Workers Want Recourse When Employers Deny Claims : Supreme Court to Hear Pivotal Case on Benefits

It took Salvatore D’Emanuele eight years to win disability benefits from Montgomery Ward, where he had worked a quarter of a century without missing a day’s work or being late until he injured his back.

Along the way, D’Emanuele was forced to sell his home and move into a shack on the northern shore of Big Bear Lake. Ward spied on him, lied to his doctors and misled him about the status of his claim, D’Emanuele claimed. Thirty-five lawyers refused to take his case.

“I didn’t believe they would put anybody through what they put me through,” the 58-year-old former tire salesman said.

A federal judge finally sided with D’Emanuele last year, prompting Ward to settle.

But his case was the exception. Most of the thousands of workers turned down each year for health, disability or retirement benefits by company pension and welfare plans find it impossible to reverse the decisions against them, workers’ advocates say.

Federal courts, in the 14 years since Congress regulated benefit plans, have adopted a hands-off policy that shields most decisions by plan administrators from judicial review. Benefit denials need not be right or fair, the courts have held, as long as they seem reasonable, based on the evidence--however meager--available at the time.

All that could change, though, depending on the outcome of a case to be argued before the U.S. Supreme Court today. In what pension rights lawyers call potentially the most important benefits case ever to reach the court, the justices could establish a new standard for judicial intervention in benefit decisions.

The case, Bruch vs. Firestone Tire & Rubber Co., 87-1054, involves the claim of about 500 salaried workers that they were wrongly denied a total of more than $6 million in severance pay when Firestone sold its plastics division to Los Angeles-based Occidental Petroleum in November, 1980.

Although the workers kept their jobs, they alleged that Firestone’s severance pay plan guaranteed them payments if the division were sold, in part because they lost certain benefits by becoming Occidental employees.

A federal district judge in Philadelphia rejected the claim, holding that under the prevailing standard, the denial of payments was not “arbitrary and capricious” and therefore could not be overturned.

But the U.S. 3rd Circuit Court of Appeals--acknowledging that its decision was unprecedented--broke last year with the traditional standard.

The appellate judges ordered a fresh review of the workers’ claims. Because the severance payments would come directly from Firestone’s treasury, the judges said, the Firestone executives who were trustees of the plan had an inherent conflict of interest that made their decision unworthy of the deference normally shown plan administrators.

As the Supreme Court meets to review that ruling today, business groups, led by the U.S. Chamber of Commerce and the National Assn. of Manufacturers, have lined up to defend the “arbitrary and capricious” standard.

They contend that plan administrators normally meet their obligations to workers and that in the rare instances they do not, the existing standard gives courts ample leeway to remedy any injustices.

Second-Guessing a Concern

In enacting the Employee Retirement and Income Security Act, or ERISA, Congress wanted to regulate benefit plans without making them so costly as to be unattractive to employers, the business groups say. Opening the courts to a flood of lawsuits, they warn, would upset that balance.

“If the decisions of administrators are opened up to second-guessing and full review in court under the circumstances of a case like this, then that will mean more litigation and expense for everyone,” said Quentin Riegel, deputy general counsel of the manufacturers’ association.

Pension rights advocates, on the other hand, say the existing standard virtually has closed the courthouse door to workers who claim mistreatment by their benefit plans.

“Up to now, the odds (against) winning a pension case have been so great that it’s been hard to get (lawyers) to represent someone,” said Karen W. Ferguson, director of the Pension Rights Center in Washington. “If you walk into court and they’re going to say that whatever the plan administrator says is correct, you might as well go home.”

Many workers have run up against the “arbitrary and capricious” barrier:

- When the teen-age daughter of a Los Angeles aerospace engineer became dangerously violent and required institutional care, her doctor determined that the condition was the result of a childhood brain infection. The aerospace firm’s benefits plan administrator refused to consider that opinion, instead deciding that the illness was a mental condition subject to a $50,000 lifetime cap on payments under the plan. A federal judge dismissed a lawsuit challenging the decision.

- Although its medical plan did not explicitly exclude coverage for liver transplants, the Marine Engineers Beneficial Assn. turned down an Arizona woman’s request to pay for the surgery. Later, the plan was amended to exclude such treatment from coverage. A federal court held that the plan trustees’ decision was reasonable. The woman and her husband had to sell their home to pay doctors’ bills.

“The chances of any worker succeeding in an ‘arbitrary and capricious’ case is like a flip of the coin,” said Neal S. Dudovitz, deputy director of the National Senior Citizens Law Center in Los Angeles.

Panel to Review Issue

On both sides of the Firestone case, organizations have filed briefs with the Supreme Court asking for a sweeping decision that would clearly establish the standard for judicial review in a broad array of cases under ERISA.

Business groups would like exceptions to the “arbitrary and capricious” rule closed. Worker representatives want the court to say that all benefit plans, except those administered by joint labor-management boards, lack protections for workers and thus require close scrutiny by the courts.

Backed by the Justice Department, lawyers for the former Firestone workers have argued the case more narrowly, however. They have asked the Supreme Court to require fresh judicial review only of cases involving uninsured plans, like Firestone’s, where the costs for plan trustees of issuing benefit checks are clear and direct.

Closer scrutiny would “make all the difference in the world in terms of their chance of getting a fair hearing on their claims,” said David M. Silberman, the AFL-CIO associate general counsel who will argue the Firestone workers’ case.

If the court upholds the existing standard, Congress is likely to consider a legislative change in the benefits equation.

“At the time ERISA was enacted, the consensus was there was not enough evidence that plan corporate sponsors could not be trusted,” said Phyllis C. Borzi, pension counsel to the House subcommittee on labor-management relations. “Now, with years of experience under ERISA, it’s time for us to begin to look very quickly at this issue.”

D’Emanuele, the former Montgomery Ward tire salesman, said his tortured experience--from his battle with the department store chain to his desperate search for a lawyer willing to take his case--is proof that the benefit rules need an overhaul.

“When you get to the point where you think nobody will listen to you because the money is not there, you wonder, ‘How can this be the law?’ ” he said. “If it’s not there to help the little people, who’s it going to help?”