Can a commercial airline pilot experiencing “psychotic episodes” fly a plane? You’ll find out if you read this case:
Miller v. American Airlines, __ F.3d __ (3rd Cir. January 25, 2011).

The case also highlights: (1) what should be in a benefit termination letter; (2) that new medical evidence is needed to justify benefit termination decisions; (3) that you should not deny benefits based on non-existent plan requirements; (4) the court’s remedy in benefit terminations may be retroactive reinstatement and not remand; and (5) Plans with “final and binding” independent medical reviews may not insulate from conflict of interest issues.

FACTS: Miller was a commercial airline pilot with “psychotic episodes” (not a great impairment for the occupation.) In 1999, he was awarded Long Term Disability (LTD) Benefits. The American Airlines plan had discretionary language.

In 2006, American terminated benefits stating “verification of such Disability [could] no longer be established” and because he had not made “substantial progress toward obtaining FAA medical certification.” Miller’s doctor later reconfirmed that Miller was disabled.

The Plan dictates that disputes will be referred to a “clinical authority” and findings of the “nature and extent of illness” shall be “final and binding.” So, American ordered a record review which concluded no disability existed because he was not treating and because Miller had not sought FAA certification. Miller sued for wrongful denial of LTD benefits.

TRIAL COURT: GRANTED SUMMARY JUDGMENT FOR PLAN.

THIRD CIRCUIT: REVERSES.

1. Miller may not have outwardly manifested symptoms, but his psychiatric diagnosis remained constant and required regular treatment. Op. at 16
2. A conflict of interest arises where an employer funds and evaluates claims. American funds the plan. Every dollar American saved by reducing disability payments decreased projected benefit obligations. The “final and binding” medical review provision was insufficient to totally eliminate any conflict of interest because American could seek further review of the medical review. Op. at 18.
3. American’s initial grant of LTD benefits “does not operate as an estoppel such that they can never terminate benefits.” But reversing a disability decision, without new medical evidence, is evidence of abuse of discretion. Opinion at 21.
4. Relying on non-existent plan requirements is arbitrary and capricious. Op. at 22. The denial letter and independent record review improperly relied in part on the fact that Miller had not pursued FAA certification. This was arbitrary and capricious. Op. at 21-2.
5. Denial Letters and 29 C.F.R. 2560.503-1(a). Plan compliance with Section 503 and its regulations is evidence of arbitrary and capricious decision. Bar conclusions in denial letters, unsupported by rationale fail to provide “specific reasons” for denial, as required by the regulations. The denial letter here was deficient to two ways:
   1. The letter failed to provide specific reasons for denial. Op. at 28.
   2. The stated reason for denial: “inability to verify a disability” is a bare conclusion and not a “specific reason.” Op. at 28-9.
   3. The letter failed to advise Miller “precise information” on how to perfect the claim. Op. at 30.
6. Failure to analyze all diagnoses is evidence the decision was arbitrary and capricious. Op. at 33
7. The decision should assess claimant’s duties and the ability to complete them. Op. at 34-5. The District Court did not assess whether American and the independent medical record review adequately addressed Miller’s ability to fulfill his job requirements.
8. The remedy is “retroactive reinstatement” and not remand. Op. at 38-40. In a situation where benefits are improperly denied at the outset, remand is appropriate. Op. at 39. But the proper remedy in situations where benefits are terminated, after initially granting them, retroactive reinstatement is the proper remedy. Op. at 40.