Opinion
99 Civ. 1329 (GEL).
January 24, 2005
Quadrino Schwartz, Garden City, NY for Plaintiff Louis R. Napoli.
Gallagher, Harnett Lagalante, LLP, New York, NY for Defendant First Unum Insurance Company.
OPINION AND ORDER
This case reaches this Court on remand from the Court of Appeals.
Plaintiff Louis R. Napoli, a government securities broker, suffered a heart attack in 1996 at age 55. For several months thereafter, he received disability benefits from defendant First Unum Life Insurance Company ("First Unum"), under a policy issued to his employer. Eventually, however, First Unum determined that Napoli was not disabled, and after a period of unsuccessful appeals and reviews, Napoli brought this action under the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001 et seq.
First Unum had based its decision primarily on a review of Napoli's medical records by Dr. Richard W. Nesto, who concluded that Napoli was fit to return to work as a stockbroker and that Napoli's activities as a broker did not need to be restricted because of his cardiac condition. The administrative record also contained, however, an opinion of Napoli's treating cardiologist, Dr. Aaron Freilich, who "did not necessarily disagree" with Dr. Nesto's general assessment, but whose ultimate opinion was that Napoli "should not return to his prior stress[ful] occupation." Napoli v. First Unum Life Ins. Co., No. 03-7092, 2003 WL 22454481, at *1 (2d Cir. Oct. 29, 2003), quoting Napoli v. First Unum Life Ins. Co., No. 99 Civ. 1329, slip op. at 4 (S.D.N.Y. Jan. 13, 2003).
In the present litigation, First Unum moved for judgment on the administrative record. Treating the motion as one for summary judgment, this Court (Hon. John S. Martin, Jr.) granted the motion, and denied Napoli's cross-motion to supplement the record (except to the extent of receiving an additional affidavit from Dr. Freilich), finding that there was "no substantial difference of opinion between Dr. Freilich and Dr. Nesto" and holding that First Unum had properly found Napoli not disabled. Napoli, 2003 WL 22454481, at *3, quoting Napoli v. First Unum Life Ins. Co, No. 99 Civ. 1329, slip op. at 6. The Court of Appeals reversed by summary order, holding that summary judgment was inappropriate because there were genuine issues of material fact created by the difference of opinion between Dr. Freilich and Dr. Nesto as to whether it was medically advisable for Napoli to return to his job as a broker. Napoli, 2003 WL 22454481, at *3. However, while the Court of Appeals found it inappropriate for Judge Martin to resolve such credibility issues on summary judgment, the Court indicated that it might be suitable for the trial court to do exactly the same thing — that is, to resolve the issues of fact without hearing testimony — under a different name, indicating that "the trier of fact may decline to consider any evidence that has not already been considered and may ultimately reach the same result" under a different rubric. Id. The Court apparently did not object to a factfinder resolving a credibility dispute without live testimony or cross-examination, so long as the factfinder did not call the resulting decision a grant of summary judgment.
By the time the case returned to this Court on remand, Judge Martin had retired from the bench, and the case was reassigned to the undersigned. First Unum renewed its motion, arguing that this Court should accept the Second Circuit's invitation to dispense with further evidence. First Unum then asked this Court to reach the same conclusion as Judge Martin did, for the same reasons, and simply relabel the decision as a judgment on the administrative record rather than a grant of summary judgment. Napoli, in contrast, urged the Court to hear additional evidence, and to conclude that he is in fact disabled within the meaning of the policy.
While First Unum's motion was sub judice, the Second Circuit clarified the standard that trial courts should apply when deciding whether to permit supplementation of the administrative record in cases of this kind. Locher v. Unum Life Ins. Co. of America, 389 F.3d 288, 293-296 (2d Cir. 2004). At the Court's invitation, the parties submitted additional briefing addressing the impact of Locher on their respective positions. Defendant's motion is thus ripe for decision. Defendant's motion for judgment on the administrative record will be denied, for the reasons set forth below.
DISCUSSION
It has long been established that where an ERISA plan does not accord an administrator "discretionary authority to determine eligibility for benefits or to construe the terms of the plan," the district court reviews the administrator's eligibility determination, including factual issues, de novo. Firestone Tire Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989). Whether evidence outside the record may be considered in such de novo review of factual issues, however, has created some confusion in the courts of this Circuit. In Locher, the Court of Appeals clarified the meaning of its earlier decision in DeFelice v. American Int'l Life Assurance Co. of N.Y., 112 F.3d 61 (2d Cir. 1997), which had permitted the consideration of additional evidence in some circumstances. Id. at 65-67.
