The "IME / TSA SWINDLE"
(LTD Coverage - Now You See It. Now You Don't)
Azur: "It was a scam, I'm tellin' ya. . . Don't you understand what a scam is?"
Watters: "I'm trying to figure it out."
(Exchange between witness Raymond S. "Muzzy" Azar and attorney, Russell F. Watters in the 1990 civil trial relating
to suspected arson at the Gateway Hotel back in my old home town of St. Louis, Mo.)
As I have said many times at this website, in the field of ERISA law, things are not always what they seem to be.
Moreover, words tend to lose their meaning. Two examples are the "Independent Medical Examination" (IME) and
the "Transferable Skills Analysis" (TSA). In the world of ERISA, IME's are seldom "independent", and TSA's almost
never contain any kind of an "analysis". These are fictions, but they're fictions that insurance companies are allowed
to create and rely upon in the context of ERISA-governed claim denials. Insurance companies providing Long Term
Disability (LTD) coverage universally combine these two contrivances, so as to ultimately deny LTD claims. This
scheme is so frequently used and the pattern so familiar, that one wonders if it isn't a basic formula taught in "LTD
Claims Adjusting 101".
LTD coverage usually kicks in after a waiting period (e.g. 6 months), after which benefits are paid if the claimant is
"totally disabled", as defined by the plan. Very often LTD plans contain a two-tiered definition of "total disability". For
example, during the first 24 months a claimant may be considered disabled if he is unable to perform the duties of
his "own occupation" ("Own Occ."). After that initial period, the definition of "total disability" may change and a
claimant may be considered disabled only if he is unable to perform the duties of "any occupation". ("Any Occ.").
"Any Occ." coverage carries a much narrower, more restricted definition of "total disability". Under an "Any Occ."
definition, the insured is not considered "totally disabled", unless he is incapable of performing the material and
substantial duties of any occupation for which he is qualified by reason of education, training or experience.
Under the terms of most LTD plans, if the claimant remains "totally disabled" (e.g. under the "Any Occ." definition),
LTD benefits will be paid for the maximum benefit period, usually to age 65. That's the promise anyway. It's a
promise that sounds good, when the insurance company is selling the policy and collecting the premium dollars, but
it's a promise that no insurance company is going to keep in the absence of a potential court judgment. As a general
rule, LTD benefits are terminated as soon as the claimant falls under the second-tier "Any Occ." definition. Very few
claimants make the "Any Occ." cut. Of those who do, most will have their benefits abruptly cut off at some point in
the future, often without warning.
The Importance of the Administrative Record in ERISA cases:
Before you can understand and appreciate how the "IME / TSA Swindle" is carried into effect, it helps to first
understand just how important the "administrative record" is in an ERISA case. This is because the IME and TSA are
nothing more than devices, used by insurers and plan administrators to "paper" that record. The "administrative
record" is basically anything that the insurer or administrator looks at in reaching its final decision regarding whether
a claim will be paid or not. It generally includes medical records, reports, bills submitted by the claimant and any
claim-related correspondence. But it may also include any internal reports of the plan's own reviewing physicians,
including IME reports. It may also include TSA reports, which are nothing more than self-serving documents,
generated by the insurance company itself.
The reason the "administrative record" is so important is because if a lawsuit is filed, the court's review will generally
be limited to that "administrative record". Seldom will a court allow evidence to be introduced that is outside the
scope of the "administrative record". In fact, only under very narrow circumstances is the court even permitted to
take evidence outside that record.
Another reason the "administrative record" is so critical is because of its importance under the standard of judicial
review. If the insurer plays its cards right, the standard of judicial review in an ERISA case will be the Deferential
Standard of Review. Under that standard, the issue before the court is NOT whether the administrator or insurer was
"right" or "wrong" in denying the benefit claim. Instead, the issue is whether denial of the claim was "arbitrary and
capricious" or an "abuse of discretion", based upon the evidence in the "administrative record". As long as the
denial was not "clearly erroneous", it will be upheld by the court. As long as denial is supported by "substantial
evidence" in the "administrative record", it will not be held "clearly erroneous". "Substantial evidence" is a nebulous
term. It has been described as "such relevant evidence as a reasonable mind might accept as adequate to support
a conclusion.". Richardson v. Perales 402 U.S. 389, 401, 28 L.Ed. 2d 842, 91 S.Ct. 1420 (1971). It "does not mean
a large or considerable amount of evidence." Pierce v. Underwood, 487 U.S. 552, 565, 108 S. Ct. 2541, 2550, 101
L. Ed. 2d 490 (1988). See: Podolan v. Aetna Life Ins. Co. 909 F. Supp. 1378, 1386 (1995). It requires "more than a
scintilla but less than a preponderance". Sorenson v. Weinberger, 514 F.2d 1112, 1119 n.10 (9th Cir. 1975).
