Pannebecker v. Liberty Life Assur. Co. of Boston

• Decision Date: 18 September 2008
• Docket Number: No. 06-16654.,06-16654.
• Parties: Nancy J. PANNEBECKER, Plaintiff-Appellant, v. LIBERTY LIFE ASSURANCE COMPANY OF BOSTON, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

542 F.3d 1213

Nancy J. PANNEBECKER, Plaintiff-Appellant, v. LIBERTY LIFE ASSURANCE COMPANY OF BOSTON, Defendant-Appellee.

No. 06-16654.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted June 11, 2008.

Filed September 18, 2008.

Lisa Counters, Kevin Koelbel, Counters & Koelbel, P.C., Chandler, AZ, for the plaintiff-appellant.

Michael E. Hensley, Eileen Dennis Gil-Bride, Jones, Skelton & Hochuli, P.L.C., Phoenix, AZ, for defendant-appellee.

Appeal from the United States District Court for the District of Arizona; James A. Teilborg, District Judge, Presiding. D.C. No. CV-01-00825-JAT.

Before: M. MARGARET McKEOWN and RONALD M. GOULD, Circuit Judges, and GEORGE P. SCHIAVELLI,^* District Judge.

McKEOWN, Circuit Judge:

In 1996, coronary artery disease forced Nancy Pannebecker to quit her lucrative job as a laboratory and department manager for Hughes Electronics Corporation. Pannebecker began receiving benefits under Hughes's long-term disability plan ("Plan"), which was governed by the Employee Retirement Income Security Act of 1974 ("ERISA"). After paying benefits for over three years, Liberty Life Assurance Company of Boston ("Liberty"), the Plan's administrator, denied continued benefits on the basis that Pannebecker could perform some sedentary work and was therefore not "disabled" under the terms of the Plan.

Pannebecker challenged Liberty's decision in federal court. The district court held that Liberty failed to construe the Plan's terms correctly, and remanded for compliance with the Plan and identification of specific sedentary occupations for which Pannebecker was suited. On remand, Liberty again concluded that Pannebecker was not disabled. The district court upheld the decision and declined to award reinstatement of benefits following the initial denial and during the remand period.

We agree with the district court's determination that Pannebecker is not "disabled" under the Plan because its terms do not require Liberty to consider either salary remuneration or station in life in making a benefits determination. We reverse, however, the court's decision to deny the reinstatement of benefits, and remand with instructions for the court to reinstate Pannebecker's benefits for the period from Liberty's initial denial in 2000 to its benefits determination in 2005. We also remand for the district court to determine whether Pannebecker is entitled to attorney's fees with respect to the benefits reinstatement.

BACKGROUND

Pannebecker worked in a variety of technical, managerial, and marketing roles related to the design and development of large-scale computer processing systems. Most recently, she worked as a laboratory and department manager at Hughes, where her annual income was just over $100,000. In 1996, after two cardiac bypass surgeries, she stopped working altogether and sought disability benefits under Hughes's long-term plan.

The Hughes Plan contains two different definitions of "disability," depending on the relevant time frame for which a claim is asserted. Under the "own occupation" benefit, an employee who is "unable to perform all of the material and substantial duties of his occupation on an Active Employment basis because of an Injury or Sickness" is eligible for an initial 18-month benefit. Liberty advised Pannebecker that she qualified for continued disability benefits under this definition, but that the company would periodically request updated information from her. Near the end of the 18-month period, Liberty pulled Pannebecker's file for audit and determined that she still qualified for "own occupation" benefits.

After the "own occupation" period ends, the Plan defines a "disabled" person as one who is:

unable to perform, with reasonable continuity, all of the material and substantial duties of his own or any other occupation for which he is or becomes reasonably fitted by training, education, experience, age, and physical and mental capacity.

Invoking this clause, in 2000, Liberty denied Pannebecker continued benefits because she was no longer disabled. Liberty provided a variety of reasons for its decision, including Pannebecker's responses to the Activities Questionnaire, statements by her doctors, the results of video surveillance, and the report of Dr. Conrad, a cardiologist, who determined that there was "no objective evidence that the patient would be unable to perform work involving sedentary activity." Pannebecker sought review of the denial of benefits, and Liberty commissioned a follow-up review by Dr. Conrad, who concluded that although Pannebecker's ability to work might be affected by angina and other symptoms of heart disease, there was "no objective evidence ... of a functional impairment due to heart disease that would render her unable to perform sedentary work." Liberty denied Pannebecker's request for review.

