Second Circuit Affirms Reliance Standard’s Reduction of Long-Term Disability Benefits Based on Claimant’s Change in Employment Status

In Caccavo v. Reliance Standard Life Insurance Company, No. 21-1410-CV, 2022 WL 1931420 (2d Cir. June 6, 2022), Plaintiff-Appellant Frank Caccavo appealed the district court’s judgment in favor of Defendant-Appellee Reliance Standard Life Insurance Company on Caccavo’s claim for long-term disability (“LTD”) benefits under an ERISA-governed disability plan. Applying an arbitrary-and-capricious standard of review, the Second Circuit determined that Reliance Standard was not unreasonable in determining that Caccavo had returned to work in a limited capacity and reducing his LTD benefits accordingly. The court affirmed the judgment of the district court.

First, on the standard of review, the court determined that de novo review was not warranted based on Caccavo’s argument that Reliance Standard violated two subsections of ERISA’s claims-procedure regulation in the handling of his claim. The court found that Reliance Standard’s adverse determination letter fully complied with 29 C.F.R. § 2560.503-1(g)(1)(ii) where it quoted the policy’s Work Incentive Benefit provision and its finding that Caccavo returned to work in September 2016 and appears to be performing his prior position in some capacity. Reliance also complied with § 2560.503-1(h)(3)(ii) because the decisionmaker on Caccavo’s appeal did not give improper deference to the employee who made the initial adverse decision, notwithstanding an email from the appeals supervisor that the employee would be able to give the decisionmaker the “scoop.”

The court did find that the district court erred by not considering Reliance Standard’s conflict of interest. Caccavo offered “categorical” evidence showing that Reliance’s conflict affected its decision in the form of many judicial decisions reviewing Reliance’s benefits decisions and finding that it acted arbitrarily and capriciously. Because Caccavo offered this evidence, it was error for the district court to give zero weight to Reliance’s conflict. In reviewing Reliance’s decision, the Second Circuit accorded “some weight” to the conflict of interest.

Factoring in Reliance’s conflict of interest, the court found that its decision was not arbitrary and capricious because it was supported by substantial evidence: (1) Caccavo told Reliance that he intended to sign his former team’s renewal contract with his former employer which would allow him to continue to receive loyalty payments; (2) Caccavo’s neuropsychologist informed the employer that he was able to return to work in a “minimal” way with limitations; (3) the employer’s Managing Principal confirmed that Caccavo would be welcomed back on September 6, 2016; and (4) an HR employee provided Reliance with a job description for Caccavo and stated that it was the closest to Caccavo’s current role. Even though Caccavo submitted countervailing evidence that he had not returned to work, he declined to provide Reliance with a copy of the team’s renewal contract and pay statements related to all income he received from the employer. This impeded Reliance’s efforts to investigate the contradictory evidence before it and provided substantial evidence for Reliance’s decision to deny Caccavo’s appeal.