F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH
AUG 16 2004
UNITED STATES COURT OF APPEALS
PATRICK FISHER
Clerk
TENTH CIRCUIT
MARTHA A. FINLEY,
Plaintiff - Appellant/
Cross - Appellee,
Nos. 03-1178, 03-1213
v.
HEWLETT-PACKARD COMPANY
EMPLOYEE BENEFITS
ORGANIZATION INCOME
PROTECTION PLAN,
Defendant - Appellee/
Cross - Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
(D. Ct. No. 01-D-1976 (OES))
Robert Lawrence Liebross, Denver, Colorado, appearing for the Appellant/Cross-
Appellee.
Gregory J. Kerwin, Gibson, Dunn & Crutcher, LLP, Denver, Colorado (Joseph P.
Busch, III, Gibson, Dunn & Crutcher, LLP, Irvine, California, with him on the
briefs), appearing for the Appellee/Cross-Appellant.
Before TACHA, Chief Circuit Judge, McWILLIAMS, and LUCERO, Circuit
Judges.
TACHA, Chief Circuit Judge.
Plaintiff-Appellant Martha A. Finley was denied long-term disability
benefits by her employee benefit plan. She brought suit against Defendant-
Appellee Hewlett-Packard Company Employee Benefits Organization Income
Protection Plan (“the Plan”) under 29 U.S.C. §§ 1132(a)(1)(B), 1133. The Plan
moved for summary judgment. The District Court granted this motion, holding
that no genuine issue of fact supported the view that Ms. Finley’s benefits were
denied arbitrarily and capriciously. On appeal, Ms. Finley argues that (1) the
District Court erroneously applied arbitrary and capricious review, and (2) even
under that standard of review, summary judgment on the § 1132(a)(1)(B) claim is
inappropriate. We take jurisdiction under 28 U.S.C. § 1291 and AFFIRM.
I. BACKGROUND
Ms. Finley worked for Hewlett-Packard Corporation (“Hewlett-Packard”)
from 1969 to November 29, 1996. By November 1996, she suffered from
moderately severe right thoracolumbar scoliosis. Hewlett-Packard sponsors the
Plan, which provides short-term and long-term disability benefits to Hewlett-
Packard employees who work more than thirty hours per week. Voluntary Plan
Administrators, Inc. (“VPA”) acts as the Plan’s administrator. VPA is an
independent third-party administrator that is compensated solely by a flat
quarterly fee. All benefits are paid out of the Plan’s trust funds, not by VPA.
Shortly after leaving her job, Ms. Finley applied to VPA for short-term
-2-
disability benefits, which were initially denied. After Ms. Finley administratively
appealed with the help of an attorney, she obtained short-term benefits on May
14, 1997. These funds, which were paid retroactively, provided thirty-nine weeks
of benefits.
Ms. Finley, again through counsel, applied to VPA for long-term benefits in
July 1997. Pursuant to section 2(q)(ii) of the Plan’s benefits distribution
document (“the benefits document”), a plan member, after the expiration of short-
term benefits, is eligible for long-term benefits only if “the Member is
continuously unable to perform any occupation for which he or she is or may
become qualified.” (emphasis added). Thus, Ms. Finley could not obtain long-
term benefits merely by showing her inability to perform her current position.
Instead, she had to demonstrate through “objective medical evidence” that she
could not perform any job for which she was, or could reasonably become,
qualified.
VPA set the date for determining whether Ms. Finley met this disability
criterion at August 30, 1997, a date that Ms. Finley does not contest. Thereafter,
Ms. Finley underwent a battery of medical examinations by her own medical
professionals and those hired by VPA. By the end of September 1997, Ms. Finley
sent her final medical records to VPA for its consideration. Included among these
records were the reports of Drs. Thomas Higgenbottom and John Mahan, Ms.
-3-
Finley’s attending physicians.
On March 11, 1998, VPA sent a letter to Ms. Finley’s attorney denying
long-term benefits. VPA based this decision on several medical reports, including
Drs. Higgenbottom’s and Mahan’s, that found Ms. Finley capable of performing
sedentary work for which she may become qualified, such as that of a cashier or
telephone operator, so long as she could change positions frequently.
On May 12, 1998, Ms. Finley administratively appealed this decision.
Included with this appeal was a new medical report, dated May 11, 1998, from Dr.
Mahan. This report states that Ms. Finley’s condition had worsened since Dr.
