Kearney v. Standard Ins. Co., s. 96-16539

CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)
Citation175 F.3d 1084,1999 WL 246485
Docket Number96-16701,Nos. 96-16539,s. 96-16539
Parties99 Cal. Daily Op. Serv. 3020, 1999 Daily Journal D.A.R. 3930 Rex T. KEARNEY, Jr., Plaintiff-Appellant, v. STANDARD INSURANCE COMPANY, Defendant-Appellee. Ninth Circuit. Filed
Decision Date12 April 1998

Marjorie E. Manning, Bolling, Walter & Gawthrop, Sacramento, California, for the plaintiff-appellant.

Michael A. Conley (briefed and argued), Shawn Hanson (briefed), Pillsbury, Madison & Sutro, San Francisco, California, for the defendant-appellee.

Timothy D. Hauser, United States Department of Labor, Washington, D.C., for amicus Secretary of Labor.

Appeals from the United States District Court for the Eastern District of California; William B. Shubb, District Judge, Presiding. D.C. No. CV-95-00415-WBS/JFM.

Before: HUG, Chief Judge, SNEED, FLETCHER, REINHARDT, KOZINSKI, O'SCANNLAIN, TROTT, FERNANDEZ, T. G. NELSON, KLEINFELD AND SILVERMAN, Circuit Judges.

KLEINFELD, J., delivered the opinion of the Court, which is joined in full by Chief Judge HUG, Judge SNEED, Judge KOZINSKI, and Judge TROTT. Parts I and II are additionally joined by Judge FLETCHER and Judge SILVERMAN. Part I is additionally joined by Judge REINHARDT. Parts II, III, and IV are additionally joined by Judge O'SCANNLAIN.

Opinion by Judge KLEINFELD; Partial Concurrence and Partial Dissent by Judge FLETCHER; Concurrence by Judge REINHARDT; Partial Concurrence and Partial Dissent by Judge O'SCANNLAIN; Partial Concurrence and Partial Dissent by Judge SILVERMAN; Dissent by Judge FERNANDEZ.

KLEINFELD, Circuit Judge:

This is an ERISA case. We voted to rehear it en banc to reconcile our decisions on the district court standard of review, whether de novo or abuse of discretion, of a plan administrator's decision. We also consider what record that the district court should consider.

Facts.

Mr. Kearney was a trial lawyer, and the managing partner of his law firm. As part of its benefits package, the firm bought a group disability insurance policy from Standard Insurance Company. The law firm was the policy owner. Under the policy, Standard promised to pay a percentage of an employee's predisability earnings, if the employee became disabled. For attorneys, the policy definition of "disability" says "[y]ou are only required to be DISABLED from your specialty in the practice of law."

One day Mr. Kearney was in a judge's chambers with opposing counsel, when the judge told him he "looked like hell." When opposing counsel gave him exhibits to look at, he had trouble focusing and felt faint. Mr. Kearney was then 54 years old, with a history of heart trouble, so he went immediately to his physician. He had had a heart attack eleven years earlier, and an angioplasty four years earlier. This time, he was diagnosed with unstable angina pectoris, which basically means chest pain caused by inadequate oxygen supply to the heart. The arteries serving his heart were diseased and partially blocked. He was admitted to the hospital and coronary bypass surgery was performed, grafting in new blood vessels.

The parties disagree about how well Mr. Kearney recovered after surgery. The insurer takes the position that Mr. Kearney has recovered fully enough to practice in his specialty again, but Mr. Kearney's position is that he has not. Mr. Kearney returned to his law practice for a while, then retired. Mr. Kearney takes the position that since his surgery, fatigue, exhaustion, and memory and concentration problems, prevent him from practicing as a trial lawyer.

Mr. Kearney applied for disability benefits. Standard paid them for two years. Then after obtaining more medical information from Mr. Kearney and from physicians it consulted, the insurer took the position that Mr. Kearney was no longer disabled, and quit paying him.

Mr. Kearney asked Standard to review its denial. It did so and reached the same conclusion. A "Quality Assurance Specialist" in the insurer's "Group Quality Assurance Unit," which reviewed the denial, wrote him that the "Quality Assurance Unit" performed "an independent review conducted separately from the individuals who made the original claim determination." The thorough letter reviews the medical evidence in three-and-a-half single-spaced pages. It concludes that Mr. Kearney's heart and brain both test out satisfactorily on objective measures, and his lifestyle (playing several sets of tennis every weekend and racing cars at speeds of up to 120 miles per hour) is inconsistent with his claimed inability to perform the functions of a trial lawyer.

