Court: Louisiana Court of Appeal; December 18, 2011; Louisiana; State Appellate Court
Unum Life Insurance Company appeals a judgment mandating payment of continued disability benefits, attorney fees, and a penalty to Gary Scott, with the court amending the judgment to reduce the penalty and fees while affirming the overall decision. Gary Scott, a master plumber and pipefitter at the University of Louisiana at Monroe, paid for disability insurance that transitioned from another insurer to Unum. The policy defined "disability" as the inability to perform material duties of one’s occupation due to injury or sickness, requiring proof of continued disability and regular physician attendance at the policyholder's expense.
Scott suffered two work-related back injuries in 2000 and 2004 and began treatment with Dr. David Hebert in 2003 for severe lower back pain and potential clinical depression. Scott stopped working on September 1, 2006, and Dr. Hebert concluded that by October 30, 2006, Scott was basically disabled, attributing this primarily to depression alongside degenerative joint disease and chronic back pain. Scott applied for disability benefits in December 2006, leading to a claim initiation by Unum. During a call with Unum's disability specialist, Scott reported his inability to work due to his back issues and depression, which was later confirmed by Dr. Hebert’s "Attending Physician’s Statement" detailing Scott’s diagnoses and an estimated disability period.
However, during a follow-up call with Unum, Dr. Hebert expressed frustration, indicating he believed Scott intended to return to work but instead sought indefinite disability. He noted Scott's refusal to undergo further medical evaluations, asserting that Scott's depression was a significant factor in his disability and emphasized the need for additional treatment beyond medication.
Dr. Peter Kouros, a medical consultant for Unum, determined that additional information was necessary to assess Scott's potential impairment and recommended a psychiatric independent medical examination (IME) and a functional capacity evaluation (FCE). On January 20, 2007, Scott received a letter from Marley indicating that Unum had approved his benefits request but emphasized that he must continue to meet the policy's definition of disability. Unum would periodically request medical and vocational information for ongoing benefits. Due to unclear disability extent and Scott's lack of recommended orthopedist or psychiatrist treatment, his claim was approved with a reservation of rights. For Scott to qualify for benefits beyond December 1, 2008, he needed to demonstrate he was disabled from any gainful occupation due to his physical condition.
Unum began paying monthly benefits of $978.29 effective December 2, 2006, covering disability from December 2, 2006, to January 1, 2007. The FCE conducted by Jay Manning on February 13, 2007, indicated Scott could work at a light physical demand level. Dr. George Seiden's psychiatric IME suggested that Scott was experiencing an adjustment disorder with depressed mood related to his father's death, but he believed Scott was not completely disabled by his depression and had not received appropriate treatment due to a lack of motivation.
On March 20, 2007, Dr. Kouros reviewed Scott's records and found that his occupational demands exceeded his functional capacity, noting Scott's refusal to complete necessary studies. On October 23, 2007, Marley informed Scott that he was disabled from his regular occupation as a plumber/pipefitter due to his back condition, but the psychiatric IME did not support a claim of psychiatric impairment preventing him from working.
In March 2008, Unum began reviewing Scott's eligibility for benefits beyond the initial 24-month period. A vocational assessment in November 2008 identified security guard and gate guard positions as suitable for Scott based on his skills and restrictions. On November 19, 2008, Marley notified Scott that his request for continued benefits was denied, and payments would cease after December 1, 2008.
