ERISA-Tenth Circuit Upholds Metlife’s Decisions To Not Increase Disability Benefits, Even Though They Were Calculated Incorrectly, And Then To Terminate the Benefits Altogether

In Palmer v. Metropolitan Life Insurance Company, No. 10-3171 (10th Cir. 2011), the plaintiff, Michael Palmer (“Palmer”), brought suit under ERISA against Metropolitan Life Insurance Company (“MetLife”) for underpaying and later terminating his disability benefits under the Alltel Corporation Long-Term Disability Plan (the “Plan”). The district court granted summary judgment for MetLife, and Palmer appealed.

Palmer’s last work day with his employer, Alltel, was February 2, 2006. The next day, he underwent a total disc replacement. On July 11, 2006, he submitted a claim for long-term disability benefits to MetLife, the administrator of the Plan, alleging disability due to lower-back problems. MetLife approved Palmer’s claim for disability benefits by letter dated October 12, 2006. The approval letter said that the benefits became payable as of August 2, 2006, after his satisfaction of a 180-day waiting period. In February of 2008, Palmer told Metlife that his benefit payments should be higher, since they should be based on salary and commission, while Metlife was omitting the commission from its calculation. Metlife did not increase the benefit payments. Further, Metlife then obtained from Palmer (voluntarily) the notes of Palmer’s own physician, for the period of April 1, 2005 through June 30, 2005. The notes indicated that the physician had seen Palmer during that period. After reviewing these notes, MetLife terminated Palmer’s disability benefits, effective March 1, 2008, on the grounds that he had a preexisting condition. Palmer then filed this suit. Was Metlife’s decisions to not increase and then terminate the disability benefits correct?

Since the Plan granted discretionary authority to Metlife, the Court said that Metlife’s decisions are entitled to a deferential review. The Court noted that Palmer conceded that the Plan has a preexisting condition exclusion which applies to him, and Metlife conceded that the disability benefit payments it made (before the termination ) were not calculated properly. The Court said that the issues were: (1) whether MetLife could, after previously approving and paying benefits, terminate them (a) based on a finding of a pre-existing condition and (b) discovered through records obtained from Palmer (again, voluntarily) that were in existence at the time it initially awarded benefits but not obtained by MetLife at that point; and (2) whether MetLife was required to compensate Palmer for an underpayment that occurred during the time it was mistakenly paying benefits. The Court found that ERISA and case law required a “yes” answer to (1)(a) and (b). Further, as to (2), since Palmer is not entitled to any benefits due to the preexisting condition, he is not entitled to any adjustment in the benefit payments already made.

As such, the Court concluded that Metlife’s decision to not increase and then terminate Palmer’s disability benefits should be upheld, and it affirmed the district court’s ruling.

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