Court: District Court, S.D. California; September 25, 2014; Federal District Court
Plaintiff Victoria Wong initiated a lawsuit seeking disability benefits under the Employee Retirement Income Security Act of 1974 (ERISA), specifically under 29 U.S.C. § 1132(a)(1)(B), which allows beneficiaries to recover benefits, enforce rights, or clarify future benefits. Wong was employed as a Regional Facility Manager and was granted long-term disability (LTD) benefits by Aetna Life Insurance Company due to significant health issues following childbirth, including persistent back, leg, and groin pain. The Plan defines disability in two stages: initially based on the inability to perform one’s own occupation for up to 24 months, and thereafter, the inability to work in any reasonable occupation.
Wong's LTD benefits commenced on March 27, 2006. However, after a medical assessment by Dr. Alan Kawaguchi highlighted ongoing pelvic pain, Aetna terminated her claim on February 1, 2008, citing a lack of response to requests for vocational and medical information, which led to the conclusion that there was insufficient support for continued impairment.
On March 4, 2008, Wong informed Aetna of her and her husband's recent relocation to Hawaii, which caused mail forwarding issues. Aetna temporarily reinstated her benefits until March 27, 2008. After 24 months of benefits, Aetna reviewed Wong’s case under a new disability test, conducting surveillance and requesting her participation in an independent medical examination (IME). Dr. Leonard Cupo, who examined Wong on May 28, 2008, concluded that she could return to her job as a legal analyst, stating that her inability to work was based on subjective complaints not supported by objective findings. Subsequently, Aetna terminated Wong’s claim based on Dr. Cupo’s assessment.
Wong then submitted additional documentation, including a report from Dr. Guy Paiement, who examined her on July 15, 2008. Dr. Paiement noted significant pain in her pelvic area and concluded that Wong could work in a sedentary capacity for up to eight hours daily, with specific physical limitations. Following Dr. Paiement's report and a transferable skills analysis, Aetna initially determined that Wong could not work in any occupations due to her restrictions.
However, on October 1, 2008, Aetna reversed its decision, extending Wong’s benefits beyond March 27, 2008, and provided back payments from that date through September 30, 2008. Aetna also advised Wong to apply for Social Security disability benefits and referred her to Allsup, Inc. for assistance.
Aetna engaged ICS Merrill for surveillance of Wong on September 24 and 25, 2009, but no visual contact was made during seven hours of observation. Following a medical visit on October 13, 2009, Dr. Paiement noted Wong's pain, suggesting physical therapy and a follow-up appointment. Aetna scheduled a second independent medical examination (IME) for February 12, 2010, and conducted additional surveillance around that time. The investigator made contact with Wong only on the date of the IME, observing her post-appointment activities, including holding her child and pushing a stroller.
Dr. Peter B. Lum conducted the second IME, noting Wong experienced daily moderate pain, described as sharp and rated at 10/10, which often requires her to support herself while walking. Dr. Lum reported that objective diagnostic tests were negative, and her neurological exam was normal. He concluded that, based on her job description as a Western Regional Facilities Manager, she could perform her duties without significant physical lifting, although she would need to manage certain tasks like driving, traveling, and carrying documents. He estimated her physical work capacity allowed for alternating between sitting and standing, lifting a maximum of 15 pounds, and working up to eight hours a day, with certain restrictions lasting 6 months to 1 year.
On April 9, 2010, Allsup reported the denial of Wong's social security benefits, followed by a request for reconsideration submitted to the Social Security Administration on April 20, 2010.
Aetna scheduled a functional capacity evaluation (FCE) for Wong on June 9, 2010, due to perceived inadequacies in Dr. Lum’s independent medical examination (IME) report, which did not adequately address Wong's capabilities. Aetna warned Wong that failure to attend the FCE could result in her being liable for cancellation fees and potential termination of her benefits, citing plan provisions related to refusal to be examined. The FCE, conducted by Terry Lawson, PT, included assessments to determine if Wong was exaggerating her pain, yielding findings of invalid and inconsistent responses, suggesting psychological factors might be involved. Despite these issues, Lawson concluded that Wong could perform sedentary to light work within specified limitations, a finding that conflicted with the FCE report indicating she could only sit, stand, or walk for up to two hours in an eight-hour workday.
