Fleisher v. Standard Insurance

PRECEDENTIAL

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

_____________

No. 11-2490
_____________

ROBERT FLEISHER, D.M.D.,
Appellant

v.

STANDARD INSURANCE COMPANY

___________

On Appeal from the United States District Court
for the District of New Jersey
(D.C. Civil No. 1-10-cv-02678)
District Judge: Honorable Robert B. Kugler
____________

Argued February 6, 2012

Before: SLOVITER, VANASKIE and GARTH, Circuit
Judges

(Filed: May 17, 2012)
Clifford D. Swift, III, Esq. (Argued)
Mark F. Seltzer & Associates
1515 Market Street
Suite 1100
Philadelphia, PA 19102
Counsel for Appellant

Brooks R. Magratten, Esq. (Argued)
Pierce Atwood
10 Weybosset Street
Suite 400
Providence, RI 02903

Byrne J. Decker, Esq.
Pierce Atwood
254 Commercial Street
Merrill's Wharf
Portland, ME 04101
Counsel for Appellee
___________

OPINION OF THE COURT
___________

VANASKIE, Circuit Judge.

Robert Fleisher, D.M.D., filed suit against the
Standard Insurance Company (“Standard”), alleging, inter
alia, a violation of § 502(a)(1)(B) of the Employee
Retirement Income Security Act of 1974 (“ERISA”), 29
U.S.C. § 1132(a)(1)(B). The suit arises out of Standard’s
decision to reduce Fleisher’s monthly long-term disability
(“LTD”) benefits by the amount of the monthly benefits he

2
receives under a separate LTD insurance policy issued to him
by the North American Company for Life and Health
Insurance (“North American”). Fleisher disputes Standard’s
decision that the North American Policy constitutes “group
insurance coverage,” and that the monthly payment he
receives under that Policy is therefore “Deductible Income”
under the Standard Policy. The District Court, applying the
deferential abuse of discretion standard of review, granted
Standard’s motion to dismiss. Specifically, it found that
Standard’s determination to offset the North American
monthly benefit of $1,500 from Standard’s monthly
obligation of $10,000 is supported by substantial evidence
and not unreasonable. Fleisher now appeals this decision.
For the reasons stated herein, we will affirm the decision of
the District Court.

I.

During the course of his career as a dentist, Fleisher
obtained LTD insurance coverage under two separate
policies. In July 1979, Fleisher obtained coverage under a
policy issued by North American (“North American Policy”)
to the American Association of Endodontics (“AAE”), of
which Fleisher is a member. The North American Policy
provides for LTD benefits of $1,500 per month.

In August 2002, Fleisher became eligible for LTD
insurance coverage under a group policy issued by Standard
(“Standard Policy”) to his employer, Endodontics, Ltd., P.C.
(“Endodontics”). The LTD coverage offered by Fleisher’s
employer is an employee benefit governed by ERISA. See
Shaw v. Delta Air Lines, 463 U.S. 85, 91 n. 5 (1983) (“An
‘employee welfare benefit plan’ [governed by ERISA]
includes any program that provides benefits for contingencies

3
such as illness, accident, disability, death, or
unemployment.”). The Standard Policy provides for monthly
LTD benefits equal to a percentage of the plan participant’s
pre-disability earnings, which in Fleisher’s case was a
maximum of “$10,000 before reduction by Deductible
Income.” (A. 61.) The Policy defines “Deductible Income”
to include “[a]ny amount you [a plan participant] receive or
are eligible to receive because of your disability under
another group insurance coverage.” (A. 72) (emphasis
added). The Standard Policy excludes from “Deductible
Income” benefits paid under “any individual disability
insurance policy.” (A. 72.) The Policy does not define either
“another group insurance coverage” or “individual disability
insurance policy.”

In January 2008, Fleisher became disabled and
claimed LTD benefits under both

the Standard and the North American policies. Shortly after
Fleisher began collecting under both policies, Standard
reduced his monthly benefits from $10,000 to $8,500 based
on its determination that the North American Policy
constitutes “another group insurance coverage,” and that the
$1,500 in benefits he receives under it is therefore
“Deductible Income.” Fleisher filed an administrative appeal
of Standard’s decision, arguing that the North American
Policy qualifies as an individual disability insurance policy,
and therefore is not subject to deduction. By letter dated July
11, 2008, Standard rejected Fleisher’s appeal and continued
making the deduction.

On May 26, 2010 Fleisher filed a Complaint in the
United States District Court for the District of New Jersey,
asserting individual and class claims for wrongful denial of

4
benefits under ERISA, along with various state law claims.
After Standard moved to dismiss the Complaint, Fleisher filed
an Amended Complaint on September 8, 2010. After
Standard moved to dismiss the Amended Complaint, Fleisher
filed a Second Amended Complaint (“SAC”) on October 1,
2010. 1 The SAC asserts three ERISA claims: breaches of
fiduciary duty (Count I) and contract (Count III), both
pursuant to § 502(a)(3), 29 U.S.C. § 1132(a)(3), and breach of
contract pursuant to § 502(a)(1)(B) (Count II). The SAC
seeks restitution for the deductions previously taken as well
as injunctive relief to govern future deduction decisions.

