New Jersey Long Term Disability Recent Cases -In What Direction is Our Judiciary Headed? Part III

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In the third of recent decisions in New Jersey District Court regarding Long Term Disability claims, “Dunn v. Reed Group, Inc and Johnson & Johnson” 2009 U.S.Dist. LEXIS 78857 (D.N.J. Sept. 2, 2009), the Court noted that deference should be given in the “lions share” of ERISA claims and that a conflict of interest should be simply one factor for the courts’ consideration.

Here, Dunn pointed out that since Johnson & Johnson stopped all benefits such as medical and life insurance when they denied her disability claim, they benefited financially from their own decision. But the court noted that Johnson & Johnson did not pay for such benefits since the insurance benefits are funded through a trust. Further, the court held the Johnson & Johnson Pension Committee, the claims administrator is walled off from any conflict of interest since a trust funds the LTD program.

The court next considered whether a procedural irregularity, bias or unfairness in the processing of the claim exists. The court found that requesting an IME when all evidence in the record supported disability was a procedural irregularity. Deciding that Dunn could perform a sedentary job without a discussion of her skills or capacity and how these skills transferable to sedentary job was also not based upon substantial evidence. The court reasoned “Defendant has failed to connect the medical evidence to Dunn’s actual physical capacity.” The court remanded the case for further review by Johnson & Johnson.

B. Rafel commentary: The court’s decision regarding the structural conflict disregards evidence regarding The Reed Group’s incentive to recommend the denial of claims. The contractual relationship between such a third party claims administrator must be closely examined through discovery. The decision to remand this case will give the administrator the opportunity to repair its mistakes. In the meantime, this disabled person is deprived of disability benefits for years, and without the funds to pay its counsel. Although Dunn is the “prevailing party”, the court did not make a decision regarding counsel fees. In such cases, the plaintiff should be awarded fees, as a deterrent to similar claim denials in the future. Otherwise, these ERISA abuses will continue unabated.