I. Ninth Circuit Addresses Burden of Proof and
Expert Testimony in Benefit Determinations
In two recent decisions, the Ninth Circuit [California, Nevada,Oregon, Washington, Idaho, Montana. Hawaii and Alaska] has addressed issues relating to the administration of benefit claims -- what information is the benefits administrator required to consider and how must courts review those decisions under the abuse of discretion standard. The results of both cases indicate that in the Ninth Circuit at least, courts are to focus on the record as it was presented to the administrator without requiring the administrator to seek out additional evidence or expert opinions.
In Jelinek v. Hewlett-Packard Co., et al., 1996 U.S. App. LEXIS 15656, the Ninth Circuit clarified certain duties of claimants and plan administrators in making benefit determinations. At issue was Etta Jelinek's claim for long term disability ("LTD") benefits under the Hewlett-Packard Company Employee Benefits Organization income Protection Plan (the "Plan") which provided both short term disability ("STD") benefits (up to 39 weeks) and LTD benefits (beyond 39 weeks up to age 65). To qualify for LTD benefits, a claimant must be "totally disabled," defined as unable to perform the duties of his or her usual occupation for the first 39 weeks and thereafter being continuously unable to perform any occupation for which he or she may become qualified.
The Claims Administrator (the benefits decision-maker here) granted Jelinek 39 weeks of STD benefits, but denied her LTD claims. Jelinek asserted that it was an abuse of discretion for the Claims Administrator to deny her claim without seeking clarification from her treating physician. The court held that since Jelinek's treating physician had concluded that her condition did not render her totally disabled, further clarification was unnecessary. More importantly, since the Plan placed the burden on the claimant to submit all evidence necessary to support her claim (the Plan provided that "the Member shall be solely responsible for submitting the claim form and any other information or evidence on which the member intends the Claims Administrator to consider in order to render a decision on the claim"), the burden was on Jelinek to present evidence in support, and it was not the responsibility of the Claims Administrator to seek out additional evidence where there is an adequate basis for its decision on the record. In addition, where the standard for total disability is an inability to perform "any occupation," the Claims Administrator is not required to consult vocational experts in every case to determine that there are jobs available for which the claimant is or can become qualified. Where the record supports the conclusion that the claimant is not so impaired as to be unable to perform any occupation, the Claims Administrator does not abuse its discretion by so concluding without expert testimony.
In Snow v. Standard Insurance Co., 20 EBC (BNA 1375 (9th Cir. 1996), the Ninth Circuit gave further indication that courts are to give credence to the decision of the Plan Administrator where there is adequate evidence on the record to support that decision. The Snow court held that the district court was wrong to remand a matter to the Plan Administrator for further expert testimony, but should have decided the case one way or the other on the basis of the evidence in the record.
At issue was whether Gloria Snow qualified for LTD benefits under the Harlyn Products, Inc. LTD Plan (the "Plan") due to Chronic Fatigue Syndrome ("CFS"). Snow's treating physician submitted a letter that Snow was disabled from CFS and did qualify for benefits, but that she was not disabled by fatigue or pain. Another of her treating physicians submitted a CFS checklist. The Plan Administrator submitted the notes of the treating physician and the CFS checklist to a physician with whom it had consulted on benefit determinations before and who was familiar with CFS. This doctor felt that CFS was a very unique disease, that there were likely no real experts in the field and that Snow did not have CFS. The Plan Administrator denied Snow's claim on the grounds that her symptoms did not meet the criteria for CFS as established by the Center for Disease Control.
The Ninth Circuit saw the issue as whether, based on the record before it, the Plan Administrator had abused its discretion in denying Snow her benefits. The district court found the report of Snow's treating physicians contradictory and not convincing. It also determined that Snow's symptoms failed to meet the criteria for CFS set forth by the Center for Disease Control. Nevertheless, the court believed that the Plan Administrator needed to develop further evidence before it could turn down Snow's benefit claim.
