D & H Therapy Associates Llc v. Boston Mut. Life Ins. Co.

• Decision Date: 20 April 2011
• Docket Number: 10–1494.,Nos. 10–1423,s. 10–1423
• Citation: 640 F.3d 27,50 Employee Benefits Cas. 2505
• Court: U.S. Court of Appeals — First Circuit
• Parties: D & H THERAPY ASSOCIATES, LLC; Robin Dolan, Plaintiffs, Appellees/Cross–Appellants,v.BOSTON MUTUAL LIFE INSURANCE COMPANY, Defendant, Appellant/Cross–Appellee.

640 F.3d 27

50 Employee Benefits Cas. 2505

D & H THERAPY ASSOCIATES, LLC; Robin Dolan, Plaintiffs, Appellees/Cross–Appellants,

v.BOSTON MUTUAL LIFE INSURANCE COMPANY, Defendant, Appellant/Cross–Appellee.

Nos. 10–1423

10–1494.

United States Court of Appeals, First Circuit.

Heard Dec. 6, 2010.Decided April 20, 2011.

Brooks R. Magratten, with whom Michael J. Daly and Pierce Atwood LLP were on brief, for appellant/cross-appellee.Charles S. Beal, with whom Jonathan E. Pincince and Beal Law, LLC were on brief, for appellees/cross-appellants.Before LYNCH, Chief Judge, TORRUELLA and STAHL, Circuit Judges.LYNCH, Chief Judge.

Both parties appeal from grants of summary judgment in this dispute concerning the benefit eligibility language of a long-term disability benefit plan regulated by the Employee Retirement Income Security Act (ERISA). Plaintiffs D & H Therapy Associates, LLC (D & H), and Robin Dolan appeal from a grant of summary judgment against their claims that Dolan was eligible for and entitled to benefits under the plan or, in the alternative, damages for fraud in the inducement. Defendant Boston Mutual Life Insurance Company (Boston Mutual), in turn, appeals from entry of summary judgment against its counterclaim that it is entitled to reimbursement for payments already made to Dolan, which it says were mistaken.

D & H obtained an ERISA plan from Boston Mutual in 2000. Under the plan, employees who suffer specified reductions in monthly earnings due to long-term disability are eligible for benefits. Dolan is both a part-owner and an employee of D & H. In 2001, she became physically unable to continue some of her tasks as an employee, which prompted a reduction in her monthly W–2 earnings. In 2002, she began receiving benefits under the plan. After a 2006 audit, however, Boston Mutual terminated the benefits and demanded Dolan return past payments. It told Dolan that she had failed to account for her non-salary income, including earnings from her ownership stake in D & H. With those ownership earnings included, Boston Mutual stated, Dolan's monthly earnings had been higher than her pre-disability monthly earnings since 2002, and so she was not and had never been eligible for payments.

After Dolan filed unsuccessful administrative appeals with Boston Mutual's third-party claims administrator, she and D & H initiated this litigation against Boston Mutual. Except as needed we refer to both plaintiffs as Dolan. Dolan challenges her benefit termination on two grounds. First, she argues that the plan defines “earnings” as W–2 income such that non-salary income is not relevant to eligibility determinations. Second, she argues that Boston Mutual should be estopped from construing the plan otherwise because it represented to D & H at the time of purchase that the plan defined “earnings” as W–2 income. In the alternative, Dolan claims that Boston Mutual's representations fraudulently induced D & H to forego renewing its preexisting insurance policy. Boston Mutual counterclaims that under the plan it is entitled to reimbursement of the $163,661.57 it paid to Dolan.

The district court granted summary judgment to each party on the claims brought by the other. As to Dolan's claims, it held that Boston Mutual's construction of the plan's language was within its discretion as the plan administrator and that Dolan's fraudulent inducement claim was preempted by ERISA. As to Boston Mutual's counterclaim, it held that the reimbursement sought did not qualify as appropriate equitable relief under ERISA.

We hold that Boston Mutual abused its discretion when it determined that Dolan has never been eligible for benefits under the plan. This holding requires entry of judgment for Dolan on both her wrongful denial of benefits claim and on Boston Mutual's counterclaim for recoupment of past payments. Accordingly, we reverse the district court's entry of judgment for Boston Mutual on Dolan's denial of benefits claim and affirm for Dolan on Boston Mutual's counterclaim. We need not reach Dolan's equitable estoppel argument or her fraud in the inducement claim.

I.

