Eleventh Circuit to Consider Whether Title I of the ADA Requires Employee Disability Plan Payments for Mental Disability to be Equivalent to Those for Physical Disabilities

Panel Decision Vacated and Case to be Reheard En Banc

A panel decision of the Eleventh Circuit recently departed from the view of many of its sister circuits holding in Johnson v. K Mart Corporation that Title I of the Americans With Disabilities Act (the "ADA") bars an employer from maintaining a long term disability plan that provides greater benefits for individuals with physical disabilities than those with mental disabilities. The Eleventh Circuit has vacated that decision and agreed to rehear the matter en banc.

Unlike some other circuits the panel decision in Johnson rejected the Supreme Court decisions in Alexander v. Choate and Traynor v. Turnage as precedent for the proposition that Title I does not bar giving different treatment to one category of disabled individuals than to another. Both of these cases were brought under section 504 of the Rehabilitation Act of 1973. The decision in Alexander v. Choate upheld the right of the State of Tennessee to reduce the number of days provided for inpatient care under Medicaid. The Court expounded that:

The Court further observed that Section 504 did not inhibit a state's right "...to choose the proper mix of amount, scope, and duration limitations on services covered by state Medicaid." In Traynor v. Turnage the Court stated that "There is nothing in the Rehabilitation Act that requires that any benefit extended to one category of handicapped person also be extended to all other categories of handicapped persons."

Instead the Johnson panel looked to the later Supreme Court decision in Olmstead v. L.C. for the proposition that differentiating in the benefits provided to those with one form of disability as opposed to those with other disabilities was prohibited by Title I.

Olmstead was an action under Title II of the ADA in which the plaintiffs, who were retarded and suffered from mental illness, sought community placement rather than being confined in a state psychiatric hospital. The majority opinion rejected the notion that there is no discrimination unless there is differential treatment of similarly situated individuals; that those alleging discrimination most show that there is a comparator class treated more favorably. Among the examples the court cited in support of this proposition were O'Connor v. Consolidated Coin Caterer's Corp in which the court found the ADEA barred discrimination between persons within the protected age group and Oncale v. Sundowners Offshore Services, Inc. finding that same sex harassment can constitute a violation of the Title VII prohibition against sex discrimination.

Citing Olmstead the Johnson panel stated that:

Looking at the legislative history of the ADA the panel acknowledged that the act allows limitations on certain procedures and treatments reasoning that such is "disability-neutral." However limiting benefits to the entire class of the mentally disabled is inconsistent with the mandates of the ADA.

Since Johnson's disability prevented him from working in his former position he was no longer an employee. Therefore to rule in his favor the court had to find that the protection of Title I extends to former employees. Previously, in Gonzales v. Garner Food Services, Inc., the Eleventh Circuit had ruled that Title I did not protect a former employee who disputed his employer's health insurance plan's limitations on treatment for AIDS related conditions. Gonzales held that an individual, who by virtue of his disability could no longer perform his job, was not a qualified individual with a disability within the meaning of the ADA. The ADA bars discrimination "...against a qualified individual with a disability because of the disability of such individual." The statute defines a qualified individual with a disability as "...an individual with a disability who with or without reasonable accommodation can perform the essential functions of the employment position that such individual holds or desires." Gonzales limited coverage of Title I to applicants and employees. Subsequent to the Gonzales decision the Supreme Court held in Robinson v. Shell Oil Co, that a former employee could maintain an action under Title VII. Robinson was a retaliation case in which the plaintiff complained of a bad reference by his former employer. The Johnson panel in a two to one decision held that Robinson mandated the reversal of its decision in Gonzales.

The lower courts have not infrequently contended with the question of whether Titles I, II and III of the ADA allow limits on the payments for certain specified conditions under health insurance plans and disability plans. The issue often arises, as it did in Johnson, where a health or disability policy provides lesser benefits for mental conditions than for physical problems. It has also come up where a policy affords a lower cap on benefits for AIDS related conditions than for other physical problems. Until the now vacated panel decision in Johnson all appellate circuits that have considered the issue have denied recovery in Title I actions complaining of disparity in benefits. A number of the reported cases involve joint actions against the employer under Title I and the insurer of the plan under Title III.

The first federal appellate court to address the issue of the permissibility under Title I of disparate benefit plan coverage for differing conditions was the Seventh Circuit in EEOC v. CNA Insurance Companies. The court found that someone who is unable to work is not protected by the ADA as a qualified person with a disability, concurring with the view of the Eleventh Circuit in Gonzales v. Garner Food Services, Inc., supra. It remains to be seen if the Seventh Circuit would adhere to this view in light of the subsequent decision of the Supreme Court in Robinson v. Shell Oil, supra.

