Kovach v. Zurich American Ins. Co.

• Decision Date: 13 November 2009
• Docket Number: No. 08-4512.,08-4512.
• Citation: 587 F.3d 323
• Parties: Thomas KOVACH et al., Plaintiffs-Appellants, v. ZURICH AMERICAN INSURANCE COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

587 F.3d 323

Thomas KOVACH et al., Plaintiffs-Appellants, v. ZURICH AMERICAN INSURANCE COMPANY, Defendant-Appellee.

No. 08-4512.

United States Court of Appeals, Sixth Circuit.

Argued: July 28, 2009.

Decided and Filed: November 13, 2009.

ARGUED:

Matthew D. Greenwell, Charles V. Longo Co., L.P.A., Beachwood, Ohio, for Appellant. Rebecca B. Jacobs, Ulmer & Berne LLP, Columbus, Ohio, for Appellees.

ON BRIEF:

Matthew D. Greenwell, Charles V. Longo Co., L.P.A., Beachwood, Ohio, for Appellant. Rebecca B. Jacobs, Ulmer & Berne LLP, Columbus, Ohio, Richard D. Sweebe, Patricia A. Shlonsky, Ulmer & Berne LLP, Cleveland, Ohio, for Appellees.

Before: GILMAN and McKEAGUE, Circuit Judges; SARGUS, District Judge.^*

GILMAN, J., delivered the opinion of the court, in which SARGUS, D.J., joined. McKEAGUE, J. (pp. 339-48), delivered a separate dissenting opinion.

OPINION

RONALD LEE GILMAN, Circuit Judge.

On November 7, 2005, Thomas Kovach was riding his motorcycle while intoxicated, ran a stop sign, and collided with another vehicle in the intersection. He sustained severe injuries that led to the amputation of his left leg below the knee. Mr. Kovach was insured under an accidental death and dismemberment (AD & D) insurance policy provided by his wife's employer (hereafter referred to as the Plan). He and his wife Rebecca filed a claim with Zurich American Insurance Company, the administrator of the Plan, for dismemberment benefits. Zurich denied the Kovaches' claim after determining that Mr. Kovach's injuries were caused by his drunk driving and therefore not covered as an "accidental" occurrence under the Plan.

The Kovaches brought a claim under the Employee Retirement Income Security Act, 29 U.S.C. §§ 1001-1461 (ERISA), that challenged Zurich's denial of coverage. Applying a deferential arbitrary-and-capricious standard, the district court granted summary judgment in favor of Zurich. On appeal, the Kovaches argue that (1) the district court should have applied a de novo standard of review because Zurich improperly delegated its decisionmaking authority to an outside lawyer, and (2) Zurich's denial of their claim was improper under either standard. Although we reject the Kovaches' first argument, we agree with their second. We therefore REVERSE the judgment of the district court and REMAND the case for the entry of a judgment in favor of the Kovaches.

I. BACKGROUND

A. The AD & D policy

Rebecca Kovach enrolled in the Plan through her employer, KeyCorp. Zurich, as the Plan Administrator, was responsible for the processing and payment of claims under the Plan and was the claims fiduciary. The AD & D coverage paid benefits for losses, including dismemberment, resulting from an injury according to the following definition:

Injury means a bodily injury directly caused by accidental means which is independent of all other causes, results from a Hazard, and occurs while the Covered Person is insured under this Policy.

Although the term "accidental" is not defined, the Plan includes several explicit exclusions, including the following:

A loss shall not be a Covered Loss if it is caused by, contributed to, or resulted from:

1. Suicide, attempted suicide, or a purposeful self-inflicted wound;

...

7. Skydiving, parasailing, hangglinding [sic], bungee-jumping, or any similar activity....

Mrs. Kovach's policy provided for up to $250,000 of coverage. In the case of an amputated limb, the policy paid $125,000. Mr. Kovach was covered under his wife's policy.

B. Mr. Kovach's accident and resulting amputation

On November 7, 2005, Mr. Kovach was involved in a collision while riding his motorcycle in Ravenna, Ohio. According to the crash report filed by the responding officer, Mr. Kovach ran a stop sign at a four-way intersection and was struck by a car. Mr. Kovach was taken to Robinson Memorial Hospital in Portage County to be stabilized. Based on the severity of his injuries, he was then flown via Medivac helicopter to the Cleveland MetroHealth Medical Center. The doctors were unable to save Mr. Kovach's left leg, which they amputated just below the knee.

Mr. Kovach's admission report from MetroHealth noted that a blood sample taken at Robinson Memorial Hospital after the accident and tested by an outside lab showed that Mr. Kovach had a blood alcohol content (BAC) of .148%—well over the legal limit in Ohio of .08%. See O.R.C. § 4511.19(A)(1). MetroHealth took its own sample of Mr. Kovach's blood sometime after his arrival. Those results showed a BAC of .085% and also showed the presence of opiates and benzodiazepines. The Kovaches contend that the positive drug test was due to medically administered valium and morphine given to Mr. Kovach after the accident, a contention not refuted by the record.

