Williby v. Aetna Life Ins. Co.

• Decision Date: 15 August 2017
• Docket Number: No. 15-56394,15-56394
• Parties: Yvette WILLIBY, Plaintiff-Appellee, v. AETNA LIFE INSURANCE CO., Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

867 F.3d 1129

Yvette WILLIBY, Plaintiff-Appellee,

v.AETNA LIFE INSURANCE CO., Defendant-Appellant.

No. 15-56394

United States Court of Appeals, Ninth Circuit.

Argued and Submitted April 5, 2017, Pasadena, California

Filed August 15, 2017

Matthew G. Kleiner (argued), San Diego, California, for Defendant-Appellant.

Christian J. Garris (argued), Los Angeles, California, for Plaintiff-Appellee.

Before: Milan D. Smith, Jr. and N. Randy Smith, Circuit Judges, and Gary Feinerman, District Judge.^*

OPINION

FEINERMAN, District Judge:

Plaintiff-Appellee Yvette Williby worked for The Boeing Company, which provided her with short-term disability payments through a plan that it self-funded. Defendant-Appellant Aetna Life Insurance Company administered the plan. After Aetna determined that Williby was not disabled and terminated her benefits, Williby brought suit under the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. §§ 1001 – 1461. Applying de novo review, the district court held that Aetna improperly denied Williby's claim. See Williby v. Aetna Life Ins. Co. , No. 2:14-CV-04203, 2015 WL 5145499 (C.D. Cal. Aug. 31, 2015). Aetna appeals, contending that the district court should have reviewed the denial only for abuse of discretion. Aetna is correct, so we vacate and remand to the district court for reconsideration under the proper standard of review.

BACKGROUND

Boeing's short-term disability (STD) benefit plan for its employees pays them between sixty and eighty percent of their salary if, because of a disability, they cannot perform their usual job responsibilities or other similar work at Boeing. The STD plan is self-funded, meaning that Boeing does not purchase an insurance policy to cover its plan obligations; rather, Boeing pays benefits from its own coffers, and retains Aetna to administer the plan. See FMC Corp. v. Holliday , 498 U.S. 52, 54, 111 S.Ct. 403, 112 L.Ed.2d 356 (1990) (describing self-funded ERISA plans). There is a 26-week limit on STD benefits, after which the employee must apply for long-term disability (LTD) benefits.

The STD plan expressly provides Aetna with "full discretionary authority to determine all questions that may arise," including whether and to what extent a plan participant is entitled to benefits. This provision is known as a "discretionary clause." See Standard Ins. Co. v. Morrison , 584 F.3d 837, 840–41 (9th Cir. 2009) (describing discretionary clauses). The presence of a discretionary clause typically means that a court reviewing an adverse benefits determination will do so only for abuse of discretion. See Firestone Tire & Rubber Co. v. Bruch , 489 U.S. 101, 115, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989) ; Abatie v. Alta Health & Life Ins. Co. , 458 F.3d 955, 963 (9th Cir. 2006) (en banc).

Williby worked for Boeing as a Supply Chain Specialist, a position that required her to problem-solve, interact with customers and vendors, conduct research, and assess technical issues. In September 2011, she was briefly hospitalized after suffering either a stroke or a stroke-like episode. In November 2012, Williby found herself experiencing chronic headaches and other problems that caused her difficulty at work. In December 2012, she saw a neurologist, Dr. David Edelman, who performed various assessments. Computerized cognitive tests showed that Williby's overall cognitive function fell within a normal range, and an MRI revealed no "acute infarct"—brain tissue damage—and no hemorrhage. But Williby's executive functions—the ability to organize information and to respond quickly and accurately—"predicted a moderate likelihood of ‘mild cognitive impairment.’ " Dr. Edelman found that Williby suffered from "migraine, acute but ill-defined cerebrovascular disease, and vascular dementia uncomplicated," and on those premises concluded that she should go on disability "pending further testing." On December 12, 2012, Williby left her employment at Boeing, never to return.

Aetna approved Williby for STD benefits from December 20, 2012 through February 28, 2013 based on Dr. Edelman's testing and conclusions. However, Aetna denied Williby STD benefits for the period from February 28, 2013 through June 2013. Dr. Vaughn Cohan, the Aetna-retained neurologist responsible for the denial, reviewed the file, spoke with Dr. Edelman by telephone, and concluded that Williby could still work because, despite her executive function impairments, her cognitive function was normal overall, the MRI showed no "acute" abnormalities, and she had not undergone formal neuropsychological testing to follow up on Dr. Edelman's initial tests.

