Appeal
from the United States District Court
for the Southern District of California
Marilyn L. Huff, District Judge, Presiding
Argued
and Submitted
March 4, 1997--Pasadena, California
Filed September 11, 1997
Before: Mary M. Schroeder, Warren J. Ferguson, and
Edward Leavy, Circuit Judges.
Opinion by Judge Schroeder
[11903]
The
summary, which does not constitute a part of the opinion of the court, is
copyrighted © 1994 by Barclays Law Publishers.
The
court of appeals reversed a judgment of the district court. The court held that
a conflict of interest arising out of the dual role as a benefit plan
administrator and funding source precludes deference to the plan's eligibility
determination.
Appellant
Judith Lang applied for long-term disability benefits under her employee
benefit plan. Appellee Standard Insurance Company was the issuer and
administrator of the plan. Lang indicated an inability work based on
job-related stress. Her symptoms included crying, throwing up before work,
inability to concentrate, and insomnia. Standard applied the "mental
disorder" two-year limitation to her claim, applicable when a disability was
"caused or contributed to" by a mental disorder. "Mental
disorder" was defined as a mental, emotional, behavioral, or
stress-related disorder. The plan was silent as whether the administrator
should look to causes or symptoms when determining whether the claimant had a
mental disorder.
While
receiving benefits, Lang was diagnosed with fibromyalgia, a type of rheumatism
which is commonly accompanied by fatigue, sleep disturbances, lack of
concentration, changes in mood, anxiety, and depression. The anxiety and depression
are considered to be symptoms of the muscular disease, rather than causes of
it.
Lang
requested a reassessment. Standard refused to remove the mental disorder
limitation, explaining that it had found no objective medical evidence to
support her claim that she had fibromyalgia, and that it still believed that
her disability was caused or contributed to by depression. Standard's quality
assurance unit affirmed on different grounds, stating that [11904] Lang had
failed to establish that her fibromyalgia, separate from psychological factors,
was disabling in and of itself and that it considered symptoms, not cause, when
deciding whether to apply the mental disorder limitation.
Lang
sued Standard under the Employee Retirement Income Security Act (ERISA) for
terminating her benefits. The district court granted summary judgment against
Lang. Lang appealed.
[1] When an ERISA plan vests its administrator with discretion
to determine eligibility for benefits and to construe the terms of the plan, as
this plan did, the district court ordinarily reviews the administrator's
determination for abuse of discretion.
[2] However, given Standard's dual role as both the funding
source and the administrator of the plan, there was an inherent conflict of
interest.
[3] Decisions of an apparently conflicted employer- or
insurer-fiduciary are reviewed under the traditional abuse of discretion
standard unless it appears that the conflict may have influenced the decision.
The affected beneficiary must come forward with material evidence that the
fiduciary's self interest caused a breach of the administrator's fiduciary
obligations to the beneficiary.
[4] Once a beneficiary comes forward with such evidence,
principles of trust law require careful review of an administrator who appears
to have committed a breach of fiduciary duty.
[5] The plan then bears the burden of showing that the
conflict of interest did not affect its decision to deny or terminate benefits.
If the plan fails to carry its burden, review is without deference to the
administrator's tainted exercise of discretion.
[6] The inconsistencies in the reasons Standard gave for its
refusals to lift the mental disorder limitation constituted mate- rial,
probative evidence that its decision was affected by self- interest.
[7] Standard offered no explanation that its decision was made
for the benefit of other plan participants and benefi- [11905]ciaries. Its
decision to limit benefits was not entitled to deference.
[8] The plan language was ambiguous.
[9] Ambiguities in ordinary insurance contracts are construed
against the insurance company. This rule required adoption of the reasonable
interpretation advanced by Lang, i.e., that the phrase "mental
disorder" did not include "mental" conditions resulting from
"physical" disorders.