Dolan and her partner Kim Havunen each hold a half ownership stake in D & H, a firm that provides physical, occupational, and speech therapy services at several clinics in Rhode Island.¹ At all times relevant to this suit, Dolan and Havunen were also employees of the firm. Dolan served as the director of clinical services and as a physical therapist, while Havunen served as the director of business operations. Like other employees of the firm, Dolan and Havunen drew salary based on the number of hours they worked. Their salaries were not influenced, at least directly, by their ownership stakes in D & H.

A. D & H's Acquisition of the Boston Mutual Plan

In 1997, D & H obtained a long-term disability insurance policy from Guarantee Life Insurance Company (Guarantee Life). D & H obtained the policy with the help of an insurance agent, Benefit Services, Inc. (Benefit Services). Havunen led the efforts to obtain this policy. She testified that she explained to a Benefit Services representative that D & H wanted a policy that would protect W–2 earnings such that the principals of the firm would be insulated against loss of the salary form of their income. Havunen understood the Guarantee Life policy to reflect this request. According to Havunen, the policy defined protected earnings for principals as W–2 earnings.

In 2000, the Guarantee Life policy was expiring. As D & H considered whether to renew the policy, the same Benefit Services representative who had assisted D & H with the Guarantee Life policy contacted Havunen. The representative, Maureen Baker, informed Havunen that she had received a quote from a different insurance provider at a better rate. Havunen testified that she told Baker that D & H would only consider switching to the new policy if the policy protected W–2 earnings in the same manner as she understood the Guarantee Life policy did. Havunen testified further that when Baker identified the quote in question as belonging to Boston Mutual, Havunen reiterated this requirement.

To ensure that the Boston Mutual policy would meet these specifications, Havunen testified, she and Baker met with a Boston Mutual agent, Thomas Liszanckie. Havunen testified that Liszanckie assured her that the Boston Mutual policy would contain the same definitions of “earnings” and “income” as the Guarantee Life policy. She testified as well that Liszanckie brought a written “Group Insurance Proposal,” which he said contained the requested protection for W–2 income. Havunen testified that Liszanckie identified the last page of the proposal as ensuring this protection. That page includes the following statement: “Definition of Earnings: Basic Annual Earnings shall mean the Insured Person's earnings for the prior calendar year as reported by the Group Policyholder on form W–2.”

Havunen testified that, based on Liszanckie's statements and the proposal's definition of earnings, D & H did not renew the Guarantee Life policy and instead purchased the Boston Mutual policy. When Havunen received the final language of the policy, she expressed some concern to Baker about the policy's terms relating to “any other income from employment,” which might be construed to include income other than W–2 income. Baker, Havunen testified, assured her that this language only referred to other income that may be included in W–2 earnings, like bonuses and commissions. Havunen did not contest the final policy language. She testified that D & H would not have signed on to the policy if not for Liszanckie and Baker's representations.

Boston Mutual disputes Havunen's testimony concerning her conversations with Baker, the content of the Guarantee Life policy, and her interactions with Liszanckie. Baker testified that, in her discussions with Havunen about both the Guarantee Life policy and the Boston Mutual policy, Havunen told her that she wanted to protect the K–1 income of D & H's principals, not their W–2 income. Baker also speculated that a portion of the Guarantee Life policy not present in the record defined earnings for principals differently from that of other employees and included non-salary income. ² Liszanckie testified that while he occasionally dropped off insurance forms to customers before they signed an insurance policy, he rarely met with the customers and he could not recall whether he met with Havunen and Baker.

B. The Terms of the Boston Mutual Plan

Having reviewed these disputed facts concerning D & H's decision to obtain the Boston Mutual policy, we turn to the plan language that governs that policy. There is no dispute that the policy, unlike the Guarantee Life policy, is governed by ERISA. We divide discussion of the plan's contents between provisions concerning benefit eligibility, provisions concerning benefit calculation, and provisions concerning overpayment of claims.

As to benefit eligibility, principals and all other employees are eligible for benefits if they suffer a specified loss in earnings due to disability. This applies when these individuals “are not able to perform some or all of the material and substantial duties of [their] regular occupation” and “have at least a 20% loss in [their] pre-disability earnings.” This litigation does not concern what rises to an inability to perform occupational duties.

It concerns, instead, what it means to have a 20% loss in pre-disability earnings as defined by the plan. For both principals and all other employees, the plan gives these definitions concerning earnings: “Pre-disability earnings means your monthly rate of earnings from the employer in effect just prior to the date disability begins. Basic annual Earnings shall mean the Insured Person's earnings for the prior calendar year as reported by the Group Policyholder on form W–2, excluding commissions.” If an individual has earnings for less than a calendar year,...