Opinion
No. 11-11-138.
Filed August 1, 2011.
JASON P. GOSSELIN, Counsel of Record, KATHERINE L. VILLANUEVA, BRADFORD P. BARRON, DRINKER BIDDLE REATH LLP, Philadelphia, PA, Attorneys for Petitioner.
QUESTION PRESENTED
What is the standard for determining whether a plan administrator subject to the Employee Retirement Income Security Act ("ERISA") abused his discretion in interpreting ambiguous plan language?
PARTIES TO THE PROCEEDING
Petitioner is E. Belinda Bauer, as trustee of the Craig E. Bauer Insurance Trust. Respondent is Reliance Standard Life Insurance Company.
TABLE OF CONTENTS
QUESTION PRESENTED................................... i PARTIES TO THE PROCEEDING............................ ii TABLE OF CONTENTS.................................... iii TABLE OF AUTHORITIES................................. PETITION FOR A WRIT OF CERTIORARI.................... 1 OPINIONS BELOW....................................... 1 JURISDICTION......................................... 2 STATEMENT............................................ 2 A. Mrs. Bauer's Claim for Benefits................. 2 B. Pertinent Policy Language....................... 4 C. The Third Circuit Decision...................... 5 REASONS FOR GRANTING THE PETITION.................... 6 ARGUMENT............................................. 7 A. The Court of Appeals' Decision Conflicts with Supreme Court Authority.................... 7 B. The Circuits Are Split as to the Correct Standard for Assessing the Propriety of a Plan Administrator's Claim Determination ................................................ 10 CONCLUSION........................................... 14 APPENDIX APPENDIX A-Sur Petition For Panel Rehearing, United States Court Of Appeals For The Third Circuit, May 4, 2011............................................ 1a APPENDIX B — Opinion Of The Court, United States Court Of Appeals For The Third Circuit, April 1, 2011.......................... 2a APPENDIX C — Order, In The United States District Court For The Eastern District Of Pennsylvania, February 1, 2010.................. 8a
TABLE OF AUTHORITIES
Bill Gray Enters, v. Gourley 248 F.3d 206 Booth v. Wal-Mart Stores, Inc. Assocs. 201 F.3d 355 Bruch v. Firestone Tire Rubber Co. 828 F.2d 134 Carden v. Aetna Life Ins. Co. 559 F.3d 256 Firestone Tire Rubber Co. v. Bruch 489 U.S. 101 Gallo v. Amoco Corp. 102 F.3d 918 Hebert v. SBC Pension Benefit Plan 354 F.3d 796 Metropolitan Life Ins. Co. v. Glenn 544 U.S. 105 Moench v. Robertson 62 F.3d 553 Scruggs v. ExxonMobil Pension Plan 585 F.3d 1356 Senzarin v. Abbott Severance Pay Plan For Employees Of Kos Pharm. 361 Fed. App'x 636 28 U.S.C. § 1254
CASES Page , (3d Cir. 2001)...................... 8 Health and Welfare Plan, (4th Cir. 2000)..................... 10-11 , (1987).............................. 8 , (4th Cir. 2009)..................... 11-12, 12-13 , (1989).............................. 7 , (7th Cir. 1996)..................... 11 , (8th Cir. 2004)..................... 10 , (2008).............................. 7, 8, 9, 12 , (3d Cir. 1995)....................... 10 , (10th Cir. 2009)................... 10 , (6th Cir. 2010)............... 10-11 STATUTES ................................... 2PETITION FOR A WRIT OF CERTIORARI
E. Belinda Bauer, as trustee of the Craig E. Bauer Insurance Trust, respectfully petitions for a writ of certiorari to review the judgment of the United States Court of Appeals for the Third Circuit in this case.
OPINIONS BELOW
The opinion of the court of appeals (Pet. App., infra, 2a-7a) is unreported. The opinion of the district court (Pet. App., infra, 8a) is unreported.
JURISDICTION
The United States Court of Appeals for the Third Circuit entered its judgment and opinion on April 1, 2011, and denied petitioner's timely request for rehearing on May 4, 2011. The jurisdiction of this Court is invoked under 28 U.S.C. § 1254(1).
