Terminating LTD Benefits ‘Capricious,’ U.S. Court Rules

The decision of a plan administrator to terminate a benificiary’s longterm disability “was reached in an arbitrary and capricious manner,” according to a ruling by the Seventh Circuit U.S. Court of Appeals. As a result, the court ruled that steps should be taken to reinstate the beneficiary’s benefits.

Court of Appeals Case No. 014132 (Hackett v. Xerox Corporation Long-Term Disability Income Plan) involved James J. Hackett who working for Xerox in 1985 and began to suffer from emotional problems the following year. Hackett’s problems were caused by a personality disorder that made it difficult for him to interact properly with others in the work environment. As the problems grew worse Hackett was advised by a Xerox physician to seek disability. In the process, Hackett was examined by a psychiatrist who gave a diagnosis in support of benefits. As a result, Hackett began receiving those benefits on March 2, 1987.

Hackett continued to be examined by experts over the next ten years. All of them supported the initial diagnosis. Then, in 1998, Xerox asked Hackett to be examined by a doctor who said the employee had a personality disorder but— despite the condition— was able to return to work without restriction. Xerox then terminated Hackett’s benefits in January 1999, stating: “Continued disability not clinically supported.”

As a result of Xerox’s action, Hackett filed suit in the U.S. District Court for the Northern District of Illinois, seeking the reinstatement of his long-term disability benefits. The court ruled in favor of the plan and Hackett appealed to the Seventh Circuit which reversed the district court’s ruling.

In issuing its decision, the Seventh Court, in part, noted: “ERISA requires that specific reasons for denial be communicated to the claimant and that the claimant be afforded an opportunity for a ‘full and fair review’ by the administrator. . .the administrator must weigh the evidence for and against [termination of benefits] and within reasonable limits, the reasons for rejecting evidence must be articulated if there is to be meaningful appellate review.”

Applying that standard to the Hackett case “makes clear that the termination procedures were arbitrary and capricious,” the Seventh Court stated. “After 12 years of paying out disability benefits, Xerox terminated those benefits simply on the basis of an examination by [a single doctor], whose conclusion that Hackett was able to work was contrary to numerous prior opinions.” Furthermore, the Seventh Court noted that the doctor who provided the contrary diagnosis “provided no explanation for his departure from the opinions of the previous doctors.”