United States: Demer v. IBM Corporation LTD Plan

In Demer v. IBM Corporation LTD Plan, ____________ (9th Cir. 2016), the Ninth Circuit reversed the district court's entry of judgment in favor of defendants IBM Corporation LTD Plan (the "Plan") and Metropolitan Life Insurance Company ("MetLife"), the claims administrator and insurer for the Plan, with instructions to re-evaluate the merits of plaintiff Demer's long term disability ("LTD") claim.

Demer was an employee of IBM Corporation, and a participant in the Plan. The Plan gave MetLife the discretionary authority to interpret the Plan and determine eligibility for benefits. As such, the Ninth Circuit determined it would apply an abuse of discretion standard of review, not de novo.

Demer, then a Lead Internal Auditor, stopped working in January 2009 because of a disability. He began receiving short term disability ("STD") benefits and, in March 2009, filed acclaim for LTD benefits as the STD benefits were expiring. Demer's application stated: "'I am unable to do my job duties due to severe recurrent depression and spinal stenosis, chronic headaches.' Symptoms included 'chronic headaches, chronic back and neck pain, myalgia, severe depression, [and] sciatica.'" In July 2009, MetLife approved the claim for LTD benefits under the "own occupation" test for disability, but noted the test would switch to the "any occupation" test in July 2010 and noted his claim was being limited to a twenty-four month period as his primary diagnosis was a mental or nervous disorder. In November 2009, MetLife reminded Demer that for his benefits to continue beyond July 2010, he would have to be disabled under the "any occupation" test. Demer submitted statements and medical records from his treasting physicians, including but not limited to his primary care doctor, a treating neurologist, and a treating pain management physician, who discussed the mental (i.e. depression interacting with chronic pain) and physical (i.e. inability to stand for extended periods of time or to lift heavy objects) impairments Demer suffered. In October 2010, MetLife denied Demer's claim under the "any occupation" test, relying on the opinion of an independent physician consultant ("IPC") who conducted only a paper review of the file. The IPC disagreed with statements of the treating physicians regarding Demer's limitations. MetLife's decision determined that, even with the limitations identified by the IPC, Demer "should be able to perform at the sedentary to light level of physical exertion as defined by the U.S. Department of Labor" and, therefore, denied LTD benefits.

In March 2011, Demer appealed Metlife's denial, providing additional information about his diagnoses and effects of his medications, which impacted his mental functioning. MetLife denied the appeal, relying on the opinions of two different IPCs, who, again, only conducted a paper review of the file. The IPCs against questioned the observations of the treating physicians, opining Demer could return to work, and questioning that there was any evidence to support the claim of mental functioning impairment. MetLife concluded Demer would work in sedentary occupations.

After the denial, Demer filed the instant lawsuit. The district court applied an abuse of discretion standard, and rejected Demer's argument that "the abuse-of-discretion standard must be tempered with skepticism because of a conflict of interest on the part of MetLife." The district court ultimately determined MetLife's decision to rely on the IPCs' findings was reasonable.

The Ninth Circuit first assessed whether there was a conflict of interest so as to temper the Court's review. The Court noted "[a] conflict of interest is a factor in the abuse-of-discretion review, the weight of which depends on the severity of the conflict." Demer's evidence of a conflict consisted of (1) MetLife acting as both the claim administrator and insurer for the Plan; and (2) at least two of the IPCs having performed a significant number of reviews for MetLife and received significant compensation for their services.

The Court performed a de novo review of the district court's choice and application of the standard of review. The district court acknowledged a structural conflict of interest because MetLife both evaluated and funded claims, but applied no skepticism as "MetLife has taken affirmative steps to reduce potential bias and promote accurate claim determinations." The Court referenced Demer's objections to the declarations on which this finding was based as MetLife did not identify these witnesses in their initial disclosures, but also noted that Demer did not explain his failure to take a deposition on the structural conflict issue. The Court determined it did not need to resolve this issue because skepticism was warranted due to the financial conflict of the IPCs.

Demer asserted a conflict of interest based on the substantial number of reviews performed for MetLife (respectively, 250 per year and 200-300 per year) and the compensation received for those reviews (respectively, $125,000 and $175,000 per year) of two of the IPCs. Demer claimed the IPCs' opinions are questionable based on their financial incentive to opine in MetLife's favor, and such conflict is imparted to MetLife.

The Court noted this challenge was similar to those conventionally used to discredit retained experts' objectivity and, while different than a structural conflict, may still warrant skepticism. Demer bore the burden of producing evidence of a financial conflict warranting skepticism and, once satisfied, the burden shifted to MetLife to produce evidence there was no conflict. The Court determined Demer satisfied his burden of production by offering evidence of the number of reviews performed per year and the compensation therefor. The Court found that the magnitude of these numbers warranted skepticism, and should be considered as a factor in the abuse of discretion review – although this skepticism should be given less weight than "more powerful evidence" of a conflict. MetLife did not meet the burden of establishing there was no conflict: "MetLife could have maintained records of its reviewers' findings on claims to show their neutrality in practice, but it did not." While MetLife could not rebut the evidence of a financial conflict, neither could Demer produce "more powerful evidence" of a conflict. The Court also rejected the dissent's argument that MetLife was following the Court's instructions in Abatie regarding reduction of a conflict, asserting the dissent was equating outside experts with independent experts – determining outside experts are not immune from judicial scrutiny for bias.