Mr. Kearney sued Standard under 29 U.S.C. § 1132(a)(1)(B) for benefits. The statute cited is the provision of ERISA providing for civil actions to recover benefits under an ERISA plan. The parties filed cross motions for summary judgment. The insurer argued that it was entitled to deferential review for abuse of discretion, and that review should be confined to what it called the "administrative record," that is, the papers the insurer had when it denied the claim. The court determined that review should be de novo, because the policy was ambiguous about whether discretion was conferred. The court further determined that review should be confined to what the insurer had before it, because Mr. Kearney had had sufficient opportunity to provide evidence to the insurer. On the substantive question of whether Mr Kearney was disabled, the dispute boiled down to whether his memory and intelligence, and his ability to work very hard and bear stress, had so deteriorated, that he could not function effectively as a trial lawyer. The district court concluded that Mr. Kearney's IQ of 130, his playing several sets of tennis every weekend, his car-racing up to 120 miles per hour about ten times a year, and medical opinion that he ought to be able to return to work, left no genuine issue of material fact about whether he was disabled. Though his physical and mental stamina were reduced, the court granted summary judgment to the insurer because they were not so reduced as to disable him from practicing law.

Mr. Kearney appealed. The insurer argued that under Snow v. Standard Ins. Co., 87 F.3d 327 (9th Cir.1996), the policy vested discretion in itself as the administrator, so district court review was limited to abuse of discretion. The panel decision, rejecting that argument, said, "[w]e have never held that so imprecise and ambiguous a provision as contained in Kearney's policy vests discretion in the administrator, and we decline to do so now." Kearney v. Standard Ins. Co., 144 F.3d 597, 605 (9th Cir.), withdrawn, 152 F.3d 1098 (9th Cir.1998). But Standard's brief had pointed out that the policy "contains exactly the same language" as the policy in Snow. The petition for rehearing pointed out that the disability policy construed in Snow, in which we had reached the opposite result, involved a policy from the same insurance company containing identical language. We rehear this case en banc in order to eliminate the conflict between these two decisions that construed identical policy language.

Analysis.

The parties, and the panel opinion, have assumed that the insurer was an "administrator" for purposes of ERISA. Because the question whether the insurer is an administrator has not been disputed in district court or in the briefs, we assume for purposes of discussion that it is, although the characterization is not without doubt. 1

I. Standard of review.

The insurer argues that, as administrator, it is entitled to deferential review, limited to whether it abused its discretion based on the materials it had before it. The district court concluded that its review should be de novo, without deference to Standard's decision.

The policy says that Standard will pay disability benefits "upon receipt of satisfactory written proof that you have become DISABLED." Standard argues that the word "satisfactory" implies discretion in Standard to decide whether the claimant really is disabled within the policy definition based on the proof submitted. Therefore, Standard argues, if the insurer reasonably exercised discretion to deny a claim, a court cannot substitute its own judgment, or consider other proof, and grant the claim.

The statute does not say how courts are supposed to review administrators' claim denials. We therefore begin our analysis with Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989), which does. In Firestone, a question arose whether employees of plants sold by Firestone to Occidental Petroleum, who were rehired by Occidental, were entitled to severance pay under Firestone's ERISA plan. Firestone interpreted the plan to mean that they were not.

The Supreme Court granted certiorari in part to "address the appropriate standard of judicial review of benefit determinations by fiduciaries or plan administrators under ERISA." Id. at 105, 109 S.Ct. 948. Firestone argued that because ERISA defined a fiduciary as one who "exercises any discretionary authority," 29 U.S.C. § 1002(21)(A)(i), it could be inferred that, as a fiduciary, they had discretion and their decisions could be reviewed only for arbitrariness and capriciousness. A number of circuits had adopted the arbitrary and capricious standard. But the Supreme Court rejected it. It held that because there was "no evidence that under Firestone's termination pay plan the administrator has the power to construe uncertain terms or that eligibility determinations are to be given deference," judicial review had to proceed without any deference to Firestone's determination. Firestone, 489 U.S. at 111, 109 S.Ct. 948.

Noting that "ERISA abounds with the language and terminology of trust law," the Court used the Restatement (Second) of Trusts and other trust law authorities to apply "[t]rust...

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