If you practice in the Ninth Circuit, you’ll want to read this one.

Is it an abuse of discretion if the plan fails to have an Independent Medical Examination which includes a “personal examination”?

Until now there has been no Ninth Circuit case stating that the plan abused discretion by failing to have a physician’s “personal examination.” This new decision gives ammo for that argument, and factors considered in finding an abuse of discretion.

Here’s the case of Salomaa v. Honda Long Term Disability Plan, __ F.3d __ (9th Cir. March 7, 2011)(standard of review in conflict cases discussed:The “‘any reasonable basis’ test is no longer good law.” ).

FACTS:

Salomaa was diagnosed with depression and chronic fatigue syndrome and applied for Long Term Disability (LTD) ERISA benefits. The plan had discretionary language. His doctors opined that he could work no more than 5 minutes per day, and noted his 23 pound weight loss. Honda’s claim administrator had two doctor reviews and denied the claim because of “the absence of positive laboratory results or physical findings.” Salomaa’s attorney offered Salomaa up for an exam and for such lab tests as the plan wished to have performed. The plan never responded to this offer. Salomaa appealed and submitted a neuropsych evaluation which showed impairment consistent with chronic fatigue syndrome and a decision from the Social Security Administration granting his disability claim. The appeal was denied and Salomaa sued.

TRIAL COURT: UPHELD CLAIM DENIAL (Applying abuse of discretion standard, taking into plan conflict of interest).

NINTH CIRCUIT: REVERSES with the following key points and quotes

1-Comments about the standard of review. “We have gradually refined and restated our standard of review [and held that] ‘[a] decision is not arbitrary unless it is not grounded on any reasonable basis.'” “This ‘any reasonable basis’ test is no longer good law.” Op. at 3202 (Emph in original).

2-Conflict cases and standard of review. The United States Supreme Court decisions in Glenn and Conkright require deferential review which means that a plan decision “will not be disturbed if reasonable.” BUT “[i]t is much easier to state the words of the formula…than to say what the formula means in practice.” Op. at 3204.

3- What is “reasonable basis”? “‘Reasonableness’ does not mean we would make the same decision…. We must judge the reasonableness of the plan administrator skeptically where, as here, the administrator has a conflict of interests….The conflict of interest requires additional skepticism because the plan acts as judge in its own cause.” Op. at 3204

4-What is “abuse of discretion?” The meaning of abuse of discretion…is “whether ‘we are left with a definite and firm conviction that a mistake has been committed,’ and we may not merely substitute our view for that of the fact finder.” The court will look to whether decision is “illogical, implausible, or without support in inferences” that may be drawn from the record. Op. at 3205-6.

5-The plan abused discretion in many ways. Op. at 3206-14. The reasons are:

(a) every doctor who “personally examined” him found him disabled;

(b) the plan demanded objective tests but no objective tests exist for the condition;

(c) the plan failed to consider the Social Security disability award;

(d) the reasons for denial shifted as they were refuted;

(e) the Plan failed to engage in “meaningful dialogue.” (The plan failed to furnish to Salomaa the physician reviews it obtained.

Op. at 3206-3214

6-Read the dissent by Judge Hall. It has some excellent analysis and key quotes, which include:

A- “To arrive at today’s decision, the majority had to overlook binding precedent and turn a blind eye to inconvenient facts—almost as though it were looking at nothing at all, in a room of total darkness.” Dissent Op. at 3221.

B-“[N]o Ninth Circuit cases state[s] that “personal examination” dictates whether an ERISA plan…abused its discretion.” Id. at 3216.

C- “[T]here is no proof the administrator failed to consider the [SSDI] award, just that there is no proof that it closely and deliberately studied the award.” Id. at 3219.

D -Failure to meaningfully communicate with Salomaa should lessen the discretion but “should not itself substantiate a conclusion that the plan abused its discretion.” Id. at 3220.