06-5100-cv(L)
McCauley v. First Unum Life Ins. Co.
1
2 UNITED STATES COURT OF APPEALS
3
4 FOR THE SECOND CIRCUIT
5
6 August Term 2007
7
8 (Argued: February 7, 2008 Decided: December 24, 2008)
9
10 Docket Nos 06-5100-cv(L), 06-5529-cv (Con)
11
12
13 -----------------------------------------------------x
14
15 JOHN E. MCCAULEY,
16
17 Plaintiff-Appellant,
18
19 -- v. --
20
21 FIRST UNUM LIFE INSURANCE COMPANY,
22
23 Defendant-Appellee,
24
25 SOTHEBY’S HOLDINGS INC., SOTHEBY’S INC., and
26 SOTHEBY’S SERVICE CORP.,
27
28 Defendants.
29
30 -----------------------------------------------------x
31
32 B e f o r e : WALKER, B.D. PARKER, and HALL, Circuit Judges.
33
34 Plaintiff-Appellant John McCauley appeals from an order of
35 the United States District Court for the Southern District of New
36 York (Lawrence M. McKenna, J.) dismissing his complaint
37 challenging the decision by his ERISA plan administrator, First
1
1 Unum Life Insurance Co., to deny his claim for long-term
2 disability benefits. Applying the Supreme Court’s framework from
3 Metropolitan Life Insurance Co. v. Glenn, 128 S. Ct. 2343 (2008),
4 we find that the plan administrator abused its discretion in
5 denying plaintiff’s claim. The district court’s dismissal is
6 REVERSED, and the case is REMANDED for the district court to
7 enter summary judgment in favor of appellant and for calculation
8 of benefits, costs, and attorney fees to be awarded to appellant.
9 EUGENE R. ANDERSON,(Dona S. Kahn,
10 on the brief), Anderson Kill &
11 Olick, P.C., New York, N.Y., for
12 Plaintiff-Appellant.
13
14 PATRICK W. BEGOS,(Evan L. Gordon,
15 New York, N.Y., on the brief),
16 Begos Horgan & Brown, LLP,
17 Westport, Conn., for Defendant-
18 Appellee.
19
20
21
22 JOHN M. WALKER, JR., Circuit Judge:
23 In light of the Supreme Court’s decision in Metropolitan
24 Life Insurance Co. v. Glenn, 128 S. Ct. 2343 (2008), we must
25 reassess our standard of review governing cases such as this one
26 that challenge an Employee Retirement Income Security Act
27 (“ERISA”) plan administrator’s decision to deny disability
28 benefits, where the administrator has a conflict of interest
2
1 because it has both the discretionary authority to determine the
2 validity of the employee’s claim and pays the benefits under the
3 policy. Our current standard of review allows a court to review
4 de novo the administrator’s decision when it is shown that a
5 conflict of interest actually influenced that decision. See
6 Sullivan v. LTV Aerospace & Defense Co., 82 F.3d 1251, 1255-56
7 (2d Cir. 1996). We find this standard to be inconsistent with
8 the Supreme Court’s instructions in Glenn and abandon it. We now
9 adhere to the Supreme Court’s clarified explication of the
10 standard of review governing such cases, which is that such a
11 conflict of interest is to be “weighed as a factor in determining
12 whether there [wa]s an abuse of discretion,” Glenn, 128 S. Ct. at
13 2348 (quotation marks omitted) (emphasis in original). After
14 applying this standard, we hold that, as a matter of law, the
15 plan administrator abused its discretion in denying plaintiff’s
16 claim for long-term disability benefits.
17 BACKGROUND
18 Plaintiff-Appellant John McCauley (“McCauley”) was a Senior
19 Vice President and Director of the Tax Department at Sotheby’s
20 Service Corporation in April 1991, when he was diagnosed with
21 advanced colon cancer. On April 24, 1991, he underwent a
22 radical hemicolectomy and experimental chemotherapy, in which
3
1 several gallons of special chemotherapy drugs were inserted into
2 his peritoneal cavity to “bathe all the organs in the stomach
3 cavity.” McCauley’s treatment also included intravenous
4 chemotherapy and chemo catalyst drugs. These drastic procedures
5 saved McCauley’s life. From April 1991 through July 1991,
6 McCauley took short-term disability leave because of his cancer
7 treatment.
