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The
following describes an ERISA suit which overturned the denial of Rebecca Ladd's
claim for disability benefits under the employee welfare plan sponsored by her
employer, ITT, and administered by MetLife.
Argued May
21, 1998--Decided June 22, 1998
Before
Posner, Chief Judge, and Coffey and Evans,
Circuit Judges.
Posner, Chief Judge.
This
is an ERISA suit to overturn the denial of Rebecca Ladd's claim for disability
benefits under the employee welfare plan sponsored by her employer, ITT, and
administered by MetLife. Since the plan authorized the plan administrator to
use its discretion in making claims determinations, our role is the limited one
of determining whether MetLife abused its discretion-- acted unreasonably--or,
as the cases say (but all these are different ways of saying the same thing),
exercised its discretion in an "arbitrary and capricious" manner.
E.g., Hightshue v. AIG Life Ins. Co., 135 F.3d 1144, 1147 (7th Cir. 1998);
Brehmer v. Inland Steel Industries Pension Plan, 114 F.3d 656, 660 (7th Cir.
1997); Paramore v. Delta Air Lines, Inc., 129 F.3d 1446, 1450-51 (11th Cir.
1997). If, however, the administrator has a conflict of interest, then, though
the standard of review is nominally the same, the judicial inquiry is more
searching. E.g., id.; Hightshue v. AIG Life Ins. Co., supra, 135 F.3d at 1147.
ITT's plan is financed entirely by payroll deductions from the wages of the
employees enrolled in it. MetLife functions only as a claims administrator, and
not as an insurer. From these circumstances, it is tempting to infer that
neither defendant has a conflict of interest in administering the plan--that if
Ladd gets benefits, there will be a little less for other employees, and
therefore no skin off ITT's hide. But this does not seem quite correct, since
the plan summary given to employees does not condition benefits on the plan's
having sufficient employee-contributed funds to cover them. The employee's
entitlement is stated in absolute terms, implying that ITT would have to dig
into its own pocket if claims exceeded contributions. This possibility might
make MetLife inclined to resolve close cases against the claimant. But this
issue has not been explored by the parties; we have no idea how large the
plan's funds are or what provision has been made for the contingency of an
excess of claims over funds. So we shall assume that neither defendant has any
stake in MetLife's decision to deny Ladd the benefits she sought and therefore
that the denial is entitled to undiluted deference by us -- undiluted, that is,
by concerns with conflicts of interest, but not unlimited. If without strain on
our part the decision can fairly be described as arbitrary, we must reverse.
In
1993, Ladd, a 38-year-old customer service representative for ITT, sustained
nerve damage to her neck and both wrists when a shelving unit fell on her at
work. She sought total-disability benefits under the employee benefit plan,
which required that she be "unable to engage in any and every duty
pertaining to any occupation or employment for wage or profit for which you are
qualified, or become reasonably qualified by training, education or
experience." The wording is different from that of the statute governing
social security disability benefits, which defines disability (so far as
relevant here) as an "inability to engage in any substantial gainful
activity." 42 U.S.C. sec. 423(d) (1)(A). But MetLife was unable to
articulate any difference in actual meaning until the oral argument of the
appeal, when its lawyer said that the reference to "any and every
duty" means that an ITT employee is not disabled unless he or she can't
even do part-time work, whereas (he thought) under the Social Security Act a
worker who cannot work full time is deemed totally disabled. That is not what
the Act says. As long as the worker can engage in "substantial gainful
activity," he is not disabled even if the only work that he is capable of
doing is only part time. E.g., Brewer v. Chater, 103 F.3d 1384, 1391-92 (7th
Cir. 1997); 20 C.F.R. sec. 404.1572(a). Of course, the work must not be so
meager as not to be substantial and gainful. See 20 C.F.R. sec.sec.
404.1573(e), 404.1574(a), (b). But the same, it turns out, is true under ITT's
disability plan. For MetLife's lawyer quickly retreated from his effort to
distinguish the plan from the social security disability law when asked whether
a worker who could work ten minutes a day was thereby disentitled to
total-disability benefits under the plan; he said no. Anyway his attempt comes
much too late in the litigation to be considered. We shall proceed on the
assumption that "total disability" under the plan means, at least
insofar as Ladd's claim is concerned, the same thing as under the social
security disability program. Helms v. Monsanto Co., 728 F.2d 1416, 1420-21
(11th Cir. 1984); see also Torix v. Ball Corp., 862 F.2d 1428, 1431 (10th Cir.
1988); Halpin v. W.W. Grainger, Inc., 962 F.2d 685, 695 n. 11 (7th Cir. 1992).
As
a result of the accident, Ladd came under the care of an orthopedic surgeon
named Freitag, who diagnosed significant damage to Ladd's spinal disks, causing
severe pain, and carpal tunnel syndrome in both wrists, also causing severe
pain and limiting the use of both of her hands and both wrists. Freitag
pronounced her totally disabled from gainful employment. MetLife had Ladd
examined in 1994 by a Dr. Holmes, who concurred in Freitag's evaluation (though
Holmes thought that she might be able to work four hours a day, provided her
work would not require her to turn her head a lot), as did another physician
who examined her years later, Dr. Kurzydlowski. Freitag continued to treat and
examine Ladd throughout the period relevant to this suit.
MetLife
encouraged Ladd to apply for social security disability benefits, and even
provided her with legal representation to assist her with the application.
