Opinion
No. C 03-2558 MJJ.
September 17, 2004
FINDINGS OF FACT AND CONCLUSIONS OF LAW
I. INTRODUCTION
This case was tried to the Court without a jury on July 9, 2004. Duncan MacDonald appeared on behalf of Plaintiff, Harold K. Wooten (hereinafter "Wooten) and Beth Fruechtenicht appeared on behalf of Defendant, Prudential Insurance Company of America (hereinafter "Prudential"). In this ERISA action, Wooten presents claims for long term disability benefits under the Long Term Disability Plan ("the Plan") sponsored by his former employer, Villa Marin Homeowners Association ("Villa Marin"). Prudential is a plan fiduciary and the insurer for the disability policy providing benefits to Villa Marin employees under the Plan.
Wooten asserts claims for past benefits due, attorney fees and requests injunctive relief in the form of a order from the Court directing Prudential to pay benefits in the future in accordance with the Plan terms under 29 U.S.C. 1109, 1132(a)(1)(B), and 1132(a)3. Specifically, Wooten contends that Prudential failed to properly investigate his claim, relied upon the wrong terms in denying his benefit, and came to an erroneous conclusion by misstating the facts and misapplying the terms of the plan.
This matter was tried before the Court based on a record comprised of: (a) Prudential's initial claim file (WOO 1 through WOO 104); and (b) the March 25, 2003 letter to Prudential, with exhibits, submitted by Wooten in seeking reconsideration of the denial of benefits (HW 1523-1608). The latter documents were made part of the record pursuant to this Court's December 15, 2003 Order. For the reasons provided below, this Court finds that Wooten was covered under the insurance policy at the time of his illness but remands the case for determination of whether Wooten was medically disabled and for what period of time.
II. FINDINGS OF FACT
A. Employment Dispute
1. Starting in January 2000, Wooten was an employee of Villa Marin. WOO 65. His employer provided him with various employment benefits, including disability benefits under a group plan with Prudential. WOO 9-27, 28, 31.
2. In the spring and early summer of 2001, a number of disputes arose at Villa Marin directly or indirectly involving Wooten. In late June, 2001, Villa Marin placed Wooten on a paid administrative leave of absence, effective July 1, 2001. WOO 3-4, 65.
3. On or about June 22, 2001, Wooten engaged an employment attorney for advice regarding a staff complaint against him. During this period, he also sought medical treatment for work-related stress.
4. On June 29, 2001, Villa Marin placed Wooten on paid administrative leave of absence.
5. On July 16, 2001, Wooten's attorney submitted a letter of resignation on Wooten's behalf that indicated an understanding that Wooten would be paid through July 31, 2001. HW 1593.
Wooten's attorney apparently filed the letter of resignation in order to forestall the employer from firing Wooten. Villa Marin allegedly originally planned to fire Wooten at a meeting on July 13, 2001, but Wooten failed to attend the meeting. WOO 7.
6. According to Wooten, his attorney was not authorized to act on his behalf with respect to termination of his employment, and he had no knowledge of the resignation letter.
7. On July 18, 2001, Wooten received a letter from Villa Marin (dated July 17, 2001) confirming receipt of the July 16 resignation letter from Wooten's attorney and accepting Wooten's resignation based on the terms set forth in the letter. The letter enclosed two checks, one "representing payment of your salary through July 24, 2001" and one covering Wooten's unused vacation time. WOO 69. The letter also indicated that Villa Marin would forward a third check representing his salary through July 31, 2001 "as a courtesy to you at the direction of our Board of Directors" once Wooten returned Villa Marin's cell phone. Id.
8. On July 19, 2001, Wooten suffered a major and life-threatening dissection of his aorta and underwent emergency surgery at Kaiser Hospital in San Francisco to partially repair the dissection. He remained in the hospital, heavily medicated, for eight days. WOO 76, 85, 88-89
9. Between July and October, Wooten suffered several complications from his medical condition and was hospitalized on several occasions.
10. In the fall of 2001, Wooten submitted his claim for benefits under the Plan to Prudential. WOO 87, 83-90, 103-104.
11. Both orally and in writing, Villa Marin confirmed to Wooten that, despite his "resignation," his benefit premiums would be paid through the end of July and his benefits would remain in effect through July 31, 2001, at which point he could receive benefits under COBRA. For example, in a letter dated August 21, 2001, Villa Marin Director of Human Resources Nina Shortridge indicated that Wooten "will have 60 days from the date of loss of coverage, which is July 31, 2001," to apply for COBRA. WOO 74.
