Gross v. Sun Life Assurance Co. of Canada

• Decision Date: 16 August 2013
• Docket Number: No. 12–1175.,12–1175.
• Citation: 734 F.3d 1
• Parties: Diahann L. GROSS, Plaintiff, Appellant, v. SUN LIFE ASSURANCE COMPANY OF CANADA, Defendant, Appellee.
• Court: U.S. Court of Appeals — First Circuit

734 F.3d 1

Diahann L. GROSS, Plaintiff, Appellant,

v.SUN LIFE ASSURANCE COMPANY OF CANADA, Defendant, Appellee.

No. 12–1175.

United States Court of Appeals,

First Circuit.

Aug. 16, 2013.

Michael D. Grabhorn, with whom Jonathan M. Feigenbaum and Grabhorn Law Office, PLLC were on brief, for appellant.

Joshua Bachrach, with whom Wilson, Elser, Moskowitz, Edelman & Dicker LLP was on brief, for appellee.

Before THOMPSON, SELYA, and LIPEZ, Circuit Judges.

LIPEZ, Circuit Judge.

This case requires us to determine, inter alia, whether the “safe harbor” exception to the Employee Retirement Income Security Act of 1974 (“ERISA”) applies to the long term disability insurance policy that covers appellant Diahann Gross. The district court found that it did not. The court therefore held that Gross's state law claims were preempted. Furthermore, it concluded that her insurer was entitled to the highly deferential “arbitrary and capricious” review prescribed for certain ERISA benefits decisions. Using that standard, the court upheld the insurer's denial of benefits to Gross.

On appeal, Gross asserts that the district court triply erred. She first argues that the safe harbor exception applies, removing her benefits claim from the ERISA scheme. She further maintains that, even accepting that ERISA governs, the court reviewed the insurer's decision under the wrong standard and—even under that standard—reached the wrong result.

Each of appellant's contentions raises a substantial question. Although we agree with the district court that the safe harbor exception is inapplicable, we hold that the benefits denial was subject to de novo review. Joining several other circuits, we conclude that language requiring proof of disability “satisfactory to us” is inadequate to confer the discretionary authority that would trigger deferential review. We also conclude that the administrative record is inadequate to allow a full and fair assessment of Gross's entitlement to disability benefits. Hence, we vacate the judgment and remand the case to the district court so that it may return the matter to Sun Life for further development of the record as described below.

I.

In reciting the facts germane to resolution of this ERISA appeal, we draw on the record that was before the claims administrator. Buffonge v. Prudential Ins. Co. of Am., 426 F.3d 20, 22 (1st Cir.2005).

A. Background

Appellant Gross, an optician and office manager for Pinnacle Eye Care LLC in Lexington, Kentucky, was placed on disability leave in early August 2006, when she was 34 years old. She complained of severe pain, weakness and numbness in her legs and arms, and recurring headaches that had been worsening since early 2004. Gross's treating physician concluded that she had reflex sympathetic dystrophy (“RSD”),¹fibromyalgia, migraines, and chronic fatigue. In a report signed in September 2006, the doctor wrote that Gross “cannot work.”

Gross is covered under a long term disability (“LTD”) policy that Pinnacle obtained from Medical Group Insurance Services, Inc. (“MGIS”), a company that sells employee benefit coverage provided by the United Health Services Employer's Trust (“the Trust”). Pinnacle had obtained group policies from the Trust, through MGIS, since 2003,² with the policies originally written by The Hartford Life & Accident Insurance Company (“Hartford”) and, beginning in 2006, by appellee Sun Life Assurance Company of Canada. Pinnacle paid 100 percent of its employees' premiums for life and accidental dismemberment and death (“AD & D”) insurance, but the employees themselves paid for LTD coverage. Despite the payment differences, the policies were administered under the same group number, MGIS Group. No. 20178808, and all of the coverage was billed to Pinnacle in a single monthly statement.³

Shortly after leaving her job, Gross filed a claim with MGIS seeking long term disability benefits. The administrative record includes voluminous medical evidence, some submitted by Gross to support her application for benefits and some solicited by Sun Life to aid in its evaluation. Sun Life also hired an investigator to perform a background check and video surveillance on Gross. In April 2007, Sun Life notified Gross that it had denied her request for benefits because of “insufficient objective evidence to substantiate” a disability that precluded her from performing her duties at Pinnacle. In so concluding, the insurer relied, inter alia, on its video surveillance and the opinions of consulting physicians who reviewed Gross's medical history but did not physically examine her. Gross filed an administrative appeal, which Sun Life rejected in January 2008 with the explanation that it had found “no basis on which to conclude that Ms. Gross would be unable to perform the Material and Substantial Duties of her Own Occupation.” Sun Life emphasized the discrepancy between Gross's activities while under surveillanceand her appearance and behavior during medical visits.

