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CCH® PENSION — 11/17/06

Multiemployer Pension Fund Improperly Denied Claim For LTD Benefits: Second Circuit

A multiemployer pension fund failed to conduct “a full and fair review” of whether a beneficiary was entitled to long term disability benefits and, hence, the beneficiary may pursue her lawsuit seeking to recover LTD benefits. This was the decision of the Second Circuit U.S. Court of Appeals in Demirovic v. Building Services 32 B-J Pension Fund and the Board of Trustees of the Building Service 32 (No. 05-6914).

Nezmije Demirovic worked as a night cleaner for approximately 30 years and was a participant in the Building Services 32 B-J Pension Fund, a multiemployer pension plan. The plan provided LTD benefits in the event of a participant’s “total and permanent disability.” As specified by the terms of the plan, “Total and permanent disability is the inability to work in any capacity, as determined in the discretion of the trustees. You will not satisfy this definition of total and permanent disability just because you are unable to continue working at your usual occupation; you must be unable to perform any gainful employment to be considered totally and permanently disabled under this plan.”

In September 2003, at the age of 55, Ms. Demirovic filed a claim for LTD benefits with the fund. On her application, Ms. Demirovic listed her disabling condition as “pain and swelling on right knee due to osteoarthritis.” Ms. Demirovic also submitted a form completed by her attending physician that stated that Ms. Demirovic had had a “total knee replacement” and was “totally disabled.” In addition, Ms. Demirovic submitted a notice of award of disability benefits from the Social Security Administration.

The fund referred Ms. Demirovic to an outside specialist, Dr. Edward A. Toriello, for a disability evaluation. Dr. Toriello determined that Ms. Demirovic had a limited range of motion in her right knee, amounting to “a temporary moderate partial disability.” Based on that determination, on Feb. 9, 2004, the fund denied Ms. Demirovic’s claim for LTD benefits on the grounds that she was able to work in a sedentary capacity. Ms. Demirovic appealed, and the fund then referred her to another physician, Dr. Andrew D. Brown, who found that Ms. Demirovic had “impaired” mobility and was “able to perform sedentary work only.” Accordingly, the fund upheld its denial of benefits.

Subsequently, Ms. Demirovic filed suit against the fund in the U.S. District Court for the Southern District of New York, alleging that the fund’s decision to deny her LTD benefits violated ERISA. However, the district court granted summary judgment in favor of the fund, holding that it had not acted arbitrarily or capriciously. Ms. Demirovic appealed, and the Second Circuit reversed the district court’s ruling.

“Fundamental Flaw” In Review

In rendering its decision, the Second Circuit initially explained, “ERISA requires that benefit plans give a ‘full and fair review by the appropriate named fiduciary of the decision denying the claim.’ The fund’s review of Demirovic’s claim suffers from a fundamental flaw. The fund’s determination that Demirovic is physically capable of performing some form of sedentary work may be supported by substantial evidence; but the fund appears to have given no consideration whatsoever to whether Demirovic could in fact find such sedentary work. This is not an abstract concern. Demirovic is in her late 50s; she has worked as an unskilled manual laborer for nearly 30 years; and her facility with the English language is sufficiently limited that she required her son to act as a translator during her examination by Dr. Brown.”

The Second Circuit went on to state, “The fund maintains that it is not required to take Demirovic’s vocational circumstances into account. The fund points to the terms of the plan, which require that determinations of disability be made on the basis of ‘medical evidence,’ and that the disability—which must leave the claimant ‘unable to engage in any further employment or gainful pursuit’—be the ‘result of bodily injury or disease.’ But this language requires that a determination of disability be based on medical evidence of bodily injury or disease; it does not require that the critical determination of whether the claimant is able to engage in any further gainful employment be made without consideration of a claimant’s vocational characteristics, or without consideration of the sort of work that is actually available in the economy. Indeed, without some such consideration, implicit or explicit, it is hard to understand what ‘unable to engage in further employment’ might mean. A determination of ‘employability’ cannot be purely a medical diagnosis.”

According to the Second Circuit, “A finding that a claimant is physically capable of sedentary work is meaningless without some consideration of whether she is vocationally qualified to obtain such employment, and to earn a reasonably substantial income from it, rising to the dignity of an income or livelihood, though not necessarily as much as she earned before the disability. This standard reflects the most important purpose of ERISA, which is ‘to assure American workers that they may look forward with anticipation to a retirement with financial security and dignity, and without fear that this period of life will be lacking in the necessities to sustain them as human beings within our society.’ In this case, a proper inquiry would require not only a medical assessment of Demirovic’s physical capacity to perform both physical and sedentary work, but also a nonmedical assessment as to whether she has the vocational capacity to perform any type of work—of a type that actually exists in the national economy—that permits her to earn a reasonably substantial income from her employment, rising to the dignity of an income or livelihood.” Accordingly, the Second Circuit returned the case to the district court, instructing it to send Ms. Demirovic’s claim back to the fund for further evaluation.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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