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March 06, 2009
Was Denial Letter 'Unreasonable and Deceptive'?
A New York tax attorney was diagnosed with advanced colon cancer and had aggressive therapy. He was able to work for another 3 years after the treatment, but the effects of the cure were worse than the disease. He requested long-term disability (LTD) benefits from his employer’s insurer, which twice denied benefits.

What happened. “McCabe” asked to return to work for Sotheby’s Service Corp. in December 1991, after treatment. He accepted a transfer to Hamilton, Bermuda, but later applied to Sotheby’s insurer, First Unum, for LTD payments in November 1994. Because McCabe’s medical records of the cancer and treatment did not show he was totally disabled, First Unum denied his claim.

He appealed and was allowed to submit further information. He wrote a memo detailing his severe pain, inability to sit and work for more than a few minutes, and troubles with frequent, disabling kidney stones. First Unum had a nurse review the memo, which she rejected because his physician hadn’t signed it. But First Unum told McCabe that a doctor had reviewed the memo and all other records, and it denied his benefits again.

McCabe sued in federal district court. A judge there, using a standard under which a plaintiff must prove a potential conflict of interest (where a company that both reviews claims and pays benefits has an incentive to deny claims), and that the conflict affected the insurer’s decision, ruled for First Unum. He appealed to the 2nd Circuit, which covers Connecticut, New York, and Vermont.

What the court said. Between the district and appellate courts’ reviews, the U.S. Supreme Court issued a significant ruling about LTD plans that are covered by ERISA. That decision, in Metropolitan Life Insurance v. Glenn (2008), said that any conflict of interest—like that of First Unum in this case—must automatically be weighed as a factor in whether the insurer’s decision was reasonable. First Unum had lied to McCabe, first in telling him a physician had reviewed all his records during the appeal and then in concealing the fact that the nurse had rejected the memo because McCabe’s doctor didn’t sign it.

Further, from the Glenn ruling, judges learned that First Unum had a history of apparently biased claim denials and has not changed its procedures since. So they ruled for McCabe and ordered First Unum to give him retroactive benefits. McCauley v. First Unum Life Insurance and Sotheby’s, U.S. Court of Appeals for the 2nd Circuit, Nos. 06-5100-cv, 06-5529-cv, (12/24/08).

Point to remember: The Glenn ruling is important and will have far-reaching effects on how courts treat plaintiffs’ denied requests for LTD benefits.

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