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The standard under which a district court may consider evidence outside of the administrative record when reviewing a denial of disability benefits under the Employment Retirement Income Security Act of 1974 has been clarified by the 2nd U.S. Circuit Court of Appeals. The circuit held that the “good cause” standard for going beyond the administrative record is not automatically triggered by a showing that the administrator who denied the benefits labored under a conflict of interest. “We hold that a conflicted administrator does not per se constitute good cause, and caution district courts that a finding of a conflicted administrator alone should not be translated necessarily into a finding of good cause,” the court said in Locher v. UNUM Life Insurance Company of America, 03-9229. Marianne Locher worked as a legal secretary at the Chicago law firm Katten Muchin & Zavis, now Katten Muchin Zavis Rosenman. In early 1993, suffering from chronic fatigue syndrome, she failed to provide the proper documentation needed to have her employee classification changed from full time to part time. Three months after her April 1993 departure from the firm, Locher applied to UNUM for disability benefits. The company denied her application and two appeals. Locher filed an action in the Southern District. UNUM moved to limit the evidence at trial to the administrative record. The company objected to the testimony of an expert witness retained by Locher and a former co-worker from Katten Muchin. Judge Laura Taylor Swain denied the motion, finding that “all persons involved in the initial and appellate review of Locher’s claim under the Disability Plan were UNUM employees,” that UNUM was a “conflicted administrator” within the meaning of 2nd Circuit case law on the subject and that UNUM had insufficient written procedures for reviewing claims. Those findings led Swain to accept the outside testimony. The judge also stated that there was “per se ‘good cause’” for going outside the administrative record. After hearing the evidence, the judge ruled in favor of Locher, finding her disabled within the meaning of the policy and awarding her monthly benefits, attorney fees and costs. The 2nd Circuit case law considered by Swain was DeFelice v. American International Life Assurance Co. of New York, 112 F.3d 61 (1997). On Locher’s appeal, 2nd Circuit Judge Chester J. Straub said the circuit was upholding Swain on her admission of the evidence and the grant of benefits but writing to clarify its holding in DeFelice. In DeFelice, the circuit set forth the principle that district courts have the discretion to admit additional evidence but should not exercise that discretion absent good cause. The DeFelice court, he said, “applied that principle by holding that ‘upon de novo review, even purely factual interpretation cases may provide a district court with good cause to exercise its discretion to admit evidence not available at the administrative level if the administrator was not disinterested.’” Straub said that in DeFelice the circuit found it significant that the “appeals committee that reviewed DeFelice’s claim was comprised entirely of employees of the administrator, that there existed no established criteria for determining an appeal, and that the committee apparently had a practice of destroying or discarding all records within minutes after hearing an appeal.” Several courts in the circuit, including the district court in Mocher’s case, have read DeFelice as holding “that an administrator’s dual status as claims reviewer and claims payor is per se ‘good cause’ for allowing additional evidence upon a de novo review of factual issues,” he wrote. Not so, said the judge, because DeFelice was based on more than a conflict of interest — it was also based on flawed procedures for claims determinations and appeals. Having a per se rule, he said, “would effectively eliminate the ‘good cause’ requirement and the discretion afforded to district courts in deciding whether to admit additional evidence, because claims reviewers and payors are almost always either the same entity or financially connected in some other way.” And a per se rule, he said, “would also eliminate the appropriate incentive for a claimant to submit all available evidence regarding the claimant’s condition to the insurance company upon first submitting a claim,” thereby undermining the strong policy interests of “minimizing costs of claims disputes and ensuring prompt claims-resolution procedures.” Judges Roger J. Miner and Jose A. Cabranes joined in the opinion. Elizabeth L. Koob of Koob & Magoolaghan represented Locher. Patrick W. Begos of Begos & Horgan represented UNUM.

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