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Morgenthaler v. First Unum Life Insurance Co.

August 22, 2006


The opinion of the court was delivered by: Alvin K. Hellerstein, U.S.D.J.


Plaintiff John Morgenthaler, a floor trader and partner of Spear, Leeds & Kellogg ("SLK"), a member firm of the New York Stock Exchange, claimed total disability under two policies issued and administered by First Unum Life Insurance Company ("First Unum"), one to the firm directly (the "SLK Policy"), and the second, to the New York Board of Trade, a multi-employer group of which SLK was a constituent (the "BOT Policy"). First Unum denied benefits under both policies and upheld the denials on administrative appeal. Plaintiff sought review of those determinations by this Court.

I held an initial hearing on the administrative record August 18, 2004. As both counsel represented to me, the terms of neither the SLK Policy, nor the BOT Policy, provided for administrative discretion and, therefore, I was authorized to conduct a "de novo" review under both policies. See Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989). Upon such de novo review, I found that Plaintiff was disabled under the policies' terms. (Summary Order dated Aug. 19, 2004).

Defendant filed a timely motion for reconsideration September 2, 2004 pointing out that the Certificate of Coverage as to the BOT Policy, and the whole policy which integrated the Certificate, in fact provided for discretionary review by Defendant. The motion was stayed in favor of settlement negotiations, which were unsuccessful, and then renewed. By supplemental motions, Defendant seeks confirmation of its administrative determinations, and Plaintiff seeks (1) attorneys' fees; (2) prejudgment interest; (3) a de novo standard of review; and (4) a final money judgment.

I. Disability Determination

The plans at issue are employee benefit plans governed by the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001, et seq. ERISA does not set out the appropriate standard of review for actions challenging benefit eligibility determinations. Firestone, 489 U.S. at 109. "[A] denial of benefits challenged under § 1132(a)(1)(B) is to be reviewed under a de novo standard unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan." Id. at 115. "Where the written plan documents confer upon a plan administrator the discretionary authority to determine eligibility, we will not disturb the administrator's ultimate conclusion unless it is 'arbitrary and capricious.'" Pagan v. NYNEX Pension Plan, 52 F.3d 438, 441 (2d Cir. 1995). Under the arbitrary and capricious standard of review, a court can overturn an administrator's denial of benefits only if it was "without reason, unsupported by substantial evidence or erroneous as a matter of law." Pagan, 52 F.3d at 442.

To determine whether the administrator is conferred discretionary authority, the court is to consider the plain language of the plan documents. "Although a plan need not contain any magic words such as discretion and deference, it must, nevertheless, give some unambiguous indication that discretion has been conferred." Kosakow v. New Rochelle Radiology Assocs., 274 F.3d 706, 739 (2d Cir. 2001) (quoting Jordan v. Retirement Comm. of Rensselaer Polytechnic Inst., 46 F.3d 1265, 1267-71 (2d Cir. 1995) (internal quotation marks and citation omitted)). A plan may invoke discretion when it describes eligibility as a condition "determined by" the decision-maker.

Fay v. Mt. Sinai Medical Center Point-of-Service Plan, 287 F.3d 96, 104 (2d Cir. 2002); Simone v. Prudential Ins. Co. of Am., 2005 WL 475406, at *6 (S.D.N.Y. Feb. 28, 2005).

In its timely-filed motion for reconsideration Defendant showed that the Certificate of Coverage it issued, summarizing the terms and conditions of the BOT Policy, provided for administrative discretion. Defendant contended that the Certificate should control and, therefore, I should defer to the decision of the administrator and its rejection of Plaintiff's claim of disability with regard to the BOT Policy. See Pagan, 52 F.3d at 441. Plaintiff argues that the Certificate is not part of the Policy, and even if it is, the Policy trumps the Certificate, and the Policy does not grant discretion. Defendant did not challenge my de novo finding of disability with regard to the SLK Policy, and continues to pay Plaintiff under that policy.

Defendant contends that the Certificate of Coverage is a physical part of the Policy of Insurance, and is integral to the BOT Policy. The cover page of the BOT Policy sets out explicitly its constituent parts. Specifically, it states that "[t]his policy consists of: all policy provisions and any amendments and/or attachments issued; employees' signed applications; and the certificate of coverage." (Ex. B at C.FP-1). The Certificate of Coverage is page CC.FP-1 of the Policy, identified as such in the Policy's Table of Contents at page TOC-1. The Certificate of Coverage explains that Defendant "has discretionary authority to determine . . . eligibility for benefits." (Id. at CC.FP-1). The Certificate also notes that "[i]f the terms and provisions of the certificate of coverage . . . are different from the policy . . ., the policy will govern." (Id.). The description of long term disability benefits states that a beneficiary is "disabled when [First] UNUM determines that" the participant is unable to perform the substantial and material duties of the occupation. (Id. at LTD-BEN-1).

The precise placement of discretionary language in a policy is irrelevant. A grant of discretion solely in a certificate of coverage is sufficient to invoke judicial deference where the certificate is explicitly part of the policy. See Shyman v. Unum Life Ins. Co., 427 F.3d 452, 455 (7th Cir. 2005). Where the discretionary language in the certificate is not contradicted by language in some other part of the policy, it governs. Parisi v. UNUMProvident Corp., 2005 U.S. Dist. LEXIS 27240, at *6-9 (D. Conn. Nov. 7, 2005) (finding no contradiction between policy's language of "determines that" and certificate's language of "has discretionary authority," where "the policy governs" in the case of contradictions). But see Bolden v. Unum Life Ins. Co. of Am., 2003 WL 921764, at *3 (N.D. Ill. 2003) (describing provision in policy that Unum "determines that" and provision in certificate at Unum "has discretionary authority" as different, and holding that policy, which governed, did not grant discretion).

I find no inconsistency between the terms of the Certificate, plainly providing that Defendant "has discretionary authority" to determine eligibility for benefits, and the terms of the main Policy, providing that Defendant shall "determine[]" if participant is disabled. The construct as a whole should be interpreted harmoniously, and not to find contradictions. Restatement (Second) of Contracts § 202 (1981).

Plaintiff presents a ruling by the New York State Superintendent of Insurance, expressing the determination of the Insurance Department that discretionary clauses in disability insurance policies are "unjust, unfair, inequitable, misleading, deceptive, or contrary to law or to the public policy of the state," and advising that such clauses "will no longer be approved by the Department." Circular Letter No. 8 (Mar. 27, 2006). The Insurance Department stated that it based its determination mainly because of the rulings of federal courts in connection with such clauses, deferring to the decisions of administrators where policies contained such clauses and upholding the decisions of administrators unless they were found to be "arbitrary and capricious." The Insurance Department called on insurers voluntarily to eliminate such clauses from existing contracts, or be threatened with an injunctive proceeding.

However, the March 2006 Circular Letter was withdrawn by a subsequent ruling by the Superintendent, to allow for regulatory action on the issue. Circular Letter No. 14 (June 29, 2006). State law is preempted by ERISA. ERISA § 514(a). Employee benefits plans like the one in question do not fall under the exception to preemption established by ERISA for state insurance law. See id. § 514(b). Since the policies in question are employee benefit plans, not insurance plans, ERISA preempts the extra-statutory letter for the Superintendent, even if it were to be given the status of law. The law in this Circuit ...

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