Raybourne v. Cigna Life Ins. Co. of N.Y., s. 11–1295

• Decision Date: 21 November 2012
• Docket Number: 11–1427.,Nos. 11–1295,s. 11–1295
• Citation: 700 F.3d 1076
• Parties: Edward RAYBOURNE, Plaintiff–Appellee, v. CIGNA LIFE INSURANCE COMPANY OF NEW YORK, Defendant–Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

700 F.3d 1076

Edward RAYBOURNE, Plaintiff–Appellee,

v.CIGNA LIFE INSURANCE COMPANY OF NEW YORK, Defendant–Appellant.

Nos. 11–1295, 11–1427.

United States Court of Appeals,Seventh Circuit.

Argued April 5, 2012.

Decided Nov. 21, 2012.

Mark D. DeBofsky (argued), Attorney, Daley, DeBofsky & Bryant, Chicago, IL, for Plaintiff–Appellee.

Peter E. Pederson, Jr. (argued), Stephen R. Swofford, Attorneys, Hinshaw & Culbertson, Chicago, IL, for Defendant–Appellant.

Before ROVNER, WOOD and WILLIAMS, Circuit Judges.

ROVNER, Circuit Judge.

The Social Security Administration (“SSA”) found that Edward Raybourne was disabled under the agency's standards. The district court found that Raybourne was disabled under the terms of the long-term disability insurance policy he held with the defendant. The defendant insurance company found that he was not disabled. The district court concluded that the company's denial of benefits was based on a conflict of interest rather than on the facts and the terms of the policy. We affirm.

I.

This is the second appeal in this case and we refer readers to our earlier opinion for a more complete detailing of the facts. Raybourne v. Cigna Life Ins. Co. of New York, 576 F.3d 444 (7th Cir.2009) (“Raybourne I ”). Electrodynamics, Inc. employed Edward Raybourne as a quality engineer for twenty-three years. The company established an employee welfare benefits plan that provided, among other things, coverage for long-term disability.¹ Cigna Life Insurance Company of New York (“Cigna”) both insured and administered the group long-term disability plan (“Plan”). The Plan paid benefits for up to twenty-four months if the beneficiary's disability prevented him from performing the duties of his regular job. After twenty-four months, the Plan paid benefits only if the beneficiary was unable to perform all of the material duties of any occupation for which he was reasonably qualified based on his education, training and experience.

Raybourne suffered from degenerative joint disease in his right foot, a problem which caused him such severe pain that he endured four different surgeries in attempts to alleviate it. In 2003, he stopped working and underwent the first of the four surgeries. From December 2003 through February 2006, Cigna paid Raybourne long-term benefits under the Plan. Cigna then determined that, although Raybourne was not able to perform the duties of his job as a quality engineer, he was not disabled under the more stringent standard that applied after twenty-four months. When Cigna stopped paying benefits, Raybourne exhausted all administrative remedies and then sued the Plan for benefits under 29 U.S.C. § 1132(a)(1)(B). After the district court entered judgment in favor of Cigna, Raybourne appealed.

Five days before the district court ruled, the Supreme Court decided Metropolitan Life Ins. Co. v. Glenn, 554 U.S. 105, 128 S.Ct. 2343, 171 L.Ed.2d 299 (2008). In Glenn, the Court addressed the impact of structural conflicts of interest in reviewing plan decisions for abuse of discretion:

Often the entity that administers the plan, such as an employer or an insurance company, both determines whether an employee is eligible for benefits and pays benefits out of its own pocket. We here decide that this dual role creates a conflict of interest; that a reviewing court should consider that conflict as a factor in determining whether the plan administrator has abused its discretion in denying benefits; and that the significance of the factor will depend upon the circumstances of the particular case.

Glenn, 554 U.S. at 108, 128 S.Ct. 2343. In Raybourne's case, Cigna was responsible both for determining eligibility for long-term disability benefits and for paying the benefits to eligible participants. Yet the district court said little about the structural conflict of interest in Raybourne's case, commenting only that Glenn did not affect the court's analysis. We therefore remanded so that the district court could consider “how heavily Cigna's conflict weighs in the abuse-of-discretion balance.” Raybourne I, 576 F.3d at 450.