Pannebecker then filed a complaint in the district court under 29 U.S.C. § 1132(a)(1). The court reviewed Liberty's decision de novo because an inherent conflict of interest existed, as Liberty was the Plan's administrator and insurer. The court found that despite "ample evidence in support of Defendant's conclusion that Plaintiff was able to perform some unnamed `sedentary' job, more is needed to evaluate Defendant's decision." Because Liberty had not offered any specific sedentary position for which Pannebecker was reasonably fitted by the Plan's stated criteria, i.e., training, education, experience, age, and physical and mental capacity, Liberty "failed to make a reasonable inquiry into the type of skills Plaintiff possesses and whether those skills may be used at another job," and "failed to properly apply the Plan provisions." The court remanded for Liberty to determine the types of sedentary positions, if any, for which Pannebecker was reasonably fitted based on the Plan's criteria. In a separate order, the court denied attorney's fees.

On remand, Liberty retained a vocational consultant, Jacqueline Kurth, who concluded that, given Pannebecker's background, work history, and current physical capabilities, she could perform a variety of sedentary occupations, such as customer service representative, information clerk, receptionist, data entry keyer, and general office clerk. After Liberty filed Kurth's report with the district court, Pannebecker retained Lisa Clapp, a vocational consultant, to perform an employability assessment. In Clapp's view, Pannebecker was totally disabled. She criticized Kurth's report because Kurth failed to conduct labor market research and did not call local employers to gauge their interest in someone like Pannebecker. Kurth followed up with a second report in which she reaffirmed that Pannebecker was reasonably fitted for several sedentary occupations. Liberty then notified Pannebecker that it declined to alter its benefits determination.

Pannebecker moved for judgment under Federal Rule of Civil Procedure 52(c), and Liberty filed a motion for summary judgment.¹ The district court, reviewing Liberty's decision de novo, upheld the denial of benefits. According to the court, Pannebecker was not disabled under the terms of the Plan because she was able to perform the duties of other occupations that Kurth had identified as reasonably fitted to her by virtue of her training, education, experience, age, and physical and mental capacity. The court rejected Pannebecker's claim for retroactive benefits.

STANDARD OF REVIEW

We review de novo the district court's choice and application of the standard of review to decisions by ERISA fiduciaries, and we review for clear error its underlying findings of fact. Abatie v. Alta Health & Life Ins. Co., 458 F.3d 955, 962 (9th Cir.2006) (en banc). At the time of its ruling, the district court did not have the benefit of Abatie, which clarified the standard of review.² Operating under the framework of our previous precedent in Atwood v. Newmont Gold Co., Inc., 45 F.3d 1317 (9th Cir.1995), the court found that because Liberty was both the Plan's administrator and insurer, an inherent conflict of interest existed. The court also concluded that, because Pannebecker presented "material, probative evidence," an inherent conflict of interest tainted Liberty's decision.³ Consequently, a presumption arose in Pannebecker's favor that Liberty failed to rebut.

Atwood was overruled by an en banc panel of this court in Abatie, which applied an abuse of discretion standard to review decisions of a discretion-granting plan, even if the administrator has a conflict of interest. 458 F.3d at 965. The Plan here was a discretion-granting one, as it stated that Liberty "shall possess the authority, in its sole discretion, to construe the terms of this policy and to determine benefit eligibility thereunder." (emphasis added). See id. (stating that a plan that bestows on the administrator the sole "responsibility to interpret the terms of the plan and to determine eligibility for benefits" is a discretion-granting one).

Abatie thus bound the district court to review Liberty's decision for abuse of discretion. In evaluating whether an abuse of discretion occurred, the court should make "something akin to a credibility determination about the insurance company's or plan administrator's reason for denying coverage[,]" and adjust its level of skepticism in proportion to its evaluation of the conflict of interest. Id. at 969.

Despite the "ships passing in the night" timing of the Abatie decision, the district court's evaluation of disability resulted in no error. The court reviewed Liberty's decision de novo, which is a more rigorous standard than the "informed" abuse of discretion review that Abatie requires. Id. at 965-74. That the court affirmed Liberty's denial without giving any deference to Liberty's decision makes it unlikely that on remand, the court would find, under a standard friendlier to Liberty, that Liberty abused its discretion. We do not read Abatie or our cases...