Mahan’s September 1997 examination and that Ms. Finley’s “severe pain
prohibit[ed] any work.” VPA responded on June 8 stating that the appeal
submitted no new evidence and requesting that Ms. Finley supply additional
medical evidence. Ms. Finley’s counsel called VPA, informed them no more
evidence was forthcoming and requested that the appeal proceed. In a July 14
letter, VPA confirmed this phone call and agreed to render a decision within sixty
days. VPA sent a letter denying the appeal of the long-term benefits decision on
October 9, 1998.
Pursuant to the Plan’s benefits document and the Department of Labor
-4-
ERISA 1 regulations then in effect, an appeal from a denial of benefits must be
resolved within sixty days. See 29 C.F.R. § 2560.503-1(h)(1)(i) (1999). 2 An
administrator may obtain an additional sixty days to respond if a special need
exists and the claimant receives notice. Id. Section 8(c) of the benefits document
mimics this regulation, stating: “In no event shall the decision of the Claims
Administrator be rendered more than one hundred twenty (120) days after it
receives the request for review.” The District Court, reasoning that VPA’s
response was due sixty days after its July 14 letter, determined that the due date
for VPA’s response was September 12, 1998. 3
Because VPA mailed its response
to Ms. Finley’s appeal on October 9, 1998, VPA’s denial of her administrative
appeal was twenty-seven days late. Therefore, pursuant to both section 8(c) of
the benefits document and the applicable ERISA regulation, Ms. Finley’s appeal
was “deemed denied” on September 12, 1998. 29 C.F.R. § 2560.503-1(h)(1)(i)
1
The Employee Retirement Income Security Act of 1974, 88 Stat. 891, 29
U.S.C. § 1001 et seq.
2
Later amendments to this provision did not take effect until January 1,
2002, see 65 Fed. Reg. 70265, at 70271 (Nov. 21, 2000); hence, we apply the
older regulation.
3
Ms. Finley argues that VPA’s response was due on September 10, 1998,
120 days after the submission of her May 12 appeal. Because this two-day
discrepancy is irrelevant to our decision, we rely on the District Court’s
determination as a matter of convenience. In so doing, we specifically reserve the
question of which metric is appropriate for calculating response timelines for a
future case.
-5-
(1999).
Ms. Finley brought suit in federal court under 29 U.S.C. § 1132(a)(1)(B),
seeking recovery of her long-term benefits, and under 29 U.S.C. § 1133, seeking
damages for VPA’s alleged failure to provide full and fair review of her claims. 4
The District Court, in granting summary judgment for the Plan, applied an
arbitrary and capricious review to VPA’s decision to deny long-term benefits and
found no genuine issue of material fact as to whether VPA’s decision met this
standard. Ms. Finley timely appealed. The Plan cross-appealed, arguing that the
District Court erred by not finding Ms. Finley’s claims barred by the benefits
document’s contractual statute of limitations. We need not address the statute of
limitations issue because we affirm the grant of summary judgment on the merits.
II. STANDARD OF REVIEW
We review a summary judgment under the same standard a district
court applies pursuant to Rule 56 of the Federal Rules of Civil
Procedure. In determining whether a genuine issue of material fact
remains, we view all facts and inferences in the light most favorable
to the nonmoving party. Summary judgment is appropriate if the
pleadings, depositions, answers to interrogatories, and admissions on
file, together with the affidavits, if any, show that there is no genuine
issue as to any material fact and that the moving party is entitled to a
judgment as a matter of law. The substantive law regarding a claim
identifies which facts are material in a motion for summary
4
Ms. Finley does not raise her § 1133 claim on appeal. Thus, we deem it
waived. State Farm Fire & Cas. Co. v. Mhoon, 31 F.3d 979, 984 n.7 (10th Cir.
1994) (White, ret. Justice) (holding that failure to brief an issue on appeal
constitutes waiver).
-6-
judgment. Carland v. Metropolitan Life Ins. Co. , 935 F.2d 1114,
1118 (10th Cir. 1991) (internal citations and quotations omitted).
III. DISCUSSION
A. The Appropriate Standard for Review of the Plan’s Denial of Benefits
In Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989), the
Supreme Court ruled that a court should review a denial-of-benefits suit brought
under § 1132(a)(1)(B) under a de novo standard unless the contract gives the
administrator discretionary authority to determine eligibility for such benefits.
See Jones v. Kodak Medical Assistance Plan, 169 F.3d 1287, 1291 (10th Cir.
1999). When, as here, the plan administrator has full discretion to determine
eligibility for benefits, courts ordinarily review a decision to deny benefits under
the arbitrary and capricious standard. Id.
