Opinion
Case No. 99 C 5871.
October 6, 2000.
ALAN R. BORLACK, Esq., ERIC G. GROSSMAN, Esq., Bailey, Borlack, Nadelhoffer Carroll, Chicago, IL, Attorneys for Plaintiff.
MICHAEL J. GRAY, Esq., SABRINA C. TURNER, Esq., Jones, Day, Reavis Pogue, Chicago, IL, Attorneys for Defendant and Third-Party Plaintiff.
DONALD A. MURDAY, Esq., MICHAEL P. BREGENZER, Esq., Peterson Ross, Chicago, IL, Attorneys for Third-Party Defendants.
MEMORANDUM OPINION AND ORDER
Third-Party Plaintiff, Chicago Physicians II, P.C. ("Chicago Physicians"), filed a two-count complaint against Third-Party Defendants, Hartford Life and Accident Insurance Company ("Hartford") and the MGIS Companies ("MGIS"), alleging breach of fiduciary duty (Count I) and contribution and/or indemnification (Count II). Chicago Physicians asserts that Hartford and MGIS are liable to Chicago Physicians for losses resulting from Hartford's and MGIS's acts and omissions while administering an employee benefit plan under the Employee Retirement Income Security Act of 1974. Presently before this Court is Chicago Physicians's motion to compel Hartford and MGIS to produce certain documents for inspection and produce certain individual for deposition. For the reasons that follow, and to the extent provided herein, this Court grants Chicago Physicians's motion to compel.
I. Background
Meyer Medical Group II, S.C. ("Meyer") employed Patricia Spann as a physician at an annual salary of $146,652.00. As an employment benefit, Meyer provided long-term disability insurance coverage to Dr. Spann through a disability insurance policy underwritten by Hartford and administered by MGIS. Pursuant to the plan, Meyer paid all premiums, which were determined according to Dr. Spann's reported salary. In exchange, Dr. Spann would be entitled to receive a monthly disability payment based on a percentage of her salary if Hartford determined that Dr. Spann was disabled. Hence, on December 31, 1996, Dr. Spann would have been entitled to receive a monthly disability payment of $8,148.00, considering her annual salary of $146,652.00.
The formula for determining an employee's monthly disability payment is set forth in Hartford's and MGIS's Response to Chicago Physicians's Motion to Compel. See Hartford's and MGIS's Resp. Chicago Physicians's Mot. Compel Exh. 3.
Because Hartford calculated insurance premiums and disability payments based on the employee's monthly salary, Hartford required Meyer to furnish all information to Hartford about eligible employees under the plan. Failure to timely notify Hartford of any salary changes could affect the amount of an eligible employee's monthly disability payment.
For instance, Hartford's and MGIS's insurance policy stated:
[An employee's] coverage may increase or decrease on the date there is a change in [the employee's] Monthly Rate of Basic Earnings. However, no increase in coverage will be effective unless on that date [the employee]
(1) [is] an active Full-time Employee; and
(2) [is] not absent from work due to Disability during the 30-day period before the change in earnings.
A change in [the employee's] Monthly Rate of Basic Earnings will become effective on the date The Hartford receives notice of the change.Id. Exh. 1 at 20. The plan also provided:
Any increase in coverage because of a change in the Plan of Insurance or Certificate of Validation will become effective on the date of the change, subject to the following limitations:
If you are absent from work due to Disability, the increase will not become effective until you return to work as an Active Full-time Employee.Id.
On January 1, 1997, Chicago Physicians purchased Meyer and agreed to employ Dr. Spann for an annual salary of $200,000.00. The employment agreement entered into between Chicago Physicians and Dr. Spann expressly provided that Dr. Spann's current long-term disability insurance coverage through Hartford and MGIS would be continued under the same terms. Thus, as of January 1997, Dr. Spann qualified for an increase in her monthly disability payment from $8,148.00 to $11,111.67 due to the increase in her salary from $146,652.00 to $200,000.00. Provided that all of the other terms and conditions in the plan were fulfilled, Dr. Spann would be entitled to this increased amount in the event she suffered a long-term disability.
