Fifth Circuit Enforces Pre-Existing Condition Exclusion in Long-Term Disability Policy Despite Employer’s Misrepresentations

In Bunner v. Dearborn Nat’l Life Ins. Co., No. 21-20327, __F.4th__, 2022 WL 2156227 (5th Cir. June 15, 2022), Plaintiff-Appellant Lisa Bunner appealed from the district court’s grant of judgment in favor of her former employer, Situs Group, L.L.C., and its long-term disability carrier, Dearborn National Life Insurance Company. Bunner sued Defendants under ERISA Section 502(a)(1)(B) and 502(a)(3) based on Dearborn’s denial of her claim for LTD benefits due to its policy’s exclusion for disabilities caused by pre-existing conditions. In deciding Bunner’s appeal, the Fifth Circuit decided several issues including the scope of the administrative record, the application of a pre-existing condition exclusion, ERISA estoppel, injunctive relief, and discovery.

By way of background, prior to starting work for Situs, Bunner was diagnosed with a brain tumor. Her doctors removed the tumor and she received radiation and chemotherapy which had caused some cognitive problems. Despite these problems, Bunner was able to compensate for the shortfalls and maintain adequate daily functional capacities at work. Bunner then started work for Situs and attended a benefits meeting at the start of her employment. Situs’s Benefits Coordinator told participants they could receive LTD benefits regardless of pre-existing conditions and they would not be questioned about their pre-existing conditions when the company was determining eligibility. A Dearborn representative was at the meeting and did not correct or qualify any of the statements made about the coverage. Bunner decided to accept their benefits but noticed inconsistent representations when she reviewed the Open Enrollment form. She was again informed by Situs that if she enrolled as a new hire, she would not be subject to the pre-existing condition exclusion. So, Bunner signed up for short-term and long-term disability benefits. After a few months of working, Bunner struggled to complete her work on time and experienced various cognitive impairments. She applied for short-term disability benefits, which Dearborn initially denied based on her pre-existing condition. Situs requested that the exclusion be waived, and Dearborn ultimately paid her short-term disability claim. However, Dearborn denied the LTD claim based on the policy’s exclusion for pre-existing conditions. In her appeal to Dearborn, Bunner argued that her disability arose from “cognitive impairments” rather than treatment for her brain tumor. Dearborn extended its 45-day deadline to decide Bunner’s appeal because it was waiting for medical records. Bunner filed suit against Defendants before Dearborn’s deadline and before it made a decision. Two months after Bunner filed suit, Dearborn denied her appeal.

The Fifth Circuit made the following determinations.

Administrative Record: The Magistrate Judge found that Bunner’s suit was filed prematurely and the case was remanded to Dearborn, who again denied Bunner’s claim. The court found that the district court did not err by allowing Dearborn more time to review Bunner’s medical records and closing the administrative record after the statutorily mandated deadline. Dearborn substantially complied with ERISA’s procedures even though it did not decide her claim until after its 45-day extension. The Magistrate Judge did not err when it tolled Dearborn’s deadline because it needed more time to review medical records it had not yet received. The magistrate judge noted it was a “messy administrative record” due to the parties’ conduct. The court’s decision was consistent with ERISA’s goal of encouraging resolution at the administrative level.

ERISA Section 502(a)(1)(B) claim: The court determined that the policy’s pre-existing condition exclusion unambiguously excluded coverage for “any loss or Disability caused by, resulting from, arising out of or substantially contributed to, directly or indirectly, by … a Pre-existing Condition.” The policy defined pre-existing condition as one that

“was caused by, or results from a Sickness or Injury for which You received medical treatment, or advice was rendered, prescribed or recommended whether or not the Sickness was diagnosed at all or was misdiagnosed within 3 months prior to Your effective date; and … results in a Disability which begins in the first 12 months after Your effective date.”

Here, Bunner became disabled within the first 12 months of coverage. Though Bunner tried to re-characterize her disability as resulting from visuo-construction and visuomotor integration deficits, the court found that they were part of the cumulative cognitive decline that was identified just before Bunner started working for Situs. The court also found that Defendants did not waive the pre-existing condition exclusion with respect to the LTD benefits. They only did so with respect to the STD benefits that were paid in full.

ERISA Estoppel: The district court found that Defendants made material misrepresentations upon which Bunner reasonably and detrimentally relied but that she did not rely on them under extraordinary circumstances. The court analyzed a few cases involving ERISA estoppel and concluded that the conduct here did not rise to the level of extraordinary circumstances. The misrepresentations here occurred in a single month and were made by two individuals. None of the later conversations Bunner had with Defendants’ representatives involved affirmative misrepresentations. The court also rejected Bunner’s argument that she was especially vulnerable due to her brain tumor. At the time she relied on Defendants’ representations, she did not believe she had suffered any debilitating effects from the treatment and had no difficulty performing her duties for Situs.

Injunctive Relief: The district court did not err by granting summary judgment to Defendants on her Section 503(a)(3) request for an injunction requiring the production of recordings of all calls Dearborn had with other claimants. The magistrate judge did not err by finding that all relevant documents were in the record and an injunction was not needed to ensure a full and fair review.

Discovery: The district court did not err by preventing Bunner from conducting further discovery into the completeness of the record, Defendants’ bad faith in following ERISA procedures, or into other claimants in similar circumstances who were treated differently than she was. The magistrate judge found that these issues were sufficiently resolved and Bunner’s arguments about Defendants’ bad faith were nothing more than speculation. The court found that the district court was doing little more than guarding against abusive discovery.

The court affirmed the district court’s grant of summary judgment and its ruling regarding ERISA estoppel.