A recent Colorado case—Ellis v. Liberty Life Assurance Co. of Boston—illustrates the importance of de novo review when a court evaluates an insurance company’s wrongful denial of disability benefits in an action governed by the Employee Retirement Income Security Act (“ERISA”). Initially, the court upheld the benefit denial after conducting an abuse of discretion/arbitrary and capricious review—a review that gives deference to the insurance company’s conclusions. But it reversed the denial on reconsideration, after conducting a de novo review—an independent determination of whether a preponderance of the evidence supported disability, giving no deference to the insurance company’s conclusions.
In early-2012, Ellis suffered a significant health issue resulting in a debilitating cognitive impairment. Ellis could no longer work, however, through his employment he had obtained an ERISA-governed long‑term disability insurance policy issued by Liberty. Liberty approved and began paying the $8,572 monthly LTD benefit. Over time, Ellis underwent multiple neurocognitive evaluations and continued under the care of multiple physicians, each concluding that Ellis’s impairment precluded employment. Twice over Liberty’s own consulting neuropsychologist reached the same conclusion.
Liberty then hired Dr. Gant to perform “independent” neuropsychological testing of Ellis. The test results were ultimately deemed “invalid” and Dr. Gant concluded he was “not certain” whether Ellis was cognitively impaired. Nevertheless, in December 2013, Liberty terminated Ellis’s LTD benefits based upon Dr. Gant’s conclusion. Ellis appealed—submitting additional compelling evidence of his disability. Liberty hired a second “independent” neuropsychologist, Dr. Belliveau, who merely reviewed the paper file and concluded it did not support a finding of cognitive impairment. Liberty upheld the denial, forcing Ellis to file a lawsuit to obtain justice.
The judge initially entered judgment in favor of Liberty, upholding the termination of benefits. He noted Liberty’s original denial was based upon Dr. Gant’s questionable conclusions and despite significant evidence supporting the claim. He also noted that on appeal Liberty’s neuropsychologist’s findings were difficult to follow and unpersuasive. Nevertheless, believing the policy pre-dated a Colorado law prohibiting an insurance policy from delegating discretionary authority to the insurer, the judge was compelled to honor the policy’s delegation clause and conduct an abuse of discretion review. While he found the conclusions of Drs. Gant and Belliveau unpersuasive, they nevertheless constituted evidence in support of Liberty’s determination such that the denial was not arbitrary and capricious and had to be upheld.
On reconsideration, the judge concluded the Colorado law did, in fact, apply, thus mandating de novo review. Giving no deference to Liberty’s determination and independently evaluating the evidence, the judge found that Liberty’s conclusions were not supported by a preponderance of the evidence and that Liberty “attached greater weight to the relatively scant evidence that supported a denial . . . than to the voluminous evidence that supported a contrary conclusion.” The judge “conclude[d] that de novo review of this case dictates a different result than the arbitrary and capricious standard of review previously employed.” He then ordered Liberty to pay Ellis the wrongfully denied LTD benefits.