Reinsurance Law Blog : Oklahoma Insurance Lawyer & Attorney : Stauffer & Nathan Law Firm

The Tenth Circuit clarified the appropriate standard for discovery related to a dual role conflict of interest in ERISA cases in Murphy v. Deloitte & Touche Group based on the recent Supreme Court decision of  Metropolitan Life Insurance Co. v. Glenn, 554 U.S. 105, 128 S.Ct. 2343 (2008). While the holding did not change Tenth Circuit law, the court felt it was appropriate to clarify its prior holdings.  

In an ERISA case where the plan “‘gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan,’” the  administrator’s decision is reviewed for an abuse of discretion – and in this context, abuse of discretion and arbitrary and capricious are the same standard.  

In reviewing a plan administrator’s decision under the arbitrary and capricious standard, the federal courts are limited to the administrative record.  As a result, discovery is generally inappropriate in these cases.  The court found that while case law prohibits courts from considering materials outside the administrative record where the extra-record materials sought to be introduced relate to a claimant’s eligibility for benefits, this general restriction does not conclusively prohibit a district court from considering extra-record materials related to an administrator’s dual role conflict of interest. Therefore, discovery related to the scope and impact of a dual role conflict of interest may, at times, be appropriate.  The appropriateness of such discovery is governed by Fed.R.Civ.P.  Rule 26(b).  A district court has substantial discretion in handling discovery requests under Rule 26(b).

 

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In Miller vs. Monumental Life Ins. Co. the trial court ordered (after remand from a prior appeal) that the ERISA based case be sent back to the plan administrator so the record could be completed.  The plaintiff, Miller, appealed from this order, claiming it was improper on various grounds.  The Tenth Circuit ruled that it was an interlocutory order over which it had no jurisdiction to determine. 

Aside from a few well-settled exceptions, federal appellate courts have jurisdiction solely over appeals from final decisions of the district courts of the United States.  A final decision is one that ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.  The order remanding the case to the plan administrator was not a final decision.

The court considers whether ERISA remand orders are reviewable on a case by case basis, and considers “practical finality.”  Neither the cost or delay associated with additional review of the “sole cause” defense, nor Miller’s unfounded fear about loss of his argument that Monumental was not entitled to raise this defense, justifies treatment of the remand order as a final order for purposes of review. Miller’s contentions are not “effectively unreviewable.” The appeal was dismissed for lack of jurisdiction.

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The Tenth Circuit has determined that ERISA’s exception for governmental plans applies to plans sponsored by Indian tribes, so long as those plans meet the requirements of the definition. This means that ERISA preemption does not apply to insurance plans involving Indian tribes. Dobbs v. Anthem Blue Cross Blue Shield was the second time the case came before the Tenth Circuit. The first time, the Tenth Circuit remanded the case, asking the district court to make factual findings, and stating that “i]f the Dobbses’ benefit plan meets the new definition of governmental plan under § 1002(32), ERISA will not preempt their state-law causes of action against Anthem.” On remand, the district court found that the plan would be preempted under the new statutory language regarding governmental plans, but that the amendment was not retroactive.

The Tenth Circuit explained “law of the case” principles and stated that it had already determined by implication that the amendment would retroactively apply to the Dobbses’ claims. It questioned whether it could affirm a district court decision that rejects a prior panel decision as clearly erroneous, citing In re Smith, 10 F.3d at 724 (noting that the Tenth Circuit is bound by the precedent of prior panels absent en banc reconsideration or a superseding contrary decision by the Supreme Court). T he court discussed the general principles regarding when statutory amendments are applied prospectively or retrospectively.

The court reversed and remanded the case, once more asking the district court to make the factual determination it had previously asked it to make. 

Rather than looking to Mr. Dobbs’ duties, the court must determine whether all plan participants are employees ‘substantially all of whose services . . . are in the performance of essential governmental functions but not in the performance of commercial activities (whether or not an essential government function).’

Finally, the court held that the Dobbses could not claim fraud as to benefits. Those claims relate to the contracted for benefits, thus, if the plan was subject to ERISA, those claims would be preempted.

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In Rasenack vs. AIG Life Insurance Company, the Tenth Circuit ruled that AIG’s delays in deciding Rasenack’s claim for benefits under an accidental death and dismemberment policy (ADD policy) were substantial enough to result in a de novo review of the claim by the trial court.  Generally, under ERISA, claims decisions by administrators such as AIG are reviewed by the courts under an arbitrary and capricious standard.  Under the arbitrary and capricious standard, so long as the decision is supported by evidence, it will be upheld, while under a de novo standard, no weight is given to the claims administrator’s decision.  Summary judgment for AIG was reversed, and the case was remanded.

Mr. Rasenack was severely injured as a pedestrian by a hit and run vehicle.  He was in a coma for three weeks and remained hospitalized for months.  He claimed he was entitled to paralysis benefits under the AIG policy because he lost the use of both legs and his left arm.  The plan says that claims will be determined in 90 days, or under special circumstances, within 180 days; AIG took 16 months to deny the claim.  Rasenack appealed.  Appeals were to be decided in 60 days.  Seven months later, with no decision by AIG on the appeal, Rasenack sued.  AIG then denied the appeal.