8 In December 1991, McCauley accepted a transfer within
9 Sotheby’s to Hamilton, Bermuda, where he worked as Senior Vice
10 President and Chief Executive Officer of Fine Art Insurance,
11 Ltd., a subsidiary of Sotheby’s. Over the course of the next
12 three years, McCauley continued to experience other health
13 problems and took short term disability leaves. Specifically, in
14 September 1992, McCauley had part of his liver removed because
15 his cancer had metastasized there. By December 1992, he suffered
16 from a severe liver infection, and in April 1994, he underwent
17 surgery to repair a hernia.
18 In November 1994, after notifying Sotheby’s that he could no
19 longer work, McCauley requested disability benefits. At that
20 point, McCauley took short term disability leave one final time
21 for a period of three months. Although McCauley’s cancer
22 treatment was successful, the procedures had taken a toll on his
4
1 body. In particular, McCauley suffered from chronic diarrhea,
2 chronic and acute renal impairment, incontinence, progressive
3 vascular sclerosis, high cholesterol, insomnia, depression, and
4 incisional scarring and pain. Defendant-Appellee First Unum Life
5 Insurance Company (“First Unum”) was Sotheby’s disability
6 insurance provider. Under the disability plan, First Unum was
7 both the administrator and ultimate payor of benefits.
8 On May 19, 1995, First Unum denied McCauley’s claim, and on
9 June 14, 1995, McCauley appealed the decision and submitted
10 additional information for First Unum to consider. On September
11 18, 1995, First Unum rejected McCauley’s appeal. After this
12 denial, McCauley, attempting to return to the workforce, accepted
13 employment as General Counsel of IBJ Schroeder, Ltd. in Bermuda.
14 Despite paying premiums on McCauley’s policy with First Unum
15 during his absence from the workforce, Sotheby’s informed
16 McCauley that it would stop paying those premiums now that he had
17 other employment; however, Sotheby’s informed McCauley that he
18 was eligible to convert the policy and make future payments,
19 which he did. McCauley’s symptoms and health problems persisted.
20 After working at several jobs for short periods of time, McCauley
21 realized that he was not able to work. On January 16, 1996, he
22 applied for long term disability benefits under his conversion
5
1 policy. First Unum denied this claim on the basis that
2 McCauley’s employment with Sotheby’s had terminated on November
3 26, 1994, and, therefore, that he had exercised his conversion
4 after the allowable period.
5 McCauley then brought this action alleging that First Unum
6 had denied his claims under the original and conversion policies
7 in bad faith. After taking discovery, First Unum moved for
8 judgment on the administrative record. At the same time,
9 McCauley moved for summary judgment under Federal Rule of Civil
10 Procedure 56. Treating both requests as motions for summary
11 judgment, the District Court for the Southern District of New
12 York (Lawrence M. McKenna, J.) denied McCauley’s motion and
13 granted summary judgment in favor of First Unum, finding that a
14 de novo standard of review was not applicable and that First
15 Unum’s actions were neither arbitrary nor capricious. McCauley
16 v. First UNUM Life Ins. Co., No. 97 Civ. 7662, 2006 WL 2854162
17 (S.D.N.Y. Oct. 5, 2006). McCauley appeals from that dismissal.
18
19 DISCUSSION
20 I. Legal Standard
21 We review de novo a district court’s decision granting
22 summary judgment in an ERISA action based on the administrative
6
1 record and apply the same legal standard as the district court.
2 Pagan v. NYNEX Pension Plan, 52 F.3d 438, 441 (2d Cir. 1995); see
3 also Glenn v. MetLife, 461 F.3d 660, 665 (6th Cir. 2006).
4 “Summary judgment is appropriate only where the parties’
5 submissions show that there is no genuine issue as to any
6 material fact and the moving party is entitled to judgment as a
7 matter of law.” Fay v. Oxford Health Plan, 287 F.3d 96, 103 (2d
8 Cir. 2002).
9 The standard governing the district court’s review, and
10 accordingly our review here, of an administrator’s interpretation
11 of an ERISA benefit plan was first articulated by the Supreme
12 Court in Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101
13 (1989). The Court explained that “a denial of benefits . . . is
14 to be reviewed under a de novo standard unless the benefit plan
15 gives the administrator . . . authority to determine eligibility
16 for benefits or to construe the terms of the plan.” Id. at 115.
