DIANE DENMARK, Plaintiff, Appellant, v. LIBERTY LIFE ASSURANCE COMPANY OF BOSTON, Defendant, Appellee.
No. 05-2877
United States Court of Appeals For the First Circuit
May 6, 2009
APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS [Hon. Douglas P. Woodlock, U.S. District Judge]
Before Lipez, Selya and Howard, Circuit Judges.
Jay E. Sushelsky and Melvin R. Radowitz on brief for American Association of Retired Persons, amicus curiae.
Mala M. Rafik and Rosenfeld & Rafik, P.C. on brief for Massachusetts Employment Lawyers Association, amicus curiae.
Richard Johnston on brief for Health Administration Responsibility Project, amicus curiae.
Andrew C. Pickett, with whom Matthew D. Freeman, Ashley B. Abel, and Jackson Lewis LLP were on brief, for appellee.
Lisa Tate, Teresa L. Jakubowski, Mark J. Crandley, and Barnes & Thornburg, LLP on brief for American Council of Life Insurers, amicus curiae.
Dissatisfied with the outcome, the plaintiff sought rehearing and rehearing en banc. See
I. BACKGROUND
We presume the reader‘s familiarity with the facts of the case as set forth in Denmark II. We rehearse here only those events necessary to put this appeal, in its present posture, into a workable perspective.
In 1996, a primary care physician diagnosed plaintiff-appellant Diane Denmark as suffering from fibromyalgia. The plaintiff, whо was a group leader employed by GenRad, Inc., nonetheless continued to work. At the times relevant hereto, she was covered under two interlocking, ERISA-regulated disability insurance plans: GenRad‘s short-term disability plan (the STD Plan)
The employer self-funded the STD Plan. Under it, Liberty provided an initial claims review and benefits determination. Its decisions were appealable to the employer, which paid approved claims from its own exchequer.
In contrast, Liberty underwrote the LTD Plan. Pursuant to its terms, Liberty reviewed all claims, madе the initial benefits determinations, adjudicated any appeals, and paid approved claims from its own coffers.
The plaintiff stopped working on October 3, 2001, and applied for STD benefits. The STD Plan defines “disabled” to include a person who is “unable to perform all of the material and substantial duties of [her] occupation . . . because of an Injury or Sickness.” In an effort to satisfy this definition, the plaintiff supported her claim with reports from three doctors: her primary care physician, a cardiologist, and a rheumatologist. After reviewing the tendered medical records and a job description, Debra Kaye, a nurse emplоyed by Liberty as a case manager, requested that Dr. Clay Miller conduct a peer review. Based on Dr. Miller‘s assessment, Liberty denied the claim.
In June of 2002, the plaintiff filed for long-term benefits. An applicant qualifies as disabled under the LTD Plan if, for the first two years, “as a result of Injury o[r] Sickness, [she] is unable to perform the Material and Substantial Duties of [her] Own Occupation” and thereafter “is unable to perform, with reasonable continuity, the Material and Substantial Duties of Any Occupation.” Nurse Kaye reviewed the file, which contained medical support for a finding that the plaintiff‘s symptomatology had worsened as well as a completed activities questionnaire in which she claimed to have severe restrictions on her ability to sit, stand, walk, drive, and concentrate.
In her second review, Nurse Kaye discounted the IME report, suggested that the plaintiff‘s condition was not as grave as the completed questionnaire implied, and concluded that the plaintiff did not qualify for LTD benefits. Thus, Liberty denied the claim.
The plaintiff requested further review. Liberty responded by, among other things, determining that her job involved
With this ammunition in hand, Liberty submitted the entire file to Network Medical Review (NMR), a referral service furnishing physicians to evaluate the functional abilities of claimants. NMR forwarded the assignment to one of its correspondents, Dr. John Bomalaski, who concluded that the plaintiff was capable of working full-time in her (primarily sedentary) position. On December 10, 2002, Liberty reaffirmed its earlier denial of LTD benefits.