C. Zurich's denial of the Kovaches' AD & D claim

Mr. Kovach and his wife timely filed a dismemberment claim with Zurich in December 2005. The claim was based on Mr. Kovach's below-the-knee amputation. Zurich subsequently retained the services of CS Claims Group, Inc., an independent investigation firm, to obtain Mr. Kovach's hospital and toxicology records, as well as the records from all of his treating physicians. Upon receiving the MetroHealth records and noting Mr. Kovach's BAC, Zurich decreased its reserves on the claim from $125,000 to $10 in anticipation that the claim would be denied. Zurich then hired an attorney, Daniel Maguire, to review Mr. Kovach's file and to draft a denial letter based on the policy's provisions if Maguire agreed that the claim should be denied. The insurer's letter to Maguire noted that Mr. Kovach "was the operator of a motorcycle that appears to have run a stop sign and hit another vehicle in the intersection ... [and] was intoxicated at the time of loss."

Maguire agreed with Zurich's inclination that the claim should be denied and prepared an opinion letter that discussed the applicable caselaw, concluding that no benefits were payable. Zurich subsequently authorized a denial of the benefits. It sent a denial letter to the Kovaches in March 2006 using language taken from Maguire's opinion letter. The denial letter explained that Zurich had concluded that Mr. Kovach's injury was not due to an "accident" under the terms of the Plan because Mr. Kovach (a) was driving with almost twice the legal BAC, (b) had tested positive for opiates and benzodiazepines, and (c) had, according to the police officer responding to the accident, run a stop sign and thereby initiated the crash. Zurich thus reasoned that the injury was a reasonably foreseeable consequence of driving while under the influence of alcohol and possibly drugs. Citing several federal decisions upholding the denial of AD & D benefits under allegedly similar circumstances, Zurich also concluded that the facts supported the application of the policy's self-inflicted-wound exclusion.

The Kovaches timely appealed Zurich's initial denial of the claim to the insurer's ERISA Review Committee. They submitted what they characterized as "newly discovered relevant evidence" in the form of Mr. Kovach's affidavit, which asserted that the other driver, not he, ran the stop sign. Zurich responded by clarifying that the Kovaches were not presenting newly discovered evidence, but rather a different version of the events surrounding the incident. Zurich nevertheless noted that it had decided to stay the appeal in order to clarify the issue of which party was at fault for the collision.

To investigate the fault issue, Zurich again retained CS Claims Group, Inc. to obtain the Ravenna Police Department's final Traffic Crash Report. The report confirmed that Kovach had been cited for a stop-sign violation and had tested positive for drugs (based on the MetroHealth test results). Zurich had previously seen only the initial accident report, which lacked these details. After reviewing this information, Zurich's ERISA Review Committee informed the Kovaches' counsel that it had affirmed the denial of benefits.

D. The lawsuit

The Kovaches filed a complaint in the United States District Court for the Northern District of Ohio in August 2007. They named both Zurich and Mrs. Kovach's employer, KeyCorp, as defendants. KeyCorp was dismissed as a defendant shortly thereafter. The parties subsequently filed cross-motions for judgment based upon the administrative record. In September 2008, the district court issued an order upholding Zurich's denial of benefits. The Kovaches have timely appealed that order.

II. ANALYSIS

A. Standard of review

We review de novo the district court's disposition of an ERISA action based upon the administrative record, and apply the same legal standard as the district court. Wilkins v. Baptist Healthcare Sys., Inc., 150 F.3d 609, 613 (6th Cir.1998). As discussed in Part II.B. below, the district court in this case appropriately reviewed the Kovaches' suit under the arbitrary-and-capricious standard because the Plan granted discretionary authority to Zurich as the plan administrator to interpret the Plan's terms and to determine its benefits. See Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 111-15, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989) (establishing the arbitrary-and-capricious standard of review in ERISA cases where the plan administrator has discretionary authority); Glenn v. MetLife. Ins. Co., 461 F.3d 660, 666 (6th Cir.2006) (applying Firestone's standard of review).

Under the arbitrary-and-capricious standard, we must uphold the administrator's decision "if [the administrator's] interpretation of the Plan's provisions is `reasonable.'" Morrison v. Marsh & McLennan Cos., 439 F.3d 295, 300 (6th Cir.2006) (citing Firestone, 489 U.S. at 111, 109 S.Ct. 948). But the arbitrary and capricious standard is not a "rubber stamp [of] the administrator's decision." Glenn, 461 F.3d at 661. Rather, it requires us to review "the quality and quantity of the ... evidence and the opinions on both sides of the issues." McDonald v. W.-S. Life Ins. Co.,...