449 F.3d 435 (2nd Cir. 2006), 04-3922, Paese v. Hartford Life Accident Ins. Co.

Docket Nº:04-3922-CV(L), 04-4068-CV(XAP).
Citation:449 F.3d 435
Party Name:Dennis PAESE, Plaintiff-Appellee, v. HARTFORD LIFE and ACCIDENT INSURANCE COMPANY, Defendant-Appellant.
Case Date:May 24, 2006
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

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449 F.3d 435 (2nd Cir. 2006)

Dennis PAESE, Plaintiff-Appellee,



Nos. 04-3922-CV(L), 04-4068-CV(XAP).

United States Court of Appeals, Second Circuit.

May 24, 2006

Argued: Sept. 26, 2005.

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Christopher S. Rooney, Casey Mahon & Rooney, LLP, New York, NY, for Defendant-Appellant.

Johnathan D. Abraham, Abraham & Lerner, LLP, New York, NY, for Plaintiff-Appellee.

Before: Calabresi, Katzmann, B.D. Parker, Circuit Judges .

B.D. Parker, Circuit Judge:

Defendant-Appellant Hartford Life and Accident Insurance Company ("Hartford") appeals from a judgment of the United

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States District Court for the Southern District of New York (Chin, J.). After a bench trial on the administrative record, the district court found that Plaintiff-Appellee Dennis Paese was entitled to benefits under a long-term disability plan provided by his employer, Sequa Corporation ("Sequa"), through an insurance policy issued by Hartford. See generally Paese v. Hartford Life & Accident Ins. Co., 2004 WL 764760, 2004 WL 764760 (S.D.N.Y. Apr.9, 2004).

Hartford contends that the district court erred in awarding Paese disability benefits, damages for outside insurance coverage, and attorney's fees. We affirm the district court's award of long-term disability benefits and attorney's fees, but we vacate its award of damages for the purchase of supplemental insurance. In so doing, we clarify that a plaintiff's failure to exhaust administrative remedies when bringing a claim for benefits pursuant to the Employee Retirement Income Security Act ("ERISA") section 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B), does not mean we lack subject matter jurisdiction, but rather is an affirmative defense, subject to waiver, estoppel, futility, and similar equitable considerations.


Sequa hired Paese in March 1977, and he served as its Director of Labor and Employee Relations from January 1987 until September 1999. On August 30, 1999, Paese injured his neck, shoulders, back and wrists in an automobile accident. Paese initially returned to work after the accident, but on September 8, 1999, he left work in severe pain, and never returned. A short time later, Sequa reorganized Paese's department and eliminated his position.

Paese participated in Sequa's Group Long Term Disability Insurance Policy (the "Sequa Plan"), which was issued by Hartford and governed by ERISA. The Sequa Plan offered three possible periods of disability benefits, depending on eligibility: (1) short-term benefits for six months; (2) long-term benefits for twenty-four months after the expiration of the short-term benefits, for employees who, due to accident or sickness, could not perform the essential duties of their "own occupation"; and (3) long-term disability benefits thereafter until the Social Security Normal Retirement Age (age sixty-six for Paese), for employees who, due to accident or sickness, could not perform the essential duties of "any occupation" for which they are qualified by education, training or experience.

Paese received six months of short-term benefits consisting of "salary continuation" at a rate of $2,639.50 per week from September 8, 1999 until March 8, 2000. On March 5, 2000, Paese filed for long-term disability benefits, claiming total disability from September 8, 1999. On April 25, 2000, Hartford requested that Sequa clarify Paese's job duties, and Sequa subsequently explained that extensive travel in Europe and North America by car and airplane was an essential function. On April 26, 2000, Paese had surgery on his elbow and arms, in order to treat symptoms of carpal tunnel syndrome. On May 4, 2000, Hartford approved Paese's application for long-term disability benefits beginning March 8, concluding that he was totally disabled under the own occupation standard. On September 27, 2000, Paese underwent back surgery.

Beginning in early 2001, Hartford began to have second thoughts. Hartford's assistant medical director, Dr. George Kazda, and a registered nurse on Hartford's clinical staff, Cynthia French, reviewed Paese's file. Dr. Kazda and Nurse French concluded that, contrary to the opinions of his

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treating physicians, Paese was not really totally disabled from performing his own occupation. Based on this internal review, Hartford changed its mind, and concluded that Paese was not totally disabled under the own occupation standard. Accordingly, on October 11, 2001 Hartford reversed its earlier decision and refused to pay further disability benefits.

