Wolfe v. J.C. Penney Co., Inc.

• Decision Date: 22 June 1983
• Docket Number: No. 82-2586,82-2586
• Citation: 710 F.2d 388
• Parties: 4 Employee Benefits Ca 1795 George WOLFE, Plaintiff-Appellee, v. J.C. PENNEY COMPANY, INC., et al., Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 388

710 F.2d 388

4 Employee Benefits Ca 1795

George WOLFE, Plaintiff-Appellee, v. J.C. PENNEY COMPANY, INC., et al., Defendants-Appellants.

No. 82-2586.

United States Court of Appeals Seventh Circuit.

Argued April 11, 1983.

Decided June 22, 1983.

Charles E. Bruess, Barnes & Thornburg, Indianapolis, Ind., for defendants-appellants.

Richard C. Rusk, Washington, Ind., for plaintiff-appellee.

Before BAUER and WOOD, Circuit Judges, and BROWN, Senior Circuit Judge. ^*

HARLINGTON WOOD, Jr., Circuit Judge.

The plaintiff, George Wolfe, a former employee of the defendant J.C. Penney Company ("Penney"), applied for benefits under Penney's Long-Term Disability Benefit ("LTD") Plan. The administrator of the LTD Plan, Prudential Insurance Company ("Prudential"), ¹ denied Wolfe's application because it found that Wolfe was not disabled within the meaning of the Plan. Wolfe contested this denial by bringing this action under section 502 of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. Sec. 1132. The district court overturned the decision denying benefits and instated Wolfe into the LTD Plan. The issues raised by this appeal are: (1) whether the letter notifying Wolfe of Prudential's decision satisfied 29 U.S.C. Sec. 1133, and (2) whether the district court properly instated Wolfe under Penney's LTD Plan.

I. Facts

Wolfe worked in various positions for Penney from 1955 until Penney terminated him on October 6, 1976. From July of 1966 until his termination, Wolfe managed Penney's Washington, Indiana store. In July of 1972, Wolfe suffered serious health problems, requiring hospitalization and surgery. Despite his health problems, Wolfe continued to work as a store manager.

In October, 1975, Tony Haake became the Penney district manager responsible for Wolfe's store. Haake visited Wolfe's store in April, 1976, and noted a number of problems respecting profits, markdowns, and overstocking. At this time, Wolfe did not say that his health caused him difficulty in performing his duties.

Upon returning in August, 1976, Haake saw no improvements and, therefore, asked Lanny Benson, the regional personnel manager, to inspect and evaluate Wolfe's store. Benson confirmed Haake's conclusion that Wolfe was seriously deficient as a manager. During the August, 1976 visit, Benson questioned Wolfe about his health. Wolfe assured Benson that he felt fine and was capable of performing his duties.

Because the problems with Wolfe's store continued to escalate, Haake went to the store on October 6, 1976. When told that Wolfe was at home for lunch, Haake called Wolfe's home, requesting that he come to the store. With Benson's approval, Haake told Wolfe that he could resign or be terminated; Wolfe resigned. Although he was ill, Wolfe made no mention of his health problems to Benson.

On November 18, 1976, six weeks after Wolfe's termination, his wife Dorothy wrote to Benson, inquiring about possible disability benefits. On December 6, 1976, Dr. Murray, Wolfe's physician since 1971, wrote to Benson, stating that Wolfe had been disabled by "depression syndrome" since "early 1974." Benson wrote to Robert Bivona of Penney's Benefits Administration Office concerning Mrs. Wolfe's inquiry. ²

As a result, information respecting the LTD Plan was sent to Wolfe. On March 24, 1977, a claim for benefits was filed on Wolfe's behalf. The material filed with Prudential included Wolfe's statement of disability form, Dr. Murray's Attending Physician's Statement, the medical records submitted by Dr. Murray, Benson's December 13, 1976 letter to Bivona, and Dr. Murray's December 6, 1976 letter to Benson.

John Murray was the person at Prudential principally responsible for processing Wolfe's claim. Under the Plan, a Penney employee ceases to be a Participant on "the date of termination of employment." Id. at 48-49. However, the Plan provided that:

If a Participant's active service terminates because of injury or sickness for which Monthly Benefits are or may become payable under the Plan, he will continue to participate during the Benefit Qualifying Period and during the period for which Monthly Benefits are payable.

Id. at 49. To find out why Penney terminated Wolfe, Murray telephoned Benson on April 25, 1977. Benson informed Murray that Wolfe was terminated because of substandard job performance and not because of health problems or sick time.

On the basis of the information before him, Murray decided the claim should be denied and wrote to Wolfe informing him of his decision. ³ Although Murray and Dr. Murray had further correspondence, no further information was provided to Prudential before Wolfe filed this action on February 23, 1979.

