In Demer v. IBM Corporation LTD Plan, ____________ (9th Cir. 2016), the Ninth Circuit reversed the district court's entry of judgment in favor of defendants IBM Corporation LTD Plan (the "Plan") and Metropolitan Life Insurance Company ("MetLife"), the claims administrator and insurer for the Plan, with instructions to re-evaluate the merits of plaintiff Demer's long term disability ("LTD") claim.
Demer was an employee of IBM Corporation, and a participant in the Plan. The Plan gave MetLife the discretionary authority to interpret the Plan and determine eligibility for benefits. As such, the Ninth Circuit determined it would apply an abuse of discretion standard of review, not de novo.
Demer, then a Lead Internal Auditor, stopped working in January 2009 because of a disability. He began receiving short term disability ("STD") benefits and, in March 2009, filed acclaim for LTD benefits as the STD benefits were expiring. Demer's application stated: "'I am unable to do my job duties due to severe recurrent depression and spinal stenosis, chronic headaches.' Symptoms included 'chronic headaches, chronic back and neck pain, myalgia, severe depression, [and] sciatica.'" In July 2009, MetLife approved the claim for LTD benefits under the "own occupation" test for disability, but noted the test would switch to the "any occupation" test in July 2010 and noted his claim was being limited to a twenty-four month period as his primary diagnosis was a mental or nervous disorder. In November 2009, MetLife reminded Demer that for his benefits to continue beyond July 2010, he would have to be disabled under the "any occupation" test. Demer submitted statements and medical records from his treasting physicians, including but not limited to his primary care doctor, a treating neurologist, and a treating pain management physician, who discussed the mental (i.e. depression interacting with chronic pain) and physical (i.e. inability to stand for extended periods of time or to lift heavy objects) impairments Demer suffered. In October 2010, MetLife denied Demer's claim under the "any occupation" test, relying on the opinion of an independent physician consultant ("IPC") who conducted only a paper review of the file. The IPC disagreed with statements of the treating physicians regarding Demer's limitations. MetLife's decision determined that, even with the limitations identified by the IPC, Demer "should be able to perform at the sedentary to light level of physical exertion as defined by the U.S. Department of Labor" and, therefore, denied LTD benefits.
In March 2011, Demer appealed Metlife's denial, providing additional information about his diagnoses and effects of his medications, which impacted his mental functioning. MetLife denied the appeal, relying on the opinions of two different IPCs, who, again, only conducted a paper review of the file. The IPCs against questioned the observations of the treating physicians, opining Demer could return to work, and questioning that there was any evidence to support the claim of mental functioning impairment. MetLife concluded Demer would work in sedentary occupations.
After the denial, Demer filed the instant lawsuit. The district court applied an abuse of discretion standard, and rejected Demer's argument that "the abuse-of-discretion standard must be tempered with skepticism because of a conflict of interest on the part of MetLife." The district court ultimately determined MetLife's decision to rely on the IPCs' findings was reasonable.
The Ninth Circuit first assessed whether there was a conflict of interest so as to temper the Court's review. The Court noted "[a] conflict of interest is a factor in the abuse-of-discretion review, the weight of which depends on the severity of the conflict." Demer's evidence of a conflict consisted of (1) MetLife acting as both the claim administrator and insurer for the Plan; and (2) at least two of the IPCs having performed a significant number of reviews for MetLife and received significant compensation for their services.
The Court performed a de novo review of the district court's choice and application of the standard of review. The district court acknowledged a structural conflict of interest because MetLife both evaluated and funded claims, but applied no skepticism as "MetLife has taken affirmative steps to reduce potential bias and promote accurate claim determinations." The Court referenced Demer's objections to the declarations on which this finding was based as MetLife did not identify these witnesses in their initial disclosures, but also noted that Demer did not explain his failure to take a deposition on the structural conflict issue. The Court determined it did not need to resolve this issue because skepticism was warranted due to the financial conflict of the IPCs.
Demer asserted a conflict of interest based on the substantial number of reviews performed for MetLife (respectively, 250 per year and 200-300 per year) and the compensation received for those reviews (respectively, $125,000 and $175,000 per year) of two of the IPCs. Demer claimed the IPCs' opinions are questionable based on their financial incentive to opine in MetLife's favor, and such conflict is imparted to MetLife.
The Court noted this challenge was similar to those conventionally used to discredit retained experts' objectivity and, while different than a structural conflict, may still warrant skepticism. Demer bore the burden of producing evidence of a financial conflict warranting skepticism and, once satisfied, the burden shifted to MetLife to produce evidence there was no conflict. The Court determined Demer satisfied his burden of production by offering evidence of the number of reviews performed per year and the compensation therefor. The Court found that the magnitude of these numbers warranted skepticism, and should be considered as a factor in the abuse of discretion review – although this skepticism should be given less weight than "more powerful evidence" of a conflict. MetLife did not meet the burden of establishing there was no conflict: "MetLife could have maintained records of its reviewers' findings on claims to show their neutrality in practice, but it did not." While MetLife could not rebut the evidence of a financial conflict, neither could Demer produce "more powerful evidence" of a conflict. The Court also rejected the dissent's argument that MetLife was following the Court's instructions in Abatie regarding reduction of a conflict, asserting the dissent was equating outside experts with independent experts – determining outside experts are not immune from judicial scrutiny for bias.
