A federal court applies one of two standards of review when deciding whether a plaintiff’s disability benefits under a group insurance policy or pension were properly denied or terminated. Under a de novo standard of review, no deference is given to the defendant’s decision, and the court is free to substitute its own judgment for that of the insurer. Under an arbitrary and capricious standard of review, the deck is stacked against the plaintiff, who basically must show that the defendant’s decision was irrational, let alone wrong.
An arbitrary and capricious standard applies when the disability plan’s sponsor has delegated discretionary authority to the plan’s claim administrator. Most disability insurance companies have severely abused discretionary clauses. Consequently, many states have enacted laws prohibiting their use.
CIGNA was forced into a Regulatory Settlement Agreement (“RSA"), (which can be found on the Cigna tab located at the top of our home page), because it so pervasively abused discretionary clauses. Despite the RSA, CIGNA continues to do everything within its power to argue that the deferential arbitrary and capricious standard applies when cases are appealed to federal court. CIGNA knows it can win a lawsuit even if it made the wrong decision if the arbitrary and capricious standard is applied.
Judge Joseph Bianco ruled today that CIGNA’s decision to terminate long term disability (“LTD”) benefits would be reviewed de novo.
Over the course of several years, the claimant made many requests for all plan documents from CIGNA, which repeatedly confirmed that the group insurance policy was the only plan document. CIGNA admitted that the policy did not grant it discretionary authority. Years later, after CIGNA terminated the claimant’s LTD benefits, the day before the initial conference in the lawsuit, CIGNA suddenly produced a certificate of insurance with discretionary language. CIGNA was unable to explain to the Magistrate Judge why the Certificate had not previously been produced, but CIGNA assured the Magistrate Judge that all plan documents had now been produced.
A few months after producing the Certificate, CIGNA produced a document called Appointment of Claim Fiduciary (“ACF”), which also contained discretionary language. CIGNA claimed that both the Certificate and ACF provided it with discretionary authority. For the reasons set forth in Barbu v. Cigna, 2:12 cv-01629-JFB-WDW (E.D.N.Y. Dec. 19, 2013), (which can be found on the Cigna tab located at the top of our home page), the Court disagreed.