In 2002, Plaintiff Russell D. Conger filled out an on-line application and purchased a long-term care insurance policy-under the Federal Long-Term Care Insurance Program (“FLTCIP”). When he sought to collect benefits, Metropolitan Life Insurance Company (“MetLife”) refused to pay, voided the policy, and then sued for rescission and declaratory relief. Because we conclude that MetLife abused its discretion by voiding the policy and that Conger had no independent duty to disclose information that MetLife neglected to request, we REVERSE the district court’s judgment and REMAND the case with instructions to dismiss MetLife’s complaint.
I. BACKGROUND
A. Statutory Background
In 2000, Congress passed the Long-Term Care Security Act (“LTCSA” or “the Act”), 5 U.S.C. §§ 9001-09, to ensure that long-term care insurance would be available to federal employees. “Long term care is chronic care that an individual may need for the rest of his or her entire life.”
Gunson v. James,
The Act gave the Office of Personnel Management (“OPM”) the responsibility to enter into group contracts (known as “master contracts”) with qualified insurance carriers, and thereby establish and administer a program through which federal employees could obtain long-term care insurance. 5 U.S.C. §§ 9002(a), 9003(a). The result was the FLTCIP.
Gunson,
Under the FLTCIP, the federal government does not pay for insurance, nor does it guarantee the availability of long-term care insurance to its employees. Id. at 458. Instead, the LTCSA merely “establishes minimal underwriting standards for master contracts, and delegates the establishment of further underwriting requirements to the qualified carriers and OPM.” Id. (citing 5 U.S.C. § 9002(e)). Ultimately, the carrier determines which employees are eligible for insurance under the program and makes this determination based on the guidelines negotiated with OPM. Id.
A. Factual Background
1. Conger’s Long-Term Care Insurance Application and Claim
On July 11, 2002, Conger, who was a 54-year-old employee of the National Weather Service at the time, applied for insurance under the FLTCIP by completing an online application. The application contained a series of questions necessary for a five-year coverage period, and a separate set of questions required of applicants seeking an unlimited coverage period. Question 5 in the latter group asked, “Within the last 10 years, have you had, been diagnosed with or been treated for any of the following conditions?” The conditions listed included:
• Diabetes (excluding gestational diabetes);
• Disorder of the Brain (e.g. tremor, seizure disorder, head injury, tumor, infection), Neuropathy, Syncope, Paralysis, any Chronic or Progressive Neurological Disorder;
• Memory Loss; and
• Muscle Disorder (e.g., fibromyalgia, polymyalgia rheumatica, chronic fatigue syndrome).
Conger responded “NO” to each of the conditions listed under Question 5. Joint Appendix (“J.A.”) at 67.
On July 20, 2002, Long Term Care Partners (“LTCP”) sent Conger a letter approving his application, and indicating that the policy would be effective October 1, 2002. LTCP is a joint venture formed by John Hancock Life Insurance Company and MetLife for the sole purpose of providing and administering long-term care insurance under the FLTCIP.
Gunson,
With the letter, LTCP enclosed a schedule of benefits and a benefit booklet. The benefit booklet’s first page of text states:
NOTICES: PLEASE READ CAREFULLY!
Important: Our decision to issue coverage was based upon your responses to the questions. on your application.... We may deny benefits or rescind your insurance coverage if your answers are incorrect or untrue for any reason.
J.A. at 73, 187. A later provision of the benefit booklet states that the insurer “ha[s] discretion to interpret the terms, conditions and provisions of the Group Policy, this Benefit Booklet and your Schedule of Benefits.” J.A. at 92, 218.
In April 2003, Conger retired from the National Weather Service after over thirty years of service. On August 29, 2003, he submitted a claim to LTCP for long-term care benefits stemming from difficulties with mobility and balance.
2. LTCP’s Investigation of Conger’s Past Medical History
LTCP initiated an investigation of Conger’s prior medical history. It discovered that Conger had experienced difficulties with his balance for at least five years and had sought medical attention for this problem. More specifically, LTCP learned that on September 4,1998, Conger sent a letter to Dr. Prospero Ishkanian stating,
I still have the balance problem and have to hold on to anything I can grab to move about. If I don’t hold onto something I feel like I will lose my balance completely.
I have- noticed that for the past 6 months to 1 year that my walking becomes more difficult after 6 hours on shift and gets progressively worse and by the time I work my entire shift my walking becomes very bad and seems to be related to poor balance.
