Yvеtte WILLIBY, Plaintiff-Appellee, v. AETNA LIFE INSURANCE CO., Defendant-Appellant.
No. 15-56394
United States Court of Appeals, Ninth Circuit.
Argued and Submitted April 5, 2017, Pasadena, California. Filed August 15, 2017
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Christian J. Garris (argued), Los Angeles, California, for Plaintiff-Appellee.
Before: MILAN D. SMITH, JR. and N. RANDY SMITH, Circuit Judges, and GARY FEINERMAN, District Judge.*
OPINION
FEINERMAN, District Judge:
Plaintiff-Appellee Yvette Williby worked for The Boeing Company, which provided her with short-term disability payments through a plan that it self-funded. Defendant-Appellant Aetna Life Insurance Company administered the plan. After Aetna determined that Williby was not disablеd and terminated her benefits, Williby brought suit under the
BACKGROUND
Boeing‘s short-term disability (STD) benefit plan for its employees pays them between sixty and eighty percent of their salary if, because of a disability, they cannot perform their usual job responsibilities or other similar work at Boeing. The STD plan is self-funded, meaning that Boeing does not purchase an insurance policy to cover its plan obligations; rather, Boeing pays benefits from its own coffers, and retains Aetna to administer the plan. See FMC Corp. v. Holliday, 498 U.S. 52, 54, 111 S.Ct. 403, 112 L.Ed.2d 356 (1990) (describing self-funded ERISA plans). There is a 26-week limit on STD benefits, after which the employee must apply for long-term disability (LTD) benefits.
The STD plan expressly provides Aetna with “full discretionary authority to determine аll questions that may arise,” including whether and to what extent a plan participant is entitled to benefits. This provision is known as a “discretionary clause.” See Standard Ins. Co. v. Morrison, 584 F.3d 837, 840-41 (9th Cir. 2009) (describing discretionary clauses). The presence of a discretionary clause typically means that a court reviewing an adverse benefits determination will do so only for abuse of discretion. See Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989); Abatie v. Alta Health & Life Ins. Co., 458 F.3d 955, 963 (9th Cir. 2006) (en banc).
Williby worked for Boeing as a Supply Chain Specialist, a position that required her to problem-solve, interact with customers and vendors, conduct research, and assess technical issues. In September 2011, she was briefly hospitalized after suffering either a stroke or a stroke-like episode. In November 2012, Williby found herself experiencing chronic headaches and other problems that caused her difficulty at work. In December 2012, she saw a neurologist, Dr. David Edelman, who performed
Aetna approved Williby for STD benefits from December 20, 2012 thrоugh February 28, 2013 based on Dr. Edelman‘s testing and conclusions. However, Aetna denied Williby STD benefits for the period from February 28, 2013 through June 2013. Dr. Vaughn Cohan, the Aetna-retained neurologist responsible for the denial, reviewed the file, spoke with Dr. Edelman by telephone, and concluded that Williby could still work because, despite her executive function impairments, her cognitive function was normal overall, the MRI showed no “acute” abnormalities, and she had not undergone formal neuropsychological testing to follow up on Dr. Edelman‘s initial tests.
At several points between April and November 2013, Dr. Edelman reaffirmed his conclusion that Williby was unable to work. Also, between June 2013 and December 2013, Williby saw a second neurologist, a neuropsychologist, a psychologist, and a psychiatrist, all of whom agreed that she exhibited cognitive impairment and the majority of whom specifically determined that it disabled her from working.
After Aetna terminated Williby‘s STD benefits, she appealed the decision within Aetna, armed with the additional doctors’ reports. Aetna hired an оccupational medicine specialist and a neuropsychologist to review the case. Both reviewers concluded that there was insufficient objective documentation of Williby‘s disability, with the occupational medicine specialist explaining that any impairment was “self-reported” and “primarily based on mood disorder/behavioral issues,” and the neuropsychologist concluding that “the provided information did not include sufficient findings to corroborate” Williby‘s claimed cognitive impairments or their interference with her work. Aetna upheld its decision to deny benefits in February 2014, determining that “there was insufficient medical evidence to support continued disability” after February 28, 2013.
Williby then sued Aetna in the Central District of California for “breach of plan and recovery of plan benefits” under ERISA, invoking ERISA‘s jurisdictional provision,
The district court reviewed de novo Aetna‘s denial of benefits, notwithstanding the STD plan‘s discretionary clause. The court did so based on its view that
The district court then held that Williby was disabled from at least February 28,
In a footnote, the court added that its ultimate conclusion would remain the same “[e]ven under an abuse of discretion standard” and even “viewing Aetna‘s decision with no degree of skepticism since Aetna did not have... a direct financial incentive to deny benefits since benefits are funded by Boeing.” The court explained briefly that Aetna‘s benefits denial failed to clear even the low abuse of discretion bar for two reasons: (1) every doctor who treated Williby thought she was disabled or demonstrated considerable cognitive impairment; and (2) although Aetna relied on a “lack of objective clinical support” in terminating her STD benefits, it never had its physicians examine Williby or asked her to undergo any particular testing.
