In United States ex rel. Loughren v. Unum Group, Case No. 09-1606, 2010 WL 2951175 (1st Cir. July 29, 2010), the First Circuit vacated a jury verdict and remanded the case for a new trial because the District Court improperly excluded evidence relevant to the materiality element of the FCA. The relator alleged that Unum Group, a long-term disability insurer, caused claimants to submit false claims for Social Security Disability Insurance (SSDI) by requiring them to apply for SSDI benefits in order to receive long-term disability benefits from Unum. The Government did not intervene in this action.
Unum’s requirements to qualify for disability benefits were less stringent than that of the Social Security Administration (SSA). An applicant needed only to show that he or she is unable to work in his or her “own occupation.” By contrast, to obtain SSDI benefits, the applicant must show that he or she cannot engage in any “substantial gainful activity.” In other words, a person may qualify for benefits from Unum, but not SSDI benefits. The SSDI application inquires when the applicant has been “unable to work,” i.e., “inability to engage in any substantial gainful activity.” This question must be answered affirmatively to apply for SSDI benefits. The relator alleged that, since the applicants were required by Unum to apply for SSDI benefits, and thus answer this question affirmatively, Unum caused certain applicants to make false statements in their SSDI applications.
The District Court held, and the First Circuit agreed, that liability under the FCA requires that the false statements be material. Following the Fourth, Fifth and Ninth Circuits, as well as the recent definition incorporated into the FCA by the Fraud Enforcement and Recovery Act (FERA), the First Circuit held that materiality under the FCA, pre and post-FERA, means that the false statement has “a natural tendency to influence, or is capable of influencing,” the Agency’s decision whether or not to award SSDI benefits. The test does not require that the false statement actually influence the Agency’s decision, only that it is capable of influencing it. Unum sought to introduce evidence at trial that, like Unum’s policy, the federal government, under the Federal Employee Retirement System (FERS), required all claimants to apply for SSDI benefits. Unum further sought to present evidence that the Social Security Administration (SSA) was aware of this practice and that the SSA did not differentiate between FERS applicants and Unum applicants. The District Court excluded this evidence. The First Circuit held, however, that the evidence supports Unum’s defense that the answer to the question in the SSDI application regarding when the claimant is “unable to work” is not material, i.e., not capable of influencing the agency’s decision, because, in light of the FERS evidence, a jury could reasonably conclude that the SSA had no reason to believe that any applicant may be entitled to benefits by affirmatively responding to this question.
Typically, courts have considered government knowledge defenses in the context of the elements of "falsity" and "scienter." In this case, the First Circuit considered government knowledge with respect to the materiality element of the FCA. Based on the First Circuit's decision, the government's knowledge and practices can preclude a plaintiff from establishing the materiality element of an FCA claim.