STATEMENT
Petitioner brought suit against respondent in the United States District Court for the Eastern District of Pennsylvania, contending, inter alia, that respondent abused its discretion in interpreting language in a benefits plan. The district court granted summary judgment to respondent, Pet. App. 8a, and the Third Circuit affirmed, id. at la-7a.
A. Mrs. Bauer's Claim for Benefits.
Omron Management Center of America, Inc. ("Omron") purchased a group accident policy, policy no. SR 45,328 (the "Policy"), from Reliance Standard Life Insurance Company ("Reliance") with an effective date of August 24, 1997. See JA-0487-95. The Policy provided coverage to active salaried and hourly employees who incurred a loss, as defined in the Policy, while on a business trip and resulting from an accident. See JA-0487-95. In particular, the Policy provided coverage for accidental death and dismemberment. See JA-0487 (Policy Sched. of Benefits). Mrs. Bauer's husband, Craig, was employed by Omron and was covered under the Policy. See JA-0005 (Memo, and Order p. 2). Mr. Bauer's Base Annual Earnings, which was used in determining the amount of benefits due under the Policy, was approximately $317,000. See JA-0235.
Unless otherwise noted, references to "JA" are to the Joint Appendix filed before the court of appeals.
In the late Spring of 2006, Mr. Bauer traveled extensively on business on behalf of Omron to Brazil, China and Japan. See JA-0005 (Memo. and Order p. 2). On June 24, 2006, shortly after returning from a business trip, Mr. Bauer presented at the emergency room suffering from acute respiratory failure and a full body rash. See JA-0005 (Memo. and Order p. 2). Sadly, on June 25, 2006, within only a few hours of his admission to the hospital, Mr. Bauer died from bacterial meningitis. See JA-0005 (Memo. and Order p. 2).
On May 2, 2007, Mrs. Bauer submitted a claim for accidental death benefits to Reliance. See JA-04446 (Proof of Loss Claim Statement). Although the Policy covers death caused by bacterial infection as a result of an accidental ingestion, Reliance denied the claim. See JA-0435-39 (Denial Letter p. 4). Even worse, the record does not reflect an effort by Reliance to consult a qualified specialist, such as an expert in the field of infectious diseases. Instead, Reliance merely referred the claim to its "Medical Staff." See JA-0435-39 (Denial Letter p. 4).
As a result of this formulaic denial, Mrs. Bauer was forced to retain an attorney and to consult with an infectious disease specialist. On November 1, 2007, Mrs. Bauer appealed Reliance's decision. See JA-0345-412 (Admin. Coverage Appeal). Mrs. Bauer also submitted the report of Dr. Ronald G. Nahass, certified by the American Board of Internal Medicine for infectious diseases, who concluded that the cause of Mr. Bauer's death, Neisseria meningitis, is transmitted through the respiratory system. See JA-0411-12 (Dr. Nahass Report). On March 19, 2008, Reliance reversed its claim decision and granted Mrs. Bauer's claim for benefits. See JA-0330 (Reversal Letter); JA-0332-33 (Reliance Expert) (concluding Mr. Bauer's death was caused by "a direct result of an accidental ingestion of Neisseria meningitis). However, in a continuing attempt to deny the full measure of benefits due, Reliance stated that Mr. Bauer's claim was limited to $250,000. See JA-0248 (Claim Payment). After dragging out the claims process for over ten months, Reliance issued a check to the Trust for $269,365.60, which included both Reliance's claimed benefit limit of $250,000 and interest. See JA-0248 (Claim Payment).
B. Pertinent Policy Language.
Under the Policy, the amount of benefits due is a function of the "Principal Sum." See JA-0487 (Policy Sched. of Benefits) (defining Principal Sum as "the amount of insurance provided to an Insured"). Depending on the type of loss and other factors, such as age, the amount of insurance payable was sometimes only a portion of the Principal Sum. See JA-0487-95.
The Policy contained a "Schedule of Benefits," which indicated the types of available coverage as well as the method of calculating the amount of benefits due. See JA-0487. In particular, the Schedule of Benefits page of the Policy contained a box labeled "Accidental Death and Dismemberment Principal Sum." See JA-0487. Appearing under that box was another box, which provided as follows: "5 times Base Annual Salary to a maximum of $250,000.00." See JA-0487.
