United States Court of Appeals
For the First Circuit
No. 01-2204
LUCIEN J. DANDURAND,
Plaintiff, Appellant,
v.
UNUM LIFE INSURANCE COMPANY OF AMERICA,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MAINE
[Hon. Gene Carter, U.S. District Judge]
Before
Torruella, Circuit Judge,
Stahl, Senior Circuit Judge,
and Lipez, Circuit Judge.
Graydon G. Stevens, with whom Kelly, Remmel & Zimmerman, was
on brief, for appellant.
Ronald W. Schneider, with whom Patricia A. Peard and
Bernstein, Shur, Sawyer & Nelson, were on brief, for appellee.
April 2, 2002
STAHL, Senior Circuit Judge. Plaintiff-appellant Lucien
J. Dandurand ("Dandurand") receives a monthly benefit under a group
long term disability policy issued by defendant-appellee Unum Life
Insurance Company of America ("Unum"). Dandurand appeals the April
3, 2001, grant of partial summary judgment in favor of Unum, in
which the district court found reasonable Unum's interpretation of
the policy that has had the effect of significantly reducing
Dandurand's monthly benefit. We reverse.
I.
Dandurand has worked as an employee of Dingley Press
since August 1988 and is an eligible beneficiary of Unum's Group
Long Term Disability Insurance Policy, No. 379228, (Defendant's
Statement of Material Facts, No. 00-220-P-C, R. Doc. 8, App. Exh.
1 (D. Me. Jan. 22, 2001)) (hereinafter "Policy"), obtained by
Dingley Press for the benefit of its employees. The policy is
governed by the Employee Retirement Income Security Act of 1974
(ERISA). See 29 U.S.C. § 1001-1461.
In January 1994, Dandurand developed viral
cardiomyopathy, an inflammation of the heart muscle. For
approximately four months thereafter, he was not able to work, but
he returned to work at Dingley Press on a reduced schedule with
reduced responsibilities in May 1994 and has continued to work
there ever since.
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A. The Policy
The Policy defines the term "disability" in two ways. A
person is disabled if, "because of injury or sickness":
1. the insured cannot perform each of the
material duties of his regular occupation; or
2. the insured, while unable to perform all of
the material duties of his regular occupation
on a full-time basis, is:
a. performing at least one of the
material duties of his regular
occupation or another occupation on a
part-time or full-time basis;
b. earning currently at least 20% less
per month than his indexed pre-
disability earnings due to that same
injury or sickness.
Policy at L-DEF-4. The Policy defines "indexed pre-disability
earnings" as the "insured's basic monthly earnings in effect just
prior to the date his disability began," adjusted for inflation.
Id. at L-DEF-2. "Basic monthly earnings" are in turn defined as
"the insured's average monthly earnings," calculated "from the W-2
form . . . received from the employer for the calendar year just
prior to the date disability begins." Id. at L-PS-2. Hence, in
order to be disabled within the meaning of the Policy, an insured
returning to work "part-time" must earn on average, per month, no
more than 80% of what he earned on average, per month, in the
calendar year immediately prior to the date the disability began,
adjusted for inflation. When an insured returns to work, the
Policy thus defines disability not only in relation to an injury or
illness, but also in relation to income.
The Policy imposes a 180-day elimination period,
beginning with the date on which the insured becomes disabled,
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during which no benefits are payable to the insured. Id. at L-PS-
1. The monthly benefit an insured receives after the elimination
period is based on a formula that sets the benefit in proportion to
the insured's basic monthly earnings in the calendar year prior to
the disability.1 See id. at L-PS-1, L-BEN-1-2. The amount of the
insured's pre-disability monthly earnings thus has consequences for
the monthly benefit one receives upon disability, in addition to
the determination of whether the insured continues to meet the
income definition of disability in a given year.
The Policy also defines a "recurrent disability." A
recurrent disability is "a disability which is related to or due to
the same cause(s) of a prior disability for which a monthly benefit
was payable." Id. at L-BEN-4. A recurrent disability may be
treated in one of two ways: If the insured returns to work full-
time for six months or more, the recurrent disability is considered
a new disability, with the insured subject to the same terms as a
newly-disabled insured, including the completion of another
1
If the insured does not return to work, the insured's monthly
benefit is 70% of his/her basic monthly earnings, i.e. his/her
average monthly earnings in the year preceding the disability, as
long as this amount does not exceed a maximum monthly benefit
established in the policy specifications (minus any other benefits
the insured may be receiving for his disability such as workmen's
compensation). Policy at L-BEN-1. In a situation where the insured
returns to work part-time, the benefit is calculated by taking the
monthly benefit the insured would have received as above as the
baseline, but by multiplying this amount by a percentage
representing the actual lost income due to the disability. This
percentage is calculated by subtracting the insured's current
monthly earnings from his indexed pre-disability earnings and
dividing that figure by his indexed pre-disability earnings.
