Dobson v. Hartford Financial Services Group, Inc.

• Decision Date: 19 November 2004
• Docket Number: Docket No. 02-9061.,Docket No. 02-9090.
• Citation: 389 F.3d 386
• Parties: Douglas DOBSON, Plaintiff-Appellant, v. HARTFORD FINANCIAL SERVICES GROUP, INC., Hartford Life & Accident Insurance Co., Defendants-Appellees.
• Court: U.S. Court of Appeals — Second Circuit

389 F.3d 386

Douglas DOBSON, Plaintiff-Appellant, v. HARTFORD FINANCIAL SERVICES GROUP, INC., Hartford Life & Accident Insurance Co., Defendants-Appellees.

Docket No. 02-9061.

Docket No. 02-9090.

United States Court of Appeals, Second Circuit.

Argued: June 3, 2003.

Decided: November 19, 2004.

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Jeffrey Lewis, Lewis & Feinberg, P.C., Oakland, CA (Dan Feinberg, Lewis & Feinberg; Mark DeBofsky, Daley, DeBofsky & Bryant, Chicago, IL; and Victoria de Toledo, Casper & de Toledo, Stamford, CT, on the brief), for Plaintiff-Appellant.

Rick H. Rosenblum, Akin Gump Strauss Hauer & Feld L.L.P., San Antonio, TX (Vaughn Finn, Shipman & Goodwin, L.L.P., Hartford, CT, on the brief), for Defendants-Appellees.

Mary Ellen Signorille, AARP Foundation Litigation, Washington, D.C. (Melvin R. Radowitz, on the brief), for amicus curiae AARP.

Before: LEVAL^* and SOTOMAYOR, Circuit Judges, and DANIELS, District Judge.^**

LEVAL, Circuit Judge.

Plaintiff Douglas Dobson appeals from those parts of the judgment of the United States District Court for the District of Connecticut (Arterton, J.) that denied his motion for class certification and granted summary judgment to defendant Hartford Life & Accident Insurance Company ("Hartford"). Dobson, who received payments of disability benefits after the date he alleges they were due to be paid, sued (for himself and on behalf of similarly situated persons) for interest on the overdue payments. We affirm the district court's ruling that Hartford did not breach its fiduciary duty to Dobson by failing to disclose that it had made gratuitous payments of interest on delayed benefits to certain claimants. However, we vacate the judgment and remand for reconsideration whether the terms of the ERISA plan implicitly obligated Hartford to pay interest to plaintiff on disability benefits that remained suspended after Hartford had taken more than a reasonable time to evaluate plaintiff's claim. We also vacate and remand the denial of class certification on that claim and the claim for equitable disgorgement.

Background

Plaintiff's Disability Claim

It appears that for purposes of the motion for summary judgment, the following facts were not in dispute: Plaintiff Douglas Dobson was employed as an anesthesiologist at the West Central Anesthesiology Group, and participated in West Central's long term disability insurance plan ("the Plan"). The Plan was administered by defendant Hartford, and is governed by the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001 et seq. In 1993, plaintiff could no longer work as an anesthesiologist due to obstructive sleep apnea, and he applied for long term disability benefits under the Plan. Hartford approved the claim and began paying plaintiff a monthly benefit of $10,000. In April 1997, however, after paying benefits for four years, Hartford informed plaintiff that it was suspending his benefits "due to lack of proof of continuous disability." Dobson v. Hartford Fin. Servs., 196 F.Supp.2d 152, 154 (D.Conn.2002).

In April and May 1997, plaintiff submitted evidence to document that his disability was in fact permanent, but on July 14 Hartford responded by declining to reinstate the benefits. On October 3, 1997, Hartford formally rejected plaintiff's evidence as insufficient, permitting him to appeal. Plaintiff then submitted further evidence, including a diagnosis of continuous disability by a sleep disorder specialist. At the same time, plaintiff requested that Hartford reinstate his benefits pending consideration of the claim, asserting that they were his family's primary source of income. Hartford denied the request. On November 24, 1997, Hartford again rejected plaintiff's proofs on the ground that his specialist was not "board certified ... at an accredited sleep center." Id. at 154-55.

On January 8, 1998, plaintiff's counsel formally appealed the denial and informed Hartford both that there was no such thing as board certification of sleep specialists, and that the sleep center in question was accredited. Finally, on April 22, 1998, after a year of suspension of payments, Hartford ultimately accepted the sufficiency of plaintiff's proofs and reinstated his eligibility for benefits retroactive to the date of suspension. Hartford then paid plaintiff thirteen months of benefits in a lump sum payment of $130,000, minus withheld taxes, without interest. Id. at 155. Plaintiff submitted a demand for interest, which Hartford rejected. Id. at 156-57.