Standard moved to dismiss the SAC pursuant to Fed.
R. Civ. P. 12(b)(6). On May 2, 2011, the District Court
granted Standard’s motion. The District Court initially
concluded that the benefits offset determination was governed
by “the deferential abuse of discretion standard.” (A. 14.)
Applying that narrow standard of review, the Court held that
Fleisher could not show that Standard’s decision reflected an
unreasonable interpretation or application of the Standard
Policy. The District Court recognized that there was a
conflict of interest arising from the fact that Standard both
paid benefits and made the offset decision, and that such a
conflict had to be considered in deciding whether Standard
had abused its discretion. It concluded, however, that
Standard’s interpretation of pertinent policy provisions was
not so close as to make the conflict of interest a determinative
factor. The Court also dismissed Fleisher’s § 502(a)(3)
claims for breaches of fiduciary duty and contract, concluding
that Standard’s conduct was not improper.
1
Although Fleisher filed the SAC without obtaining
leave of the Court pursuant to Fed. R. Civ. P. 15, the Court
dismissed the SAC on the merits pursuant to Rule 12(b)(6).

5
 II.

We have jurisdiction over this appeal pursuant to 28
U.S.C. § 1291. We exercise plenary review over a district
court’s grant of a motion to dismiss pursuant to Rule 12(b)(6).
Gelman v. State Farm Mut. Auto. Ins. Co., 583 F.3d 187, 190
(3d Cir. 2009). Accordingly, we must “‘accept all factual
allegations as true, construe the complaint in the light most
favorable to the plaintiff, and determine whether, under any
reasonable reading of the complaint, the plaintiff may be
entitled to relief.’” Fowler v. UPMC Shadyside, 578 F.3d
203, 210 (3d Cir. 2009) (quoting Phillips v. Cnty. of
Allegheny, 515 F.3d 224, 233 (3d Cir. 2008)). To survive a
motion to dismiss, a complaint must contain sufficient factual
allegations, taken as true, to “state a claim to relief that is
plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S.
544, 570 (2007); see also Ashcroft v. Iqbal, 129 S.Ct. 1937,
1949 (2009) (holding that the plausibility pleading standard
articulated in Twombly applies to all civil actions).

III.

Fleisher’s coverage under the Standard Policy, an
employee welfare benefit plan, is governed by ERISA, 29
U.S.C. §§ 1001, et seq. Section 502(a)(1)(B) of ERISA
creates a civil cause of action for a plan participant “to
recover benefits due to him under the terms of his plan, to
enforce his rights under the terms of the plan, or to clarify his
rights to future benefits under the terms of the plan.” To
assert a claim under this provision, a plan participant must
demonstrate that “he or she . . . ha[s] a right to benefits that is
legally enforceable against the plan,” and that the plan
administrator improperly denied those benefits. Hooven v.
Exxon Mobil Corp., 465 F.3d 566, 574 (3d Cir. 2006). The

6
SAC alleges that Standard “breached its obligations under
ERISA to Dr. Fleisher . . . by taking a deduction to which it
was not entitled and thus unreasonably failing to pay those
benefits in full.” (A. 140-41.)

In Firestone Tire & Rubber Co. v. Bruch, 489 U.S.
101, 115 (1989), the Supreme Court held:

[A] denial of benefits challenged under [§
502(a)(1)(B)] is to be reviewed under a de novo
standard unless the benefit plan gives the
administrator or fiduciary discretionary
authority to determine eligibility for benefits or
to construe the terms of the plan.

When a plan grants its administrator such discretionary
authority, “[t]rust principles make a deferential standard of
review appropriate,” id. at 111, and “we review a denial of
benefits under an ‘arbitrary and capricious’ standard.”
Orvosh v. Program of Group Ins. for Salaried Emps. of
Volkswagen of Am., Inc., 222 F.3d 123, 129 (3d Cir. 2000). 2
Likewise, when an administrator acts pursuant to her
authority “to construe the terms of the plan,” Critzer v. CBS,
Inc., 275 F.3d 291, 295 (3d Cir. 2002) or “to act as a finder of
facts,” Mitchell v. Eastman Kodak Co., 113 F.3d 433, 438 (3d
2
We have clarified that “[i]n the ERISA context, the
arbitrary and capricious and abuse of discretion standards of
review are essentially identical.” Miller v. Am. Airlines, Inc.,
632 F.3d 837, 845 n.2 (3d Cir. 2011) (citing Howley v.
Mellon Fin. Corp., 625 F.3d 788, 793 n.6 (3d Cir. 2010)).
Accordingly, we use the phrases “abuse of discretion” and
“arbitrary and capricious” interchangeably when referring to
the deferential standard of review applicable in this case.

7
Cir. 1997), abrogated on other grounds as recognized by
Miller v. Am. Airlines, Inc., 632 F.3d 837, 847 (3d Cir. 2011),
we also apply the arbitrary and capricious standard when
reviewing those interpretations and factual findings.

“An administrator’s decision is arbitrary and
capricious ‘if it is without reason, unsupported by substantial
evidence or erroneous as a matter of law.’” Miller, 632 F.3d
at 845 (quoting Abnathya v. Hoffmann-La Roche, Inc., 2 F.3d
40, 45 (3d Cir. 1993)) (internal quotation marks omitted). An
administrator’s interpretation is not arbitrary if it is
“reasonably consistent with unambiguous plan language.”
Bill Gray Enters. v. Gourley, 248 F.3d 206, 218 (3d Cir.
2001). When a plan’s language is ambiguous and the
administrator is authorized to interpret it, courts “must defer
to this interpretation unless it is arbitrary or capricious.”
McElroy v. SmithKline Beecham Health & Welfare Benefits
Trust Plan, 340 F.3d 139, 143 (3d Cir. 2003). “The
determination of whether a term is ambiguous is a question of
law. A term is ambiguous if it is subject to reasonable
alternative interpretations.” Taylor v. Cont’l Group Change
in Control Severance Pay Plan, 933 F.2d 1227, 1233 (3d Cir.
1991) (citations omitted).