Policy at L-BEN-2. In either case, the higher the basic monthly
earnings immediately preceding the disability, the higher the
monthly benefits that follow.
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elimination period. See id. On the other hand, if the insured
"returns to his regular occupation on a full-time basis for less
than six months; and . . . performs all the material duties of his
occupation," the insured's benefits for the recurrent disability
are subject to the same terms as his prior disability. See id.
B. The Policy as Applied to Dandurand's Case
Although Unum initially determined that Dandurand was
eligible for benefits and paid such benefits between July 20, 1994
and August 19, 1999, in 1999 Unum informed Dandurand that, due to
an error in its calculation of his 1995 earnings, it had overpaid
him by almost seventy thousand dollars.2 The claimed error, which
was made by an Unum employee and went undetected by at least three
other Unum employees, derived from the fact that Unum had not
included bonus income received by Dandurand in 1995 when
calculating his average monthly earnings for that year.3 With the
2
Unum also initially determined that Dandurand was no longer
disabled under the Policy, but this determination was reversed on
administrative review.
3
Although one may normally assume that a one-time
discretionary bonus would not be included in monthly earnings, the
Policy provides for the calculation of basic monthly earnings based
on "the W-2 form (from the box which reflects wages, tips and other
compensation)." Policy at L-PS-2. Dingley Press awarded the bonus
to Dandurand in recognition of his efforts to return to work
despite his disability. The district court found that, upon a
specific inquiry by Dingley Press's owner as to any effect the
bonus would have on Dandurand's disability benefits, an Unum
employee erroneously told him that the bonus income would not be
included in the calculation of Dandurand's income for 1995.
Dandurand v. Unum Life Ins. Co. of Am., No. 00-220-P-C, R. Doc. 29
at 6 (D. Me. July 23, 2001). Despite this apparent
misrepresentation, Dandurand does not argue here that the bonus
should not have been included in the calculation of his 1995
earnings.
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bonus income included, Dandurand's average monthly earnings for
1995 exceeded 80% of his indexed pre-disability earnings, as
calculated from his 1993 earnings. Dandurand was therefore not
"disabled" in 1995, according to the income definition of the
Policy.
Having determined that Dandurand was not disabled in
1995, Unum proceeded to analyze whether he was entitled to benefits
in 1996. Unum did so by treating 1996 as a potential new
disability period. Unum thus compared Dandurand's 1996 average
monthly earnings to his basic monthly earnings in 1995, the
calendar year immediately preceding the date of the potential new
disability, and not to his earnings in 1993. Unum determined that
Dandurand was in fact disabled during that year, because his
average monthly earnings for 1996 were less than 80% of his average
monthly earnings for 1995. However, the fact that Unum treated
1996 as a new period of disability had several adverse
consequences. First, Unum imposed a new 180-day elimination period
on Dandurand at the beginning of 1996, during which he was not
entitled to receive any benefits. Second, because Unum had
established 1995, instead of 1993, as the benchmark year -- and
because Dandurand's average monthly earnings had been lower in 1995
than in 1993 -- Unum calculated that Dandurand's monthly benefit
for 1996 would be lower than it had been in 1994. Third, and just
as importantly, Unum's recalculation of Dandurand's indexed pre-
disability earnings based on the 1995 earnings resulted in a lower
benchmark for comparing average monthly earnings in subsequent
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years. Unum consequently determined that Dandurand's 1997 earnings
had exceeded 80% of his indexed pre-disability earnings and that he
therefore was not disabled in 1997 under the Policy and not
entitled to any benefits. Comparing his 1998 average monthly
earnings to his 1997 average monthly earnings, Unum then also
concluded that Dandurand was not disabled in 1998 and not entitled
to any benefits that year. Finally, Unum determined that, although
Dandurand was once again disabled under the Policy in 1999, when
his 1999 earnings were compared to his 1998 earnings, Unum could
impose another 180-day elimination period at the beginning of the
year and calculate Dandurand's benefits based on his earnings in
1998, which were lower than both 1995 and 1993.
