United States District Court, N.D. New York
March 24, 2004.
JOHN M. SHUTTS, Plaintiff,
FIRST UNUM LIFE INSURANCE COMPANY OF AMERICA and UNUMPROVIDENT CORPORATION, Defendants
The opinion of the court was delivered by: FREDERICK SCULLIN, Chief Judge, District
MEMORANDUM-DECISION AND ORDER
Plaintiff John M. Shutts commenced this declaratory judgment action on
October 30, 2001, seeking a declaration from this Court, pursuant to
28 U.S.C. § 2201-2202, that he is entitled to long-term disability
benefits pursuant to the provisions of the policy that Defendants
First UNUM Life Insurance Company of America and Unumprovident
Corporation (hereinafter collectively referred to as "Defendant" or
"First UNUM") issued to him. Presently before the Court are Defendant's
motion for judgment on the administrative record and Plaintiff's
cross-motion for judgment on the administrative record.*fn1
During 1999, Plaintiff was employed as President of the John I. Shutts
Agency, Inc. Defendant issued long-term disability and group health
insurance policies to Plaintiff's employer, the John I. Shutts Agency,
Inc. The policies are governed by the Employee Retirement Income Security
Act of 1974, 29 U.S.C. § 1001, et seq. ("ERISA").*fn2 The
policy's effective date was October 1, 1998.
Plaintiff suffers from organic brain syndrome.*fn3 On July 19, 2000,
he applied for long-term
disability benefits, listing April 1, 1999, as his date of disability.
Defendant, relying upon several pieces of written correspondence and
telephone interviews, denied Plaintiff's claim for long-term disability
benefits on the ground that Plaintiff was not in active employment prior
to the effective date of his policy and, as a result, Plaintiff's waiting
period was never satisfied.*fn4
Plaintiff then appealed Defendant's decision on December 5, 2000.
Defendant affirmed its prior determination and upheld its denial. At that
time, Defendant also alleged that Plaintiff failed to provide timely
notice of his alleged disability as the policy required.*fn5
After exhausting his administrative remedies, Plaintiff commenced the
instant action, seeking a declaration from this Court that he is entitled
to long-term disability coverage. Plaintiff bases his claim on various
grounds which the Court will address seriatim.
A. Initial Matters
As a preliminary matter, Plaintiff asserts that Defendant waived any
right it may have to dispute the timeliness of Plaintiff's notice of
claim by failing to assert late notice as a ground for denying coverage.
Plaintiff cites Lauder v. First Unum Life Ins. Co.,
284 F.3d 375, 381 (2d Cir. 2002), to support his argument and specifically
asserts that the policy does not require notice within a thirty- or
ninety-day notice period, but, to the contrary, merely encourages
the insured to notify the insurer of a claim within those time periods.
Defendant, on the other hand, argues that Plaintiffs failure to file
proof of loss in a timely manner precludes his claim for benefits under
ERISA. Defendant asserts that under the policy, if Plaintiff was disabled
as of April 1, 1999, he was required to give notice within thirty days of
that date, i.e., May 1, 1999, or, at the latest, December 1999. Plaintiff
did not give notice, however, until July 19, 2000 approximately
seven months later.
The Second Circuit has held that the doctrine of waiver applies to an
ERISA claim. See Lauder, 284 F.3d at 381 (citations omitted).
However, there is no bright-line rule for determining whether waiver
applies in a particular case and a case-specific analysis is required.
See id. First, it is necessary to determine whether timely
notice is a required element of the policy under which the plaintiff
seeks reimbursement, since such an element cannot be waived, and
seemingly, with respect to the first consideration, "a claim of waiver
[can]not be used to expand the policy so that the insured `extend[s] its
coverage to more than it originally bargained.'" Id. (quotation
omitted). However, if waiver would not expand the coverage
bargained for, then the court must analyze the particular case
under a different waiver principle, which is as follows: "[A]n insurer is
deemed, as a matter of law, to have intended to waive a defense to
coverage where other defenses are asserted, and where the insurer
possesses sufficient knowledge (actual or constructive) of the
circumstances regarding the unasserted defense.'" Id. at 382
The policy reads:
We encourage you to notify us of your
claim as soon as possible, so that a claim
decision can be made in a timely manner. Written
notice of a claim should be sent within
30 days after the date your disability begins.
