struck by a hit-and-run driver in front of his home. In addition to suffering brain injuries, he had significant limb injuries for which he brought a claim under an accidental death and dismemberment policy issued by AIG Life Insurance Co.

The policy provided that Rasenack would be eligible to receive $124,000 plus rehabilitation expenses if he suffered from hemiplegia, which is defined in the policy as "the complete and irreversible paralysis of upper and lower limbs of the same side of the body."

The litigation arose when AIG concluded that Rasenack did not suffer from hemiplegia as defined by the policy.

Rasenack submitted a timely appeal as required by 29 U.S.C. § 1133 as a prerequisite to bringing suit. Although the plan documents mandated that an appeal determination be issued within 60 days of the appeal, nearly eight months elapsed after the appeal was submitted without a decision. Rasenack then filed suit, and the appeal was denied about a month later.

AIG asserted that it was entitled to a deferential standard of review, but the court disagreed. The court ruled the de novo standard applied, following Gilbertson v. Allied Signal Inc., 328 F.3d 625, 631 (10th Circuit 2003), along with Jebian v. Hewlett Packard Co., 310 F.3d 1173, 1176-77 (9th Circuit 2002), Nichols v. Prudential Ins. Co. of America., 406 F.3d 98, 109 (2d Circuit 2005), and Gritzer v. CBS Inc., 275 F.3d 291, 296 (3rd Circuit 2002).

Those rulings stand for the proposition that the failure to issue a timely claim appeal determination mandated a forfeiture of discretionary authority. Although Gilbertson arose under the pre-2002 amendments to the ERISA regulations, the court found no reason to depart from that ruling, holding, "This change does not alter our conclusion that when an administrator violates the statutory deadlines incorporated into the plan, Firestone deference no longer applies." *9.

Nor was the court convinced there was an ongoing dialogue between the parties that excused the delay, finding there was nothing even close to substantial compliance by AIG. The court found there was only one effort to contact the plaintiff during the eight months that elapsed between the submission of the claim appeal and commencement of litigation.

The court also found no reason to depart from its Gilbertson ruling because of the insurer's ultimate issuance of an appeal decision, explaining that "permitting plan administrators to avoid de novo review by belatedly denying an appeal after the deadline has passed and the claimant has filed suit would conflict with the ERISA's stated purposes, namely 'protect[ing] … the interests of participants in employee benefit plans and their beneficiaries … by establishing standards of conduct, responsibility and obligation for fiduciaries of employee benefit plans and by providing for appropriate remedies, sanctions, and ready access to the Federal courts." 29 U.S.C. § 1001(b). *15.

Turning to the merits of the claim, the court found the policy ambiguous and applied the doctrine of contra proferentem, construing the ambiguity against the insurer. The court explained the policy definition of "hemiplegia" requires "complete and irreversible paralysis." However, because the term "paralysis" was not defined in the policy, the policy contained an ambiguity. AIG interpreted the term to mean an absence of movement, which the court found to be a reasonable interpretation. However, the court also determined there was more than one reasonable interpretation.

The court resorted to several dictionary definitions:

Mosby's Medical Dictionary defines "paralysis" as "the loss of muscle function, loss of sensation, or both" and "complete paralysis" as "paralysis characterized by a complete loss of motor function." Mosby's Medical, Nursing, and Allied Health Dictionary 405, 1277 (6th ed. 1994). "Motor" is defined as "1. pertaining to motion, the body apparatus involved in movement, or the brain functions that direct purposeful activities[;] 2. pertaining to muscle, nerve or brain center that produces or subserves motion." Id. at 1123. "Function" is defined as "1. an act, process or series of processes that serve a purpose[;] 2. to perform an activity or to work properly or normally." Id. at 712 (emphasis added). Other medical dictionaries similarly define "paralysis" in terms of loss of muscle function or sensation, not as the absence of all movement. See, e.g., Matthew Bender Attorneys' Dictionary of Medicine P-58 (2008) (defining "paralysis" as a "condition marked by loss of muscle function, i.e., by the inability of the muscles to contract" and noting "[l]ess frequently, the term paralysis applies to a loss of sensation").

See also Webster's New International Dictionary 1637 (3d ed. 1971) defining "paralysis" as "a complete or partial loss of function involving the power of motion or of sensation in any part of the body". In fact, the Summary Plan Description (SPD) contains a chart classifying the various types of "accidental loss" in which it describes "hemiplegia" as the loss of "use of both upper and lower limb on same side of body." Aplt. App. at 685.