J.A. at 134.
" These difficulties led Conger to seek medical help from a number of different doctors over the following four years. For instance, Conger made several visits to Dr. John R. Morris (an ear, nose, and throat specialist) in late 1998 and early 1999, apparently to determine whether sinus problems caused his unsteadiness. In December 1998, a doctor’s note after an MRI reported that Conger was suffering from “[ejxtensive sinusitis,” but also noted that Conger’s “[bjrain demonstrate^] no significant abnormality, essentially normal for patient’s age. Specifically, I see no cerebellar abnormality.” J.A. at 138.
Shortly thereafter, Conger began seeing a group of neurologists, including Drs. Robert S. Tillett and Walter G. McFar
Conger continued visiting Tillett. In his notes after a follow-up visit in April 2000, Tillett indicated that Conger had “a gradually progressive ataxia” and that his “symptoms [we]re gradually getting worse.” J.A. at 144. However, Tillett also labeled Conger’s condition “very puzzling,” noted that Conger’s two brain MRIs were “normal,” and refrained from any diagnosis. Id. He stated his impression that “Mr. Conger has a syndrome with spastic paraparesis with possibly some mild sensory changes ... and maybe some mild cognitive impairment.... He does not have any obvious underlying systemic illness.” Id. Similarly,, after seeing Conger in November 2002, Tillett’s impression was that “Mr. Conger has a central process involving sensory pathways, corticospinal tract pathways — basically diffuse bilateral dysfunction. He is not ataxic in the cerebellar sense. His imbalance is more of a nonspecific coordination dysfunction that I think reflects his position loss as well as mild corticospinal tract dysfunction.” Id. at 152. Tillett ordered a third MRI, which again revealed no abnormalities.
3. LTCP’s Rejection of Conger’s Claim
On September 25, 2003, LTCP sent Conger a letter rescinding his policy for unlimited benefits, but leaving in force his policy for a five-year benefit period. The letter stated that Conger’s medical records revealed “a medical history of Diabetes Mel-litus type 2, ... progressive ataxia, cognitive impairment and a syndrome with spastic paraparesis.” J.A. at 179. LTCP concluded that Conger incorrectly had answered Question 5 on his application for insurance by stating that he did not have diabetes, a brain disorder, memory loss, or a muscle disorder.
On September 29, 2003, Conger requested a review of LTCP’s denial of unlimited benefits, emphasizing that his three MRIs were normal and that his doctors indicated that ataxia was only a symptom, not a diagnosis. In response, LTCP undertook an internal review. On November 5, 2003, Mary Lou Asbell of LTCP faxed a request for review to Dr. Carolyn Jackson, a physician working for MetLife. Two days later, Jackson sent a letter stating that she had reviewed the records and in her opinion, “the medical records, dating from 9/4/98 through 3/18/03, clearly document a progressive neurological disorder.” J.A. at 181. Jackson further noted that “[s]ymp-toms consistent with of [sic] a progressive neurological disorder that have resulted in significant neurological deficits and/or impairment are a reason for declining an application for insurance] whether or not an actual diagnosis is given.” J.A. at 182. Jackson’s letter did not discuss whether the medical records revealed a history of diabetes, memory loss, or muscle disorder, nor did it address the multiple MRIs that revealed no abnormalities.
The same day it received Jackson’s letter, LTCP sent a letter to Conger confirming its decision to rescind his unlimited long-term care coverage, basing its decision solely on Conger’s symptoms consis
C. Procedural Background
On September 29, 2004, MetLife filed a complaint in the U.S. District Court for the Western District of Kentucky seeking (1) rescission and (2) a declaratory judgment that either the contract for unlimited benefits was void ab initio or that MetLife was entitled to rescind the contract. • Met-Life filed an Amended Complaint seeking the same relief on November 1, 2004. Substantively, MetLife’s Amended Complaint pleads two claims. The first claim, for rescission, is based solely on Conger’s response to Question 5. The second claim, for declaratory relief, is based on “the defendant’s concealment and/or failure to disclose material facts regarding his medical condition.” J.A. at 23-24 (First Am. Compl. at 7-8).
On April 29, 2005, MetLife moved for judgment on the administrative record, and the district court granted MetLife’s motion on October 12, 2005.