At several points between April and November 2013, Dr. Edelman reaffirmed his conclusion that Williby was unable to work. Also, between June 2013 and December 2013, Williby saw a second neurologist, a neuropsychologist, a psychologist, and a psychiatrist, all of whom agreed that she exhibited cognitive impairment and the majority of whom specifically determined that it disabled her from working.

After Aetna terminated Williby's STD benefits, she appealed the decision within Aetna, armed with the additional doctors' reports. Aetna hired an occupational medicine specialist and a neuropsychologist to review the case. Both reviewers concluded that there was insufficient objective documentation of Williby's disability, with the occupational medicine specialist explaining that any impairment was "self-reported" and "primarily based on mood disorder/behavioral issues," and the neuropsychologist concluding that "the provided information did not include sufficient findings to corroborate" Williby's claimed cognitive impairments or their interference with her work. Aetna upheld its decision to deny benefits in February 2014, determining that "there was insufficient medical evidence to support continued disability" after February 28, 2013.

Williby then sued Aetna in the Central District of California for "breach of plan and recovery of plan benefits" under ERISA, invoking ERISA's jurisdictional provision, 29 U.S.C. § 1132(e). A bench trial ensued, based on the administrative record.

The district court reviewed de novo Aetna's denial of benefits, notwithstanding the STD plan's discretionary clause. The court did so based on its view that California Insurance Code § 10110.6 —which voids any discretionary clause in "a policy, contract, certificate, or agreement ... that provides or funds life insurance or disability insurance coverage"—governed the STD plan. In so holding, the court rejected Aetna's argument that Boeing's STD plan was beyond the scope of § 10110.6 because it was self-funded. The district court did not discuss whether ERISA preempted § 10110.6 under the circumstances of this case.

The district court then held that Williby was disabled from at least February 28, 2013 through June 20, 2013—when she would have reached the 26-week limit for receiving STD benefits—and that Aetna's decision to terminate her STD benefits sooner was improper. The court reasoned that there was no basis for Aetna's finding that Williby was disabled before February 28 but not after, as "[n]othing in the record suggests that Plaintiff's cognitive impairment ceased or improved" after that date. The court also gave "more weight to those doctors who treated Plaintiff"—all of whom concluded that she demonstrated cognitive impairment—and noted that Aetna's doctors simply reviewed the treating doctors' work.

In a footnote, the court added that its ultimate conclusion would remain the same "[e]ven under an abuse of discretion standard" and even "viewing Aetna's decision with no degree of skepticism since Aetna did not have ... a direct financial incentive to deny benefits since benefits are funded by Boeing." The court explained briefly that Aetna's benefits denial failed to clear even the low abuse of discretion bar for two reasons: (1) every doctor who treated Williby thought she was disabled or demonstrated considerable cognitive impairment; and (2) although Aetna relied on a "lack of objective clinical support" in terminating her STD benefits, it never had its physicians examine Williby or asked her to undergo any particular testing.

Aetna timely appealed.

DISCUSSION

This appeal requires us to determine whether the district court selected and applied the proper standard of review in this case. We find that it did not.

I. The Abuse of Discretion Standard Governs Judicial Review of Aetna's Denial of STD Benefits

"We review de novo a district court's choice and application of the standard of review to decisions by fiduciaries in ERISA cases. We review for clear error the underlying findings of fact." Estate of Barton v. ADT Sec. Servs. Pension Plan , 820 F.3d 1060, 1065 (9th Cir. 2016) (quoting Abatie , 458 F.3d at 962 ).

Because it contains a discretionary clause, the STD plan by its terms calls for abuse of discretion review. The district court reviewed the benefits denial de novo , however, because it concluded that California Insurance Code § 10110.6 invalidated such discretionary clauses. On appeal, Aetna mounts a two-pronged attack on that conclusion. First, it contends that § 10110.6 does not apply to self-funded plans like the Boeing STD plan at issue here. Second, and in the alternative, it contends that even if § 10110.6does apply to Boeing's plan, ERISA preempts it. So the district court's de novo review was appropriate only if § 10110.6 applies to the STD plan and ERISA does not preempt § 10110.6 under the circumstances of this case. Otherwise, the appropriate standard of review was abuse of discretion.

A. Section 10110.6 Applies to Boeing's Plan

Section 10110.6 states, in relevant part:

(a) If a policy, contract, certificate, or agreement offered, issued, delivered, or renewed ... that provides or funds life insurance or disability insurance coverage for any California resident contains a provision that reserves discretionary authority to the insurer, or an agent of the insurer, to determine eligibility for

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