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ERISA denial based on changing rationale



By Lee Williams

Establishing an effective process
In 2009, a sales rep for a pharmaceutical company was diagnosed with major depressive and anxiety disorders and sought short-term disability benefits from the company under its ERISA plan.  The pharmaceutical company had an in-house administrative review process for the approval of ERISA benefits and would pay the benefits on approved claims.  The documentation sent to the pharmaceutical company from the sales rep’s healthcare providers was initially approved for benefits.  Later, however, following an independent psychiatrist’s evaluation, the sales rep’s benefits were stopped due to lack of “satisfactory objective medical evidence.”

The sales rep appealed the initial decision and provided additional medical evidence to the review committee.  The committee had an additional psychiatric evaluation performed which concluded the sales rep did not present enough evidence of impairment to receive benefits.  The sales rep appealed again and was given a third independent evaluation plus the opportunity to provide more evidence in her favor.  The third psychiatrist felt the sales rep was disabled, but recommended a fourth evaluation which was promptly conducted.  In the fourth and final independent evaluation, the report indicated the sales rep suffered from a disability, but the disability developed from her work for the pharmaceutical company.

Based on the fourth evaluation, the highest level of the pharmaceutical company’s appeal board upheld the prior denial of benefits, but changed the rationale for the denial based on a clause in its ERISA plan which excluded “disabilities resulting from . . . [e]mployment-related mental or emotional disabilities.”  The sales rep then filed a lawsuit with the federal court of appeals to have the administrative board’s decision overturned.  She raised the issue of the inherent conflict of interest and the change in rationale for the denial.

Overcoming common ERISA issues

The pharmaceutical company conceded there was an inherent conflict of interest present because it both funded the ERISA plan and evaluated claims under the plan.  Because the appeals process was designed to be incredibly objective, however, the court was not required to give the factor much weight.  The court highlighted the multiple independent reviews conducted throughout the pharmaceutical company’s administrative review process as providing the necessary level of objectivity.

The court then addressed the change of rationale in the final decision denying the sales rep benefits.  It ruled the new evidence brought to light through the appeals process validated the pharmaceutical company’s decision to change the rationale of its denial.  In fact, had the sales rep not continually appealed her decision, as was her right, the final evaluation in which the psychiatrist tied her disability to her work would never have occurred.  It did not help the sales rep’s case she had stipulated her mental disorders were due to her job prior to the federal court’s review.

It’s all a process

Employers who both fund and evaluate claims under their ERISA plans must be careful to install a highly objective review process.  As this case illustrates, having independent oversight at every step in the administrative appeals process is a valuable tool for instilling the proper amount of objectivity.  Likewise, employers in this situation will not be able to avoid the clear conflict of interest.  A properly designed plan, however, will cause the courts to give this factor less control over the case.


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