Giese determined that Scott's role as a plumber/pipefitter exceeded his physical limitations but identified alternative work as a security guard at $9.95 an hour and gate guard at $9.21 an hour, concluding he was not disabled from gainful employment. Marley informed Scott that he must submit additional evidence for his benefits claim within 180 days, and that he could appeal the decision, with all new information considered. Scott appealed in February 2009, citing ongoing lower back pain and declining mental health, and submitted a physician's note from Dr. Ronald Hubbard. An Unum appeals specialist, Karen Connolly, sought reviews from medical consultants Dr. Robert Hill and Dr. Jana Zimmerman regarding Scott's back and mental health conditions, respectively. On April 3, 2009, Connolly upheld the claim closure, referencing policy stipulations regarding regular physician attendance and Scott's lack of specialized treatment for depression, asserting he was not impaired by psychiatric issues and retained the ability to work as a security guard or gate guard. Scott filed a lawsuit against Unum on April 29, 2009, alleging the termination of benefits was arbitrary and capricious, seeking penalties and attorney fees. The court ruled in Scott's favor, finding that Unum's policy definition was overly restrictive under Louisiana law (La. R.S. 22:990(C)). The court noted that the compensation for the alternative positions did not match Scott's prior earnings and found insufficient evidence of his qualifications for those roles. The court criticized Marley for failing to understand Louisiana law regarding the necessary earning capacity to justify benefit termination.
Unum was found to have violated La. R.S. 22:1821 by terminating benefits without reasonable justification, leading to an order for reinstatement of benefits retroactive to December 1, 2008, at a monthly rate of $978.29. The accrued benefits at the time of judgment amounted to $23,478.96. Additionally, Unum was penalized $46,957.92 and ordered to pay attorney fees of $23,455.00, calculated as one-third of the total judgment of $70,436.88.
On appeal, Unum raised several arguments: (1) the trial court did not evaluate whether Scott received regular care for his disability; (2) irrelevant evidence was admitted; (3) the court incorrectly interpreted the policy's definition of disability as overly restrictive; (4) the ruling on penalties and attorney fees was erroneous; and (5) the calculations for penalties and fees were incorrect.
Unum emphasized that the trial court neglected to address the requirement of regular physician attendance, arguing that Scott’s failure to follow Dr. Hebert's recommendations for specialist consultations constituted a breach of this provision. Dr. Hebert, who treated Scott for lower back pain starting in 2003, noted that Scott's compliance with treatment was poor, leading to an eventual termination of care in May 2007. Despite believing Scott was disabled in early 2007, Dr. Hebert expressed doubts about the permanence of this disability and attributed treatment limitations to Scott's refusal of further testing.
Scott began seeing orthopedist Dr. Douglas Brown for a foot injury in May 2007. Dr. Brown acknowledged that Scott's back condition was being managed by Dr. Hebert and noted Scott's reluctance to pursue surgical options. Throughout 2007, Dr. Brown referred Scott for pain management and psychological evaluation, which Scott did not pursue. Dr. Ronald Hubbard then began treating Scott for back pain from February 2008 to May 2010.
On October 11, 2010, Dr. Brown examined Scott at his attorney's request due to exacerbated back issues, diagnosing L4-5 and L5-S1 disc disease with SI neuropathy. Dr. Brown recommended an MRI of Scott's lumbar spine and a consultation with Dr. Hubbard for pain management. Upon reviewing an MRI taken shortly before their second meeting on October 28, 2010, which showed degenerative bulging discs, Dr. Brown concluded Scott had symptomatic lumbar degenerative disc disease and advised him to apply for social security, indicating no further orthopedic treatment was necessary.
Dr. Hebert testified that orthopedists typically offer more than just narcotics and muscle relaxers, suggesting injections, pain management, and physical therapy could be alternatives. He noted Scott's reluctance to pursue orthopedic care, fearing surgery, and acknowledged that Dr. Brown's recommended treatment was appropriate. However, he believed an orthopedist should ideally evaluate Scott, order an MRI, and potentially provide steroid injections to help restore Scott's ability to work as a plumber.
The disability policy does not specify "regular attendance of a physician," but a court interpretation suggests it requires customary care rather than monthly visits. Scott was under the regular care of Dr. Hubbard, who saw him monthly and refilled pain medication prescriptions, fulfilling the policy's requirements despite the lack of orthopedic care. Unum's termination letter did not cite any failure regarding physician attendance, and Scott was not informed that an orthopedic examination was necessary for continued benefits. Although Unum could have requested such an exam, it did not do so, citing existing results from a Functional Capacity Evaluation (FCE). Unum alleged that Scott's delay in seeking orthopedic evaluation constituted a failure to mitigate damages.
