ERISA-Ninth Circuit Rules That Insurer’s Decision To Stop LTD Benefits Was Reasonable

Gunn v. Reliance Standard Life Insurance Company, No. 09-55089 (Ninth Circuit 2010) (Memorandum Decision), involved the plaintiff, Igor Gunn (“Gunn”), and the defendants, the Paine Webber Long Term Disability Plan (the “Plan”) and Reliance Standard Life Insurance Company (“Reliance”), the issuer of the insurance policy funding the Plan and the Plan’s claims administrator.

Gunn had begun to receive long-term disability (“LTD”) benefits from the Plan, based on his multiple sclerosis and severe depression. However, after receiving the benefits for 24 months, the Plan’s “mental illness exclusion” began to apply, and Reliance, as claims administrator, had decided to terminate Gunn’s LTD benefits due to this exclusion. Gunn brought this suit under ERISA against the defendants, challenging the termination of his LTD benefits. The district court had found that Reliance’s decision to terminate the LTD benefits was an abuse of discretion and restored the benefits to Gunn. The defendants appealed.

In analyzing the case, the Ninth Circuit applied the abuse of discretion standard to Reliance’s decision to terminate the LTD benefits, since the Plan had granted discretionary authority to Reliance. It also took into account Reliance’s conflict of interest resulting from Reliance being both the claim decider and benefit payer. In this case, the Plan had a “mental illness exclusion”, under which LTD benefits would stop after 24 months when the disability is caused by or contributed to by mental or nervous disorders, such as severe depression. Reliance had taken the position that, for the benefits to continue beyond the 24 months, Gunn would have to show that he was totally disabled solely due to his physical condition stemming from his multiple sclerosis, without taking into account the disabling effects of the severe depression. The records of Gunn’s treating physicians did not make this showing.

The Court found that Reliance’s interpretation of the mental illness exclusion did not conflict with other Plan terms and was reasonable. The physicians’ reports provided evidence supporting Reliance’s decision to stop the benefits. The Court also concluded that the district court gave too much weight to Reliance’s conflict of interest. Therefore, the Court concluded that Reliance’s decision to stop the LTD benefits was not an abuse of discretion. It overturned the district court’s ruling and remanded the case with an order to enter judgment in the defendants’ favor.

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