Court Finds Insurer’s Termination of Disability Benefits Arbitrary and Capricious Due to Procedural Irregularities

In Vartanian v. First Reliance Standard Life Insurance Company, No. CV 24-05096 (GC) (JBD), 2025 WL 2555712 (D.N.J. Sept. 5, 2025), the District of New Jersey found that First Reliance Standard improperly terminated long-term disability (LTD) and life insurance waiver benefits under ERISA for a claimant with ME/CFS and Long Covid. The Court emphasized that the insurer’s decision-making process was riddled with procedural irregularities that ultimately rendered its termination arbitrary and capricious.

Standard of Review: No Shift to De Novo

The plaintiff argued that First Reliance’s delay in issuing a decision on her appeal required de novo review. She pointed to ERISA’s 45-day window for appeal determinations, asserting the insurer exceeded this deadline. While the Court acknowledged there was some dispute about the timeliness of the appeal and potential extension, it held that any violation was not “severe.” Under Third Circuit precedent, procedural missteps warranting only minor delay—without prejudice to the claimant—do not justify altering the standard of review. Unlike other circuits that apply stricter rules, the Third Circuit continues to apply the deferential arbitrary and capricious standard unless the violation is egregious.

Termination of Benefits Without New Evidence

The Court underscored that a plan administrator cannot abruptly reverse its own disability determination without meaningful new evidence. First Reliance had approved Vartanian’s benefits in 2022 based on extensive medical documentation but later terminated them in May 2023. Its denial letter stated there were “no clinical findings” to support disability and characterized her symptoms as “self-reported.”

The Court found this rationale problematic. The treating physician, Dr. Levine, had consistently documented objective findings—such as abnormal neurological tests—throughout 2021 and 2022. Although not every treatment note listed objective data, First Reliance had previously accepted the sufficiency of these same records when granting benefits. To suddenly dismiss them as inadequate, without new contradictory findings, was a procedural irregularity suggesting arbitrariness. Records from other doctors (including normal cardiovascular stress testing) also failed to provide meaningful evidence that would justify reversal.

Failure to Address Cognitive Impairments

Another glaring omission was First Reliance’s failure to address the plaintiff’s cognitive impairments. Neuropsychological evaluations by Dr. Van Gorp demonstrated significant cognitive deficits, including in attention, memory, and processing speed. Yet the insurer’s May 2023 termination letter discussed only physical conditions, ignoring cognitive limitations entirely. Courts in the Third Circuit have repeatedly held that failing to analyze all relevant diagnoses constitutes a serious procedural flaw.

Improper Deference to Non-Treating Physicians

The Court also examined First Reliance’s reliance on file reviews by non-treating consultants, Drs. Palermo and Erdos. While ERISA administrators are not required to defer to treating physicians, they may not arbitrarily discount reliable treating evidence.

Here, the consultants’ opinions were notably incomplete. Dr. Palermo failed to address the plaintiff’s cardiopulmonary exercise testing, which showed an inability to sustain sedentary work. He also discounted cognitive findings without adequate basis. Dr. Erdos, a psychiatrist, opined there were no psychiatric impairments but did not meaningfully engage with the cognitive testing results—raising questions about whether he was even qualified to evaluate neurocognitive limitations. The Court found the insurer’s heavy reliance on these consultants, while disregarding treating specialists’ consistent findings, weighed in favor of arbitrariness.

Selective Use of Evidence

The Court criticized First Reliance for “cherry-picking” evidence. For example, it highlighted portions of the plaintiff’s Activities of Daily Living Questionnaire that suggested some functional capacity (e.g., ability to do laundry or drive short distances). But it ignored other responses in the same questionnaire that painted a different picture—such as difficulty sleeping, frequent need for naps, reliance on GPS to avoid getting lost, and only being able to perform household tasks with significant breaks. This selective reading of the record reinforced the Court’s finding of a biased, self-serving review.

Failure to Consider Job Demands

An additional irregularity was the insurer’s failure to analyze whether Vartanian could actually perform the duties of her occupation as Executive Director of Corporate/Procurement Services. The insurer simply concluded she was capable of “sedentary work” without evaluating the cognitive and executive-functioning demands of her position, which required high-level decision-making, risk management, and communication skills. Courts have made clear that equating disability with the mere ability to sit at a desk is insufficient; administrators must connect medical findings to the actual job requirements.

Treatment of Social Security Disability Award

The plaintiff argued that the insurer improperly disregarded her Social Security Disability Insurance (SSDI) award. While the Court noted that an SSA determination is not binding on ERISA plans, administrators must meaningfully address such awards—particularly when they encourage claimants to apply for SSDI and then benefit financially from offsets. Here, First Reliance did explain why it reached a different conclusion, citing differences in the evidence considered. Although the Court found this explanation adequate, it stressed that the insurer’s overall termination decision still failed to withstand scrutiny due to the broader irregularities.

Remedy: Reinstatement of Benefits

Because the improper termination occurred after benefits had already been granted, the Court held that reinstatement—not remand—was the appropriate remedy to restore the status quo. It ordered retroactive reinstatement of LTD and life insurance waiver benefits from April 29, 2023, through November 21, 2023, and remanded the case to the administrator only for the period after the final appeal denial.

Key Takeaway:

The Court’s analysis highlights how procedural irregularities—terminating benefits without new evidence, ignoring cognitive impairments, privileging incomplete file reviews over treating physicians, cherry-picking evidence, and failing to consider actual job duties—can collectively render an insurer’s decision arbitrary and capricious under ERISA.