The United States Court Of Appeals For The Ninth Circuit—the federal judicial circuit in which California sits—was critical of Metropolitan Life Insurance Company’s (“MetLife”) decision to deny long-term disability benefits to an IBM employee under an ERISA policy. Insurers and ERISA policy administrators would do well to heed the advice set forth in Demer v. IBM Corporation LTD Plan (9th Cir., Aug. 26, 2016, No. 13-17196) 2016 WL 4488006.
Daniel Demer was an IBM employee until he stopped working due to a disability. He received short-term disability through IBM’s ERISA policy, which was both insured and administered by MetLife. A little less than a year later, when his short-term benefits were due to expire, he applied for long-term disability benefits.
Along with his application, he submitted statements and medical records from several of his treating physicians, which evidenced both mental and physical impairments. Demer’s treating neurologist determined that he could only intermittently stand for 1-2 hours and never lift 11-20 pounds; Demer’s treating pain management physician referred to severe cervical and lumbrosacral spine disease with radiculopathy and chronic depression and determined Demer’s physical impairments limited him to be able to intermittently sit for 1 hour, intermittently stand for 0-1 hour, intermittently walk for 0-1 hour, and never able to lift up to 10 pounds; and Demer’s primary care doctor opined that he could continuously sit for 1 hour and continuously stand and walk for 0-1 hour, and could occasionally lift 21-50 pounds.
MetLife denied Demer’s application, relying, in large part, on the opinion of an independent physician consultant, Dr. Elyssa Del Valle. While Del Valle only conducted a paper review of Demer’s file (i.e., she did not personally meet with Demer to conduct any physical or mental examinations), she concluded that “[t]he medical information does not support functional limitations. ..” even though she acknowledged that Demer had severe degenerative disc disease, degenerative vertebral disease with numerous levels of the cervical, thoracic and lumbar spine associated with neural foraminal narrowing and spinal stenosis. Del Valle also noted that Demer’s condition necessitated narcotic analgesics due to chronic pain. She found, however, that Demer could walk 3-4 hours intermittently and should avoid prolonged periods of sitting, standing, or walking for more than 30 minutes. Due to her impairment assessments, she found that Demer was able to perform at the sedentary to light level of physical exertion as defined by the U.S. Department of Labor. Demer appealed.
Demer appealed MetLife’s denial of long-term disability benefits and submitted further documentation in support thereof. He described his physical impairments due to severe degenerative disc disease of the cervical and lumbar spine (and submitted an MRI reflecting such), radiculopathy, a history of significant headaches, and ongoing nerve compression. He also explained that due to his physical impairments he takes powerful narcotic medications which have known side effects causing fatigue and reduced ability to concentrate. Demer also submitted a supplementary statement by his pain management physician who stated that Demer is prescribed chronic narcotic medication in an attempt to control Demer’s overall pain which limits his ability to complete productive mental functions. MetLife denied Demer’s appeal.
MetLife denied the appeal, this time relying on two other independent physician consultants, a psychiatrist and a physiatrist. They, like Del Valle, did not evaluate Demer in person but did a paper review of the file. The psychiatrist concluded that there was a “lack of recent data and [a] paucity of any compelling objective findings” and thus Demer had no mental impairment. The physiatrist confirmed that Demer suffered from anatomical cervical spinal stenosis, degenerative disc disease, degenerative facet disease of the spine, and degenerative arthritis of the left hip. The physiatrist, however, concluded that Demer “likely had a modicum of discomfort” and that he was physically able to sit for an hour at a time and up to 7 hours a day, stand and walk for 15 minutes at a time and up to 2 hours per day, and lift up to 10 pounds frequently and 20 pounds occasionally. In response to Demer and Demer’s pain management physician’s concerns with cognitive impairment due to narcotic medication, both of MetLife’s doctors stated that there was no objective or other data or evidence to establish functional impairment or cognitive side effects. Following MetLife’s denial of Demer’s appeal, Demer filed a lawsuit.
The United States District Court for the District of Arizona reviewed MetLife’s denial, applying an abuse-of-discretion standard of review and rejected Demer’s argument that the abuse-of-discretion review must incorporate skepticism due to an alleged conflict of interest of MetLife. The District Court found that MetLife reasonably relied on the findings of its independent physical consultants in denying Demer’s application.
