On January 17, 2013, in Colby v. Union Security Insurance Co. & Management Co. for Merrimack Anesthesia Associates Long-Term Disability Plan, No. 11-2270, the First Circuit concluded that a denial of benefits based on an unwritten exclusion was unreasonable.

Plaintiff, Julie Colby (“Colby”), was a long-time staff anesthesiologist at a hospital in Massachusetts. In July 2004, after Colby was found sleeping on the job, she tested positive for an opioid used in her anesthesiology practice. She had been using this opioid for a while prior the incident at work and had developed an addiction. Thereafter, Colby took a leave of absence, entered into an inpatient substance abuse program, and filed an application for long-term disability (“LTD”) benefits, which was provided by a plan sponsored by her employer and underwritten and administered by Union Security Insurance Company (“USIC”).

USIC paid Colby LTD benefits for the time period between the end of the 90-day waiting period, as set forth in the plan, through until she completed her stay at the inpatient substance abuse program. It then denied her claim on the basis that although she remained under the care of her physician and feared relapse, the risk of relapse did not constitute a continuation of her disability. Colby disagreed, exhausted her administrative remedies, and then filed a claim for benefits in federal court.

The parties moved for judgment on the administrative record, and the District Court concluded that USIC’s conclusion was unreasonable. The court stated that the decision to deny benefits because an “LTD plan does not cover future risk generally or treats physical and psychological future risks differently, absent language allowing such distinctions, [was] arbitrary and capricious.” The court remanded the matter for USIC to conduct “the appropriate analysis, i.e. whether the probability of [Colby] relapsing upon a return to the practice of medicine was so high” that she was totally disabled under the plan.

Despite the District Court’s admonition, USIC again denied Colby’s claim. In support of its decision, USIC stated “under the terms of the applicable policy, risk of a potential future disability is not considered a current disability for which benefits are available.” Colby again exhausted her administrative remedies and filed suit. Rather than remanding, the court awarded Colby benefits for the maximum 36 month period available under the terms of the plan (Colby was found ineligible for benefits past 36 months pursuant to the plan’s “Any Gainful occupation” test), stating “categorically excluding the risk of drug abuse relapse is an unreasonable interpretation of the plan.” USIC appealed.

Like the district court, the First Circuit applied the abuse of discretion standard. The court also recognized that USIC’s structural conflict (USIC acted as both plan underwriter and claim evaluator) did not alter this standard of review. Turning to the plan, the First Circuit noted that the relevant provisions set forth an “occupation test,” meaning that the plan covers an injury or sickness that required Colby to “be under the regular care and attendance of a doctor and prevents her from performing at least one of the material duties of her regular occupation.” The plan also provided that substance abuse, dependence and addiction qualified as a sickness for the purpose of qualifying for LTD benefits.

Just as before the district court, the key question before the First Circuit was whether the risk of relapse was serious enough were she to have returned to her anesthesiologist position such that it properly should be considered to be a continuation of Colby’s disability. The court found that the record suggested that she faced a high risk of relapse, which was made all the more acute given (1) her easy access to the opioid upon her return to work as an anesthesiologist; (2) back pain; (3) other mental disorders; (4) her turbulent personal life; and (5) her stressful job. According to Colby’s treating physician and other experts who evaluated Colby, opinions upon which the court relied, this created a “perfect storm” for relapse. The court noted that it might have been possible for USIC to limit the period of disability by arguing that the risk progressively diminished over the contract period, but USIC foreclosed this position by adopting a categorical denial of benefits.

The court noted its decision was narrow, and that it pivoted on the plain language of the plan and USIC’s all-or-nothing approach to its benefits determination. In particular, the court noted that USIC could have written into the plan an exclusion for the risk of relapse, but it had not. For the court, “[i]mporting into an ERISA plan an unwritten proviso categorically excluding risk of relapse as a basis for disability undercuts a plan administrator’s higher-than-marketplace quality obligation to use its discretion to process claims solely in the interests of the participants and beneficiaries’ of the plan.” Thus, there was no principled basis for implying the exclusion.

In reaching this decision, the First Circuit recognized that the Fourth Circuit had reached the opposite conclusion that a risk of relapse, even if significant, cannot ground a claim for LTD benefits absent an actual relapse. But the court noted that its desire to achieve uniformity must give away to the need to ensure that plan administrators handle claims reasonably.