The Eighth Circuit, in Krauel v. Iowa Methodist Hospital, held that Title I did not require an employer's self insured health plan to pay for infertility treatment as it does not single out a particular disability. The court noted that infertility is not covered no matter what the cause, be it age or ovarian cancer. Neither did the court find the plan to be a subterfuge taking it out of the protection of the safe harbor provision of the ADA. The safe harbor provision allows various entities that administer or establish benefit plans to underwrite or classify risks in "...a manner that is based on or not inconsistent with state law." Entities, such as employers, are not prohibited from establishing "...a bona fide benefit plan that is not subject to State laws that regulate insurance." However these exemptions may "...not be used as a subterfuge to evade the purposes..." of Titles I and III of the ADA.

The Krauel court followed the Supreme Court ruling in Public Employees Retirement Sytem v. Betts which involved the interpretation of like subterfuge language in the Age Discrimination in Employment Act (the "ADEA"). Betts required a showing of intent before a plan is held to be a subterfuge intended to discriminate in a non-fringe related aspect of employment. It noted the holding in Betts that an employer is not required to prove a cost justification for its plan to rebut allegations of subterfuge. The court reasoned that since Krauel did not suffer discriminatory treatment in any respect other than the plan there was no subterfuge as that term had been interpreted in Betts. The court noted, additionally, that the ADA was passed after the Betts decision. It follows that when Congress used the term subterfuge in the ADA it intended that it should be given the same meaning that the Supreme Court found it to have in the ADEA in the Betts decision.

Citing Beauford v. Father Flanagan's Boys' Home, a Rehabilitation Act case, as well as Gonzales, supra, the Sixth Circuit in Parker v. Metropolitan Life Insurance Company found that a mentally disabled former employee was not a qualified individual with a disability within the meaning of the ADA.. The court determined that lacking the protection of Title I she could not challenge the shorter cap on mental disability benefits in her employer's disability plan.

The Third Circuit addressed the issue in Ford v. Schering Plough Corporation, also a Title I action complaining of disparity in disability benefits between those who are mentally disabled and physically disabled individuals. Like the Johnson panel, the court ruled that consistency with Robinson v. Shell Oil Co., supra, requires that disabled former employees may challenge alleged disparity in employment benefits under Title I. Nonetheless the court found the rulings in Alexander v. Choate and Traynor v. Turnage, supra, to support its view that disparity between individuals within the protected group is not prohibited by the ADA. It observed that disabled employees were neither denied the opportunity to participate in the plan nor were they required to pay more than others for their participation. Additionally, the panel found a contrary ruling would be barred by the McCarran Ferguson Act. That statute provides that state insurance laws are not overridden by any federal statutes except those that regulate insurance. Like the Eighth Circuit in Krauel the Ford court found that the term subterfuge should have the meaning that the Supreme Court Betts decision attributed to it in the ADEA. It also found that under Betts an insurer does not have the burden of justifying its plan in order to withstand allegations of "subterfuge."

The K Mart disability plan challenged in Johnson was also the subject of a Title I action in the Fourth Circuit case of Lewis v. K Mart. There the court followed its ruling in Rogers v. DHEC, a Title II action contesting the disparately shorter period of coverage for mental disability benefits than for physical disability benefits in the plan of a state agency. The Lewis court found that the Title I and II of the ADA required the same results. The Rogers court determined that Alexander v. Choate and Traynor v. Turnage, supra, were authority for its position that parity of benefits for physical and mental conditions are not required by Title II. The court pointed out that the Rehabilitation Act, under which those two cases were filed, and the ADA, contain the same definitions of disability and the same language prohibiting discrimination. The Rogers decision points our that insurers historically have made distinctions between mental and physical illness in their policy offerings. It further took note of the ADA requirement that the two acts are not to be interpreted to be in conflict. In Lewis the court did not view the Supreme Court decision in O'Connor v. Consolidated Coin Caterers. Supra, as precedent for requiring like treatment of all disabilities. Rather it found Traynor v. Turnage, supra, to state the applicable rule.

In Kimber v. Thiokol Corporation the Tenth Circuit announced its agreement with those circuits that had addressed the issue before it opining that each company employee had the opportunity to participate in the same disability plan without reference to present disability or likelihood becoming disabled in the future. "The ADA does not require equal coverage for every type of disability; such a requirement, if it existed would destabilize the insurance industry in a manner definitely not intended by Congress when passing the ADA...."

