High Court Rules in Favor of Insurer in Claims Case

WASHINGTON —  The Supreme Court, in a victory for the insurance industry and businesses in general, has protected worker benefit plans from paying for mishandling disability claims.

By a 9-0 vote Thursday, the court shielded from suit an insurance company in Los Angeles accused of improperly cutting off benefits to a woman who worked for the firm.

The ruling limits individuals from winning awards for punitive and compensatory damages when firms deliberately or negligently cut off the workers’ benefits.

Justice John Paul Stevens, writing for the court, said a key provision of the 1974 Employee Retirement Income Security Act did not authorize lawsuits for “damages caused by improper or untimely processing of benefit claims.”

The American Council of Life Insurance and the Health Insurance Assn. of America warned that permitting such suits could threaten worker benefit plans. The insurance groups said businesses might be unwilling to create new plans or increase their contributions to existing plans if they were faced with “large and unpredictable punitive awards.”

The ruling was in the case of Doris Russell, who took a leave of absence in May, 1979, from her job as a claims examiner in the Los Angeles office of Massachusetts Mutual Life Insurance.

Russell, 54 at the time, lost her salary benefit in October, 1979, and was fired after the firm decided she had no physical disability.

But her psychiatrist said she had back pains that were caused by psychological problems and were disabling. The insurance company agreed to a re-examination, and its own psychiatrist agreed.

Russell was rehired and her benefits restored in March, 1980. She has been receiving long-term disability benefits ever since.

But she sued the company for damages on grounds that termination of her benefits caused her additional harm. She said she and her husband, who also was disabled, were forced to cash in their retirement savings plan because they were short of money after her salary was cut off.

The U.S. 9th Circuit Court of Appeals ruled in 1983 that the company may be sued for its improper handling of her claim and wrongful firing.

The appeals court ordered further lower court hearings to determine what damages Russell was entitled to.