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Tenth Circuit: STD claim denial was arbitrary and capricious

On August 13, the U.S. Court of Appeals for the 10th Circuit issued an opinion that found the short-term disability insurance company defendant had acted arbitrarily and capriciously in denying the plaintiff’s claim for a full 26 weeks of benefits. The court also said that some of the insurer’s findings were not supported by substantial evidence

Claimant Kevin McMillan worked for AT&T as an IT client consultant. In 2013, he stopped working, complaining of diabetes, kidney disease, COPD and sleep apnea, along with difficulty walking or standing for long periods, impaired concentration and short-term memory problems. Medical records also revealed other impairments like coronary disease and hypertension as well as problems with fatigue and shortness of breath.

Claim history 

McMillan filed for STD benefits under a policy through his job. The plan provided up to 26 weeks of benefits for total disability when a claimant’s impairment prevents performance of all essential job functions. 

The policy was administered by Sedgwick Claims Management Services, Inc., which denied McMillan’s claim initially and on appeal. He then filed an ERISA lawsuit in U.S. District Court, which found the denial was arbitrary and capricious and the job’s travel requirements were not consistent with a sedentary job classification. The court remanded the decision to Sedgwick for reconsideration. 

Sedgwick denied the claim again, but on second review, the trial court awarded 26 weeks of STD benefits, again finding Sedgwick’s denial arbitrary and capricious. The Plan appealed to the 10th Circuit, which affirmed. 

Standard of review 

In the unpublished decision of McMillan v. AT&T Umbrella Benefit Plan No. 1, the 10th Circuit elaborated on what it means for a plan administrator to act arbitrarily and capriciously. 

A layperson might think that an administrator would almost always meet this standard because, for example, arbitrariness is a low bar to meet. “Arbitrary” implies a decision with nothing to back it up, so any reasoning or evidence applied would be a higher bar. 

But the 10th Circuit explained that this standard of review is “not without meaning.” Specifically, the court should affirm the administrator’s decision if it was “reasoned” and supported by “substantial evidence.” In addition, the court explained, ERISA, the federal law that applies to such decision making in a plan provided as an employment benefit, imposes on a plan administrator the fiduciary duty to process claims only in the interest of claimants and beneficiaries (and not of insurers). 

The court elaborated further that substantial evidence must support the denial, “meaning more than a scintilla of evidence that a reasonable mind could accept as sufficient to support a conclusion.” The administrator must consider the whole record and “whatever in the record fairly detracts from its weight.” 

The court found no substantial evidence to support two parts of McMillan’s denial: 

  • The decision contained no analysis of how McMillan could meet the travel demands of the job with his significant medical problems, especially his shortness of breath.
  • The conclusion that McMillan could still meet the cognitive requirements of the job “hangs by the gossamer thread” of a reviewing doctor’s conclusion. 

Therefore, the court ordered the full 26 weeks of STD benefits.