Aetna reviewed the FCE results and noted that Wong's pain questionnaires did not indicate symptom magnification. Subsequently, on June 15, 2010, Wong's treating physician, Dr. Nelson, stated that she had no work capacity, noting ongoing pain issues. Despite a prompt from Aetna to align with Lawson's findings, Dr. Nelson maintained his earlier recommendation from 2006, indicating no ability for Wong to work, but Aetna pressured him to agree with Lawson’s conclusions regarding Wong's functional capacity and potential improvement with therapy.
Aetna acknowledged a lack of consensus regarding Wong's functional levels in its correspondence and noted Dr. Nelson's failure to respond to their inquiries. In a subsequent letter dated July 21, 2010, Aetna claimed Wong's pelvic pain did not significantly affect her daily activities, despite lacking factual support for this assertion, and requested Dr. Nelson's comments on a Functional Capacity Evaluation (FCE) within 10 business days. On September 1, 2010, Allsup updated Aetna on Wong's denial of social security benefits and appealed, with a hearing scheduled for October 21, 2010. By November 11, 2010, Aetna's representative indicated that Dr. Nelson was unlikely to reply regarding the FCE, which suggested Wong had light functional capacity. Aetna later noted on November 21 that Wong could perform more activities than previously indicated based on the FCE. Aetna commissioned a labor market analysis, which identified several jobs consistent with Wong's residual functional capacity. Consequently, Aetna terminated Wong's benefits effective December 31, 2010, in a letter dated January 3, 2011, which explained the rationale, citing Dr. Lum's assessment that Wong could perform jobs allowing for alternating postures and lifting up to 15 lbs. The letter erroneously claimed Dr. Nelson did not document Wong's functional capacity, despite evidence to the contrary. Aetna's decision was primarily based on Lawson's June 2010 FCE findings, which included Waddell’s Testing and noted limited changes in Wong's vital signs despite high reported pain levels. The termination letter cited an unnamed clinician's review of the FCE, concluding Wong had the capacity for sedentary to light work, but did not disclose this clinician's qualifications or identity. Additionally, the letter stated that results had been shared with Dr. Nelson, who did not respond.
Aetna terminated Wong's benefits, citing a Functional Capacity Evaluation (FCE) reviewed by an unnamed vocational consultant and a Labor Market Assessment (LMA), which indicated potential employment near Stockton at $32.22/hour. Aetna acknowledged Wong's ongoing symptoms but noted improvement through physical therapy and Pilates, determining that she did not meet the impairment criteria to qualify for disability under their policy. They referenced support from two unnamed independent physicians regarding her ability to perform sedentary to light work, leading to the termination effective December 31, 2010.
Dr. Nelson, Wong's physician, expressed confusion in his response to Aetna, stating he found Wong credible and not a malingerer. Although he agreed with Aetna's evaluations, he doubted Wong could sustain a full-time work schedule given her health issues, which he expected to persist without resolution.
Wong appealed Aetna's decision on March 12, 2011, resubmitting her appeal on May 24, 2011. Dr. Kenneth Kopacz later reviewed her case on August 12, 2014, noting that Wong demonstrated the ability to work nearly full-time in a light position, contradicting the recommendation against work. He found no objective findings to support a claim of inability to perform sedentary work and concluded that Wong could work full-time in such a position from January 1, 2011, onward, with the capacity to lift over 10 pounds and change positions every two hours. In a subsequent review on August 30, 2011, Dr. Kopacz reported a conversation with Dr. Nelson, who indicated that Wong could work in a sedentary role with some positional accommodations.
Dr. Kopacz's second review yielded conclusions nearly identical to his first. On September 22, 2011, Aetna denied Wong's May 2011 appeal for benefits termination, citing insufficient medical evidence to support any functional impairment that would prevent her from working as of January 1, 2011. This decision upheld the termination of long-term disability (LTD) benefits and was deemed final. On October 21, 2011, the Social Security Administration (SSA) determined Wong was disabled as of October 6, 2009, awarding her benefits retroactively effective April 1, 2010. Aetna was notified of this award on October 28, 2012, and subsequently demanded reimbursement of $12,402 for retroactive benefits paid to Wong, as required by their plan. Aetna's attempts to recover these funds were unsuccessful due to Wong's lack of cooperation, leading Aetna to refer the claim to a collections agency.
Wong initiated litigation on December 7, 2012, seeking declaratory relief for LTD benefits and a remand for a comprehensive review. Aetna responded with a counterclaim concerning the SSA award. Both parties agreed to lodge the administrative record and to apply an abuse of discretion standard for the court's review of Aetna's decision. They later moved to file trial briefs instead of summary judgment motions, which the court granted. Wong requested the court to take judicial notice of the SSA's decision, which Aetna opposed.