Aetna timely appealed.
DISCUSSION
This appeal requires us to determine whether the district court selected and applied the proper standard of review in this case. We find that it did not.
I. The Abuse of Discretion Standard Governs Judicial Review of Aetna‘s Denial of STD Benefits
“We review de novo a district court‘s choice and application of the standard of review to decisions by fiduciaries in ERISA cases. We review for clear error the underlying findings of fact.” Estate of Barton v. ADT Sec. Servs. Pension Plan, 820 F.3d 1060, 1065 (9th Cir. 2016) (quoting Abatie, 458 F.3d at 962).
Because it contains a discretionary clause, the STD plan by its terms calls for abuse of discretion review. The district court reviewed the benefits denial de novo, however, because it concluded that
A. Section 10110.6 Applies to Boeing‘s Plan
(a) If a policy, contract, certificate, or agreement offered, issued, delivered, or renewed... that provides or funds life insurance or disability insurance coverage for any California resident contains a provision that reserves discretionary authority to the insurer, or an agent of the insurer, to determine eligibility for benefits or coverage... that provision is void and unenforceable.
Aetna argues that
The question then becomes whether Boeing provided “insurance” through its STD plan. ”
Aetna retorts that Boeing‘s STD plan can constitute “insurance” under California
In sum, Aetna provides no sound reason to depart from the text of
B. ERISA Preempts Application of § 10110.6 to Boeing‘s Self-Funded STD Plan
The next question is whether ERISA preempts
The saving clause creates a carve-out from the preemption clause, sparing from ERISA preemption—“[e]xcept as provided in” the deemer clause, of which more in a moment—“any law of any State which regulates insurance, banking, or securities.”
Finally, the deemer clause qualifies the scope of the saving clause, reviving preemptiоn for certain laws that the saving clause might otherwise carve out from the preemption clause. The deemer clause states that no “employee benefit plan [covered by ERISA]... shall be deemed to be an insurance company or other insurer... for purposes of any law of any State purporting to regulate insurance companies [or] insurance contracts.”
In Orzechowski, this court held, for purposes of the LTD plan at issue there, that although
Unlike Boeing‘s STD plan, the disability plans at issue in Orzechowski and Morrison were not self-funded; rather, they were funded by insurance policies. See Orzechowski, 856 F.3d at 689; Morrison, 584 F.3d at 840 (noting that the state regulatory practice under review applied only to “insurance contract[s]“). This matters because the Supreme Court in FMC Corp. held that the deemer clause‘s scope turns on the presence or absence of traditional insurance. If the state law is applied to a traditional insurance policy, then the state law falls outside the deemer clause and thus within the saving clause—even if the insurance policy backstops an ERISA plan. On the other hand, if the state law is applied to an ERISA plan itself, which is how such laws operate on self-funded plans, the law falls within the deemer clause and thus is preempted, even if it is a bona fide insurance regulation that only incidentally affects ERISA concerns. See FMC Corp., 498 U.S. at 64. The result is a simple, bright-line rule: “if a plan is insured, a State may regulate it indirectly through regulation of its insurer and its insurer‘s insurance contracts; if the plan is uninsured, the State may not regulate it.” Id. The Court thus concluded: “We read the deemer clause to exempt self-funded ERISA plans from state laws that ‘regulat[e] insurance’ within the meaning of the saving clause.” Id. at 61; see Scharff v. Raytheon Co. Short Term Disability Plan, 581 F.3d 899, 907 (9th Cir. 2009) (“[U]nder ERISA‘s ‘deemer clause,’ state insurance regulation of self-funded plans is preempted by ERISA.“). Thus, for a self-funded disability plan like Boeing‘s, the saving clause does not apply, and state insurance regulations operating on such a self-funded plan are preempted.
This point is so clear that Williby does not dispute that ERISA preempts
That argument is untenable at this late juncture. Here, not only did Williby press exclusively ERISA-based claims in the district court, she staked federal jurisdiction on the foundational premise that ERISA governs her suit. Williby has thus forfeited any claim that the STD plan was an ERISA-exempt “payroll practice.” See Armstrong v. Brown, 768 F.3d 975, 981 (9th Cir. 2014)
ERISA therefore applies to Boeing‘s self-funded STD plan and preempts
II. Remand Is Necessary To Permit the District Court to Properly Apply the Abuse of Discretion Standard
The question remains whether there is any need to remand. Williby argues that the district court has already applied the abuse of discretion standard and that the panel should simply affirm on that ground. Aetna counters that the district court paid only lip service to the abuse of discretion standard and applied it improperly, and so should be asked to revisit the issue on remand. Whether an ERISA plan administrator abused its discretion is a legal determination that we review de novo. See Nolan v. Heald Coll., 551 F.3d 1148, 1153 (9th Cir. 2009).
