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CCH® BENEFITS — 8/18/09

Insurer Improperly Denied Claim For LTD Benefits Based On Plan’s Preexisting Condition Exclusion

from Spencer’s Benefits Reports: An insurance company improperly applied the preexisting condition exclusion in a long term disability plan in denying a participant’s claim for benefits. This was the decision of the Sixth Circuit U.S. Court of Appeals in Bloom v. Hartford Life and Accident Insurance Company (No. 07-6374).

Karen Bloom is a physician specializing in physical medicine and rehabilitation and is a partner at Rehabilitation Associates. In October 2002, Rehabilitation Associates began offering an LTD plan administered by Hartford Life and Accident Insurance Company. As specified by the terms of the plan, benefits were payable to a disabled participant if the participant was an “active, full-time employee,” which was defined as an employee performing his or her normal duties for at least 30 hours per week and receiving regular earnings. The plan also contained a preexisting condition exclusion, which excluded coverage of a disability that began within one year of the participant’s effective date of coverage and that was caused by or contributed to by a preexisting condition.

In 1999, Ms. Bloom was diagnosed with multiple sclerosis (MS). Beginning in 2002, Ms. Bloom shifted her work from a largely inpatient practice to one where she provided mostly outpatient services. According to Ms. Bloom, the shift from inpatient to outpatient services was a business decision and was unrelated to her diagnosis of MS. Ms. Bloom provided several reasons for her reduced work hours during this time period, including preparation to testify as an expert witness in a trial and two vacations. On Feb. 11, 2002, after her return from vacation, Ms. Bloom slipped and fractured her ankle and was unable to return to work until the end of April. Then, shortly after she returned to work, Ms. Bloom rebroke her ankle on May 14, 2002. Ms. Bloom again returned to work, but she was unable to perform all of her normal duties until the middle of October 2002, when her brace was finally removed.

In the winter of 2004, Ms. Bloom was unable to continue working full-time at Rehabilitation Associates due to her MS. Ms. Bloom then began to work part-time, seeing patients for a half day once per week and doing paperwork from home. Ms. Bloom then filed a claim for LTD benefits with Hartford. On her claim form, Ms. Bloom stated that she was diagnosed with MS in November 1999, but the attending physician’s statement did not list her date of disability, Ms. Bloom also provided an outline of her work schedule by month, which confirmed that during 2002, Ms. Bloom had a significant inpatient practice, but beginning in December 2002 and continuing through 2004, she shifted her practice to outpatient services. Hartford denied Ms. Bloom’s claim for benefits, concluding that her date of disability was Dec. 1, 2002, and thus that the plan’s preexisting condition exclusion applied to her claim.

Suit Filed Against Insurer

After Hartford denied her appeal, Ms. Bloom filed suit against the insurer in Kentucky state court, asserting claims of breach of contract, fraud, and unfair claims practices. Hartford removed the case to the U.S. District Court for the Western District of Kentucky, arguing that Ms. Bloom’s claims were preempted by ERISA. Ms. Bloom then amended her complaint to assert a claim for benefits under ERISA. On July 3, 2007, the district court granted summary judgment in Ms. Bloom’s favor, concluding that Hartford’s decision to deny her claim for benefits was arbitrary and capricious. The court therefore ordered Hartford to award Ms. Bloom the “appropriate” amount of LTD benefits. Hartford appealed, and the Sixth Circuit reached a split decision in the case.

With respect to Hartford’s denial of benefits, the Sixth Circuit observed, “Based on Bloom’s billable work hours, Hartford denied benefits to Bloom for two reasons: (1) it found that she became disabled on December 1, 2002; and (2) it found that she did not qualify as an active, full-time employee. Thus, the crux of the dispute between the parties is whether Hartford’s reliance on Bloom’s billable work hours resulted in an unreasoned, unsupported decision. The only evidence that Hartford received dated earlier than 2003 was information from Rehabilitation Associates regarding Bloom’s billable work hours, information which was inadequate to support an inference that she was disabled by her MS on December 1, 2002. Thus, Hartford’s determination that Bloom became disabled on December 1, 2002, was arbitrary and capricious.

“Hartford’s initial denial of benefits letter also states that Bloom did not qualify as an active, full-time employee. It is undisputed that Bloom’s weekly working hours varied from December 1, 2002, to October 1, 2003, and that there were several stretches during this time period where she did not work at all—she was scheduled to appear in a trial in December 2002, she took several vacations, and she sustained two ankle fractures in 2003. In addition, it is undisputed that her salary declined significantly in 2003. Bloom asserts that the decrease was due to business decisions at Rehabilitation Associates, while Hartford claims it was due to her MS. In her appeal, Bloom provided information explaining her hours, and made an important distinction between billable and nonbillable hours. There is no indication in the record that Hartford considered this information. Finally, Hartford ignored the evidence that Rehabilitation Associates treated Bloom as a full-time employee by providing her with privileges as a full-time partner. Its conclusion that Bloom was not a full-time employee, and thus not covered under the policy, was arbitrary and capricious.”

However, turning to the district court’s award of LTD benefits, the Sixth Circuit concluded, “This court has held that it is appropriate to grant disability benefits without remanding the case where there are no factual determinations to be made. However, remand is the appropriate remedy in some cases, such as where adequate findings of fact were not made below. We find that the district court erred when it failed to remand Bloom’s claim to the administrative process, as there has not yet been a determination made regarding the date of her disability and the amount of benefits owed.” Accordingly, the Sixth Circuit returned Ms. Bloom’s claim to Hartford for a determination of those issues.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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