You could call this "playing against a stacked deck". It bears repeating that under the deferential standard of review,
a decision of an administrator or insurer can be upheld, even if it is technically wrong, as long as it is supported by
"substantial evidence", appearing in the administrative record. What that means is that a knowledgeable
administrator or insurer can "build a record", by eventually assembling enough evidence to meet the "substantial
evidence" test. It can then deny or cut off benefits, in almost any LTD case, rendering promised future benefits a
nullity. This practice is called "papering the record". When it comes to "Any Occ." LTD claims, insurance companies
generally "paper the record", by use of IME and TSA reports. (discussed below).
"Any Occ." Disability a Little Background:
To the uninitiated, the term "Any Occ." can be extremely misleading. The first thing you must understand is that for
LTD purposes "any occupation" doesn't really mean "any occupation". If it did, then as long as a disabled nuclear
physicist could sell pencils on the street, he would not be entitled to LTD benefits. As one court put it: "Common
knowledge of the occupations in the lives of men and women teach us that there is scarcely any kind of disability
that prevents them from following some vocation or other, except in cases of complete mental incapacity." Helms v.
Monsanto 728 F.2d 1416, 1421 (11th Cir., 1984). The Helms court discarded a literal reading of an "Any Occ."
definition of "total disability" because it would, in the court’s view, render the plan totally meaningless if benefits
could only be paid if the claimant had no conscious life.
Long before ERISA was ever enacted, it was well settled as a matter of California state common law that "Any Occ."
clauses in LTD plans are not to be interpreted literally. See, e.g. Erreca v. Western States Life Ins Co. (1942) 19
Cal.2d 388, 121 P.2d 689. Rather, it was said, such clauses were to be given a "common-sense" interpretation. A
total state of helplessness is not required in order for a claimant to meet the definition. Instead, a claimant is
considered "totally disabled" if he cannot perform the substantial and material acts necessary to the prosecution of
a business or occupation in the usual or customary way.
Federal courts, in the post-ERISA era have likewise rejected excessively stringent interpretations of "total disability"
definitions in ERISA plans and private insurance policies. Courts have held that LTD plans must consider all of the
relevant circumstances, including the claimant's age, educational background, training, and availability of suitable
employment in the claimant's geographical area. See, e.g. Torix v. Ball Corp., 862 F.2d 1428 (10th Cir., 1988).
As you can imagine, this presents a bit of a problem for insurance companies, who seek to cut off LTD benefits as
soon as the claimant falls under the "Any Occ." definition of disability. Usually, LTD claimants are older workers, who
have only done one job for maybe 15 or 20 years. They are maintenance mechanics, computer programmers,
accountants, truck drivers, lawyers, you name it. These individuals may have no "education, training or experience"
beyond their own occupation. In such cases the distinction between "Any Occ." and "Own Occ." disability gets rather
blurred. For example, what if the claimant has worked as a mechanic for 20 years, but develops post-traumatic
arthritis, as the result of an auto accident, and can no longer hold his tools. Everyone agrees he can no longer work
as a mechanic, but he has no other specifically identifiable job skills. He has no "education, training or experience"
to do any job other than as a mechanic. So how can the insurance company deny his LTD claim, even under the
"Any Occ." definition and still satisfy the "substantial evidence" test, described above? By shifting the focus away
from actual job skills to what are called "transferable skills", that's how. Even though our mechanic may have no
specifically identifiable job skills, he will certainly have general "transferable" skills. For example, even though he
can't hold a wrench anymore, his unique knowledge of "nuts and bolts" might permit him to work as a quality control
inspector at a "nut and bolt" factory. There are no doubt numerous hypothetical jobs that we could dream up that
our mechanic friend would be capable of doing. From the standpoint of the insurance company, all it needs to do is
to document this purported fact for the "administrative record", and that's where the TSA report comes in. (See
By: Michael A. McKuin