Schlegel v. Life Ins. Co. of N. America

• Citation: 269 F.Supp.2d 612
• Decision Date: 09 June 2003
• Docket Number: No. CIV.A.02-7894.,CIV.A.02-7894.
• Parties: Keith SCHLEGEL, Plaintiff, v. LIFE INS. CO. OF N. AMERICA, et al., Defendants.
• Court: U.S. District Court — Eastern District of Pennsylvania

269 F.Supp.2d 612

Keith SCHLEGEL, Plaintiff, v. LIFE INS. CO. OF N. AMERICA, et al., Defendants.

No. CIV.A.02-7894.

United States District Court, E.D. Pennsylvania.

June 9, 2003.

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Gavin P. Lentz, Bochetto & Lentz, PC, Vincent Vanlaar, Bochetto and Lentz, P.C., Philadelphia, PA, for Plaintiff.

Anita B. Weinstein, Cozen O'Connor, Elizabeth A. Venditta, White & Williams, LLP, Mark C. Stephenson, Cozen O'Connor, Philadelphia, PA, for Defendants.

MEMORANDUM

EDUARDO C. ROBRENO, District Judge.

Keith Schlegel has sued the Life Insurance Company of North America (LINA) and Cigna Insurance Company (CIGNA) and the Cigna Group for the allegedly arbitrary and capricious denial disability insurance benefits under an ERISA plan. Schlegel contends that he became "disabled," within the meaning set forth in his policy, due to a combination of debilitating epileptic seizures, depression, anxiety, memory loss and narcolepsy, that the defendants refused to investigate his claim, pay him benefits, or waive premiums, and that they ultimately unfairly terminated his policy. In the instant action, Schlegel seeks (1) recovery of benefits under ERISA, (2) punitive damages for bad faith insurance practices under Pennsylvania law, 42 Pa. Cons.Stat. Ann. § 8371, and (3) damages for breach of contract. Before the court is defendants' motion for summary judgment, and plaintiffs motion for partial summary judgment.¹

For the reasons that follow, the court concludes that defendants' denial of benefits was neither arbitrary nor capricious under ERISA, and will grant summary judgment in favor of LINA and against plaintiff on this issue. In light of recent legal developments,² however, the court will deny without prejudice defendant's motion for summary judgment to the extent that it argues that ERISA preempts plaintiffs Pennsylvania law bad faith insurance claim in order to allow for briefing and argument on the issue. Finally, plaintiffs breach of contract claim will be denied with prejudice, the plaintiff having advised the court that he does not intend to proceed on this claim.³

I. BACKGROUND

In January 2000, Keith Schlegel, then working as an Instructor at Drexel University, became insured under a Group Disability Policy purchased by his employer and issued by LINA. The LINA policy provided that a Drexel employee would be considered disabled, and thus eligible for disability benefits, if, "solely because of Injury or Sickness, he ... is either (1) unable to perform all the material duties of his ... Regular Occupation or Qualified Alternative; or (2) unable to earn 80% or more of his ... indexed Covered Earnings. ..." Within the meaning of the policy, a "Sickness" is "[a]ny physical or mental illness," the insured's "Regular Occupation" is "[t]he occupation the Employee routinely performs at the time the Disability begins," and a "Qualified Alternative" is "[a]n occupation that meets all of the conditions that follow":

(1) the material duties of the occupation can be performed by the Employee based on his or her training, experience or education;

(2) it is within the same geographic area as the Regular Occupation the Employee holds with the Employer on the date the Employee's Disability begins;

(3) a job in that occupation is offered to the Employee by the Employer; and

(4) the wages for that occupation including commissions and bonus are 80% or more of the Employee's Indexed Covered Earnings.

The policy then sets forth a detailed process by which an insured may apply for disability benefits.

The policy emphasizes that, before an applicant may qualify for benefits, "[h]e ... must provide ... at his ... own expense, satisfactory proof of disability before benefits will be paid ... The Insurance Company will require proof of the Employee's Disability for benefits to continue." It further states that LINA will evaluate an employee's ability to work through (1) medical evidence that the employee submits, (2) consultation with the employee's physician, (3) "evaluation of the [e]mployee's ability to work by not more than three independent experts if required by the Insurance Company," and (4) a determination of whether an employer has offered the insured a job that meets his capacity to perform work.

Schlegel, a longtime sufferer of depression, panic, anxiety, seizure and sleep disorders, applied for disability benefits under the LINA policy on March 27, 2001. His application was denied, and two appeals followed. LINA denied SchlegePs final appeal on June 3, 2002, and Schlegel then filed the instant suit in federal court.