Nearly fourteen months later, an administrative law judge ruled the plaintiff entitled to social security disability benefits, see
On September 17, 2004, the plaintiff sued Liberty in a Massachusеtts state court. Liberty removed the action to the federal district court. See
The district court permitted the plaintiff to conduct limited discovery anent Liberty‘s relationship with NMR and its correspondent physicians as part of an effort to show that Liberty‘s actions were influenced by a conflict of interest. Liberty acknowledged that it had paid upwards of $2,000,000 to NMR physicians between 2001 and 2003, and identified 1,204 files that it had referred to NMR during that interval. But Liberty refused, on burdensomeness grounds, to answer interrogatories regarding the proportion of those files in which claims ultimately had been allowed. As a sanction for this recalcitrance, the court drew an inference that NMR had found against the claimants in all cases and, thus, applied heightened scrutiny to Dr. Bomalaski‘s opinion. Denmark v. Liberty Life Assur. Co. (Denmark I), Civ. No. 04-12261, 2005 WL 3008684, at *11 (D. Mass. Nov. 10, 2005).
In due season, the parties cross-moved for summary judgment. Noting that the plan documents delegated discretionary authority to Liberty, qua plan administrator, the court reviewed the benefit-denial decision under this circuit‘s historic abuse of
The court proceeded to find the denial of LTD benefits supported by substantial evidence and, thus, within the plan administrator‘s discretion. Id. at *26. Accordingly, it granted Liberty‘s summary judgment motion and denied the plaintiff‘s. See id.
On appeal, the plaintiff pursued two lines of attack. First, she contended that the district court had employed an incorrect standard of review. Second, she contended that, whatever the standard of review, the denial of LTD benefits was insupportable. We have recounted the rest of the tale above: the panel, by a divided vote, affirmed the district court‘s ruling; the plaintiff petitioned for rehearing; the Supreme Court decided Glenn; and the litigation then entered its current phase.
The focal point of this appeal has become the standard of judicial review. For that reason, we think it useful to rehearse how the case law in that area has evolved.
Among its panoply of remedial devices for plan participants, ERISA provides for suits to enforce rights conferred under the terms of an ERISA-regulated plan. See
The Firestone Court noted that ERISA “abounds with the language and terminology of trust law” and that Congress anticipated the development of a “federal common law of rights and obligations under ERISA-regulated plans.” Id. at 110. Invoking trust principles, the Court held that when an ERISA-regulated plan vests discretion in the plan administrator, the latter‘s resolution of benefits claims must be reviewed deferentially. Id. at 111. Absent such a delegation of discretionary authority, a plan administrator‘s decisions are to be reviewed de novo. Id. at 111-12.
In a brief aside, the Court observed that “if a benefit plan gives discretion to an administrator or fiduciary who is operating under a conflict of interest, that conflict must be
This court clung to the classic abuse of discretion model, taking account of the impact, if any, of a conflict in evaluating whether a denial of benefits was arbitrary and capricious (and thus, an abuse of discretion). See, e.g., Leahy v. Raytheon Co., 315 F.3d 11, 15-16 (1st Cir. 2002); Doe v. Travelers Ins. Co., 167 F.3d 53, 57-58 (1st Cir. 1999). Other circuits, however, adopted divergent approaches. See Kathryn J. Kennedy, Judicial Standard of Review in ERISA Benefit Claim Cases, 50 Am. U. L. Rev. 1083, 1135-72 (2001) (collecting cases).
