F I L E D
United States Court of Appeals
Tenth Circuit
UNITED STATES COURT OF APPEALS
JAN 14 1998
TENTH CIRCUIT
PATRICK FISHER
Clerk
LIFE INSURANCE COMPANY OF
NORTH AMERICA,
Plaintiff-Appellee,
Nos. 96-3253, 96-3301, &
v. 96-3332
(D.C. No. 95-2331-KHV)
(D. Kansas)
CENTENNIAL LIFE INSURANCE
COMPANY,
Defendant-Appellant.
ORDER AND JUDGMENT1
Before HENRY, LUCERO, Circuit Judges, and MILES-LaGRANGE, District Judge2
I. INTRODUCTION
This is a dispute between two insurance carriers, Life Insurance Company of North
America ("LINA") and Centennial Life Insurance Company ("Centennial"), concerning
1
This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. This court generally
disfavors the citation of orders and judgments; nevertheless, an order and judgment may
be cited under the terms and conditions of 10th Cir. R. 36.3.
2
The Honorable Vicki Miles-LaGrange, United States District Judge of the
Western District of Oklahoma, sitting by designation.
whether Centennial's long term disability policy with Lockheed Corporation and its
affiliated companies ("Lockheed") covered the long term disability claims of two
Lockheed employees, Daniel Cryer and Rita Yotter. In a written order entered June 28,
1996, the district court concluded Centennial's policy did cover the claims. The district
court granted LINA's motion for summary judgment and denied Centennial's cross-
motion for summary judgment.3 Centennial filed a notice of appeal -- number 96-3253.
II. JURISDICTION
Because the district court's June 28, 1996 order did not specify the amount of
damages awarded to LINA, this Court, on August 16, 1996, directed the parties to address
whether the appeal should be dismissed for lack of jurisdiction. The issue was whether
the June 28, 1996 order was a final order. After receiving the parties' responses, we
entered an order on February 10, 1997, advising the parties that we would reserve
judgment on the jurisdictional issue and would submit the issue to the panel selected to
handle this appeal.
A review of the record reveals that the amount of damages requested by LINA was
never in dispute and was readily ascertainable. See Albright v. UNUM Life Ins. Co. of
America, 59 F.3d 1089, 1093 (10th Cir. 1995). In its complaint, LINA sought recovery in
the amount of $19,976.90 as to claimant Cryer and $16,400.00 as to claimant Yotter, for a
3
LINA had paid the claims, reserving its right to seek reimbursement from
Centennial. The district court concluded that LINA was entitled to reimbursement, but
did not specify the amount to be reimbursed.
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total of $36,376.90. Thus, the omission of the specific dollar amount in the district court's
June 28, 1996 order may be viewed as a clerical error that did not affect finality. See
Pratt v. Petroleum Prod. Mgmt. Inc. Employee Sav. Plan & Trust, 920 F.2d 651, 655-56
(10th Cir. 1990) ("[m]erely because the judgment is in need of clerical correction does not
give us license to disregard it"). Accordingly, we have jurisdiction over appeal number
96-3253.
III. SUBSEQUENT ORDERS ENTERED BY THE DISTRICT COURT
On September 5, 1996, the district court entered an order awarding LINA its
attorneys' fees. Centennial filed a second notice of appeal -- number 96-3301. On
September 24, 1996, the district court entered a judgment nunc pro tunc which
specifically stated the amount of damages awarded to LINA. Centennial then filed a third
notice of appeal -- number 96-3332. The appeals have been consolidated.
IV. DISCUSSION
There are three issues on appeal: (1) whether Centennial's policy covers Cryer's
and Yotter's claims (the "coverage issue"), (2) if Centennial's policy covers the claims,
whether the payment of the claims should be pro-rated between Centennial and LINA (the
"pro-rating issue") and (3) whether LINA is entitled to an award of its attorneys' fees (the
"attorneys' fees issue").
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A. The Coverage Issue
We review a grant of summary judgment de novo, applying the same legal
standard applied by the district court. Taken v. Oklahoma Corporation Commission, 125
F.3d 1366, 1368 (10th Cir. 1997).
This case is governed by the Employee Retirement Income Security Act of 1974,
29 U.S.C. §§ 1001 et seq. ("ERISA"). We review de novo a denial of benefits under an
ERISA plan "unless the benefit plan gives the administrator or fiduciary discretionary
authority to determine eligibility for benefits or to construe the terms of the plan."
Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989).