Applying the tempered abuse of discretion standard, the Court "conclude[d] that MetLife abused its discretion in denying Mr. Demer's claim" by disregarding Demer's claim of mental impairment. While the IPCs rejected this claim as not credible, "the IPCs had little basis" for doing so. They never examined Demer, nor did they explain specifically why they rejected his claim of mental function limitations when he was taking "undisputedly powerful narcotic medication" and his complaints were corroborated by his physicians and a friend.

We acknowledge that the district court's order suggests possible grounds for questioning Mr. Demer's credibility — i.e., that his activities of daily living indicated some ability to engage in mental functioning. See Demer, 975 F. Supp. 2d at 1081 (stating that "Dr. Osborne's opinion that Plaintiff could not operate a vehicle was directly contradicted by Plaintiff's conversations with MetLife on January 14, 2010 and May 18, 2010, where he stated that he had been driving a vehicle[;] [f]urther, while receiving disability payments, Demer told a MetLife claims representative that 'he was just completing online courses'"); (MetLife's electronic diary notes). But neither MetLife nor its IPCs rejected Mr. Demer's credibility on this basis. [ . . . ] Moreover, it is not clear that these activities of daily living necessarily establish an ability to work within the meaning of the Plan. Notably, under the terms of the Plan, Mr. Demer is eligible for LTD benefits if he cannot engage in a "gainful occupation," which in Mr. Demer's case is a job that has a yearly salary of approximately $50,000. A job that commands such a salary may well require higher levels of mental functioning, including concentration and memory, both of which are areas where Mr. Demer has claimed impairment as a result of his medications.

The Court also disapproved of MetLife's rejection of Demer's physical limitations, stating the IPC, on whose opinion MetLife based the rejection, "was implicitly rejecting Mr. Demer's credibility based solely on a paper review without having physically examined him and without explaining why Mr. Demer's credibility was lacking, particularly, in light of some medical records conflicting with [the IPC's] physical functional capacity assessment."

The Court concluded:

Taking into account the totality of the circumstances — i.e., the financial conflict of interest of the IPCs on whom MetLife relied (which warrants some skepticism in reviewing the IPCs' conclusions), the substantial evidence of Mr. Demer's mental limitations due to pain medication and physical limitations, and the IPCs' reviews of Mr. Demer's condition, without having examined him and without explaining why they rejected his credibility, particularly in light of evidence corroborating his credibility (both medical and nonmedical) — MetLife abused its discretion in denying Mr. Demer's claim for LTD benefits.

The Court turned to the question of remedy:

We hold that a remand to the district court, with instructions to remand to MetLife, is appropriate. An award of benefits is not a proper remedy because the record does not clearly establish that MetLife should necessarily have awarded Mr. Demer benefits. [ . . . ]

To be clear, on remand, MetLife may re-open the record to consider additional evidence regarding mental limitations. The record as it stands does not show precisely what Mr. Demer's limitations were as a result of the medications. While a retrospective evaluation may be difficult given the passage of time, a retrospective evaluation of Mr. Demer's limitations is not necessarily impossible. Indeed, in the Social Security context, retrospective evaluations are not uncommon. Historical records, data and trends may be relevant and useful in rendering a retrospective evaluation. See, e.g., Smith v. Bowen, 849 F.2d 1222, 1225 (9th Cir. 1988) (in Social Security case, stating that "reports containing observations made after the period for disability are relevant to assess the claimant's disability[;] it is obvious that medical reports are inevitably rendered retrospectively and should not be disregarded solely on that basis"). Furthermore, a current evaluation of Mr. Demer may be particularly useful because his benefit period may have extended beyond the date of the appeal, see 2ER 130, 217 (addressing Maximum Benefit Period), such that a current examination may be closer in time to the assessment period than it would otherwise appear.