On remand from this court, the district court first gave Cigna another opportunity to explain its decision denying long-term disability benefits. In particular, the court advised Cigna to address why the Plan disagreed with the SSA's finding of disability. The court ultimately rejected Cigna's “unconvincing” explanation for how the company determined that Raybourne was not disabled. First, the court considered Cigna's claim that the decision relied on a definition of “disability” in the policy that is different from the definition used by the SSA. The court found that the definitions were functionally equivalent, and that any minor difference could not explain the difference in result between Cigna's determination and the SSA's finding that Raybourne was in fact disabled.

The court next considered Cigna's explanation that its determination of disability under the policy is not governed by the “treating physician rule.” That rule requires the SSA to give greater weight to the opinion of the claimant's treating physician's assessment than to the opinion of a non-treating physician. Cigna attributed Raybourne's disability finding by the SSA to the agency's application of the treating physician rule. Cigna explained that plan administrators are under no similar duty. The district court found that, although the administrative law judge (“ALJ”) who decided Raybourne's claim acknowledged the existence of that rule, it was not determinative to the disability finding. Instead, the ALJ based his decision on Raybourne's willingness to undergo four surgeries in attempts to alleviate his pain, his continued need for narcotic pain medications, his past work history and motivation, and his credibility. In contrast, the district court found that Cigna failed to account for any of these factors in its disability determination, relying instead on the report of a non-treating physician. ²

Finally, the district court discounted Cigna's emphasis on the SSA's initial rejections of Raybourne's claim. The court commented that Cigna had no explanation for why it rejected the SSA's final determination of disability, noting that Cigna admitted the SSA's decision “has no impact” on Cigna's decision. The court took this to be an indication of the company's predisposition to reject the claim regardless of the facts. Moreover, Cigna's work on behalf of Raybourne during the earliest phases of his disability claim with the SSA demonstrated the company's willingness to reap the benefits of the SSA's decision when it benefitted Cigna and then ignore SSA's final determination when that decision was to Cigna's detriment.

The court ultimately concluded that Cigna's refusal to consider the SSA's final determination of disability and the insurer's determination that Raybourne was not disabled were founded more on a conflict of interest than on the facts and the terms of the Plan. The court also noted that Cigna had done little to implement safeguards to protect against the conflict of interest that is inherent when the same entity that determines eligibility for benefits is also liable for paying those benefits. The court found that this was a borderline case and that the conflict tipped the balance in favor of finding that the denial of benefits was arbitrary. The court therefore entered judgment in favor of Raybourne.

Raybourne subsequently moved for an award of attorneys' fees under 29 U.S.C. § 1132(g). The parties agreed on the amount of fees sought as well as the hourly rate to be used if fees were awarded. But Cigna contested the propriety of an award of fees, arguing that Raybourne was not entitled to fees, or should be awarded, at most, fees for the final phase of the litigation. The district court found that Raybourne achieved a complete victory and thus easily met the “some degree of success on the merits” standard described by the Supreme Court in Hardt v. Reliance Standard Life Ins. Co., ––– U.S. ––––, 130 S.Ct. 2149, 176 L.Ed.2d 998 (2010). But Cigna contended that Raybourne must still meet the five-factor test this court applied prior to Hardt. Cigna also urged the court to decline to award fees because Cigna's litigation position was substantially justified.

The district court noted that Hardt neither adopted nor foreclosed the use of the five-factor test, but found that the substantial justification test had little utility given the Supreme Court's “some degree of success on the merits” test in Hardt. The court reasoned that, if a party is eligible for fees with only some degree of success, then the other party's position was likely substantially justified. The district court also questioned the continued validity of the five-factor test because the court believed it was simply a way to implement the substantial justification test. The court nonetheless found that, even if it applied the five-factor test or the substantial justification test, it would still award fees to Raybourne. Finally, the court rejected Cigna's claim that Raybourne was entitled to fees only for the final stage of the litigation. Because the case was not litigated in distinct phases, and because Raybourne had one claim and one theory throughout the case, the court determined that Raybourne was entitled to fees for the entire case. Cigna appeals.

II.

On appeal, Cigna challenges both the merits decision and the award of fees. Cigna contends that the district court erred in overturning the Plan administrator's benefits decision because the decision was based on substantial medical evidence. Cigna also contends that the record does not support a conclusion that its structural conflict of interest affected its decision. If we decide nonetheless to uphold that determination, then Cigna argues in the alternative that the district court abused its discretion in awarding fees because Cigna's litigation position was substantially...