Cardoza v. United of Omaha Life Ins. Co.

• Decision Date: 27 February 2013
• Docket Number: No. 12–2033.,12–2033.
• Parties: Jose CARDOZA, Plaintiff–Appellee, v. UNITED OF OMAHA LIFE INSURANCE COMPANY, Defendant–Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

708 F.3d 1196

Jose CARDOZA, Plaintiff–Appellee,

v.UNITED OF OMAHA LIFE INSURANCE COMPANY, Defendant–Appellant.

No. 12–2033.

United States Court of Appeals,Tenth Circuit.

Feb. 27, 2013.

Steven T. Collis, Holland & Hart, LLP, Greenwood Village, CO (Michael S. Beaver, Holland & Hart, LLP, Greenwood Village, CO, and Marcy G. Glenn, Holland & Hart, LLP, Denver, CO, with him on the briefs), for Defendant–Appellant.

David L. Duhigg, Duhigg, Cronin, Spring & Berlin, P.C., Albuquerque, NM, for Plaintiff–Appellee.

Before KELLY, MURPHY, and GORSUCH, Circuit Judges.

MURPHY, Circuit Judge.

I. Introduction

Jose Cardoza brought this lawsuit pursuant to the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 to § 1461 (“ERISA”), challenging United of Omaha Life Insurance Company's (“United of Omaha”) calculation of his long-term disability benefits (“LTD benefits”). United of Omaha answered, asserting its calculation was appropriate, and counterclaimed, demanding that Cardoza reimburse it for payments of short-term disability benefits (“STD benefits”) which it claimed were miscalculated. On cross-motions, the district court granted Cardoza's motion for summary judgment and denied United of Omaha's motion, concluding United of Omaha's decision to calculate Cardoza's LTD benefits and recalculate his STD benefits as it did was arbitrary and capricious.

The district court erred in granting Cardoza's motion for summary judgment with respect to United of Omaha's LTD benefits calculation. The plain language of the long-term disability benefits policy (“LTD policy”) instructed United of Omaha to base its calculation of Cardoza's LTD benefits on his earnings as verified by the premium it received. Thus, United of Omaha's decision to do so was reasonable and made in good faith. The district court did not err, however, in granting Cardoza's motion for summary judgment with respect to United of Omaha's recalculation of his STD benefits and demand for reimbursement. The plain language of the short-term disability benefits policy (“STD policy”) instructed United of Omaha to base its calculation of Cardoza's STD benefits on his earnings. Thus, United of Omaha's decision to recalculate Cardoza's STD benefits based on his earnings verified by premium rather than his actual earnings was not reasonable. Exercising jurisdiction pursuant to 28 U.S.C. § 1291, this court therefore reverses in part, affirms in part, and remands to the district court with instructions to conduct further proceedings consistent with this opinion.

II. Background

Cardoza worked as a truck driver for Durango–McKinley Paper Company (“Durango–McKinley”) until July 2008, when he was involved in an accident and became disabled. Durango–McKinley provided disability insurance to its employees, including Cardoza, through United of Omaha under an ERISA plan. Cardoza initially applied for and received STD benefits for a twelve-week period from July to September 2008. Under the STD policy, Cardoza's STD benefits were calculated using his “Weekly Earnings”:

Weekly Earnings means Your average gross weekly earnings received from the Policyholder [Durango–McKinley] during the Calendar Year immediately prior to the year in which Your Disability began....

It includes commissions, and overtime pay received from the Policyholder. It also includes employee contributions to deferred compensation plans. It does not include Policyholder contributions to deferred compensation plans, bonuses, shift differential, or other extra compensation received from the Policyholder.

Cardoza's weekly earnings and, therefore, his STD benefits, were calculated using his actual 2007 earnings of $61,881.47. United of Omaha received this earnings information from Durango–McKinley in July 2008, during the STD claims process.

Cardoza then applied for LTD benefits, which were also approved. Per the LTD policy, Cardoza's LTD benefits were calculated using his “Basic Monthly Earnings”:

Basic Monthly Earnings means Your average gross monthly earnings received from the Policyholder [Durango–McKinley] and verified by premium We have received during the Calendar Year immediately prior to the year in which Your Disability began ...

It includes commissions, and overtime pay received from the Policyholder. It also includes employee contributions to deferred compensation plans. It does not include Policyholder contributions to deferred compensation plans, bonuses, shift differential, or other extra compensation received from the Policyholder.