[10] The district court did not conduct the appropriate con-
flict of interest analysis and accorded Standard a deference to which it was
not entitled. Lang was entitled to reinstatement of her long-term disability
benefits.
COUNSEL Jeffrey I. Ehrlich, Washington, DC, for the
plaintiff-appellant. Howard Bennett Hellen, San Diego, California, for the
plaintiff-appellant. Michael A. Conley, Pillsbury Madison & Sutro, LLP, San
Francisco, California, for the defendants-appellees.
Judith
Lang, a former contracts manager for Applied Remote Technology, Inc., appeals
the district court's grant of summary judgment in favor of defendants-appellees
on her claim for long-term disability benefits. The appellees are Applied
Remote Technology, the sponsor of the welfare benefit plan (the
"Plan") under which Lang claimed the benefits, [11906] and Standard
Insurance Company, the issuer and administrator of the Plan. In her suit, under
Section 502(a)(1)(B) of the Employment Retirement Income Security Act
("ERISA"), 29 U.S.C. S 1132 (a)(1)(B), Lang claims that Standard
wrongfully terminated her benefits. Standard contends that its decision to
limit Lang's benefits to two years was proper because her disability was "caused
or contributed to" by a "mental disorder," for which the Plan
provided a two-year limit. Lang disagrees that her disability was due to a
"mental disorder." She argues that the Plan is ambiguous as to what
constitutes a "mental disorder" and that Standard's determination was
tainted by self-interest. We conclude that Standard's conflict of interest,
arising out of its dual role as the administrator and funding source for the
Plan, affected its decision in Lang's case. For that reason, Standard's
interpretation of the Plan and its ultimate determination must be reviewed
without deference. We hold the benefits were improperly terminated.
Lang
first applied for benefits in December of 1992. She indicated that her
inability to work was triggered by stress arising from her job. The symptoms
she described were "uncontrollable crying," "throwing up before
work," and "inability to concentrate." Lang listed a
psychiatrist, Dr. Venn-Watson, as her treating physician. Dr. Venn-Watson had
diagnosed Lang as having depressive neurosis and was treating Lang for
"insomnia" and "frequent crying spells." Upon receipt of
Lang's application for benefits, Standard informed Lang that it intended to
apply the "mental disorder" limitation to her claim. Under the Plan,
Standard was authorized to terminate the payment of long-term disability
benefits after two years if the beneficiary's disability was "caused or
contributed to" by a "mental disorder.""Mental
disorder" was defined in the Plan as a "mental, emotional,
behavioral, or stress-related disorder." The Plan, however, was silent as
to whether the administrator should look to causes or symptoms when determining
whether the claimant had a "mental [11907] disorder" for purposes of
applying the limitation. The Plan granted discretion to Standard to construe
the terms of the Plan.
While
Lang was receiving benefits during the two-year period, her family care
physician, Dr. Wasserman, diagnosed her with fibromyalgia. Fibromyalgia is a
type of muscular or soft-tissue rheumatism that affects principally muscles and
their attachment to bones, but which is also commonly accompanied by fatigue,
sleep disturbances, lack of concentration, changes in mood or thinking, anxiety
and depression. See Fibromyalgia, Arthritis Foundation Pamphlet at 1, 5 (1992).
The depression and anxiety associated with fibromyalgia are believed to be
symptoms of this muscular disease, rather than causes of it. Researchers
suggest that there is a possible "biologic link" between fibromyalgia
and some forms of depression and chronic anxiety. Id. at 5. In addition, the
Pamphlet reports that while "[t]he single exact cause of fibromyalgia is
unknown[,] . . . a number of stresses . . . may precipitate the generalized
pain, fatigue, sleep, and mood problems that characterize fibromyalgia."
Id. at 7. It is often difficult to diagnose fibromyalgia, and "[o]ften
people with fibromyalgia have undergone many tests and have seen many different
specialists while in search of an answer. " Id. at 10. Lang was
experiencing all of the symptoms associated with fibromyalgia at all relevant
times.