17 Where such authority is given, the administrator’s interpretation
18 is reviewed for an abuse of discretion. Id. Furthermore, “if a
19 benefit plan gives discretion to an administrator or fiduciary
20 who is operating under a conflict of interest, that conflict must
21 be weighed as a ‘facto[r] in determining whether there is an
22 abuse of discretion.’” Id. (quoting Restatement (Second) of
7
1 Trusts § 187, cmt. d (1959)) (alteration in original).
2 Following the Court’s instructions, we held in Pagan that in
3 cases in which an abuse of discretion standard of review applies,
4 because “written plan documents confer upon a plan administrator
5 the discretionary authority to determine eligibility, we will not
6 disturb the administrator’s ultimate conclusion unless it is
7 ‘arbitrary and capricious.’” 52 F.3d at 441. We further noted
8 that a possible conflict of interest would not alter the standard
9 of review where the plaintiff “fails to explain how such an
10 alleged conflict affected the reasonableness of the
11 [administrator’s] decision.” Id. at 443. In Pagan, however, we
12 did not address how a conflict of interest should be accounted
13 for where it does affect the reasonableness of an administrator’s
14 interpretation. We answered that question in Sullivan v. LTV
15 Aerospace & Defense Co., 82 F.3d at 1255-56, explaining that:
16 [I]n cases where the plan administrator is shown to have
17 a conflict of interest, the test for determining whether
18 the administrator’s interpretation of the plan is
19 arbitrary and capricious is as follows: Two inquiries
20 are pertinent. First, whether the determination made by
21 the administrator is reasonable, in light of possible
22 competing interpretations of the plan; second, whether
23 the evidence shows that the administrator was in fact
24 influenced by such conflict. If the court finds that the
25 administrator was in fact influenced by the conflict of
26 interest, the deference otherwise accorded the
27 administrator’s decision drops away and the court
28 interprets the plan de novo.
8
1
2 Id.
3 Sullivan implied that, in the absence of something more, the
4 existence of a conflict of interest would not change the standard
5 of review. And we squarely held in Pulvers v. First Unum Life
6 Insurance Co., 210 F.3d 89, 92 (2d Cir. 2000), that the arbitrary
7 and capricious standard continues to apply when the only evidence
8 of a conflict of interest is that an insurer acts as both
9 adjudicator and payor of claims.
10 Read together then, our case law made clear that the
11 arbitrary and capricious standard applies “unless the [plaintiff]
12 can show not only that a potential conflict of interest exists, .
13 . . but that the conflict affected the reasonableness of the
14 [administrator’s] decision.” Sullivan, 82 F.3d at 1259 (internal
15 quotation marks omitted). However, upon a showing that “the
16 conflict affected the choice of a reasonable interpretation,” the
17 court interprets the plan de novo. Id. at 1255.
18 A. The District Court’s Decision
19 Following this precedent, the district court turned to the
20 question of whether de novo review was appropriate here.
21 McCauley argued that certain procedural irregularities that
22 occurred in the handling of his claim demonstrated that First
9
1 Unum’s conflict of interest had affected its decision to deny him
2 benefits. These alleged irregularities included contentions that
3 one document was missing from the administrative record and that
4 First Unum had incorrectly told McCauley that his claim had been
5 reviewed by a medical doctor when in fact it been reviewed by a
6 nurse.
7 The district court found these allegations insufficient to
8 warrant de novo review. McCauley, No. 97 Civ. 7662, 2006 WL
9 2854162, at *6. It noted that McCauley had failed to show any
10 evidence indicating that First Unum lost the missing document in
11 bad faith. Id. at *7. Regarding the discrepancy over whether a
12 doctor or nurse reviewed the file, the district court found that,
13 in denying his benefits, First Unum had principally relied on the
14 recommendation of McCauley’s own physician that McCauley should
15 not engage in heavy lifting or extreme physical exertion. This
16 finding settled any concerns the district court had over whether
17 First Unum consulted a physician before denying McCauley’s claim.
18 Id.
19 The district court next addressed whether McCauley had
20 demonstrated that First Unum’s decision was arbitrary and
21 capricious. Id. at *8-9. After concluding that “documents
22 submitted by [McCauley]’s own physician indicated that [McCauley]
10
1 was not fully disabled,” the district court held that, as a
2 matter of law, First Unum’s decision was reasonable. The
3 district court therefore awarded summary judgment in its favor.
4 Id. at *15.
5 McCauley then brought this appeal. While the appeal was
6 pending in this court, the Supreme Court decided Glenn.