Having thus concluded that it had overpaid Dandurand from
1995 to 1999,4 Unum informed him that it would offset his future
monthly benefits in their entirety until the overpayment had been
recovered. Dandurand consequently brought the present action under
ERISA, 29 U.S.C. §§ 1132(a)(1)(B) and (a)(3), seeking reinstatement
of his monthly benefit, repayment of the benefits withheld, a
ruling on the parties' conflicting interpretations of how the
monthly benefit should be calculated, and a ruling that Unum should
not be allowed to recover the overpayment. Dandurand did not
contest that he was not disabled in 1995. Instead, he objected to
Unum's determination that 1996 and 1999 constituted new disability
periods, with the consequences we have discussed. He argued that
4
When Unum initially contacted Dandurand, it claimed that it
had overpaid Dandurand by $70,859.28, but the parties have since
stipulated that the overpayment claimed by Unum is $67,957.18.
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a reasonable interpretation of the Policy would treat his
disability in 1996, and thereafter, as a recurring disability that
was part of a prior disability and therefore not subject to a new
elimination period or a recalculation of the indexed pre-disability
earnings. Unum answered with a counter-claim seeking recovery of
the overpayment, to which Dandurand raised the affirmative defense
that it would be inequitable to allow recovery of any overpayment.
Upon a motion by Unum, the district court granted partial
summary judgment on the question of the reasonableness of Unum's
interpretation of the Policy's terms. Dandurand v. Unum Life Ins.
Co. of Am., No. 00-220-P-C, R. Doc. 17 (D. Me. April 3, 2001)
(hereinafter "Order"). The court found that "Unum did not engage
in an unreasonable application of the Policy by regarding
Dandurand's 1995, 1997, and 1998 basic monthly earnings as his
indexed pre-disability earnings" and that its decision to do so was
"a straightforward application of the Policy's express language."
Order at 10.5 This is the holding which is before us on appeal.
The district court subsequently held a bench trial on
Unum's counter-claim for recovery of the overpayment. The district
court denied the counter-claim on the basis that it was
inequitable, ordered Unum to cease deducting money from Dandurand's
monthly payments, and directed Unum to refund the money it had
5
The district court also addressed the question of whether
Unum properly included Dandurand's contributions to a 401(k) plan
as income in its calculations of his 1997, 1998, and 1999 income
and granted partial summary judgment in favor of Unum on its
determination of the 1997 income, but not on the 1998 and 1999
income. This issue is not before us on appeal.
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deducted to date in an effort to recoup the claimed overpayment.
Dandurand v. Unum Life Ins. Co. of Am., No. 00-220-P-C, R. Doc. 29
(D. Me. July 23, 2001). Unum did not appeal this ruling.
Following the entry of final judgment, Dandurand timely
appealed the partial summary judgment ruling that accepted as
reasonable Unum's interpretation of the Policy under which 1996 and
1999 were considered new disability periods with monthly benefits
thereafter calculated based on Dandurand's earnings in 1995 and
1998, respectively.
II.
Although the district court held that Unum may not
recover any amount it may have overpaid to Dandurand from 1995 to
1999, the reasonableness issue appealed by Dandurand is not moot.
Specifically, under Unum's interpretation of the Policy,
Dandurand's basic monthly earnings, which set the benchmark for the
calculation of his monthly benefit, are based on his lower 1998
income instead of his 1993 income, resulting in a lower monthly
benefit paid to him from 1999 on. Dandurand argues that 1993, not
1998, should be the benchmark year for the calculation of his basic
monthly earnings. Under the position advocated by Dandurand and
according to his calculations, the difference between what he
should be receiving and what Unum has calculated to be his current
benefit is close to one thousand dollars per month.
We review the district court's grant of summary judgment
de novo. Doyle v. Paul Revere Life Ins. Co., 144 F.3d 181, 183 (1st
Cir. 1998). Summary judgment is appropriate when the record
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reveals no genuine issue as to any material fact and when the
moving party is entitled to summary judgment as a matter of law.
See Fed. R. Civ. P. 56(c). In deciding whether summary judgment is
appropriate, we are required here to give deference to Unum's
interpretation of its own policy, because the Policy grants Unum
"discretionary authority both to determine an employee's
eligibility for benefits and to construe the terms of th[e]
[P]olicy." Policy at L-PS-2; see Firestone Tire & Rubber Co. v.