However, you must send UNUM written
proof of your claim no later than 90 days after
your eliminations period. If it is not
possible to give proof within 90 days, it must be
given as soon as is reasonably possible.
See Hall Aff. at Exh. "B" at LTD-CLM-1 (emphasis added).
The policy does not, contrary to Defendant's assertions,
require that notice be given within thirty days but states that
it should be given within that time period. Additionally, although the
policy states that notice must be given within ninety days after the
insured's elimination period, it leaves an exception open to those who
cannot do so. Moreover, failure to timely file proof of loss does not
expand the policy so as to extend its coverage to more than originally
With respect to the second consideration, the Court must look to see if
the record supports Defendant's contention. The administrative record
contains a comment from a UNUM representative, dated March 9, 2001,
stating: "[n]ext steps Uphold denial on reappeal as not actively
employed. (Note N.Y. not a strict time limit state; consequently
will not put in late
notice as uphold reason)." See Hall Aff. at Exhibit "B."
Not only did First Unum intend to uphold its denial of benefits on other
grounds and deliberately avoid using failure to timely file as a defense,
but its reason for doing so was based upon its opinion that New York was
not a "strict time limit state." Defendant's statement appears to show
that it indeed intended to waive this defense and uphold its denial on
other grounds to ensure that its decision was not overturned on a
technical ground from an apparently liberal time-limit state.
Accordingly, applying Lauder to the facts of this case, the
Court concludes that Defendant has waived its right to dispute the
timeliness of Plaintiff's filing of his notice of claim.
B. Standard of review
The court reviews an ERISA plan administrator's decision to deny
benefits "`under a de novo standard unless the benefit plan
gives the administrator or fiduciary discretionary authority to determine
eligibility for benefits.'" Henar v. First Unum Life Ins. Co.,
No. 02 Civ. 1570, 2002 WL 31098495, *3 (S.D.N.Y. Sept. 19, 2002) (quoting
Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115,
109 S.Ct. 948, 103 L.Ed.2d 80 (1989)). When the policy gives the plan
administrator discretionary authority, the court reviews its eligibility
decision under an arbitrary and capricious standard of review except when
there exists a conflict of interest with the plan administrator, in which
case the de novo standard of review applies. See Pagan v.
NYNEX Pension Plan, 52 F.3d 438, 441-42 (2d Cir. 1995) (citations
omitted); Pulvers v. First Unum Life Ins. Co., 210 F.3d 89, 92
(2d Cir. 2000) (citations omitted); Rosenthal v. First Unum Life
Co., No. 00 CIV. 3204, 2002 WL 975627, *5 (S.D.N.Y. May 9,
2002) (citation omitted).*fn6,*fn7
There is no question that Defendant had discretionary authority to
determine Plaintiff's eligibility for benefits and to construe the terms
of his policy. The policy states that, "when making a benefit
determination under the policy, UNUM has discretionary authority to
determine your eligibility for benefits and to interpret the terms and
provisions of the policy." See Hall Aff. at Exhibit "B" at CC.
FP-1. Since Defendant clearly has discretionary authority to determine
eligibility and to construe the terms of the policy, the Court must next
determine whether Defendant was operating under a conflict of interest
and, if so, whether Defendant was actually influenced by such a conflict.
Plaintiff argues that Defendant's failure to properly investigate the
claim was intentional
and that its subsequent denial of the claim, notwithstanding the
evidence of eligibility, sufficiently shows that Defendant was influenced
by a conflict of interest.
Alternatively, Plaintiff asks the Court to review his claims under a
heightened standard of review, even if it does not find that a conflict
the policy is ambiguous.*fn8 In response, Defendant argues that not only
does Plaintiff fail to identify any conflict of interest it may have but
also alleges that Plaintiff cannot establish that a conflict of interest
impacted Defendant's decision to deny him benefits.
