What happens when an ERISA-governed disability claim is denied solely under the “own occupation” provision, but a reviewing district court concludes the claimant is entitled to “own” occupation benefits?

Does an insurer “waive” an evaluation of the “any occupation” provision because the insurer denied the claim solely on the “own occupation” standard? NO.

Can the district court evaluate and award continued benefits under the “any occupation” standard when the insurer has not yet made that assessment?  NO.

Here’s the recent case of Martinez v. Standard Ins. Co., 2021 WL 4592430 (5^th Cir. October 5, 2021)(“[W]hen the plan administrator has not issued a decision on a claim for benefits that is now before the courts, the matter must be sent back to the plan administrator to address the issue in the first instance.”  Insurers denying benefits solely under the “own occupation” standard” are not required “to spend resources evaluating participants” under the “any occupation” standard.)

FACTS:  Martinez sought her deceased husband’s ERISA-governed long term disability benefits for “cellutis and abscess” (infection) of his right hand.  Standard Insurance concluded Chavez qualified for “own occupation” benefits which could go as long as 24 months.

But when Chavez sustained a rotator cuff injury, Standard determined that his benefits were limited to 12 months because a provision limited benefits for claimed disabilities (right wrist infection and shoulder rotator cuff) involving carpal tunnel, arthritis or muscle sprains.

DISTRICT COURT HELD FOR PLAINTIFF:

1. Chavez’s wrist condition was not subject to the 12 month limitation even though the court agreed that infection-caused damage to his wrist was “technically…a species of arthritis.” The district court theorized, however, that the “average plan participant” would understand “arthritis” to refer only to degenerative joint disease.
2. Standard had failed to give notice to Chavez that it was denying benefits because Chavez did not meet the requirements under the own occupation provision.
3. The court then awarded “any occupation” benefits because Standard “waived” its right to request evidence on the “any occupation” issue.

FIFTH CIRCUIT COURT OF APPEALS HELD: REVERSED 

1. “[T]he plan administrator has the obligation to identify evidence in the administrative record and…the claimant may then contest whether the record is complete.” Op. at 7.
2. Insurers do not necessarily waive exclusions if the exclusion or analysis is not asserted in the initial denial letter. Op. at 8.  Schadler v. Anthem Life Ins. 147 F.3d 388, 393 (5^th Cir. 1988)(Administrator initially denied claim because policy was never in effect. Insurer allowed to later argue for the first time other exclusions once it was shown the policy was actually in effect.)
3. Insurers denying benefits solely under the “own occupation” standard are not required “to spend their resources evaluating participants” under the “any occupation” standard.  Op. at 8.
4. Remand for further assessment of the any occupation standard is required. “[W]hen the plan administrator has not issued a decision on a claim for benefits that is now before the courts, the matter must be sent back to the plan administrator to address the issue in the first instance.”  Op. at 9.