Ms. Finley contends, however, that we owe no deference to VPA’s decision
to deny her long-term benefits because her administrative appeal was merely
“deemed denied” due to VPA’s tardy issuance of its decision. The District Court,
citing McGarrah v. Hartford Life Ins., 234 F.3d 1026, 1030-31 (8th Cir. 2000),
rejected this argument, finding that VPA’s denial, while late, did not “raise[]
serious doubts as to whether the result reached [by VPA] was the product of an
arbitrary decision.” Id. at 1031.
After the District Court issued its summary judgment ruling, we published
our opinion in Gilbertson v. Allied Signal, Inc., 328 F.3d 625 (10th Cir. 2003),
-7-
which we apply here. See Davidson v. America Online, Inc. , 337 F.3d 1179, 1184
(10th Cir. 2003) (“Where a change in law occurs while a case is on appeal, we
apply the law in effect at the time of our decision.”). In Gilbertson, the plaintiff
appealed to the administrator after denial of her long-term-benefits application.
Two weeks later, the administrator informed her that it had extended the time
allowed for both the submission of additional medical information and the
determination of her appeal. Despite the plaintiff’s numerous letters containing
medical evidence and requests for updates, the administrator never issued a
decision denying her appeal or communicated with the plaintiff again, resulting in
“more than six months of radio silence.” Gilbertson, 328 F.3d at 629-30, 636.
Because of this failure, the plaintiff’s appeal was “deemed denied” 120 days after
she filed it. Id. at 636.
After the plaintiff in Gilbertson filed suit, the district court granted the
defendant summary judgment, applying an arbitrary and capricious review to the
denial of benefits. We reversed, reasoning that the plan administrator is not
entitled to the deference of arbitrary and capricious review when certain appeals
are “deemed denied” because the administrator made no decision to which a court
may defer. Id. at 631-32. As such, we applied de novo review. Id. (“When the
administrator fails to exercise his discretion within the required timeframe, the
-8-
reviewing court must apply Firestone’s default de novo standard.”). 5
Nevertheless, we did not apply “a hair-trigger rule” in Gilbertson, such that
a denial of an administrative appeal rendered the day after the deadline entitles
the administrator’s decision to no deference. Id. at 634-35. Noting that ERISA is
designed to “promote accurate, cooperative, and reasonably speedy decision-
making” based upon a “good faith exchange of information between the
administrator and the claimant,” we adopted a “substantial compliance rule.” Id.
at 635. Pursuant to this rule, a plan administrator is in substantial compliance
with this deadline if the delay is: (1) “inconsequential”; and (2) in the context of
an on-going, good-faith exchange of information between the administrator and
the claimant. Id.
In rendering its ruling in the case before us, the District Court relied
substantially on the Eighth Circuit’s decision in McGarrah, which we
5
The circuits are split on this issue. Compare Jebian v. Hewlett-Packard
Emp. Ben. Org. Income Protection Plan, 349 F.3d 1098, 1107-08 (9th Cir. 2003)
(holding that the administrator’s failure to communicate with plaintiff until 119
days into the 120-day review period triggers de novo review); Gritzer v. CBS,
Inc ., 275 F.3d 291, 295-96 (3d Cir. 2002) (extending no deference to a plan
administrator’s post hoc justification, issued only after commencement of
litigation, for a deemed denial of benefits); with McGarrah , 234 F.3d at 1030-31
(holding that an ERISA plan fiduciary’s failure to respond to beneficiary’s
request for administrative review does not trigger heightened scrutiny absent
showing of extreme procedural irregularities); Southern Farm Bureau Life Ins.
Co. v. Moore, 993 F.2d 98, 101 (5th Cir. 1993) (“In our view, the standard of
review is no different whether the claim is actually denied or is deemed denied.”);
Daniel v. Eaton Corp ., 839 F.2d 263, 267 (6th Cir. 1988) (same).
-9-
distinguished in Gilbertson. The McGarrah court applied an abuse-of-discretion
review even though the administrator failed to respond in a timely manner to the
administrative appeal. 234 F.3d at 1031. According to the Eighth Circuit, the
delay was a mere procedural irregularity that did “not undermine [its] confidence
in the integrity of the [administrator’s] decision-making process.” Id.
Specifically, the McGarrah court reached this conclusion because the plaintiff
presented “no new medical evidence [on administrative appeal] contradicting the
overwhelming evidence that [plaintiff] was no longer disabled.” Id.