United of Omaha based its calculation of Cardoza's basic monthly earnings and, therefore, his LTD benefits, not on his actual earnings in 2007, but on an annual earnings figure of $24,273.60. United of Omaha asserted Durango–McKinley reported and paid premiums on this annual earnings figure in 2007. United of Omaha also asserted that Durango–McKinley had classified Cardoza as an hourly employee whose annual earnings were less than $40,000, for purposes of both the LTD and STD policies. Both policies provide that the premium payable for each period of coverage is the sum of the individual premiums for each insured person and that individual premiums are based on an insured person's classification when a period of coverage begins.

Cardoza objected to United of Omaha's LTD benefits calculation and provided proof of his actual earnings in 2007. The bulk of Cardoza's 2007 income derived from “per ton” or “per load” earnings (“tonnage pay”)—earnings he received based on the weight of the loads carried in his truck. The $24,273.60 earnings figure relied on by United of Omaha in calculating Cardoza's LTD benefits award did not include all of Cardoza's tonnage pay.

United of Omaha refused to adjust the LTD benefits calculation. It reiterated its position that the LTD benefits calculation was properly based on the earnings figure of $24,273.60 that Durango–McKinley had reported and on which it paid premiums in 2007. United of Omaha also asserted that Cardoza's tonnage pay was considered “extra compensation” under the LTD policy and, therefore, excluded from the LTD benefits calculation. In addition, United of Omaha notified Cardoza that it had mistakenly calculated his STD benefits for the same reasons. Thus, United of Omaha requested that Cardoza reimburse it for the alleged overpayment of STD benefits. Cardoza refused.

Cardoza unsuccessfully appealed United of Omaha's LTD benefits decision using United of Omaha's appeals process. After exhausting his administrative remedies, Cardoza filed suit against United of Omaha, challenging its calculation of his LTD benefits and seeking attorney's fees and costs. United of Omaha answered and counterclaimed, arguing it properly calculated Cardoza's LTD benefits and Cardoza owed it for overpayments of STD benefits.

Following limited discovery, United of Omaha moved for judgment on the administrative record and Cardoza moved for summary judgment. The district court granted Cardoza's motion and denied United of Omaha's motion, concluding United of Omaha's decision to treat Cardoza's tonnage pay as “extra compensation,” and, therefore, exclude it from the LTD and STD benefits calculations was arbitrary and capricious. United of Omaha then filed a motion to alter or amend the judgment, arguing the maximum monthly benefit provision in the LTD policy applicable to employees making less than $40,000 annually should be applied to Cardoza, and thereby limit his LTD benefits. The district court denied that motion. Finally, the district court granted Cardoza's motion for attorney's fees and costs. United of Omaha appeals each of these decisions, arguing its decision to calculate Cardoza's LTD and STD benefits using the 2007 earnings and classification information Durango–McKinley reported and paid premiums on was reasonable and made in good faith.

III. AnalysisA. STD and LTD Benefits Calculations

1. Standard of Review

This court reviews summary judgment orders de novo, applying the same standards as the district court. LaAsmar v. Phelps Dodge Corp. Life, Accidental Death & Dismemberment & Dependent Life Ins. Plan, 605 F.3d 789, 796 (10th Cir.2010). In an ERISA case like this, where both parties move for summary judgment and stipulate that no trial is necessary, “summary judgment is merely a vehicle for deciding the case; the factual determination of eligibility for benefits is decided solely on the administrative record, and the non-moving party is not entitled to the usual inferences in its favor.” Id. (quotation omitted). Moreover, this court accords no deference to the district court's decision. Id.

The parties agree United of Omaha's decisions are reviewed under the arbitrary and capricious or abuse of discretion standard because both the LTD and STD policies grant United of Omaha discretion and final authority to construe and interpret the terms of the policy. See id. Under this standard, this court's “review is limited to determining whether the interpretation of the plan was reasonable and made in good faith.” Id. (quotation omitted).

“Certain indicia of an arbitrary and capricious denial of benefits include lack of substantial evidence, mistake of law, bad faith, and conflict of interest by the fiduciary.” Graham v. Hartford Life & Acc. Ins. Co., 589 F.3d 1345, 1357 (10th Cir.2009) (quotation omitted). “Substantial evidence is such evidence that a reasonable mind might accept as adequate to support the conclusion reached by the decisionmaker. Substantial evidence requires more than a scintilla but less than a preponderance.” Sandoval v. Aetna Life & Cas. Ins. Co., 967 F.2d 377, 382 (10th Cir.1992) (quotations omitted).

Because United of Omaha acts as both the claims administrator and payor of benefits, “we must weigh the conflict ‘as a factor in determining whether there is an abuse of discretion,’ according it more or less weight depending on its seriousness.” Murphy v. Deloitte & Touche Group Ins. Plan, 619 F.3d 1151, 1158 n....