The parties’ briefing of this issue focuses on whether the district court applied what is known as the “treаting physician rule.” The treating physician rule was a rule of thumb, formerly applied in this circuit, under which a court reviewing a benefits denial would “give[] especially great weight to the opinion of a claimant‘s treating physician.” Jordan v. Northrop Grumman Corp. Welfare Benefit Plan, 370 F.3d 869, 878 (9th Cir. 2004), overruled on other grounds as recognized by Salomaa v. Honda Long Term Disability Plan, 642 F.3d 666, 673-74 (9th Cir. 2011). The rule required ERISA plan administrators to “either accept the opinion of a claimant‘s treating physician, or, if the administrator rejects that opinion, come forward with specific reasons for that decision, based on substantial evidence in the record.” Id. (internal quotation marks оmitted). The Supreme Court rejected the treating physician rule in Black & Decker Disability Plan v. Nord, 538 U.S. 822, 123 S.Ct. 1965, 155 L.Ed.2d 1034 (2003), holding that “courts have no warrant to require administrators automatically to accord special weight to the opinions of a claimant‘s physician; nor may courts impose on plan administrators a discrete burden of explanation when they credit reliable evidence that conflicts with a treating physician‘s evaluation.” Id. at 834. The parties disagree whether the district court ran afoul of that holding.
The district court offered this explanatiоn for its conclusion that Aetna abused its discretion in terminating Williby‘s STD benefits:
Aetna‘s decision was illogical, implausible, or without support in inferences that could reasonably be drawn from facts in the record because (1) all of the doctors who personally treated Plaintiff concluded that she was disabled or demonstrating considerable cognitive impairment; and (2) Aetna‘s reviewing doctors cited to lack of objective clinical support, but there is no evidence that Aetna requested for Plaintiff to be examined by its physicians or undergo the specific testing it needed to support an objective, clinical finding of functional impairment. See, e.g., Salomaa v. Honda Long Term Disability Plan, 642 F.3d [666,] 666-76 (9th Cir. 2011).
This does sound perilously close to the treating physician rule. But we need not decide whether the district court actually applied that rule because, regardless, the court did not identify or implement the correct standard.
The district court said it was “viewing Aetna‘s decision with no degree of skepticism since Aetna did not have a conflict of interest.” That statement prоperly recognized that when a plan administrator is also the payor of the employee‘s benefits and thus has a direct financial incentive to deny claims, the resulting “conflict of interest” becomes a significant contextual factor in the abuse of discretion analysis. See Metro. Life Ins. Co. v. Glenn, 554 U.S. 105, 112, 117, 128 S.Ct. 2343, 171 L.Ed.2d 299 (2008); Harlick v. Blue Shield of Cal., 686 F.3d 699, 707 (9th Cir. 2012) (“[O]ur review is tempered by skepticism when the plan administrator has a conflict of interest in deciding whether to grant or deny benefits.“) (internal quotation marks omitted). We explained the significance of an administrator‘s conflict of interеst for abuse of discretion review in Montour v. Hartford Life & Accident Insurance Co., 588 F.3d 623 (9th Cir. 2009):
In the absence of a conflict, judicial review of a plan administrator‘s benefits determination involves a straightforward application of the abuse of discretion standard. In these circumstances, the plan administrator‘s decision can be upheld if it is grounded on any reasonable basis. In other words, where there is no risk of bias on the part of the administrator, the existence of a single persuasive medical opinion supporting the administrator‘s decision can be suffiсient to affirm, so long as the administrator does not construe the language of the plan unreasonably or render its decision without explanation.
Id. at 629-30 (internal quotation marks and citation omitted). But when the administrator and payor are one and the same,
[s]imply construing the terms of the underlying plan and scanning the record for medical evidence supporting the plan administrator‘s decision is not enough, because a reviewing court must take into account the administrator‘s conflict of interest as a factоr in the analysis.
More particularly, the court must consider numerous case-specific factors, including the administrator‘s conflict of interest, and reach a decision as to whether discretion has been abused by weighing and balancing those factors together. Under this rubric, the extent to which a conflict of interest appears to have motivated an administrator‘s decision is one among potentially many relevant factors that must be considered. Id. at 630 (internal citations omitted). Aetna has no such conflict of interest here, as Boeing funded the STD plan. Yet the district court supported its abuse of discretion holding with a lone citation to Salomaa v. Honda Long Term Disability Plan, 642 F.3d 666 (9th Cir. 2011), a case where the administrator did have a conflict of interest. Id. at 674.
Faced with only the district court‘s recital of the abuse of discretion standard and a single citation to an inapposite case, we cannot be confident that the district court applied the abuse of discretion standard correctly. We therefore remand to allow the district court to review the benefits denial anew under the correct standard. In remanding, we express no opinion as to what the outcome should be. See Arizona v. City of Tucson, 761 F.3d 1005, 1015 (9th Cir. 2014).
CONCLUSION
For the foregoing reasons, the district court‘s judgment is VACATED and the matter is REMANDED for further consideration consistent with this opinion.