Applying the tempered abuse of discretion standard, the Court "conclude[d] that MetLife abused its discretion in denying Mr. Demer's claim" by disregarding Demer's claim of mental impairment. While the IPCs rejected this claim as not credible, "the IPCs had little basis" for doing so. They never examined Demer, nor did they explain specifically why they rejected his claim of mental function limitations when he was taking "undisputedly powerful narcotic medication" and his complaints were corroborated by his physicians and a friend.
We acknowledge that the district court's order suggests possible grounds for questioning Mr. Demer's credibility — i.e., that his activities of daily living indicated some ability to engage in mental functioning. See Demer, 975 F. Supp. 2d at 1081 (stating that "Dr. Osborne's opinion that Plaintiff could not operate a vehicle was directly contradicted by Plaintiff's conversations with MetLife on January 14, 2010 and May 18, 2010, where he stated that he had been driving a vehicle[;] [f]urther, while receiving disability payments, Demer told a MetLife claims representative that 'he was just completing online courses'"); (MetLife's electronic diary notes). But neither MetLife nor its IPCs rejected Mr. Demer's credibility on this basis. [ . . . ] Moreover, it is not clear that these activities of daily living necessarily establish an ability to work within the meaning of the Plan. Notably, under the terms of the Plan, Mr. Demer is eligible for LTD benefits if he cannot engage in a "gainful occupation," which in Mr. Demer's case is a job that has a yearly salary of approximately $50,000. A job that commands such a salary may well require higher levels of mental functioning, including concentration and memory, both of which are areas where Mr. Demer has claimed impairment as a result of his medications.
The Court also disapproved of MetLife's rejection of Demer's physical limitations, stating the IPC, on whose opinion MetLife based the rejection, "was implicitly rejecting Mr. Demer's credibility based solely on a paper review without having physically examined him and without explaining why Mr. Demer's credibility was lacking, particularly, in light of some medical records conflicting with [the IPC's] physical functional capacity assessment."
The Court concluded:
Taking into account the totality of the circumstances — i.e., the financial conflict of interest of the IPCs on whom MetLife relied (which warrants some skepticism in reviewing the IPCs' conclusions), the substantial evidence of Mr. Demer's mental limitations due to pain medication and physical limitations, and the IPCs' reviews of Mr. Demer's condition, without having examined him and without explaining why they rejected his credibility, particularly in light of evidence corroborating his credibility (both medical and nonmedical) — MetLife abused its discretion in denying Mr. Demer's claim for LTD benefits.
The Court turned to the question of remedy:
We hold that a remand to the district court, with instructions to remand to MetLife, is appropriate. An award of benefits is not a proper remedy because the record does not clearly establish that MetLife should necessarily have awarded Mr. Demer benefits. [ . . . ]
To be clear, on remand, MetLife may re-open the record to consider additional evidence regarding mental limitations. The record as it stands does not show precisely what Mr. Demer's limitations were as a result of the medications. While a retrospective evaluation may be difficult given the passage of time, a retrospective evaluation of Mr. Demer's limitations is not necessarily impossible. Indeed, in the Social Security context, retrospective evaluations are not uncommon. Historical records, data and trends may be relevant and useful in rendering a retrospective evaluation. See, e.g., Smith v. Bowen, 849 F.2d 1222, 1225 (9th Cir. 1988) (in Social Security case, stating that "reports containing observations made after the period for disability are relevant to assess the claimant's disability[;] it is obvious that medical reports are inevitably rendered retrospectively and should not be disregarded solely on that basis"). Furthermore, a current evaluation of Mr. Demer may be particularly useful because his benefit period may have extended beyond the date of the appeal, see 2ER 130, 217 (addressing Maximum Benefit Period), such that a current examination may be closer in time to the assessment period than it would otherwise appear.