Plaintiff provides no evidentiary support for his assertion that
Defendant's alleged conflict of interest, in fact, affected its decision
to deny him benefits. Plaintiff merely makes conclusory allegations with
regard to this issue. Such allegations are insufficient as a matter of
law to warrant de novo review. See Pulvers, 210 F.3d at
92. Moreover, Plaintiff's proposal to apply a heightened degree of
scrutiny is also without merit. For example, Plaintiff cites Shelden
v. Barre Belt Granite Employer Union Pension Fund, 25 F.3d 74 (2d
Cir. 1994), for the proposition that a heightened degree of scrutiny is
applicable when a defendant is a fiduciary and disregards policy rules.
However, Shelden states that the arbitrary and capricious
standard may be satisfied when a defendant has fiduciary status and
ignores policy requirements. See id. at 80. Thus, Plaintiff's
cases support the application of an arbitrary and capricious standard of
review and not, as Plaintiff claims, a heightened degree of scrutiny. The
Court, therefore, reviews Plaintiff's claims under an arbitrary and
capricious standard of review.
In the present case, Plaintiff claims that Defendant acted arbitrarily
and capriciously by failing to properly investigate and conduct a full
and fair review of his claims and by misinterpreting and misapplying
policy provisions. Additionally, he alleges that the policy provisions
upon which Defendant relied are ambiguous.*fn9
C. The policy provisions upon which Defendant relied are not
Plaintiff asserts that the policy's "active employment" provision is
ambiguous. Specifically, he argues that the phrase "at least twenty hours
a week" is not defined. For example, Plaintiff asserts that it is not
clear whether the 20-hour minimum is an average, i.e., work ten hours one
week and thirty hours the following week. As might be expected, Defendant
argues that there is no ambiguity in the twenty-hours-of-work-per-week
requirement. Moreover, Defendant states that, in any event, the alleged
ambiguity has no effect since the rule of contra proferentum
does not apply under an arbitrary and capricious review.*fn10
"The preliminary question of whether a contract is clear or ambiguous
is to be decided by the court as a matter of law." Keiser v. CDC Inv.
Mgmt. Corp., 160 F. Supp.2d 512, 519 (S.D.N.Y. 2001) (citations
omitted). "Contract language is unambiguous if it has a `definite and
precise meaning, unattended by danger of misconception in the purport of
the [contract] itself,
and concerning which there is no reasonable basis for a difference
of opinion.'" Id. (quotation and citation omitted). On the other
hand, "[l]anguage `is ambiguous when it is capable of more than one
meaning when viewed objectively by a reasonably intelligent person who
has examined the context of the entire integrated agreement. . . .'"
Id. at 519-20 (quotation and citation omitted).
There can be no other rational interpretation of the phrase "at least
twenty hours a week" aside from its literal meaning, i.e., that the
policyholder must work twenty hours a week. Moreover, Plaintiff's
reliance upon Keiser to support his position that the term "at
least twenty hours a week" is ambiguous is misplaced. In Keiser,
questions of fact existed regarding the ambiguity of the meaning of the
plaintiffs resignation agreement and the meaning of "active employment"
as defined by the policy. Although the ambiguity of the term "active
employment" was in contention, the court found no ambiguity as to the
meaning of "at least thirty hours per week," as was stated in the
plaintiffs policy. Thus, the Court finds that the term "at least twenty
hours a week" is not ambiguous.*fn11
D. Defendant did not misinterpret or misapply policy
Plaintiff asserts that Defendant improperly interpreted the plan and
imposed standards not
required under the terms of the policy. Specifically, he alleges
that Defendant's denial letter demonstrates such inappropriate conduct.
Defendant, however, states that Plaintiff has not worked for several
years and, therefore, was not in active employment prior to the policy's
October 1, 1998 effective date. See Plaintiff's Complaint at
Exhibit "E." Thus, Defendant asserts that Plaintiff's waiting period was
never satisfied. See id.
