BENEFIT NEWS BRIEFS BENEFIT NEWS BRIEFS

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1 February 11, 2004 BENEFIT NEWS BRIEFS BENEFIT NEWS BRIEFS U.S. DISTRICT COURT USES NEW CLAIM REGULATIONS TO DEMAND THAT INSURER PRODUCE MORE INFORMATION FOR PARTICIPANT S APPEAL This is one of the first cases to apply the final claims regulations, published on November 21, 2000, to an appeal made by a participant on a disability claim rejected by an insurer. Briefly stated, a federal district court concluded that the health plan administrator had to make available to the participant not only the SPD, but also an array of other documents in the possession of the plan which might assist the participant in making a successful appeal. This conclusion was based primarily on the final claims regulations published in the Federal Register on November 21, 2000, pages A copy of these regulations is attached for your convenience. The citation for this case is: Cannon v. UNUM Life Insurance Company, U.S. District Court for the State of Maine, No P-S, 1/23/04. The full text may be downloaded at: THE FACTS Jerry Cannon filed suit under ERISA against UNUM alleging wrongful denial of disability benefits and breach of fiduciary duties. Cannon suffers from a drug-induced dementia that is characterized by a 15-point drop in IQ and an organic encephalopathy (an inflammation of the brain and spinal cord). According to Cannon s complaint, UNUM wrongfully characterized this disability as a mental illness rather than as a physical illness in order to limit his coverage to twelve months under the terms of the plan. Cannon requested that the court remove UNUM as a fiduciary of the disability plan and compel discovery, that is, compel UNUM staff to provide certain documents and information that may help to demonstrate that the denial of his claim was arbitrary and capricious. UNUM objected to both of these requests. Prepared by David Livingston, Ph.D., Director of Research TIC International Corporation (262) Fax (262)

2 2 Under the terms of the plan, UNUM Is prohibited from applying the twelve-month limitation to the treatment of dementia if it is the result of: - a stroke - trauma - viral infection - Alzheimer s disease - Other conditions not listed which are not usually treated by a mental health provider or other qualified providers using psychotherapy, psychotropic drugs, or other similar methods of treatment. UNUM (specifically a Ms. Robin Cote) evaluated Cannon s claim and began paying disability benefits in September Ms. Cote relied upon the opinion of K. Cook, a registered nurse, who advised accepting the claim because his impairment is physical or organic in nature. On September 24, 1997 Rachelle Mack, R.N.C. performed a psychological consultation for UNUM and termed the initial disabling event traumatic, (which would not be subject to the twelve-month limitation on treatment see list above.) On December 4, 1998 Peter Gr[a]nnell of the Portland, Maine UNUM office sought a medical update and on January 28, 1999, he refers to such an update in Cannon s file, but the update itself does not appear in Cannon s file (apparently it was misplaced). In April 2000 the claim file was reviewed by another UNUM staff person (Arthur Hackett) in the Portland office who sent the file to Glen Higgins, Ph.D., also a UNUM employee. On the basis of the medical records already on file, and the apparent opinion of Dr. Higgins, a record which does not appear in Cannon s file, Mr. Hackett determines that the mental illness exclusion applies to Cannon s claim. Cannon files suit in a federal district court seeking to take depositions from Cote, Cook, Hackett, and Higgins in an effort to clarify various terms and short abbreviations appearing in his file that were used to change the status of his claim from a claim for a physical illness to a claim for mental illness, subject to the twelve-month limitation on coverage. Additionally, Cannon wanted to discover what internal memorandum or unwritten policies exist or have existed within UNUM concerning interpretation of the mental illness language in the disability policy at issue (emphasis added - see text of decision, page 3). Cannon indicates that he wishes to subpoena these documents and use them in conjunction with the depositions. Cannon also seeks medical information referred to in the claim file but not included in the file, including any written recommendations produced by Dr. Higgins whose advice seems to have been the basis for the discontinuance of Cannon s benefits. (p. 3 of the decision) Finally, Cannon wants to find out how UNUM interpreted dementia and the mental/physical distinction in other cases, including what kinds of dementia due to other conditions have been treated as covered under the policy language. (p. 3 of the decision)