The Schedule of Benefits also contained a provision setting forth the most Reliance would ever pay in the event of any single accident: "AGGREGATE LIMIT OF LIABILITY $1,250,000 per Accident." See JA-0487. The Schedule of Benefits further made it clear that the aggregate limit of liability applied in the event that more than one loss resulted from a single accident: "The maximum we will pay for Losses due to one accident will be the Aggregate Limit of Liability stated above." See JA-0487.
In addition, the Policy provided a "Seat Belt Benefit," which is instructive in understanding how to calculate the Principal Sum. See JA-0491 (Seat Belt Benefit). The Policy provided that Reliance will pay "an additional sum equal to 20% of the Insured's Principal Sum to a maximum $100,000" if certain conditions apply. JA-0491 (Seat Belt Benefit).
C. The Third Circuit Decision.
In a cursory written decision of less than five pages, the Third Circuit stated that it agreed with the district court that "Reliance's interpretation of the Plan in this case was reasonable and, therefore, should not be disturbed." Pet. App. at 3a. The court of appeals stated that the definition of "Principal Sum" is ambiguous because "we cannot tell what the parties intended from the Plan language alone." Pet. App. at 4a. The court of appeals acknowledged that it must consider the factors set forth in Moench v. Robertson, 62 F.3d 553, 566 (3d Cir. 1995), in determining whether Reliance's interpretation of the document was "reasonable." Yet the court of appeals only addressed one of the five factors set forth in Moench. Despite the significant conflict of interest underlying Reliance's determination, the court of appeals failed to mention this conflict of interest, let alone consider it as part of its analysis.
REASONS FOR GRANTING THE PETITION
In assessing the reasonableness of Reliance's interpretation of Plan language, the Third Circuit did not consider Reliance's conflict of interest as a factor in its analysis. The court of appeals' failure to consider Reliance's conflict of interest conflicts with this Court's prior rulings, which require a conflict of interest to be taken into account when determining the whether a plan administrator has abused its discretion.
At least one other court of appeals employs a test that is consistent with Supreme Court authority. The Fourth Circuit employs an eight-factor test that is materially different than the five-factor test employed by the Third Circuit. Under the Fourth Circuit test, the plan administrator's conflict of interest is a factor to be considered in determining the reasonableness of the plan administrator's decision. Such a conflict of interest is not part of the Third Circuit's test for assessing the reasonableness of a plan administrator's interpretation of ambiguous language, and the courts of appeals are therefore split over the standard of review of ambiguous language. The Court should grant review to affirm the requirement that a plan administrator's conflict of interest must be considered in addressing the propriety of a plan administrator's claim determinations.
ARGUMENT
A. The Court of Appeals' Decision Conflicts with Supreme Court Authority.
The Third Circuit's decision conflicts with this Court's ruling in Metropolitan Life Ins. Co. v. Glenn, 554 U.S. 105 (2008), because the Third Circuit failed to consider Reliance's conflict of interest in determining whether Reliance abused its discretion. It is well established that a plan administrator's conflict of interest is a factor that must be taken into account when determining whether an administrator abused its discretion in interpreting an ambiguous term. The Third Circuit's failure to follow this Court's precedent requires review.
In Glenn, this Court was presented with two questions: first, whether a plan administrator that both evaluates and pays a claim operates under a conflict of interest in making discretionary decisions; and second, how such a conflict should be taken into account. Glenn, 554 U.S. at 110. In holding that an administrator operates under a conflict of interest when it both evaluates and pays a claim, the Court held that where a plan provides the administrator with discretionary authority to determine benefit eligibility "[t]rust principles make a deferential standard of review appropriate." Glenn, 554 U.S. at 111 (relying on Firestone Tire Rubber Co. v. Bruch, 489 U.S. 110-11 (1989) (emphasis in original)).
The Court further explained that a conflict of interest arises when the plan administrator both funds the plan and decides a claim because "every dollar provided in benefits is a dollar spent by . . . the employer; and every dollar saved . . . is a dollar in [the employer's] pocket." Glenn, 554 U.S. at 112 (citing Bruch v. Firestone Tire Rubber Co., 828 F.2d 134 (1987)) (alterations in original). Thus, the Court stated that a plan administrator's "fiduciary interest may counsel in favor of granting a borderline claim while its immediate financial interest counsels to the contrary." Glenn, 554 U.S. at 112.
