Fourth Circuit Slaps Reliance Standard in ERISA Disability Case

Disability Insurance Benefits

Reliance Standard never should have terminated Fredrick Smith’s disability benefits. But appealing the District Court’s decision in favor of Mr. Smith was just plain dumb. Good news for claimants, the Fourth Circuit’s opinion in Smith v. Reliance Standard Life Insurance Company, ___ Fed.Appx. ___, 2019 WL 2539289 (June 20, 2019), contains a trove of pro-claimant rulings that can be cited in future ERISA cases.

Fredrick Smith discontinued working as plant manager for Charles Craft, Inc. in 2013 after suffering a series of strokes and heart problems. Reliance Standard paid Mr. Smith disability benefits and waived his life insurance premiums under group ERISA insurance policies it had issued to Charles Craft. But in 2016, in the face of contrary opinions of every treating physician who had evaluated Mr. Smith, Reliance Standard terminated Mr. Smith’s benefits after determining that he was not totally disabled from performing an occupation other than his prior position as plant manager.

The Fourth Circuit disagreed. The three-judge panel found that Reliance Standard’s view of Mr. Smith’s functionality “defies belief.” The Court was clearly impressed by Mr. Smith’s numerous serious health problems, which include a history of multiple strokes, multiple heart stents, triple bypass surgery, kidney disease, a urological stent, hypertension, diabetes, nerve damage, “and a host of other maladies.” Equally important to the Court was the fact that every doctor who had examined Mr. Smith advised Reliance Standard and that he would never be able to work in any capacity.

The Court, in ruling for Mr. Smith, made these key points:

Reliance Standard’s abused its discretion by placing undue weight on statements in Mr. Smith’s medical records that he had been hunting. The problem was that every reference in the medical records to his hunting occurred during the time when all parties, including Reliance Standard, agreed that Mr. Smith was totally disabled. The most recent medical records showed that Mr. Smith’s condition had deteriorated to the point that he had stopped hunting.

Reliance Standard also erred in relying on unclear and garbled references in Mr. Smith’s medical records concerning his ability to walk. The records of one physician, Dr. DePaola, state that Mr. Smith “walked up to 40 miles without difficulty.” In his appeal to Reliance Standard, Mr. Smith clarified that DePaola’s entry did not mean 40 miles per week but was the cumulative distance he had walked over four months. The Court faulted Reliance Standard and its reviewing physician, Dr. Weston, for not mentioning Mr. Smith’s explanation or explaining why their time frame was more likely the correct one.

Reliance Standard interpreted certain comments in the medical records to mean that Mr. Smith’s condition had improved. Each doctor at various times made statements that Mr. Smith was “doing well.” The Court found that those comments, considered in context, were “little more than boilerplate” and observed that “[d]octors, like everyone else, make statements relative to a baseline, and Smith perhaps was better or ‘doing well’ for someone with many serious underlying health problems.” The Court noted that other statements, that indicated Mr. Smith’s echocardiogram, blood sugar levels, and hypertension were “under control,” may indicate some level of improvement, but “they cannot outweigh the opinions of the doctors who saw him, and the illnesses that remained constant throughout this period.” Moreover, “[f]ocusing on one small upswing is unreasonable unless the recovery is sufficiently substantial that one would not expect more problems if he returned to work.”

The Court rejected the argument that Mr. Smith needed to prove that he could not perform specific work tasks – such as sitting, typing, or speaking – in order to maintain disability benefits. Such a rule would create too high a standard and would “erase disability eligibility for all but the bedridden.” Rather, according to the Court, “[s]ome serious diseases are debilitating because of their effect on the mind or because they worsen with stress. This is a place for medical judgment, not per se rules.”

Furthermore, Dr. Weston, the lone reviewing physician, never examined Mr. Smith or spoke to his doctors and concluded that Mr. Smith’s “prognosis is unclear.” His opinion was insufficient to immunize Reliance Standard “[a]gainst a gale of medical opinion and considerable evidence.” Nor could Reliance Standard rely on the “opaque statements” contained in Mr. Smith’s medical records.

The notes of Mr. Smith’s treating heart specialist, Dr. Klang, also referred to Mr. Smith’s walking, with references to “50-1/2 mild tracks” and “7 a half miles” and walking “8 miles without difficulty.” Reliance Standard and Dr. Weston relied on Dr. Klang’s reports in assessing Mr. Smith’s functionality on appeal. After the final denial letter was sent, Mr. Smith submitted a letter from Dr. Klang that clarified that his notes about Mr. Smith’s waking habits contained voice recognition software errors. The notes should have said that Mr. Smith could walk “about half a mile.” Reliance Standard refused to consider Dr. Klang’s letter because its policies allowed for only one appeal the record was already closed. The Court did need to reach the issue of whether Reliance Standard abused its discretion by failing to consider Dr. Klang’s letter because it found that Mr. Smith was entitled to benefits based solely on the record that existed as of the date of the final denial letter.

The Smith decision should serve as another warning to ERISA disability claims administrators that the deference allowed under the abuse of discretion standard has limits. The lessons to be learned from the case include these: (1) if a claimant is suffering from serious illnesses that could cause the symptoms of which he complained, the claims administrator cannot deny benefits unless it has substantial evidence that those conditions are not disabling, (2) the claims administrator will have greater difficulty denying benefits when all of the claimants’ treating physicians and the Social Security Administration concur that the claimant is disabled, (3) a factor in favor of the claimant will be the claims administrator’s payment of benefits prior to termination, (4) in such cases, the burden should be on the claims administrator to show that the claimant’s condition has improved, (5) while a claims administrator is not required to automatically credit the claimant’s descriptions of his symptoms, the administrator may not ignore such evidence, and the burden should be on the administrator to demonstrate why the claimant should not be believed, (6) a claims administrator should be careful about relying on evidence that was available during the time it had approved the claimant for benefits, (7) administrators must consider explanations of the ambiguous statements contained in the claimant’s medical records, (8) claims administrator should consider evidence submitted shortly after it issues its final denial letter, particularly when the additional evidence addresses the administrator’s evidence that the claimant learned of in the final denial letter, (9) questionable statements in the medical records that the patient was “doing well” or had “improved” must be considered in the context of the patient’s overall health picture, and (10) the opinion of a reviewing physician, who never examined the claimant or reached out the treating physicians, may be insufficient to overcome strong evidence of disability.

The Smith opinion was designated to be “unpublished.” That designation used to mean more than it currently does. Under Fed. R. App. P. 32.1, which became effective on January 1, 2007, a court may not prohibit or restrict the citation of federal judicial opinions on the basis that they have been designated “unpublished” or “not for publication.” Fourth Circuit Local Rule 32.1 contains the pre-2007 rule that citation of unpublished dispositions issued prior to 2007 in briefs and oral arguments and in the district courts is “disfavored,” but may be cited if a party believes that the unpublished decision “has precedential value in relation to a material issue in a case and that there is no published opinion that would serve as well.”

© Andrew Whiteman 2019


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