Dr. Brown determined that further orthopedic treatment for Scott’s disabling back condition was not necessary after reviewing MRI results, leaving medication management to Scott’s internal medicine doctors. The trial court did not need to assess whether Scott met the policy's attendance requirement, as he was regularly seeing a physician. Dr. Hebert testified that Scott’s depression significantly contributed to his disability claim, but Dr. Seiden later disagreed, concluding that Scott's depression was not disabling. Although Dr. Hebert was uncomfortable treating chronic depression, he began treatment while referring Scott to a psychiatrist, whose appointment would have taken weeks. By the time Dr. Seiden examined Scott, Dr. Hebert noted improvement in Scott’s depression. Despite differing opinions on Scott’s disability status, the trial court ruled that Scott was entitled to benefits based on his back condition.
Unum contested the trial court's admission of medical records from after the termination of benefits, claiming they were irrelevant and included a late note from Dr. Brown. The trial court has broad discretion in evidentiary matters, and the records illustrated Scott's ongoing treatment with Dr. Hubbard. Furthermore, Dr. Brown's 2010 records indicated Scott had degenerative disc disease and required no further orthopedic care, supporting the trial court’s decisions.
Unum also argued that the trial court improperly ruled the policy's disability definition was more restrictive than state law (La. R.S. 22:990), which allows for a total disability definition not solely based on an individual’s inability to perform any occupational duty. State law mandates that definitions of total disability must not be more restrictive than requiring an individual to be unable to engage in any employment for which they are qualified by education, training, or experience, providing substantially the same earning capacity as before the disability began.
An insurer can mandate that an individual be completely unable to perform all substantial duties of their regular occupation to qualify for disability benefits. They may also require care from a physician who is not related to the insured. After 24 months of benefits, the Unum policy redefines "disability" to mean the inability to perform any material duties of any gainful occupation suited to the individual’s training, education, or experience, without considering earning capacity. This broad definition increases the difficulty of qualifying for disability under the policy compared to Louisiana law (La. R.S. 22:990(C)). The trial court correctly found the policy's definition to be more restrictive than allowed.
Expert physical therapist Jerry Manning conducted a functional capacity evaluation (FCE) on Scott and concluded he could work at a light level but would need to alternate between sitting and standing due to pain. Scott is unable to perform his previous plumbing job and may need retraining. Alternative jobs identified include security guard and gate guard, which pay significantly less than Scott's previous earnings of $14.40 per hour. Therefore, Scott remains disabled and entitled to benefits.
Unum contested the trial court's finding of a violation of La. R.S. 22:1821, which pertains to timely payment of disability claims. The statute mandates payment within 30 days of receiving notice and proof of claim, with penalties for non-compliance, including double the benefits owed and attorney fees. The statute is strictly interpreted, and the claimant must demonstrate the insurer's actions were arbitrary, capricious, or lacked probable cause for penalties to be awarded.
The assessment of whether an insurer acted arbitrarily or capriciously is a factual matter that appellate courts cannot overturn unless there is manifest error or the trial court is clearly wrong. The claimant seeking penalties and attorney fees must demonstrate that the insurer had clear evidence that payment was due to prove arbitrary and capricious denial of a claim. This determination must consider the information available to the insurer at the time of the claim. If the insurer has a reasonable, good faith explanation for delayed payment, penalties do not apply. A reasonable disagreement over a claim does not constitute arbitrary or capricious denial. The factual basis for just grounds for denial is a question of fact, and trial court findings are protected from appellate disturbance unless there is manifest error. In workers' compensation cases, arbitrary and capricious behavior is characterized as willful and unreasonable, lacking regard for the pertinent facts and circumstances.