In terms of legal standards, ERISA benefit denial claims are typically reviewed de novo unless the benefit plan grants discretionary authority to the administrator or fiduciary, in which case the review is for abuse of discretion.
The parties have agreed to an abuse of discretion standard for reviewing the case. Under this standard, a plan administrator’s decision remains intact unless it is deemed unreasonable—specifically if it is illogical, implausible, or unsupported by evidence from the record. The Supreme Court has acknowledged that a structural conflict of interest exists when an insurer serves as both the plan fiduciary and the funding source. Such conflicts should be considered by the district court in evaluating the administrator’s reasons for denying claims, although the standard of review remains abuse of discretion.
If the administrator provides inconsistent reasons for denial, fails to adequately investigate claims, or improperly interprets plan terms against the evidence, the conflict's impact may be more significant. Factors influencing this analysis include the quality of medical evidence, the type of evaluation conducted, the completeness of information provided to independent experts, and consideration of any contradictory SSA disability determinations. Additionally, ERISA requires administrators to give adequate notice of denial reasons and conduct a full and fair review of claims. Failures in these areas are considered procedural violations that may affect the judgment of abuse of discretion.
In conclusion, Aetna abused its discretion in terminating Wong's benefits due to several flaws in its reasoning outlined in its January 2011 termination letter and September 2011 appeal denial letter, leading to an unreasonable decision.
Aetna's decision to terminate benefits in January 2011 was deemed unreasonable due to its reliance on a Functional Capacity Evaluation (FCE) conducted by physical therapist Terry Lawson. The termination letter emphasized the FCE findings, inaccurately describing Lawson as a physician. The FCE suggested Wong had a sedentary to light functional capacity with specific restrictions and indicated symptom magnification, yet Aetna's prior review of Wong's pain questionnaires found no evidence of symptom exaggeration. This contradiction undermines Aetna’s reliance on the FCE to claim that Wong was misrepresenting her pain levels. Furthermore, the FCE indicated the need for additional psychological testing to assess whether Wong's pain perception was genuine or influenced by secondary gain, yet Aetna did not initiate such testing. Instead, the claims administrator appeared to adopt Lawson's conclusions as definitive diagnoses of symptom magnification and inappropriate illness behavior without adequate medical justification. Aetna also failed to address the inconsistencies in Lawson's assessments regarding Wong's ability to work, further complicating the rationale for its decision. Overall, Aetna's use of the FCE was criticized for lacking clarity and failing to comply with the requirements for clear communication regarding benefit denials.
The language in Aetna's benefits denial letter lacks clarity, making it difficult for a lay claimant like Wong to understand the rationale behind the denial and to respond effectively. Under 29 U.S.C. 1133, employee benefit plans must provide clear written notice to participants about denial reasons. The Court found that Aetna abused its discretion by unreasonably relying on a Functional Capacity Evaluation (FCE) and an anonymous clinician’s opinion, which lacked identification, qualifications, and reasoning, denying Wong the opportunity to challenge the denial effectively. The termination letter inaccurately claimed that Wong's treating physician, Dr. Nelson, did not document her functional capacity, despite Dr. Nelson stating Wong had no ability to work. Aetna's assumption that Dr. Nelson's lack of response indicated agreement with the FCE findings was unreasonable, especially given Aetna’s method of soliciting feedback, which appeared designed to discourage dissent. The Court concluded that Aetna's approach undermined Wong’s right to a fair review of her benefits claim.
Aetna inquired whether accommodations could enable Ms. Wong to return to work and sought Dr. Nelson's input on her functional status, expecting him to conduct a comprehensive review and tests. It was unreasonable for Aetna to rely on Dr. Nelson's lack of response as evidence of Wong's non-disability. On appeal, Aetna improperly denied Wong access to a changed prognosis from her physician, which was communicated to her secondhand. Dr. Nelson later indicated that Wong could not manage a 40-hour work week due to daily activities and exercises, yet this opinion was not addressed in Aetna's appeal denial letter, which incorrectly stated a peer-to-peer call with Dr. Nelson suggested she could work in a sedentary role. This assertion contradicted Dr. Nelson's earlier assessments that Wong was unable to work. Aetna's reliance on this mischaracterization of Dr. Nelson's opinion, along with the lack of procedural compliance in addressing new reasons for denial without allowing Wong to respond, violated ERISA requirements for a fair review process.