The Court therefore held that a plan administrator's conflict of interest is "but one factor among many that a reviewing just must take into account." Glenn, 554 U.S. at 116. The Court stated that a conflict of interest "should prove more important (perhaps of great importance) where circumstances suggest a higher likelihood that it affected the benefits decision. . . ." Id. at 117.
The Third Circuit has inexplicably disposed of the conflict of interest factor in cases involving a plan administrator's interpretation of plan language. By way of example, when there is a dispute concerning the interpretation of plan language, the Third Circuit will first determine if the disputed language is in fact ambiguous. See Bill Gray Enters, v. Gourley, 248 F.3d 206, 218 (3d Cir. 2001). If the plan language is not ambiguous and the language is clear, then "any actions taken by the plan administrator inconsistent with the terms of the document are arbitrary" and the administrator has abused its discretion. Id. A conflict of interest is therefore irrelevant to the analysis.
If the plan language is ambiguous, on the other hand, the Third Circuit then determines whether the plan administrator's interpretation is reasonable. See id. Yet the Third Circuit's analysis as to whether the plan administrator's interpretation is reasonable is markedly different than the analysis prescribed by this Court in Glenn. See Glenn, 554 U.S. at 115.
In considering whether Reliance's interpretation of the ambiguous language was reasonable, the Third Circuit failed to acknowledge or to consider the impact of Reliance's conflict of interest. Pet App. 2a-7a. Importantly, Reliance's interpretation of the Plan language meant either Reliance would save itself $1 million or lose $1 million. Despite this $1 million conflict of interest, when reviewing whether Reliance's interpretation of the plan language was reasonable, the Third Circuit did not address Reliance's conflict of interest. The Third Circuit instead considered: (1) whether Reliance's interpretation was consistent with the goals of the plan; (2) whether Reliance's interpretation rendered any of the plan's other provisions meaningless or internally inconsistent; (3) whether Reliance's interpretation conflicted with the substantive or procedural requirements of the ERISA statute; (4) whether Reliance had interpreted the ambiguous provision consistently; and (5) whether Reliance's interpretation was contrary to the clear language of the plan. See Pet App. 4a.
The Third Circuit first found that the Plan language was ambiguous. Pet App. 4a.
Notably absent from consideration was Reliance's conflict of interest. As noted in Glenn, an administrator's conflict of interest takes on a heightened role where the administrator has failed to take any steps to reduce the likelihood of a conflict of interest from impacting its decision making. 554 U.S. at 117. But there is nothing in the record to indicate that Reliance took any of the steps detailed in Glenn to avoid or reduce the impact of a conflict of interest. Id. (noting that conflict of interest "should prove less important" where, for example, administrator has walled off claims' administrators from those employees who deal with finances). In other words, the Third Circuit overlooked the conflict of interest and any impact that such a conflict of interest had on Reliance's interpretation of the Plan language.
This incomplete analysis, which omitted any consideration of Reliance's conflict of interest, conflicts with this Court's mandate that a plan administrator's conflict of interest must be considered in addressing the propriety of a benefits determination. B. The Circuits Are Split as to the Correct Standard for Assessing the Propriety of a Plan Administrator's Claim Determination.
The Third Circuit made only a passing reference to the five factors and did not explain why these factors, taken as a whole, supported Reliance's interpretation. Indeed, a thorough consideration of the five factors from Moench v. Robertson, 62 F.3d 553, 566 (3d Cir. 1995), reveals that there is little, if any, support for finding that Reliance's interpretation was reasonable.
Not only does the Third Circuit's standard conflict with Supreme Court authority, it also conflicts with the standards of review employed by other courts of appeals. For example, the test employed by the Third Circuit stands in contrast to the test employed by the Fourth Circuit in identical circumstances. In Booth v. Wal-Mart Stores, Inc. Assocs. Health and Welfare Plan, 201 F.3d 355 (4th Cir. 2000), the Fourth Circuit articulated eight non-exclusive factors to aid in a court's abuse of discretion review. Id. Those factors include:
The Third Circuit's analysis is similar to that of the Eighth Circuit, which requires an analysis of the same five factors when determining the appropriateness of an administrator's interpretation of an ERISA-governed plan provision. See, e.g., Hebert v. SBC Pension Benefit Plan, 354 F.3d 796, 800 (8th Cir. 2004).
