Denmark v. Liberty Life Assur. Co. of Boston

• Decision Date: 06 May 2009
• Docket Number: No. 05-2877.,05-2877.
• Parties: Diane DENMARK, Plaintiff, Appellant, v. LIBERTY LIFE ASSURANCE COMPANY OF BOSTON, Defendant, Appellee.
• Court: U.S. Court of Appeals — First Circuit

566 F.3d 1

Diane DENMARK, Plaintiff, Appellant, v. LIBERTY LIFE ASSURANCE COMPANY OF BOSTON, Defendant, Appellee.

No. 05-2877.

United States Court of Appeals, First Circuit.

Heard December 2, 2008.

Decided May 6, 2009.

Jonathan M. Feigenbaum, with whom Phillips & Angley was on brief, for appellant.

Jay E. Sushelsky and Melvin R. Radowitz, on brief for AARP, amicus curiae.

Mala M. Rafik and Rosenfeld & Rafik, P.C., on brief for Massachusetts Employment Lawyers Association, amicus curiae.

Richard Johnston, on brief for Health Administration Responsibility Project, amicus curiae.

Andrew C. Pickett, with whom Matthew D. Freeman, Ashley B. Abel, and Jackson Lewis LLP were on brief, for appellee.

Lisa Tate, Teresa L. Jakubowski, Mark J. Crandley, and Barnes & Thornburg, LLP, on brief for American Council of Life Insurers, amicus curiae.

Before LIPEZ, SELYA and HOWARD, Circuit Judges.

SELYA, Circuit Judge.

This appeal has generated thorny questions involving the appropriate standard of judicial review under the Employee Retirement Income Security Act (ERISA), 29 U.S.C. §§ 1001-1461. It is now before us for a second time. Our initial encounter produced a proliferation of views: three separate opinions from the three panelists, each of which grappled with the methodological problem facing a reviewing court in regard to an ERISA benefit-denial decision made by a plan administrator operating as both adjudicator and payer of such claims. See Denmark v. Liberty Life Assur. Co., 481 F.3d 16 (1st Cir.2007) (Lipez, J.); id. at 39 (Selya, J., concurring); id. at 41 (Howard, J., dissenting). For ease in exposition, we refer to the three constituent opinions comprising that splintered decision, collectively, as "Denmark II."

Dissatisfied with the outcome, the plaintiff sought rehearing and rehearing en banc. See Fed. R.App. P. 35; 1st Cir. R. 35, 40. The en banc court withheld action on the petition until the Supreme Court had decided Metropolitan Life Insurance Co. v. Glenn, ___ U.S. ____, 128 S.Ct. 2343, 171 L.Ed.2d 299 (2008). Believing that Glenn had shed new light on the standard of review, the panel withdrew its earlier decision and requested supplemental briefing. See Denmark v. Liberty Life Assur. Co., 530 F.3d 1020 (1st Cir.2008) (per curiam). By separate order, the petition for rehearing en banc was denied as moot.

The supplemental submissions, together with a welter of helpful amicus briefs, led to a new round of oral argument. We took the matter under advisement and now reaffirm our existing abuse of discretion standard of review, albeit with certain refinements. We nonetheless recognize that the ultimate resolution of the case may be informed, under Glenn, both by the aforementioned refinements and by the obtaining of further information. Consequently, we vacate the judgment and remand to the district court so that it may obtain that information and reevaluate the case with the guidance supplied by Glenn and by this opinion.

I. BACKGROUND

We presume the reader's familiarity with the facts of the case as set forth in Denmark II. We rehearse here only those events necessary to put this appeal, in its present posture, into a workable perspective.

In 1996, a primary care physician diagnosed plaintiff-appellant Diane Denmark as suffering from fibromyalgia. The plaintiff, who was a group leader employed by GenRad, Inc., nonetheless continued to work. At the times relevant hereto, she was covered under two interlocking, ERISA-regulated disability insurance plans: GenRad's short-term disability plan (the STD Plan) and its long-term disability plan (the LTD Plan).¹ Defendant-appellee Liberty Life Assurance Company (Liberty) administered both plans, albeit under different arrangements.

The employer self-funded the STD Plan. Under it, Liberty provided an initial claims review and benefits determination. Its decisions were appealable to the employer, which paid approved claims from its own exchequer.

In contrast, Liberty underwrote the LTD Plan. Pursuant to its terms, Liberty reviewed all claims, made the initial benefits determinations, adjudicated any appeals, and paid approved claims from its own coffers.