Metro. Life Ins. Co. v. Conger,
II. JURISDICTION AND STANDARD OF REVIEW
The district court had jurisdiction under a provision of the LTCSA granting federal courts jurisdiction over disputes arising under the FLTCIP. 5 U.S.C. § 9007. We have jurisdiction over Conger’s appeal of the district court’s final judgment under 28 U.S.C. § 1291.
The appropriate standard of review to apply to a district court’s judgment on the administrative record in an LTCSA eligibility dispute is a question of first impression. In the related arena of ERISA benefit disputes, we review de novo a district court’s judgment on the administrative record.
Evans v. Unum-Provident Corp.,
III. ANALYSIS
First, we must determine whether Conger’s response to Question 5 justified MetLife’s decision to rescind Conger’s
A. Rescission Claim — The Effect of Conger’s Response to Question 5
As noted above, Conger’s response to Question 5 is the sole basis for MetLife’s rescission claim. MetLife argues that Conger’s medical history supports its conclusion that he had a progressive neurological disorder when he applied for insurance in July 2002. On this basis, it contends that Conger’s answer to Question 5 was inaccurate, and that it was justified in rescinding Conger’s policy for an unlimited coverage period. The parties dispute the standard of review that we should apply in evaluating MetLife’s conclusion. MetLife claims that the policy vests it with discretion “to make determinations as to whether Conger’s application was inconsistent with his medical records and whether rescission of his coverage was appropriate.” MetLife Br. at 22. Accordingly, it maintains that we should review for abuse of discretion its conclusions regarding Conger’s condition when he filled out his application, as the district court did. Conger avers that we should review MetLife’s conclusions de novo. Because the policy proclaims that MetLife has discretion regarding only “the terms, conditions and provisions” of the policy documents, J.A. at 92, 218, and not discretion to interpret insureds’ medical records, we express some doubt that MetLife’s discretion stretches as far as MetLife now urges.
See Perez v. Aetna Life Ins. Co.,
In the similar context of ERISA cases, we have held that applying the abuse-of-discretion standard of review requires us to determine whether the insurer’s decision was arbitrary or capricious.
Gismondi v. United Techs. Corp.,
MetLife has not clarified which prong of Question 5 — “had,” “had been diagnosed with,” or “had been treated for” — it believes Conger answered inaccurately. The record is clear, however, that Conger was never diagnosed with a progressive neurological disorder, and MetLife provides no indication that he received any treatment for such a condition. Accordingly, no “deliberate, principled reasoning process,”
Glenn,
Whether Conger had a progressive neurological disorder in July 2002 is a thornier issue. Conger had visited multiple doctors, none of whom diagnosed him with any such disorder. Nonetheless, MetLife concluded that Conger had a progressive neurological disorder in July 2002. To support such a conclusion, we would expect the administrative record to document clearly a progressive neurological disorder that was undiagnosed due to the doctors’ negligence or nonfeasance. However, our examination of the record makes clear that MetLife’s determination that Conger had a progressive neurological disorder was not the result of a deliberate, principled reasoning process.
MetLife reached its conclusion only by ignoring substantial contrary evidence in Conger’s medical records. For instance, MetLife did not address the doctor’s December 20, 1998 conclusion that Conger’s “[b]rain demonstrate^] no significant abnormality, [and was] essentially normal for patient’s age,” or the doctor’s statement that he saw “no cerebellar abnormality.” J.A. at 138. Similarly, MetLife ignored Conger’s multiple brain MRIs that revealed no problems. MetLife’s communications to Conger (through LTCP) do not acknowledge these MRIs or even attempt to explain why they do not negate its conclusion regarding Conger’s condition. The same is true of the internal communications between LTCP and MetLife’s claim-review physician. Met-Life also ignored multiple neurologists’ failure to diagnose Conger with a progressive neurological disorder or even to note an impression in their charts that he had such a disorder. Further, MetLife ignored Dr. Tillett’s impression that Conger’s ataxia was not “cerebellar,” which indicates that Conger’s symptoms were not caused by a neurological disorder.
Our previous decisions make clear that an administrator abuses its discretion when it refuses to consider additional evidence presented in an insured’s appeal of a coverage denial,
Killian v. Healthsource Provident Adm’rs, Inc.,
Although the foregoing, by itself, reveals that MetLife’s rescission was arbitrary and capricious, we note that Met-Life’s conflict of interest further supports this conclusion. In the related context of ERISA cases, we have noted that “courts must be aware of a possible conflict of interest and consider it as a factor in determining whether the decision to deny benefits was arbitrary and capricious.”