Armed
with her new fibromyalgia diagnosis, Lang requested that Standard reassess its
initial determination to apply the mental disorder limitation to her claim. In
response, Standard sent Lang's medical records to Dr. Fraback, a rheumatologist
often used by Standard to evaluate long-term disability claims. He did not
examine Lang, but opined, in a short memorandum, that Lang's disability was
primarily due to her depression, and that Lang's fibromyalgia diagnosis was not
clear because Lang's doctor had failed to identify the requisite number of
trigger points. On the basis of that report, Standard refused to remove the
mental disorder limitation. [11908] Standard explained to Lang in a letter
dated January 9, 1995, that its decision was based on the fact that it had
found no objective medical evidence to support Lang's claim that she had
fibromyalgia, and that it still believed that Lang's disability was
"caused or contributed to" by depression.
Standard's
Quality Assurance Unit reviewed this initial denial, and affirmed it in a
letter dated February 24, 1995, although on different grounds. This time,
Standard stated that it was no longer disputing that Lang had fibromyalgia, and
wrote that it was aware of the various symptoms and "diagnostic criteria
established for this condition as set forth by the American College of Rheumatology."
However, the Quality Assurance Unit still denied Lang's claim, but on the
ground that Lang had failed to establish that her fibromyalgia, "separate
from psychological factors, [was ] disabling in and of itself." Standard
also stated, for the first time, that it "consider[ed] symptoms, not
cause" when deciding whether to apply the "mental disorder"
limitation. Standard, in effect, took the position that even if Lang's
depression was a symptom of her physical disorder, fibromyalgia, the limitation
would still apply.
1.
Standards of Review
We review the district court's grant of summary judgment de novo. Mongeluzo v.
Baxter Travenol Disability Ben. Plan, 46 F.3d 938 (9th Cir. 1995). We also
review de novo the district court's choice and application of the standard of
review applicable to decisions by fiduciaries in the ERISA context. Taft v.
Equitable Life Assurance Soc'y, 9 F.3d 1469, 1471 (9th Cir. 1993).
[1] When an ERISA plan vests its administrator with discretion
to determine eligibility for benefits and to construe the terms of the plan, as
the Plan does in this case, the district [11909] court ordinarily reviews the
administrator's determination for abuse of discretion. Firestone Tire &
Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989); Taft, 9 F.3d at 1471.
The
degree of judicial deference associated with this standard of review may,
however, be affected by factors such as conflict of interest. See Firestone,
489 U.S. at 115 (courts must weigh conflict as a "factor" in
determining whether abuse of discretion has occurred); Brown v. Blue Cross
& Blue Shield of Alabama, Inc., 898 F.2d 1556, 1564 (11th Cir. 1990) (the
abuse of discretion standard "must be contextually tailored[,]" so
that the degree of deference accorded to the plan fiduciary depends "upon
the dynamics of the decision-making process[ ]") (quotations omitted).
[2] The Plan in this case is actually an insurance policy
issued and administered by Standard. Given Standard's dual role as both the
funding source and the administrator of the Plan, we are faced with an inherent
conflict of interest situation, and must take this factor into account. Brown,
898 F.2d at 1561 ("Because an insurance company pays out to beneficiaries
from its own assets rather than the assets of a trust, its fiduciary role lies
in perpetual conflict with its profit-making role as a business.")
Nevertheless,
the presence of conflict does not automatically remove the deference we ordinarily
accord to ERISA administrators who are authorized by the plan to interpret a
plan's provisions. We considered this issue in Atwood v. Newmont Gold Co.,
Inc., 45 F.3d 1317, 1322 (9th Cir. 1995). We there observed that our circuit's
approach is similar to the Eleventh Circuit's, where the leading decision is
Brown, supra. Judge Johnson's opinion for the Eleventh Circuit in Brown
contains an extensive and sensitive discussion of the reasons for replacing
traditional deference with a different analysis when dealing with ERISA plans
where there exists an inherent conflict of interest. Brown explained that plans
such as this one, funded by insurers and also administered by [11910] them, are
not true trusts. The administrator's decisions in these cases are hence not as
easily justified as the decisions of a fiduciary in the case of a true trust.
