In Schwalm v. Guardian Life Insurance Company of America, No. 09-4275 (6th Cir. 2010), the plaintiff, John Schwalm (“Schwalm”), contended that the decision of the defendant, Guardian Life Insurance Company of America (“Guardian”), to terminate his long-term disability benefits was arbitrary and capricious, contrary to the requirements of ERISA. The district court reviewed the administrative record,determined that Guardian’s decision was supported by substantial evidence, and dismissed Schwalm’s complaint. The Sixth Circuit Court affirmed the District Court’ s decision.
Schwalm had injured his back in 1999. He had a herniated disk that required several surgeries. He had been working at Acero, Inc., as chief executive officer, earning $140,000 per year. He was a participant in the long-term disability plan sponsored by Acero. Guardian was the insurer and plan administrator for the plan. Guardian had discretion to determine a participant’s eligibility for benefits, and to construe and apply the plan’s terms. In 2003, Schwalm filed an application for long-term disability benefits with Guardian. Guardian began to pay the benefits. Under the plan’s definition of disability, which begins to apply two years after the application for benefits is filed, the participant is disabled if he remains not able to perform, on a full-time basis, the major duties of any gainful work. In turn, the plan also defines the term “gainful work” as work for which the participant is or may become qualified by training, education or experience. Such work must also be consistent with the level of the participant’s pre-disability earnings. Guardian decided to terminate Schwalm’s long-term disability benefits, based on this definition.
In reviewing the case, the Sixth Circuit Court said that where, as here, the plan administrator-Guardian- has discretionary authority to determine eligibility and construe policy terms, the courts apply the deferential arbitrary and capricious standard when reviewing the plan administrator’s decision to terminate benefits.
In such a case, based on the evidence, when it is possible to offer a reasoned explanation for the plan administrator’s decision, that decision is not arbitrary or capricious. A plan administrator’s decision reviewed according to the arbitrary and capricious standard must be upheld if it results from a deliberate principled reasoning process and is supported by substantial evidence.
In this case, Guardian specifically explained that it was discontinuing benefits because the medical and other evidence demonstrated Schwalm was able to return to gainful employment, at a salary consistent with his pre-disability earnings. In making this determination, under the plan’s definition of disability, Guardian gave substantial attention to Schwalm’s physical and cognitive capabilities and his ability to return to work at such a salary. Guardian acknowledged that Schwalm had stated to his own doctors that he had “lost the ability to earn a living” and that he was working as many as fifty hours per week for no salary. However, Guardian dismissed Schwalm’s statement, concluding that it is not supported by the medical and other information Guardian had in its claim file. Notably, Schwalm had entered into a “Cooperation Agreement”, which provided for his participation in a new venture with a target salary of $115,000 per year. Although Schwalm had not yet begun to draw a salary, the agreement provided some indication of Schwalm’s own salary expectations and his own perceived ability to perform effectively at a high level. The definition of disability provided by the plan does not require that the participant actually earn a salary consistent with his pre-disability salary, only that he “is able to perform . . . the major duties” of such an occupation. The Court concluded that substantial evidence supported Guardian’s conclusion that Schwalm was no longer disabled within the meaning of the plan. It therefore affirmed the district court’s decision.