Insurance companies acting as ERISA plan administrators often misinterpret the definition of “disability” when considering a claimant for long-term disability (“LTD”) benefits.  In Reyes v. USAble Life, 2019 WL 1549430 (W.D. Ark. Apr. 9, 2019), this misinterpretation proved costly because the District Court awarded attorneys’ fees against the plan administrator and remanded with instructions to reopen the administrative record.

In Reyes, the District Court found that Dinora Reyes was deprived a full and fair review of her claim for LTD because, at each stage of the review process, USAble Life, the administrator of a group policy for LTD benefits, failed to follow the definition of “disability” as written in the Policy.  The Policy required USAble to identify the material duties of a Mental Health Professional.

Dinora Reyes was a Mental Health Professional at Western Arkansas Counseling & Guidance Center, Inc. (“WACGC”).  On June 30, 2015, Reyes applied for LTD.  WACGC sponsors a group policy for LTD benefits administered by USAble Life (the “Policy”).  Reyes submitted statements from three physicians indicating she was “totally disabled.”  In evaluating Reyes’s claim for LTD, USAble declined her claim because there was no evidence of her disability.  Reyes appealed the first denial of benefits.  After further review, Reyes’s appeal was denied because she did not meet the definition of disability.

The Policy defined disability or disabled through two tests: the Occupation Test or the Earnings Test.  The Occupation Test applied to employees who have not received disability payments or are within the first 24 months of their disability, to be under regular care of a physician and prevents them from performing material duties.  The Earnings Test applied to employees receiving disability payments after 24 months and they are able to perform one of the material duties.  Material duties were defined as a set of tasks or skills generally required by the employers.

After the denial of her second appeal, Reyes filed suit in the United States District Court for the Western District of Arkansas.  Reyes had to show evidence that she was disabled under the terms of the Policy.  Because the Policy was issued after March 1, 2013, Rule 101 of the Arkansas Insurance Department required a de novo review.  Ark. Admin. Code 054.00.101-7.

The Occupation Test applied to Reyes’s claim for LTD; the court had to determine if the administrator had correctly denied benefits during the initial 24 months of Reyes’s disability as section 1 of the Test.  If the District Court determines the administrator incorrectly denied benefits, they must decide if Reyes meets the definition of disability under section 2 of the Test.

The District Court was unable to determine whether USAble correctly denied Reyes’s initial application for benefits because USAble, failed to identify and consider the material duties of Reyes’s occupation and failed to follow the Policy’s definition of “disability.”  The District Court was left to speculate as to what duties were “material” to Reyes’s regular occupation.  In their initial review of Reyes’s application, USAble only sought information pertaining to her physical capacity to perform her job and not her material duties.

The District Court’s ruling resulted in remanding the case to the plan administrator.  The District Court also found it appropriate to award attorney’s fees to Reyes in its discretion.  On remand, USAble was to evaluate Reyes’s claim based on the definition of “disability” as written in the Policy.  USAble must identify the material duties of a Mental Health Professional and not solely the physical demands of Reyes’s occupation.

Reyes last worked at WACGC on April 20, 2015 and applied for LTD benefits on June 30, 2015. She suffered from severe neck, joint pain, headaches, infection, and fatigue.  Her case was remanded to the plan administrator nearly four years later.  If she does ultimately receive LTD benefits, it will be at great cost, but for both sides.  The Reyes case demonstrates the importance of a thorough review of the policy at issue.

Categories: Disability Insurance, ERISA, Insurance Litigation Blog, Policy Interpretation, Standard of Review

Tagged: Claims, Claims Administrator, Denial, disability claims, Disability Insurance, Discretion, discretionary authority, ERISA, healthcare professional, insureds, insurers, Long Term Disability, LTD, plan administrator, policy, policy interpretation