See Brown, 898 F.2d at 1567.
[3] Looking to Brown for guidance, we held in Atwood that
"our traditional abuse of discretion review [is not altered] in the absence
of facts indicating that [the] conflicting interest caused a serious breach of
the plan administrator's fiduciary duty to . . . the plan beneficiary".
Atwood, 45 F.3d at 1322. Instead, we held that we must review the decisions of
an apparently conflicted employer- or insurer-fiduciary under the traditional
abuse of discretion standard unless it appears that the conflict may have
influenced the decision. To make such a showing, the affected beneficiary must
come forward with "material, probative evidence, beyond the mere fact of
the apparent conflict, tending to show that the fiduciary's self interest
caused a breach of the administrator's fiduciary obligations to the
beneficiary." Id. If the beneficiary satisfies that burden, our review
remains for abuse of discretion, but it becomes "less deferential."
See Snow v. Standard Ins. Co., 87 F.3d 327, 331 (9th Cir. 1996) (citing Atwood,
45 F.3d at 1322).
[4] In Atwood we reviewed the approaches of various circuits
to the problem of reconciling the discretion vested in the administrator, with
the requirement inherent in trust law, that a fiduciary act without
self-interest. We concluded that once the beneficiary comes forward with
evidence that the fiduciary may have acted in its own self-interest, a more
careful review must be undertaken. We explained that:
principles
of trust law require us to act very skeptically in deferring to the discretion
of an administrator who appears to have committed a breach of fiduciary duty. .
. .
Under the common law of trusts, any action taken by a trustee in violation of a
fiduciary obligation is [11911] presumptively void. . . . Where the affected
beneficiary has come forward with material evidence of a violation of the
administrator's fiduciary obligation, we should not defer to the
administrator's presumptively void decision.
Atwood, 45 F.3d at 1323 (internal citations omitted).
[5] In that circumstance, the plan bears the burden of
rebutting the presumption by producing evidence to show that the conflict of
interest did not affect its decision to deny or terminate benefits. Id. The
plan might be able to meet this burden, for example, by showing how its
decision in fact benefitted the plan as a whole and therefore the rest of the
beneficiaries under the plan. See Brown, 898 F.2d at 1566-67. For example, the
administrator might be able to show that its decision was intended to prevent
an unanticipated expenditure that would have depleted the resources available
to other beneficiaries of the plan. Id. at 1568. Such a showing would be
sufficient because the fiduciaries' main ERISA duty is "to act solely in
the interest of plan participants and beneficiaries. " Fine v. Semet, 699
F.2d 1091, 1095 (11th Cir. 1983). If the plan fails to carry its burden,
however, our review becomes de novo, "without deference to the
administrator's tainted exercise of discretion." Atwood, 45 F.3d at 1323.
2.
Application of the Atwood test to Lang's Plan
To trigger de novo review of Standard's decision, Lang had the initial burden
to provide sufficient probative, material evidence that Standard may have acted
in its own self-interest. This court has never had occasion to decide what kind
of showing is sufficient to satisfy this threshold requirement and shift the
burden to the administrator.
Sound
specific guidance is provided in Brown. There, the administrator had originally
denied payments for two periods of hospitalization, and then changed its
position for one of [11912] those periods, on the basis of no new evidence. The
court deemed this inconsistency an indication that the insurer's decision may
have been tainted by self-interest. Brown, 898 F.2d at 1569.