B. Procedural History

Gross initially filed a lawsuit against Sun Life in Kentucky state court challenging the insurer's denial of benefits on state law grounds, but later dismissed that action without prejudice. In September 2009, she filed suit in Norfolk County Superior Court in Massachusetts, again alleging only state law causes of action.⁴ Sun Life removed the new action to federal district court and filed a motion to dismiss based on ERISA preemption. After the court ruled in Sun Life's favor, Gross amended her complaint to add claims under 29 U.S.C. § 1132, which, among other things, provides a cause of action for an ERISA plan participant “to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan.” 29 U.S.C. § 1132(a)(1)(B).

In February 2011, Gross filed a motion asking that the district court apply de novo review in its evaluation of her ERISA claims, based on the Supreme Court's decision in Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989). See id. at 115, 109 S.Ct. 948 (stating that the default standard for ERISA claims is de novo). The court denied the motion, and cross motions for summary judgment followed. On January 6, 2012, the district court granted summary judgment for Sun Life and denied Gross's parallel motion. The court held that Sun Life's decision to deny benefits was not arbitrary and capricious, and thus complied with ERISA's requirements. In so ruling, the court noted that plan administrators “ ‘are not obligated to accord special deference to the opinions of treating physicians,’ ” Gross v. Sun Life Assurance Co. of Canada, No. 09–11678–RWZ, 2012 WL 29061, at *4 (D.Mass. Jan. 6, 2012) (quoting Black & Decker Disability Plan v. Nord, 538 U.S. 822, 825, 123 S.Ct. 1965, 155 L.Ed.2d 1034 (2003)), and that “even ‘sporadic surveillance capturing limited activity’ may be used to uphold termination of benefits, particularly where videos show plaintiff engaging in activities that specifically contradict her claims as to ‘how she spent her time and what [actions] she could tolerate,’ ” id. at *5 (quoting Maher v. Mass. Gen. Hosp. Long Term Disability Plan, 665 F.3d 289, 295 (1st Cir.2011)).

On appeal, Gross asserts that the district court incorrectly found that: (1) her long term disability policy was part of an ERISA plan; (2) the plan gave Sun Life discretionary authority to make claims decisions, thus allowing only arbitrary and capricious review of the insurer's rejection of benefits; and (3) Sun Life permissibly exercised its discretion in denying benefits to her. We begin as we must with Gross's contention that her claims do not fall under ERISA.

II.

A finding that ERISA governs a benefits plan typically will impact a plaintiff's appeal of her insurer's denial of benefits in ways that will make that challenge more difficult. See Johnson v. Watts Regulator Co., 63 F.3d 1129, 1131–32 (1st Cir.1995). The application of ERISA triggers preemption of state-law principles, see29 U.S.C. § 1144(a), which “may cause potential state-law remedies to vanish, or may change the standard of review, or may affect the admissibility of evidence, or may determine whether a jury trial is available.” Watts Regulator, 63 F.3d at 1131–32 (citations omitted); see also Aetna Health Inc. v. Davila, 542 U.S. 200, 215, 124 S.Ct. 2488, 159 L.Ed.2d 312 (2004) (“The limited remedies available under ERISA are an inherent part of the ‘careful balancing’ between ensuring fair and prompt enforcement of rights under a plan and the encouragement of the creation of such plans.” (quoting Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 55, 107 S.Ct. 1549, 95 L.Ed.2d 39 (1987))). Gross's vigorous opposition to applying ERISA to her claim is therefore unsurprising.

With exceptions not pertinent here, ERISA applies to “any employee benefit plan if it is established or maintained ... by any employer engaged in commerce or in any industry or activity affecting commerce.” 29 U.S.C. § 1003(a)(1).⁵ We have observed that “the existence of a plan turns on the nature and extent of an employer's benefit obligations,” Belanger v. Wyman–Gordon Co., 71 F.3d 451, 454 (1st Cir.1995), and, accordingly, the two common ways to show that a benefits decision falls outside ERISA both involve inquiry into the employer's relationship with the benefits under scrutiny. First, the regulatory “safe harbor” provision excludes “group or group-type insurance programs” from ERISA's oversight if they satisfy four criteria:

(1) the employer makes no contributions on behalf of its employees;

(2) participation in the program is voluntary;

(3) the employer's sole functions are to collect premiums and remit them to the insurer, and, without endorsing the program, to allow the insurer to publicize the program to its employees; and

(4) the employer receives no consideration for its efforts, other than...