If a benefit plan does give an administrator discretionary authority to
construe doubtful provisions of the plan itself, the administrator's decision
must be upheld unless it was arbitrary and capricious, not supported by
substantial evidence or erroneous on a question of law. If an administrator
or fiduciary empowered to interpret the plan is operating under a conflict of
interest, that conflict must be weighed as a factor in determining whether
there is an abuse of discretion.
Thorpe v. Retirement Plan of the Pillsbury Co., 80 F.3d 439, 443 (10th Cir. 1996).4 "In
interpreting the terms of an ERISA plan, we examine the plan documents as a whole and,
if unambiguous, we construe them as a matter of law." Chiles v. Ceridian Corp., 95 F.3d
1505, 1511 (10th Cir. 1996). We give the words their common and ordinary meaning, as
4
In this case, as in Thorpe, we need not determine whether to apply the de
novo or arbitrary and capricious standard, because we conclude that Centennial's denial of
Cryer's and Yotter's claims was arbitrary and capricious and therefore fails even under the
most deferential standard.
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a reasonable person in the position of the plan participant (not the actual participant)
would have understood them. Id. "Questions involving the scope of benefits provided by
a plan to its participants must be answered initially by the plan documents, applying the
principles of contract law." Id. at 1515.
The material facts are not genuinely disputed. Lockheed funds a disability benefit
plan for its employees (the "Plan"). From March 4, 1977 through June 30, 1991, the Plan
benefits were provided through insurance Lockheed purchased from Centennial.
Effective July 1, 1991, Lockheed terminated its contractual relationship with Centennial
and contracted with LINA to provide insurance for the Plan.
Centennial's policy contained a Termination Date of Insurance clause which, in
essence, provided that the Lockheed employees' insurance coverage would end on the
date the policy was terminated.5 The clause, however, also contained an Extension of
Benefits clause which provided, in essence, that any employee who was receiving long
term disability benefits on the date the policy was terminated would continue to receive
such benefits as long as he or she remained totally disabled.6 Finally, the policy also
5
The "Termination Date of Insurance clause provides:
The insurance of an Insured Person [Cryer and
Yotter] shall terminate on the earliest of the
following times:
(a) the date this policy is terminated;
Appellant's Appendix at 0148 (hereinafter, "Aplt. App. at ___").
6
The Extension of Benefits clause, which is part of the Termination Date of
Insurance clause, provides:
(continued...)
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contained a Recurrent Disability clause which, in essence, provided that if an employee
who was receiving long term disability benefits returned to work, but became totally
disabled again for the same or related reason within six months of returning to work, the
successive period of disability would relate back to the first period of disability and would
be considered one period of disability for that employee.7
Cryer and Yotter initially became disabled prior to July 1, 1991, and Centennial
made long term disability payments to them after the expiration of their respective 180-
(...continued)
6
In the event an Insured Person is totally disabled the
date this policy is discontinued, the benefits provided
by this Policy to such totally disabled Insured Person
shall be extended during the continuance of such total
disability. The extension of benefits hereby provided
shall be subject to all the terms and conditions of the
policy, as if the discontinuance had not occurred.
Aplt. App. at 0149.
7
The Recurrent Disability clause provides:
"Period of total disability" means the period of time
during which the Insured Person is totally disabled,
whether from one or more causes, beginning on the
first day of total disability and ending on the date the
Insured Person ceases to be totally disabled, and
returns to active work, except that
* * *
(2) After the expiration of the elimination
period, successive periods of total disability due
to the same or related causes shall be considered
one Period of Total Disability if separated by
less than six months of active employment.
Aplt. App. at 0145-46.
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day elimination periods.8 Both Cryer and Yotter returned to full-time active employment
with Lockheed after July 1, 1991, and Centennial stopped paying long term disability
benefits to them. Both employees later became disabled again for the same or related
reason within six months of their respective returns to work.9 Centennial refused to
resume payment of Cryer's and Yotter's long term disability benefits. LINA paid the
claims, reserving its right to seek reimbursement from Centennial.
Centennial contends that since its policy with Lockheed terminated June 30, 1991,
its policy was not in effect when Cryer and Yotter had their second periods of disability,
on October 29, 1991 and March 30, 1992, respectively, and therefore Centennial's policy
did not cover Cryer's and Yotter's second periods of disability. LINA, on the other hand,
contends that under Centennial's policy, Cryer's and Yotter's second periods of disability
8
Centennial's policy required a 180-day elimination period before
commencement of benefits for long term disabilities.
