Quadrino Schwartz, your resource for Insurance, Class Actions, and Business Law

Federal Appeals Court Opens Door to Discovery and Trials in ERISA Governed Disability Cases

A Federal Appeals Court has ruled that discovery and full bench trials in ERISA governed benefit claims are appropriate where people who sue for a denied claim present sufficient evidence of a claims administrators’ conflict of interest or claim procedure irregularities. The ruling is part of continuing national trend recognizing that courts have a duty to review decisions denying ERISA benefits for conflicts of interest, bias, due process and procedural irregularities.

The Federal Court of Appeals for the Second Circuit in Locher v. Unum Life Insurance Compay of America, __ F.3d__, 2004 WL 2567952 (2d Cir. 2004), held that the trial court properly considered evidence outside of Unum’s claim file and allowed live testimony where the claimant demonstrated that Unum “maintained no written procedures, other than the terms of the Disability Plan and the summary description of the terms of that plan, for evaluating and processing appeals.” The Court of Appeals also found that the trial court appropriately awarded attorneys’ fees to Locher’s lawyer because of UNUM’s culpable conduct during the administration of Locher’s claim and that an award of fees would serve to deter similarly inappropriate claims evaluation procedures.

Insurance carriers have long argued, and some federal courts have agreed, that disappointed claimants are not entitled to conduct discovery or have an actual trial in an ERISA benefits lawsuit. The insurance companies have argued that the claim file, which the carriers incorrectly call an “administrative record,” is the sole evidence that a judge is entitled to consider in determining whether an insurance carrier’s claim decision was correct. They also argue that the judge can only render his decision solely from the claim file’s papers submitted to the court.

The Second Circuit’s recent decision changes all of that. Now, if a claimant demonstrates some type of procedural irregularity during the claims process, a judge may unlock the door to discovery and conduct a trial complete with live witnesses. The Court of Appeals further held that an insurance carrier’s inherent conflict of interest (where the entity paying the claim is the same entity making the claim decision) may be enough to allow a court to conduct a full bench trial complete with testimony from live witnesses.

Quadrino Schwartz has been battling insurance companies on this critical issue for years. We have been pressing the federal courts to recognize the type of rule that has finally become law in the Locher decision. Quadrino Schwartz will continue the battle to ensure that the courts will enforce and expand upon the principals delineated in the Locher decision.