7 B. Metropolitan Life Insurance Co. v. Glenn
8 In Glenn, the Supreme Court clarified its earlier decision
9 in Firestone. The Court noted that Firestone set forth four
10 principles of review:
11 (1) In determining the appropriate standard of review, a
12 court should be guided by principles of trust law . . . [;]
13 (2) Principles of trust law require courts to review a
14 denial of plan benefits under a de novo standard unless the
15 plan provides to the contrary[;]
16 (3) Where the plan provides to the contrary by granting the
17 administrator or fiduciary discretionary authority to
18 determine eligibility for benefits, trust principles make a
19 deferential standard of review appropriate[; and]
20 (4) If a benefit plan gives discretion to an administrator
21 or fiduciary who is operating under a conflict of interest,
22 that conflict must be weighed as a factor in determining
23 whether there is an abuse of discretion.
24
25 Glenn, 128 S. Ct. at 2347-48 (citing Firestone, 589 U.S. at 111-
26 15) (quotation marks and alterations omitted) (emphasis in
27 original).
28 After acknowledging these principles, the Court “directly
29 focus[ed] upon the application and the meaning of the fourth
11
1 [principle].” Id. at 2348. Addressing the question of “whether
2 the fact that a plan administrator both evaluates . . . and pays
3 benefits claims creates the kind of ‘conflict of interest’ to
4 which Firestone’s fourth principle refers,” the Court concluded
5 that “it does.” Id. at 2348. The Court reasoned that
6 [i]n such a circumstance, every dollar provided in
7 benefits is a dollar spent by the employer; and every
8 dollar saved is a dollar in the employer’s pocket. The
9 employer’s fiduciary interest may counsel in favor of
10 granting a borderline claim while its immediate financial
11 interest counsels to the contrary. Thus, the employer
12 has an interest conflicting with that of the
13 beneficiaries, the type of conflict that judges must take
14 into account when they review the discretionary acts of a
15 trustee of a common-law trust.
16
17 Id. (internal quotation marks, alterations, and citations
18 omitted). The Court then addressed the question of how this
19 conflict should be taken into account upon judicial review of a
20 discretionary benefit determination. See id. at 2350.
21 The Court clarified that under Firestone, such a “conflict
22 should be weighed as a factor in determining whether there is an
23 abuse of discretion.” Id. (internal quotation marks omitted).
24 In doing so, the Court rejected the notion that the conflict of
25 interest justifies changing the standard of review from
26 deferential to de novo. Id. It reasoned that “[t]rust law
27 continues to apply a deferential standard of review to the
12
1 discretionary decisionmaking of a conflicted trustee, while at
2 the same time requiring the reviewing judge to take account of
3 the conflict when determining whether the trustee, substantively
4 or procedurally, has abused his discretion.” Id. The Court saw
5 “no reason to forsake Firestone’s reliance upon trust law in this
6 respect.” Id. Additionally, the Court noted that it is neither
7 “necessary [n]or desirable for courts to create special burden-
8 of-proof rules, or other special procedural or evidentiary rules,
9 focused narrowly upon the evaluator/payor conflict.” Id. at
10 2351.
11 Our previous standard is now inconsistent with these
12 instructions in one set of cases: When a plaintiff proves both
13 that a conflict of interest exists and that this conflict
14 affected the reasonableness of the administrator’s discretionary
15 decision. See Sullivan, 82 F.3d at 1255-56. We thus abandon the
16 use of de novo review in these cases and set forth, in accordance
17 with Glenn, the appropriate standard to be used in future cases.
18 C. The New Standard
19 According to principles of trust law, a benefit
20 determination is a fiduciary act, and courts must review de novo
21 a denial of plan benefits unless the plan provides to the
22 contrary. See Glenn, 128 S. Ct. at 2347-48. However, where the
13
1 plan grants the administrator discretionary authority to
2 determine eligibility benefits, a deferential standard of review
3 is appropriate. See id. at 2348. Under the deferential
4 standard, a court may not overturn the administrator’s denial of
5 benefits unless its actions are found to be arbitrary and
6 capricious, meaning “without reason, unsupported by substantial
7 evidence or erroneous as a matter of law.” Pagan, 52 F.3d at
8 442. “Where both the plan administrator and a spurned claimant
9 offer rational, though conflicting, interpretations of plan
10 provisions, the administrator’s interpretation must be allowed to
11 control.” Pulvers, 210 F.3d at 92-93 (internal quotation marks
12 and alteration omitted). “Nevertheless, where the administrator
13 imposes a standard not required by the plan’s provisions, or
14 interprets the plan in a manner inconsistent with its plain
15 words, its actions may well be found to be arbitrary and
16 capricious.” Id. at 93 (internal quotation marks and alteration
17 omitted).
