"Moderately Heightened" Level of Scrutiny Needed in ERISA Case

September 14, 2004 (PLANSPONSOR.com) - The US 3rd Circuit Court of Appeals has ruled that even when there is no obvious financial conflict of interest, a "moderately heightened" standard of review must be applied when there is evidence of "procedural bias" in processing benefits claims.

>In a unanimous decision by the three-judge panel in the case of Kosiba v. Merck & Co., the 3 rd  Circuit stated that a lower court was correct when it ruled that there was no financial conflict of interest because Merck had delegated the task of claims to UNUM Life Insurance Co. However, the appeals court disagreed with US District Judge Mary Little Cooper’s decision not to apply a “moderately heightened” standard of review because the 3 rd Circuit believed that there was clear evidence of procedural bias on the part of Merck.

>Merck, the 3 rd Court stated, had created a procedural bias when requesting an outside opinion on the disability status of Celeslie Epps-Malloy, a plaintiff in the case who in 1991 was diagnosed with chronic pain syndrome, fibromyalgia (a connective tissue disorder), and sarcoidosis (a disorder characterized by lesions on the liver, lungs, skin and lymph nodes).

>Epps-Malloy originally received short-term disability benefits. However, in 1996 UNUM requested – despite “unequivocal support” from her physicians, according to the 3 rd Circuit – additional medical advice. Because ERISA calls for deference to an insurer’s decision unless it is “arbitrary and capricious”, the additional medical exam “strongly suggests a desire to generate evidence to counter physician’s diagnosis,” according to the court. Thus, the 3 rd Court determined that Cooper should have applied a “moderately heightened” standard of review to Merck’s actions.

>The ruling is at  http://www.ca3.uscourts.gov/opinarch/022668p.pdf .