Courts defer to an administrator’s findings of facts
when they are supported by “substantial evidence,” which we
have “defined as such relevant evidence as a reasonable mind
might accept as adequate to support a conclusion.” Soubik v.
Dir., Office of Workers’ Comp. Programs, 366 F.3d 226, 233
(3d Cir. 2004). When reviewing an administrator’s factual
determinations, we consider only the “evidence that was
before the administrator when he made the decision being
reviewed.” Mitchell, 113 F.3d at 440. The Standard Policy

8
vests the administrator with: “[F]ull and exclusive authority
to control and manage the Group Policy, to administer claims,
and to interpret the Group Policy and resolve any questions
arising in the administration, interpretation, and application of
the Group Policy.” (A. 79.) This language clearly triggers
application of the deferential abuse of discretion standard of
review. See Abnathya, 2 F.3d at 45, abrogated on other
grounds by Metro. Life Ins. Co. v. Glenn, 554 U.S. 105, 112
(2008).

In the District Court, Fleisher argued that Standard’s
decision is not entitled to arbitrary and capricious review,
asserting that this deferential standard only applies to an
administrator’s interpretation of documents that are part of
the plan itself. Because Standard’s deduction decision was
based in part on its finding that the North American Policy—
a non-plan document—constituted “group insurance
coverage,” Fleisher reasoned that de novo review is
appropriate.

We rejected a similar argument in Mitchell, in which a
plan administrator denied Mitchell’s claim for benefits based
on a factual finding about his eligibility, rather than on an
interpretation of the terms of the plan. 113 F.3d at 438. The
plan vested the administrator with “full discretionary
authority to determine all questions arising in the
administration, interpretation and application of the plan.” Id.
We held that this “broad grant of discretionary authority to
the Administrator” to apply the plan “must encompass the
resolution of factual disputes,” because such “fact-based
determinations of eligibility for LTD benefits are certainly
one of the ‘questions arising in the administration,
interpretation and application of the plan.’” Id. at 438-39.

9
 The District Court relied on our reasoning in Mitchell
in rejecting Fleisher’s argument for de novo review. The
Court found that the Standard Policy grants the administrator
discretionary authority over “application” of the Policy,
which includes the authority to “interpret the plan and make
findings of fact necessary to determine eligibility.” (A. 14.)
Accordingly, the Court reviewed Standard’s deduction
decision—including its “interpretation and characterization of
the North American Policy”—under the arbitrary and
capricious standard.

Fleisher apparently reasserts his challenges to this
deferential standard now, declaring: “On appeal, this Court
reviews the plan administrator’s denial of benefits by
applying the standard of review the district court should have
used initially.” (Appellant Br. at 12, citing Mitchell, 113 F.3d
at 437; Dewitt v. Penn-Del Directory Corp., 106 F.3d 514,
519 n.4 (3d Cir. 1997)). Fleisher, however, offers no further
argument to support this apparent challenge, and we discern
no error with the District Court’s determination that the
arbitrary and capricious standard of review applies here. We
will therefore apply the arbitrary and capricious standard of
review to Standard’s denial of benefits, including its
determination about the North American Policy. 3

3
As our dissenting colleague observes, the conflict of
interest inherent in the fact that Standard both pays and
decides what should be paid is a factor to be considered in
applying the abuse of discretion standard of review. It is not,
however, inherently a determinative factor. See Glenn, 554
U.S. at 117-19. Indeed, “the existence of a conflict,” such as
the one in this case, “[does] not change the standard of review
from abuse of discretion to a more searching review.”

10
 IV.

The Standard Policy permits it to reduce Fleisher’s
monthly LTD benefits by any amount paid or payable under
“another group insurance coverage.” At issue here is the
meaning of “group insurance” and whether Standard
reasonably determined that the North American Policy falls
within the meaning of this term. In this regard, Standard’s
determination involved both an interpretation of “group
insurance” and a factual determination about the North
American Policy.

The District Court recognized, and the parties do not
dispute, that the term “group insurance” is ambiguous. The
Court consulted various insurance law treatises and found that
insurers use the term “group insurance” to refer to “at least
two subsets of collective insurance products,” including “true
group insurance” and “franchise insurance.” (A. 17.) The
Court explained a basic difference between the two:

Group insurance is an arrangement by which a
single insurance policy is issued to a central

Doroshow v. Hartford Life & Acc. Ins. Co., 574 F.3d 230,
234 (3d Cir. 2009). Instead, we are to “apply a deferential
abuse of discretion standard of review across the board and
consider any conflict of interest as one of several factors in
considering whether the administrator or the fiduciary abused
its discretion.” Est. of Schwing v. Lilly Health Plan, 562 F.3d
522, 525 (3d Cir. 2009). While our dissenting colleague
expounds at great length on the significance of the conflict of
interest in this case, Fleisher does not even mention this factor
in his briefs on appeal, let alone explain how it affects the
analysis of his claim.

11
 entity—commonly an employer, association, or
union—for coverage of the individual members
of the group. Franchise insurance is a variation
on group insurance, in which all members of the
group receive individual policies.

(A. 17, quoting Couch on Insurance § 1:29 (3d ed. 2002)).

The District Court also identified other distinguishing
features of the two types of group policies. Under true group
insurance policies, the certificate holder is typically an
employee of the master policy holder, “all members or
employees are automatically enrolled,” and the master policy
holder works directly with the insurer and is responsible for
paying premiums, notifying the insurer about changes
concerning which persons are covered at a given time, and
submitting members’ claims. (A. 17, citing Appleman on
Insurance Law & Practice §§ 41, 54 (rev. ed. 1981)
(“Appleman”)).

