Case Information
*1 IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA CONSTANCE FINLEY, No. C 06-6247 CW Plaintiff, ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFF'S MOTION FOR SUMMARY ADJUDICATION ON THE STANDARD OF REVIEW v. HARTFORD LIFE AND ACCIDENT INSURANCE CO.; THE BOSTON FINANCIAL GROUP LONG- TERM DISABILITY PLAN; and DEMPSEY INVESTIGATIONS, INC., Defendants. /
Plaintiff moves for summary adjudication on the standard of review, seeking a determination that de novo is the appropriate standard of review of her claim for benefits. 1 Defendants Hartford 21 Life and Accident Insurance Co. and The Boston Financial Group 22 Long-Term Disability Plan oppose the motion and argue that abuse of 23 discretion is the appropriate standard of review. Having 24 25
26 1 This motion was unauthorized. The Court's scheduling order does not provide for a motion for summary adjudication on the 27 standard of review; the Court contemplated a single motion that would be heard on November 16, 2007. Nonetheless, the Court will address Plaintiff's motion. *2 considered all of the papers filed by the parties, the Court grants in part Plaintiff's motion and denies it in part: de novo review is not appropriate, but the Court shall apply an abuse of discretion review with a moderate degree of skepticism.
BACKGROUND Defendant Hartford issued, and administers, a group long-term disability policy insuring the Boston Financial Group Long-Term Disability Plan (the Plan). The policy grants Defendant Hartford "full discretion and authority to determine eligibility for benefits and to construe and interpret all terms and provisions of the Group Insurance Policy." 2 Roberts Dec., Ex. B at P00153. This policy covers eligible Boston Financial Group employees, such as Plaintiff, in the event they become totally disabled. Plaintiff became totally disabled as a result of right shoulder impingement syndrome and left cubital tunnel syndrome. And, on August 16, 1997, Defendant Hartford approved Plaintiff's disability claim. It paid Plaintiff benefits under the Plan from August, 1997 to September, 2005.
In January, 2001, Defendant Hartford's Special Investigations Unit (SIU) asked Dempsey Investigations to perform surveillance on Plaintiff. 3 Pursuant to Defendant Hartford's instruction, a 2 Plaintiff points out that, as part of a settlement with the 23 California Insurance Commissioner, Defendant Hartford has agreed to remove this and similar "discretionary" clauses from its policies.
24 3 This was only one of at least 900 surveillance investigations
25 that Dempsey would perform for Defendant Hartford in 2001. Dempsey performed its investigations according to Defendant 26 Hartford's policies and procedures regarding surveillance. Defendant Hartford was Dempsey's major client and, in 2005, when 27 Dempsey lost Defendant Hartford's business, Dempsey shut down. 28
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*3 Dempsey investigator conducted surveillance of Plaintiff on February 2, 3 and 4, 2001. On February 7, 2001, Dempsey reported the results of its surveillance and submitted to the SIU a video of the surveillance. The report indicates that all three days Plaintiff was videotaped in her kitchen.
According to Richard Sawn, Dempsey's vice president, after receiving the February 7, 2001 report, Jack McGoldrick, SIU's vice president, contacted him. Mr. McGoldrick requested that Dempsey delete the video of Plaintiff in her home "because it was in the residence and they didn't want that video." Sawn Dep., 43:22-44. Pursuant to that request, someone at Dempsey revised the video, deleting images of Plaintiff in her residence. The report was also revised to reflect that the investigator "observed" Plaintiff in her home, not that he videotaped her in her home. Dempsey then resubmitted to Defendant Hartford the surveillance video and report. 4 The revised report and cover letter contained the same date as the original report and cover letter: February 7, 2001. 5 Mr. Sawn called Mr. McGoldrick to make sure the revised report and
video "looked all right." Id. at 73:9-10. Even though Mr. Sawn states that, in 2001, Defendant Hartford asked Dempsey to revise the surveillance video and report, Defendant Hartford states that it did not request, and Dempsey did not send, a revised February 7, 4 Plaintiff states that this video shows an image of her 24 throwing a ball to her service dog; it is time stamped 2:08:28- 2:08:54. This image, with the same time stamp, immediately repeats itself, making Plaintiff appear to be more physically active than she was. 25
26 5 Dempsey no longer has the original report. Until recently,
27 the original video was missing.
