A preliminary issue in every federal court appeal in a denied or terminated claim for benefits under a short- or long-term disability insurance policy is whether ERISA governs. ERISA is the Employee Retirement Income Security Act, the federal law governing most benefit plans available through employers.
ERISA imposes standards of fairness on disability insurers when they administer these policies, including deciding whether claimants are disabled and eligible for benefits. Whether ERISA governs impacts the standard of review the court applies when reviewing insurer actions as well as the kinds of damages available. Normally if ERISA does not apply, state laws governs.
Dr. McCann’s situation
In the October 5 opinion in McCann v. Unum Provident, the U.S Circuit Court of Appeals for the Third Circuit analyzed whether ERISA applied. The court decided that ERISA did apply to the case in which a radiologist appealed the termination of his LTD benefits.
Dr. McCann purchased supplemental LTD insurance from Unum Provident (now Provident). He paid the premiums at a discounted rate because of his association with his hospital employer and the hospital told him about the policy availability. The policy covered disabling conditions that prevent doctors from working within their medical specialties, as opposed to practicing medicine in general.
Years later, Dr. McCann stopped working and filed a disability claim based on obstructive sleep apnea, hypertension, obesity and a “mildly dilated ascending aortic root aneurysm.” While Provident initially approved the claim and paid benefits, it terminated payments later, stating that McCann was not disabled, a finding it reaffirmed on internal appeal.
The federal lawsuit followed. The trial court held that ERISA applied and upheld the insurer’s benefit termination. McCann appealed to the Third Circuit.
ERISA controls “employee welfare benefit plans” and “welfare plans” that an employer “established or maintained” for the benefit of participants and beneficiaries. ERISA regulations contain a “safe harbor” provision with four requirements that, if met, take a plan out of ERISA control.
The Third Circuit found that the safe harbor provisions did not apply because the hospital “endorsed” the plan. (The more involved the employer is, the more likely it is that ERISA will apply.)
To determine whether the employer endorsed the plan, the court looked at whether the employer displayed “neutrality” toward it, applying a “holistic assessment” of employer involvement in plan administration. Specifically, the court concluded that “endorsement exists where there is some showing of material employer involvement in the creation or administration of a plan” and that “this involvement may manifest as an expression of encouragement.” Involvement is also reflected when the employer determines “eligibility criteria” and chooses the insurer.
In support of its finding that ERISA applied because the hospital endorsed the policy and was not neutral, the court noted:
- The hospital selected Provident to provide benefits.
- The hospital encouraged participation when it pointed out Provident was the “industry’s leader.”
- The hospital “determined eligibility.”
- The hospital could have been perceived as providing disability insurance as an employment benefit.
In Part 2 of this post, we will talk about the court’s analysis of exactly what Dr. McCann’s occupation was.