Procedural Background

Plaintiff brought this suit seeking relief with respect to Hartford's failure to pay him interest during the delay. He alleged two alternative theories. For the first theory, plaintiff asserted that interest was a benefit implicitly provided by the Plan, and was therefore recoverable in a civil action brought under ERISA § 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B), which provides that "[a] civil action may be brought by a participant or beneficiary ... to recover benefits due to him under the terms of his plan." The second theory, under ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3), asserted a right to equitable disgorgement of profits Hartford earned by wrongfully delaying his benefit payments. The complaint also sought a finding under § 502(a)(3) that Hartford breached its fiduciary duty by failing to inform plaintiff that in a few cases it had made interest payments to beneficiaries. Plaintiff moved for class certification on all of his claims. Hartford moved for denial of class certification and for summary judgment.

On March 11, 2002, the district court denied class certification and granted Hartford's motion for summary judgment in part, ruling that plaintiff had no entitlement to interest under the terms of the Plan, and that Hartford did not violate a fiduciary duty in failing to disclose the Plan's occasional interest payments. However, upon analysis of the Supreme Court's decision in Great-West Life & Annuity Insurance Co. v. Knudson, 534 U.S. 204, 122 S.Ct. 708, 151 L.Ed.2d 635 (2002), concerning the scope of equitable relief available under § 502(a)(3), the court ruled that if Hartford's withholding of plaintiff's benefits was wrongful, it was obligated to disgorge any profits it had earned by investment of the withheld benefits. Hartford then stipulated to judgment in the amount of $3779.22, representing the amount it had earned as a result of its delay in paying plaintiff's benefits. The court ordered Hartford to pay a portion of plaintiff's attorney's fees on account of his partial victory.

Plaintiff appeals the decisions adverse to him; Hartford has not appealed from the ruling on equitable disgorgement under § 502(a)(3). We will therefore express no views on the merits of that aspect of the judgment.

Discussion

1. Interest Claim under § 502(a)(1)(B)

Plaintiff first contends that the terms of the Plan implicitly require Hartford to pay interest on benefits not paid when due. He contends that interest is a "benefit[ ] due to him under the terms of his plan." Section 502(a)(1)(B) provides that "[a] civil action may be brought by a participant or beneficiary ... to recover benefits due to him under the terms of his plan." Defendant does not dispute that if the terms of the Plan do call for payment of interest, then interest may be recovered in a civil action under § 502(a)(1)(B).

The parties' contractual dispute centers on two questions. First, once Hartford suspended plaintiff's benefits for lack of proof of continuous disability, and plaintiff submitted proofs which Hartford ultimately found to be satisfactory, did the Plan require Hartford to evaluate the proofs and reinstate plaintiff's benefits within a reasonable time? Second, assuming that Hartford was required under the terms of the Plan to reinstate plaintiff's benefits within a reasonable time, and that it did not do so, did the Plan implicitly oblige Hartford to pay interest to compensate plaintiff for the lateness of the payments?

Hartford would have us answer both questions in the negative. Because the Plan gives Hartford discretion to determine whether proof is satisfactory, Hartford contends the Plan should be understood to impose no limit of any kind on how long Hartford may take to make that determination. Under Hartford's argument, therefore, even after plaintiff submitted proof that his disability was continuous, and even though (as Hartford ultimately determined) the submitted proof was satisfactory, and even after the passage of a reasonable time for Hartford to satisfy itself as to the satisfactory nature of the proofs, Hartford was free under the contract to take unlimited further time before appraising plaintiff's proofs and reinstating his benefits.

On the second question, Hartford argues that, because the Plan makes no explicit mention of any obligation to pay interest, even where the Plan requires payment on specified dates Hartford is free to delay making the obligatory payments for months, years — indeed indefinitely — without incurring an obligation to pay interest on account of the delay.

Because plaintiff does not contend otherwise, we assume for the purpose of our discussion that in April 1997 Hartford was within its rights to demand that plaintiff submit new proof of continuous disability, and to suspend plaintiff's benefits at least until he submitted proof that Hartford found satisfactory. We do not address whether Hartford was required under the Plan to have a reasonable basis for doubting the continuing nature of plaintiff's disability before suspending his benefits; nor do we address the question at what point plaintiff submitted satisfactory proofs. Hartford does not contest that plaintiff's benefits did accrue during the suspension. Indeed, Hartford ultimately paid them. It contests only whether it was obligated by the terms of the Plan to pay the benefits earlier than it did, and whether the Plan implicitly called for payment of interest if...