Lasser v. Reliance Standard Life Ins. Co., Civil Action No. 99-4131.

Decision Date13 June 2001
Docket NumberCivil Action No. 99-4131.
Citation146 F.Supp.2d 619
PartiesStephen P. LASSER, Plaintiff, v. RELIANCE STANDARD LIFE INSURANCE COMPANY, Defendant.
CourtU.S. District Court — District of New Jersey

Lewis Stein, David J. Gruber, Nusbaum, Stein, Goldstein & Bronstein, Succasunna, NJ, for plaintiff.

Joshua Bachrach, Rawle & Henderson, Marlton, NJ, for defendant.

WOLIN, District Judge.

OPINION

This matter was opened before the Court upon the complaint of plaintiff Dr. Stephen P. Lasser against defendant Reliance Standard Life Insurance Company ("Reliance") claiming that plaintiff was wrongly denied disability benefits under an insurance policy maintained by his employer. Jurisdiction is established by the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1132. This Court denied summary judgment and made certain other rulings governing the litigation of this matter in an Opinion and Order reported as Lasser v. Reliance Standard Life Ins. Co., 130 F.Supp.2d 616 (D.N.J., Feb.8, 2001) (the "February Opinion").

This matter was tried to the Court on April 10, 2001. At trial, the Court heard live testimony relevant to those issues delineated in the February Opinion and certain other issues as discussed below. In addition, the Court has considered the administrative record before the claims adjudicator who denied Dr. Lasser's claim for benefits on behalf of Reliance. This Opinion constitutes the Court's findings of fact and conclusions of law, pursuant to Federal Rule of Civil Procedure 52. For the reasons set forth below, the Court will reverse the denial of benefits by Reliance and enter judgment in favor of plaintiff.

BACKGROUND

The background of this matter was set forth at length in the Court's February Opinion, familiarity with which is assumed. Pursuant to its policy of insurance, Reliance acts as the insurer/underwriter and claims administrator of the ERISA-governed, employee benefit plan maintained during periods relevant to this matter by Townsquare Orthopedic Associates. Dr. Lasser was an orthopedic surgeon employed by Townsquare Orthopedic, a small, four-doctor practice.

Dr. Lasser has had a heart condition for many years. He has undergone bypass surgery and suffered a myocardial infarction, referred to in this Opinion by the more colloquial "heart attack." The decision to deny Dr. Lasser's application for disability benefits was made by Richard Walsh, Esq., Reliance's Manager of Technical Services. The evidentiary record in this matter consists of written materials used by Mr. Walsh in making his decision and Mr. Walsh's testimony at trial.

As this Court explored at length in its February Opinion, this case presents two discrete fields of inquiry. First, under the Third Circuit's decision in Pinto v. Reliance Standard Ins. Co., 214 F.3d 377 (3d Cir.2000), this Court must decide whether the insurer's decision to deny benefits was tainted by a conflict of interest. Deciding this question is necessary to determine where on Pinto's "sliding scale" of arbitrary and capricious review this case belongs; the greater the evidence of conflict, the less this Court may defer to the insurer's determination. Second, once the correct standard of review has been determined, the Court must apply it to the claims administrator's decision and decide whether, on the record before him, the administrator was arbitrary or capricious in denying the benefits.

Because of the nature of this action, not all evidence may be considered on all issues. Any evidence properly before the Court may be considered to decide whether Reliance was influenced by a conflict of interest. When it comes to determining whether the denial of benefits was or was not arbitrary and capricious, however, the inquiry must be limited to that evidence before the claims administrator. See generally Lasser, 130 F.Supp.2d at 627-30. The only witness to testify at trial of this matter was Mr. Walsh. Much of his testimony was relevant solely to the conflict-of-interest question and extrinsic to his denial of Dr. Lasser's benefits. Other testimony, however, concerned the extent of Walsh's knowledge when he made the benefits determination and the various internal rules and conventions under which he operated.

Walsh's understanding and these rules and conventions, while not part of the paper record, nonetheless form part of the matrix within which Walsh made the decision affecting Dr. Lasser. Their soundness, vel non, provides important insight into whether and how Walsh may have abused his discretion. Evidence of what Walsh considered and how he considered it is thus part of the "record" in the broader sense. Moreover, Walsh's testimony regarding the basis for the denial of benefits substantially mirrors the arguments of Reliance's counsel, as might be expected given that Walsh is himself an attorney. On this basis, the Court will consider certain of Walsh's trial testimony in relation to the underlying question of whether the denial of benefits was arbitrary and capricious. The Court has been careful, however, to treat only the actual evidentiary record before the claims administrator as dispositive of the ultimate question of whether denial of the benefits was an abuse of discretion under the policy.