The policy states that the policyholder is eligible for coverage if he
is working for his employer in an eligible group and the date he is
eligible for coverage is the later of his employer's plan effective date;
or the day after he completes his waiting period. See Hall Aff.
at Exhibit "B" at EMPLOYEE-1.
"Waiting Period" means the continuous period of time . . . that you
must be in active employment in an eligible group before you are eligible
for coverage under a plan." See Exhibit "B" at GLOSSARY-4. The
policy defines eligible group(s) as "[a]ll employees of Participating
Agencies in the Professional Insurance Agents of New York State, Inc.
Trust and employees of the Professional Insurance Agents of New York
State, Inc. in active employment." See Exhibit "B" at G-LTD-1.
Active employment means that you are working for earnings that are paid
regularly and that you are performing the material and substantial duties
of your regular occupation for at least twenty hours per week.
See Exhibit "B" at GLOSSARY-1.
Although Defendant's explanation is somewhat convoluted, its reasoning
is apparent and consistent with the policy's provisions.*fn13
Furthermore, Plaintiff did not refer this Court to a specific term that
was misinterpreted or misapplied in the policy or specific standards that
Defendant incorrectly imposed on the plan. Defendant asserts that,
in order for Plaintiff to recover under the policy, he had to be in an
eligible group, i.e., in active employment, on either the plan's
effective date, i.e., October 1, 1998, or the day after Plaintiff
completed his waiting period. However, Plaintiff was not in active
employment on the policy's effective date or during the waiting period
since Defendant found that he had not worked in over three years. Thus,
Plaintiff was not in an eligible group and, under the terms of the
policy, unable to obtain benefits. Such reasoning does not contravene the
terms of the policy, but, to the contrary, is consistent with the
definitions set forth in the plan.
E. Whether the Administrator's decision to deny Plaintiff
benefits was arbitrary and capricious*fn14
Plaintiff claims that Defendant acted arbitrarily and capriciously by
failing to properly investigate his claims and conducted an inadequate
and unfair review of his application for benefits. Specifically, he
alleges that Defendant's November 18, 2000 internal memorandum evidences
Defendant's intent to deny Plaintiff's application without conducting an
investigation to answer its remaining questions. Defendant's internal
This is certainly an interesting case. Due to the
late notice of claim, it certainly has made it
difficult to clarify the dol
[date of loss], work status and eligibility. The
meds indicate the ee [employee] has been having
difficulty for years. However, the ap is giving a
dol which is within our coverage . . . The late
filing of this claim has prejudiced our ability to
properly adjudicate the claim. At this point, it
appears we are looking to deny eligibility due to
the er stating the ee hasn't worked for years and
the lack of info to support eligibility . . . The
late filing has created this issue . . . Do we
deny based upon info received to date? Do we need
to further investigate payroll, tax, attendance
info? Do we need additional medical involvement?
Should we consult legal?
See Hall Aff. at Exhibit "B."
Moreover, Plaintiff asserts that Defendant failed to inquire about the
material and substantial duties of his employment and the actual number
of hours he engaged in those activities. Plaintiff also alleges that
Defendant's reliance upon his and Ronni Sisson's statements, which were
allegedly inconclusive, at best, was arbitrary and capricious and that
such information was insufficient to adequately determine whether
Plaintiff was in "active employment" as defined by the policy. Plaintiff
also asserts that his Social Security Administration Disability notice
and payroll records show that he received full payment for his services
at the time that the plan became effective.
As might be expected, Defendant has a different view of the sufficiency
of the information it used in arriving at its decision. Defendant
contends that its decision to deny Plaintiff long-term disability
benefits was not arbitrary and capricious but, instead, was reasonable
based upon the information before it. In support of its assertion,
Defendant directs the Court's attention to several steps it took to
evaluate Plaintiff's claim. First, it reviewed the correspondence
provided by Ronni Sisson, Plaintiff's assistant at the John I. Shutts
Agency, Inc. The letter stated that Plaintiff struggled and experienced
difficulties for a long period of time.
