Kansas City Life Insurance Co. denied the short- and long-term disability applications of a nurse anesthetist who was allegedly taking Fentanyl on the job. The insurer said that the reason the claimant lost his job was a failed drug test after coworkers reported he used a syringe at work, a violation of the employment contract, but that otherwise, his work had been satisfactory.

The insurance company reasoned that since the claimant could work, he was not disabled under the policy and not eligible for benefits.

The claimant said that he was eligible for disability benefits under the policies because he was disabled by drug addiction. The U.S. District Court for the Western District of Missouri reviewed the case and agreed with the claimant in a Feb. 28 opinion in which it ordered the insurer to calculate and pay appropriate benefits.

Standard of review

The court reviewed the claim denials under ERISA – the federal law that normally applies to group policies through employers – looking at whether the insurer abused its discretion when it denied the applications. This standard applied because the policy language gave the insurer the authority to evaluate and decide eligibility for benefits. When the parties contract to give this broad discretion to the insurance company under the policy, the court can only reverse the decision denying benefits if the insurer’s actions were arbitrary and capricious.

“Arbitrary and capricious,” explained the judge, means that there was not substantial evidence in the claim to support the claim denial. A claim denial is not arbitrary and capricious if there was a “reasonable explanation” for having made it, even if a person could have made a different, still reasonable decision.

The inherent conflict of interest of an insurance company that decides the validity of a claim that it would potentially have to pay out for years is also a factor in determining whether it abused its discretion.

Insurer was arbitrary and capricious

The judge said that there was not substantial evidence that the claimant “was not disabled prior to his termination from employment.” While the insurer reasoned that the claimant had not seemed impaired at work, had had satisfactory performance and was fired for failing the drug test and admitting to Fentanyl use on the job, medical evidence of serious addiction went back years, including a relapse two years prior to the termination.

The court wrote that the insurance company “unreasonably divorces [claimant’s] Fentanyl use on a single occasion from his Fentanyl addiction and relapse … [and] [n]o reasonable person could find that a nurse anesthetist so addicted to Fentanyl that he injects himself with drugs during the workday while his medical co-workers are nearby is capable of performing the duties of his job,” which include significant medical responsibility for patient safety under anesthetics.

Losing a job for failing a drug test is not inconsistent with a wider finding of disability.

Conflict of interest

Finally, the judge noted that the inherent conflict of interest held by the insurer as a decisionmaker whose decision could result in its own significant financial liability seemed notable in this case since it did not seem to have denied coverage “in a disinterested manner, in the interests of the plan participants.”

Bernard v. Kansas City Life Insurance Co. is available on Westlaw at 2020 WL 974873.