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*4 2001 report and video in 2001.
Defendant Hartford retained Dempsey again to conduct surveillance on Plaintiff. On October 21 to October 23, 2007, Plaintiff was under surveillance. The report from Dempsey concerning this surveillance is dated October 30, 2001; however, the report contains a telephone area code that was not used until 2002.
In May, 2005, Plaintiff's case was again referred to SIU. An activity log shows that, at the end of May, Defendant Hartford's employee contacted Dempsey to obtain copies of the prior surveillance it had conducted on Plaintiff. The log notes that, on June 7, 2005, Defendant Hartford received copies of the surveillance reports and that the videos would follow. Although it is dated February 7, 2001, Defendant Hartford admits that this report is different from the first report Dempsey sent. Like the allegedly revised report sent in 2001, the report sent in 2005 refers to "observing" Plaintiff in her home, not "video of" her in her home. The report sent in 2005 refers to a telephone area code that did not come into existence until 2002 and an email address that Dempsey did not use until 2004. Defendant Hartford contends that any alterations made to the February 7, 2001 report were made independently by Dempsey, without prodding from Defendant Hartford. Because the report contains the email address Dempsey began using in 2004, Defendant Hartford contends that Dempsey did not alter the video until 2004 or 2005. Indeed, Plaintiff acknowledges that the activity log and backdated invoices suggest that the February, 2001 report and video were not revised until 2005.
*5 In June, 2005, at Defendant Hartford's request, another investigative firm, HUB Enterprises, performed surveillance on Plaintiff. On June 17, 2005, Plaintiff was videotaped for approximately one hour and forty-five minutes: "video obtained depicts [Plaintiff] walking, performing landscaping activities, bending down, pulling weeds while working in a quick manner, retrieving garden tools, kneeling, utilizing a tool with her right [sic], utilizing both hands to remove weeds from the crack along the driveway edge and pulling and cleaning the weeds from the cracks." Roberts Dec., Ex. J. The next day, she was videotaped for approximately six minutes: "video obtained depicts [Plaintiff] walking at a quick pace, carrying a bag on her left shoulder, bending to retrieve a newspaper off the ground, entering a vehicle, operating a vehicle and brushing her dogs." Id. Following the surveillance, Defendant Hartford's investigator interviewed Plaintiff at her home. The investigator showed Plaintiff the surveillance video. Plaintiff acknowledged that "some of the activities seen on the video exceeded the restrictions and limitations outlined by her doctor" and what she had reported to Defendant Hartford. McIssac Dec., Ex. 3. She explained, "I was able to do those activities on those days because I had to put the pain aside out of frustration and not having the funds to hire someone to do it for me . . . . It was bizarre that the only day in the last nine years that I did landscaping I was videotaped. It took me two weeks to recover by resting and bring [sic] the pain down to my usual level of pain." Id.
*6 Defendant Hartford requested a medical review from University Disability Consortium (UDC). Dr. Brian Mercer, Board Certified in Neurology, reviewed Plaintiff's medical records and the surveillance from June, 2005. He did not examine Plaintiff; UDC physicians do not examine patients. Nor did he review the February, 2001 video surveillance. Dr. Mercer called Plaintiff's physician, who stated that he had not seen Plaintiff in over six months. Dr. Mercer concluded that Plaintiff's symptoms and limitations were inconsistent with the activities performed on the 2005 video surveillance and that there were no objective abnormalities that would preclude Plaintiff from functioning at a full-time light level job. Plaintiff notes that Defendant Hartford has a "volume discount type arrangement" with UDC. Strang Dep. 39:20-21. Approximately seventy-five percent of UDC's revenue is from its business with Defendant Hartford. Id. at 39:11. On September 21, 2005, Defendant Hartford terminated Plaintiff's benefits on the grounds that she was no longer totally disabled as defined under the policy. In reaching this conclusion, Defendant Hartford largely relied upon the July, 2005 surveillance and Dr. Mercer's findings. On March 22, 2006, Plaintiff appealed the termination of her benefits.
