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Court pans group disability plan wording

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A 3-judge panel at the 4th U.S. Circuit Court of Appeals decided unanimously to ask a lower court to review a case filed by a group long-term disability (LTD) insurance claimant from scratch.

The panel, in Richmond, Va., found that a U.S. District Court judge in Greensboro, N.C., erred when he threw out the suit.

Beth Cosey, a former medical diagnostics company marketing manager at BioMerieux Inc., filed the suit against Prudential Insurance Company of America, the claims administrator for her employer’s group LTD plan. Cosey, who worked in Durham, N.C., applied for group LTD benefits in 2007 because of a list of complaints that included fatigue, low blood pressure, weight loss, and sleep apnea.

Prudential, a unit of Prudential Financial Inc. (NYSE:PRU), started out agreeing to pay benefits, but it decided after three weeks to cut off benefits payments because it decided that Cosey had presented too little evidence to show that she was unable to perform her regular occupation.

The group LTD plan had a provision that said a claimant had to “submit proof of continuing disability satisfactory to Prudential.”

Prudential argued that the phrase established that the plan had a “discretionary clause” — a provision that gives an administrator of an Employee Retirement Income Security Act (ERISA) plan broad freedom to review policy-related terms without fear of seeing a case being reviewed from by a court from scratch.

The judge in Greensboro agreed with Prudential that Prudential had not abused its discretion. The judge decided the case in favor of Prudential and the employer.

The 4th Circuit panel found that the language in Cosey’s plan was too ambiguous to give the plan administrator discretion.

“No specific words or phrases or required to confer discretion,” Circuit Judge Barbara Milano Keenan wrote in an opinion explaining the panel’s ruling. But “a grant of discretionary authority must be clear.”

Five other appeals courts have also moved toward requiring “stricter clarity in plan language before insulating insurance companies from full judicial review,” Keenan wrote.

A representative for Prudential declined to comment on the ruling.

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