Diaz v. Prudential Ins. Co. of America

• Citation: 424 F.3d 635
• Decision Date: 20 September 2005
• Docket Number: No. 04-2342.,04-2342.
• Parties: Hugo DIAZ, Plaintiff-Appellant, v. PRUDENTIAL INSURANCE COMPANY OF AMERICA, Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 635

424 F.3d 635

Hugo DIAZ, Plaintiff-Appellant, v. PRUDENTIAL INSURANCE COMPANY OF AMERICA, Defendant-Appellee.

No. 04-2342.

United States Court of Appeals, Seventh Circuit.

Argued January 3, 2005.

Decided September 20, 2005.

Mark D. Debofsky (argued), Daley, Debofsky & Bryant, Chicago, IL, for Plaintiff-Appellant.

Daniel J. McMahon, Rebecca Rothmann (argued), Wilson, Elser, Moskowitz, Edelman & Dicker, Chicago, IL, for Defendant-Appellee.

Before BAUER, EASTERBROOK, and WOOD, Circuit Judges.

WOOD, Circuit Judge.

This case involves Hugo Diaz's pursuit of long-term benefits under his company's group insurance disability plan. Prudential Insurance Company of America, the plan's underwriter, denied Diaz's application, both initially and through several rounds of appeal. Diaz turned to the courts, but the district court concluded that the plan gave the administrator discretionary authority to determine participant eligibility. It therefore reviewed Prudential's decision under the deferential "arbitrary and capricious" standard and concluded that Prudential was entitled to summary judgment. We conclude that deferential review was not appropriate given the language of this plan and thus remand for further proceedings.

I

Diaz began working in 1998 as a computer programmer analyst at Bank One in Chicago. As a Bank One employee, he participated in a group disability insurance plan under-written by Prudential. The plan included a long-term disability component (LTD Plan) that provided benefits to a participant who was unable to perform the essential functions of his or her regular occupation as a result of an injury or illness.

In 2000, Diaz began experiencing persistent lower back pain and was diagnosed with degenerative disc disease and radiculopathy. For about two years, he underwent a series of non-operative medical treatments that included lumbar epidural steroid injections, physical therapy, and pain medication. Because his condition was not improving and he was in considerable pain, he stopped working on January 31, 2002. On February 4, on the recommendation of his physician, Diaz underwent a lumbar fusion procedure with hardware implantation to correct an annular tear at the lumbosacral joint, or L5-S1. Although postoperative examinations showed that the hardware alignment was satisfactory and there were no neurological deficits in his lower extremities, Diaz continued to report varying levels of pain in his back and legs. At times, Diaz reported that he felt hardware movement in his back, but each time he had this checked out, X-rays revealed that no movement had occurred and that the fusion was consolidating satisfactorily. After months of ineffective physical therapy and pain medication, he decided that he could not return to work.

Diaz submitted a claim for benefits under the LTD Plan on July 22, 2002, alleging that the back pain had rendered him disabled as of February 4, 2002. He supported his application with several doctors' notes expressing the opinion that Diaz's condition prevented him from sitting for more than fifteen to twenty minutes. Prudential denied the claim on August 27, for the stated reason that Diaz's reported inability to perform his job (which it considered a sedentary one) was not consistent with the medical evidence. Diaz sought reconsideration of the rejection on October 22 and submitted additional medical evidence in support of his claim, but Prudential upheld its negative decision on January 22, 2003. Diaz then filed a second appeal on February 4. This time, Prudential submitted Diaz's medical documentation to its medical consultant, Dr. Gale Brown, for review. Although Dr. Brown did not personally examine Diaz, he opined based on Diaz's medical records that the clinical and diagnostic evidence relating to Diaz's lumbar spine condition did not support Diaz's reports of persistent pain. He concluded that Diaz's condition did not prevent him from performing his job on a full-time basis. Dr. Brown noted, however, that there were non-physical factors that were having an adverse impact on Diaz's ability to engage in gainful employment, including his anxiety over losing his job, depression, and opioid dependency, but Diaz was not seeking benefits on any of those bases. On April 16, 2003, Prudential again upheld its decision denying Diaz benefits.