This compendium included a “presumptive neutrality” approach, under which abuse of discretion review obtains except in cases of actual conflict (that is, cases in which the plan administrator‘s decision is shown to be conflict-driven). See, e.g., Kobs v. United Wis. Ins. Co., 400 F.3d 1036, 1039 (7th Cir. 2005); Pulvers v. First Unum Life Ins. Co., 210 F.3d 89, 92 (2d Cir. 2000); Woo v. Deluxe Corp., 144 F.3d 1157, 1160-61 (8th Cir. 1998). It also included a “combination of factors” approach under which abuse of discretion review treats both actual and potential
In Doyle v. Paul Revere Life Insurance Co., 144 F.3d 181 (1st Cir. 1998), we acknowledged that the Firestone dictum could bе read to imply a heightening of the standard of review for structural conflict cases. Id. at 184. We noted, however, that market forces were at work: employers are unlikely to contract with insurers who acquire reputations for miserliness. Id. Thus, it seemed prudent to adhere to the baseline abuse of discretion standard in cases involving structural conflicts, but to give that standard “more bite“; that is, a “special emphasis on reasonableness.” Id. The bottom-line inquiry should be “whether [the plan administrator] had substantial evidentiary grounds for a reasonable decision in its
In Doe, 167 F.3d at 57-58, we supplied a gloss on Doyle, explaining that reasonableness “is the basic touchstone” in all benefit-denial cases. We again rejected a special standard of review for structural conflict cases, observing that “gradations in phrasing are as likely to complicate as to refine the standard.” Id. In any event, the requirement of reasonableness is flexible; thus, that requirement may have “substantial bite” when a court is faced with a specific decision on a specific set of facts. Id. (explaining that reasonableness review necessarily takes cognizance of conflicts).
In Pari-Fasano v. ITT Hartford Life & Accident Insurance Co., 230 F.3d 415 (1st Cir. 2000), we stressed two points. The first dealt with nomenclature; we made pellucid that the terms “abuse of discretion,” “arbitrary and capricious,” and “reasonableness” were functionally equivalent in the ERISA context. Id. at 419. None of those terms heralded a heightened standard of review for structural conflict cases. Id. Our second point remarked the obvious: “the possible existence of a conflict of interest would necessarily affect the court‘s determination of what was reasonable conduct by the insurer under the circumstances.” Id. When Pari-Fasano speaks of the potential for conflict, we understand
Following this trilogy of cases, we consistently have reviewed the resolution of benefits claims by structurally conflicted plan administrators for abuse of discretion, taking into account both the potential for conflict and the mitigating effect of market forces.4 See, e.g., Buffonge v. Prudential Ins. Co., 426 F.3d 20, 28 & n.11 (1st Cir. 2005); Wright v. R.R. Donnelley & Sons Co. Group Benefits Plan, 402 F.3d 67, 74 (1st Cir. 2005); Glista v. Unum Life Ins. Co., 378 F.3d 113, 125-26 (1st Cir. 2004); Lopes v. Metro. Life Ins. Co., 332 F.3d 1, 4-5 (1st Cir. 2003); Leahy, 315 F.3d at 16; Dandurand v. Unum Life Ins. Co., 284 F.3d 331, 335-36 (1st Cir. 2002).
This brings us to Glenn. There, the Supreme Court reviewed a denial of benefits by an administrator that both passed judgment upon and paid claims under an ERISA-regulated plan. The
Picking up on the Firestone dictum, the Glenn Court clarified what sort of relationships might suffice to create a сonflict of interest. It concluded that courts should take cognizance of structural conflicts in ERISA cases; that is, that a conflict exists whenever a plan administrator, whether an employer or an insurer, is in the position of both adjudicating claims and paying awarded benefits. Glenn, 128 S. Ct. at 2348-50. In reaching that conclusion, the Court rejected the market forces rationale, explaining that “ERISA imposes higher-than-marketplace quality standards on insurers.” Id. at 2350. The Court left open the possibility that market forces might inform the significance of a structural conflict in a given case. See id.
The Court then turned to the question of how best to weigh structural conflicts. In charting this cоurse, it held fast to the standard of review previously announced in Firestone: abuse of discretion. Id. (analogizing to trust law, which asks merely whether a conflicted trustee has abused his discretion either substantively or procedurally). The Court rejected burden-shifting rules as a mechanism for ensuring proper judicial review of decisions made by structurally conflicted plan administrators. Id. at 2351.
