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.”
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