II. DISCUSSION

A. Standard of Review

Where an ERISA plan gives the plan administrator discretionary authority to interpret the terms of the plan, judicial review of a denial of benefits is limited to determining whether the administrator abused his or her discretion. See Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989). In making this determination, the court must apply an arbitrary and capricious standard. See Abnathya v. Hoffmann-La Roche, Inc., 2 F.3d 40, 44-45 (3d Cir.1993). Under the arbitrary and capricious standard, a court "is not free to substitute its own judgment for that of the [administrator] in determining eligibility for plan benefits." Mitchell v. Eastman Kodak Co., 113 F.3d 433, 439 (3d Cir.1997) (quotation omitted). Rather, the court must defer to the administrator of an employee benefit plan unless the administrator's decision is "without reason, unsupported by substantial evidence or erroneous as a matter of law." Abnathya, 2 F.3d at 45 (quotation omitted).

According to LINA, as it is undisputed that the policy at issue endows the plan administrator discretion in determining benefit eligibility, the arbitrary and capricious standard is the appropriate standard to guide the court's review in this case. Schlegel, on the other hand, contends that LINA, in its dual role as plan administrator and payor of any benefits awarded, labors under a conflict of interest, such that a heightened standard of review is warranted. For the reasons that follow, the court does not agree.

Where there is an inherent conflict of interest because an insurance company both determines eligibility for benefits and pays for those benefits out of its own funds, a heightened standard of review is required. See Pinto v. Reliance Standard Life Ins. Co., 214 F.3d 377, 390 (3d Cir.2000). To this end, the Third Circuit has directed courts to apply a "sliding scale approach, according to different degrees of deference [to the plan administrator's decision] depending on the apparent seriousness of the conflict." Id. at 392. In other words, "the greater the evidence of conflict on the part of the administrator, the less deferential ... the abuse of discretion standard" applied to the particular case. Id. at 393 (quotation omitted).

In doing so, the court may "take into account the sophistication of the parties, the information accessible to the parties, and the exact financial arrangement between the insurer and the company." Pinto, 214 F.3d at 392 ("For example, a court can consider whether the insurance contract is fixed for a term of years or changes annually, and whether the fee paid by the company is modified if there are especially large outlays of capital by the insurer."). "Another factor to be considered is the current status of the fiduciary." Id. ("When companies are breaking up, or laying off a significant percentage of their employees, or moving all their operations, [the presumed desire to maintain employee satisfaction] incentives diminish significantly.").

The burden of proof is on the claimant to show that a heightened standard of review is warranted in a particular case. See Kotrosits v. GATX Corp. Non-Contributory Pension Plan for Salaried Employees, 970 F.2d 1165, 1174 (3d Cir. 1992) ("Where the sponsor of a Plan reserves for the Plan administrators the discretion to interpret the Plan, anyone urging that a court disregard that reservation has the burden of showing some reason to believe the exercise of discretion has been tainted."). If the claimant proves that a heightened degree of scrutiny applies, the claimant must still meet the ultimate burden of proving eligibility for disability benefits. Pinto, 214 F.3d at 392.

In this case, Schlegel has failed to meet his burden of proving that the court should apply a heightened arbitrary and capricious standard when evaluating LINA's denial of his claim. Schlegel asserts only that LINA both insures and administers the ERISA plan at issue.⁴ Presented with no other information bearing on the Pinto inquiry, the court cannot conclude that a heightened arbitrary and capricious standard is warranted in this case. Therefore, the court will evaluate LINA's decision under the unadulterated, deferential arbitrary and capricious standard of review.

B. Evidence Submitted by Schlegel after the Third Denial of Benefits Is Not a Part of the Record and May Not Now Be Considered by the Court.

"Under the arbitrary and capricious standard of review, the Svhole' record consists of that evidence that was before the administrator when he made the decision being reviewed." Mitchell 113 F.3d at 440; see also O'Sullivan v. Metropolitan Life Ins. Co., 114 F.Supp.2d 303, 309 (D.N.J.2000) (finding "no applicable authority that would support looking beyond the administrative record when deferentially reviewing a plan administrator's factual determination that a claimant is ineligible for benefits."). As the Tenth Circuit aptly explained:

If a plan participant fails to bring evidence to the attention of the administrator, the participant cannot complain of the administrator's failure to consider this evidence. [A plaintiff] is not entitled to a second chance to prove his disability. The district court's responsibility lay in determining whether the administrator's actions were...