Judge Bybyee dissented regarding the conflict of the IPCs, but concurred in the judgment:
An ERISA plan administrator has a structural conflict of interest where it "both funds the plan and evaluates the claims." Metropolitan Life Ins. Co. v. Glenn, 554 U.S. 105, 112, 128 S. Ct. 2343, 171 L. Ed. 2d 299 (2008); see also Abatie v. Alta Health & Life Ins. Co., 458 F.3d 955, 965 (9th Cir. 2006) (en banc). The federal courts have offered at least two ways that such conflicts "should prove less important (perhaps to the vanishing point)." Metro. Life, 554 U.S. at 116. First, administrators may "wall off claims administrators from those interested in firm finances." Id.; Abatie, 458 F.3d at 969 & n.7 (an administrator may show that "any conflict did not influence its decisionmaking process" by showing that "its employees do not have incentives to deny claims"); Davis v. Unum Life Ins. Co. of Am., 444 F.3d 569, 575-76 (7th Cir. 2006) (holding that absent evidence of "any specific incentive [for the in-house doctors] to derail [a] claim," such as giving the doctors "some specific stake in the outcome of [a] case," the theoretical argument that "in-house doctors have an inherent conflict in every case" is insufficient to change the standard of review). Second, plan administrators may refer medical evaluations to outside experts, such as doctors, who also have no interest in firm finances. Abatie, 458 F.3d at 969 & n.7 ("[T]he administrator might demonstrate that it used truly independent medical examiners or a neutral, independent review process").
MetLife listened very carefully to what we said. It employed both of these methods: First, it walled off its claims administrators from its financial offices. And then, second, the claims office sought medical evaluations from outside, independent physicians who have no interest in MetLife's finances. For its trouble, the majority is going to give MetLife additional scrutiny—the majority is "skeptical" of MetLife precisely because it did what we told it to. Maj. Op. at 21. The majority's new skepticism has been rejected by every other circuit to have considered it. When companies structure their operations in response to our opinions and then we penalize them for doing exactly as we have suggested, we sow uncertainty into both law and business. I dissent from Section II.B of the majority's opinion. Because that section is not otherwise necessary to the majority's opinion, I concur in the judgment.
The dissent disagreed with applying the rules regarding an internal conflict to an external conflict of outside reviewers, and noted "great reservations about the use of 'skepticism' as a standard of review." "The majority says that we are to view this relationship with skepticism, but I can find no basis in our decisions for this conclusion. Our cases simply hold that a structural conflict of interest may warrant skepticism, nothing more." The dissent found Mountour v. Hartford Life & Accident Insurance Company, 588 F.3d 623 (2009) to be distinguishable as, there, "the evidence suggested that Hartford was telling Montour's doctor what it wanted to hear."
I recognize that there could be a cognizable conflict of interest where an independent physician is so dependent on an administrator that it effectively becomes an employee of the administrator, see McDonald v. Hartford Life Grp. Ins. Co., 361 F. App'x 599, 609 (5th Cir. 2010), but this would simply bring the reviewer within the administrator's internal umbrella. And in that case, the outside reviewer would be subject to the same conflict of interest as the administrator's own employees; the outside reviewer cannot be more conflicted than the administrator's own claim processors (assuming the administrator has not given the reviewer some additional incentive tied to results). See Armstrong v. Aetna Life Ins. Co., 128 F.3d 1263, 1265 (8th Cir. 1997) (insurer provided incentives and bonuses to claims reviewers for "claims savings"). What is so odd about the majority's analysis is that if the outside consultants were MetLife's own internal employees, we would find that they were not conflicted—or at the least that any conflict had been neutralized by MetLife's claims-handling practices. But for the majority, because the reviewers are independent, suddenly they are untrustworthy. Yet there is not one hint in the record that these outside reviewers are given financial incentives based on their results or in any other way biased.
The dissent also noted:
The principle the majority adopts has profound implications for other areas of the law—notably Social Security claims. The SSA, and its state partners, frequently rely on outside medical sources to review a claimant's file and offer a second opinion. The views of these reviewing physicians are given significant weight under SSA regulations and our decisions. [. . . ] So far as I know, we have never questioned the bona fides of reviewing physicians' views on the grounds that SSA or state agencies are sending them lots of business and paying them well, or, even worse, employing them full time. It will turn our cases upside down if we start down that road.
The dissent criticized the majority's finding that the IPCs were compromised:
Even if we considered Demer's evidence on the outside reviewers in this case, there is "no there there." The majority's new skepticism is based on two facts: First, the majority thinks that Metlife's outside reviewers are doing a lot of work for MetLife and, second, the majority thinks the outside reviewers are getting paid a lot of money for their work. Maj. Op. at 18-19 (referring to the "magnitudes of these numbers"). Neither of these reasons will bear scrutiny.
The dissent rejected that the majority had a basis for determining the number of reviews performed or the compensation received therefor were "significant," and disagreed with "impugning the reputations of these medical professionals." The dissent also registered his skepticism of the use of adding "skepticism" to the abuse of discretion standard.
The dissent concluded:
The majority takes the remedies we offered to administrators for cleansing conflicts—walling off its claim processors and hiring independent reviewers—and turns it into a sword to punish administrators with skepticism. After today's decision, we cannot fault administrators for their confusion over what they can rely on in our decisions. And we can predict with near certainty how they will respond: at least in our circuit, administrators will stop using outside, independent reviewers; instead, they will try to bring them in house where, they hope, we will still respect the administrator's efforts to wall them off. Today's decision injects confusion and change for no reason. We are not likely to end up with better decisions in ERISA claims.
Count me skeptical.
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