The Ninth Circuit previously objected to the district court's wishy-washy determination that though the evidence clearly supported the decision to deny benefits, the case should be remanded for more evidence gathering. The Ninth Circuit was clear that either the Plan Administrator's decision was not supported by substantial evidence on the record, in which case the court should have awarded Snow her benefits, or the decision was supported by such evidence, in which case the Plan Administrator had not abused its discretion and Snow's benefits had been properly denied. In no event, could the district court's middle-of the-road decision be upheld.
II. ADA: Clarifying The Insurance Safe Harbor
In a previous "From the Bench," we noted the case of Henderson v. Bodine Aluminum, 70 F.3d 958 (8th Cir. 1995) where the Eighth Circuit [Minnesota, N. Dakota, S. Dakota, Nebraska, Iowa, Missouri and Arkansas] appeared to allow the possibility that the design of a medical benefit plan might violate the Americans with Disabilities Act ("ADA") by not providing coverage for certain chemotherapy treatments for breast cancer without considering whether such an omission amounted to a "subterfuge." (See The Self-Insurer, Vol. 13, No. 1). Henderson appeared to open up a potential for benefit liability not entirely justified under the broad safe-harbor provisions of ADA 501(c). The Eighth Circuit did not go quite that far since it only determined that for purposes of injunctive relief, the claimant had a reasonable chance of success on the merits, and it was careful to say that it was not deciding the ultimate merits of the claim.
In Modderno v. King, 82 F.3d 1059 (D.C. Cir. 1996), the District of Columbia Circuit Court did address the merits, and re-enforced the broad safe-harbor for benefit programs found in the ADA. Ms. Modderno was the spouse of a United States foreign service officer and was a participant in the Foreign Service Benefit Plan (the "Plan"). Ms. Modderno suffered from a mental illness and the Plan imposed a $75,000 lifetime maximum limit on mental health benefits. It was that limit which was at issue.
Technically speaking, Modderno was not an ADA case. The Plan is subject to 504 of the Rehabilitation Act which, like the ADA, broadly prohibits discrimination on the basis of disability. In 1992, Congress amended the Rehabilitation act to expressly incorporate ADA provisions, and so the Court of necessity had to address the ADA. Modderno alleged that the plan is discriminatory because it provides "unequal benefits" to persons with mental illness. However, under both the Rehabilitation Act and the ADA employers are able to limit benefits provided either for physical or mental illnesses so long as such limitations are not disability-based. Mere reference to an impairment which does not implicate the statutory concept of disability is not enough to make the Plan facially discriminatory. Moreover, since a plan could limit benefits for both physical and mental illnesses, merely setting a lower limit for mental illnesses of all kinds does not violate either statute.
But the ADA also allows for a disparate impact standard and prohibits "utilizing standards, criteria or methods of administration that have the effect of discrimination on the basis of disability." ADA 102(b)(3). Thus, it might be possible for a mental health treatment limit to have the effect of being discriminatory. However, the EEOC Guidelines on the Application of the ADA to Health Insurance has explained that the setting of a cap on benefits for mental illness is not a disability-based distinction because the cap would apply to both disabled and non-disabled participants. If the mental health benefits cap is neither facially discriminatory nor has a discriminatory effect, then it can only be considered to violate the ADA if it is deemed a subterfuge to evade the purposes of the ADA.
The Modderno court began its analysis of the subterfuge issue by starting with the two Supreme Court decision which addressed a similar concept of subterfuge under the Age discrimination in Employment Act ("ADEA"). See United Airlines, Inc v. McMann, 434 U.S. 192 (1977) and Public Employees Retirement System v. Betts, 492 U.S. 158 (1989). In both cases, the Supreme Court held that subterfuge must be given it ordinary meaning as a "scheme, plan, stratagem or artifice of evasion," and concluded that benefit plans adopted before the enactment of the ADEA could not be subterfuges to evade its purposes. In Betts, the Court went on to say that for plans or provisions adopted after the ADEA, subterfuge meant that the plan had the effect of discriminating in non-fringe benefit aspects of the employment relationship.
