In Owens v. Liberty Life Assurance Company of Boston (Liberty Life), plaintiff Paulette Owens quit her job at Walmart when physical restrictions prevented her from working. This opinion does not provide a job description nor mention her specific disability other than saying she quit work when “physical restrictions and limitations” prevented her from working. She was granted long term disability benefits, but one year later, her benefits were terminated. She exhausted her administrative appeals and then filed this ERISA lawsuit.

The main issue presented in this court action concerned the standard of review the court should use in evaluating plaintiff’s claim. Language in the policy gave the Liberty Life plan administrator discretionary review, yet Arkansas law invalidated such policy language for all policies issued after March 1, 2013. Two sub-issues were raised: 1) Did the new law apply to this particular policy; and 2) Did the Liberty Life Plan Administrator exercise that discretion or contract it out.

The New Arkansas Law Did Not Apply to this Policy

The first issue was whether the court should evaluate the termination of benefits under the arbitrary and capricious standard, which requires the court to give high deference to the decision of the plan administrator, or the de novo standard, which gives no deference at all to the plan administrator’s decision. Language in the policy granted Liberty Life “sole discretion…to determine benefit eligibility.”

The policy also stated that “Liberty reserves the right to determine if your Proof of loss is satisfactory.” This language means the court would use the arbitrary and capricious standard of review. Meanwhile, the Arkansas Legislature changed the law and invalidated such clauses effective for policies issued on or after March 1, 2013. Since the plaintiff became disabled in April 2013 under a policy that was issued on July 23, 2012, the new law did not apply. Thus, Liberty’s termination of plaintiff’s disability benefits would be reviewed according to the arbitrary and capricious standard.

Liberty Life Exercised Discretion and did not Rely on Liberty Mutual

The plaintiff argued that, contrary to policy language, Liberty Life delegated its duty to exercise discretion to contract employees from Liberty Mutual. She alleged that these employees were not “the plan administrator” and have not been “delegated discretionary authority.” Liberty Life claimed that all Liberty Mutual did was provide employees to Liberty Life, for which Liberty Life reimbursed Liberty Mutual.

Following a detailed analysis of the relationship between Liberty Life and Liberty Mutual, the court determined “that the ultimate benefit determination as made by Liberty Life.” The court concluded that based on all of its analysis, “the appropriate standard of review of this matter is the arbitrary and capricious standard.”

This case was not handled by our office, but we feel it can be instructive to someone who may have similar language in a disability policy and live in a state that has made such discretionary clauses unacceptable. As in this case, the date of the policy may be crucial in determining the standard of review a court will use in evaluating a termination or denial of benefits. If you have questions about any aspect of your disability claim, contact one of our attorneys for a free case evaluation.