Due to pregnancy and other health complications, Dr. Spann stopped working on March 14, 1997. Pursuant to a short-term disability insurance policy entered into between Dr. Spann and Chicago Physicians, Dr. Spann received her full salary for six months. On August 21, 1997, approximately one month prior to the termination of Dr. Spann's short-term disability payments, Chicago Physicians applied to MGIS for long-term disability payments for Dr. Spann. The application indicated that Dr. Spann's salary from January 1, 1997, through March 14, 1997, was $200,000.00 per year.
It appears that Hartford and MGIS were not parties to this agreement.
Effective March 15, 1997, Hartford determined that Dr. Spann was disabled. Based on Dr. Spann's Certificate of Validation, which indicated that Dr. Spann received a salary of $146,652.00, Hartford began paying Dr. Spann a monthly disability payment of $8,148.00. Such payments should continue until March 2025.
Noticing that Hartford based her disability payment on her prior annual salary of $146,652.00 instead of her increased $200,000.00 annual salary, Dr. Spann contacted Hartford, informed Hartford about the salary increase, and asked for an explanation. Hartford informed Dr. Spann that her disability payment was based on an annual salary of $146,652.00 because Hartford was not timely notified of Dr. Spann's salary increase. Consequently, Hartford did not change Dr. Spann's Certificate of Validation to reflect the salary increase. Hartford then informed Dr. Spann that she would not be eligible for an increase in monthly disability payments unless she returned to active status as a full-time employee.
After exhausting her administrative remedies, Dr. Spann filed a complaint against Chicago Physicians for misrepresentation under the common law of ERISA and breach of contract. Shortly thereafter, Chicago Physicians filed a third-party complaint against Hartford and MGIS for breach of fiduciary duty and contribution and/or indemnification. Dr. Spann then amended her complaint to include a claim against Hartford and MGIS for not paying her the full amount of her benefits, assuming that Chicago Physicians fulfilled all of its duties under the plan.
In June 2000, Chicago Physicians served Hartford and MGIS with Chicago Physicians's first request for production of documents. Then, weeks later, Chicago Physicians informed Hartford and MGIS that Chicago Physicians wanted to depose several of Hartford's and MGIS's employees. In August 2000, however, Hartford and MGIS informed Chicago Physicians that Hartford and MGIS would not produce any employees for deposition and that Hartford and MGIS would only produce Dr. Spann's administrative file. This motion to compel followed.
II. Discussion
Chicago Physicians asks this Court to compel Hartford and MGIS to produce certain documents for inspection and produce certain individuals for deposition. Chicago Physicians asserts that this information will expose Hartford's and MGIS's extremely disorganized and chaotic internal working environment and exemplify the state of confusion that existed between Chicago Physicians and Hartford and MGIS while performing their respective clerical duties under the long-term disability insurance plan. We discern from the third-party complaint that Chicago Physicians believes this information will show that Hartford and MGIS are liable to Chicago Physicians for losses resulting from Hartford's and MGIS's acts and omissions while administering the plan.
Hartford and MGIS strongly oppose providing Chicago Physicians with the information Chicago Physicians requested. Citing Perlman v. Swiss Bank Corp., 195 F.3d 975 (7th Cir. 2000), Hartford and MGIS argue that they need only provide Chicago Physicians with Dr. Spann's administrative file. In other words, Hartford and MGIS contend that in cases such as this, where the plan administrator has discretionary authority, Chicago Physicians is entitled to review the administrative file and nothing else. Thus, because Perlman applies and Chicago Physicians possesses the administrative file, Hartford and MGIS argue that Chicago Physicians's motion to compel should be denied.
