Ray v. Unum Life Insurance Co. of America

F I L E D
United States Court of Appeals
Tenth Circuit

DEC 20 2002
PUBLISH
PATRICK FISHER
Clerk
UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

PAMELA A. RAY,

Plaintiff - Appellee,

v.
No. 01-1466
UNUM LIFE INSURANCE
COMPANY OF AMERICA, a Maine
corporation,

Defendant - Appellant.

Appeal from the United States District Court
for the District of Colorado
(D.C. No. 97-WY-556-WD)

Mark E. Schmidtke (Sandra L. Spencer, White and Steele, P.C., Denver, Colorado
with him on the briefs), Hoeppner Wagner & Evans, L.L.P., Valparaiso, Indiana
for the Defendant-Appellant.

James A. Cederberg, Buchanan, Jurdem & Cederberg, P.C., Denver, Colorado for
the Plaintiff-Appellee.

Before HENRY, Circuit Judge, BRORBY, Senior Circuit Judge, and LUCERO,
Circuit Judge.

LUCERO, Circuit Judge.
 This case lies at the intersection of evolving circuit jurisprudence on

judicial review of employee disability claims under the Employee Retirement

Income Security Act (“ERISA”). Pamela A. Ray, a partner at a national law firm,

filed suit against UNUM Life Insurance Company of America (“UNUM”) under

ERISA, 29 U.S.C. § 1132, seeking long-term disability benefits pursuant to her

firm’s disability plan. After a bench trial, the United States District Court for the

District of Colorado granted judgment in favor of Ray on the ground that

UNUM’s decision to deny her claim for benefits was arbitrary and capricious.

We must address whether the district court applied the correct standard of judicial

review to UNUM’s benefits determination. We exercise jurisdiction pursuant to

28 U.S.C. § 1291, and reverse and remand for further proceedings.

I

Ray was a partner in the law firm of Gibson, Dunn & Crutcher from 1982

until 1994, handling large-scale real estate transactions. Gibson, Dunn &

Crutcher sponsored an employee disability benefits plan (“Plan”) governed by

ERISA and funded, in part, by a Group Long Term Disability Insurance Policy

issued by UNUM. Ray participated in the Plan.

Under the terms of the Plan, when UNUM receives proof that an insured is

disabled, it will pay monthly disability benefits to the insured for the period of

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disability. 1 An insured is disabled if he or she can not perform each of the

material duties of his or her regular occupation—for attorneys, “regular

occupation” denotes the speciality 2 practiced by the attorney before the disability

ensued.

In the winter of 1993, Ray began to experience symptoms that she reported

as including a dry cough, sinus headaches, and fatigue. We are told her symptoms

worsened while she was at the law firm’s office and improved when she was away

from the office. According to Ray, her fatigue and headaches were severe by the

1
The Plan provides, in pertinent part:
When the Company receives proof that an insured is
disabled due to sickness or injury and requires the
regular attendance of a physician, the Company will pay
the insured a monthly benefit after the end of the
elimination period. The benefit will be paid for the
period of disability if the insured gives to the Company
proof of continued:
(1) disability; and
(2) regular attendance by a physician.
The Plan defines “disability” and “disabled” as follows:
“Disability and “disabled” mean that because of injury
or sickness the insured cannot perform each of the
material duties of his regular occupation.
Note: For attorneys, “regular occupation” means the
specialty in the practice of law which the insured was
practicing just prior to the date disability started.

(1 Appellant’s App. at 263–65.)

2
The question of whether “major transaction real estate mining and oil and
gas lawyer [sic]” is a recognized specialty under the Plan, or otherwise, has not
been presented to us. (Appellee’s Br. at 35.) We do not reach the issue.

