Jebian v. Hewlett Packard Co.

• Decision Date: 19 November 2002
• Docket Number: No. 00-56988.,00-56988.
• Citation: 310 F.3d 1173
• Parties: Donald JEBIAN, Plaintiff-Appellant, v. HEWLETT-PACKARD COMPANY Employee Benefits Organization Income Protection Plan; ERISA Plan, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

310 F.3d 1173

Donald JEBIAN, Plaintiff-Appellant, v. HEWLETT-PACKARD COMPANY Employee Benefits Organization Income Protection Plan; ERISA Plan, Defendants-Appellees.

No. 00-56988.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted December 3, 2001.

Filed November 19, 2002.

Charles J. Fleishman, Beverly Hills, CA, for the appellant.

Joseph P. Busch, III, Gibson, Dunn & Crutcher, Los Angeles, CA, for the appellee.

Appeal from the United States District Court for the Central District of California; Ronald S.W. Lew, District Judge, Presiding, D.C. No. CV-99-09548-RSWL.

Before PREGERSON, TASHIMA and BERZON, Circuit Judges.

OPINION

BERZON, Circuit Judge.

Background

Donald Jebian, now 63, worked as a software engineer for Hewlett-Packard continuously from 1983 to May 1995. In 1990 he began to suffer from a series of orthopedic impairments that caused him pain and made it difficult for him to move normally.

Jebian first developed bilateral shoulder pain. It turned out that he had a massive rotator cuff defect in his right shoulder, which was not diagnosed until 1995. In 1992, Jebian also began to experience back pain. Doctors determined that the cause was lumbar spinal stenosis.¹ His doctors agree that his stenosis is congenital rather than the result of injury. Later, Jebian was diagnosed with lumbar degenerative disc disease, which exacerbated his back pain.

Jebian stopped work in May 1994 because of intractable back pain. He had a lumbar discectomy in June 1995, the first of several surgeries. Because his back pain persisted after the surgery, he had a second surgery on his back in the fall of 1995. Dr. Stark, who examined Jebian at Hewlett-Packard's request with regard to a worker's compensation claim in October 1995, predicted that Jebian would need yet another surgery on his back. Jebian also underwent two surgeries on his shoulders in 1996, one on each.

Jebian was a participant in an employee benefit plan ("the Plan") covered by the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1001 et seq. The Plan, self-funded by Hewlett-Packard and administered by an independent claims administrator, Voluntary Plan Administrator ("VPA"), offers both short-term and long-term disability leave. Short-term disability benefits last up to 39 weeks. An applicant for short-term disability benefits must show that "following the onset of the injury or sickness, the Member is continuously unable to perform each and every duty of his or her Occupation."

After 39 weeks, an employee still unable to work must apply separately for long-term disability benefits. Long-term benefits are granted under the Plan if "the Member is continuously unable to perform any occupation for which he or she is or may become qualified by reason of his or her education, training or experience" (emphasis added). The Plan stipulates that disability determinations for either long — or short-term benefits are to be "made by the Claims Administrator on the basis of objective medical evidence."

After first leaving work in May 1995 Jebian applied for and received short-term disability benefits. He applied for long-term benefits after the requisite 39 weeks of short-term benefits. VPA initially denied the application, but on appeal reversed its decision. By the time of that reversal, Jebian had returned to work, so long-term benefits were granted retroactively only for the six-week period before Jebian returned to work.

Jebian shortly left work once again due to the same medical conditions. He tried to return to work in May 1997, but within a matter of weeks he left work for a third time, this time not to return.

VPA found Jebian eligible for short-term disability benefits when he left work in June 1997. In February 1998, with the 39th week of his short-term benefits approaching, Jebian again applied for long-term benefits. VPA denied Jebian's application for long-term disability benefits on August 3, 1998.

VPA's letter of denial based its decision on two reports that it had commissioned concerning Jebian's condition: a "Work Capacities Assessment" conducted by physical therapists employed by HealthSouth, a company that conducts such physical assessments for insurers and employers, and an "Employability Assessment Report" conducted by a vocational consultant employed by Rehab West, a company that provides vocational assessments.

