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McCauley v. First Unum Life Insurance Co.

December 24, 2008

JOHN E. MCCAULEY, PLAINTIFF-APPELLANT,
v.
FIRST UNUM LIFE INSURANCE COMPANY, DEFENDANT-APPELLEE,
SOTHEBY'S HOLDINGS INC., SOTHEBY'S INC., AND SOTHEBY'S SERVICE CORP., DEFENDANTS.



SYLLABUS BY THE COURT

Plaintiff-Appellant John McCauley appeals from an order of the United States District Court for the Southern District of New York (Lawrence M. McKenna, J.) dismissing his complaint challenging the decision by his ERISA plan administrator, First Unum Life Insurance Co., to deny his claim for long-term disability benefits. Applying the Supreme Court's framework from Metropolitan Life Insurance Co. v. Glenn, 128 S. Ct. 2343 (2008), we find that the plan administrator abused its discretion in denying plaintiff's claim. The district court's dismissal is REVERSED, and the case is REMANDED for the district court to enter summary judgment in favor of appellant and for calculation of benefits, costs, and attorney fees to be awarded to appellant.

The opinion of the court was delivered by: John M. Walker, Jr., Circuit Judge

Argued: February 7, 2008

Before WALKER, B.D. PARKER, and HALL, Circuit Judges.

In light of the Supreme Court's decision in Metropolitan Life Insurance Co. v. Glenn, 128 S.Ct. 2343 (2008), we must reassess our standard of review governing cases such as this one that challenge an Employee Retirement Income Security Act ("ERISA") plan administrator's decision to deny disability benefits, where the administrator has a conflict of interest because it has both the discretionary authority to determine the validity of the employee's claim and pays the benefits under the policy. Our current standard of review allows a court to review de novo the administrator's decision when it is shown that a conflict of interest actually influenced that decision. See Sullivan v. LTV Aerospace & Defense Co., 82 F.3d 1251, 1255-56 (2d Cir. 1996). We find this standard to be inconsistent with the Supreme Court's instructions in Glenn and abandon it. We now adhere to the Supreme Court's clarified explication of the standard of review governing such cases, which is that such a conflict of interest is to be "weighed as a factor in determining whether there [wa]s an abuse of discretion," Glenn, 128 S.Ct. at 2348 (quotation marks omitted) (emphasis in original). After applying this standard, we hold that, as a matter of law, the plan administrator abused its discretion in denying plaintiff's claim for long-term disability benefits.

BACKGROUND

Plaintiff-Appellant John McCauley ("McCauley") was a Senior Vice President and Director of the Tax Department at Sotheby's Service Corporation in April 1991, when he was diagnosed with advanced colon cancer. On April 24, 1991, he underwent a radical hemicolectomy and experimental chemotherapy, in which several gallons of special chemotherapy drugs were inserted into his peritoneal cavity to "bathe all the organs in the stomach cavity." McCauley's treatment also included intravenous chemotherapy and chemo catalyst drugs. These drastic procedures saved McCauley's life. From April 1991 through July 1991, McCauley took short-term disability leave because of his cancer treatment.

In December 1991, McCauley accepted a transfer within Sotheby's to Hamilton, Bermuda, where he worked as Senior Vice President and Chief Executive Officer of Fine Art Insurance, Ltd., a subsidiary of Sotheby's. Over the course of the next three years, McCauley continued to experience other health problems and took short term disability leaves. Specifically, in September 1992, McCauley had part of his liver removed because his cancer had metastasized there. By December 1992, he suffered from a severe liver infection, and in April 1994, he underwent surgery to repair a hernia.

In November 1994, after notifying Sotheby's that he could no longer work, McCauley requested disability benefits. At that point, McCauley took short term disability leave one final time for a period of three months. Although McCauley's cancer treatment was successful, the procedures had taken a toll on his body. In particular, McCauley suffered from chronic diarrhea, chronic and acute renal impairment, incontinence, progressive vascular sclerosis, high cholesterol, insomnia, depression, and incisional scarring and pain. Defendant-Appellee First Unum Life Insurance Company ("First Unum") was Sotheby's disability insurance provider. Under the disability plan, First Unum was both the administrator and ultimate payor of benefits.

On May 19, 1995, First Unum denied McCauley's claim, and on June 14, 1995, McCauley appealed the decision and submitted additional information for First Unum to consider. On September 18, 1995, First Unum rejected McCauley's appeal. After this denial, McCauley, attempting to return to the workforce, accepted employment as General Counsel of IBJ Schroeder, Ltd. in Bermuda. Despite paying premiums on McCauley's policy with First Unum during his absence from the workforce, Sotheby's informed McCauley that it would stop paying those premiums now that he had other employment; however, Sotheby's informed McCauley that he was eligible to convert the policy and make future payments, which he did. McCauley's symptoms and health problems persisted. After working at several jobs for short periods of time, McCauley realized that he was not able to work. On January 16, 1996, he applied for long term disability benefits under his conversion policy. First Unum denied this claim on the basis that McCauley's employment with Sotheby's had terminated on November 26, 1994, and, therefore, that he had exercised his conversion after the allowable period.