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end of the work week. Ray sought medical care from various physicians and

underwent multiple diagnostic tests. She also attempted to alleviate her condition

at work by using an air filter in her office, switching offices in the same building,

and switching to a different and temporary office building. Ray also tried to work

at home, but claims she was unable to conduct her practice as a “large-scale” real

estate attorney away from the office. In June of 1994, Ray filed a claim with

UNUM for long-term disability benefits. Her claim was based on an inability to

continue working because of “severe fatigue, headaches, dizziness, chest pain,

[and] allergic reaction to chemicals.” (Appellee’s Br. at 10.)

Acting on Ray’s claim for benefits, UNUM requested medical records from

Ray’s treating physicians, consulted with a UNUM physician, met in person with

Ray, and interviewed the managing partner at her law firm. On November 30,

1994, UNUM denied Ray’s claim for disability benefits, primarily because it

found that Ray retained the functional capacity to work as a real estate lawyer, at

least at home or in other locations.

Ray thrice appealed UNUM’s decision. With her second appeal, Ray

included additional material to supplement her claim and also inquired into what

further information she could provide to assist UNUM in its decision. UNUM

referred Ray’s claim for further medical review, and brought her benefits up to

date while continuing its investigation. UNUM proceeded to conduct

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surreptitious video surveillance while reevaluating her medical condition;

according to UNUM, the video showed Ray consistently engaging in physical

activities including entering various buildings, driving, running errands, and

working at a five-day alpaca convention. UNUM thereafter denied her second

appeal on July 19, 1996. After Ray’s third appeal, another UNUM physician

reviewed her claim, recommended a multi-disciplinary review of all her medical

records, and suggested an evaluation by the University Disability Consortium

(“UDC”) in Boston. UNUM thereafter sought medical review from a three-

physician panel and offered Ray an in-person independent medical examination by

the UDC.

Ray declined UNUM’s offer to send her to Boston and filed suit on March

19, 1997, challenging UNUM’s decision to deny her claim for benefits. On

September 5, 1997, the parties filed cross-motions for summary judgment, which

were denied. Via telephone status conference, the district court ordered the

parties to submit “findings of fact and conclusions of law” for the purposes of a

bench trial (3 Appellant’s App. at 1028), to be conducted pursuant to an arbitrary

and capricious standard of judicial review. Following a bench trial, the district

court held that UNUM’s decision to deny Ray’s claim was arbitrary and

capricious. Finding a conflict of interest, indicia of bad faith and a lack of

substantial evidence to support UNUM’s decision, the district court concluded

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that Ray was entitled to disability benefits under the Plan. UNUM appeals,

arguing that the district court misapplied the arbitrary and capricious standard,

and that given the correct amount of deference, its decision to deny Ray benefits

must be upheld.

II

Of primary importance is whether the district court erred in applying the

arbitrary and capricious standard of judicial review. A district court’s

determination of the proper standard to apply in its review of an ERISA plan

administrator’s decision is a legal conclusion we review de novo. Hoover v.

Provident Life & Accident Ins. Co., 290 F.3d 801, 807 (6th Cir. 2002); see also

Dang v. UNUM Life Ins. Co. of Am., 175 F.3d 1186, 1189 (10th Cir. 1999) (“We

review the district court’s decisions on questions of law . . . de novo.”)

A

Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989), sets forth

the appropriate standard of review in actions challenging the denial of benefits

under an ERISA plan: “[A] denial of benefits challenged under § 1132(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 an ERISA plan gives the

administrator discretionary powers, the district court reviews the administrator’s

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decisions under an arbitrary and capricious standard. See, e.g., Pitman v. Blue

Cross & Blue Shield of Okla., 217 F.3d 1291, 1295 (10th Cir. 2000); Sandoval v.

Aetna Life & Cas. Ins. Co., 967 F.2d 377, 380 (10th Cir. 1992). Thus, only if the

Plan confers discretion on UNUM either to interpret the terms of the Plan or find

facts relating to a claimant’s disability is an arbitrary and capricious standard of

review appropriate under Firestone.

The district court employed the arbitrary and capricious standard in its

review of UNUM’s decision but unfortunately did not shed light on where in the

Plan it found UNUM’s discretionary powers. Our recent decision in Nance v.

