The Impact of a Layoff on a Long-Term Disability Claim
Things have been busy at The Garner Firm, and I am behind on my blog posts. Last week, I was fortunate to attend the American Bar Association’s Torts Insurance Practice Section (“TIPS”) Mid-Winter Symposium on Insurance and Employee Benefits. During the conference, a speaker discussed the impact a lay off can have on a disabled employee’s long-term disability claim. Well, the speaker’s timing was impeccable because The United States District Court for the District of Arizona issued a decision on that very topic yesterday. See Nieves v. Prudential Ins. Co. of Am., Case No. CV-16-00768-PHX-DGC, 2017 U.S. Dist. LEXIS 6187 (D. Ariz. January 17, 2016). A copy of the decision can be downloaded here.
The Nieves plaintiff was a technician who made repairs on satellite communications equipment and who participated in an ERISA-regulated benefit plan that provided coverage for short-term and long-term disability (the “Plan”). His job required the continual use of his hands and constant sitting, standing, climbing, and crouching. In 2011, he began suffering severe back and arm pain related to his spinal condition. He went on light duty work in 2011 at his physician’s request and was restricted in “sitting, standing and lifting.” The plaintiff continued to work full-time with the aid of pain relieving shots and medication.
The plaintiff learned that his employment could be terminated under a reduction in force (“RIF”) on March 9, 2015. He immediately spoke with his company management and asked permission to file for disability benefits instead of being laid off. The plaintiff claimed he was assured: “you’re good,” which caused him to believe his employment was safe and that he should not file for disability benefits. His employment was terminated the next day as part of the RIF. At the termination meeting, the plaintiff inquired again about filing for disability benefits under the Plan, and he asked the company’s human resources staff for the paperwork to make a claim. The paperwork was not provided to him.
The plaintiff filed for short and long term disability benefits under the plan after his termination. His claim was denied because the insurer found that he was not employed by the employer at the time his of disability. The disability insurer, who served as the Plan’s claims administrator, did not investigate whether the plaintiff satisfied the Plan’s definition of disability. The Plaintiff appealed the denials of his claims and ultimately filed suit seeking the benefits he believed were owed to him.
The Court made several interesting findings in evaluating the plaintiff’s claim.
First, it found that the denial of the plaintiff’s benefits was to be reviewed under the de novo standard of review because the insurer was not granted discretionary authority to construe the terms of the plan and determine eligibility for plan benefits in the plan document itself. The only grant of discretionary authority was contained in the Plan’s summary plan description, which had not been incorporated into the Plan as a Plan document. Likewise, although the Plan document provided that proof of disability had to be “satisfactory to” the insurer, such language was not sufficient to confer an arbitrary and capricious standard of review upon its decision.
Second, the Court held that the plaintiff’s disability arose prior to his termination from his employer while he was still a Plan participant. It noted that the plaintiff attempted to file for disability before his employment ended. He provided a declaration to the insurer during the appeal process in which he stated that in early 2015 he informed his superiors that he was planning to claim disability in August 2015 and that when he was told of his layoff, he advised company's human resources personnel that he wanted to file for disability benefits prior to his layoff. He further claimed the company would not provide his with the necessary paperwork and he was escorted from the work site. The company seemingly admitted as much in a later email exchange. Thus, the Court found that his disability arose prior to his termination while still a Plan participant.
Third, the Court found that instead of remanding the claim to the Plan for further consideration as to the plaintiff’s disabled status, the plaintiff was entitled to short and long term disability benefits. Because the insurer had not included any basis for the denying the plaintiff’s claim other than its determination that his claimed disability arose after his participation in the Plan terminated, it was barred from advancing an alternate basis for denying his claim in the ensuing litigation. The Court held that permitting it to do so would deny the plaintiff a full and fair review of his claim as is required under Section 503 of ERISA, 29 U.S.C. §1133 and its implementing regulations at 29 C.F.R. § 2560.503-1. Thus, the insurer was “ordered to pay back benefits under the STD and LTD coverages, and to continue to pay [the p]laintiff benefits so long as [the p]laintiff remains disabled under the terms of the Plan.”