18 Following Glenn, a plan under which an administrator both
19 evaluates and pays benefits claims creates the kind of conflict
20 of interest that courts must take into account and weigh as a
21 factor in determining whether there was an abuse of discretion,
22 but does not make de novo review appropriate. See Glenn, 128 S.
14
1 Ct. at 2348. This is true even where the plaintiff shows that
2 the conflict of interest affected the choice of a reasonable
3 interpretation. See id.
4 “[W]hen judges review the lawfulness of benefit denials,
5 they [should] take account of several different considerations of
6 which a conflict of interest is one.” Id. at 2351. The weight
7 given to the existence of the conflict of interest will change
8 according to the evidence presented. “[W]here circumstances
9 suggest a higher likelihood that [the conflict] affected the
10 benefits decision, including, but not limited to, cases where an
11 insurance company administrator has a history of biased claims
12 administration,” the conflict of interest
13 should prove more important (perhaps of great importance) .
14 . . . It should prove less important (perhaps to the
15 vanishing point) where the administrator has taken active
16 steps to reduce potential bias and to promote accuracy, for
17 example, by walling off claims administrators from those
18 interested in firm finances, or by imposing management
19 checks that penalize inaccurate decisionmaking irrespective
20 of whom the inaccuracy benefits.
21
22 Id. (citation omitted). As the Supreme Court has said, this
23 “kind of review is no stranger to the judicial system,” and
24 judges will be able “to determine lawfulness by taking account of
25 several different, often case specific, factors, reaching a
26 result by weighing all together.” Id.
15
1 In light of these changes, the question McCauley raised of
2 whether the district court erred in refusing to review the
3 benefit denial de novo is no longer pertinent. The question
4 remains, however, whether the district court erred in finding
5 that, as a matter of law, First Unum’s denial was not arbitrary
6 or capricious. We now turn to that question.
7 II. Weighing the Factors
8 A. The First Benefit Denial
9 First Unum’s long-term disability policy defines
10 “disability” and “disabled” as follows:
11 “Disability” and “disabled” mean that because of injury
12 or sickness:
13
14 1. the insured cannot perform each of the material
15 duties of his regular occupation; or
16
17 2. the insured, while unable to perform all of the
18 material duties of his regular occupation on a full
19 time basis, is:
20
21 a. performing at least one of the material duties
22 of his regular occupation or another occupation
23 on a part-time or full-time basis; and
24
25 b. earning currently at least 20% less per month
26 than his indexed pre-disability earnings due to
27 that same injury or sickness.
28
29 When McCauley first applied for long term disability
30 benefits, First Unum requested additional information from his
31 treating physician about his ability to perform his job duties in
16
1 order to ascertain whether he qualified as disabled under the
2 policy’s definition. In response, McCauley’s physician wrote
3 that:
4 (1) [McCauley] is restricted to heavy lifting and extreme
5 physical exertion. He also has limitations on increased
6 workload secondary to fatigue syndrome, occasional nausea
7 and pain in the right upper abdominal quadrant secondary
8 to hepatic resection.
9
10 (2) [McCauley] is limited to extreme workload and
11 increased hours due to fatigue, nausea and intermittent
12 pain.1
13
14 The medical records before the administrator also showed that
15 McCauley was “chronically stable” and that there was no “evidence
16 of active cancer.” Upon reviewing this information, a nurse
17 employed by First Unum determined that the medical record “does
18 not support total impairment.” First Unum therefore concluded
19 that McCauley was not disabled because his regular occupation as
20 a tax attorney was sedentary. First Unum communicated this
21 conclusion to McCauley in a letter stating:
22 [T]he medical information does not support an impairment
23 of such severity that would preclude your ability to
24 perform your occupation. [Your physician] restricted you
25 from heavy lifting and extreme physical exertion. He
1
1 We note that the physician’s letter states that McCauley was
2 restricted “to” heavy lifting and “to” extreme workload, which we
3 can only presume was meant to read “from” heavy lifting and
4 “from” extreme workload. Like the district court (and the
5 subsequent First Unum letter to McCauley), we take the phrases to
6 mean that McCauley was restricted from such activities.
17
1 also limited increased workload and increased hours.
2 These restrictions and limitations would not prevent you
3 from performing the material duties of your sedentary
4 occupation.
5
6 Like the district court, we conclude that First Unum’s
7 initial denial is supported by the correspondence from McCauley’s
8 physician and other medical information in the administrative
9 record. The record before First Unum at the time of the denial
10 indicated that McCauley’s cancer had been treated successfully
11 and that his restrictions were limited to extreme workload,
12 increased hours, heavy lifting, and extreme physical exertion.