Defendant also reviewed letters from Plaintiff, in which he wrote that
"in the past year, I doubt that I have worked more than 30% of the time"
and that "[s]everal years ago, maybe three, my assistant, Ronnie brought
a television into the office so I would have something to do" and "[w]hat
I do at work is watch television, play solitaire on my computer, go to
the bank, the post office and take pictures of houses the agency
Second, Defendant interviewed Plaintiff by telephone. In that
conversation, Plaintiff indicated that he had not worked in three years
and that his salary from the John I. Shutts Agency, Inc. was not actual
earnings but was the salary that the family-owned company could afford.
Defendant also interviewed Ronni Sisson by telephone, at which time she
reiterated that Plaintiff had not really worked in over three years.
Defendant determined that, based upon all of the aforementioned
correspondence and phone conversations, Plaintiff was not in active
employment and, thus, not eligible for long-term disability benefits. For
example, Defendant relies on Plaintiffs statement that "if the business
was not family owned, I would be unemployed" and his statement that "[i]n
the past year, I doubt that I worked more than 30% of the time."
See Defendant's Memorandum of Law at 4. Defendant also relied
upon Ronni Sisson's statements that Defendant played solitaire and
watched television while at work. See id. at 5, 8. Furthermore,
Defendant reiterated that, although payroll records revealed that
Plaintiff was being paid at the time the plan became effective, the
information provided to Defendant showed that he was not performing the
substantial and material duties of his occupation for the minimum twenty
hours per week as the policy required.
The court's review under an arbitrary and capricious standard "is
limited to the
administrative record," see Miller v. United Welfare Fund,
72 F.3d 1066, 1071 (2d Cir. 1995), and is "highly deferential to a plan
administrator." Martin v. E.I. DuPont de Nemours & Co.,
999 F. Supp. 416, 422 (W.D.N.Y. 1998). Moreover, when applying this standard
a court "may overturn a decision to deny benefits only if it was `without
reason, unsupported by substantial evidence or erroneous as a matter of
law.'" Pagan, 52 F.3d at 442 (quotation and citation omitted);
see also O'Shea v. First Manhattan Co. Thrift Plan & Trust,
55 F.3d 109, 112 (2d Cir. 1995) (quotation omitted). "Substantial
evidence is `such evidence that a reasonable mind might accept as
adequate to support the conclusion reached by the [administrator
and]. . . requires more than a scintilla but less than a preponderance.'"
Short v. Unum Life Ins. Co. of Am., No. Civ. 302CV827, 2003 WL
22937720, *6 (D. Conn. Dec. 3, 2003) (quotation omitted). However,
"`where the administrator imposes "a standard not required by the plan's
provisions, or interpret[s] the plan in a manner inconsistent with its
plain words, or by [his] interpretation render[s] some provisions of the
plan superfluous, [his] actions may well be found to be arbitrary and
capricious.'"" Sullivan v. LTV Aerospace & Defense Co., No.
91-CV-713S, 1993 WL 405495, *5 (W.D.N.Y. Sept. 30, 1993) (quotation
omitted). "Likewise, where there is evidence that the administrator, who
owes a fiduciary duty to plan beneficiaries, breached a duty of good
faith and fair dealing, which is implicit in any ERISA plan, the
administrator's interpretation of plan language may be found to be
arbitrary and capricious." Id. (citation omitted). For example,
the court should look at whether the fiduciary failed to obtain and
develop all relevant information and consider substantial evidence in
rendering its determination to deny benefits. See Toland v.
McCarthy, 499 F. Supp. 1183, 1190 (D. Mass. 1980);
Cutignola, 1984 WL 1324 at *4 (citations omitted).
In the present case, there is no doubt that Plaintiff was gradually
deteriorating in his health and, thus, unable to fulfill all of the
duties he once performed as President of the John I. Shutts Agency, Inc.