In Gilbertson, we interpreted McGarrah as follows:
[E]ven ‘deemed denied’ decisions can be afforded judicial deference
if the reviewing court determines that the administrator’s initial
denial and statement of reasons can effectively be applied to the
claimant’s appeal. That is, the court should interpret the
administrator’s silence on the claimant’s appeal as implicitly
affirming the original denial for the reasons set forth therein. . . .
[Thus,] if the McGarrah approach is permissible under Firestone, it
should be limited to situations where the claimant does not provide
meaningful new evidence or raise significant new issues in the
appeal. Gilbertson, 328 F.3d at 633.
Thus, in Gilbertson, we applied McGarrah as a limited exception to our
general use of de novo review for “deemed denials.” Id. Specifically, we found
that, if a claimant fails to “ provide meaningful new evidence or raise significant
new issues [on administrative appeal],” id. , and the delay does “not undermine
[the court’s] confidence in the integrity of [the administrator’s] decision-making
process,” McGarrah, 234 F.3d at 1031, then we apply arbitrary and capricious
-10-
review. We hold that Ms. Finley’s administrative appeal falls into this
“McGarrah exception.”
August 30, 1997, is the uncontroverted date for determining Ms. Finley’s
eligibility for long-term benefits. When VPA made its initial decision denying
long-term benefits, it relied on a substantial amount of medical evidence –
including the statements of Ms. Finley’s personal physicians, Drs. Mahan and
Higgenbottom – that were made near this date. Both doctors found Ms. Finley
capable of performing sedentary work so long as she could change positions
frequently. When Ms. Finley administratively appealed, she submitted only one
new piece of potential evidence—an “Attending Physician’s Statement of
Disability” report, dated May 11, 1998, wherein Dr. Mahan found that Ms.
Finley’s condition had “retrogressed” since his previous examination. He further
found that, as of May 11, 1998, her “severe pain prohibit[ed] any work.” On June
8, 1998, VPA responded to this report by stating that Ms. Finley had “not
submitted any medical evidence” with her appeal because “[a]ny change in her
condition after [her eligibility] date cannot be considered.”
We agree with VPA. The only relevant medical evidence is that pertaining
to Ms. Finley’s condition on her eligibility date: August 30, 1997. Because the
only evidence offered with Ms. Finley’s administrative appeal – Dr. Mahan’s May
11 report – pertains exclusively to her condition some eight months after the
-11-
eligibility date, it is irrelevant. We hold, therefore, that Ms. Finley failed to
“provide meaningful new evidence or raise significant new issues” on
administrative appeal. Gilbertson, 328 F.3d at 633. As such, VPA’s “initial
denial and statement of reasons can effectively be applied to [Ms. Finley’s
administrative] appeal.” Id. Thus, the District Court properly applied arbitrary
and capricious review in its summary judgment ruling. 6
See McGarrah, 234 F.3d
at 1031 (applying arbitrary and capricious review because a similar delay did “not
undermine [the court’s] confidence in the integrity of [the administrator’s]
decision-making process”).
B. Arbitrary and Capricious Review
In the alternative, Ms. Finley argues that, even under the arbitrary and
capricious standard, the Plan is not entitled to summary judgment. For
substantially the same reasons provided by the District Court, we disagree with
Ms. Finley.
1. Conflict of Interest
6
We reach this decision under the 1998 version of 29 C.F.R. § 2560.503-
1(h)(1)(i) (1999). Amendments to this provision took effect on January 1, 2002.
See 65 Fed. Reg. 70265, at 70271 (Nov. 21, 2000). We specifically reserve the
question of whether this decision and our decision in Gilbertson apply to the
regulations as amended. See 65 Fed. Reg. 70246, at 70255 n.39 (Nov. 21, 2000)
(stating, in explaining deemed denial provisions entitling a beneficiary to sue
without exhausting administrative remedies, “that a decision made in the absence
of the mandated procedural protections should not be entitled to any judicial
deference”).
-12-
Ms. Finley contends that VPA acted under a conflict of interest and that,
consequently, less deference is owed to VPA’s decision. “[A]ll of the circuit
courts agree that a conflict of interest triggers a less deferential standard of
review.” Chambers v. Family Health Plan Corp., 100 F.3d 818, 825 (10th Cir.
1996). Rather than viewing a conflict of interest as presumptive evidence that the
plan administrator’s decision was arbitrary and capricious, we apply a sliding
scale, decreasing the level of deference in proportion to the severity of the
conflict. Id. at 826-27.