12. In November 2001, Prudential denied Wooten's claim for benefits because Wooten terminated his employment on July 16, 2001 and therefore was not a member of the covered class after this date. WOO 81. Prudential based its decision on a hand-written "Employer's Statement" dated September 18, 2001 stating that "Harold Wooten's employment with Villa Marin ended on 7/16/01. This event [the surgery] happened after his separation from employment." WOO 91.
13. On November 30, 2001, Wooten's attorney submitted a letter to Prudential, with attachments, requesting reconsideration of the November 6, 2001 denial. The November 6 submission contained evidence which formed the basis for Wooten's contention that: (a) Wooten did not resign, Villa Marin treated Wooten as a covered employee through July 24, 2001 and possibly through July 31, 2001, by paying his regular wages without qualification through July 24 and paying his regular wages without qualification through July 2 and paying him from July 25th — 31 as a courtesy. WOO 63-76.
14. Wooten's administrative appeal of this decision was denied in December 2001.
15. Prior to the filing of the current action, Wooten filed an action in San Francisco Superior Court against the current Defendant as well as Villa Marin. In March 2002, the action was removed to this Court. The parties eventually stipulated to a dismissal of the 2002 action without prejudice in light of a related state court action and in order to pursue settlement.
16. On May 30, 2003, Wooten re-filed the instant action seeking to recover benefits due under the Plan and for additional damages based on Prudential's failure to provide Wooten with a copy of the Group Insurance Contract.
17. On December 12, 2003, this Court allowed Wooten to augment the administrative record with additional evidence of his employment status at the time of his disability, including documentary evidence and deposition testimony of Nina Shortridge.
B. Villa Marin's Disability Plan
18. Prudential Insurance Company provides long-term disability coverage for all Villa Marin employees. For those who qualify under the program, benefits begin after an "elimination period" between the date of the initial disability and the earlier of thirteen weeks or the date on which employees exhaust their benefits under short-term disability. WOO 32.
19. For those employees younger than 61, the disability benefits can last until the normal retirement age. Id.
20. Disabled employees receive 60 percent of their pre-disability pay. WOO 34.
21. The entire cost of the insurance is paid by the employer, with no employee contribution. Id.
22. Ordinarily, insurance coverage ends when the employee is no longer actively at work full-time. WOO 17. However, the employee remains covered during absences from work specified by the Employer. Id. "The Contract Holder [Villa Marin] decides which Employees with those types of absences [such as a leave of absence] are to be considered as still employed, and for how long. In doing this, the Contract Holder must not discriminate among persons in like situations." Id. Employees are still considered covered by insurance when they take leaves of absence, with no time limit. Id. During a leave of absence, "the Employee's insurance under a Coverage will be continued only while the Employee is paying contributions for it at the time and in the amounts, if any, required by [Villa Marin]." Id.
23. Employment officially ends when employees are no longer full-time and actively at work. WOO 54.
"But, under the terms of the Group Contract, the Contract Holder may consider you as still employed in the Covered Classes during certain types of absences from full-time work. . . . If you stop active full-time work for any reason, you should contact the Employer at once to determine what arrangements, if any, have been made to continue any of your insurance." Id. Under the plan, Villa Marin determines which employees are covered and for what period. Id.
C. Covered Employee
24. This case revolves around several pieces of unequivocal, but contradictory evidence. On the one hand, Wooten relies on several pieces of evidence that indicate that his coverage lasted until July 31, 2001, two weeks beyond his disputed resignation. He contends that Shortridge orally informed him that his health coverage was paid through the month of July and would expire on the July 31. In a letter from Shortridge to Wooten on July 18, she indicated twice that his coverage would extend until July 31, after which he could apply for continuing COBRA coverage. HW 01595-01597. Shortridge also testified in a May 17, 2002 deposition that it was her understanding that terminated employees continued to receive their health benefits until the end of the month, since the premiums had already been paid. HW 1586: 18-23. In addition, Wooten points to the July 18, 2001 letter confirming his resignation, in which Shortridge forwarded a check for his salary through July 24, thereby indicating that he was employed through that date. WOO 69. In an unsigned letter to Prudential in October 2002 after reaching a legal settlement with Wooten, Villa Marin informed Prudential that Wooten continued on the payroll until July 24, that Wooten was never fired by Villa Marin and that his resignation was disputed, and that his insurance had been paid through the month of July. HW 1599. The letter concluded that Wooten was a covered employee at the time of his disability and requested that Prudential review its earlier unfavorable decision.
25. The Court finds that these references unequivocally indicate that Wooten continued as an employee for health insurance purposes until July 24, 2001.