13 First Unum’s denial under those circumstances was therefore not
14 arbitrary and capricious.
15 First Unum’s response also invited McCauley to send “new,
16 additional information to support [his] request for disability
17 benefits.” First Unum stated that a request for review of its
18 decision should be accompanied by his “comments and views of the
19 issues, as well as any documentation [he] wish[es] First UNUM to
20 consider.” First Unum thus allowed McCauley to appeal its
21 decision directly to First Unum and permitted him to submit
22 additional information in support of his appeal. Accordingly,
23 McCauley requested a review of the benefits denial, which was
24 processed internally by a First Unum claims appeal specialist in
18
1 coordination with the First Unum nurse who originally recommended
2 that McCauley’s claim be denied.
3 B. McCauley’s Appeal of the First Denial to First Unum
4 In support of his appeal to First Unum, McCauley submitted a
5 letter challenging First Unum’s findings. He made clear that he
6 was not disabled because of active cancer but as a result of “the
7 drastic measures used to effect a cure.” Further, McCauley
8 submitted additional evidence of his current medical issues in
9 the form of a memorandum that he asserted was submitted with his
10 physician’s full knowledge and approval.
11 Specifically, McCauley’s memorandum lists his medical issues
12 as (1) chronic diarrhea, (2) chronic and acute renal impairment,
13 (3) progressive vascular sclerosis, (4) high cholesterol, (5)
14 insomnia, and (6) incisional scarring and pain. With regard to
15 his diarrhea, the memorandum states that McCauley is only able to
16 control bowel movements by carefully timing his food ingestion
17 and lists a number of ways in which this limits his daily
18 activities. Respecting his renal impairment, the memorandum
19 explains that McCauley has chronic blood in the urine and pain in
20 the kidney area and that he forms a kidney stone every two weeks.
21 As a result, his physician recommends that he not sit for long
22 periods of time. Moreover, the memorandum states that during the
19
1 acute phase of his renal impairment, “it is impossible for the
2 patient to perform at any level.” As to his vascular sclerosis,
3 the memorandum explains that McCauley’s vascular system was
4 permanently damaged by the chemotherapy treatments and that he
5 suffers “severe chronic headaches at the base of the skull,
6 resulting in an inability to focus eyesight and a lack of
7 concentration.” His insomnia is described as “chronic and
8 recurring,” resulting in a “general feeling of lethargy and
9 malaise” and leaving him with a “need to take naps during the
10 day.” The memorandum also states that McCauley “is in pain on an
11 almost constant basis” and takes Percocet, an opiate, to manage
12 that pain.
13 After receiving this information, First Unum again rejected
14 McCauley’s application. The nurse reviewing McCauley’s file
15 stated that “[n]o new medical ha[d] been submitted” and that the
16 memorandum was “not an official document from [an] attending
17 physician.” However, when communicating this decision
18 to McCauley, First Unum stated that it had rejected the health
19 problems listed in McCauley’s memorandum because “these
20 conditions were acknowledged by your physician on the initial
21 application and in his narrative letter of March 1995.”
22 The reason First Unum gave to McCauley for rejecting the
20
1 information provided in McCauley’s memorandum was unreasonable
2 and deceptive. Even the most cursory comparison with McCauley’s
3 earlier submission by a competent reviewer would have revealed
4 the myriad of details about his condition, absent from the
5 earlier submission, severely affecting his ability to work. And
6 contrary to First Unum’s representation, it appears the
7 information was afforded little if any weight by the nurse
8 considering his appeal because the memorandum was not signed by a
9 physician. The rejection mischaracterizes the quality and detail
10 of the evidence McCauley had submitted on appeal. This is so
11 particularly because the new submission purported to be
12 information that the physicians at Sloan-Kettering believed
13 justified McCauley’s request for disability.
14 First Unum never told McCauley that the absence of a
15 physician’s signature was a reason for rejecting his information.
