McCauley v. First Unum Life Ins. Co., 2008 U.S. App. LEXIS 26094 (2nd Cir.) (December 24, 2008) is a very significant decision from the Second Circuit. The Court finds UNUM’s past history a factor in evaluating the effect of a conflict of interest. In its post-Glenn “factor based” analysis, the Court has this to say:

This case also involves another relevant consideration specifically referenced in Glenn:

“[W]here an insurance company administrator has a history of biased claims administration.” Id. at 2351. First Unum is no stranger to the courts, where its conduct has drawn biting criticism from judges. A district court in Massachusetts wrote that “an examination of cases involving First Unum . . . reveals a disturbing pattern of erroneous and arbitrary benefits denials, bad faith contract misinterpretations, and other unscrupulous tactics.” Radford Trust v. First Unum Life Ins. Co., 321 F. Supp. 2d 226, 247 (D. Mass. 2004), rev’d on other grounds, 491 F.3d 21, 25 (1st Cir. 2007).

That court listed more than thirty cases in which First Unum’s denials were found to be unlawful, including one decision in which First Unum’s behavior was “culpably abusive.” Id. at 247 n.20. Also, First Unum’s unscrupulous tactics have been the subject of news pieces on “60 Minutes” and “Dateline,” that included harsh words for the company. Id. at 248-49. First Unum has fared no better in legal academia. See John H. Langbein, Trust Law as Regulatory Law: The Unum/Provident Scandal and Judicial Review of Benefit Denials Under ERISA, 101 Nw. U. L. Rev. 1315 (2007). In light of First Unum’s well-documented history of abusive tactics, and in the absence of any argument by First Unum showing that it has changed its internal procedures in response, we follow the Supreme Court’s instruction and emphasize this factor here.

Accordingly, we find First Unum’s history of deception and abusive tactics to be additional evidence that it was influenced by its conflict of interest as both plan administrator and payor in denying McCauley’s claim for benefits.

The plaintiff suffered from a diverse set of symptoms following treatment for colon cancer. UNUM persisted in denying disability benefits, both before and after the participant attempted to find employment compatible with his disabilities.

In an ensuing claim for benefits case, the Second Circuit noted that:

Following Glenn, a plan under which an administrator both evaluates and pays benefits claims creates the kind of conflict of interest that courts must take into account and weigh as a factor in determining whether there was an abuse of discretion, but does not make de novo review appropriate. See Glenn, 128 S. Ct. at 2348. This is true even where the plaintiff shows that the conflict of interest affected the choice of a reasonable interpretation. See id.

As in Glenn, the Court found that the conduct of the carrier reflected questionable motives. For example:

The reason First Unum gave to McCauley for rejecting the information provided in McCauley’s memorandum was unreasonable and deceptive. Even the most cursory comparison with McCauley’s earlier submission by a competent reviewer would have revealed the myriad of details about his condition, absent from the earlier submission, severely affecting his ability to work. And contrary to First Unum’s representation, it appears the information was afforded little if any weight by the nurse considering his appeal because the memorandum was not signed by a physician. The rejection mischaracterizes the quality and detail of the evidence McCauley had submitted on appeal. This is so particularly because the new submission purported to be information that the physicians at Sloan-Kettering believed justified McCauley’s request for disability.

The selective choice of evidence supporting the plan administrator’s decision also played a role in the court’s decision. The factors are well summarized in this excerpt:

To recap, we conclude the following:

(1) First Unum operated under a conflict of interest because it was both the claims administrator and payor of benefits;

(2) First Unum’s reliance on one medical report in support of its denial to the detriment of a more detailed contrary report without further investigation was unreasonable;

(3) First Unum deceptively indicated to McCauley that the medical professional assigned to review his records was a medical doctor when the individual was in fact a nurse, failed to obtain a physician’s recommendation, and mischaracterized its rationale for continuing to deny benefits;

(4) First Unum has a well-documented history of abusive claims processing; and

(5) observations (2), (3), and (4), above, collectively lead to the conclusion that First Unum was in fact affected by its conflict of interest. In light of these observations, we find that a reasonable trier of fact could only come to one conclusion: First Unum’s denial was arbitrary and capricious. We award McCauley summary judgment in his favor. He is entitled to benefits and interest to run from September 18, 1995, the date on which First Unum rejected his appeal.

Factors #1, #4 and #5 are highly significant. They will likely form a standard component in challenges to UNUM benefit denials, and particularly in the Second Circuit. Add allegations indicating deception (#3 above) and selectivity in choice of supporting evidence (#2 above), and a prima facia case for abuse of discretion is made out.

This is an excellent example of a court, and a court of appeals, no less, exercising the considerable discretion afforded by Glenn to the benefit of the claimant where the fiduciary is conflicted.

(cross posted on