Judge Bybyee dissented regarding the conflict of the IPCs, but concurred in the judgment:

An ERISA plan administrator has a structural conflict of interest where it "both funds the plan and evaluates the claims." Metropolitan Life Ins. Co. v. Glenn, 554 U.S. 105, 112, 128 S. Ct. 2343, 171 L. Ed. 2d 299 (2008); see also Abatie v. Alta Health & Life Ins. Co., 458 F.3d 955, 965 (9th Cir. 2006) (en banc). The federal courts have offered at least two ways that such conflicts "should prove less important (perhaps to the vanishing point)." Metro. Life, 554 U.S. at 116. First, administrators may "wall[] off claims administrators from those interested in firm finances." Id.; Abatie, 458 F.3d at 969 & n.7 (an administrator may show that "any conflict did not influence its decisionmaking process" by showing that "its employees do not have incentives to deny claims"); Davis v. Unum Life Ins. Co. of Am., 444 F.3d 569, 575-76 (7th Cir. 2006) (holding that absent evidence of "any specific incentive [for the in-house doctors] to derail [a] claim," such as giving the doctors "some specific stake in the outcome of [a] case," the theoretical argument that "in-house doctors have an inherent conflict in every case" is insufficient to change the standard of review). Second, plan administrators may refer medical evaluations to outside experts, such as doctors, who also have no interest in firm finances. Abatie, 458 F.3d at 969 & n.7 ("[T]he administrator might demonstrate that it used truly independent medical examiners or a neutral, independent review process").

MetLife listened very carefully to what we said. It employed both of these methods: First, it walled off its claims administrators from its financial offices. And then, second, the claims office sought medical evaluations from outside, independent physicians who have no interest in MetLife's finances. For its trouble, the majority is going to give MetLife additional scrutiny—the majority is "skeptical" of MetLife precisely because it did what we told it to. Maj. Op. at 21. The majority's new skepticism has been rejected by every other circuit to have considered it. When companies structure their operations in response to our opinions and then we penalize them for doing exactly as we have suggested, we sow uncertainty into both law and business. I dissent from Section II.B of the majority's opinion. Because that section is not otherwise necessary to the majority's opinion, I concur in the judgment.

The dissent disagreed with applying the rules regarding an internal conflict to an external conflict of outside reviewers, and noted "great reservations about the use of 'skepticism' as a standard of review." "The majority says that we are to view this relationship with skepticism, but I can find no basis in our decisions for this conclusion. Our cases simply hold that a structural conflict of interest may warrant skepticism, nothing more." The dissent found Mountour v. Hartford Life & Accident Insurance Company, 588 F.3d 623 (2009) to be distinguishable as, there, "the evidence suggested that Hartford was telling Montour's doctor what it wanted to hear."

I recognize that there could be a cognizable conflict of interest where an independent physician is so dependent on an administrator that it effectively becomes an employee of the administrator, see McDonald v. Hartford Life Grp. Ins. Co., 361 F. App'x 599, 609 (5th Cir. 2010), but this would simply bring the reviewer within the administrator's internal umbrella. And in that case, the outside reviewer would be subject to the same conflict of interest as the administrator's own employees; the outside reviewer cannot be more conflicted than the administrator's own claim processors (assuming the administrator has not given the reviewer some additional incentive tied to results). See Armstrong v. Aetna Life Ins. Co., 128 F.3d 1263, 1265 (8th Cir. 1997) (insurer provided incentives and bonuses to claims reviewers for "claims savings"). What is so odd about the majority's analysis is that if the outside consultants were MetLife's own internal employees, we would find that they were not conflicted—or at the least that any conflict had been neutralized by MetLife's claims-handling practices. But for the majority, because the reviewers are independent, suddenly they are untrustworthy. Yet there is not one hint in the record that these outside reviewers are given financial incentives based on their results or in any other way biased.

The dissent also noted:

The principle the majority adopts has profound implications for other areas of the law—notably Social Security claims. The SSA, and its state partners, frequently rely on outside medical sources to review a claimant's file and offer a second opinion. The views of these reviewing physicians are given significant weight under SSA regulations and our decisions. [. . . ] So far as I know, we have never questioned the bona fides of reviewing physicians' views on the grounds that SSA or state agencies are sending them lots of business and paying them well, or, even worse, employing them full time. It will turn our cases upside down if we start down that road.

 The dissent criticized the majority's finding that the IPCs were compromised:

Even if we considered Demer's evidence on the outside reviewers in this case, there is "no there there." The majority's new skepticism is based on two facts: First, the majority thinks that Metlife's outside reviewers are doing a lot of work for MetLife and, second, the majority thinks the outside reviewers are getting paid a lot of money for their work. Maj. Op. at 18-19 (referring to the "magnitudes of these numbers"). Neither of these reasons will bear scrutiny.

The dissent rejected that the majority had a basis for determining the number of reviews performed or the compensation received therefor were "significant," and disagreed with "impugning the reputations of these medical professionals." The dissent also registered his skepticism of the use of adding "skepticism" to the abuse of discretion standard.

The dissent concluded:

The majority takes the remedies we offered to administrators for cleansing conflicts—walling off its claim processors and hiring independent reviewers—and turns it into a sword to punish administrators with skepticism. After today's decision, we cannot fault administrators for their confusion over what they can rely on in our decisions. And we can predict with near certainty how they will respond: at least in our circuit, administrators will stop using outside, independent reviewers; instead, they will try to bring them in house where, they hope, we will still respect the administrator's efforts to wall them off. Today's decision injects confusion and change for no reason. We are not likely to end up with better decisions in ERISA claims.

Count me skeptical.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions