Siska v. The Travelers
| Decision Date | 20 February 1991 |
| Docket Number | No. 90-1307,90-1307 |
| Citation | 161 Wis.2d 14,467 N.W.2d 174 |
| Parties | Deborah SISKA, Plaintiff-Appellant, d v. THE TRAVELERS, Defendant-Respondent. |
| Court | Wisconsin Court of Appeals |
William L. Seymour of Seymour, Kremer, Nommensen & Morrissy, Elkhorn, for plaintiff-appellant.
John R. Pendergast, Jr., of Riordan, Crivello, Carlson & Steeves, S.C., Milwaukee, for defendant-respondent.
Before NETTESHEIM, P.J., and SCOTT and ANDERSON, JJ.
Deborah Siska appeals from a summary judgment in favor of The Travelers. The trial court determined that Travelers did not act arbitrarily or capriciously when it denied Deborah's request for proceeds from an accidental death benefits plan insuring her husband, Donald Siska. There are three issues on appeal: (1) whether the denial of benefits based on factual findings by Travelers is subject to a deferential standard of review; (2) whether the court's review of the denial of benefits is limited to the record before Travelers at the time of the denial; and (3) whether the denial was arbitrary or capricious. We affirm the trial court on each issue. 1
Travelers issued a group accidental death policy through the Indiana Manufacturers' Association, Inc. The policy was made available to Donald by his employer, Wabash Tape Corporation. The policy provides $100,000 if the employee dies through accidental means and within ninety days of the date of the accident. Donald disappeared in the waters of Lake Geneva, Wisconsin, in August 1981. His second wife, Deborah Siska, was the named beneficiary at the time of his disappearance.
Deborah requested proceeds payable under the policy. An examiner from Travelers' law department litigation unit concluded that he was "unable to make a determination from the information ... received to date, whether or not Donald J. Siska suffered an accidental death...." Deborah was denied the proceeds of the policy.
Deborah then commenced this action. Travelers attempted to remove the case to federal court. The federal district court stated that the purchase of the insurance through a multi-employer trust was a plan within the meaning of the Employee Retirement Income Security Act (ERISA), 29 U.S.C. sec. 1001 et seq. The federal district court held that the action was preempted by 29 U.S.C. sec. 1144(a) and was removable to federal court. However, Travelers waived its right to remove by not doing so within thirty days of filing the action. Because this case invoked concurrent jurisdiction under 29 U.S.C. sec. 1132(e), the case was remanded to the Wisconsin trial court.
The trial court found that state law was preempted. See 29 U.S.C. sec. 1144(a). This decision is not challenged. The trial court held that an arbitrary and capricious standard of review, rather than de novo review, applied to Travelers' denial of benefits and ordered summary judgment in favor of Travelers. The trial court instructed Travelers to consider new evidence produced by Deborah and dismissed the action with prejudice. 2 Deborah's claim that Travelers had a conflict of interest was not considered by the trial court.
The first issue is the standard of review that this court must use to review Travelers' decision to deny benefits. This is a civil action to recover benefits due under the terms of an ERISA plan. See 29 U.S.C. sec. 1132(a)(1)(B). ERISA does not set out the standard of review for actions under 29 U.S.C. sec. 1132(a)(1)(B) challenging benefit eligibility determinations. QuesTech, Inc. v. Hartford Accident & Indem. Co., 713 F.Supp. 956, 962 (E.D.Va.1989).
Benefit denials can be based on an administrator's factual findings or based on the administrator's interpretation of the benefit plan. Until recently, the clear weight of federal authority gave deference to the plan administrator's decision as long as it was not arbitrary and capricious. Guisti v. General Elec. Co., 733 F.Supp. 141, 145 (N.D.N.Y.1990). The arbitrary and capricious standard was applied whether the decision was based on factual findings or on an interpretation of the benefit plan. See, e.g., Bance v. Alaska Carpenters Retirement Plan, 829 F.2d 820, 822-23 (9th Cir.1987) (); LeFebre v. Westinghouse Elec. Corp., 747 F.2d 197, 202 (4th Cir.1984) ().
The United States Supreme Court rejected the uniform application of a deferential standard of review of benefit denials in Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115, 109 S.Ct. 948, 956, 103 L.Ed.2d 80 (1989). However, the scope of Firestone 's holding is uncertain and has given rise to a split within the federal courts. The split concerns the question of whether Firestone applies only to benefit denials based on an interpretation of the benefit plan or to those denials based on factual findings as well.