The plaintiff stopped working on October 3, 2001, and applied for STD benefits. The STD Plan defines "disabled" to include a person who is "unable to perform all of the material and substantial duties of [her] occupation ... because of an Injury or Sickness." In an effort to satisfy this definition, the plaintiff supported her claim with reports from three doctors: her primary care physician, a cardiologist, and a rheumatologist. After reviewing the tendered medical records and a job description, Debra Kaye, a nurse employed by Liberty as a case manager, requested that Dr. Clay Miller conduct a peer review. Based on Dr. Miller's assessment, Liberty denied the claim.

The plaintiff appealed this decision to her employer. The appeal papers included a response from her primary care physician disputing Dr. Miller's conclusions. The employer asked Dr. Peter Schur to perform an independent medical examination (IME). When Dr. Schur found the plaintiff disabled, the employer agreed to pay her STD benefits.

In June of 2002, the plaintiff filed for long-term benefits. An applicant qualifies as disabled under the LTD Plan if, for the first two years, "as a result of Injury o[r] Sickness, [she] is unable to perform the Material and Substantial Duties of [her] Own Occupation" and thereafter "is unable to perform, with reasonable continuity, the Material and Substantial Duties of Any Occupation." Nurse Kaye reviewed the file, which contained medical support for a finding that the plaintiff's symptomatology had worsened as well as a completed activities questionnaire in which she claimed to have severe restrictions on her ability to sit, stand, walk, drive, and concentrate.

In her second review, Nurse Kaye discounted the IME report, suggested that the plaintiff's condition was not as grave as the completed questionnaire implied, and concluded that the plaintiff did not qualify for LTD benefits. Thus, Liberty denied the claim.

The plaintiff requested further review. Liberty responded by, among other things, determining that her job involved light to sedentary work and hiring a private investigator to surveil the plaintiff's activities. The sleuth furnished written reports and photographs showing that the plaintiff was "very active."

With this ammunition in hand, Liberty submitted the entire file to Network Medical Review (NMR), a referral service furnishing physicians to evaluate the functional abilities of claimants. NMR forwarded the assignment to one of its correspondents, Dr. John Bomalaski, who concluded that the plaintiff was capable of working full-time in her (primarily sedentary) position. On December 10, 2002, Liberty reaffirmed its earlier denial of LTD benefits.

Nearly fourteen months later, an administrative law judge ruled the plaintiff entitled to social security disability benefits, see 42 U.S.C. § 405, retroactive to her last day of actual work. The judge premised this decision on a subsidiary finding that the plaintiff was disabled within the meaning of the Social Security Act. See id. § 423(d); see also 20 C.F.R. § 416.920. Although the definition of disability under the Act differed from the definition of disability under the LTD Plan, the plaintiff transmitted this ruling, along with a further report from her rheumatologist, to Liberty; based on these documents, she sought reconsideration of the refusal to pay LTD benefits. Liberty stood firm.

II. TRAVEL OF THE CASE

On September 17, 2004, the plaintiff sued Liberty in a Massachusetts state court. Liberty removed the action to the federal district court. See 28 U.S.C. § 1441; see also id. § 1331. The case proceeded on the plaintiff's claim under 29 U.S.C. § 1132(a)(1)(B).

The district court permitted the plaintiff to conduct limited discovery anent Liberty's relationship with NMR and its correspondent physicians as part of an effort to show that Liberty's actions were influenced by a conflict of interest. Liberty acknowledged that it had paid upwards of $2,000,000 to NMR physicians between 2001 and 2003, and identified 1,204 files that it had referred to NMR during that interval. But Liberty refused, on burdensomeness grounds, to answer interrogatories regarding the proportion of those files in which claims ultimately had been allowed. As a sanction for this recalcitrance, the court drew an inference that NMR had found against the claimants in all cases and, thus, applied heightened scrutiny to Dr. Bomalaski's opinion. Denmark v. Liberty Life Assur. Co. (Denmark I), Civ. No. 04-12261, 2005 WL 3008684, at *11 (D.Mass. Nov.10, 2005).

In due season, the parties cross-moved for summary judgment. Noting that the plan documents delegated discretionary authority to Liberty, qua plan administrator, the court reviewed the benefit-denial decision under this circuit's historic abuse of discretion standard. Id. at *9. Although the court acknowledged the potential conflict of interest posed by Liberty's dual role in making benefits determinations and paying claims,² it found no significantly probative evidence that the conflict had in fact influenced Liberty's decisionmaking. Id. at *18. In discussing that issue, the court opined that a bare structural conflict, in and of itself, did not warrant the application of a less deferential standard of review. Id. at *9.

The court proceeded to find the denial of LTD benefits supported by substantial evidence and, thus, within the plan administrator's discretion. Id. at *26. Accordingly, it granted Liberty's summary judgment motion and denied the plaintiff's. See id.

On appeal, the plaintiff pursued two lines of attack. First, she contended that the district court had employed an incorrect standard of review. Second, she contended that, whatever the standard of review, the denial of LTD benefits was...