Life Insurance Denial Overturned Due to “Procedural Unreasonableness”

After her husband died following a car crash, the beneficiary in this case sought life insurance benefits under plans sponsored by the husband’s employer. Her claim was denied based on the plans’ exclusions for death caused at least in part by intoxication or drug abuse. Information relating to the crash provided conflicting indications as to the husband’s possible impairment due to intoxication or drugs. For example, treating paramedics reported smelling alcohol, but a blood test for alcohol was negative. And while toxicology reports prepared by the hospital and state police revealed the presence, but not the amount, of various controlled substances at the time of the crash, the results were considered preliminary. No further testing was performed, and the specimens were destroyed. The insurer relied on the toxicology reports, the official death certificate, and a collision report (which indicated the husband was impaired) to deny the claim. However, the insurer did not cite—or furnish to the wife—a report prepared by its hired toxicologist, who determined it was impossible to estimate the husband’s level of impairment at the time of the crash. The denial was upheld by a trial court, and the wife appealed.

The appellate court reversed the trial court’s decision and overturned the benefit denial, citing the insurer’s failure to mention its toxicologist’s report in its denials or provide the report to the wife in response to her attorney’s written request for documents that the insurer “may rely on” in making its decision. The court concluded that the failure to acknowledge the toxicology report indicated that the insurer did not consider all relevant evidence, amounting to procedural unreasonableness. Rejecting the insurer’s contention that the report would not have helped explain the denial, the court reasoned that without it the wife was unable to meaningfully challenge the insurer’s finding, and thus was denied full and fair review of her claim. The court next determined that the denial was not supported by substantial evidence because it was not possible to determine the husband’s level of intoxication. Moreover, the insurer’s inherent conflict of interest affected its analysis of the close evidence presented. Given all of these factors, the court ruled that the insurer abused its discretion, and instructed that judgment be entered in the wife’s favor.

EBIA Comment: Although benefit denials are less likely to be overturned when a court applies the deferential abuse of discretion (rather than de novo) standard of review, it does happen. Adhering to ERISA’s standards for claims procedures is crucial, especially when a claims fiduciary has a structural conflict of interest. Acknowledging (and providing) the toxicologist’s report could have meant a different result here. For more information, see EBIA’s ERISA Compliance manual at Sections XXXV.B (“Compliance Considerations and Consequences of Noncompliance”), XXXV.F.6 (“Reasonable Appeals Procedures Must Provide Full and Fair Review”), and XXXIV.N (“How to Protect Claim Denials From Being Reversed in Court”). See also EBIA’s Self-Insured Health Plans manual at Section XXVI.J (“Litigation Issues”). You may also be interested in our recorded webinar, “Claims and Appeals Rules for Group Health and Disability Plans” (recorded on 4/18/18).

Contributing Editors: EBIA Staff.