Life, Health, and Disability News
Fourth Circuit Holds That ERISA Plan Administrator Abuses Its Discretion by Failing to Address Conflicting Evidence, Including Evidence of Social Security Disability Award
By Scott M. Trager
In Smith v. Cox Enters., Inc. Welfare Benefits Plan, 127 F.4th 541, No. 22-2173, 2025 WL 379876 (4th Cir. Feb. 4, 2025), appellant, Jeremy Smith (“Smith”) appealed the grant of summary judgment issued by the United States District Court for the Eastern District of Virginia in favor of the Cox Enterprises, Inc. Welfare Benefits Plan (the “Plan”). The Plan had previously terminated Smith’s long-term disability (“LTD”) benefits after finding Smith was no longer totally disabled as defined by the Plan. The Fourth Circuit, however, reversed the district court’s decision and held the Plan did not engage in a principled and reasoned decision-making process because it failed to discuss conflicting evidence and further failed to address prior evidence of an award of benefits by the Social Security Administration (“SSA”).
Smith’s LTD claim arose from back issues and was initially approved by the Plan in 2012. Smith received LTD benefits during the twenty-four month “own occ” period and then transitioned to benefits under the “any occ” period in 2014. In June 2016, the SSA determined Smith became disabled on June 1, 2015. After a consultative examination conducted by Dr. Lisa Harris (“Dr. Harris”) on behalf of the Virginia Department of Rehabilitative Services, the SSA recertified his disability benefits in 2018.
In late 2018, the Plan began another periodic review of Smith’s LTD claim. Smith’s primary care physician, Dr. Steven Hartline (“Dr. Hartline”), found Smith only capable of working two hours a day for two days a week. Nurse Holly Shepler, on behalf of the Plan, assessed that Smith had “residual work capacity” and sought additional information. Dr. Hartline responded that Smith’s main issue was staying in one position for more than fifteen minutes and that he needed to alternate between sitting, standing, and laying. The Plan then had Dr. Timothy Lee perform an independent medical evaluation (“IME”) on June 14, 2019, at which time he concluded that Smith was able to work an eight-hour day for forty hours a week subject to numerous conditions. Vocational counselor Maria O’Brien (“Ms. O’Brien”) thereafter conducted a transferable skills analysis, which identified four sedentary jobs Smith could reasonably perform. On July 16, 2019, the Plan terminated LTD benefits.
Smith appealed the termination and sent Dr. Harris’s consultative examination report from his 2018 Social Security recertification. Two independent physicians, Dr. Joseph Walker III (“Dr. Walker”) and Dr. Neil Gupta (“Dr. Gupta”), reviewed the appeal for the Plan. Dr. Walker found that Smith was capable of working an eight-hour day five days a week with conditions, and Dr. Gupta found that Smith could stand for up to two hours and walk for up to two hours in an eight-hour day. On April 16, 2020, the Plan upheld the termination of LTD benefits. Smith then sued the Plan under ERISA.
The district court granted summary judgment in favor of the Plan and reasoned it was permissible for it to discount Dr. Hartline’s opinion, as he had only been Smith’s physician for one week when he wrote his opinion recommending work limitations and he admitted his opinion was based on the assessment of another physician. The district court was further satisfied that Dr. Walker and Dr. Gupta had considered Dr. Harris’s report, even though they did not discuss it, because they included the report in a list of records they reviewed. The district court also found it was reasonable for the Plan to discount the SSA’s disability determination because the Plan had never received the medical information underlying the SSA’s initial 2016 determination. Smith then appealed to the Fourth Circuit.