[6] In this case, the inconsistencies in Standard's position
are even sharper. The reason given for the termination of benefits in the
January 9, 1995 letter was that Lang did not have fibromyalgia. Standard's view
at that time was therefore that Lang had not shown that her disability was
"caused or contributed to" by a physical ailment. On review, when
confronted with clear evidence from her treating physician that she did suffer
from a physical ailment -- fibromyalgia -- Standard took the position that Lang
would have to make a further showing that the fibromyalgia "in and of
itself" was disabling. Standard further justified its denial on the theory
that, regardless of the cause of the disability, the critical determinants of
whether a person was afflicted with a "mental disorder" were symptoms
and not causes. We conclude that the inconsistencies in the reasons Standard
gave for its refusals to lift the "mental disorder" limitation
constitute material, probative evidence that its decision was affected by
self-interest.
[7] That does not end our inquiry, however, because once the
claimant has met her initial burden of producing evidence from which it could
be inferred that the plan's decision was tainted, the burden shifts to the plan
administrator to show that its decision was in fact in furtherance of its
fiduciary responsibilities. Atwood, 45 F.3d at 1323. Standard offers no
explanation that its decision was made for the benefit of other plan
participants and beneficiaries. Nor do we perceive any indication in the record
of such a motivation. We therefore conclude that Standard's decision to limit
benefits on the basis of a determination that Lang's disability was due to a
"mental disorder" is not entitled to deference and is subject to de
novo review.
[11913]
[8] The two-year limitation in the Plan relates to disabilities
"caused or contributed to" by a "mental disorder." Lang
contends that because the record reflects that her disability was caused by a
physical illness, fibromyalgia, the limitation does not apply. In its February
24 letter, however, Standard interpreted the term as referring to symptoms, and
not to causes. The Plan language presents an almost classic ambiguity. See
Kunin v, Benefit Trust Life Ins. Co., 910 F.2d 534 (9th Cir. 1990); Phillips v.
Lincoln Nat. Life Ins. Co., 978 F.2d 302 (7th Cir. 1992). Both Kunin and
Phillips considered a similar phrase, "mental illness," and held that
it was ambiguous in that it could reasonably refer either to illnesses with
non-physical causes, or to illnesses with physical causes, but exhibiting both
physical and non-physical symptoms.
If
we were according Standard's interpretation the deference ordinarily due an
administrator vested with discretion to interpret the plan, we would have to
uphold Standard's interpretation as reasonable. In this case, however, Standard
is no longer entitled to such deference, because Lang has satisfied her burden
of showing the presence of a taint, and Standard has not rebutted it.
[9] Accordingly, we may construe the Plan in accordance with
the rules normally applied to insurance policies. Ambiguities in ordinary
insurance contracts are construed against the insurance company. We noted in
Kunin, supra, in the case of an insured plan that did not grant the
administrator discretion to construe its terms, that this is the law of
California and virtually every other jurisdiction in the country. Kunin, 910
F.2d at 539. See generally, 2 G. Couch, R. Anderson and M. Rhoades, Couch on
Insurance 2nd S 15:83, at 399 n.4 (rev. ed. 1984). The rule, known as the
doctrine of contra proferentem, requires us to adopt the reasonable
interpretation advanced by Lang, i.e., that the phrase "mental
disorder" does not include "mental" conditions resulting from
"physical" disorders.
[11914]
In this case there is no question that Lang was under a disability from the
time that she originally applied for benefits in 1992. Moreover, there is nothing
in the record to indicate that the nature of her physical or mental condition
materially changed. The only change is the diagnosis of the cause of her
disability from depression unrelated to any physical disease, to fibromyalgia,
an affliction with a physical source, but which is often accompanied by
depression.
[10] The district court did not conduct the appropriate
conflict of interest analysis and hence accorded Standard a deference to which
it was not entitled. Lang is entitled to reinstatement of her long-term
disability benefits.
The
judgment of the district court is REVERSED and the case REMANDED with
instructions to enter judgment in favor of Lang.
[11915]