26. Prudential relies upon the Employer's Statement of September 18, 2001, on which Nina Shortridge indicated that Wooten's term of employment had ended on July 16, three days prior to his hospitalization. See Def.'s Trial Brief at 3: 2-7. This, according to Prudential, indicates unequivocally that Wooten was no longer an employee as of July 16 and was therefore not covered. Prudential dismisses the October 2002 letter from Villa Marin asking Prudential to find Wooten to be a covered employee, since it came only after a settlement of Wooten's lawsuit against his former employer and is thus tainted by the stain of collusion between employer and employee. Prudential also dismisses Wooten's contention that he was employed through July 24, since he was paid his wages through that date. In its second denial letter, Prudential wrote that "Mr. Wooten was paid additional wages through July 31, 2001 as a courtesy. According to Prudential, these additional wages do not alter the date Wooten was no longer considered an employee of Villa Marin." WOO 60. Given this contradictory evidence, the basic question is which date should be used to determine Wooten's legal date of separation. Prudential proffers the July 16 date specified on the Employer Statement, notwithstanding its receipt of Wooten's attorneys November, 16, 2001 submission. Wooten relies on various statements that he was employed through July 24 and covered through the end of July. Both sides agree, however, that the employer determines the date of separation and whether an employee is covered under the plain. According to the Group Insurance Contract between Prudential and Villa Marin, the employer "decides which Employees with those types of absences are to be considered still employed, and for how long." WOO 17. Since Villa Marin gave mixed signals, it was incumbent on Prudential to investigate whether or not Wooten was covered as part of its required "full and fair review" of any denial of benefits, particularly in light of Wooten's attorney's November 16, 2001 submission. 29 U.S.C. § 1133. This it failed to do, but instead relied on a single statement by Villa Marin in spite of its receipt of the July 18, 2001 letter which reflected the payment of Wooten's salary through July 24, 2001, and an internal note on December 20, 2001 that stated "[s]hould the ER [employer] retroactively adjust date of EE's [employee's] termination, we may need to re-examine claim." WOO 2.
27. Villa Marin has taken the position that Wooten remained on their regular payroll through July 24 and that his premiums had been paid through the end of July. On July 19, when Wooten suffered his disability, he was on "terminal leave of absence," which Villa Marin determined made him still eligible for coverage. HW 1599-1600.
28. Having examined the entirety of the record herein, the Court finds Wooten was a covered employee on the date of illness and through July 31, 2001, for the following reasons:
(a) The letter from Villa Marin to Wooten dated July 17, 2001, forwarding a check to Wooten "representing your salary through July 24, 2001." WOO 69. The letter does not indicate that this money represented severance pay or other money paid as a courtesy of the employer. Instead, the import of the letter is that his employment with the company would officially come to an end on July 24, and at that time, Wooten would receive another week's pay "as a courtesy" of the employer. This letter supports the conclusion that Wooten was a covered employee through July 24, 2001. The references by Villa Marin that Wooten's health care coverage lasted through the month of July provide further support that Wooten's loss of coverage date was July 31, 2001. WOO 74. By her representations to Wooten that he could receive COBRA coverage after July 31, when his current coverage would end, Nina Shortridge indicated that she, as an officer of Villa Marin, believed that Wooten was covered as of July 19, 2001. Moreover, Defendants in this case concede that Villa Marin determines whether Wooten was a covered employee, and since the evidence establishing that Villa Marin considered Wooten a covered employee through July 31, at the time that he left their employment, this supports the Court's finding that Wooten was a covered employee at the time of his illness.
Furthermore, Nina Shortridge repeatedly indicated to Wooten that his coverage extended until July 31, 2001, because his premiums had been pre-paid until that time. HW 1586-90. According to Shortridge in her deposition testimony, "I have an understanding that when I pay a carrier for a premium through the end of the month, that employee has a benefit that I paid for. I being Villa Marin." HW 1589. As human resources manager, Shortridge paid Prudential every month for every covered employee. HW 1587. She testified that she states to all exiting employees, including Wooten, that their insurance coverage lasted until the end of the month because their premiums have been pre-paid. HW 1588.
29. The evidence supports a finding that Villa Marin at the time of his resignation considered Wooten a covered employee — even if no longer an active employee — but also that Wooten may have been covered regardless of Villa Marin's determination, since his premiums had been paid. There is no suggestion in the record that Prudential ever attempted to refund Villa Marin the money that it paid for Wooten's insurance coverage through the month of July 2001. As a result, if Prudential's position is correct that Wooten was not covered after July 16, then Prudential received consideration from Villa Marin for which it tendered no benefit in return.