Michael Marley, the disability benefits specialist for Scott’s claim at Unum, worked with nurse Amy Herrick and initially decided to pay benefits based on Dr. Kouros’s recommendation for more information. However, benefits were paid after Dr. Kouros's review indicated Scott could not fulfill his job demands. Before the initial benefits period ended, Marley, along with a clinical consultant and a compliance consultant, reviewed Scott’s claim, found the functional capacity evaluation reasonable, and solicited Dr. Hubbard's opinion. Following Hubbard's confirmation of the evaluation's validity, Marley decided to terminate benefits, believing Scott's physical condition did not disable him from any gainful occupation, despite not consulting an orthopedist. Scott was informed benefits would cease after 24 months, with alternative job options identified, though a labor market survey was not conducted to verify the availability of those positions, and Scott was not interviewed, as it was deemed unnecessary for assessing alternative employment capability.
In Unum’s appeal process, no deference is given to the initial decision regarding Scott’s claim. Appeals specialist Karen Connolly consulted with medical experts Dr. Hill, a sports medicine general practitioner, who deemed Scott's restrictions permanent, and Dr. Zimmerman, a psychologist, who found no evidence of behavioral impairment and agreed with Dr. Seiden’s assessment that Scott was not disabled due to his mental condition. Connolly cited two alternative occupations identified by Giese as grounds for denying Scott's disability claim, which were also referenced in Marley’s termination letter. Marley asserted that the evaluation was governed by federal law, specifically ERISA, and stated he was not tasked with reassessing the claim under Louisiana law, indicating it would not have altered the outcome since he based his evaluation on policy language. Connolly acknowledged that Unum failed to consider Louisiana regulations, specifically La. R.S. 22:990(C), which would have revealed that the alternative occupations did not offer Scott an earning capacity substantially similar to his prior work as a plumber and pipefitter. This oversight led to an arbitrary and capricious termination of benefits after 24 months. The trial court's decision to award penalties and attorney fees was upheld, as Unum contested the calculation of these penalties. According to La. R.S. 22:1821(A), insurers not complying with this section face penalties equal to double the benefits due. Unum argued that this meant the total award could only be double the benefits amount without an additional penalty. Citing precedents, including Crawford v. Blue Cross Blue Shield of Louisiana and Nickels v. Guarantee Trust Life Ins. Co., it was clarified that the "double the amount" clause refers to a total recovery of twice the benefits due rather than benefits plus penalties. The Third Circuit's position in Bischoff v. Old Southern Life Insurance Company rejected the notion of separate penalties in addition to benefits. Different provisions, such as La. R.S. 22:1220, offer penalties based on damages sustained, with the Louisiana Supreme Court interpreting these as double the damages attributable to the insurer's breaches.
The legal document addresses the interpretation of penalties under Louisiana Revised Statutes (La. R.S.) 22:1821 and its predecessor, La. R.S. 22:657. It clarifies that a penalty described as double the benefits due should be interpreted as equating to 100% of those benefits, not 200%. The trial court's previous calculation of damages and attorney fees was deemed erroneous, resulting in a penalty against Unum being reduced to $23,478.96, representing 100% of the benefits due. Attorney fees, originally calculated based on a one-third contingency fee, were adjusted to $15,652.64. The judgment was amended to reflect these reductions and affirmed at Unum's expense.
The excerpt also outlines the timeline of events leading to the case, noting that Unum's personnel decided by March 2007 to remove the reservation of rights while benefits were not payable during an elimination period from September 3 to December 1, 2006. Unum's notice of removal to federal court occurred in June 2009, followed by a remand to state court in October 2009, and a denial of Unum's appeal in January 2010.
Medical testimony from Scott indicates that Dr. Brown advised him to consult Dr. Hebert after discussing back issues; Dr. Hebert's MRI findings showed no herniated disc, contrary to what might have necessitated surgery. Dr. Hubbard also recommended psychiatric evaluation for Scott.
The excerpt cites historical context regarding penalties, referencing Act 310 of 1910, which stipulated that insurance companies failing to pay due amounts without just cause would face a penalty of double the owed amount, alongside attorney fees determined by the court. The Supreme Court case Frey v. Manhattan Life Ins. Co. clarified that the penalty for payment delays is to be calculated as double the amount due, not based on policy stipulations.