First the court held that the claims administrator’s decision was entitled to no deference where the decision was made by operation of law, rather than the use of discretion.  Then the court found that the policy was ambiguous.  The policy’s definition of hemiplegia as “complete and irreversible paralysis” is wholly dependent on the meaning of “paralysis,” which the policy does not define. AIG claimed that the definition of hemiplegia carries a plain meaning, i.e., that the entire arm and leg of one side of the body must be “completely paralyzed,” and that “anything less than ‘no movement at all’ would not be ‘complete’ paralysis.”  While complete absence of movement may be a reasonable interpretation of ‘paralysis’, it was not the only interpretation, as found in various medical texts.  And the summary plan description defined hemiplegia as the loss of “use of both upper and lower limb on same side of body.”  The language was strictly construed against AIG, the drafter of the policy.

The court then reviewed the record, finding that there was evidence which supported the claim.  This was important because AIG stated in its denial that there was no evidence to support the claim.  The failure of AIG to consider evidence in support of the claim made the decision fatally one sided: 

Comparing AIG’s explanations of its decision to deny the claim to the information contained in the administrative record, it appears that AIG cherry-picked the information helpful to its decision to deny Mr. Rasenack’s claim and disregarded the contrary opinions of the medical professionals who examined, treated, and interviewed Mr. Rasenack. 

Thus, the Tenth Circuit reversed and remanded the case back to the district court for a de novo review.  It declined to remand the case back to the plan administrator, finding that AIG’s delays made such an option inappropriate.

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In Salisbury v. Hartford, Ms. Salisbury sued Hartford for denying her long term disability claim more than 3 years after the denial.  The plan said all suits must be filed within 3 years.  Her claim was dismissed as untimely and the 10th Circuit affirmed. 

First, the court found that the state law limitation period didn't matter since the contract stated a limitation period.  Then the court found the limitation period reasonable.  Salisbury claimed the contractual limitation was confusing and circular, but since she failed to file suit for nearly 5 years after her claim was denied, the court dismissed her arguments.

 

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In Miller v. Monumental Life, the Tenth Circuit found that an ERISA plan requirement that an insured “present proof of a Social Security Disability Award” was ambiguous.  After an accident, the insured had applied for Social Security disability under both Title II (insurance)  and Title XVI (welfare).  The court explains: 

Although the Social Security Administration (SSA) administers both programs, the Supreme Court has outlined their distinctions: “Title II is an insurance program. Enacted in 1935, it provides old-age, survivor and disability benefits to insured individuals irrespective of financial need. Title XVI is a welfare program. Enacted in 1972, it provides [Social Security Insurance] benefits to financially needy individuals who are blind, or disabled regardless of their insured status.”

www.ca10.uscourts.gov/opinions/05/05-2247.pdf

Title II disability benefits were denied because Miller did not have sufficient quarters of coverage to confer disability insured status.  Miller was granted disability under Title XVI.  Monumental denied payment on the grounds that it was not a Social Security Disability Award.  The trial court affirmed, but the Tenth Circuit reversed.  First, the Tenth Circuit notes that the case must be decided under federal common law, not under New Mexico law. 

The district court found that the “phrase [Social Security Disability Award] has a technical meaning that does not include [Social Security Income] payments” and refused to “go beyond the technical meaning of Social Security Disability Award.”  The court emphasized “that the language in each of these places means what Monumental meant it to say when it wrote [the] definition.”  The Tenth Circuit notes the definition of disability is the same under either Title II or Title XVI, and that a reasonable person could conclude that a finding of disability under either title was sufficient.  The court rejected Monumental’s claim that since the Title XVI benefits would cease when Monumental  began paying Miller, that such payments were not sufficient under the policy, finding that the argument placed Miller in a classic Catch 22.  The court found the term ambiguous.  It also found that any extrinsic evidence should have been presented in the summary judgment motions, but was not.  The Court adopted the rule of contra proferentem in cases of ambiguous language with a de novo standard of review, which means that terms are construed against the drafter. The court then held that Miller’s receipt of Title XVI benefits satisfied the plan requirements.  It remanded the case, however, to rule on an issue the trial court did not reach – whether Mr. Miller’s accident was the “sole cause” of his disability.

The decision is remarkable in several respects.  First, it reverses a trial court’s ruling on summary judgment on a plan determination.  It should be noted that the plan did not give the administrator the authority to interpret ambiguous provisions, therefore, the court had de novo review.  Second, it finds that the term social security disability is ambiguous, as it could apply to any finding of disability under the social security laws. Third, it specifically adopts the contra proferentem rule in ERISA cases in the Tenth Circuit, joining the majority of courts which have considered the issue.  Finally, the court notes that it has never construed a term against an ERISA beneficiary, which would be against the policies of ERISA. 

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