A federal court in Texas recently found in favor of a long-term disability (LTD) claimant whose insurer had terminated his benefits. The March 10 opinion illustrates federal rules for interpreting disability insurance policies. In Chavez v. Standard Insurance Co., the court applied ERISA – the Employee Retirement Income Security Act of 1974, the federal law governing most group policies offered through employment – in a step-by-step analysis of the policy as applied to Chavez’s claim.

Plaintiff’s impairments

Chavez, a door installer and carpenter, had an LTD disability policy through his employer. He developed a serious infection in his right hand that spread to his wrist, requiring drainage and joint fusion after which he was left with secondary osteoarthritis and pyrogenic arthritis.

During surgery, the doctor also performed a procedure for carpal tunnel syndrome, which after a later steroid injection became asymptomatic.

Finally, Chavez experienced a car crash, causing a torn right rotator cuff. Surgery was only partially beneficial to the shoulder injury.

Coverage limitations

The LTD policy’s summary plan description (SPD) limited disability payments to 12 months if “other limited conditions” (OLCs) “caused or contributed to” disability. The policy included a list of medical conditions that are OLCs as well as a list of others that are not.

Were Chavez’s impairments OLCs that could limit his benefits to 12 months?

Standard Insurance Co., the insurer, initially approved Chavez’s claim based on his wrist condition and began paying benefits. Standard later made a referral to a consulting doctor who said that the right hand and wrist issues were “arthritic” and the rotator cuff injury “sprains or strains of joints or muscles.” Arthritis and sprains or strains were both on the OLC list and Standard terminated benefits. Chavez unsuccessfully appealed to the insurer.

He then filed his ERISA lawsuit, in which the court reviewed the claim denial de novo, meaning it would independently decide the claim regardless of the insurer’s reasons for termination.

The question was whether any of Chavez’s impairments were OLCs that “caused or contributed to” his disability – meaning “but-for causation.” In other words, but for an OLC impairment, the claimant would not be disabled. If any of Chavez’s impairments were OLCs and but-for causes of his disability, the 12-month limit would apply, and the termination would have been valid. It was Standard’s burden to prove this to the court.

Interpretation of SPD language

ERISA regulation requires insurers to write SPDs in language that an “average plan participant” would understand and to describe clearly anything that could cause benefits to stop.

The court explained that if SPD language is ambiguous, the court must construe it against the drafter – the insurance company. If the insurer created a confusing SPD, the insurance company should bear the burden for the ambiguity, not the claimant who had neither control over the language nor input into the content.

Did Chavez have any OLCs?

The court said that the carpal tunnel and rotator cuff injury were OLCs. Carpal tunnel was on the OLC list and rotator cuff is a sprain or strain, also listed. It was irrelevant that rotator cuff is more severe than what “sprain or strain” would suggest – it still falls within the definition regardless of severity.

Analysis of whether the wrist condition was an OLC as “arthritis” was more complex. The court said no because:

  • While technically the wrist damage was a type of arthritis, because ERISA requires that the policy language be written as the “average plan participant” would understand – here a skilled tradesperson – the average plan participant would understand “arthritis” standing alone with no qualifiers or definition to mean osteoarthritis, the most common form caused by wear and tear and not by infection.
  • The ambiguity over whether arthritis encompasses the unique type Chavez had should be resolved in favor of Chavez, supporting a finding of no OLC.
  • When the insurer wanted an expansive definition of an OLC, it listed examples of included, related impairments, which it did not for “arthritis.”

But-for causation

Standard did not prove that either OLC caused or contributed to the disability caused by the wrist condition that severely limited Chavez’s ability to lift, push, pull, lift, handle and grasp. The carpel tunnel was successfully treated so could not contribute.

The question was whether the wrist injury alone was disabling without the impact of the rotator cuff injury, explained the court, finding that yes, it was. Even though Chavez had two OLCs, neither condition caused or contributed to the disability, so termination of benefits was in error.