9
Cryer had chronic fatigue syndrome. He was off work from January 22,
1991 through September 16, 1991. Centennial paid long term disability benefits to him
through September 16, 1991. Cryer returned to work September 19, 1991, and remained
at work until October 29, 1991, when he became disabled again for the same or related
reason.
Yotter injured her back on May 10, 1990 and was off work from May 10,
1990 through February 13, 1992. Centennial paid long term disability benefits to her
through February 13, 1992. She returned to work February 14, 1992, and remained at
work until March 30, 1992 when she became disabled again for the same or related reason.
Centennial stipulated to the fact that Cryer's and Yotter's disabilities were
recurrent disabilities under Centennial's Recurrent Disability clause, while preserving its
legal argument that the termination of Centennial's policy on June 30, 1991 cut off Cryer's
and Yotter's claims. This factual stipulation is found in Centennial and LINA's Second
Joint Stipulation. Centennial and LINA stipulated that "the disabilities of Cryer and
Yotter are recurrent disabilities under the Centennial policy". Aplt. App. at 0739.
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were treated as if each employee had only had one period of disability, since the second
period of disability for each employee occurred within six months of his or her return to
active employment.
We agree with LINA and with the conclusion reached by the district court. The
language of the pertinent policy provisions is plain and unambiguous.10 Under the plain
and unambiguous language of Centennial's recurrent disability provision, Cryer's and
Yotter's second periods of disability are considered to relate back to their respective initial
periods of disability and are considered to be one period of disability for each employee.11
Since Centennial's policy covered Cryer's and Yotter's initial periods of disability, and
since Cryer's and Yotter's second periods of disability relate back to their respective initial
periods of disability, Centennial's policy continues to cover Cryer's and Yotter's claims.
10
Centennial invites us to consider evidence of the negotiations that took
place in 1991 between Lockheed and LINA to assist in our construction of Centennial's
1977 insurance contract with Lockheed. We decline the invitation to consider such parol
evidence. "The parol evidence rule bars the court from considering evidence of terms
outside of an integrated written agreement." United States v. Rockwell Int'l Corp., 124
F.3d 1194, 1199, (10th Cir. 1997). "[It] is as much [a rule] of substantive contract law as
it is an evidentiary rule." Id. (citing Arthur L. Corbin, 3 Corbin on Contracts § 573
(1960)). "Under [the parol evidence rule], extrinsic evidence may not be admitted to
contradict the terms of a binding integrated agreement or to add to the terms of a binding
and completely integrated agreement." Id. (citing Restatement (Second) of Contracts §§
215, 216).
11
We also agree with LINA's argument, and with the district court's
conclusion, that the Recurrent Disability clause is expressly incorporated into the
Termination Date of Insurance clause, in that the Termination Date of Insurance clause
expressly states that it "shall be subject to all the terms and conditions of the policy, as if
the discontinuance [of the policy] had not occurred." Aplt. App. at 0149 (emphasis
added).
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B. The Pro-rating Issue
Centennial contends that if it is determined that its policy covers Cryer's and
Yotter's claims, then the actual payment of those claims should be pro-rated between
itself and LINA under Centennial's Reductions and Limitations clause.12 The district
court ruled that the pro-rating issue was "not fairly within the scope of the issues in the
Pretrial Order." Aplt. App. at 0768. The district court then went on to say that
"Centennial's argument also fails on the merits to defeat LINA's motion for summary
judgment." Aplt. App. at 0769.
1. Scope of the Pretrial Order
"[A] district court has discretion to exclude from trial issues and claims not set
forth in the pretrial order." Rios v. Bigler, 67 F.3d 1543, 1549 (10th Cir. 1995). Thus,
we review the district court's decision for abuse of discretion. Id.
A review of the pretrial order filed June 19, 1996 reveals that pro-rating as such is
not mentioned anywhere in the pretrial order. Moreover, the Reductions and Limitations
12
Centennial's Reductions and Limitations clause provides:
The Benefit Amount applicable to a Total
Disability covered by this Policy for any period
of benefit shall be reduced by any amounts,
individually or collectively, the Insured Person
receives or would receive upon application
(regardless of whether application is made)
from the following sources:
(a) Paid or payable under any Policyholder
sponsored disability plan; . . .
Aplt. App. at 0146.
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clause is not mentioned in any way in either the Issues of Fact or the Issues of Law. The
only reference to the Reductions and Limitations clause is found within Centennial's own
Factual Contentions and Legal Theories. In that portion of the pretrial order, Centennial
wrote:
The defendant's policy also contains a provision as to "reductions and
limitations" that benefits payable under the defendant's policy shall be
reduced by any amount payable under another plan, such as the plaintiff's
plan. Therefore, defendant's liability is reduced by all sums paid by LINA.