30. The Court rejects Prudential assertion that Villa Marin's determination was made in bad faith. Def. Brief at 7:1-3. Prudential argues that since the October 2002 letter came only after a legal settlement between Villa Marin and Wooten, "Villa Marin realizes that the easiest way to resolve their differences with Wooten was to . . . pass the buck to Prudential." Id. The Court finds that Prudential's suggestion of collusion between Wooten and Villa Marin lacks evidentiary support given that Ms. Shortridge's July 17, 2001 letter, indicating that Wooten would be paid through July 24, obviously preexisted any settlement discussions between these parties. Moreover, the payment of Wooten's salary through July 24, was made as part of the regular payroll, indicating that he remained an employee, albeit on terminal leave. Prudential had this document in its possession as of November 30, 2001 — when Wooten's attorney faxed it to Prudential as part of a request for a reconsideration — but either refused to consider it or inadvertently mischaracterized it. Either way, the letter indicates that the payments through July 24 were not made as a courtesy, as Prudential claimed.
31. Since the parties agree that Villa Marin determines which employees are covered, and since Villa Marin eventually determined that Wooten was a covered employee until July 24, 2001, this Court finds that Wooten was a covered employee at the time of his injury and that Prudential failed to conduct a "full and fair review" prior to its denial of Wooten's benefits claim.
III. CONCLUSIONS OF LAW
32. In Firestone Tire Rubber Co. v. Bruch, the Supreme Court held that federal courts should review the denial of ERISA benefits de novo. 489 U.S. 101, 111 (1989). A de novo review "gives no deference at all" to the decisions of insurers to deny benefits. Kearney v. Standard Ins. Co., 175 F.3d 1084, 1090 n. 2 (9th Cir. 1999).33. ERISA authorizes suits against fiduciaries and plan administrators in order to remedy breach of fiduciary duty. 29 U.S.C. § 1109. Suits can be filed by participants in the ERISA plans in order to "recover benefits due . . . under the terms of the plan, to enforce . . . rights under the terms of the plan, or to clarify . . . rights to future benefits under the terms of the plan." Id. at § 1132(a)(1)(B).
34. Administrators are also required to provide a clear accounting of why benefits were denied and a "full and fair review" of any denial of benefits. 29 U.S.C. § 1133. A district court may remand the case back to the Plan Administrator for a factual determination or a fuller development of the record. See Patterson v. Hughes Aircraft Co., 11 F.3d 948, 951 (9th Cir. 1993) (remanding to plan administrator for factual determination as to cause of Wooten's disability).
35. A district court reviewing an ERISA case de novo has the power to award disability benefits to a Wooten or to remand the case to the Plan Administrator for further factual development. In Patterson, for example, the Ninth Circuit remanded the case back to the Administrator because the record was insufficiently developed to determine whether a Wooten's headaches were caused by an organic illness or a mental disorder. 11 F.3d at 951.
36. Based on the entire record, the Court finds that Prudential's November 6, 2001 denial of Wooten's claim was erroneous. The Court further finds that Prudential breached its duties as a plan fiduciary under ERISA by failing to act solely in the interests of Wooten and "in accordance with the documents and instruments governing the plan. 29 U.S.C. 1104(a)1. Neurocare, Inc. v. Principal Life Ins. Co., 1999 WL 33221123 (N.D. Cal. 1999). The Court further finds that Prudential's denial of Wooten's November 30, 2001 request for reconsideration was erroneous and not supported by the record.
37. However, on this record, the Court finds that even though Wooten was a covered employee under the plan at the time he suffered the cardiovascular aneurism and partially dissected aorta, the Court exercises its discretion and concludes that this matter should be remanded to Prudential for a determination of Wooten's disabled status from July 19, 2001 to the present.
38. Remand is in order because based upon the evidence before the Court, the record is insufficient for the Court to determine whether Wooten was disabled under the terms of the Plan. In his application for benefits filed on August 10, 2001, Wooten indicated to Prudential that he suffered from "stress, hypertension, inability to concentrate due to pain/medication, recovery from major heart surgery." WOO 0103. He indicated that it was "not determined" when he could return to work or whether he would return to another occupation. Id. Dr. Keith Flachsbart, Wooten's treating physician, filed a statement on October 24, 2001, with Prudential indicating that Wooten could not presently work but that "if his recovery continues, he may be able to return to work in 2-3 months, based on future evaluation." WOO 86. Wooten's primary care physician, Dr. Krista Muirhead, also filed a statement on October 15, 2001, in which she indicated that the usual duration for this condition is six months. WOO 88. She indicated that Wooten currently had limited mobility but could climb one flight of stairs per day and help with the cooking. Id. Dr. Muirhead indicated that Wooten was "unable to work for approx. 6 months or more" and that he could not currently work while receiving treatment. Id.
