ERISA-First Circuit Rules That Termination Of Long-Term Benefits Is Arbitrary and Capricious, And Upholds A Statutory Penalty For The Failure To Produce Documents

In McDonough v. Aetna Life Insurance Company, No. 14-1293 (1st Cir. 2015), the case was brought under ERISA and presented two issues. The first concerned the operation of an “own occupation” test within the definition of disability contained in a long-term disability (“LTD”) plan (the “Plan”). The second concerned the operation of ERISA’s penalty provision for late disclosure or non-disclosure of relevant plan documents. See 29 U.S.C. ยง 1132(c)(1)(B). Upon review, the First Circuit Court of Appeals (the “Court”) vacated the district court’s entry of summary judgment against the plaintiff, with respect to the termination of disability benefits, and remanded that issue for further consideration by the claims administrator, which was Aetna. At the same time, the Court affirmed the district court’s imposition of a $5,000 penalty for the belated production of a plan document.

As to the “own occupation” test, to be considered disabled under the Plan, the individual must (among other things) be unable to perform the material duties of his own occupation solely because of disease or injury. The Court determined that the administrator, although entitled to a deferential review, was arbitrary and capricious in terminating the LTD benefits based on its determination that the plaintiff failed to meet this test. The Court found that the administrator’s termination decision was not a reasoned one. The own occupation test depends on how the occupation is normally performed in the national economy, a fact which the administrator ignored. Since this is a close case-based on both voluminous and conflicting medical evidence-the remand to the administrator is warranted.

As to the $5,000 penalty, the district court imposed the penalty on Aetna for the late production of the applicable insurance policy. The policy was provided 1,157 days late, and amounted to about $4 per day. The Court upheld the amount of the penalty, finding that the district court had not abused its discretion in determining this amount. The district court had found that the lateness was attributable to inattentiveness, and not bad faith, and the plaintiff was not prejudiced by the late receipt of the policy.

Posted in:
Updated:

Comments are closed.