Franchise insurance is also issued through a group
which holds the master policy that provides for the general
terms. While the master policy holder and insurer “‘may
negotiate’ with the insurer to modify or terminate the plan, in
all other respects the relationship between members and the
insurer is ‘precisely that of an insurer dealing directly with its
policyholders.’” (A. 18, quoting Appleman § 54.) As the
District Court explained:

[F]ranchise insurance generally has the
following characteristics: (1) members of the
relevant association or entity may enroll in the
plan but are not required to do so; (2) members
pay premiums directly to the insurer; (3)

12
 members make claims directly to the insurer;
and (4) insurers agree to “waive underwriting,
and take all applicants across the board.”

(A. 18, quoting Appleman § 54.)

Therefore, “[a]lthough true group insurance and
franchise insurance are distinct products,” the District Court
found that, “‘lawyers, legal writers, publishers, and the courts
can refer to them individually and collectively as “group
insurance.”’” (A. 18, citing Holmes’ Appleman on Insurance
§ 2.5 (2d ed. 2002)). On this basis, the Court concluded that
the term “group insurance” is ambiguous because it “may
reasonably refer to at least two different types of collective
insurance products.” (A. 19.)

Our dissenting colleague, relying upon “general
principles of contract law,” (Dissenting Op. at 4), suggests
that we should apply the well-established principle that
ambiguous terms in an insurance policy “must be construed
most strongly against the insurance company that drafted it.”
(Id. at 3). He vigorously asserts that our review must be
“informed both by [such] general principles of contract law
and by ERISA’s purposes as manifested in its specific
provisions.” (Id. at 4, quoting Burstein v. Retirement Account
Plan for Emp. Of Allegheny Health Educ. & Research
Found., 334 F.3d 365, 385 (3d Cir. 2003) (emphasis added by
Judge Garth) (internal quotation marks and citations
omitted)). The dissent argues that the result here is
inequitable because “the Standard Policy to which Dr.
Fleisher subscribed at no time alerted him to its deductible
provisions, nor did Standard offer an interpretation of those

13
provisions so that a layperson such as Dr. Fleisher could
assess the protection that he was seeking.” 4 (Id. at 3-4.)

With all due respect to our dissenting colleague, we
think that he misapprehends the nature of the abuse of
discretion standard of review. Notably, the case he cites for
applying general principles of contract law to interpret
ERISA plan terms, Burstein, 334 F.3d 365, did not involve
review of a benefits determination under an abuse of
discretion standard, but instead concerned a conflict between
a summary plan description and the plan document itself.
And while we have applied the doctrine of contra
proferentem in the context of ERISA claims, we have done so
only to decide whether the plan documents confer
discretionary authority on the plan administrator so as to
trigger deferential review, a decision we make under a
plenary standard of review. See, e.g., Heasley v. Belden &
Blake Corp., 2 F.3d 1249, 1254, 1257-58 (3d Cir. 1993).
Where, however, the abuse of discretion standard applies, we
have made clear that we must defer to the plan
administrator’s interpretation of ambiguous plan terms unless
that interpretation is arbitrary or capricious. See McElroy 340
F.3d at 143 (“Because the language of the . . . Plan is
equivocal, the plan administrator was authorized to interpret
it, and we must defer to this interpretation unless it is
arbitrary or capricious.”).
4
It bears mentioning that the record before this Court
does not include an actual insurance policy, but does include
the ERISA Summary Plan Description (“SPD”) for the
disability coverage provided by Standard. The dissent is
correct that the SPD does not describe its deductible
provisions in large block lettering or in any other way that
would call a reader’s attention to this specific provision.

14
 The dissent’s application of the contra proferentem
doctrine would supplant deference to an administrator’s
reasonable interpretations of ambiguous terms with a
presumption that such an interpretation is unreasonable. In
addition to undermining the established deferential standard,
contrary to Supreme Court authority, such an approach also
eviscerates the provision of the Standard Policy which
granted the administrator discretion in the first place. Indeed,
the administrator can hardly be said to exercise discretion if
her interpretations of the policy’s terms is burdened by a
presumption against the insurer.

Notably, every Court of Appeals to have addressed the
issue has concluded that a court reviewing a benefits decision
for abuse of discretion cannot apply the principle that
ambiguous plan terms are construed against the party that
drafted the plan. See, e.g., D & H Therapy Assoc., LLC v.
Boston Mut. Life Ins. Co., 640 F.3d 27, 35 (1st Cir. 2011)
(“We have emphasized that our review of whether a plan
administrator abused its discretion does not require that we
determine either the ‘best reading’ of the ERISA plan or how
we would read the plan de novo. We have also noted that the
doctrine of contra proferentem does not apply to review of an
ERISA plan construction advanced by an administrator given
authority to construe the plan.”) (citations omitted); Marrs v.
Motorola, Inc., 577 F.3d 783, 787 (7th Cir. 2009)
(“[A]lthough, generally, ambiguities in an insurance policy
are construed in favor of an insured, in the ERISA context in
which a plan administrator has been empowered to interpret
the terms of the plan, this rule does not obtain.”) (citation and
quotation marks omitted); Carden v. Aetna Life Ins. Co., 559
F.3d 256, 260-61 (4th Cir. 2009); White v. Coca-Cola Co.,
542 F.3d 848, 857 (11th Cir. 2008); Lennon v. Metro. Life

