Ramsey v. Hercules Inc., 95-1574

• Decision Date: 29 February 1996
• Docket Number: No. 95-1574,95-1574
• Citation: 77 F.3d 199
• Parties: Pens. Plan Guide P 23918H Linda RAMSEY, Plaintiff-Appellant, v. HERCULES INCORPORATED and Provident Life and Accident Insurance Company, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 199

77 F.3d 199

Pens. Plan Guide P 23918H

Linda RAMSEY, Plaintiff-Appellant, v. HERCULES INCORPORATED and Provident Life and Accident

Insurance Company, Defendants-Appellees.

No. 95-1574.

United States Court of Appeals, Seventh Circuit.

Argued Sept. 11, 1995.

Decided Feb. 29, 1996.

Keith L. Johnson (argued), Terre Haute, IN, for Plaintiff-Appellant.

David W. Sullivan (argued), Cox, Zwerner, Gambill & Sullivan, Terre Haute, IN, for Defendants-Appellees.

Before BAUER, KANNE, and DIANE P. WOOD, Circuit Judges.

DIANE P. WOOD, Circuit Judge.

The question in this case turns on what exactly Hercules Incorporated promised its employees in the Hercules Income Protection Plan, with respect to the long term disability portion of that plan, and more particularly on how much discretion it conferred on the plan administrator. Linda Ramsey, an employee of Hercules from October 1975 until 1991, challenged the decision of Provident Life and Accident Insurance Company, the plan administrator, to terminate her long term disability benefits as of July 8, 1993. The district court concluded that the Plan gave the administrator discretionary authority to determine participant eligibility, and it thus reviewed Ramsey's claim under the "arbitrary and capricious" standard. From that perspective, the court found that the administrator's action was neither arbitrary, capricious, nor "downright unreasonable," and it granted summary judgment to the defendants. Because we conclude, upon an independent review of the language of this particular Plan, that the administrator did not have the necessary discretion to support this standard of review, we reverse and remand for further proceedings.

I.

After working for Hercules for more than fifteen years, Ramsey submitted a claim for long term disability benefits under the Plan on June 11, 1991, stating that she had been totally disabled since January 8, 1991. (Between January and June, Ramsey received short term disability benefits, which are not at issue here.) The plan administrator found her eligible for benefits, and she received total disability benefit payments for twenty-four months. During that time period, Provident monitored Ramsey's abilities. As a result of its review, on April 23, 1993, Provident decided that her benefits should cease as of July 8, 1993. Upon Ramsey's request for reconsideration, Provident took another look at the record and decided on July 23, 1993, to reaffirm its earlier decision. Ramsey then brought an action in the district court under the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1132(a)(1)(B), which permits plan beneficiaries to sue in federal court to recover benefits due to them.

The Plan describes the short term disability benefits and the long term disability plan in separate sections. It explains at the outset that the two types of benefits offer different coverage and have different eligibility requirements. Both the short term benefits and the long term benefits sections address the important question "when benefits end." For short term benefits, the Plan provides that benefits end at the earliest of the following:

* When you refuse to provide information about your disability to the Company or refuse medical examinations by a physician chosen by the Company to determine your fitness for work.

* When you are no longer disabled and you are capable of returning to work as determined by the Company.

* When you refuse reasonable work at your location.

* When you have been paid all the benefits for which you are eligible.

(Emphasis added). With respect to long term benefits, the Plan states that benefits begin after short term benefits end. In most situations, the Plan continues, "these benefits continue as long as you remain disabled, up to age 65." Thus, logically enough, when disability ends, the right to benefits ends also. In a section entitled "End of Disability," located in the long term disability section of the Plan document, the Plan explains the end-point further:

Your disability is considered to have ended when the earliest of the following occurs:

* You are no longer totally disabled.

* You begin work in a job for which you are reasonably qualified by training, education, or experience.

* You fail to furnish proof of your continuous total disability or refuse to be examined by a doctor assigned by the Company's Claims Administrator.

* You cease to be treated by a licensed physician.

The plan administrator cited the first of these criteria as the reason for terminating Ramsey's benefits.

II.

The Supreme Court established the standard by which a plan administrator's decision to deny benefits is to be reviewed in a challenge under ERISA, 29 U.S.C. § 1132(a)(1)(B), in Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989). Analogizing ERISA's provisions to traditional rules of trust law, the Court held that "a denial of benefits challenged under § 1132(a)(1)(B) is to be reviewed under a de novo standard unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan." Id. at 115, 109 S.Ct. at 956. Where a plan confers power on the administrator to exercise discretion, the appropriate standard of review is the deferential "arbitrary and capricious" one. Id. at 111, 109 S.Ct. at 954. See also Donato v. Metropolitan Life Ins. Co., 19 F.3d 375 (7th Cir.1994).