The Court acknowledged the resemblance between its approach and the Sixth Circuit‘s “combination of factors” approach; those approaches give a structural conflict some weight but, in the absenсe of aggravating circumstances (say, evidence of arbitrariness or of actual bias), do not treat it as a dispositive influence. Id. at 2351-52.
The conflict of interest at issue here, for example, should prove more important (perhaps of great importance) where circumstances suggest a higher likelihood that it affected the benefits decision, including, but not limited to, cases where an insurance company administrator has a history of biased claims administration. It should prove less important (perhaps to the vanishing point) where the administrator has taken active steps to reduce potential bias and to promote accuracy, for example, by walling off claims administrators from those interested in firm finances, or by imposing management checks that penalize inaccurate decisionmaking irrespective of whom the inaccuracy benefits.
Id. at 2351 (citations and internal quotations marks omitted).
To complete the picture, the Court applied its newly refined standard to the case before it. In so doing, the Court assessed a litany of relevant factors, including the plan administrator‘s structural conflict, its inconsistent positions concerning a social security determination, its unexplained еmphasis on medical opinions favoring a denial of benefits, and its offhand discounting of contrary medical opinions. Id. at 2352. The Court concluded that “these serious concerns,” together with the closeness of the case and the presence of a structural conflict, supported the decision to set aside the plan administrator‘s discretionary judgment. Id.
The case at bar falls squarely within Glenn‘s precedential orbit. Here, the LTD Plan contains a sufficient delegation of
At this point, a red flag appears. Although the standard of review articulated in our earlier cases comports generally with Glenn, two aspects of our original approach require refinement. First, the market forces rationale no longer allows a reviewing court to disregard a structural conflict without further analysis. See Glenn, 128 S. Ct. at 2349-50. That aspect of the Glenn decision requires that structural conflicts be accorded weight — аlbeit not necessarily dispositive weight — in the standard-of-review equation. With that in mind, courts are duty-bound to inquire into what steps a plan administrator has taken to insulate the decisionmaking process against the potentially pernicious effects of structural conflicts.
To sum up, our preexisting standard of review is largely but not entirely harmonious with Glenn. While the refinements are modest, this case is hair‘s-breadth close. Given that precarious balance, even a slight adjustment in the mix of factors or in the weight of a single factor may make a decisive difference. Hence, we think it incumbent upon us to remand the case and permit the district court, in the first instance, to reconsider its decision in light of Glenn.6 Remand will allow full consideration of how heavily this conflict should weigh in the balance. That is highly desirable because, in performing a multi-factor analysis, “any one factor will act as a tiebreaker when the other factors are closely balanced.” Glenn, 128 S. Ct. at 2351. We leave this reweighing to the district court, and intimate no view as to the оutcome.
Notwithstanding our decision to remand, our journey is not yet at an end. The supplemental briefing touched upon discovery issues, see, e.g., Appellee‘s Br. on Reh‘g at 57-58, and at oral
Given these disparate appraisals, we have a responsibility to offer guidance to the parties and the district court. That guidance entails a brief discussion about the scope of discovery in ERISA cases.
ERISA benefit-denial cases typically are adjudicated on the record compiled before the plan administrator. Because full-blown discovery would reconfigure that record and distort judicial review, courts have permitted only modest, specifically targeted discovery in such cases. See Liston v. Unum Corp. Officer Sev. Plan, 330 F.3d 19, 23 (1st Cir. 2003) (noting that “some very good reason is needed to overcome the strong prеsumption that the record on review is limited to the record before the administrator“).
In some cases, a good reason has been found to exist when a party makes a colorable claim of bias. See id. Targeted discovery addressed to such an issue may shed new light on the
The majority opinion in Glenn fairly can be read as contemplating some discovery on the issue of whether a structural conflict has morphed into an actual conflict. See, e.g., Glenn, 128 S. Ct. at 2351. That is consistent with the Liston paradigm. But any such discovery must be allowed sparingly and, if allowed at all, must be narrowly tailored so as to leave the substantive record essentially undisturbed.