The Fourth Circuit, applying the discretionary standard of review, reversed the district court’s decision and remanded the case for further proceedings. The Fourth Circuit agreed with Smith that the Plan abused its discretion by not properly considering Dr. Harris’s consultative examination related to his Social Security recertification. The court found that the language of the Plan’s letter upholding its prior denial, specifically the section discussing the Social Security determination, was virtually unchanged from the prior termination letter. The court characterized the letter as “boilerplate” and found it failed to include any meaningful discussion of the Social Security determination, including Dr. Harris’s consultative evaluation, which formed a critical basis for the SSA’s disability recertification. Rather, the court stated the letter merely suggested possible reasons that the SSA’s determination could be discounted, but did not sufficiently explain the basis for disagreeing with the SSA’s determination as required under 29 C.F.R. § 2560.503-1(j)(6)(i)(C). The court further cited cases from sister circuits holding that evidence of a Social Security award of disability benefits is of sufficient significance and the failure to address that offers support that the Plan administrator’s denial was an abuse of discretion. Although the court acknowledged an administrator has the authority to weigh conflicting evidence, it abuses its discretion when it fails to address conflicting evidence. The failure by the Plan to discuss the Social Security award, and the failure by Drs. Walker and Gupta to address Dr. Harris’s findings, constituted a denial of Smith’s statutory right to “a full and fair review” under 29 C.F.R. § 1133(2).
The court, however, rejected Smith’s contention that the decision in Harrison v. Wells Fargo Bank, N.A., 773 F.3d 15 (4th Cir. 2014), compelled the Plan to seek out his Social Security records and that its failure to do so required reversal and the award of past benefits. The court stated it need not address this issue because Smith could present his full Social Security records to the Plan on remand. The court further found no reason to grant reversal on the ground that the Plan’s ultimate determination regarding Smith’s work restrictions was arbitrary and unsupported as the Plan had not yet considered all of the evidence and had not demonstrated a manifest unwillingness to give fair consideration to evidence supporting Smith. Finally, the court declined to grant attorneys’ fees, costs, and prejudgment interest as that issue was for the district court to consider at its discretion on remand.
Scott M. Trager of Funk & Bolton covers a broad spectrum of insurance litigation matters in the state and federal courts of Maryland and the District of Columbia, the Maryland Insurance Administration, and the Maryland Office of Administrative Hearings. In partnership with his clients, he meticulously and strategically defends and litigates life, health, and disability insurance claims (ERISA and non-ERISA) and handles administrative claims before insurance regulators. He also assists insurers with pursuing claims for rescission and interpleader.
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Insurance Law: Covered Events
Navigating Insurer Policy Limits When Securing Appeal Bonds
By Dan Huckabay
When an insurer is posting an appeal bond involving a judgment in excess of their policy limits, the natural concern is how to cap their exposure to their policy limits and not become jointly and severally liable for the entire judgment. In this article we will take a look at some of those situations and various ways insurers can manage their risk.
Background and Surety Underwriting Requirements
Before getting into the specific situations insurers encounter when posting appeal bonds, it’s important to set the stage as to what appeal bonds are and how they are underwritten by surety companies. Unlike insurance, surety bonds are an extension of credit whereby the surety company is guaranteeing to pay the judgment on behalf of the insurer to the judgment creditor if the insurer does not satisfy it on their own. The surety will require the insurer to indemnify them for any loss under the bond, and the decision by the surety whether to extend credit to the insurer by issuing the bond will be dependent on the insurer’s financial strength relative to the bond amount required.
Insurance companies come in all sizes and have varying financial strength. When a surety is considering whether they can provide a bond without collateral, they will review the insurers financial statements as they would any other business. Sureties will review whether the insurer has been profitable and whether they have adequate capital surplus and liquidity to easily pay the judgment if it is affirmed.
Sureties also consider third party rating agencies such as AM Best and S&P, whether the insurer has reinsurance, and any recent events such as catastrophic weather or fire events that could impact the insurers financial health.
Single Insurer
When there is a single insurer involved and the judgment is in excess of the policy limits, there are generally two ways we see the appeal bond structured. One option is for a single bond to be provided covering the full judgment plus whatever costs and interest are statutorily required to be added. When approaching it this way, some sureties have indemnity agreements whereby the insurer’s indemnity or liability to the surety is limited to the insurer’s policy limits. The insured would then indemnify and possibly provide collateral to the surety for the portion of the bond in excess of the insurer’s policy limits.
Another potential option is to issue multiple bonds. With this approach, one bond is issued for the insurer’s policy limits and a second bond is issued for the excess amount that the insured is responsible for. It is important to confirm with legal counsel that this will be accepted by the court based on the local rules.
