Seventh Circuit: “Discretion” means the insurance company can shuck and jive

Ghandi Gutta is an accomplished physician. Unfortunately for him, he suffered from a variety of ailments, which kept him from being able to work as a physician. As the United States Seventh Circuit Court of Appeals described it, Dr. Gutta’s ailments included:

type I diabetes, macular degeneration, retina artery aneurism in his left eye with a residual blind spot, dislocation of the left thumb, degenerative arthritis in both wrists, ulnar palsy of the left arm and hand, rotator cuff injury in the left shoulder, and degenerative arthritis in the right AC joint.

Other than that he was fine.

Dr. Gutta filed a disability claim under his ERISA-governed insurance policy, and after paying for a brief time Standard Insurance Company terminated his benefits; Dr. Gutta was thereby forced to roll the dice with his ERISA lawsuit. The evidence in the claim file (which is of course all he got to introduce at trial) included “the testimony of no less than twelve doctors, as well as a few other people.” Standard, meanwhile, had decided that Dr. Gutta was able to work as a medical director or assistant medical director, so no benefits for him.

In court, of course, Standard argued that it had conferred “discretion” upon itself in its insurance policy, and that therefore its termination of Dr. Gutta’s disability benefits could be overturned only if it was an abuse of discretion, never mind whether it was correct. The Seventh Circuit agreed, and described the “abuse of discretion” standard as allowing Standard to “shape the application, interpretation, and content of the rules in each case.”

Guess who won?

This is remarkable, or would be anywhere but ERISAworld. The rules by which an insurance company decides which claims to pay are not shaped by the terms of the insurance policy, and God knows the law doesn’t intrude on its unfettered ability to lie cheat and steal. No, an insurance company can decide for itself, in each case, what the “application, interpretation and content of the rules” are.

And our Congressional representatives just allow this to fester.