Bruch, 489 U.S. 101, 115 (1989) (holding that a denial of benefits
will not be reviewed de novo where the language of an ERISA plan
"gives the administrator or fiduciary discretionary authority to
determine eligibility for benefits or to construe the terms of the
plan"); Pari-Fasano v. ITT Hartford Life and Accident Ins. Co., 230
F.3d 415, 418 (1st Cir. 2000). We have previously clarified that
the proper standard for reviewing the decision of an insurer that
has such discretionary authority is the arbitrary and capricious
standard, but that "the reasonableness of the insurer's decision
determines whether or not it constituted an abuse of the discretion
vested in the insurer by the plan . . . ." Id. at 419; see also
Doe v. Travelers Ins. Co., 167 F.3d 53, 57-58 (1st Cir. 1999).
Despite the deferential nature of this standard, Dandurand asks us
here to find that Unum's decision to base the calculation of his
basic monthly earnings on his income in any year other than 1993
was unreasonable. Because this determination was unreasonable, he
argues, the district court improperly granted summary judgment in
Unum's favor. We agree.
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We begin by trying to identify the essence of the dispute
between the parties. The parties agree that in 1994, Dandurand was
disabled under prong two of the definition of disability in the
Policy. Policy at L-DEF-4 ("the insured . . . is . . . performing
at least one of the material duties of his regular occupation . .
. and . . . earning currently at least 20% less per month than his
indexed pre-disability earnings . . . ."). The parties further
agree that in 1995, Dandurand was no longer disabled under this
definition of disability because, with the bonus included, he
earned more than 80% per month of what he had earned per month in
1993. In 1996, Dandurand's average monthly earnings dipped again
to a level that was 20% less per month than his indexed pre-
disability earnings, whether these earnings were calculated based
on his 1993 income or 1995 income. The parties thus once again
agree that Dandurand was disabled during 1996 -- albeit based on
slightly different calculations.
The points of agreement end there. The first issue
sharply contested by the parties -- and, as we shall see, the only
one we must resolve here -- is whether 1996 was a new period of
disability under the Policy, so that Dandurand's indexed pre-
disability earnings and his monthly benefit were properly
calculated based on his 1995 basic monthly earnings. Unum argues
that, because Dandurand was not disabled in 1995 according to the
express language of the Policy, his disability in 1996 constituted
a new period of disability. Therefore, Unum claims, it was
entitled in 1996 to set a new benchmark of basic monthly earnings
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based on Dandurand's 1995 income. Dandurand counters that his 1996
disability was a continuation of an existing disability, as
permitted under certain circumstances by the Policy's recurrent
disability provisions, and Unum therefore should have continued to
use 1993 as the benchmark for Dandurand's basic monthly earnings.
As we stated supra, a recurrent disability is defined
under the Policy as "a disability which is related to or due to the
same cause(s) of a prior disability for which a monthly benefit was
payable." Policy at L-BEN-4. Although Dandurand's particular
circumstances may not constitute the typical case contemplated by
the Policy, we agree with Dandurand that he has a recurrent
disability. Dandurand was entitled to monthly benefits in 1994
because cardiomyopathy caused him to drop some of his
responsibilities at work with a corresponding reduction in pay of
more than 20%. In 1996, he continued to suffer from cardiomyopathy
and continued to work at a reduced level, with the same result that
he had a pay reduction of more than 20%. Thus, his disability in
1996, i.e., his illness combined with 20% lower income, was "due to
the same cause(s)," i.e., cardiomyopathy and the resultant
inability to work on a full schedule, as his disability in 1994.
Although it is true that Dandurand ceased to be disabled in 1995,
not because he had recovered from his illness, but because he had
a spike in income due to the one-time bonus, we see nothing in the
definition of recurrent disability that precludes its application
to such a situation -- in fact, as Unum has repeatedly stated,
disability, under the Policy, is defined not just in terms of
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illness or injury but also in terms of income loss. We therefore
hold that Dandurand had a recurrent disability in 1996, under the
plain language of the Policy.
As Unum correctly argues and Dandurand concedes, however,
our analysis cannot end there. The language of the Policy goes on
to divide those disabilities that fit under the recurrent
disability umbrella into two categories: those that will be
"treated as part of the prior disability" and those that will be
treated "as a new period of disability." Id. Specifically, the
Policy states that a recurrent disability will be treated as part
of a prior disability if the insured "returns to his regular
occupation on a full-time basis for less than six months," but will
be treated as a new period of disability if the insured "returns to
his regular occupation on a full-time basis for six months or
more." Id. Dandurand did neither -- when he returned to work
after his initial four-month absence, he never resumed his full-
time duties and worked continuously thereafter on a reduced
schedule. Thus, the crux of the controversy is this: Was it
unreasonable for Unum to choose to classify Dandurand's recurrent
disability as a new disability, instead of a continuation of a
prior disability, when Dandurand's particular situation is covered
by neither category under the Policy language addressing recurrent
disabilities?