After careful review, this Court finds that the information Chicago Physicians requested lies outside the reach of Perlman. Here', Chicago. Physicians is not appealing Hartford's disability determination and seeking reversal thereof. Rather, Chicago Physicians argues that Hartford and MGIS are liable to Chicago Physicians because Hartford and MGIS are ultimately responsible for any mistake in processing Dr. Spann's salary information. Therefore, this Court grants Chicago Physicians's motion to compel to the extent that discovery is relevant to Chicago Physicians's, Hartford's, and MGIS's respective salary information processing duties pursuant to the plan. To this extent, Perlman does not apply.
In Perlman, the Seventh Circuit joined most of the other circuits limiting relevant evidence to those matters contained in the administrative record where a plan beneficiary challenges the disability determination of a plan administrator who has discretionary authority. 195 F.3d at 981-82. Perlman involved an employee who brought an action under ERISA seeking reversal of a plan administrator's decision to deny disability benefits. Id. at 977. The employee presented evidence of medical problems, which she believed demonstrated her inability to work. The plan administrator, however, decided that the employee could perform the material duties of her occupation and therefore determined that the employee was not disabled.
In short, the employee argued on appeal that the plan administrator's disability determination was wrong. See Id. To prove this, the district court permitted the employee to conduct discovery into the thought processes of the plan administrator. See Id. at 981-82. The Seventh Circuit disagreed and limited discovery to the administrative record. See Id.
Specifically, the Seventh Circuit held:
[W]hen there can be no doubt that the application was given a genuine evaluation, judicial review is limited to the evidence that was submitted in support of the application for benefits, and the mental processes of the plan's administrator are not legitimate grounds of inquiry any more than they would be if the decisionmaker were an administrative agency.Id. at 982. The significance of Perlman, therefore, is its establishment of the boundaries of permitted discovery where a plan beneficiary challenges the disability determination of a plan administrator under the arbitrary and capricious standard. See Vallone v. CNA Financial Corp., No. 98 C 7108, 2000 WL 1015936, at *2 (N.D. Ill. May 16, 2000); Nagele v. Electronic Data Sys. Corp., 193 F.R.D. 94, 105-07 (W.D.N.y. 2000).
A wholly different situation confronts us here. First, the matter before us involves an employer, Chicago Physicians, in a dispute with a plan administrator, Hartford and MGIS. This differs from Perlman, which involved a plan beneficiary in a dispute with a plan administrator, and thus different considerations apply. See, e.g., Analytical Surveys, Inc. v. Intercare Health Plans, Inc., 101 F. Supp.2d 727 (S.D. Ind. 2000) (involving an employer who brought a state action against a plan administrator for breach of contract and gross negligence); Skilstaf, Inc. v. Adminitron, Inc., 66 F. Supp.2d 1210 (M.D. Ala. 1999) (same). Second, unlike in Perlman, the matter before us does not call for deferential review. See, e.g., id. Chicago Physicians is not challenging Hartford's disability determination. In fact, the parties agree that Hartford's disability determination is not at issue. Hence, this is not a Perlman case. And the fact that ERISA lurks in the background does not make it a Perlman case.
Hartford and MGIS found Dr. Spann disabled.
Accordingly, to investigate Chicago Physicians's claims against Hartford and MGIS for breach of fiduciary duty and contribution and/or indemnification, discovery should proceed into all matters relevant to Chicago Physicians's, Hartford's, and MGIS's respective salary information processing duties pursuant to the plan. Apparently the parties agree that Hartford's and MGIS's liability to Chicago Physicians depends on whether Chicago Physicians had a duty to notify Hartford and MGIS of Dr. Spann's salary increase and, if so, whether such notification was properly and timely made. As Chicago Physicians correctly points out, the information required to resolve this issue cannot be found in the administrative record. Therefore, discovery into matters outside the administrative record, relevant to establishing whether Hartford and MGIS are ultimately responsible for any mistake in processing Dr. Spann's salary information, is appropriate. Until and unless Hartford and MGIS demonstrate that any discovery request is irrelevant to the parties' respective salary information processing duties pursuant to the plan, discovery shall proceed as intended.
III. Conclusion
For the foregoing reasons, this Court grants Chicago Physicians's motion to compel to the extent provided herein.