At trial, the district court admitted additional evidence regarding Wolfe's claim over the defendants-appellants' objection. The additional evidence consisted of testimony by Dr. Murray (which went beyond the Attending Physician's statement), Wolfe, Bernice Gress (Wolfe's co-worker), and Dorothy Wolfe. Because the district court admitted Wolfe's additional evidence over the objection that review was limited to the evidence before Prudential, the defendants-appellants called Haake and Benson as witnesses.

II. 29 U.S.C. Sec. 1133

Wolfe contends that the May 11, 1977 letter from Prudential, denying his application, violated the ERISA Procedural requirements set forth in 29 U.S.C. Sec. 1133. ⁴ Section 1133 provides:

In accordance with regulations of the secretary, every employee benefit plan shall--

(1) provide adequate notice in writing to any participant or beneficiary whose claim for benefits under the plan has been denied, setting forth the specific reasons for such denial, written in a manner calculated to be understood by the participant, and

(2) afford a reasonable opportunity to any participant whose claim for benefits has been denied for a full and fair review by the appropriate named fiduciary of the decision denying the claim.

The pertinent federal regulation promulgated by the Secretary of Labor to implement the statutory mandate provides:

(f) Content of notice. A plan administrator or, if paragraph (c) of this section is applicable, the insurance company, insurance service, or other similar organization, shall provide to every claimant who is denied a claim for benefits written notice setting forth in a manner calculated to be understood by the claimant:

(1) The specific reason or reasons for the denial;

(2) Specific reference to pertinent plan provisions on which the denial is based;

(3) A description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and (4) Appropriate information as to the steps to be taken if the participant or beneficiary wishes to submit his or her claim for review.

29 C.F.R. Sec. 2560.503-1(f) (1980). However, this regulation became effective on October 1, 1977, months after Prudential sent the denial letter. Nonetheless, in order to satisfy 29 U.S.C. Sec. 1133, a denial letter must substantially (not strictly) comply with 29 C.F.R. Sec. 2560.503-1(f). Compliance with subsections (1) and (2) of section 2560.503-1 is necessary to meet subsection (1) of section 1133. Indeed, 29 C.F.R. Sec. 2560.503-1(1) tracts the language of 29 U.S.C. Sec. 1133(1). The 29 C.F.R. Sec. 2560.503-1(2) requirement of specifying the pertinent plan provision may be, in a particular case, essential for the participant to fully apprehend the reason for the denial and to know what deficiency in his application must be overcome. Satisfaction of 29 C.F.R. Sec. 2560.503-1(3) contributes towards the requirements of both subsections of section 1133. Describing additional information needed and explaining its relevance, as required by subsection (3) of 29 C.F.R. Sec. 2560.503-1, enables a participant both to appreciate the fatal inadequacy of his claim as it stands and to gain a meaningful review by knowing with what to supplement the record. ⁵ Finally, subsection (4) of 29 C.F.R. Sec. 2560.503-1 must invariably be met to satisfy section 1133(2).

The letter from Prudential misses the section 1133 target. The "reason" given for denial is not a reason but a conclusion. ⁶ See generally, Richardson v. Central States, Southeast and Southwest Areas Pension Fund, 645 F.2d 660, 664 (8th Cir.1981); Grossmuller v. Budd Co. Consolidated Retirement Benefit Plan for Employees, 547 F.Supp. 111, 114 (E.D.Pa.1982); Hayden v. Texas--U.S. Chemical Co., 557 F.Supp. 382, 386 (E.D.Texas 1983). Murray's reasoning for denying Wolfe's claim is stated quite clearly, however, in a memorandum to his supervisor. ⁷ An explanation along the lines provided in the memorandum would have apprised Wolfe of the reason for the denial, alerted him to the deficiency of the record accompanying his claim, and thereby aided him in building his claim with additional evidence.

The only type of information which the denial letter indicates Wolfe should supply is "medical information." As Wolfe's claim file already contained substantially all of the medical records from Dr. Murray's treatment file, Wolfe was no doubt at a loss as to what more he might submit; although, as the trial in district court bore out, Wolfe had additional, relevant evidence. Particularly where, as here, the record itself raises significant questions respecting the merits of the claim, a fiduciary (or its agent) ought to specify with some detail what type of information would help to resolve these questions, and how the applicant should present such information. See generally, Grossmuller v. International Union, U.A.W., 511 F.Supp. 709, 710 (E.D.Pa.1981). Prudential's failure to indicate the type of information which Wolfe should submit becomes critical in light of the sparse reasons for denial contained in the letter.

Finally, the denial letter is frugal with information pertaining to the steps to be taken for obtaining review. Therefor...