Defendant Hartford requested that two other physicians, one certified in neurology and clinical neurophysiology, and another certified in physical medication, rehabilitation and pain medicine, review Plaintiff's medical records and the July, 2005 surveillance. These doctors are employed by Reed Review Services, not UDC. Even though the surveillance video showed less than two hours of *7 activity spread throughout the day, one doctor noted that Plaintiff spent "several hours performing gardening activities." Roberts Dec., Ex. M. Like Dr. Mercer, both doctors concluded that Plaintiff was capable of full-time work.
Although Plaintiff requested that she be permitted to respond to any new evidence Defendant Hartford generated, Defendant Hartford did not provide Plaintiff the opportunity to rebut these doctors' conclusion. And, on April 24, 2006, Defendant Hartford upheld its original decision to terminate Plaintiff's benefits. Defendant Hartford did not provide Plaintiff with the reports from the physicians at Reed Review Services until June 28, 2006. On September 1, 2006, Plaintiff sent a letter to Defendant Hartford, attempting to supplement her request for review by submitting her doctor's response to the Reed Review Services' physicians' reports. The letter further noted that Defendant Hartford "had not complied with ERISA, and the regulations issued thereunder, due to its continuing failure to provide copies of the surveillance tapes of the surveillance conducted on February 2, 2001 through February 4, 2001 by Dempsey." Roberts Dec., Ex. N.
Five days later, Defendant Hartford returned the additional materials Plaintiff had submitted. The letter explained, "Because we closed our administrative record for this claim on 4/26/06, we have not reviewed and are returning the documents you included with your 9/1/06 letter." As for the requested surveillance video, the letter stated that Plaintiff's request was forwarded to Theresa Marciel-Carr and that Plaintiff should hear from her soon. Neither Ms. Marciel-Carr nor anyone from Defendant Hartford, however, *8 contacted Plaintiff or her attorney until after Plaintiff filed this motion. Defendant Hartford has now located the February, 2001 surveillance video. On July 26, 2007, the discovery-cut off date, it provided Plaintiff with a copy. According to Plaintiff, however, Defendant Hartford has yet to provide it with a copy of the original February, 2001 report with a SIU bates-stamp number.
DISCUSSION The standard of review of a plan administrator's denial of ERISA benefits depends upon the terms of the benefit plan. Absent contrary language in the plan, the denial is reviewed under a de novo standard. Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989). However, if "the benefit plan expressly gives the plan administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the plan’s terms," an abuse of discretion standard is applied. Id. at 102; Abatie v. Alta Health & Life Insurance Co., 458 F.3d 955 (9th Cir. 2006) (en banc). There is, however, an exception to this rule. Abatie, 458 F.3d at 971. Here, there is no dispute that the Plan confers discretion. Thus, unless an exception applies, abuse of discretion is the appropriate standard of review.
In Abatie, the Ninth Circuit noted that it had recently held that an administrator’s failure to comply with ERISA procedural requirements generally does not alter the standard of review from abuse of discretion review to de novo review. Id. (citing Gatti v. Reliance Standard Life Ins. Co., 415 F.3d 978, 985 (9th Cir.
2005)). The court recognized, "There are, however, some situations in which procedural irregularities are so substantial as to alter *9 the standard of review," including when “an administrator engages in wholesale and flagrant violations of the procedural requirements of ERISA, and thus acts in utter disregard of the underlying purpose of the plan as well.” Id. In that situation, the court will “review de novo the administrator’s decision to deny
benefits.” Id. As an example of “this kind of egregious act,” the court described the administrator’s actions in Blau v. Del Monte
Corp., 748 F.3d 1348 (9th Cir. 1984). There, the administrator
kept the policy details secret from the employees, offered the employees no claims procedure, and did not provide the employees in writing the relevant plan information: “in other words, the administrator ‘failed to comply with virtually every applicable mandate of ERISA.’” Abatie, 458 F.3d at 971 (quoting Blau, 748 F.2d at 1353). Plaintiff argues that, here, there were flagrant procedural violations and, therefore, the Court should review de novo Defendant Hartford’s decision to terminate her long-term disability benefits. Contrary to Plaintiff's argument, Defendant Hartford's
actions are not comparable to those in Blau. Plaintiff's allegation that Defendant Hartford had its investigators alter a video is troubling, and there is evidence to support that allegation. The belated finding of the misplaced 2001 video is also troubling. Nonetheless, reviewing the record, the Court does not find flagrant violations of ERISA procedure. The procedural irregularities here were not "so substantial as to alter the standard of review." 458 F.3d at 971. Thus, under Abatie , an abuse of discretion remains the proper standard of review.
