Executive denied disability by Guardian Life
John Schwalm sued his company's long term disability insurer, Guardian Life, after it stopped paying benefits. Schwalm was the CEO of a technology company when he injured his back while lifting his luggage on a 1999 business trip. Ultimately he required three surgeries, including a spinal fusion at L-4, L-5, and endured complications that left him with fairly severe chronic pain. In 2003, he was approved for disability for two years, based on his disability from his "own occupation." At the end of two years, he was required to prove disability from any gainful work "consistent with [his previous] level of insured earnings," which was $140,000.00.In 2005, Guardian began sending Schwalm for "Independent" Medical Examinations with its doctors and it also begain employing investigators to conduct surveillance. The physicians involved concluded Schwalm was still disabled from acting as a CEO, but the surveillance suggested that he was able to sit "in a hard chair in a coffee shop" and work on his lap-top for upward of 20 minutes. Meanwhile, in his mandatory updates, Schwalm provided Guardian with a contract he had signed with a former co-worker to create a technology start-up company. Schwalm described the contract as a "rehabilitation" effort, and pointed to provisions that allowed him to rest for up to 4 hours mid-day, required the company to provide him with a cot, and deferred any salary until the start-up generated positive income. Guardian focused on the requirement that Schwalm provide 40 hours of work per week and the contingent provision of a salary in the range of $112,000.00 per year. Guardian also pointed to the fact that Schwalm was not disabled from all employment by the Social Security Administration, and terminated his benefits.
Schwalm sued, but both the District Court and the Sixth Circuit upheld Guardian's denial of his LTD benefits, deeming it supported by substantial evidence. Because the benefits were provided under an employer-sponsored ERISA plan, Guardian did not need to prove that its decision was correct, only that it was not "arbitrary or capricious."