In Firestone, the Firestone Tire and Rubber Company maintained a termination pay plan for its employees. The plan was an employee benefit plan under 29 U.S.C sec. 1002(3) and thus fell within the scope of ERISA. Firestone was the administrator and fiduciary of the plan. Firestone sold its plastics division to Occidental Petroleum. Several employees retained by Occidental filed for termination benefits from Firestone. Their benefits were denied because the sale of the plastics division did not constitute a "reduction in work force" under the termination plan. Firestone, 489 U.S. at 106, 109 S.Ct. at 951.
The lower federal court used the arbitrary and capricious standard. The Supreme Court held that de novo review is the proper standard of review. Id. at 115, 109 S.Ct. at 956. The Court reasoned that the general principles of trust law should govern and fashioned the following rule:
A denial of benefits challenged under sec. 1132(a)(1)(B) is to be reviewed under a de novo standard unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan.
The federal courts are split on whether the application of Firestone 's rule extends to situations where benefits are denied based on the administrator's factual findings. One line of cases reads Firestone narrowly and limits the rule to situations where the plan administrator denies benefits based on an interpretation of the benefit plan. QuesTech, 713 F.Supp. at 962-63; Barish v. United Mine Workers of America Health and Retirement Fund, 753 F.Supp. 165, 168 (W.D.Pa.1990). Other federal cases read Firestone 's rationale to apply equally to denial of benefits based on factual findings. 3 Guisti, 733 F.Supp. at 147-48; Buchholz v. General Elec. Employee Benefit Plan, 720 F.Supp. 102, 104-05 (N.D.Ill.1989); Newell v. Prudential Ins. Co. of America, 725 F.Supp. 1233, 1240-41 (N.D.Ga.1989), modified, 904 F.2d 644 (11th Cir.1990).
The introductory language in Firestone is one of the strongest reasons for its narrow application. See Petrilli v. Drechsel, 910 F.2d 1441, 1446 (7th Cir.1990). The Supreme Court wrote: "The discussion which follows is limited to the appropriate standard of review in sec. 1132(a)(1)(B) actions challenging denials of benefits based on plan interpretations." Firestone, 489 U.S. at 108, 109 S.Ct. at 953 (emphasis added). This statement and the holding can be interpreted to mean that de novo review is appropriate only for the non-discretionary decisions of the administrator when the administrator denies benefits based on an interpretation of the benefit plan. Thus, denial of benefits based on factual findings, and not based on a plan interpretation, are exempt from de novo review.
After careful consideration of the decisions interpreting Firestone and the arguments presented by the federal courts, we adopt the narrower reading of Firestone. Thus, we hold that because there is no dispute over the terms of the accidental death policy, and the only dispute lies in the correctness of factual findings made by Travelers, our review is limited to whether Travelers' decision was arbitrary and capricious.
Deborah argues that, despite our interpretation of Firestone, no deference should be given to Travelers because Travelers has a potential conflict of interest in making a determination which would cost Travelers $100,000. Deborah argues that a de novo review should apply because of the potential conflict of interest. We disagree.
This case presents a potential conflict of interest. We agree with Brown v. Blue Cross & Blue Shield of Alabama, Inc., 898 F.2d 1556 (11th Cir.1990), in which the court stated:
Because an insurance company pays out to beneficiaries from its own assets rather than the assets of a trust, its fiduciary role lies in perpetual conflict with its profit-making role as a business. That is, when an insurance company serves as ERISA fiduciary to a plan composed solely of a policy or contract issued by that company, it is exercising discretion over a situation for which it incurs "direct, immediate expense as a result of benefit determinations favorable to [p]lan participants."
Id. at 1561 (quoting De Nobel v. Vitro Corp., 885 F.2d 1180, 1191 (4th Cir.1989)). Travelers, the fiduciary in this case, is the insurer whose own funds would be used to satisfy the claim. It can directly benefit from not disbursing the benefits under the policy.
Despite this potential conflict of interest, however, federal law does not require that a de novo standard of review be substituted for an arbitrary and capricious standard of review. Although Brown articulated the potential conflict of interest, it maintained the more deferential standard of review. The court held that the application of the arbitrary and capricious standard is "shaped by the circumstances of the inherent conflict of interest." Brown, 898 F.2d at 1563.
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