Diaz filed this action in district court on April 22, 2003, under § 502(a)(1)(B) of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1132(a)(1)(B), seeking an award of benefits under the LTD Plan. On May 12, 2004, the district court granted summary judgment in favor of Prudential, finding that Prudential's denial of benefits was not arbitrary or capricious. On appeal, Diaz contends that the court should have reviewed Prudential's decision de novo. In the alternative, he asserts that Prudential's decision is unsupportable even under the deferential standard of review and urges this court to award benefits.

II

The Supreme Court has 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." Firestone Tire & Rubber v. Bruch, 489 U.S. 101, 115, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989). Under Bruch, plenary review is the default standard. We have held that plenary review is required when the plan documents contain no indication of the scope of judicial review, because "it is a natural and modest extension of Bruch, or perhaps merely a spelling out of an implication of it, to construe uncertain language concerning the scope of judicial review as favoring plenary review as well." Herzberger v. Standard Ins. Co., 205 F.3d 327, 330 (7th Cir.2000). If a plan "is going to reserve a broad, unchanneled discretion to deny claims, [plan participants] should be told this, and told clearly." Id. at 333. To decide whether a plan confers discretion on the administrator, as Bruch and Herzberger use the term, we review the language of the plan de novo as we would review the language of any contract. Ramsey v. Hercules Inc., 77 F.3d 199, 205 (7th Cir.1996).

Herzberger holds that the critical question is notice: participants must be able to tell from the plan's language whether the plan is one that reserves discretion for the administrator. We concluded that:

[the] mere fact that a plan requires a determination of eligibility or entitlement by the administrator, or requires proof or satisfactory proof of the applicant's claim, or requires both a determination and proof (or satisfactory proof), does not give the employee adequate notice that the plan administrator is to make a judgment largely insulated from judicial review by reason of being discretionary.

Herzberger, 205 F.3d at 332. The reason for this rule is a practical one. All plans require an administrator first to determine whether a participant is entitled to benefits before paying them; the alternative would be to hand money out every time someone knocked on the door, which is obviously out of the question. By itself, therefore, the fact that an administrator is deciding on a case-by-case basis who is entitled to benefits does not reveal whether a plan does or does not reserve "discretion" to the administrator. Similarly, a plan's requirement that an applicant submit "satisfactory proof of entitlement" does not necessarily mean that a plan administrator has discretion, because every plan requires submission of documentary proof, and the administrator is entitled to insist on something like a doctor's note rather than one's latest telephone bill. See id.; see also Perugini-Christen v. Homestead Mortgage Co., 287 F.3d 624, 626-27 (7th Cir.2002).

Instead, plan documents must go further. If a plan wishes to insulate its decision to deny benefits from plenary review, the surest way to do so (at least in this Circuit) is by including language that either mimics or is functionally equivalent to the "safe harbor" language we have suggested: "Benefits under this plan will be paid only if the plan administrator decides in his discretion that the applicant is entitled to them." Herzberger, 205 F.3d at 331 (internal quotation marks omitted). While we have strongly recommended that plans adopt this language, its absence does not compel the conclusion that the administrator does not have discretion. Id. ("[T]here are no `magic words' determining the scope of judicial review of decisions to deny benefits," thus "we forbear to make our `safe harbor' language mandatory.").

In the final analysis, a plan must indicate "with the requisite if minimum clarity that a discretionary determination is envisaged." Id. But what is that minimum point? One could imagine an almost infinite set of verbal formulations, and our prior cases have approached this question by drawing very fine linguistic lines. Thus, for example, the plan in Donato v. Metropolitan Life Insurance Co., 19 F.3d 375 (7th Cir.1994), stated that disability benefits would be paid "upon receipt of proof," and that "all proof must be satisfactory to us [the plan administrator]." 19 F.3d at 379 (internal quotation marks omitted). In addition, the plan required that proof of claim "must describe the event, the nature and the extent of the cause for which a claim is made; it must be satisfactory to us." Id. (internal quotation marks omitted). Similarly, the plan in Bali v. Blue Cross & Blue Shield Ass'n, 873 F.2d 1043 (7th Cir.1989), spoke of "such true and correct information as the Committee may reasonably request," and noted that disability was "determined on the basis of medical evidence satisfactory to the Committee." Id. at 1047 & n. 6. We found in both Donato and Bali that the use of the phrase "satisfactory to us" or its equivalent was enough to show that the plan conferred the degree of discretion on the...