15
Ins. Co., 504 F.3d 617, 627 n.2 (6th Cir. 2007); Kimber v.
Thiokol Corp., 196 F.3d 1092, 1100-01 (10th Cir. 1999);
Winters v. Costco Wholesale Corp., 49 F.3d 550, 554 (9th
Cir. 1995); Pagan v. NYNEX Pension Plan, 52 F.3d 438, 443-
44 (2d Cir. 1995) (“[A]pplication of the rule of contra
proferentum is limited to those occasions in which this Court
reviews an ERISA plan de novo.”). District Courts in our
Circuit also have recognized that the doctrine of contra
proferentem does not apply where, as here, judicial review is
constrained by the abuse of discretion standard. See, e.g.,
Brown v. First Reliance Standard Life Ins. Co., 2011 WL
1044664, at *16, n.13 (W.D. Pa. 2011); Doe v. Hartford Life
& Accident Ins. Co., 2008 WL 5400984, at *4 (D. N.J. 2008).

The dissenting opinion reads as if we were interpreting
an ambiguous term in an insurance policy under a de novo
standard of review. It alludes to notions of contracts of
adhesion and reasonable expectations of the insured that
populate cases interpreting insurance policies in the first
instance. Those concepts are simply not applicable where, as
here, the ERISA plan document makes the plan administrator
the competent authority to interpret ambiguous plan
provisions in the first instance. See Kimber, 196 F.3d at 1101
(“[T]he reasonable expectation doctrine is inapplicable to the
review of an ERISA disability benefits plan under the
arbitrary and capricious standard.”). As Judge Cudahy
explained in Morton v. Smith, 91 F.3d 867, 871 n.1 (7th Cir.
1996):

Courts invoke [the contra proferentem] rule
when they have the authority to construe the
terms of a plan, but this authority arises only
when the administrators of the plan lack the

16
 discretion to construe it themselves. . . . When
the administrators of a plan have discretionary
authority to construe the plan, they have the
discretion to determine the intended meaning of
the plan’s terms. In making a deferential review
of such determinations, courts have no occasion
to employ the rule of contra proferentem.
Deferential review does not involve a
construction of the terms of the plan; it involves
a more abstract inquiry—the construction of
someone else's construction.

(internal citations omitted.)

Ultimately, we think Judge Garth is mistaken
inasmuch as he implies that Fleisher has somehow been the
victim of a contract of adhesion, or that he was otherwise
misled by Standard. Although the Standard Policy did not
define the terms “group insurance” or “individual insurance”
or reference the term “franchise insurance,” it reposed in the
administrator the authority to interpret ambiguous terms.
Thus, we are not concerned that plan participants like
Fleisher—or, as Judge Garth suggests, sophisticated plan
participants like the judges on this panel—are misled by
insurance policies such as Standard’s. Since the Standard
Policy vested the administrator with discretion to interpret the
Policy, under our well-established case law we have no
option but to uphold this interpretation unless it is arbitrary or
capricious. As our dissenting colleague observed in another
ERISA case, “a court must actually apply the correct standard
[of review]; mere lipservice and mere citation to a standard of
review will not suffice.” Lasser v. Reliance Standard Life
Ins. Co., 344 F.3d 381, 399 (3d Cir. 2003) (Garth, J.,

17
dissenting). In this case, application of the deferential
standard of review precludes reliance upon the general
principles of contract law on which the dissent rests. Whether
we would reach a different interpretation under de novo
review is therefore irrelevant.

Having established that “group insurance” is
ambiguous and that the Standard administrator is authorized
to interpret it, the District Court evaluated the features of the
North American Policy to determine whether Standard could
reasonably interpret it as a type of group insurance coverage.
The Court observed several features of the North American
Policy consistent with franchise insurance, including that the
Policy was “issued through a group, [the AAE], whose
members could individually apply for coverage,” and that
“the members otherwise interacted directly with the North
American regarding coverage and premiums.” (A. 19.) The
Court also noted that “the Certificate, which [Fleisher]
attaches to the Complaint, clearly states that it is issued
pursuant and subject to ‘group policy PG A320,’ which is
held by AAE, and that [Fleisher] obtained the Certificate as a
member of the AAE.” (A. 19.) The Court acknowledged
Fleisher’s argument that the Policy “bears certain features
characteristic of individual insurance policies,” but concluded
that the Policy can nonetheless be “reasonably characterized
as a franchise policy.” (A. 19). On this basis, the Court
dismissed Fleisher’s § 502(a)(1)(B) claim.

Fleisher challenges this conclusion on appeal, urging
that Standard’s determination is unreasonable because it is
based on a factual finding—that the North American Policy is
franchise insurance—that is not supported by the evidence.
Instead, Fleisher contends that the evidence supports the

18
conclusion that the Policy “is an individual disability
insurance policy with all the characteristics of an individual
disability insurance policy and none of the characteristics of a
group insurance policy.” (Appellant Br. at 21.)

First, Fleisher notes that unlike franchise insurance,
where “insurers agree to ‘waive underwriting, and take all
applicants across the board,’” (A. 18), the North American
Policy “was subject to individual underwriting.” (Appellant
Br. at 19.) In this respect, he cites portions of the SAC that
allege that he was “required to complete a medical
questionnaire as part of his application” for the North
American Policy, and that the application “itself indicates that
North American ordered a Retail Credit Report,” and stated
that the underwriting procedure may entail “an investigative
consumer report.” (Id. at 19-20.)