Firestone established the basic framework for the standard of review, but as we pointed out in Petrilli v. Drechsel, 910 F.2d 1441, 1446-47 (7th Cir.1990), the courts have disagreed about whether Firestone requires de novo review only of benefit denials based upon an interpretation of a plan or also of benefit denials based upon factual determinations. Both the narrower reading and the broader reading find some support in Firestone. Those favoring the narrower reading focus upon the language the Court used to introduce its analysis, which reads "[t]he discussion which follows is limited to the appropriate standard of review in § 1132(a)(1)(B) actions challenging denials of benefits based on plan interpretations." Firestone, 489 U.S. at 108, 109 S.Ct. at 953 (emphasis added). See Pierre v. Connecticut General Life Insurance Co., 932 F.2d 1552, 1561 (5th Cir.1991) (de novo review limited to denials based on plan interpretations), cert. denied, 502 U.S. 973, 112 S.Ct. 453, 116 L.Ed.2d 470 (1991). Those favoring the broader reading stress the language the Court used to summarize its holding, which refers both to eligibility determinations and to plan interpretation: "we hold that a denial of benefits challenged under § 1132(a)(1)(B) is to be reviewed under a de novo standard unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan." Firestone, 489 U.S. at 115, 109 S.Ct. at 957 (emphasis added). See Reinking v. Philadelphia American Life Insurance Co., 910 F.2d 1210, 1214 (4th Cir.1990) (de novo review anytime the administrator is not granted discretion); Luby v. Teamsters Health, Welfare, and Pension Trust Funds, 944 F.2d 1176, 1183 (3d Cir.1991) (same, noting its agreement with Petrilli ). See also Brown v. Ampco-Pittsburgh Corp., 876 F.2d 546, 551 (6th Cir.1989) (same, but without specific discussion).

Although we described the narrower reading of Firestone as "plausible" in Petrilli, we strongly suggested that the broader reading is more consistent with the Supreme Court's opinion. 910 F.2d at 1447. We noted, for example, that the Court could have omitted the phrase "to determine eligibility for benefits" emphasized above, if it had intended the narrower reading. We also noted that the Court's rationale, adopted from trust law, focuses upon whether the written plan conferred discretion on the administrator, not on the type of decision--factual or interpretative--that the administrator is making. Petrilli, however, did not resolve the issue because it turned only on the interpretation of a plan, not the application of the plan to disputed facts. Today's case, in contrast, squarely raises the question flagged in Petrilli: is Ramsey entitled to de novo review of the administrator's factual determination about her long term disability.

We begin with the language of § 1132(a)(1)(B) and such guidance as we have from the Supreme Court. Because the statute does not specify a particular standard of review for actions brought under it, we turn to trust law for guidance, in keeping with Firestone, 489 U.S. at 110-11, 109 S.Ct. at 954-55, and our earlier decision in Petrilli.

Under general principles of trust law, courts do not alter the standard under which they review a trustee's decision based on the characterization of that decision as interpretive or factual. When a beneficiary asks a court to review the actions or inactions of a trustee, the court normally distinguishes between discretionary and mandatory powers. Dunkley v. Peoples Bank & Trust Co., 728 F.Supp. 547, 556 (W.D.Ark.1989); Brummett v. Hewes, 311 Mass. 142, 40 N.E.2d 251, 252 (1942); Woodard v. Mordecai, 234 N.C. 463, 67 S.E.2d 639, 644 (1951). See also Restatement (Second) of Trusts § 187; G. Bogert & G. Bogert, Law of Trusts and Trustees § 560, at 193-208 (2d rev. ed. 1980); W. Fratcher, Scott on Trusts § 187, at 14-51 (4th ed. 1988). While courts will not cabin a trustee's exercise of a discretionary power except to curb an abuse of discretion, they will compel a trustee to execute a mandatory power. Dunkley, 728 F.Supp. at 556; Brummett, 40 N.E.2d at 252; Woodard, 67 S.E.2d at 644. One illustration of this principle occurs when a trustee's power is triggered by the happening of some future event or condition, and a beneficiary tries to compel the trustee to act. G. Bogert & G. Bogert, Law of Trusts and Trustees § 560, at 191-193; W. Fratcher, Scott...