VPA's denial letter relied largely on HealthSouth's representation that Jebian could tolerate "sitting, walking, trunk bending, overhead reaching, squatting," and other functions, though the HealthSouth report had noted that Jebian had substantive limitations in his ability to carry out these functions. The letter also cited and adopted Rehab West's conclusion that Jebian was professionally and physically qualified to perform four occupations — user support analyst, data processing auditor, sales representative for computers and electronic data processing systems, and technical training instructor. The 1998 Rehab West report was identical to one that had formed the basis for the decision to deny Jebian long-term disability benefits two years earlier (a decision that, as noted, was retracted by VPA on appeal). Rehab West did not conduct its own medical exam of Jebian. Rather, the Rehab West report concluded, in one sentence, that "[i]t also appears that these occupations are within his physical capabilities as per the medical reports provided." It is not clear from the record which medical documents were provided to Rehab West. Precisely the same sentence regarding medical reports had appeared in the 1996 Rehab West report, although Jebian's medical circumstances had changed greatly by 1998.² Further, the Rehab West report does not indicate that any of the jobs it suggests could be done by a person who can sit or stand only for limited time periods.³

In November 1998, Jebian appealed the denial of benefits. He argued that crucial records were not considered, that some medical records were misread, and that the alternative employment recommendations were based on erroneous readings of the medical information. Enclosed with his appeal was a letter from Dr. James Landes. Dr. Landes, who had examined Jebian in September 1998, reviewed medical records, the HealthSouth and Rehab West reports, and the denial letter; emphasized that Jebian is incapable of prolonged sitting or standing; and pointed out that the four jobs recommended by Rehab West all involve one or the other. Dr. Landes urged VPA to reconsider its decision.

Under the Plan's language, Jebian's "claim shall be deemed to have been denied on review" if VPA neither responds within 60 days nor informs the claimant that it could take up to 60 days longer to respond. On March 15, 1999, 119 days after receiving Jebian's appeal, VPA wrote to Jebian, responding to his objections but leaving the appeal pending to consider further medical documentation. VPA wrote to Jebian again in June 1999, stating that it was still awaiting some medical records and that the appeal therefore remained pending.

On September 29, 1999, Jebian filed his complaint in district court. Only after that, on November 5, 1999, did VPA send Jebian a letter finally denying his claim for long-term disability benefits.

The district court reviewed VPA's decision for abuse of discretion and granted summary judgment to the Plan. We reverse. We conclude that the proper standard of review of VPA's decision in this case is de novo. Since the district court's decision, the Ninth Circuit has ruled that the treating physician rule applies to ERISA plan decisions. Regula v. Delta Family-Care Disability Survivorship Plan, 266 F.3d 1130, 1139 (9th Cir.2001). We remand in light of both our conclusion concerning the appropriate standard of review and our decision in Regula.

DISCUSSION

I

A challenge to an ERISA plan's denial of benefits is reviewed de novo "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 Co. v. Bruch, 489 U.S. 101, 115, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989). If a plan does grant such discretion, a reviewing court applies an "abuse of discretion" or — what amounts to the same thing — an "arbitrary and capricious" standard. See Taft v. Equitable Life Assurance Soc'y, 9 F.3d 1469, 1471 n. 2 (9th Cir.1994).

The Plan before us explicitly grants discretion to decide appeals from denials of claims for benefits to the Plan administrator. The pertinent language reads: "The Claims Administrator shall have the discretionary authority to construe the language of the plan and make the decision on review on behalf of the Organization."

The question before us, of first impression in this circuit, is whether a plan administrator's decision, otherwise within the administrator's discretion, can be accorded judicial deference when the purported final, discretionary decision is not made until after the claim is, according to both the terms of the plan and Department of Labor (DOL) regulations, already automatically deemed denied on review. We conclude that where, according to plan and regulatory language, a claim is "deemed ... denied" on review after the expiration of a given time period, there is no opportunity for the exercise of discretion and the denial is reviewed de novo.

Jebian's letter appealing the denial of benefits is dated November 11, 1998 and was received by VPA on November 16, 1998. VPA did not respond until March 15, 1999.⁴ VPA's decision after that lapse in time was in violation of both the DOL's ERISA regulations and Plan language. Both the Plan and a DOL regulation, 29 C.F.R. § 2560.503-1(h)(1)(i) (1998),⁵ required some written notice in response to an appeal within 60 days — even if only to establish an extension. Any appeal not responded to within the requisite time limit was deemed denied. The Plan stated:

If a claimant has not...