A 3-judge panel at the 9th U.S. Circuit Court of Appeals has decided 2-1 to give a paralyzed California man a new chance to get more benefits from a group long-term disability (LTD) insurance carrier.
In a split decision, the panel majority found that a U.S. District Court judge should have paid more attention to how much the fact that the plan administrator, Unum Life Insurance Company of America, was also the plan insurer should have affected the court’s analysis of whether Unum Life might have abused its discretion to interpret the group LTD policy.
Circuit Judge Marsha Berzon and Senior 3rd Circuit Judge Robert Cowen ruled in favor of Mark Stephan, the plaintiff in the case, Mark Stephan vs. Unum Life Insurance Company of America (Number 10-16840).
Circuit Judge Diarmuid O’Scannlain ruled in favor of the insurer, Unum, which is a unit of Unum Group Corp. (NYSE:UNM).
Mark DeBofsky, a Chicago lawyer who helped represent Stephan, welcomed the ruling.
The 9th Circuit majority “recognized in this ruling that the purpose of disability insurance is to protect a worker’s financial well-being in the event of catastrophic injury or illness,” DeBofsky said. “The court placed common sense limits on an insurer’s interpretation of its policy which favored its self-interest as against the interests of the policyholder.”
Unum finds the ruling disappointing, company representatives said.
“We believe it may have the potential to jeopardize the sanctity of attorney-client privilege,” company representatives said. “We are exploring our options, but we will, of course, continue to pay the claim, as we have from the beginning. We conducted a thorough and complete investigation and analysis of this claim, and we’re confident we reached a decision that was reasonable and well-supported by the record.”
Mark Stephan, the plaintiff, began working for an investment banking firm in August 2007. He was injured in a bicycling accident three months later and was paralyzed from the neck down, Berzon wrote in an opinion for the 9th Circuit panel majority.
Unum agreed that Stephan was permanently disabled. When the company calculated Stephan’s monthly benefits, it based the calculations on Stephan’s monthly salary and excluded Stephan’s annual bonus.
Like many insurance policies, the group LTD plan that covered Stephan included a provision giving the insurer the discretion to interpret the terms of the policy. The federal courts generally hold that, when a benefit plan includes a discretionary clause, the courts can review the facts in a benefits decision involving the plan from scratch only if the insurer appears to have abused its discretion.