Unum attempts to side-step this question by taking an
extremely narrow view of the recurrent disability provisions.
Unum's position is that the contract provides only one path to
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having a disability be treated as a continuation of a previous
disability and that that path requires the insured to meet two
conditions: (1) the disability must be "related to or due to the
same cause(s)" as the previous disability and (2) the insured must
go back to work full-time for less than six months. Since
Dandurand does not meet these criteria, Unum argues, he has a new
disability that must be analyzed under the general disability
definition and guidelines of the Policy, and Unum was not required
to extend the recurrent disability provisions to cover Dandurand's
situation.
We disagree. The recurrent disability provisions do not
embody the clarity and purposefulness that Unum wants to ascribe to
them. Rather than the clear path Unum claims the provisions
provide, they operate (1) to group a category of disability claims
under the title of "recurrent disability" and (2) to sort these
claims -- crudely -- into those that will be treated as new
disabilities and those that will be treated as prior disabilities.
Dandurand's case is clearly grouped under the recurrent disability
umbrella, but the provisions do not clarify how Unum should treat
the type of recurrent disability created by Dandurand's
circumstances -- in fact, they are totally silent on the question.
The fact that the recurrent disability provisions are
silent as to whether Dandurand's disability should be treated as a
new disability or a continuation of a prior disability, does not,
however, change the fact that he fits the definition of an insured
with a recurrent disability. Unum cannot "bump" Dandurand out of
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the recurrent disability category into the general disability
category by default, simply because the language of the former does
not provide Unum sufficient guidance as to how to deal with this
particular fact scenario. Instead, as Dandurand correctly
contends, Unum must work within the language and purpose of the
recurrent disability provision to come up with a reasonable
interpretation of how the provisions should treat Dandurand's
particular case. Unum has not done so; rather, Unum claims that
the recurrent disability definition does not cover Dandurand's
situation at all. We cannot find this interpretation of the policy
reasonable.
We note that, in addition to not being supported by the
language and structure of the Policy, Unum's treatment of
Dandurand's situation under the general disability provisions leads
to a result that defies common sense. As Dandurand argues, the
purpose of the basic monthly earnings calculation is to establish
a benchmark by which to measure how much income an insured has lost
due to the injury or illness underlying his disability. A
comparison of Dandurand's 1996 and 1995 income does not provide an
accurate measurement of the income loss Dandurand experienced as a
result of working on a reduced schedule while suffering from viral
cardiomyopathy; the only benchmark year that can provide that
comparison is 1993.6
6
Additionally, we hasten to point out that, even if we were to
assume that Unum indeed worked within the recurrent disability
provisions to come up with its interpretation of Dandurand's
disability -- a possibility hinted at but not developed in Unum's
brief -- we cannot find reasonable its conclusion that 1996 was a
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Having found Unum's determination that it would re-set
1995 as the benchmark for calculation of Dandurand's benefits in
1996 unreasonable, we need go no further. It follows that Unum's
calculations regarding Dandurand's disability status and benefits
thereafter were unreasonable for the same reasons.
III.
We accordingly reverse the district court's grant of
summary judgment in favor of Unum and remand to the district court
for further proceedings, consistent with this ruling.
Reversed. Costs shall be taxed in favor of the
appellant.
new period of disability. It may be that Unum is suggesting that
Dandurand's particular circumstances are analogous to the insured
who goes back to work, full-time, for more than six months, before
becoming disabled again, and thereby begins a new period of
disability under the Policy. We find that this analogy does not
hold up because the consequences under the provisions for an
insured returning to work part-time for more than six months and an
insured returning to work full-time for more than six months are
materially different. If the insured returns to work full time for
six months or more before becoming disabled again, his benchmark
basic monthly earnings are still based on his full-time income
during that period and therefore more accurately serve to measure
his lost income in the period of disability that follows (although,
admittedly, he is subjected to a new elimination period). On the
other hand, when an insured returns to work part-time for more than
six months before becoming disabled again, his already reduced
income immediately preceding the new period of disability, if taken
as the benchmark in subsequent calculations, does not accurately
reflect his loss of income in the next period of disability. In
this sense, basing the calculation of Dandurand's monthly benefit
on basic monthly earnings already lowered by disability in 1995 is
not only inconsistent with the purpose and structure of the Policy
but also not contemplated by the recurrent disability provisions.
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