However, the record is incomplete it fails to detail the duties
of President. Although Ms. Sisson stated that Plaintiff watched televison
and played solitaire, she also stated that Plaintiff went to the bank and
photographed insured properties. These activities, although not
associated with the work that a President of a large company would
perform, could certainly be the every-day, administrative and operational
activities that the President of a small company would perform. The
record, however, is so incomplete with regard to Defendant's
investigation of Plaintiff's "material and substantial duties of his
occupation" that the Court cannot determine what duties Plaintiff was
required to do in his employment capacity and if he did, indeed, perform
such duties. Moreover, the record fails to show whether Plaintiff stopped
doing some of the material and substantial duties of his occupation as
President or all of his duties as President and if the duties he ceased
performing were integral to the execution of his job.
Additionally, the Court is unable to determine if Plaintiff worked "at
least 20 hours a week" as required by the policy. Defendant's reliance
upon Plaintiff's and Ms. Sisson's comments are inadequate for determining
that Plaintiff did not work the required twenty-hour-a-week minimum.
Such comments only evidence Plaintiff's increased difficulty and gradual
deterioration in performing his employment duties.
Based upon the evidence in the administrative record as it is presently
constituted, the Court finds that Defendant failed to investigate and
consider a number of relevant factors in arriving at its determination
that Plaintiff was not in "active employment," as defined by the terms of
the policy. Accordingly, the Court concludes that Defendant's decision to
long-term disability benefits was arbitrary and capricious.
This conclusion, however, does not end the Court's inquiry. Having
determined that Defendant is not entitled to summary judgment, the next
question is whether the Court should remand the matter back to Defendant
for further consideration or whether the Court should find, in the first
instance, that Defendant must provide Plaintiff with benefits. The Second
Circuit has stated that
Because district courts are required to limit
their review to the administrative record, it
follows that, if upon review a district court
concludes that the Trustees' decision was
arbitrary and capricious, it must remand
to the Trustees with instructions to consider
additional evidence unless no new
evidence could produce a reasonable conclusion
permitting denial of the claim or remand would
otherwise be a "useless formality."
Miller, 72 F.3d at 1071 (citation omitted) (emphasis added).
In the instant case, there is additional, relevant evidence which
Defendant could use to determine whether Plaintiff is eligible for
benefits under the terms of the plan. For example, Defendant could
clarify when and how often Plaintiff worked and at what point, if any, he
stopped working the minimum twenty hours per week. Additionally,
Defendant can inquire what the material and substantial duties of
Plaintiff's job are and when, if ever, he ceased performing those duties
in their entirety. Such inquiries are critical to the determination of
whether Plaintiff was in active employment as defined by the policy, and
a determination as to eligibility cannot adequately be made without such
Accordingly, the Court remands this matter to Defendant for further
investigation of all relevant and necessary information, to consider all
relevant evidence and apply the appropriate
standards, and to reach a determination as to whether Plaintiff is
eligible for long-term disability benefits within the meaning of the
F. Attorneys' fees
Plaintiff requests an award of attorneys' fees pursuant to
29 U.S.C. § 1132(g)(1). Although "ERISA grants district courts discretion to
award reasonable attorneys fee," Tholke v. Uninsys Corp., No. 01
Civ. 5495, 2003 WL 22077429, * 2 (S.D.N.Y. Sept. 5, 2003) (citing
29 U.S.C. § 1132(g)(1)) (footnote omitted), it is premature to address
the issue at this juncture since the Court must remand the matter to
Defendant for further consideration.
After carefully considering the file in this matter, the parties'
submissions and the applicable law, and for the reasons stated herein,
the Court hereby
ORDERS that Defendant's motion for judgment on the
administrative record is DENIED; and the Court further
ORDERS that Plaintiff's cross-motion for judgment on the
administrative record is DENIED; and the Court further
ORDERS that this matter is remanded to Defendant for further
investigation of all relevant and necessary information, to consider all
relevant evidence and apply the appropriate standards, and to reach a
determination as to whether Plaintiff is eligible for long-term benefits
within the meaning of the plan; and the Court further
ORDERS that Plaintiff is to inform the Court in writing of
the result of Defendant's review process, including any appeals, and the
effect that result has on the continued viability of this action.
IT IS SO ORDERED.