Gismondi,
Here, such a conflict exists. LTCP, the administrator, is a joint venture between MetLife and another insurance company and was formed for the sole purpose of administering policies under the FLTCIP. Although the record regarding the ultimate corporate separateness of MetLife and LTCP is not well-developed, the record reveals that LTCP sought review .of its dispute with Conger from a MetLife physician. Thus, an employee of the party paying the benefits also made the final decision regarding whether to pay the claim, and in such a situation, “we must view the explanation with some skepticism.”
Moon,
B. Declaratory Relief Claim — Material Misrepresentation
The district court took the unusual step of moving beyond arguments made in support of MetLife’s motion for judgment on the administrative record and raising
sua sponte
the issue of whether Conger misrepresented a material fact by
failing to volunteer
information regarding his medical history. This issue coincides with MetLife’s claim for a declaratory judgment, which was premised solely upon Conger’s alleged “concealment and/or failure to disclose material facts regarding his medical condition,” J.A. at 23-24, although the district court did not clearly indicate that it was addressing this claim. Ultimately, the district court concluded that Conger’s failure to disclose “his symptoms and overall health condition” was a material misrepresentation justifying MetLife’s decision to rescind.
Conger,
In reviewing this decision, we apply the federal common law. The LTC SA contains a broad preemption clause. 5 U.S.C. § 9005(a). In the related arena of insurance plans governed by ERISA, which also broadly preempts state law, we have held that the federal common law determines the effect of a misrepresentation or omission in the insured’s application for insurance.
Davies v. Centennial Life Ins. Co.,
The fatal flaw in the district court’s reasoning is its failure to address whether Conger was under any duty to disclose his medical history. This issue is crucial, as we have already determined that MetLife has not shown that Conger answered incorrectly any of the questions MetLife asked, and the record does not indicate that MetLife required any information beyond these questions. It is black-letter law that “[a] party applying for insurance ... generally has no duty where the application makes no specific inquiries.” 6 COUCH ON INS. § 84:2 (3d ed.2006). Even a case cited by MetLife explicitly recognizes that “an applicant is under no duty to volunteer information where no question plainly and directly requires it to be furnished.”
Aetna Cas. & Sur. Co. v. Retail Local 906 of AFL-CIO Welfare Fund,
IV. CONCLUSION
For the reasons explained above, we hold that (1) MetLife abused its discretion
Notes
. Although neither party mentions it, the policy provides for additional steps in the extrajudicial-dispute-resolution procedure. Under the "Appeals” section of the benefit booklet, disputes over coverage decisions must progress through an appeals committee and an independent third party. MetLife does not provide any explanation for not following this procedure or for telling Conger that the denial of benefits and rescission could not be further reviewed when the policy apparently provided to the contrary.
. The various cases in which we have concluded that a policy grants an insurer or administrator discretion featured policies containing much more far-reaching discretion clauses. For instance, in
Evans,
the policy stated that the insurer had "discretionary authority to determine
your eligibility for benefits
and to interpret the terms and provisions of the policy.”
. The LTCP letter to Dr. Jackson raises further suspicions that MetLife’s decision may have been motivated by its conflict of interest rather than a deliberate, principled reasoning process. In the letter, Mary Lou Asbell of LTCP states, “We have a medical history since at least 1998 of progressive neurological disorder, the cause of which was never actually diagnosed by the multiple doctors Mr. Conger went to.” J.A. at 293 (emphasis added). After copying Question 5 and Conger's answer, Asbell concludes, "Legal is requesting a medical opinion as to if the medical record supports a 'Yes' answer to question 5 above.” Id. Because the letter is. phrased to suggest strongly the conclusion that LTCP wished to receive, we have further reason to believe that the decision was motivated by the conflict of interest.
. Were we to analyze this as a question of materiality, we would reach the same conclusion. As the Supreme Court noted long ago, information not requested by an insurer is presumptively not material to its coverage decision.
Stipcich v. Metro. Life Ins. Co.,
More concretely, an applicant for long-term care insurance who suffered a stroke within two years of the policy's issuance likely would not be covered under the district court's theo