The District Court did not suggest—nor do any of the
treatises it cited indicate—that waiver of underwriting is a
sine qua non of franchise insurance. Rather, the Court listed
waiver of underwriting as one of four characteristics that
franchise insurance “generally has.” (A. 18.) Moreover, the
relevant inquiry is whether Standard’s interpretation is
supported by “substantial evidence,” which does not require
that the evidence uniformly supports its conclusion, but
merely requires “such relevant evidence as a reasonable mind
might accept as adequate to support a conclusion.” Soubik,
366 F.3d at 233. The District Court correctly found that
Standard’s interpretation is supported by substantial evidence,
including that the North American Policy possesses the other
general features of franchise insurance, that it was issued to
Fleisher through his membership in a group, and that it states
that it is a “group policy.” Thus, the fact that the North

19
American Policy lacks one feature of franchise insurance
does not outweigh the other evidence in support of Standard’s
interpretation.

Fleisher next argues that the evidence supports a
finding that the North American Policy is an individual
disability insurance policy, and therefore excluded from the
definition of “Deductible Income” under Standard’s Policy.
In this regard, Fleisher enumerates six features of the North
American Policy that, he claims, it shares in common with
individual policies, including: (1) it is individually
underwritten; (2) members pay premiums directly; (3)
members enroll directly; (4) members submit claims directly;
(5) members receive individual billing statements; and (6) it
is non-cancellable and guaranteed renewable.

The fact that the Policy shares features in common
with individual disability insurance policies is not necessarily
inconsistent with a finding that the Policy is franchise
insurance. Indeed, three facets of the Policy that Fleisher
cites as evidence of an individual policy—direct payment of
premiums, direct enrollment, and direct submission of
claims—are among those that the District Court identified as
characteristics of franchise insurance. Thus, Fleisher’s
argument that the Policy has “none of the characteristics of a
group insurance policy” is plainly untrue, as these three
features in fact support the conclusion that the Policy is
franchise insurance, which itself is a type of group insurance. 5

5
To the extent that Fleisher attempts to demonstrate
that the Policy is not “true” group insurance, this argument is
unavailing. Fleisher has conceded that the term “group
insurance” is ambiguous, and that “franchise insurance” is a

20
 Moreover, as the District Court aptly observed, even
accepting that the Policy possesses some features of
individual policies, it “is certainly not a pure individual policy
because it plainly states that it was issued pursuant to a group
policy held by AAE.” (A. 16-17.) Indeed, there are several
features of individual policies that the North American Policy
does not possess. Notably, unlike individual policies,
Fleisher has only a certificate of coverage, which is expressly
subject to the terms of the group policy and to termination of
the group policy, as well as numerous other conditions
determined by the holder of the group policy. (Appellee Br.
at 12-13.)

Finally, Fleisher argues that the District Court
“ignored the most compelling evidence that the North
American Policy is an individual rather than a group policy,
Reassure America’s own characterization of the policy it sold
to Dr. Fleisher.” (Appellant Br. at 22.) The SAC alleges that
in his administrative appeal of the deduction decision,
Fleisher submitted a letter from Ken Selasky, the Assistant
Vice President at Reassure America, which administers the
North American Policy. Selasky’s letter states: “[E]ven
though this policy was issued through this group [referring to
AAE], it is an individual income policy and we are treating
all aspects of Dr. Fleisher’s claim as an individual disability
income policy.” (Appellant Br. at 22.)

While the opinion of the administrator of the North
American Policy as to the nature of the policy is not

type of “group insurance.” Therefore, the relevant inquiry is
whether there is substantial evidence that the Policy is
franchise insurance. The question whether it is “true” group
insurance is irrelevant.

21
immaterial, we do not consider it sufficiently persuasive to
establish that Standard’s contrary interpretation was
unreasonable. Indeed, under the arbitrary and capricious
standard of review, the relevant inquiry is not whether it is
reasonable to interpret the North American Policy as an
individual insurance policy, but whether it is unreasonable to
interpret it as group insurance. We conclude that this
determination is not unreasonable: the North American Policy
exhibits several characteristic features of franchise insurance,
which is a species of group insurance, and Fleisher’s
arguments to the contrary do not undermine the sufficiency of
this evidence. 6

6
As noted above, the dissent makes much of a point
not argued by Fleisher in his principal brief or in his reply
brief: the conflict of interest arising from the fact that
Standard benefits from its decision to set off the North
American payment of $1,500 per month from the Standard’s
monthly obligation of $10,000. The type of conflict here is
not uncommon. See Marrs, 577 F.3d at 789 (“[A] conflict of
interest . . . is a given in almost all ERISA claims”.). We
have recognized that a conflict may be determinative where
the issue is close. See Est. of Schwing, 562 F.3d at 526. We
agree with the District Court’s conclusion that the issue in
this case is not so close as to make the conflict a tiebreaking
factor. Franchise insurance is a species of group insurance,
Fleisher procured coverage through a group, the coverage he
obtained had a number of features of franchise insurance, and
he received only a certificate of insurance, not a policy. It
plainly was not unreasonable to consider the North American
Policy group insurance, and the conflict of interest does not
alter this conclusion.

22
 V.

For the foregoing reasons, we will affirm the District
Court’s decision dismissing this action.

23
Fleisher v. Standard Insurance Co.
No. 11-2490
GARTH, Circuit Judge, dissenting.

While I have no quarrel with the majority’s statutory analyses, I reach a different

result and, therefore, respectfully dissent.

I have looked beneath the surface of the principles upon which the majority rely,

to the fair and equitable roots of this controversy with Standard. As a result, I would

remand this case to the District Court to explore and determine the equitable factors in

play, as well as the conflict and ambiguities that have resulted in a complete frustration of

Dr. Fleisher’s objectives and expectations.