Congress responded to both McMann and Betts by amending the ADEA to prohibit the practices that the Court permitted in both cases. Nevertheless, the Modderno court concluded that Congress deliberate use of the word "subterfuge" in the DA in very much the same manner as it had been employed under the ADEA strengthened the conclusion that it intended the word to mean exactly what the Supreme Court had said that it meant. Congress must be presumed to have known what McMann and Betts had held the term to mean and could have used other terms if it wished to avoid that meaning. While the EEOC had adopted an interpretation of subterfuge under the ADA as "disability-based treatment that is not justified by the risks and costs associated with the disability," the Department of Labor had proposed similar interpretation of the term under the ADEA and it had been rejected by the Supreme Court. While not explicitly stating that the meaning of subterfuge under the ADA should be the same as the Betts court said it meant under the ADEA, by observing that the meaning was virtually identical, the Modderno court left little room for alternative interpretations.
Because the mental health disability cap was not facially discriminatory under either the Rehabilitation Act or the ADA, did not have a discriminatory impact under the ADA and was not a subterfuge to evade the purposes of the ADA, Ms. Modderno's unequal treatment based claim must fail. Of more significance, perhaps, is the Modderno court's affirmation that 501(c) of the ADA does in fact provide broad safe harbor treatment for benefits provided under insured and self-funded benefit programs so long as the allegedly discriminatory practice does not constitute a subterfuge.
III. ADA: Who is Covered as an Employee?
The issue of discrimination in the provision of fringe benefits under the ADA is likely to become an increasingly litigated area. A key issue under the ADA is who has standing to bring a lawsuit alleging discrimination in the provision of benefits where the individual needs benefit coverage on account of the disability, but can no longer work because he or she is disabled. In nzales v. Garner Food Service, Inc., 20 EBC (BNA) 1601 (11th Cir. 1996), the Eleventh Circuit [Florida, Georgia and Alabama] addressed the issue of who qualifies as an "employee" eligible for protection under the ADA, and found no protection for a former employee who had elected COBRA.
Timothy Bourgeois worked for Garner Food Service, Inc. ("GFS") and had developed AIDS. GFS fired him to avoid paying for his health insurance benefits, and when Bourgeois elected COBRA, GFS capped AIDS-related treatment to $10,000 annually and $40,000 lifetime. All of these events occurred prior to the effective date of the ADA. Bourgeois died about a month after the effective date of the ADA, and his estate sought payment for approximately $90,000 in medical bills incurred after the effective date and prior to his death on the theory that the refusal to pay medical bills was a continuing violation of the ADA.
The Eleventh Circuit held that assuming a continuing violation, assuming that an individual with AIDS is disabled and assuming that the benefit caps were discriminatory, Mr.Bourgeois was neither (1) a qualified individual with a disability under the ADA since he could not perform the essential functions of his job, nor (2) could he be considered an employee since he was no longer employed by his employer. The Court held that "the plain language of the ADA clearly demonstrates the intent of Congress to limit the scope of the Act to only job applicants and current employees capable of performing essential functions of available jobs (emphasis added)."
What is so very odd about this decision is that the Court stated as a finding of fact that GFS had discharged Bourgeois to avoid paying him future health insurance benefits. Further, the court acknowledged that under Eleventh Circuit law the term "employee" includes former employees claiming retaliation, but this case law was apparently meaningless here because it held there was no allegation of retaliation. Perhaps afraid of the holding in McGann v. H&H Music, plaintiff never raised an ERISA 510 claim in this case. (In McGann, the Fifth Circuit held that by imposing AIDS-related caps on its medical plan an employer does not thereby violate ERISA 510's prohibition against employer interference with an employee's rights to benefits).
The situation in Gonzales, however, seems much more blatant than that in McGann, namely, (1) there was an actual termination of employment specifically for the purpose of depriving the plaintiff of medical benefits, followed by (2) a reduction in the amount of available benefits when the terminated employee elected COBRA. Without any further explanation, it seems odd that the Eleventh Circuit would establish retaliation as a matter of fact and then base its holding on the fact that no retaliation was alleged. It would appear that there was a valid ERISA 510 claim lurking in these circumstances which, if alleged and proven, would at least have established the plaintiff's standing to seek plan benefits.