After a hearing, an administrative law judge found that Ladd was indeed totally
disabled, and awarded her benefits. He noted that in addition to her disk
problems and carpal tunnel syndrome, she was an insulin-dependent diabetic and
also obese, and concluded that "the claimant's condition precludes her
from performing even sedentary basic work activity."
MetLife's
employee welfare plan entitles it to offset benefits under the plan by any
social security disability benefits received by the employee. The plan is more
generous than social security, so she still had a claim against the plan even
after she got her social security benefits. After she was awarded social
security disability benefits, MetLife referred her file to a Dr. Bertrand, who
works for a consulting firm, Network Medical Review Company, that MetLife uses
extensively. Bertrand did not examine Ladd, but, using the criteria employed by
the Social Security Administration, he concluded in a perfunctory report that
Ladd had sufficient "residual functional capacities" to work a full
eight-hour day at a sedentary job. Yet he also recommended that Ladd be
examined by a neurosurgeon to "support or refute this [i.e., Bertrand's]
assessment of her residual functional capacities." On the basis of Bertrand's
report (and also a vocational assessment, but it was based on Bertrand's
conclusion that Ladd is able to do sedentary work), and without taking his
advice to have Ladd examined by a neurosurgeon, MetLife denied Ladd's claim.
Several
months later, after Ladd appealed the denial to a review board within MetLife
and submitted additional medical evidence by Freitag and others indicating a
further deterioration of her condition, Bertrand supplemented his report. He
said that in preparing his original report he had talked with Freitag, who had
told him that Ladd" could go back and try work. The restriction would
specifically be that she would only be working the keyboard for 25 minutes out
of every hour or breaks as needed. This was simply to be a work trial to see
how this would work out for her." Bertrand adhered to his recommendation
that Ladd's claim be denied, and the review board affirmed the denial,
precipitating this litigation. Bertrand seemed troubled by the fact that Ladd
is reluctant to undergo surgery for her back and wrist conditions because she
has been warned that her diabetes would make surgery risky for her.
Shortly
afterward, and rather fantastically as it seems to us, ITT offered Ladd a
position as a security guard during the third shift (we assume this would be
around midnight to 8 a.m.), in which she would have to make "watch rounds
of premises outside of scheduled working hours," "check buildings,
equipment and materials for leaks, fire, unauthorized individuals and other
conditions," "ensure all entrances and windows are secured and that
elevator and fire doors are closed," and "remain alert and on-site to
deter unauthorized entry to property." She declined the offer of this job
at the direction of her physician. It is difficult to believe that the offer was
made in good faith; it was not among the jobs that the vocational assessor
thought she might be able to perform if her medical condition was as Bertrand
believed it to be.
In
the circumstances that we have outlined, the denial of Ladd's claim must be adjudged
arbitrary, and even irrational. No one who examined Ladd including the doctor
(Holmes) selected by MetLife to examine her, believed that she was capable of
working. An administrative law judge of the Social Security Administration
found that she was totally disabled; and while the hearing on which his finding
was based preceded Bertrand's paper evaluation by some months, the
uncontradicted evidence is that Ladd's condition was worse when MetLife denied
her claim than it had been when the Social Security Administration granted it.
If Bertrand had given reasons for disagreeing with the assessments by Freitag,
and Holmes, and Kurzydlowski, and the ALJ, we would have to affirm under the
deferential standard. But far from giving reasons for disagreeing, he did not
purport to disagree with anyone. He referred to Freitag, but only to
misunderstand him; for it is evident from their conversation that all Freitag
was suggesting was that Ladd be asked to work on a trial basis, a suggestion
that the defendants never followed up on.
The
grant of social security disability benefits to Ladd has an additional
significance. It brings the case within the penumbra of the doctrine of
judicial estoppel -- that if a party wins a suit on one ground, it can't turn
around and in further litigation with the same opponent repudiate the ground in
order to win a further victory. E.g., McNamara v. City of Chicago, 138 F.3d
1219, 1225 (7th Cir. 1998); Waldorf v. Shuta, No. 97-5195, 1998 WL 173103 at
*13 (3d Cir. Apr. 15, 1998). The doctrine is technically not applicable here,
because MetLife and ITT, the defendants in this suit, were not parties to the
proceeding before the Social Security Administration. Yet they
"prevailed" there in a practical sense because the grant of social security
benefits to Ladd reduced the amount of her claim against the employee welfare
plan. If we reflect on the purpose of the doctrine, which is to reduce fraud in
the legal process by forcing a modicum of consistency on a repeating litigant,
McNamara v. City of Chicago, supra, 138 F.3d at 1225; Johnson v. Oregon, No.
96-36191, 1998 WL 181297 at *8 (9th Cir. Apr. 20, 1998), we see that its spirit
is applicable here. To lighten the cost to the employee welfare plan of Ladd's
disability, the defendants encouraged and supported her effort to demonstrate
total disability to the Social Security Administration, going so far as to
provide her with legal representation. To further lighten that cost, it then
turned around and denied that Ladd was totally disabled, even though her
condition had meanwhile deteriorated. In effect, having won once the defendants
repudiated the basis of their first victory in order to win a second victory.
This sequence casts additional doubt on the adequacy of their evaluation of
Ladd's claim, even if it does not provide an independent basis for rejecting
that evaluation.
The
judgment is reversed with directions to enter judgment for the plaintiff.
Reversed.