Since his surgery took place three months before this statement, this would a total recovery time of five to six months.
39. Wooten argues that remanding the case to the plan administrator is unnecessary, because Prudential already reviewed the case and determined that he was disabled, albeit ineligible for coverage. Pl.s Proposed Findings at 15. In its letter informing Wooten that it was denying his application for disability payments, Prudential indicated that it "made this determination based on our review of all of the information obtained during our claim evaluation. This includes statements from you, your physicians and your employer. It also includes medical records, information about your occupation, and the provisions of the group policy." WOO 0077. The letter also indicated that Dr. Muirhead stated that Wooten was unable to work. WOO 0078. Wooten argues that this letter indicates that Prudential made a full review of the entire case — including the medical records — and concluded that Wooten would not receive benefits only because he was no longer employed at Villa Marin. As a result, Wooten asserts, if this Court determines that Wooten was covered under the plan, then it should award disability payments rather than remand, since Prudential has already made the determination that Wooten was disabled. Wooten also argues that, in the alternative, if Prudential failed to investigate whether or not Wooten was medically disabled, it should be estopped from doing so now, since it had every opportunity to conduct such an investigation. The failure to investigate the medical claims, Wooten asserts, violated Prudential's fiduciary responsibilities, and in so doing, Prudential has waived its right to conduct a full investigation.
With regard to Wooten's first claim — that Prudential fully investigated the claim and determined that Wooten was disabled but ineligible for coverage — the record simply does not support this finding. The internal notes that Prudential employees took show no analysis whatsoever concerning Wooten's medical condition. In a note dated October 25, 2001 that appears to reflect Prudential's final analysis, Prudential employee Kristine Cwiak indicated that "[s]ince job was term[inat]ed due to resignation on 07/16/01 (prior to 07/19/01 date of dis[ability]), clmt [claimant] not eligible for benefits. Send letters, advise clmt." WOO 0001. The record, fairly construed, does not indicate that Prudential at any time performed analysis aimed at evaluating whether Wooten had a medical disability. Since it determined that Wooten was not even eligible for coverage, Prudential appears to have stopped its analysis there. In its first denial letter, Prudential did indicate that it made its decision "based on our review of all of the information obtained . . . includ[ing] medical records." WOO 0077. But this three page letter contains largely boiler-plate language that is only marginally tailored to Wooten's particular case. The fact that Prudential wrote that it reviewed Wooten's medical records as part of its determination does not at all indicate that it would have found him disabled if he were actually covered. In its second denial letter, Prudential indicated that it made its decision because "Mr. Wooten was no longer considered an employee of Villa Marin." WOO 0060. It in no way indicates that Wooten's medical condition was a factor in the denial.
With regard to Wooten's second claim — that Prudential waived its right to determine whether Wooten was disabled — Wooten urges the Court not to give Prudential "another bite at the apple." However, Prudential should not be punished for failing to conduct a full medical determination once it determined that Wooten was not covered under the plan. Once it determined — correctly or incorrectly — that Wooten was ineligible, it had no reason to continue with its analysis. An investigation into Wooten's health could have been costly and irrelevant to Prudential, since he, in their eyes, did not qualify for disability even if he were disabled. There is no doubt that after major heart surgery, Wooten was unable to return to work at his former position for some period of time. Two different physicians indicated that recovery from such a trauma ordinarily lasted approximately six months. From there, however, the record falls silent as to whether Wooten's medical condition improved or deteriorated, whether he could have physically returned to employment at some point, or how long a finding of either total disability or partial disability would have applied. Although the record is clear that Wooten was disabled for some indeterminate period of time, this Court cannot make the determination whether he qualified for long-term disability as defined by the plan, nor can it determine the length of time that he was disabled.
Prudential's error in this case was failing to properly investigate whether Wooten was a covered employee and by concluding, based on a single statement by Villa Marin, that Wooten was not covered. Once it made its determination, it failed to consider contradictory evidence that indicated he was covered. However, after making that initial determination, it did not err in failing to conduct an evaluation of whether Wooten's condition qualified for long-term disability payments, since that question had been made moot by the eligibility determination. Since the record does not provide sufficient information to determine whether or for how long Wooten was disabled, and since Prudential did not initially need to make that determination, Prudential should now have the opportunity to evaluate whether Wooten's medical condition qualified him for long-term disability and for what period of time.
CONCLUSION
For the foregoing reason, this Court finds that Wooten was a covered employee according to the terms of the Plan through July 31, 2001, but remands the case to the Plan Administrator for further proceedings to determine whether — and for how long — Wooten's medical condition qualified him for long-term disability payments.
IT IS SO ORDERED.