The conflict of interest Demer asserted was two-fold. Firstly, MetLife was both the administrator of the ERISA plan (i.e., MetLife was tasked with making the decisions whether applications for benefits would be approved or denied) as well as the insurer (i.e., funds the benefits when approved). This first purported conflict is referred to as a “structural conflict” in that since MetLife is both the administrator and the insurer, benefits would be paid out of the administrator’s own pocket, so by denying benefits, the administrator retains money for itself. (See Montour v. Hartford Life & Acc. Ins. Co.(9th Cir. 2009) 588 F.3d 623, 630-31.) The District Court dismissed the structural conflict allegation because it found that MetLife had taken steps to reduce potential bias, citing that MetLife had walled off its claims department from its financing department, that the claims and appeals specialists do not report to, and are geographically separate from, the finance department, etc. (Demer v. IBM Corporation LTD Plan (D. Ariz., Sept. 30, 2013) 975 F.Supp.2d 1059, 1077.) Secondly, Demer asserted that two of the independent physician consultants, upon whom MetLife relied in denying Demer long-term disability benefits, had been retained by MetLife on many cases and had been paid significantly therefor.
Here, the Ninth Circuit agreed with Demer that the “independent” physician consultants had a financial conflict of interest in that they had a financial incentive to render opinions favorable to MetLife. Demer argued that because the physician consultants had a conflict of interest, it should be imputed to MetLife which purportedly relied on their analyses in denying Demer’s application. The Court of Appeal agreed with Demer that the number of reviews and the compensation they received therefor “raise a fair inference that there is a financial conflict which influenced the [independent physician consultants’] assessments, and thus such conflict should be considered as a factor in reviewing MetLife’s decision for abuse of discretion.” (Demer v. IBM Corporation LTD Plan, supra, at *8.) The Court thus decided to apply the standard of review tendered by skepticism and concluded that Metlife did abuse its discretion in denying Demer’s claim.
In reviewing MetLife’s denial, the Court of Appeal noted that MetLife had not considered Demer’s mental impairment, whatsoever, but only his physical impairments. The Court examined several undisputed points, including that Demer was prescribed powerful narcotic medications, including morphine, which was medically necessary to manage his pain; and, further, that such medications have known side effects such as limiting the ability to complete productive mental functions. Despite having evidence of Demer’s mental impairment (from statements from Demer himself, Demer’s treating doctors, in addition to friends and family who attested to his impairment) MetLife failed to acknowledge such impairment, relying upon physician consultants who never actually examined Demer and who concluded that Demer’s “complaints of fatigue and difficulty concentrating were not credible.” (Id. at *10.) The Court of Appeal turned to Godmar v. Hewlett-Packard Co. (6th Cir. 2015) 631 Fed.Appx. 397, 406, which stated that “there is nothing inherently objectionable about a paper review but such reviews are particularly troubling when the administrator’s consulting physicians—who have never met the claimant—discount the claimant’s limitations as subjective or exaggerated [and that the Court] will not credit a file review to the extent that it relies on adverse credibility findings when the files do not state that there is reason to doubt the applicant’s credibility.” (Demer v. IBM Corporation LTD Plan, supra, at *10.)
Thus, insurers are well advised to heed the precepts set forth in Demer and Godmar. Firstly, an entity that acts as both a plan’s administrator and insurer must take steps to reduce potential bias inherent in such structural conflicts-of-interest. Secondly, administrators would do well to have their independent physician consultants meet the claimant, in person, instead of conducting solely paper reviews. If, however, they do conduct solely a paper review, they may not opine regarding an applicant’s malingering or credibility, absent direct indications thereof in the file. Or, be willing to face federal court judges who are reviewing the decision to deny benefits, by way of an abuse-of-discretion standard of review “tempered by skepticism.”
 Specifically, between 2009 and 2010, Dr. Del Valle performed more than 500 reviews for MetLife for which she received over $250,000; and Dr. Gordon (referred to as “the physiatrist” above) performed approximately 500 reviews for MetLife for which he received over $350,000.