Indeed, the dissent noted the inherent contradiction in the majority opinion and observed that if employers can fire disabled employees to avoid paying them medical benefits much of the protection of the ADA will have been lost. Moreover, construing the term "employee" under the ADA in the same manner as it is interpreted under Title VII means that the term should be read to cover former as well as current employees. The dissent based its anti retaliation argument on parallel interpretations of Title VII rather than on ERISA 510, though the import is similar. If an employer can retaliate against employees and thereby undermine their standing to sue, the protections of the ADA will become a sham.
Moreover, as a COBRA participant all Bourgeois needed to show in order to be considered a "qualified individual with a disability" under the ADA was an ability to perform the tasks expected of other similarly situated "employees," which in his circumstances was merely the ability to pay the COBRA premium, not necessarily the ability to perform the essential functions of any job. In summary, the dissent concluded, "the majority sees `plain meaning' when there is none."
Two recently decided cases from the Southern District in New York support the Gonzales dissent's reading of both the meaning of the terms "employee" and "qualified individual with a disability" under the ADA. While these decisions are not binding in the states covered by the Eleventh Circuit, they do indicate that there remains some uncertainty about who may be entitled to bring benefit discrimination suits under the ADA.
The first case, Graboski, et al. v. Giuliani et al., 1996 U.S. Dist. LEXIS 12894, was brought by retired firefighters in New York City who claimed that collective bargaining agreements which provided for special funds known as Variable Supplemental Funds ("VSF") within the Fire Department's pension plan violated the ADA by excluding disabled retired firefighters from being eligible for the VSF benefits. The City defended by claiming that the disabled retired firefighters lacked standing to bring such a suit because none was a "qualified individual with a disability" because disability retirees were by definition no longer able to perform the essential functions of the job.
Calling this a "crabbed view of the ADA's coverage" which would "undermine the statue's unambiguous remedial purpose," the court reasoned that since many fringe benefits are only meaningful post-employment, it is "only logical that the statute's coverage reaches the period when the employment benefits are to be reaped." Relying on the argument that the definition of "employee" in the ADA parallels that in Title VII, the court held that "the term `otherwise qualified' was not intended to distinguish this employment discrimination law from Title VII by abrogating coverage of former employees challenging discrimination arising out of the employment relationship." The Graboski court specifically declined to follow the Eleventh Circuit's decision in Gonzales, as well as the decisions of two other district courts that had also denied standing under the ADA to former employees bringing claims alleging benefit discrimination.
In the second case, Leonard F. v. Israel Discount Bank of New York, (S.D. N.Y Case No. 95 Civ. 6964/decided 9/96), the plaintiff alleged that the LTD benefit plan of the bank discriminated against people with mental as opposed to physical injuries. The bank defended on the basis that Leonard F.'s nervous break down had rendered him incapable of performing the essential functions of his job, and he, therefore, had no standing to bring a suit under the ADA. The district court had originally dismissed the case as not yet ripe for adjudication since it was not clear whether the plaintiff would recover before his benefits ran out. On appeal, the Second Circuit held that the possibility that benefits might be lost on account of the alleged discrimination created a justiciable controversy, and remanded the matter to the district court for a decision.
On remand, the court accepted the argument of the EEOC, which had filed an amicus brief, and held that plaintiff did meet the definition of a "qualified individual with a disability," and, therefore, had standing to pursue his ADA claim. The EEOC had argued that "The relevant employment position in any case involving post-employment fringe benefits is the position actually occupied by the plaintiff -- that of benefit recipient -- and that as long as the plaintiff satisfied any non-discriminatory eligibility criteria for receipt of benefits, he is a qualified individual within the meaning of the ADA." This argument tracks that of the Gonzales dissent and allowed Leonard F. to pursue his ADA claim.
It would appear then that there is some considerable dispute among the courts as to the scope of ADA coverage for former employees with respect to fringe benefits and it may be some time before a definitive answer to this question emerges from the case law.
This article was written by John H. Eggertsen and Michael J. Friedman, partners in our Employee Benefits Department, and was previously published in a column entitled "From the Bench" in The Self-Insurer, Vol 13, Issue 11, November, 1996.