3 3 In opposition, UNUM argues that discovery is not appropriate because the Court is being called upon to conduct an administrative review and the governing standard asks only whether there is substantial evidentiary grounds for a reasonable decision in its favor. (p. 3 of the decision, last paragraph) Under such a standard, says UNUM, the discovery and presentation of contradictory evidence is futile because it would do nothing to alter the result of the litigation. (p. 3 near bottom and top of p. 4) THE DECISION The court vigorously disagrees with UNUM s reasoning by noting first that: Cannon s requests appear to be geared toward discovery of evidence UNUM actually relied on, or at least requested (e.g., the medical update and Dr. Higgins opinion), and evidence that would tend to clarify what, exactly, the rules of the game are when it comes to physical injuries that are treated with psychological methodologies, including psychotropic drugs. (emphasis added p. 4 of the decision) The district court then proceeds to review each of Cannon s requests, often referring to the final claims regulations to justify certain requests. With respect to Cannon s request to clarify certain short abbreviations and terminology in his file, the judge ruled that Cannon was entitled to discover the meaning of the abbreviations which he specified in his request as well as any other unclear abbreviations in the file by means of an interrogatory. (emphasis added p. 4 under item 1) The judge also ruled that Cannon was entitled to examine any internal memorandum or policies that instruct claims handlers how to apply the mental illness limitation because such memorandum may reveal whether UNUM acted arbitrarily and capriciously with its denial of Cannon s claim. (emphasis added p. 4 of case text) According to the judge section (g)(1)(A) of the claims regulations (middle column p ) requires UNUM: to include in a [claims denial] notification of an adverse benefit determination any internal rule, guideline, protocol, or other similar criterion [that] was relied upon in making the adverse determination and that a copy of such rule, protocol, or other criterion will be provided free of charge to the claimant upon request. Accordingly, UNUM is ordered to produce any and all internal memorandum and other documents that serve to clarify or otherwise expand upon the meaning of the mental illness limitation, how it should be applied and the kinds of specific illnesses that either do or do not fall within its meaning, including any documents that pertain to other conditions giving rise to dementia that are excluded from the mental illness limitation. (emphasis added p. 5 of the decision) The judge went on to rule that Cannon is also entitled to see the 1998 medical update requested and received by Grannell and the year 2000 recommendation from Dr. Higgins which

4 4 should have been part of the administrative records, whether or not UNUM retained them in its paper file. (page 5 of the decision) According to the judge: UNUM has an obligation to produce these items for Cannon s review [including any oral communications between Grannell and Higgins]. Apparently UNUM misplaced the 1998 medical update and the judge admonishes UNUM for such sloppy recordkeeping by stating that: the entire medical update belongs in the [administrative] file. If the update is currently in UNUM s possession or is otherwise available to it, UNUM is directed to obtain and produce the update for Cannon s review. (emphasis added p. 6 of case text) The judge further chastises UNUM by referring to section (h) of the final claims regulations which requires full and fair review of administrative appeals. (See p of the regulations right-hand column, p attached to this Memo.) According to the judge: It is important to this process [of full and fair review] that a complete administrative record is maintained and the ERISA fiduciaries not misapprehend that misplacing key documents does not matter so long as portions of the document are preserved in a claim handler s notes or so long as all of the evidence actually relied upon is preserved. (p. 7 of the decision) Finally, Cannon seeks to find out how UNUM has interpreted dementia and has applied the mental/physical distinction in other cases. (p. 3 of the decision) UNUM contends that this would require UNUM to conduct an exhaustive search through its records, and would close an otherwise straight-forward review with collateral issues. The judge was not sympathetic to this argument but instead cited section (b)(5) of the final claim regulations which imposes an obligation: to establish and maintain reasonable claims procedures including administrative processes and safeguards designed to measure and verify that plan provisions have been applied consistently with respect to ensure and verify that plan provisions have been applied consistently with respect to similarly situated claimants. (See attached regulations, middle column near top, p ) Using this guideline, the judge concludes that: Cannon has not necessarily requested to be permitted to discover the particulars of other claims, only how UNUM has interpreted dementia and the mental/physical distinction in other cases including what kinds of dementia due to other conditions have been treated as coverage under the policy language. If UNUM maintains guidelines or has produced memorandum, tables or listings that serve to expand upon the partial listing of causes contributing to dementia that will not be subjected to the mental illness limitations (i.e., stroke, trauma, viral infestation, Alzheimer s

5 5 disease, or other conditions not listed), it will produce the same [for Cannon]. (pp of the decision) CONCLUDING REMARKS AND SUGGESTIONS As this discussion indicates, a claims denial by an insurer, TPA, or other claims processor, (acting on behalf of a health plan s sponsor or fiduciary) requires careful documentation and recordkeeping in accordance with the requirements set forth in the final claims regulations. Moreover, group health care plans must be willing to open up the claimant s file to the claimant s inspection and reproduce requested materials without charge so that the claimant may obtain a clear understanding of why his claim was denied and may use the information contained in his file to perfect his or her appeal. With these requirements in mind, it is suggested that claims supervisors and other claims personnel for group health plans review the underscored parts of the attached regulations as a convenient means of refreshing their memories regarding their obligations to claimants when such claimants appeal a claim and ask for information to which they are entitled by the regulations. # # #