In future cases, plan administrators, aware of Glenn, can be expected as a matter of course to document the procedures used to prevent or mitigate the effect of structural conflicts. That information will be included in the administrative record and, thus, will be available to a reviewing court. Conflict-oriented discovery will be needed only to the extent that there are gaps in the administrative record. If, say, the plan administrator has failed to detail its procedures,7 discovery may be appropriate, in the district court‘s discretion. Otherwise, discovery normally will be limited to the clarificаtion of ambiguities or to ensuring that the documented procedures have been followed in a particular instance.
The case at hand falls into a special niche. Because the denial of benefits and the commencement of suit both predated Glenn,
IV. CONCLUSION
We need go no further. For the reasons elucidated above, we vacate the judgment below and remand this case to the district court for further consideration consistent with Glenn and with this opinion. The district court is free to abrogate or modify the discovery sanction previously imposed if it sees fit to do so.
One final point comes to mind. This may be an appropriate time for the parties seriously to consider settlement. The district court would be wise to explore that possibility.
Vacated and remanded. No costs.
- Concurring Opinion Follows -
Although it is true, as the majority says, that “at oral argument . . . the parties argued strenuously about the permissible scope of discovery, post-Glenn, in ERISA cases,” that issue was raised sua sponte by members of the рanel, not the parties. The scope of discovery post-Glenn was never part of this appeal. It was not briefed by the parties. They did not seek guidance on the issue. Instead, it is the majority that is eager to use this case to provide that guidance.
It may be appropriate, in some instances, to venture beyond what is strictly required to decide a particular appeal and provide such guidance. But the resort to dicta in this case is ill-advised for two reasons. First, the issue of the permissible scope of discovery post-Glenn is complex and fact-dependent. Generalizations without context ignore that reality. Secоnd, there
The majority is correct that ”Glenn fairly can be read as contemplating some discovery on the issue of whether a structural conflict has morphed into an actual conflict.” The majority‘s statement that “in future cases, plan administrators . . . can be expected . . . to document the procedures used to prevent or mitigate the effect of structural conflicts” is a reasonable inference from Glenn‘s observation that the importance of structural conflicts is lessened where the administrator “has taken active steps to reduce potential bias and to promote accuracy.” 128 S. Ct. at 2351. It is also true, as the majority notes, that in this case “the denial of benefits and the commencement of suit both predated Glenn.” Therefore, on remand, “the district court, in its discretion, may wish to afford the parties a limited opportunity to flesh out the record” with “appropriately circumscribed” discovery.
That general reference to “appropriately circumscribed” discovery is fair enough. The problem arises with the majority‘s characterizations of that appropriately circumscribed disсovery. The majority says that “any such discovery [on the issue of whether a structural conflict has morphed into an actual conflict] must be allowed sparingly and, if allowed at all, must be narrowly tailored
Conflict-oriented discovery will be needed only to the extent that there are gaps in the administrative record. If, say, the plan administrator has failed to detail its procedures, discovery may be appropriate, in the district court‘s discretion. Otherwise, discovery normally will be limited to the clarification of ambiguities or to ensuring that the documented procedures have been followed in a particular instance.
These propositions reflect a grudging approach to post-Glenn discovery that may not be justified. They are unnecessary for our decision in this appeal. They have been fashioned without the benefit of district court analysis or briefing by the parties. Under these circumstances, courts “are far more likely . . . to fashion defective rules, and to assert misguided propositions, which have not been fully thought through.” Pierre N. Leval, Judging Under the Constitution: Dicta About Dicta, 81 N.Y.U. L. Rev. 1249, 1263 (2006). Accepted uncritically as law, such propositions can skew the decision-making process of the district courts. It is simply impossible to know in this case or in future cases the degree of discovery that may be required to establish “whether a structurаl conflict has morphed into an actual conflict.” Such discovery might be sparing or more expansive depending upon the preliminary showing made by the plaintiff in a particular case. Decreeing in this case that such discovery must be allowed sparingly, or confined to certain categories, is an unwarranted signal that discovery into the