District Court Permits Extra-Record Discovery to Demonstrate Reliance Standard’s Conflict of Interest and Its Effect on Disability Benefits Decision

In Stambaugh v. Reliance Standard Life Ins. Co., No. CV-23-08140-PCT-DLR, __F.Supp.3d__, 2024 WL 1854499 (D. Ariz. Apr. 22, 2024), Arizona District Judge Douglas L. Rayes granted Plaintiff’s motion for discovery of extra-record evidence finding that under an abuse of discretion standard Plaintiff was entitled to conducted discovery to demonstrate how egregious Reliance Standard’s conflict of interest was and what effect, if any, it had on the decision to deny Plaintiff’s long-term disability claim.

Plaintiff was employed as a medical technologist for Kingman Healthcare, Inc. in 2019, when she ceased working and submitted a claim for LTD benefits. Reliance denied the claim, relying on the opinion of its clinical consultant who rejected the opinions of Plaintiff’s treating provider, and concluding that Plaintiff had failed to satisfy the definition of total disability under the policy. Plaintiff appealed submitting additional evidence including the opinion of another treating physician, a neurologist, who opined that Plaintiff was largely disabled due to diabetic neuropathy and identifying restrictions and limitations. Reliance retained an endocrinologist who conducted a peer review and concluded that Plaintiff was not disabled due to her diabetes, but deferred to a neurologist to determine the extent to which neuropathy may be causing limitations. Reliance relied on this peer review as the basis for upholding its decision on appeal. Reliance’s final denial letter did not discuss the duties and physical requirements of Plaintiff’s occupation, nor did it advise Plaintiff what her application lacked or was necessary to perfect her claim. Reliance also failed to employ a neurologist to address the neuropathy claims.

By the instant motion, Plaintiff sought discovery outside of the administrative record. The Court noted that when a plan confers discretion on the administrator, abuse of discretion review applies. However, the existence of a conflict of interest is relevant to how a court conducts the abuse of discretion review. The Court found that supporting the need for additional discovery to address the conflict of interest in this case is the fact that Reliance’s actions in administering the claim appeared to be inconsistent with an unconflicted fiduciary earnestly acting as an ERISA fiduciary. The Court held that for Plaintiff to obtain evidence to meet her burden of proving how egregious the conflict was and what effect, if any, the conflict had on the decision to deny the claim, discovery will be necessary. Facts involving Reliance’s processing and investigation of the claim—including the history of the outside expert’s opinions for insurance companies, the relationship of Reliance with the outside vendor and outside expert, and the reasons given for the denial of the claim—are relevant to the inquiry. Although Reliance argued that the discovery sought is disproportionate to the needs of the case, the Court found that without offering evidence of the burden or costs of discovery, Reliance failed to meet its burden of establishing disproportionality.

The Court allowed discovery into: (1) financial incentives of employees involved in the claim; (2) data on Reliance’s LTD approvals and terminations for years 2016 to 2020; (3) data on the frequency in which specific medical vendor physicians and nurses were engaged by Reliance from 2016 to 2020, and correlating rates at which the reviews of these professionals resulted in a determination of disability; (4) the total sum of money Reliance has paid to medical vendor, MCN, for services from 2016 to 2020; (5) performance evaluations for in-house clinical consultants who reviewed the claim; (6) steps Reliance takes to mitigate bias; (7) all medical and vocational reviews obtained in processing Plaintiff’s claim; (8) policies, procedures and guidelines; (9) a Rule 30(b)(6) deposition as well as the deposition of the claims person who issued the final denial; and (10) interrogatories concerning factors considered in denying Plaintiff’s claim and evidence outside the administrative record that Reliance intends to use to show that the structural conflict of interest did not affect its decision.

If Reliance Standard or your insurer has denied your disability insurance claim, contact us for assistance.