The court pointed out that while AIG could have defined "paralysis" as the absence of movement, "the term is not so limited in medical dictionaries and AIG did not so define it. The court thus construed the policy language against AIG, finding "complete and irreversible paralysis" means "the complete and irreversible loss of muscle function or sensation, not the absence of all movement."

The court then turned to the claim record and pointed to numerous notations supporting the plaintiff's interpretation. Indeed, even the physicians hired by AIG acknowledged that Rasenack was suffering from hemiplegia, although other records diagnosed permanent hemiparesis.

The court cited to a prior ruling, Gaither v. Aetna Life Insurance, 394 F.3d 792, 807-08 (10th Circuit 2004), as recognizing a plan administrator's fiduciary obligation to seek out additional evidence in order to "get to the truth of the matter." Likewise, the court cited MetLife v. Glenn's requirement that ERISA plan fiduciaries employ "higher-than-marketplace quality standards." 128 S.Ct. 2343, 2350. The court found AIG's conduct fell below those benchmarks, though.

While acknowledging that ERISA does not obligate plan administrators to "go fishing for evidence" when nothing establishes that any such evidence exists, here, AIG was on notice to inquire further or utilize its authority to have Rasenack physically examined. The court determined:

"Mr. Rasenack accurately notes that all of the health-care personnel who actually examined or treated him agreed that he suffers from hemiplegia (including the nurse hired by AIG to interview him), yet their opinions are conspicuously omitted from AIG's denial letters. Comparing AIG's explanations of its decision to deny the claim to the information contained in the administrative record, it appears that AIG cherry-picked the information helpful to its decision to deny Mr. Rasenack's claim and disregarded the contrary opinions of the medical professionals who examined, treated, and interviewed Mr. Rasenack." *39-*40.

Although AIG pointed to one of the treating doctor's notes that the plaintiff suffered from hemiparesis, not hemiplegia, there was no clear distinction between the two diagnoses, and it appeared from the record that the treating doctor meant hemiplegia, as the insurer's own nurse documented.

Yet AIG never followed up with the treating doctor, leading the court to conclude: "Given AIG's failure to perform a more thorough investigation and to credit the evidence submitted by Mr. Rasenack supporting a diagnosis of hemiplegia, we are not persuaded the references to hemiparesis and the conclusions of the reviewing physicians provide a sufficient grounds for AIG's denial of Mr. Rasenack's claim for benefits." *41.

The court therefore remanded to the district court to reconsider the case from a de novo standpoint. The court refused AIG's request that the matter be remanded to the insurer, finding a remand under the de novo standard an available remedy, "but not always the appropriate one." *42. The court added: "AIG had its chance to exercise its discretion and it failed to do so in accordance with the clear guidelines of the Plan and ERISA. Under these circumstances, we conclude that remand to the district court is the most appropriate remedy." *43.

This case illustrates the marked difference between the de novo and abuse of discretion standards of adjudication of ERISA claims. Had the court employed a deferential standard of review, the court would have been obliged to defer to the insurer's interpretation of the term "hemiplegia" and Raseneck would surely have lost.

Instead, the court pointed to the insurer's inexcusable delay to strip away AIG's deferential authority in order to reach an accurate result. This ruling also points out the importance of the Supreme Court's finding in Metropolitan Life Insurance Co. v. Glenn, 128 S.Ct. 2343, 2350 (2008) that ERISA imposes "higher-than-marketplace quality standards."

The court was able to use the Supreme Court's ERISA fiduciary duty analysis to expose the insurer's cherry-picking of evidence to support a denial while disregarding the other evidence supporting the payment of benefits. The court also placed the onus on insurers to perform physical examinations rather than to rely on doctors performing file reviews in circumstances where the evidence is deemed uncertain or in conflict.

But perhaps the strongest statement made in this ruling is that it reveals the inaptness of unquestioned insurer discretion in claims involving health, disability or life insurance. Given the importance of such benefits in times of crisis, it is impossible to imagine a sound public policy justification for placing the determination of entitlement to benefits in the hands of biased decision makers with minimal judicial oversight.

While judicial precedent previously compelled such a result, the Supreme Court's Glenn decision recognizes that insurers may either consciously or unconsciously place their financial interests ahead of the fiduciary duties owed to ERISA benefit claimants. While Glenn held that insurer discretion is not obviated by the conflict, it must still be a factor taken into consideration. As the outcome of Rasenack teaches, the main point is to get to the truth of the matter.