Multiple Insurers – One Judgment Debtor
When there are multiple layers of insurance and a single insured as the judgment debtor, a separate bond can technically be issued by each insurer for their respective policy limits. However, if there are several insurers, that can be unwieldy. Often, we see multiple insurers get one bond and limit their indemnity to the surety up to their respective policy limits.
When there is a lead carrier, we’ve had insurers work out their own agreement allocating their proportional responsibility and authorizing the lead carrier to obtain the bond for the full amount on the group of insurers’ behalf. In those situations, the lead carrier is the only insurer to indemnify the surety for the full amount of the appeal bond.
Lloyd’s syndicates are usually structured similarly to multiple insurers where the syndicate lead will indemnity for the appeal bond on behalf of the other syndicates. However, there are only certain sureties that will accept the indemnity of Lloyd’s syndicates.
Joint and Several Judgments with Multiple Defendants
Joint and several judgments against unrelated defendants that carry separate insurance coverage through different insurers present some unique considerations. We recently had such a case and were working with both judgment debtors and their insurance carriers. The parties wanted to have the surety issue a single bond, but that would have created joint and several liability, meaning each party would have been required to indemnify the surety for the full bond amount instead of their respective 50 percent share. As an alternative solution, we let the parties know that the surety could issue a separate bond for each party’s 50 percent share and then require indemnity for only their respective portion. The premium rate was the same whether the surety issued one bond or two separate bonds, so there was no disadvantage from a cost standpoint to issuing multiple bonds.
Other Considerations
There are some situations where the insurer may want to provide an appeal bond up to their policy limits, but the insured cannot qualify for their portion of the bond in excess of policy limits. In these situations it's important to check with counsel to determine if the court will accept a partial bond for the judgment amount. Jurisdictions like California have clear case law on this matter allowing insurers to post the bond up to their remaining policy limits.
Conclusion
This article has highlighted many of the most common situations that arise with insurers, but there can be many other scenarios that occur based on each case’s unique circumstances. Communication among the insurer, insured, and defense/appellate counsel is key to understanding each parties’ obligations and intent as it relates to the appeal bond(s). Appeal bond experts well versed in working with insurers are critical to help facilitate these discussions and help the parties understand the various considerations to avoid mistakenly structuring the bond in a way that obligates the parties to more than they intend.
Dan Huckabay is president of Court Surety Bond Agency, and he has underwritten appeal bonds in almost every state and federal district court for clients ranging from individuals to Fortune 500 companies. In addition, he has delivered numerous presentations across the country on appeal bonds and authored dozens of published articles. He has also served as an expert witness in several cases where appeal bonds represented a central issue.
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Toxic Torts
Join Us for DRI's 2025 Toxic Torts and Environmental Law Seminar
By Alexander R. Saunders
Learn, connect, and strategize with our peers at DRI's 2025 Toxic Torts and Environmental Law Seminar, March 26–28, at the Grand Hyatt Atlanta in Buckhead!
Attendees can look forward to presentations over how to handle the rise of safetyism and conspiracy beliefs during jury selection, or how to navigate privilege issues surrounding work with environmental consultants. This is a mere glimpse—there will be an assortment of topics to pique your interest. This is the best opportunity to engage with fellow professionals on our continuously evolving defense strategies, changing case law, and soaring jury verdicts.
I am looking forward to connecting with everyone at the Networking Lunch, Premier Networking Reception, and Dine-Arounds in this great city!
Please peruse the program for more details! To give you a preview, I am most looking forward to exploring how to use genetic testing in toxic tort litigation, and small group conversations about topical issues that I face on a day-to-day basis. I hope you will join me in Atlanta this March!
If you or anyone you know wants to become involved in the Toxic Torts and Environmental Law Committee, please attend our Business Meeting at the seminar for committee openings and opportunities!
Program Vice Chair Alexander R. Saunders of Irwin Fritchie Urquhart Moore & Daniels has broad trial and appellate experience in both state and federal courts as well as experience in mediation and arbitration. He has extensive deposition experience and has managed several cases for trial. Alex has handled matters concerning third-party casualty claims, construction defect claims, toxic tort exposure claims, complex commercial litigation, traumatic brain injury claims, and first-party coverage litigation. Feel free to email him at asaunders@irwinllc.com.
Interested in joining the Toxic Torts and Environmental Law Committee? Click here for more information.