Dr. Fleisher, a dentist specializing in endodontistry, in an effort to protect his

future earning capacity, subscribed to a North American Disability Policy in 1979. He

was to receive a benefit of $1,500 a month. At that time, he was not disabled, but he was

aware of the possibility that he might be in future years. Accordingly, when he became

eligible for a group policy, he subscribed to one written by the Standard Insurance

Company. This was some 23 years after he had subscribed to his initial disability policy

with North American. His later subscription to the Standard policy was obviously to

protect and augment his financial livelihood, by insuring that he had increased protection

in the event he became disabled.

In January 2008, he became disabled and claimed the benefits under both policies,

Standard, for the first time, informed him that he could not receive the $10,000 a month

which was the amount of the policy which he had taken out. Why? Because the 1979

1
policy to which he had originally subscribed was, in Standard’s opinion, a “group policy”

and, as such, the amount of the benefits which Dr. Fleisher could receive from the

Standard policy was reduced by the amount of the North American policy benefit that he

would henceforth receive.

Accordingly, at this time, Dr. Fleisher, who is no longer eligible for disability

benefits from any company and can no longer subscribe for disability protection, is

remitted to $10,000 a month, rather than $11,500 a month, the sum total of both policies

which he had taken out.

Why should this be, when the Standard policy at no time brought to Dr. Fleisher’s

attention the deductibility provision of the Standard policy, nor did it acquaint him with

any definitions of the terms: “group policy”, “ individual policy”, or “franchise

policies”?

All members of the majority and I (as well as the District Court judge) agree that

the terms and language of the Standard Insurance policy are ambiguous. Nowhere in the

Standard policy are the terms “group insurance” and “individual insurance” defined. No

matter how diligently one may look at or study the Standard policy, there is no guidance

to help the policyholder determine the characteristics of either type of policy or how these

characteristics would affect the benefits that Dr. Fleisher expected to receive.

Moreover, although the District Court and the majority here have focused their

analysis on “franchise policies,” and have detailed the characteristics of a “franchise

policy,” neither the Standard policy nor the individual policy that Dr. Fleisher originally

purchased, even mention, much less define, the term “franchise policy.” Yet the

2
characteristics and definition of a “franchise policy” dominate and control the holding of

both the District Court opinion and the majority opinion here.

“Franchise policies” were never described in any insurance document that Dr.

Fleisher had received, but are rather a matter of characterization that can be found only in

an insurance treatise such as Appleman’s.

As to the characterization of the individual and group policies, there was no

warning or alert given to Dr. Fleisher which could send up a red flag warning that he

should not purchase the Standard policy with its deductible provisions or that if he did, he

would not achieve the disability benefits that he sought to receive. (See footnote 1,

supra.) In other contexts, our society has taken great pains to alert consumers of products

detrimental to their well-being: warnings appear in large letters in the advertisements and

on the packaging of tobacco, drugs, and alcohol. Large block lettering or other emphatic

warnings on the Standard policy might have alerted Dr. Fleisher to the problem that he

now faces.

It is well established that when the language of an insurance policy is ambiguous,

that language must be construed most strongly against the insurance company that

drafted it. American Legacy Foundation, R.P. v. National Union Fire Ins. Co., 623 F.3d

135, 139 (3d Cir. 2010) (quoting Rhone-Poulenc Basic Chems. Co. v. Am. Motorists Ins.

Co., 616 A.2d 1192, 1195-96 (Del. 1992)).

In the present case, the Standard policy to which Dr. Fleisher subscribed at no time

alerted him to its deductible provisions, nor did Standard offer an interpretation of those

provisions so that a layperson such as Dr. Fleisher could assess the protection that he was

3
seeking. Further, as I have emphasized, the Standard policy makes no mention of the

status or even the nature of a “franchise policy,” a characterization which governs the

District Court’s and the majority decisions.

The mere fact that this case implicates ERISA does not mean that these basic

fundamental contract principles should be ignored. “In interpreting plan terms for

purposes of claims under § 1132(a)(1)(B), we apply a federal common law of contract,

informed both by general principles of contract law and by ERISA's purposes as

manifested in its specific provisions.” Burstein v. Retirement Account Plan for

Employees of Allegheny Health Education and Research Foundation, 334 F.3d 365, 381

(3d Cir. 2003) (Emphasis added, internal quotation marks omitted, internal citations

omitted).

Although there is no direct precedent that confirms ERISA must be considered in

light of equitable realities, there are countless instances in which equity has been

predominant in ERISA’s concerns. See, e.g., Skretvedt v. E.I. DuPont De Nemours, 372

F.3s 193, 196 (3d Cir. 2004) (prejudgment interest on an ERISA award is governed in

certain circumstances not by “a rigid theory of compensation for money withheld, but is

given in response to considerations of fairness. It is denied when its exaction would be

inequitable.”) (Quoting Board of Commissioners of Jackson County, Kansas v. United

States, 308 U.S. 343, 352, (1939)). (Italics added.)

Dr. Fleisher’s situation is particularly problematic in light of the conflict under

which the Standard administrator labors. The conflict that Firestone Tire & Rubber Co.

v. Bruch, 489 U.S. 101 (1989) and Metropolitan Life Ins. Co. v. Glenn, 554 U.S. 105

4
(2008) have recognized where the benefit-giver and the administrator of the benefit are

the same, is clearly patent on this appeal. Standard profits by the deduction of $1500 per

month from Dr. Fleisher’s benefits. It does so by relying wholly upon an extraneous

statement in the North American policy, which reads “[h]aving issued group policy

PGA320, hereinafter called ‘policy.’”