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*10 An abuse of discretion standard permits "a court to tailor its review to all the circumstances before it," including taking into account any conflict of interest. Id. at 968. Previously, in Atwood v. Newmont Gold Co. Inc., 45 F.3d 1317, 1323 (9th Cir.
1995), the Ninth Circuit held that, in particular situations, when an administrator had a conflict of interest, de novo review could be appropriate. In Abatie, however, the Ninth Circuit held that its decision in Atwood conflicted with Supreme Court precedent.
Therefore, the court held that "abuse of discretion review, tempered by skepticism commensurate with the plan administrator's conflict of interest," rather than de novo review, applies in situations where "a plan administrator denies benefits and (1) the wording of the plan confers discretion on the plan administrator and (2) the plan administrator has a conflict of interest." 458 F.3d at 959. To determine the level of skepticism to apply, the court must consider "all the facts and circumstances." Id. at 968. The Court in Abatie explains:
The level of skepticism with which a court views a conflicted administrator's decision may be low if a structural conflict of interest is unaccompanied, for example, by any evidence of
malice, of self-dealing, or of a parsimonious claims-granting history. A court may weigh a conflict more heavily if, for example, the administrator provides inconsistent reasons for denial, fails adequately to investigate a claim or ask the plaintiff for necessary evidence, fails to credit a claimant's reliable evidence, or has repeatedly denied benefits to deserving participants by interpreting plan terms incorrectly or by making decisions against the weight of evidence in the record.
Id. at 968-69. *11 Just as there is no dispute that the Plan here confers discretion, there is no dispute that Defendant Hartford has a structural conflict: it is both the plan administrator and the funding source. Defendant Hartford contends that this is the only evidence of conflict and, therefore, the level of skepticism with which the Court reviews Hartford's benefits decision should be low. This contention is without merit. As Plaintiff notes, the physician reports upon which Defendant Hartford relied mis- characterized the evidence and ignored any evidence by Plaintiff supporting her disability. For example, one report states that Plaintiff was gardening for several hours; indeed, Defendant Hartford makes the same statement in its opposition. That statement, however, is not supported by the evidence which shows less than two hours of scattered activity over a ten-hour surveillance period. Nor was it noted that the investigator from HUB stated that Plaintiff appeared to show discomfort in her hands, shaking them from time to time. Further, Defendant Hartford does not address the potential conflict arising from its "volume discount type arrangement" with UDC and the fact that it is the only insurer with which UDC has a contract. Defendant Hartford does not deny that it prevented Plaintiff from responding to any medical records generated after she submitted her request for review; it denied her request for review a month after that request was submitted, closing Plaintiff's file that day. As noted above, Defendant Hartford then refused to consider Plaintiff's doctor's responses to the medical reviews Defendant Hartford procured after the request for review. *12 Therefore, the Court shall apply an abuse of discretion review with a moderate degree of skepticism.
CONCLUSION Plaintiff's Motion (Docket No. 33) is GRANTED IN PART and DENIED IN PART and the hearing noticed for August 23, 2007 is VACATED. De novo review is not appropriate. The Court, however, finds that there is a structural conflict of interest that is accompanied by evidence of self-dealing. Therefore, the appropriate review is abuse of discretion with a moderate degree of skepticism, "commensurate with the plan administrator's conflict of interest." Abatie, 458 F.3d at 959. IT IS SO ORDERED. Dated: 8/20/07 CLAUDIA WILKEN United States District Judge