In deciding whether VPA is subject to a conflict of interest, we consider a
number of factors, “including whether: (1) the plan is self-funded; (2) the
company funding the plan appointed and compensated the plan administrator; (3)
the plan administrator's performance reviews or level of compensation were
linked to the denial of benefits; and (4) the provision of benefits had a significant
economic impact on the company administering the plan.” Kimber v. Thiokol, 196
F.3d 1092, 1098 (10th Cir. 1999). Here, although the first two factors are
present, neither of the latter two apply. VPA receives no financial or evaluative
incentives for denying claims. Instead, the Plan pays VPA a flat, quarterly rate.
Also, the provision of benefits has no impact on VPA. The Plan’s funds, not
those of VPA, directly pay all benefits. As in Kimber, these facts convince us
that VPA did not operate under a conflict of interest. See id. (finding no
-13-
cognizable conflict of interest even where the first two factors are present).
Ms. Finley’s claim that a conflict arises from VPA’s statements that it can
save disability insurers money does not alter this conclusion. We agree with the
District Court that these statements, without additional support, do not establish a
legally cognizable conflict. While VPA advertises its ability to save insurers
money, it does not elaborate on how these savings would occur. They could occur
in many ways, including through decreased administrative costs and the
prevention of insurance fraud. The fact that an independent third-party plan
administrator might save an insurer money, absent more, does not establish a
conflict.
Ms. Finley offers no evidence to show that VPA intended to save its
customers money by increasing the number of denied claims. We reject her
“common sense” claim that such proof results from the fact that the Plan pays
VPA. We do not expect VPA to work for free. While common sense dictates that
an insurer is more likely to retain a plan administrator if it reduces the number of
approved claims, we find this general motivation, without more, insufficient to
rise to the level of a legally cognizable conflict of interest. See Pitman v. Blue
Cross and Blue Shield of Okla., 217 F.3d 1291, 1296 (10th Cir. 2000) (finding
that an economic interest in the denial of benefits by a plan administrator rises to
the level of a legally cognizable conflict of interest only if “the provision of
-14-
benefits had a significant economic impact on the company administering the
plan”) (emphasis added).
In addition, the cases Ms. Finley cites in support of her conflict-of-interest
argument differ factually from the present one. In Pitman, we found a conflict of
interest because the defendant administrator, who was also the insurer, had a
strong economic incentive to deny claims. Id. Likewise, in Cirulis v. UNUM
Corp. Severance Plan, 321 F.3d 1010 (10th Cir. 2003), we recognized in dicta
that the unique situation in which the defendant is simultaneously the plaintiff’s
employer, the insurer, and the employer of the plan administrator “may, standing
alone, provide sufficient evidence of a conflict warranting a reduced level of
deference.” Id. at 1017 n.6. The case before us, however, presents a much
different situation: by employing VPA as an independent third-party
administrator, the Plan avoids these potential conflicts. See, e.g., Pitman, 217
F.3d at 1296. Thus, absent a more particularized showing, we will not find that
an independent third-party administrator operates under a conflict of interest
simply because it accepts a fee from the insurer for its services and advertises that
it can save insurers money.
2. Denial of Benefits Under Arbitrary and Capricious Review
In determining whether VPA’s decision is arbitrary and capricious, we
consider only “the arguments and evidence before the administrator at the time it
-15-
made that decision” and decide: (1) whether substantial evidence supported
VPA’s decision; (2) whether VPA based its decision on a mistake of law; and (3)
whether VPA conducted its review in bad faith or under a conflict of interest.
Sandoval v. Aetna Life and Casualty Ins. Co. , 967 F.2d 377, 380 & n.4 (10th Cir.
1992). “The Administrator’s decision need not be the only logical one nor even
the best one. It need only be sufficiently supported by facts within his knowledge
to counter a claim that it was arbitrary or capricious. The decision will be upheld
unless it is not grounded on any reasonable basis.” Kimber, 196 F.3d at 1098
(alterations, quotations, and citations omitted).
Under this standard, the decision to deny benefits was reasonable. VPA
had substantial evidence that, as of the eligibility date, Ms. Finley could perform
sedentary work. Except for her argument that VPA had to consider Dr. Mahan’s
May 11, 1998, report, which we rejected above, Ms. Finley does not allege that
VPA made an error of law in denying benefits. Finally, VPA did not operate
under a conflict of interest nor has Ms. Finley alleged bad faith. Because no
genuine issue of material fact exists regarding whether VPA arbitrarily or
capriciously denied Ms. Finley long-term benefits, the Plan is entitled to summary
judgment. See Fed. R. Civ. P. 56(c).
IV. CONCLUSION
For the previously stated reasons, we AFFIRM the District Court’s grant of
-16-
summary judgment for the Plan.
-17-