Standard, the District Court, and the majority here discredit North American’s

own characterization of its own [North American] policy. North American’s Assistant

Vice President, Mr. Ken Selasky has clearly written and explained that “even though this

[North American] policy was issued through this group [AAE], it is an individual income

policy and we are treating all aspects of Dr. Fleisher’s claim as an individual disability

income policy.” (Emphasis added).

The District Court and the majority completely overlook the nature of the North

American policy, to wit, that it was individually underwritten, non-cancellable,

guaranteed renewable, that Dr. Fleisher paid his premiums and made claims directly to

North American, that he enrolled for coverage directly with North American, and that he

received an individual billing statement. These are not traditional group policy

characteristics. These are the basic characteristics of an individual policy.

Our Supreme Court has said that it is “more important (perhaps of great

importance) where the circumstances suggest a higher likelihood that it affects the

benefits decision . . . to take steps to reduce potential bias and to promote accuracy.”

Glenn, supra 554 U.S. at 117. In other words, to properly consider the impact of conflict

5
of interest in determining the reasonableness of an administrator’s decision, a reviewing

court must consider the closeness of the case and the severity of the conflict of interest.

The District Court, in dismissing Dr. Fleisher’s complaint, did not undertake any

factfinding or substantial discussion related to the administrator’s conflict of interest or

its severity. Although the District Court acknowledged that a conflict of interest did in

fact exist, the order dismissing Fleisher’s complaint summarily concluded that “this is not

so close a case that any conflict of interest would break the tie and tip the scales in favor

of the plaintiff.” Although my colleagues in the majority agree with the District Court, I

cannot. This case goes beyond the point of being close, to the point of the administrator’s

decision being incorrect--if ever there were a situation where the administrator’s conflict

of interest must properly be considered as a factor, this is it!

Indeed, it should be remembered that the District Court dismissed Dr. Fleisher’s

complaint pursuant to F.R.A.P. Section 12(b)(6). Such a dismissal requires that a Court

accept the allegation of the complaint as true, and that it construe the complaint in the

light most favorable to the plaintiff.

Dismissal with prejudice is a drastic sanction termed “extreme” by the Supreme

Court in National Hockey League v. Met. Hockey Club. 427 U.S. 639, 643 (1976), yet,

here, the District Court did not only dismiss Dr. Fleisher’s complaint, with prejudice, but

in doing so, it dealt with the merits of his action.

If the hallmark of the District Court’s “arbitrary and capricious standard of

review” is reasonableness, and if the relevant inquiry, as the majority of this Court states,

“….is not whether it is reasonable to interpret the North America policy as an individual

6
policy, but whether it is unreasonable to interpret it as group insurance,” Maj. Op. at 20,

then I suggest that we should look to other measures of dismissal for a balancing of what

is or is not reasonable.

In Poulis v. State Farm Fire and Casualty Company, 747 F.2d 863 (3d Cir. 1984),

this Court, by Judge Sloviter, prescribed a test consisting of six (6) factors by which a

dismissal with prejudice should be balanced and analyzed. 1 True, the Poulis case

involved a sanction and did not arise under the ERISA statute, but it is instructive to

recognize the length to which we have gone in preserving cases for a merits

determination rather than dismissing them on a mere reading of the complaint.

While the context of Poulis differs from Dr. Fleisher’s claims, it is quite evident

that prejudice is one of the most significant factors in determining the appropriateness of

dismissal. And what could be more prejudicial or conflict-ridden than the actions of

Standard in decreasing Dr. Fleisher’s benefits by $1500 a month while it continues to

receive premiums based on $10,000 in coverage?

I see no reason why the same sort of analysis should not be employed in an ERISA

context where the reasonableness of a dismissal is at issue. A balancing of prejudice and

1
In Poulis v. State Farm Fire and Casualty Company, 747 F.2d 863, 868 (3d Cir. 1984),
we required the District Court to assess:
1. The extent of the parties responsibility;
2. prejudice to the adversary;
3. a history of dilatoriness;
4. whether the attorney’s conduct was willful or in bad faith;
5. alternative sanctions; and
6. the meritoriousness of the claim,
cautioning that dismissal must be a last resort.
7
a balancing of the factors that result in a dismissal would only improve the analysis of a

Section 12(b)(6) dismissal under ERISA.

The majority has held that the District Court was not unreasonable to interpret the

North America policy as a group insurance policy. I, of course, disagree using the same

loadstar of reasonableness as did the majority.

While I am loathe to discount all of the analyses found in the majority opinion, I

cannot accept the fact that fair and equitable means should be so thoroughly disregarded

in favor of fitting a legal square peg into a legal round hole. To me, the majority has

resolved Dr. Fleisher’s problem by merely seeking out some the legal principles which

would support its conclusion without regard to the fundamental precepts of equity,

fairness and justice 2. A major consideration on this appeal should include judicial insight

to the nature of the problem, the nature of the conflict which the administrator of an

ERISA plan must analyze, the nature of the ramifications that may ensue from this

Court’s decision, and the nature of the actions that a litigant can take to protect a

particularly vital interest.

When I assemble these various concerns and concepts in this case, I realize that

this entire area of equitable concern has not been addressed in any fashion by the

majority. I conclude that we should redeem this failing by remanding this appeal to the

District Court for consideration of the various factors and particularly the equitable and

fairness elements to which I have adverted.

2
The goal to which we as judges are all wedded, in addition to the oath which we take, is
found in Deuteronomy 16:20, “Justice, justice shalt thou pursue.”
8
I, therefore, respectfully dissent.

9