DISCUSSION
1. Determining the Standard of Review

As noted above and as explored extensively elsewhere, Pinto v. Reliance Insurance held that where an insurer of an ERISA plan is also acting as a claims administrator a structural conflict of interest1 exists between the company's duty to administer claims fairly and its obligation to pay those claims from its own coffers. It is established in this case that the Townsquare Orthopedic Associates ERISA plan granted discretion to Reliance to administer benefits. The United States Supreme Court has held that when an ERISA plan grants such discretion to a fiduciary, a denial of benefits may be reviewed in the federal courts only for abuse of that discretion, or under the functionally equivalent arbitrary and capricious standard of review. Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989).

The Court recites the well-known law articulating this standard because it provides a base of reference for what follows. Under the arbitrary and capricious standard, "the district court may overturn a decision of the Plan administrator only if it is `without reason, unsupported by substantial evidence or erroneous as a matter of law.'" Abnathya v. Hoffmann-La Roche, Inc., 2 F.3d 40, 45 (3d Cir.1993) (quoting Adamo v. Anchor Hocking Corp., 720 F.Supp. 491, 500 (W.D.Pa.1989)); accord Mitchell v. Eastman Kodak Co., 113 F.3d 433, 439 (3d Cir.1997). "A decision is supported by `substantial evidence if there is sufficient evidence for a reasonable person to agree with the decision.'" Courson v. Bert Bell NFL Player Retirement Plan, 214 F.3d 136, 142 (3d Cir.2000); Daniels v. Anchor Hocking Corp., 758 F.Supp. 326, 331 (W.D.Pa.1991). Thus, the scope of review is narrow and "`the court is not free to substitute its own judgment for that of the [administrator] in determining eligibility for plan benefits.'" Id. (quoting Lucash v. Strick Corp., 602 F.Supp. 430, 434 (E.D.Pa.1984), aff'd, 760 F.2d 259 (3d Cir.1985)).

The Pinto Court held that "when an insurance company both funds and administers benefits, it is generally acting under a conflict that warrants a heightened form of the arbitrary and capricious standard of review." 214 F.3d at 378. The Court of Appeals left to consideration of the individual case exactly how "heightened" the form of arbitrary and capricious review must be. The lower courts must consider factors suggesting self-interest on the part of the claims administrator. These factors will guide the courts' selection of the appropriate point along the "sliding scale" of more and more intrusive scrutiny of administrators' decision. Id. at 379.

The Court of Appeals acknowledged that it was giving birth to "some form of intermediate scrutiny that has no analogue in this field," 214 F.3d at 392, and questions remain regarding its application. One is whether a threshold increase in the level of scrutiny is required in all cases in which a claims administrator operates under an inherent conflict of interest, or whether Pinto's sliding scale might, in the appropriate case, slide all the way back to fully deferential arbitrary and capricious review. The Court does not refer to those cases in which an insurer's structural conflict problem is directly ameliorated by considerations such as an experience-rated premium relationship with its insured. See 214 F.3d at 388 n. 6. The question is, where does the "sliding scale" start in the archetypal case of an insurer/claims administrator for which every granted claim travels, dollar-for-dollar, to the company's bottom line.

The Eastern District of Pennsylvania has found that Pinto requires heightened arbitrary and capricious review in all cases where an inherent conflict is present. Cimino v. Reliance Standard Life Ins. Co., 2001 WL 253791, *3 (E.D.Pa., March 12, 2001). References in post-Pinto Court of Appeals decisions support that view. Goldstein v. Johnson & Johnson, 251 F.3d 433, 441 (3d Cir.2001) (heightened arbitrary and capricious review properly applied where design of plan creates conflict of interest or where specific facts exist indicating bias); Orvosh v. Program of Group Ins. for Salaried Employees of Volkswagen of Am., Inc., 222 F.3d 123, 129 n. 7 (3d Cir.2000) (in Pinto, "we decided that a heightened standard of review applies where the same entity both funds and administers an ERISA plan"). In Oslowski v. Life Ins. Co. of No. Am., 139 F.Supp.2d 668 (W.D.Pa.2001), the district court found that in the absence of extrinsic evidence of conflict or bias, an administrator in a structural conflict situation was entitled to a "moderate degree of deference."

Passages from Pinto itself may be read to suggest that some...

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