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Common ERISA Issues in the Second Circuit

A common question presented by many disability claims is the relationship between a claimant's award or denial of Social Security disability benefits and an award or denial of LTD benefits. Many claimants reasonably believe and usually argue that, if the Federal government has determined them to be disabled under the Social Security Act, why doesn't the private insurance company or plan reach the same conclusion? This is especially so because Social Security Administration awards of SSDI benefits typically mean the claimant's LTD benefits are reduced by the amount of the SSDI benefits. While the Supreme Court has explicitly recognized that this state of affairs is relevant both on the merits of the claim (to prove disability) and to evaluate an insurance company or plan administrator's conflict of interest, Second Circuit case law on this question has been confused and confusing. While many district courts in the Second Circuit recognize that an award of SSDI benefits is relevant and should be addressed in evaluating the propriety of an LTD decision, the Second Circuit itself has not been very consistent on this point.

Many circuits bar plan administrators and insurance companies from arguing new defenses in litigation to deny claims, reasoning such practices violate ERISA regulations and are unfair to claimants, but not the Second Circuit. It allows insurance companies and plan administrators to raise new reasons in litigation to deny claims which reasons have not been raised before and only excludes such new reasons if the insurance company or the plan's conduct was deliberate and manipulative. This means that in Second Circuit litigation you are much more likely to encounter an insurance company arguing new reasons to deny your claims in litigation than in many other circuits. In other circuits arguing new reasons not presented administratively in order to deny claims could seriously undermine the reasons the insurance company presented at the administrative level and lead to success for the claimant. But in the Second Circuit new reasons to deny the claim are often accepted or at least credited without any adverse consequences to the insurance company. Thus, Second Circuit case law encourages manipulation and "sandbagging" of claimants by insurance companies.

All circuits use the "combination of factors" approach mandated by the Supreme Court when evaluating a discretionary benefit denial by administrators or insurance companies. The Second Circuit often seems to follow this approach in name only, viewing each factor as a standalone issue and not addressing the cumulative impact of each considered together.

On the other hand, the Second Circuit has been very good in addressing the correlation between a medical determination and a vocational determination. The Second Circuit explains that finding a claimant is physically capable of a certain level of work is meaningless without some consideration of whether he or she is vocationally qualified to obtain such employment and to earn a reasonably substantial income from it, rising to the dignity of income or livelihood, though not necessarily as much as he or she earned before the disability. The inquiry required of a plan or insurance company requires not only a medical assessment of the claimant's physical capacity to perform work but also a non-medical assessment to whether the claimant's vocational capacity to perform any type of work - the type that actually exists in the national economy - and to earn a reasonably substantial income from employment.