16 See Juliano v. Health Maint. Org. of N.J., Inc., 221 F.3d 279,
17 289 (2d Cir. 2000) (finding an insurer’s failure to communicate
18 the reason for denying coverage sufficient evidence to warrant de
19 novo review of the administrator’s decision under our old
20 standard). First Unum’s response to McCauley implies that it
21 would have been pointless to undertake any efforts to sort out
22 the obvious and facial discrepancies in his record. Hiding
21
1 behind a terse initial response to a set of questions it posed
2 three months earlier, First Unum blithely ignored detailed
3 descriptions constituting clear proof of total disability--
4 apparent even to a lay person--purporting to be the views of
5 McCauley’s physicians.
6 Taken in combination, these factors are plainly exacerbated
7 by First Unum’s conflict of interest, as both administrator and
8 payor, for what else would have influenced First Unum to avoid
9 following up on simple inquiries prompted by McCauley’s June
10 submission? For example, had McCauley been informed that his
11 physician’s signature at the bottom of the memorandum was what
12 was needed for First Unum’s nurse to consider the information, he
13 could have easily cured that defect. Additionally, McCauley’s
14 physician clarified in a deposition that he agreed with the
15 health issues and limitations set forth in the memorandum,
16 finding it to be “a very appropriate review of [McCauley’s]
17 medical status.” Had he been apprised of them, McCauley plainly
18 would have had no trouble addressing First Unum’s undisclosed and
19 uninvestigated concerns.
20 First Unum argues that it considered the information
21 McCauley submitted, although it admits the nurse assigned to
22 evaluate the claim on its medical merits did not consider the
22
1 information. According to First Unum, the memorandum was
2 accounted for by the claims appeal specialist, whose rejection of
3 the memorandum was reasonable in light of McCauley’s physician’s
4 earlier letter indicating that McCauley was only restricted from
5 extreme workload and physical exertion. However, that letter,
6 which simply provided brief answers to First Unum’s medical
7 questionnaire, differs starkly from the severe limitations and
8 conditions depicted in the memorandum, which McCauley’s physician
9 later confirmed as accurate. The memorandum flatly contradicts
10 First Unum’s finding that McCauley was capable of performing a
11 sedentary occupation and completing the ordinary tasks of a tax
12 attorney. Instead, the memorandum stated that McCauley (1) was
13 in constant pain, (2) had no control of his bowels, (3) was
14 discouraged from sitting for long periods of time, (4) was unable
15 to read for long periods of time, (5) required naps in the middle
16 of the day, (6) passed two kidney stones per month at which time
17 he would be unable to perform at any level, and (7) was required
18 to take an opiate to manage his pain. First Unum never explained
19 how McCauley could continue to perform the material duties of a
20 tax lawyer despite these restrictions. Although First Unum
21 stated that these issues described in the memorandum were
22 considered in the original denial, the record plainly reflects
23
1 that they were not.
2 The district court found that First Unum reasonably believed
3 that McCauley’s physician was aware of the conditions described
4 in the memorandum at the time he set out McCauley’s limitations
5 in his letter to First Unum, and thus, that the document did not
6 constitute new information. McCauley, No. 97 Civ. 7662, 2006 WL
7 2854162, at *10. For the reasons stated above, we disagree. It
8 was unreasonable for First Unum to conclude that the conditions
9 described in the memorandum were equivalent to those described in
10 McCauley’s first application. It was also unreasonable for First
11 Unum to conclude that the conditions described in the memorandum
12 did not render McCauley disabled from performing his regular
13 occupation. In sum, we do not believe that a rational claims
14 administrator could have reviewed the limitations and symptoms
15 listed in the memorandum and found that the physician’s earlier
16 narrative comported with those medical conditions. At a minimum,
17 further investigation was required.
18 Instead, First Unum seized upon the earlier questionnaire
19 and ignored the memorandum. This kind of wholesale embrace of
20 one medical report supporting a claim denial to the detriment of
21 a contrary report that favors granting benefits was determined in
22 Glenn to be indicative of an administrator’s abuse of discretion.
24
1 See 128 S. Ct. at 2352. The Glenn Court noted that there the
2 insurance company unreasonably “emphasized a certain medical
3 report that favored a denial of benefits [and] had deemphasized
4 certain other reports that suggested a contrary conclusion.” Id.
5 The Court went on to find that this factor, in combination with
6 the presence of a conflict of interest and other serious
7 concerns, warranted setting aside the administrator’s
8 discretionary decision. Like the Court in Glenn, we find First
9 Unum’s reliance on the earlier narrative to be indicative of an
10 abuse of discretion.
11 First Unum compounded its deception by representing to
12 McCauley that the records submitted in support of his claim
13 including the memorandum were reviewed by First Unum’s on-site
14 physician, who concluded that the restrictions and limitations
15 would not preclude McCauley from performing his occupation. In
16 fact, no records were reviewed by a physician at First Unum.
17 These deceptions constitute additional powerful evidence that
18 First Unum’s denial of McCauley’s appeal was arbitrary and
19 capricious.