Dr. Nelson's change in prognosis regarding Wong's ability to work occurred just before the final administrative appeal, denying Wong a chance to respond meaningfully. Previously, Dr. Nelson had examined Wong over a year prior and concluded she was totally unable to work, stating Wong's pain remained unchanged in a letter to Aetna. The record lacks any explanation for Dr. Nelson's altered prognosis without a follow-up examination, indicating that Aetna abused its discretion in this process.
On appeal, Aetna improperly cited evidence from four years earlier, indicating Wong could walk for twenty minutes and had normal x-ray results, without prior notice to Wong. The denial letter referenced an examination by Dr. Kawaguchi but did not clarify the context of the walking claim or how it relates to Wong's current work capacity. Aetna's use of this outdated evidence in the final appeal decision obstructed proper review, contravening ERISA purposes.
Additionally, Aetna relied on the opinion of orthopedic surgeon Dr. Kenneth Kopacz, who based his assessment on surveillance video of Wong that she had never seen, limiting her ability to respond to his conclusions. The appeal denial letter did not identify the reviewer or their qualifications, further undermining the fairness of the review process. This lack of disclosure has reinforced the assertion that Aetna abused its discretion in handling Wong's claim.
Aetna's handling of Wong's administrative appeal is criticized for procedural omissions that violate ERISA's intent, suggesting a conflict of interest influenced their decision-making. Initially, Aetna shifted its rationale for denying Wong's benefits from allegations of her fabricating pain to a demand for objective medical evidence, disregarding her treating physician's reports. Aetna's appeal denial cited a lack of medical evidence without acknowledging Dr. Nelson's assessment that Wong was unable to work and his subsequent opinion on her unchanged pain status. The denial's language introduced a new standard for "medical evidence" that diverged from the original plan, indicating potential abuse of discretion. Aetna's actions are characterized by shifting grounds for denial, highlighting substantial procedural and substantive irregularities in terminating Wong's benefits.
Furthermore, Aetna's counterclaim for Wong’s retroactively awarded Social Security benefits is outlined, consisting of three causes of action: violation of ERISA, equitable restitution, and declaratory relief. All claims are based in equity and subject to the same standards under ERISA, which allows civil actions for violations of plan terms or provisions. Aetna's counterclaim must therefore be equitable, requiring an agreement from Wong to reimburse benefits received in the event of a recovery from another source.
The reimbursement agreement requires a specific fund, separate from the beneficiary's general assets, for fiduciary reimbursement, and these funds must be controlled by the beneficiary. In the case of Wong, she acknowledged her obligation to reimburse Aetna for overpaid long-term disability (LTD) benefits. Aetna identified the overpaid plan benefits as the specific fund; however, the Ninth Circuit's ruling in Bilyeu established that Social Security disability benefits cannot be attached due to statutory protections. Since Wong's benefits have already been disbursed, Aetna failed to establish a distinct fund for reimbursement, resulting in a dismissal of its counterclaim. The court found Aetna’s termination of Wong’s disability payments and denial of her appeal to be unreasonable and an abuse of discretion, ordering Aetna to reinstate her benefits retroactively. Additionally, the court granted Wong's claim that Aetna could not attach her Social Security benefits but denied her request for attorney's fees without prejudice, allowing for a future motion. Aetna's motion for judgment and counterclaims were denied, and a joint motion for a hearing on trial briefs was deemed moot.
A physical therapist license in California does not permit the diagnosis of diseases as per Cal. Bus. Prof. Code § 2620(a). The Court's review of Aetna’s benefits decision is restricted to the record available to the plan administrator, as established in Jebian v. Hewlett-Packard Co. Employee Benefits Org. Income Prot. Plan. The Court grants judicial notice of the SSA decision solely to evaluate Aetna’s conflict of interest and to address Aetna's counterclaim for overpayment, despite the SSA decision not being part of Aetna’s record. The SSA award is acknowledged in the administrative record, and the Court will consider it when reviewing Aetna's benefits decision.
The Court does not rely on Wong's declaration for its ruling. Although Dr. Lum’s report indicated Wong was fit to work, it omitted a critical note that Wong reported her pain as "10/10," which was severe enough to cause her to double over. There is no explanation reconciling these conflicting statements. Furthermore, the denial of benefits did not address the discrepancy between Wong’s job description and the job for which Dr. Lum assessed her ability to work. Aetna's reliance on Lum's report is deemed unreasonable, particularly since Aetna described the report as "not thorough" and sought additional testing afterward. Wong has consistently reported pain to Dr. Nelson since 2006. Lastly, Aetna has not clarified the specific section of the United States Code that provides the basis for the relief it seeks.