Sun Life Assurance Co. of Can., 294 F.3d 1263 (10th Cir. 2002), handed down

after the filing of appeal briefs in the present case, clarifies what language

confers discretion on a plan administrator. In Nance, we distinguished plan terms

that require submission of “satisfactory proof” from those that require submission

of “proof satisfactory to [plan administrator].” Id. at 1267–68 (emphasis added).

We held that language requiring proof “satisfactory to [plan administrator]

suffices to convey discretion to a plan administrator. Id. at 1268. On the other

hand, requiring satisfactory proof alone, without specifying who must be satisfied,

does not vest a plan administrator with discretion. Rather, it merely indicates that

proof of disability must satisfy some objective criteria. Id. at 1267. Although

Nance did not present the precise issue of whether the plan terms in the instant

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case suffice to convey discretion to a plan administrator, the analytical framework

employed in Nance makes clear that they do not. Given that the Plan in the

present case solely requires a claimant to submit to UNUM “proof” of disability,

it did not vest UNUM with discretionary power under our analysis in Nance.

Absent such a grant of discretion, UNUM’s decision regarding Ray’s claim for

benefits should have been reviewed de novo by the district court.

We recognize that the parties did not raise the issue of whether UNUM had

discretionary authority over Ray’s claim either before the district court or in their

appeal briefs. 3 As best we can tell from the record, both the parties and the court

simply accepted that UNUM’s decision was entitled to deferential review without

delving into the reason or basis for this assumption. A footnote in Ray’s

appellate brief obliquely mentions that the Plan does not contain broad

discretionary language but the requirement of “proof” in the Plan “has been

assumed to bring this case within the ‘arbitrary and capricious’ standard of

review.” (Appellee’s Br. at 38.) Ray brought the standard of review issue to our

attention for the first time when she listed Nance in her Citation of Supplemental

Authorities. Following discussion of Nance at oral argument, we ordered the

3
Ray’s complaint requests “trial de novo of the merits” of her claim, but in
the next paragraph alleges that UNUM’s actions were arbitrary and capricious. (1
Appellant’s App. at 14.) Nowhere in the record does Ray develop whether
UNUM does or does not have discretionary power under the Plan.

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parties to submit supplement briefs addressing what effect, if any, Nance should

have on our disposition of this appeal.

In its supplemental brief, UNUM argues that Nance should not affect our

review because “[u]nder the doctrines of invited error and/or waiver, Plaintiff is

now barred from challenging the standard of review applied by the district court.”

(Appellant’s Supp. Br. at 1.) Ray argues that we should exercise our discretion

and “apply Nance even though the standard of review was not challenged in the

district court.” (Appellee’s Supp. Br. at 2.)

First, UNUM’s invited error argument is misplaced. “The invited error

doctrine prevents a party from inducing action by a court and later seeking

reversal on the ground that the requested action was error.” Zink Co. v. Zink, 241

F.3d 1256, 1259 (10th Cir. 2001) (citation omitted). There is no evidence that on

appeal Ray reverses a position she took at trial or that Ray induced the district

court to apply an arbitrary and capricious standard; we do not see in the record

even the slightest debate about which standard of review is appropriate. UNUM

argues that Ray strategically accepted an arbitrary and capricious standard in

order to limit the district court’s review to the administrative record. We decline

to speculate on which standard of review—de novo or abuse of discretion—would

be most beneficial to Ray; we do remain convinced that it is our recent decision in

Nance that controls the present posture of this case.

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 Second, UNUM’s waiver argument is unavailing. Generally, a party’s

failure to raise an issue in the district court precludes its review on appeal.

Proctor & Gamble Co. v. Haugen, 222 F.3d 1262, 1271 (10th Cir. 2000) (“When

an issue has not been properly raised below, to preserve the integrity of the

appellate structure, we should not be considered a ‘second-shot’ forum . . . where

secondary, back-up theories may be mounted for the first time.” (quotation

omitted)); Gray v. Phillips Petroleum Co., 971 F.2d 591, 593 n.3 (10th Cir. 1992).

