A farmer was having a tough time understanding why his chickens were producing less eggs than in previous years. He wrote a letter to the local university, asking for guidance on increasing his chickens’ egg production. The university handed the project off to its top theoretical physicist. The physicist quickly returned to the farmer and said “I have a solution to increase the production of your eggs, but it only works for spherical chickens in a vacuum.”
Some solutions are illusory, or at least that is what the Sixth Circuit determined in Kennard v. Means Industries, Inc., its recent decision concerning the denial of an ERISA claim for disability benefits based on the administrator’s determination that “employment” was available.
Kennard began work at Means Industries in 1983. In 1990, he inhaled toxic fumes from a batch of synthetic oil and permanently damaged his lungs. Following the accident, Kennard required a ‘clean air environment,’ meaning he could not be around perfumes, dust mites, mold, and many other common airborne irritants found in office spaces.
Means Industries accommodated Kennard and provided him with a clerical position in a fume-free area. The company also warned other employees in Kennard’s area not to wear perfumes, burn candles, or perform any other activity that might aggravate Kennard’s condition. Despite these accommodations, irritants continued to shorten Kennard’s breath, causing him to frequently leave work early.
Kennard stopped working in 2006 and filed a claim to receive Social Security benefits. The Social Security Administration (the “SSA”) provided a written report finding “there are no jobs in the national economy that [he] could perform.” Applying the SSA’s standard for disability, the administrative judge found that Kennard was unable to “engage in any substantial gainful activity.” After receiving his approval for Social Security benefits, Kennard applied for disability benefits under Mean Industries’ long-term disability (the “Plan”).
Under the Plan, a participant is “permanently disabled” “(a) if he has been totally disabled by bodily injury or disease so as to be prevented thereby from engaging in any occupation or employment for remuneration or profit, and which condition constitutes total disability under the federal Social Security Act; and (b) after such total disability shall have continued for a period of six consecutive months, and, in the opinion of a qualified physician chosen by the committee. . . it will be permanent and continuous during the remainder of his life.” The Plan required that Kennard undergo two physical examinations from independent doctors to assist with the determination.
The key issue that emerged was whether Kennard was able to engage in any occupation or employment. The examining doctors determined that Kennard could work, but he would have to work in a clean air environment and limit his time spent sitting or standing. Specifically, one of the examining doctors stated that he “would recommend no prolonged sitting or standing.” And the other doctor indicated that “[Kennard was] employable as long as he could be guaranteed that we would be placed in an absolute clean air environment with absolutely no noxious fumes or inhalants . . . .” According to the second doctor, if this type of environment was available, Kennard could be employable in a clerical position; if not, then he would be considered disabled. Ultimately, the Plan administrator denied Kennard’s claim for disability benefits, citing solely to these portions of the doctors’ medical reports that stated that he was capable of work under certain specific, and substantially limited conditions.
Kennard appealed the Plan administrator’s denial to the federal district court, claiming that the administrator’s denial was arbitrary and capricious because the SSA had already found that there were no available jobs. The trial court disagreed with Kennard and affirmed the decision of the administrator, relying on the independent doctors’ reports. Kennard then appealed to the Sixth Circuit.
The Court’s Decision
On appeal, the Sixth Circuit reversed the trial court and ruled that Kennard was “disabled” as defined under the Plan and, consequently, was entitled to Plan benefits.
The Sixth Circuit determined that there was inadequate support for the Plan administrator’s conclusion that Kennard could engage in any occupation or employment. The Court held that a valid denial of benefits based on a determination that Kennard could engage in any occupation or employment would need to include evidence of the “existence of the absolute-clean-air jobs available to Kennard.” While the Plan administrator need not rely on the SSA’s legal standard for disability, the Court concluded the decision must be grounded on a reasoned explanation. According to the Court, to deny the claim based on allegations of “a job that exists only in theory, that interpretation is in error.” The Court also quipped that an available job would have to be gainful employment, which excluded nominal employment or hypothetical employment.
In Kennard, the Sixth Circuit appears to have instituted a two-part review of plan administrators’ decisions to deny disability benefits based on a finding that the participant can engage in any occupation or employment. First, plan administrators must ground their decision on a reasonable, principled basis supported by evidence. To meet this requirement, plan administrators’ decisions must offer specificity. Simply attaching a prefabricated denial letter to medical reports which does not clearly evidence employability will not meet the Sixth Circuit’s standard, especially when the medical reports include phrases such as “may be able to return to work on a limited basis” or “could return to work with some restrictions.” Second, the administrator must articulate in his or her denial that a workable job exists in reality, and the job must be gainful employment, as opposed to “selling peanuts or pencils.”
There are four notable takeaways from the Sixth Circuit’s Kennard decision.
First, plan administrators should continue to monitor this issue to see how it develops. The limits of Kennard remain unclear. The Sixth Circuit may rely on Kennard to narrow the ‘arbitrary and capricious’ review standard by requiring more specific reasoning from plan administrators. Or it may distinguish Kennard from future cases because of Kennard’s unusual facts (namely, the lack of any no real practical evidence in either the medical reports or the claim denial evidencing Kennard’s employability). This is an open question, but the safest approach for plan administrators is to (1) become familiar with the terms of their plans before denying disability benefits, especially when the denial is based on a finding of employability; and (2) consult with counsel to ensure that the decision is supported by the plan document and, if the claim is denied, that the supporting rationale will withstand judicial scrutiny.
Second, consideration should be given on how to define the term “disability” in the formal plan document. If the Plan incorporates the SSA’s definition, plan administrators should take note of the SSA determination, as this is clearly persuasive upon judicial review (especially where the SSA determination directly contradicts the claim determination). And, if the definition incorporates an employability standard, plan administrators need to take this standard seriously and fully examine this issue when making claims determinations.
Third, plan administrators must articulate grounded reasons for denying benefits. This requires an understanding of the plan terms and clear reasoning in any claim denial. The Sixth Circuit will not accept conjecture, theoretical possibilities, or speculation. In short, the Sixth Circuit does not want to hear about spherical chickens in a vacuum tube. This is clearly true when denying claims based on employability. While plan administrators do not need to go out and find the claimant a job to support a finding of employability, simply denying a claim based on vague medical reports that do not clearly state that an individual is employable will not suffice. Rather, administrators should set forth reasoned, practical support for any denial.
Fourth, administrators that apply a strict interpretation of plan provisions may receive more scrutiny from courts. In Kennard, the plan administrator and the district court both relied heavily on the plan provision that required a person be unable to work in any occupation or employment. The Sixth Circuit rejected this “hyper-literal” interpretation of the benefit provision, stating that not every form of earning money constituted an occupation or employment. Therefore, if a plan incorporates an employability standard, and a plan administrator opts to deny a claim based on this standard, plan administrators should have some reasonable idea of the working climate that will support the administrator’s decision.
It is a little too early to gauge the breadth of the Sixth Circuit’s decision in Kennard. However, there are steps you can take to provide a workable definition of “disability” in your plan and to ensure any reviews of disability claims comply with the standards set forth in this decision.