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High Court Vacates Disability Discretion Ruling

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The U.S. Supreme Court says the 9th U.S. Circuit Court of Appeals should take another look at a group long-term disability insurance case involving allegations of abuse of discretion.

The Supreme Court has issued a summary order asking the 9th Circuit to reconsider a ruling on the case, Metropolitan Life Insurance Company vs. Peggy Hawkins-Dean.

The Supreme Court also has given the American Council of Life Insurers, Washington, permission to file a brief giving its views on the case.

The Metropolitan Life ruling deals with use of a discretionary clause, or policy provision that gives an insurer the discretion to interpret policy terms, in a group LTD policy governed by the Employee Retirement Income Security Act.

The plaintiff in the case, Peggy Hawkins-Dean, is a group LTD claimant who suffers from fibromyalgia. She sued Metropolitan Life, a unit of MetLife Inc., New York, after the company excluded stock option income from the base income used to compute benefits. That reduced the base income in benefits calculations to $28,850 per year, from $151,855 per year, according to court pleadings.

The first court that heard the case, the U.S. District Court in Pasadena, Calif., ruled in favor of Metropolitan Life, arguing that Metropolitan Life had discretion over interpretation of policy terms.

A 3-judge 9th Circuit appeals court panel ruled in January that the district court should review the claim from scratch, because there was evidence that the insurer might have had a conflict of interest.

The Supreme Court has vacated the 9th Circuit ruling and asked the 9th Circuit to consider the effects of Abatie vs. Alta Health & Life Insurance Company.

All judges serving on the 9th Circuit court held in August in a ruling on Abatie that a court should look closely at the nature of any alleged conflicts of interest and the effects the conflicts might have had on a plan member plaintiff before deciding whether to look at a benefits decision from scratch.

Before the Abatie decision came along, the 9th Circuit had relied mainly on a 1995 decision, Atwood vs. Newmont. In that decision, the 9th Circuit had ruled that a court should review a benefits decision from scratch, even if the insurer had included a discretionary clause, if a plan member could show that the insurer had a serious conflict of interest.


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