Aplt. App. at 0744.
Centennial contends this reference is sufficient to preserve the pro-rating issue for
trial. However, the district court found that Centennial's reference to the Reductions and
Limitations clause within its Factual Contentions and Legal Theories, and without any
reference to pro-rating, was insufficient to preserve the pro-rating issue. Even if some
other district court at some other time may have found Centennial's reference sufficient to
preserve the issue, we cannot say the district court abused its discretion in excluding it.
2. The Merits of the Pro-Rating Issue
Because we find the district court did not abuse its discretion in excluding the pro-
rating issue, we decline to address the merits of whether, under Centennial's Reductions
and Limitations clause, the benefits payable by Centennial should be pro-rated between
Centennial and LINA.
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C. The Award of Attorneys' Fees
A district court should consider the following factors in determining whether to
award attorney's fees pursuant to 29 U.S.C. § 1132(g)(1): first, the degree of the
offending party's culpability or bad faith; second, the degree of the ability of the
offending party to satisfy an award of attorney fees; third, whether or not an award of
attorneys' fees against the offending party would deter other persons acting under similar
circumstances; fourth, the amount of benefit conferred on members of the plan as a
whole; and fifth, the relative merits of the party's position. Pratt v. Petroleum Prod.
Mgmt. Inc. Employee Sav. Plan & Trust, 920 F.2d 651, 664 (10th Cir. 1990). The factors
are non-exclusive, Thorpe v. Retirement Plan of the Pillsbury Co., 80 F.3d 439, 445 (10th
Cir. 1996), and they "are intended to guide the court's exercise of its discretion but none is
necessarily decisive; various permutations and combinations can support an award of
attorney fees." Credit Managers Ass'n. of Southern Cal. v. Kennesaw Life & Accident
Ins. Co., 25 F.3d 743, 749 (9th Cir. 1994) (internal citations omitted). The decision
whether to award fees pursuant to 29 U.S.C. § 1132(g)(1) is reviewed for abuse of
discretion. Pratt, 920 F.2d at 658.
The district court awarded LINA its attorneys' fees, finding that Centennial's
position in denying Cryer's and Yotter's claims could not reasonably be defended in light
of the express and clear language of Centennial's policy; that Centennial could not
reasonably have believed that subsequent negotiations and dealings, in 1991, between
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LINA and Lockheed relieved Centennial of its obligations under its unambiguous 1977
contract with Lockheed; that Centennial's denial of Cryer's and Yotter's claims was in bad
faith; that Centennial is financially able to satisfy an award of fees; that an award of fees
will deter others from "arbitrarily eschewing their contractual obligations to their
insureds;" that the determination in this case benefits "Cryer, Yotter and potentially other
Lockheed employees who still receive benefits under Centennial's long term disability
policy;" that the absence of merit of Centennial's position, relative to LINA's position, "is
clear;" and that the fees incurred by LINA were reasonably and necessarily incurred.
Aplt. App. at 1042-44.
Centennial contends the district court abused its discretion when it said:
Because the stated reasons for denial of coverage are inconsistent with any
claim of good faith and fair dealing toward the insureds, the Court can only
conclude that Centennial was embittered about losing a major book of
business to LINA and saw an opportunity to 'stick it' to LINA on the Cryer
and Yotter claims.
Aplt. App. at 1043. Centennial also contends the district court abused its discretion when
it found that the decision in this case will benefit Cryer and Yotter. Centennial points out
that Cryer and Yotter have already been paid by LINA and the district court's decision
does not benefit those employees in any way. Centennial also suggests there is nothing in
the record to support the district court's finding that its decision will benefit any other
Lockheed employees. According to Centennial, the only one that has benefitted, or will
benefit, from the district court's decision is LINA.
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Even if the district court's references to Centennial's "sticking it" to LINA, and its
references to its decision being of benefit to Cryer, Yotter and other Lockheed employees,
were unsupported by the record, which we need not decide, we find the district court's
other considerations are sufficient to support the award of fees to LINA. Thorpe, 80 F.3d
at 445 (10th Cir. 1996); Pratt, 920 F.2d at 664 (10th Cir. 1990). The district court did not
abuse its discretion in awarding LINA its attorneys' fees under section 1132(g)(1).
V. CONCLUSION
The judgment of the district court (consolidated appeal numbers 96-3253, 96-3301
and 96-3332) is affirmed in all respects.
ENTERED FOR THE COURT
Vicki Miles-LaGrange
District Judge
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