20 C. First Unum’s Past History
21 This case also involves another relevant consideration
22 specifically referenced in Glenn: “[W]here an insurance company
25
1 administrator has a history of biased claims administration.”
2 Id. at 2351. First Unum is no stranger to the courts, where its
3 conduct has drawn biting criticism from judges. A district court
4 in Massachusetts wrote that “an examination of cases involving
5 First Unum . . . reveals a disturbing pattern of erroneous and
6 arbitrary benefits denials, bad faith contract
7 misinterpretations, and other unscrupulous tactics.” Radford
8 Trust v. First Unum Life Ins. Co., 321 F. Supp. 2d 226, 247 (D.
9 Mass. 2004), rev’d on other grounds, 491 F.3d 21, 25 (1st Cir.
10 2007). That court listed more than thirty cases in which First
11 Unum’s denials were found to be unlawful, including one decision
12 in which First Unum’s behavior was “culpably abusive.” Id. at
13 247 n.20. Also, First Unum’s unscrupulous tactics have been the
14 subject of news pieces on “60 Minutes” and “Dateline,” that
15 included harsh words for the company. Id. at 248-49. First Unum
16 has fared no better in legal academia. See John H. Langbein,
17 Trust Law as Regulatory Law: The Unum/Provident Scandal and
18 Judicial Review of Benefit Denials Under ERISA, 101 Nw. U. L.
19 Rev. 1315 (2007). In light of First Unum’s well-documented
20 history of abusive tactics, and in the absence of any argument by
21 First Unum showing that it has changed its internal procedures in
22 response, we follow the Supreme Court’s instruction and emphasize
26
1 this factor here. Accordingly, we find First Unum’s history of
2 deception and abusive tactics to be additional evidence that it
3 was influenced by its conflict of interest as both plan
4 administrator and payor in denying McCauley’s claim for benefits.
5 D. Summary Judgment
6 After reviewing all the evidence, we conclude that First
7 Unum’s denial of McCauley’s appeal to First Unum was arbitrary
8 and capricious. We thus find that the district court erred in
9 granting summary judgment to First Unum and vacate the judgment.
10 While ordinarily it would be appropriate for us to vacate and
11 remand for further proceedings, there is no need to do so here
12 because the evidence in the record conclusively shows that
13 McCauley is entitled to judgment as a matter of law. See Glenn,
14 461 F.3d at 675 (reversing district court’s award of summary
15 judgment in favor of insurance company, granting summary judgment
16 in favor of insured, and remanding to the district court for the
17 reinstatement of retroactive benefits); Travelers Cas. & Sur. Co.
18 v. Gerling Global Reins. Corp. of America, 419 F.3d 181, 194 (2d
19 Cir. 2005) (same but without mentioning retroactive benefits).
20 In addition to the memorandum’s description of McCauley’s severe
21 and debilitating health problems, the only physician’s
22 recommendation in the record--that made by Dr. Daugherty--
27
1 supports a finding of disability.
2 To recap, we conclude the following: (1) First Unum
3 operated under a conflict of interest because it was both the
4 claims administrator and payor of benefits; (2) First Unum’s
5 reliance on one medical report in support of its denial to the
6 detriment of a more detailed contrary report without further
7 investigation was unreasonable; (3) First Unum deceptively
8 indicated to McCauley that the medical professional assigned to
9 review his records was a medical doctor when the individual was
10 in fact a nurse, failed to obtain a physician’s recommendation,
11 and mischaracterized its rationale for continuing to deny
12 benefits; (4) First Unum has a well-documented history of abusive
13 claims processing; and (5) observations (2), (3), and (4), above,
14 collectively lead to the conclusion that First Unum was in fact
15 affected by its conflict of interest. In light of these
16 observations, we find that a reasonable trier of fact could only
17 come to one conclusion: First Unum’s denial was arbitrary and
18 capricious. We award McCauley summary judgment in his favor. He
19 is entitled to benefits and interest to run from September 18,
20 1995, the date on which First Unum rejected his appeal.
21 CONCLUSION
22 For the foregoing reasons, the judgment of the district
28
1 court is REVERSED, and the cause is REMANDED to the district
2 court to enter summary judgment in favor of appellant and for the
3 calculation of benefits to be awarded to appellant. Costs of the
4 appeal and attorney fees incurred in pursuit of benefits are
5 awarded to appellant.
6
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McCauley v. First Unum Life Insurance
Court: Court of Appeals for the Second Circuit
Date filed: 2008-12-24
Citations: 551 F.3d 126
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