However, an intervening change in the law permits appellate review of an issue

not raised below. Gray, 971 F.2d at 593 n.3. We also have held that where the

issue is purely a matter of law and its proper resolution is certain, we may

consider it. Proctor & Gamble, 222 F.3d at 1271; see also Petrini v. Howard, 918

F.2d 1482, 1483 n.4 (explaining that an issue would be considered in reversing a

judgment where it involves a question of law, the proper resolution of which is

beyond reasonable doubt, and failure to address it would result in a miscarriage of

justice). In the instant case, the correct standard of review of UNUM’s benefits

decision is a question of law and our recent decision in Nance makes its

resolution certain. Thus, we exercise our discretion to consider the issue on its

merits. We do not expect a trial court to gaze into a crystal ball to predict our

decisions, but de novo review of Ray’s claim is the proper legal standard, and this

case should proceed on that basis.

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 B

Our foregoing conclusion requires us to decide whether we should conduct

de novo review or remand to the district court for that purpose. Although we

have yet to address the matter, our sibling courts of appeals in the Fourth, Sixth,

and Ninth Circuits have recently been confronted with similar situations in ERISA

cases. See Gallagher v. Reliance Standard Life Ins. Co., No. 01-2467, 2002 WL

31115606, at *3, *7 (4th Cir. Sept. 25, 2002) (holding that the district court

should have conducted de novo review but concluding after de novo review that

the claimant failed to submit objectively satisfactory proof of disability); Hoover

v. Provident Life & Accident Ins. Co., 290 F.3d 801, 808 (6th Cir. 2002)

(concluding that although district court erroneously used an arbitrary and

capricious standard, remand was unnecessary because the necessary result under

the de novo standard is same as that reached by the district court); Grozs-Salomon

v. Paul Revere Life Ins. Co., 237 F.3d 1154, 1162 (9th Cir. 2001) (same).

Our judgment is guided by our recent decision in Hall v. UNUM Life Ins.

Co. of Am., 300 F.3d 1197 (10th Cir. 2002). In Hall, we examined the proper

scope of review in de novo ERISA cases, specifically addressing whether a

district court conducting de novo review is confined to the administrative record

in reviewing the decision of the fiduciary. Id. at 1201; cf. Sandoval, 967 F.2d at

380–81 (holding that federal courts are limited to the administrative record when

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reviewing a plan administrator’s decision for abuse of discretion). We held in

Hall that

the best way to implement ERISA’s purposes in this context is
ordinarily to restrict de novo review to the administrative record, but
to allow the district court to supplement the record when
circumstances clearly establish that additional evidence is necessary
to conduct an adequate de novo review of the benefit decision.

300 F.3d at 1202 (quotation omitted). Although our holding was based, at least in

part, on our desire to preserve employees’ pre-ERISA substantive rights in those

circumstances where supplementation is relevant and necessary, we acknowledged

that supplementation may be warranted in order to protect the plan administrator.

Id. at n.3.

By utilizing an arbitrary and capricious standard, rather than a de novo

standard, the district court in the case at issue necessarily did not consider

evidence outside the administrative record. For example, the district court found

that the three-physician panel report (consisting of specialists in internal

medicine, allergies, and psychiatry) issued by the UDC was not part of the record,

and consequently did not consider it. This being the situation, and given our

decision that we can not conduct adequate de novo review at this level (as have

other circuits, named above) without the benefit of such additional report and/or

other further medical reports, we must remand. Our remand allows the district

court to consider such additional evidence as in its discretion it finds necessary

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for adequate de novo review, including court-appointed expert reports if it

determines them helpful.

III

The district court’s opinion is REVERSED and the matter is REMANDED

for further proceedings consistent with this opinion.

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