The Ninth Circuit in Weyer v. Twentieth Century Fox Film Corporation quoted Gonzales with approval in denying a former employee the right to challenge under Title I his employer's lower cap for

mental disabilities than physical disabilities. It rejected Robinson v. Shell Oil Co., supra, as a basis for allowing disabled former employees to sue under Title I. It reasoned that unlike Title VII, which the Supreme Court found to be ambiguous in Robinson, Title I is not ambiguous. Ambiguity is avoided by the statute's definition of a qualified person with a disability who is protected from employment discrimination as "an individual with a disability who with or without reasonable accommodation can perform the essential functions of the employment position that such individual holds or desires." (emphasis supplied). The decision points out that the word, "can," is in the present tense.

The Second Circuit denied relief to a disabled employee who challenged the disparity in benefits between those who are physically disabled and those who suffer from a disabling mental condition in EEOC v. Staten Island Savings Bank. The court decided that it concurred "...with our sister circuits that '[s]o long as every employee is offered the same plan regardless of that employee's contemporary or future disability status, then no discrimination has occurred even if the plan different coverage for different disabilities.' Ford [v. Schering Plough] 145 F.3d at 608." (additional citations omitted).

Where the issue of disparate benefits for different disabling conditions has come up under Title III, which prohibits discrimination on the basis of disability in public accommodations, the answer has often turned on whether an insurance policy is an accommodation withing the meaning of the statute.

Some courts have concluded that although the building or office in which the policy is sold may be a public accommodation the product sold there is not. The Seventh Circuit in Doe v. Mutual of Omaha Insurance Co. upheld the insurer's right to provide lower benefits for AIDS than for other disabilities, determining that insurance policies are not public accommodations. The court was not persuaded to the contrary by the fact that Congress included the safe harbor provision in the ADA. The court rejected the argument that the safe harbor provision would not be necessary unless insurance policies were covered by the ADA. It found that the provision was added merely as a fail-safe to assuage the fears of the insurance industry that a court might find that insurance policies are covered by the ADA.

The Third Circuit took a different view in Carparts Distribution Center, Inc. v. Automotive Wholesalers of New England . The court deduced that because Title III specifically designates an insurance office as a place of public accommodation, the product sold there is also within the coverage of the statute. The Carparts court also disagreed with the Seventh Circuit in its views of the reason for the safe harbor provision. It concluded that the safe harbor provision would not have been included in the ADA if insurance policies were not regulated by the statute. See also Pallozi v. Allstate Insurance Co., Inc. which agreed with Carparts in the reasoning by which it held that the insurer's refusal to sell life insurance policies to individuals with mental disabilities violated Title III. Additionally the Pallozzi court found that insurance sales were not exempted from Title III coverage by the Mcarran-Ferguson Act requirement that only statutes that regulate insurance override state insurance laws. The Second Circuit found that Title III is a statute that regulates insurance.

In Parker v. Metropolitan Life Insurance Co., supra, the court also reasoned that the ADA only bars discrimination between the disabled and the non-disabled; it does not bar treating people within the protected group from being treated disparately from each other. The Parker court based its holding on the Supreme Court decisions in Alexander v. Choate and Traynor v. Turnage, supra.

In Leonard v. Israel Discount Bank of New York the Second Circuit found, notwithstanding its decision in Pallozzi, that insurance policies may be removed from Title III coverage by the safe harbor provision, at least if the exclusion is not a subterfuge to evade the purposes of the ADA. Relying on the Supreme Court decision in Public Employees Retirement System v. Betts, supra, the court found that a policy's provision is not capable of being a subterfuge if it was in place before the passage of the ADA. The requisite intent is lacking.

In addition to her Title I claim the plaintiff in Weyer v. Twentieth Century Fox Film Corporation, supra, also filed a Title III count against the insurer of the employer's plan. The Ninth Circuit denied that claim as well. The court ruled that Alexander v. Choate and Traynor v. Turnage, supra, "...endorse distinctions between types of disabilities, and Congress's clear instruction in the insurance safe harbor that the Act was not intended to reach common insurance practices such as underwriting of risks." It found that the holding in Olmstead was inapposite as "...it does not speak to insurance classifications such as the one at issue. Olmstead spoke to segregation of the disabled through unwarranted institutional confinement."

The recurring issue of the extent to which the ADA regulates employee health and disabilty plans and insurance policies cries out for a resolution by the Supreme Court. Employers should not be saddled with the need to have different plans in different states. Insurance companies must know to what extent they can adhere to the long established practice of providing different benefits for different conditions. Individuals should know what benefits they are entitled to receive so that they can make proper preparations for various contingencies. The parties on both sides of the issue have presented persuasive arguments. The questions to be answered include whether the McCarran Ferguson Act bars the ADA from affecting insurance, whether the safe harbor clause indicates that the ADA does regulate insurance, does Olmstead override Alexander and Traynor and does Robinson mean that disabled former employees may maintain actions for benefits under Title I. Possibly the Eleventh Circuit's decision on rehearing Johnson will present the opportunity which the Court will accept.

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