In Locher, the Court of Appeals reaffirmed its holding in DeFelice that "whether to admit additional evidence . . . is discretionary with the district court," but that the discretion to do so "ought not to be exercised in the absence of good cause." Locher, 389 F.3d at 294, quotingDeFelice, 112 F.3d at 66. The Court went on, however, to reject the position of those district courts that had interpreted DeFelice to mean that the conflict of interest that arises when a plan administrator is both claims reviewer and claims payer is per se good cause for allowing additional evidence. Locher, 389 F.3d at 294-95. Rather, the Court held, good cause is ordinarily present only when there is a conflict of interest bolstered by some other factor counseling the supplementation of the record. Thus, good cause existed in DeFelice because of a conflict of interest plus procedural flaws for determining claims; in Juliano v. Health Maint. Org. of N.J., Inc., 221 F.3d 279, 289 (2d Cir. 2000), because of the insurer's failure to state the purported reason for its denial in letters to the claimant; and in Locher itself because of the conflict plus the failure to maintain written procedures for claims review. Locher, 389 F.3d at 295-96. Good cause was absent, however, inMuller v. First Unum Life Ins. Co., 341 F.3d 119 (2d Cir. 2003), despite a conflict of interest, because the insurer gave the claimant "ample time to submit additional materials, and had already discussed the claimant's case with the two treating physicians whose testimony was to be introduced." Locher, 389 F.3d at 295, quoting Muller, 341 F.3d at 125-26 (internal quotation marks omitted). The Court thus cautioned that "a finding of a conflicted administrator alone should not be translated necessarily into a finding of good cause" — but also noted at the same time that "it may be possible, in [certain unspecified] unforeseen circumstances, for good cause to rest entirely on the existence of a conflicted administrator." Id. at 296.
While the Court did not explicitly discuss conflict of interest inMuller v. First Unum Life Insurance Company, the plan administrator both reviewed and paid the insurance benefits. Muller, 341 F.3d at 121.
Unsurprisingly, the parties dispute the application of Locher's principles to the facts of this case. Plaintiff argues that Locher "reaffirm[s] [p]laintiff's right to a bench trial . . . with witness testimony." (Letter from Michail Z. Hack, Esq. ("Hack Letter") to the Court of 12/13/04, at 1.) Plaintiff reads Locher as establishing that additional evidence may be received where the claim administrator is conflicted and "procedural irregularities in the claims process were uncovered during discovery." (Id.) He then asserts the presence of such irregularities, noting that a few days after the Second Circuit's decision in Locher, defendant and several affiliated companies entered a settlement agreement with various state and federal regulatory authorities to modify its claims handling procedures. (Id. at 2.) Defendant, in contrast, notes that Locher unquestionably rejected plaintiff's original position that the administrator's conflict alone required a full trial de novo under DeFelice, and that plaintiff has not identified any specific procedural irregularities in the processing of this case. (Letter from Louis M. Lagalante, Esq. ("Lagalante Letter") to the Court of 12/17/04, at 1-2.) Defendant argues that the events surrounding the regulatory settlement are irrelevant, because the settlement does not admit wrongdoing by defendant, the preliminary report of the regulators that led to the settlement was based only on a sampling of cases, and nothing in the sample or the settlement (or for that matter in plaintiff's letter) purports to identify any specific procedural lapse in the processing of this case itself. (Id. at 2-3.)
The settlement agreement provides for reassessment by defendant of claims that were denied or terminated on or after January 1, 1997, which would include plaintiff's claim. (Hack Letter at 3; Ex. J at ¶ B.2.) However, that reassessment process is explicitly optional and the agreement expressly provides that it has no effect on pending litigation. (Ex. J at ¶ B.2.d.)
Defendant is correct that plaintiff has not identified a "procedural irregularity" in the record of this case, and that the settlement agreement does not supply one. Defendant is also correct that the Second Circuit has already held "that Judge Martin did not abuse his discretion in expanding the record to include the Freilich affidavit, and in rejecting plaintiff's request to supplement the record further." (Lagalante Letter at 2.) In the unusual procedural posture of this case, however, it does not follow "good cause" is lacking to expand the record further.
The Court of Appeals in this case clearly identified the issue before Judge Martin as a "credibility determination" between the opinions of Dr. Nesto and Dr. Freilich, holding that "the differing opinions of the two doctors present a genuine issue as to the material fact of Napoli's medical condition." Napoli, 2003 WL 22454481, at *3. While the Court ruled that "the trier of fact may decline to consider any evidence that has not already been considered," id., it certainly did not hold that the Court may not consider such evidence. Here, the record has already been expanded to include an affidavit by Dr. Freilich that was not part of the administrative record, and the issue has been posed for decision as to which doctor's opinion more accurately describes plaintiff's medical condition and ability to return to work. While the Court of Appeals apparently considered that this issue could be resolved on the cold record, it appears to this trier of fact that the most effective way to make that determination is the old-fashioned way: by hearing the testimony of each witness in person, subject to cross-examination. Without attempting to consider what "good cause" may mean in other contexts, it is clear to this Court that, at least under these circumstances in which the Court faces a limited remand to determine a credibility issue, the conflict of interest on the part of the administrator and the fact that the Court of Appeals had already approved the expansion of the record to include an affidavit from the treating physician together constitute good cause under Locher to hear live testimony.
As the Court of Appeals has also made clear that in conducting "a nonjury de novo review of First Unum's determination," Napoli, 2003 WL 22454481, at *3, the Court is not required to hear extensive testimony or to conduct a full trial. Indeed, as already noted, the mandate would permit a decision without taking any further evidence at all. Thus, the Court contemplates a proceeding of less than a full trial day. The direct testimony of each side's medical witness is to consist simply of a brief explanation of the reasons for the witness's conclusion that Napoli is or is not able to carry on the activities of his job, which may incorporate by reference the affidavits or reports already in the record, to be followed by cross-examination. The Court will then make its determination based on the full administrative record, as supplemented by any credible medical testimony presented at the hearing.
CONCLUSION
For the reasons stated, good cause has been shown to supplement the record to the limited extent of hearing testimony from Dr. Nesto and Dr. Freilich, on a date to be determined by the Court in consultation with counsel. Defendant's motion for judgment on the existing record is therefore denied.
SO ORDERED.