Other courts of appeals have not enunciated specific factors. See, e.g., Scruggs v. ExxonMobil Pension Plan, 585 F.3d 1356, 1362 (10th Cir. 2009); Senzarin v. Abbott Severance Pay Plan For Employees Of Kos Pharm., 361 Fed. App'x 636, 640 (6th Cir. 2010) (requiring that administrator's have "reasonable basis for the decision"); Gallo v. Amoco Corp., 102 F.3d 918, 921-22 (7th Cir. 1996) (undertaking abuse of discretion analysis based on administrative record).
(1) the language of the plan; (2) the purposes and goals of the plan; (3) the adequacy of the materials considered to make the decision and the degree to which they support it; (4) whether the fiduciary's interpretation of what's consistent with other provisions in the plan and with earlier interpretations of the plan; (5) whether the decision making process was reasoned and principled; (6) whether the decision was consistent with the procedure and substantive requirements of ERISA; (7) any external standard relevant to the exercise of discretion; and (8) the fiduciary's motives and any conflict of interest it may have.
See Booth, 201 F.3d at 342-43 (emphasis added). The first seven factors considered by the Fourth Circuit are similar to the factors considered in the Third Circuit. But the last factor is materially different than any of the factors considered by the Third Circuit. In other words, consistent with Supreme Court authority, the Fourth Circuit test requires consideration of the plan administrator's conflict of interest, while the Third Circuit test does not.
The importance of this factor in the Fourth Circuit was reaffirmed recently in Carden v. Aetna Life Ins. Co., 559 F.3d 256 (4th Cir. 2009), where the court concluded that the conflict issue was a required consideration under this Court's decision in Metropolitan Life Ins. Co. v. Glenn, 544 U.S. 105 (2008). In Carden, the plaintiff received benefits under his employer's long term disability plan. Unbeknownst to the disability insurer, which also served as the plan administrator, the plaintiff received a worker's compensation settlement in connection with a separate disabling condition. When the disability insurer learned of the workers' compensation settlement, it notified the plaintiff that the workers' compensation award was "other income" under the terms of the plan and that the disability benefits would be offset against such other income.
The plaintiff argued that the offset provision in the plan meant that a lump sum payment for workers' compensation could be offset against the disability benefits only if the payment was for the same disability for which he received long term disability benefits. The plaintiff also argued that if the plan language is ambiguous, the plan must be interpreted in his favor because of the insurer's conflict of interest. The Fourth Circuit stated that prior to the Supreme Court's decision in Glenn, 544 U.S. 105, the rule in the Fourth Circuit was that ambiguities were construed against the drafter whenever a conflict of interest existed. According to the Fourth Circuit, Glenn forecloses the application of that rule and instead requires the conflict of interest to be considered as one factor among the eight factors:
As a result of Glenn, whenever a plan administrator employs its interpretive discretion to construe an ambiguous provision in favor of its financial interest, that fact may be considered as a factor weighing against the reasonableness of its decision. Conversely, when the administrator exercises its interpretive discretion to construe an ambiguous provision against its financial interest, that fact may be considered as a factor weighing in favor of the reasonableness of the decision. But this factor — in either case — is only considered with all of the other factors that may be brought to bear in determining whether the administrator abused his discretion.
Carden, 559 F.3d at 261.
In this case, the Plan language describing "Principal Sum" was ambiguous. It was the district court's task to determine whether the construction adopted by Reliance was reasonable. Yet nowhere in the decisions below did the courts mention that a reading in favor of Mrs. Bauer would have cost Reliance $1 million, while a reading that disfavored Mrs. Bauer would have saved Reliance $1 million. Reasonable minds might disagree as to the weight to be given this conflict of interest, but it is nonetheless required to be considered as part of a reasonableness analysis. The Court should grant review to resolve the conflict between the Third and Fourth Circuits and affirm the requirement that a plan administrator's conflict of interest must be considered in addressing the propriety of a plan administrator in making a benefits determination and/or interpreting Plan language.
CONCLUSION
The petition for a writ of certiorari should be granted.
Respectfully submitted.