McCauley then brought this action alleging that First Unum had denied his claims under the original and conversion policies in bad faith. After taking discovery, First Unum moved for judgment on the administrative record. At the same time, McCauley moved for summary judgment under Federal Rule of Civil Procedure 56. Treating both requests as motions for summary judgment, the District Court for the Southern District of New York (Lawrence M. McKenna, J.) denied McCauley's motion and granted summary judgment in favor of First Unum, finding that a de novo standard of review was not applicable and that First Unum's actions were neither arbitrary nor capricious. McCauley v. First UNUM Life Ins. Co., No. 97 Civ. 7662, 2006 WL 2854162 (S.D.N.Y. Oct. 5, 2006). McCauley appeals from that dismissal.

DISCUSSION

I. Legal Standard

We review de novo a district court's decision granting summary judgment in an ERISA action based on the administrative record and apply the same legal standard as the district court. Pagan v. NYNEX Pension Plan, 52 F.3d 438, 441 (2d Cir. 1995); see also Glenn v. MetLife, 461 F.3d 660, 665 (6th Cir. 2006). "Summary judgment is appropriate only where the parties' submissions show that there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law." Fay v. Oxford Health Plan, 287 F.3d 96, 103 (2d Cir. 2002).

The standard governing the district court's review, and accordingly our review here, of an administrator's interpretation of an ERISA benefit plan was first articulated by the Supreme Court in Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989). The Court explained that "a denial of benefits . . . is to be reviewed under a de novo standard unless the benefit plan gives the administrator . . . authority to determine eligibility for benefits or to construe the terms of the plan." Id. at 115. Where such authority is given, the administrator's interpretation is reviewed for an abuse of discretion. Id. Furthermore, "if a benefit plan gives discretion to an administrator or fiduciary who is operating under a conflict of interest, that conflict must be weighed as a 'facto[r] in determining whether there is an abuse of discretion.'" Id. (quoting Restatement (Second) of Trusts § 187, cmt. d (1959)) (alteration in original).

Following the Court's instructions, we held in Pagan that in cases in which an abuse of discretion standard of review applies, because "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.'" 52 F.3d at 441. We further noted that a possible conflict of interest would not alter the standard of review where the plaintiff "fails to explain how such an alleged conflict affected the reasonableness of the [administrator's] decision." Id. at 443. In Pagan, however, we did not address how a conflict of interest should be accounted for where it does affect the reasonableness of an administrator's interpretation. We answered that question in Sullivan v. LTV Aerospace & Defense Co., 82 F.3d at 1255-56, explaining that:

[I]n cases where the plan administrator is shown to have a conflict of interest, the test for determining whether the administrator's interpretation of the plan is arbitrary and capricious is as follows: Two inquiries are pertinent. First, whether the determination made by the administrator is reasonable, in light of possible competing interpretations of the plan; second, whether the evidence shows that the administrator was in fact influenced by such conflict. If the court finds that the administrator was in fact influenced by the conflict of interest, the deference otherwise accorded the administrator's decision drops away and the court interprets the plan de novo.

Id.

Sullivan implied that, in the absence of something more, the existence of a conflict of interest would not change the standard of review. And we squarely held in Pulvers v. First Unum Life Insurance Co., 210 F.3d 89, 92 (2d Cir. 2000), that the arbitrary and capricious standard continues to apply when the only evidence of a conflict of interest is that an insurer acts as both adjudicator and payor of claims.

Read together then, our case law made clear that the arbitrary and capricious standard applies "unless the [plaintiff] can show not only that a potential conflict of interest exists, . . . but that the conflict affected the reasonableness of the [administrator's] decision." Sullivan, 82 F.3d at 1259 (internal quotation marks omitted). However, upon a showing that "the conflict affected the choice of a reasonable interpretation," the court interprets the plan de novo. Id. at 1255.

A. The District Court's Decision

Following this precedent, the district court turned to the question of whether de novo review was appropriate here. McCauley argued that certain procedural irregularities that occurred in the handling of his claim demonstrated that First Unum's conflict of interest had affected its decision to deny him benefits. These alleged irregularities included contentions that one document was missing from the administrative record and that First Unum had incorrectly told McCauley that his claim had been reviewed by a medical doctor when in fact it been reviewed by a nurse.

The district court found these allegations insufficient to warrant de novo review. McCauley, No. 97 Civ. 7662, 2006 WL 2854162, at *6. It noted that McCauley had failed to show any evidence indicating that First Unum lost the missing document in bad faith. Id. at *7. Regarding the discrepancy over whether a doctor or nurse reviewed the file, the district court found that, in denying his benefits, First Unum had principally relied on the recommendation of McCauley's own physician that McCauley should not engage in heavy lifting or extreme physical ...


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