In a series of letters from Paese to Hartford between November 2001 and February 2002, Paese administratively appealed the decision to terminate his benefits. In these letters, Paese responded to Hartford's findings and provided additional medical information and test results, as well as the names of additional treating physicians. In February 2002, Paese also provided Hartford a copy of a determination by the Social Security Administration ("SSA") that he was totally disabled.

On March 8, 2002, Paese's twenty-four months of long term benefits expired, causing the automatic transition from the own occupation standard to the any occupation standard. As a part of Paese's administrative appeal, Hartford requested that Dr. Barry Turner, a medical consultant, review Paese's medical records. On March 19, Dr. Turner issued a report recommending final termination of Paese's long-term disability benefits because he was not (and according to Dr. Turner never was, even immediately after his accident) totally disabled. On March 20--after the March 8 transition to the any occupation standard--Hartford finally denied Paese's request for long-term benefits.

On December 11, 2002, Paese commenced this action against Hartford. The parties stipulated to a bench trial on the administrative record, without witnesses. During the course of the bench trial, Paese sought to introduce the results of a medical examination by Dr. Robert Stoller, which provided yet another independent evaluation of Paese's injuries and disability. This report had been prepared during the course of a personal injury action in New Jersey arising out of the automobile accident that had caused Paese's injuries. Though the report had not previously been a part of the administrative record, the district court admitted and relied on it in making its decision. See Paese, 2004 WL 764760, at *7, *8, *10.

After considering the record, the district court found that Paese was totally disabled under both the own occupation and any occupation standards, and was therefore entitled to (1) long-term benefits of $6,862.70 per month starting October 11, 2001 (with prejudgment interest), (2) future benefits under the Sequa Plan, and (3) reasonable attorney's fees. See id. at *11.

Following the ruling, the parties submitted competing proposals on what was owed to Paese. Ultimately, the district court directed entry of a final judgment of $237,755.73, which consisted of (1) back long-term disability benefits of $146,755.73, (2) attorney's fees of $73,380, and (3) the cost of conversion and alternative insurance paid by Paese of $17,640. This appeal followed.


I. Award of disability benefits

Hartford raises several issues on appeal regarding the district court's award of disability benefits. It contends that the district court: (1) improperly shifted the burden to Hartford to prove Paese's total disability; (2) abused its discretion by considering evidence outside the administrative record; (3) clearly erred in awarding Paese long-term benefits under the own occupation standard; and (4) exceeded its jurisdiction by awarding Paese permanent

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long-term disability benefits under the any occupation standard. The first three issues do not require much discussion while the fourth affords us an opportunity to clarify the exhaustion requirements under ERISA.

A. burden of proof

The placement of the burden of proof is a question of law that we review de novo . See Locher v. Unum Life Ins. Co. of Am., 389 F.3d 288, 293 (2d Cir. 2004). All parties agree that "as a matter of general insurance law, the insured has the burden of proving that a benefit is covered." Mario v. P & C Food Markets, Inc., 313 F.3d 758, 765 (2d Cir. 2002).

Hartford contends that the district court improperly placed the burden on Hartford throughout its analysis of Paese's claimed total disability, based in large part on the following solitary line of the district court's opinion: "Hartford itself decided, on May 4, 2000, that Paese was Totally Disabled, and it has simply not demonstrated that Paese's condition had improved by October 11, 2001, to the point that he was no longer disabled." Paese, 2004 WL 764760, at *9 (emphasis in original).

We disagree that this lone reference shows that the district court did anything wrong. At the outset of its analysis, it clearly and correctly stated that "Paese has the burden of proving by a preponderance of the evidence that he is totally disabled within the meaning of the plan." Id. The district court carefully analyzed and weighed the evidence. See id. at *9-*10. It credited both Paese's evidence and the independent medical evidence, and it discounted Hartford's evidence. Our review of the record leads us to conclude that the court understood the burden of proof and placed it where it belonged.

B. consideration of evidence outside administrative record

Hartford next claims that the district court abused its discretion by admitting Dr. Stoller's report. Again, we disagree. Where, as here, the plan administrator is not disinterested (i.e., Hartford was both the plan administrator and insurer), "the decision whether to admit additional evidence is one which is discretionary with the district court, but which...

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