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Post v. Hartford Ins Co
Citation: Not availableDocket: 05-4927
Court: Court of Appeals for the Third Circuit; September 13, 2007; Federal Appellate Court
Original Court Document: View Document
Carol Post seeks long-term disability benefits from Hartford Insurance Company, her former employer's plan administrator, asserting that she is disabled due to a car accident in 1993. Her treating physicians support her claim of disability, while Hartford's reviewing physicians contest it, leading to a conflict of expert opinions. The court notes that such cases are typically resolved based on the standard of review: if arbitrary and capricious, Hartford generally prevails if sufficient evidence supports its position; if de novo, summary judgment for either party is inappropriate due to conflicting evidence. In this instance, the court finds that the district court misapplied the standard of review concerning Hartford's conflict of interest, necessitating a vacate and remand for proper consideration. However, the court upholds the summary judgment against Post's breach of fiduciary duty claim, ruling it barred by res judicata. Post's background includes a serious car accident shortly after dental surgery, after which she attempted to return to work as a dentist but struggled with pain, ultimately resigning from her position in 1994 after a series of unsuccessful physical therapy treatments. In January 1995, Post resumed work but resigned four months later due to persistent pain, and has not worked since. Her extensive medical history includes visits to 14 doctors from 1993 to 2003, undergoing various pain management treatments, including traditional methods and alternative therapies, none of which provided significant relief. Dr. Carolyn Britton, her primary physician and a neurology professor at Columbia University, diagnoses Post with chronic post-traumatic pain syndrome stemming from a car accident, leading to severe myofascial pain, debilitating headaches, irritable bowel syndrome, and insomnia, rendering her unable to sustain employment. This diagnosis is supported by multiple evaluations in her medical records. Conversely, Hartford argues that Post only sustained a whiplash injury, which it claims has healed, asserting that no reliable diagnosis of a debilitating condition exists in the records. Hartford relies on evaluations from Dr. Ekaterina Malievskaia and Dr. Christopher Lynch, as well as assessments from Drs. Michael John Fiore and Joel Harris, with Dr. Harris's comments being particularly ambiguous regarding Post's disability. Although he indicated that Post could perform sedentary work, he also noted significant limitations in her ability to sit, stand, walk, or drive, and stated that severe pain restricts her mobility. The case is governed by the Employee Retirement Income Security Act (ERISA), as the disability plan from Overlook Hospital qualifies as an employee welfare benefit plan. Post filed a disability claim with Hartford soon after leaving work in 1995, which was approved but subject to periodic review. To qualify as "totally disabled" under the Plan after December 6, 1997, Post needed to be unable to perform any work for which she was qualified. Hartford paid her benefits from 1995 to 2002. In August 1998, the Social Security Administration granted her disability benefits for conditions including cervical pain and fibromyalgia. After this approval, Hartford requested the administrative decision to offset her benefits, but Post's counsel argued that the Plan did not allow for such an offset, although Post provided the decision anyway. Eventually, Hartford accepted her interpretation of the Plan. In late 1999, Hartford renewed its scrutiny of Post's claim, conducting unsuccessful surveillance and requesting her tax records, claiming this was necessary for a non-Social Security income offset. The Plan required proof of other income benefits applications, but it was unclear how tax returns related to that requirement. The tax records confirmed Post had no income during that time. In June 2001, Hartford requested an independent functional capacity evaluation to verify Post's disability, which was permissible under the Plan. However, due to a communication error between Hartford's service operator and Post’s attorney, the attorney mistakenly believed Post had declined the evaluation. Consequently, Hartford was informed that Post refused the evaluation, leading them to conclude she was non-compliant. Instead of conducting the evaluation, Hartford’s medical director, Dr. Malievskaia, performed a paper review and determined that Post was not disabled based on the absence of objective findings. In January 2002, Hartford terminated her benefits, citing her alleged refusal to be evaluated and Dr. Malievskaia's findings. The termination letter invited Post to appeal within 60 days. After Hartford denied her appeal in March 2002, recognizing the confusion about the evaluation scheduling, they offered to reconsider if she agreed to undergo the evaluation. Meanwhile, Post filed a lawsuit against Hartford for wrongful denial of benefits, and the evaluation requirement became part of a settlement agreement. The settlement resolved the lawsuit. Post's physicians did not prescribe a full functional capacity evaluation due to potential harm from her condition, leading Hartford to hire Dr. Christopher Lynch for a less strenuous examination. Dr. Lynch's assessment involved testing for fibromyalgia trigger points, where he found tenderness but no definitive trigger points, concluding that Post did not have fibromyalgia or any disabling condition. Following his report, Hartford denied Post's claim and instructed Dr. Lynch not to share the report with her, preventing her from responding. Consequently, Post filed suit in District Court, asserting violations of 29 U.S.C. § 1132(a)(1) and (2). The court granted Hartford summary judgment on the § 1132(a)(1)(B) claim, determining Post could not prove Hartford acted arbitrarily or capriciously in denying benefits. The court also dismissed the § 1132(a)(2) claim based on res judicata, noting it had been previously dismissed with prejudice. Post is appealing both decisions. Regarding § 1132(a)(1)(B) claims, ERISA does not define a review standard for wrongful denial of benefits. The Supreme Court's ruling in Firestone Tire and Rubber Co. v. Bruch established that the default standard is de novo unless a plan grants discretion to the administrator, in which case decisions are upheld unless there is an abuse of discretion. Conflicts of interest must be considered in determining abuse of discretion. Following Firestone, most appellate courts have adopted a “sliding scale” standard of review, adjusting deference based on the level of conflict. Courts with different approaches include the Tenth and Eleventh Circuits, which shift the burden of proof to the administrator upon evidence of conflict; the Second Circuit, which strips discretion upon showing bias; and the First Circuit, which applies arbitrary and capricious review. The D.C. Circuit has not yet ruled on this matter. The sliding scale approach requires courts to evaluate benefit denials based on specific circumstances to determine if an administrator abused its discretion. Initially, courts assess evidence of improper motives and adjust their scrutiny level accordingly. Subsequently, they analyze both the decision's merits and any impropriety to ascertain whether the administrator exercised its discretion correctly; if not, the court may intervene and decide the case itself. This method emphasizes making a reasoned decision based on evidence rather than seeking an exact position on the sliding scale. To apply heightened arbitrary and capricious review, courts must examine structural and procedural factors, with a focus on structure first. The structural analysis is influenced by trust law principles, particularly concerning the self-interest of trustees. Under ERISA, plan administrators are likened to trustees, enjoying discretion and judicial deference while bearing fiduciary responsibilities to beneficiaries. However, if a plan's structure creates financial incentives contrary to beneficiaries' interests, courts are cautious in granting this deference. There is a division among federal appellate courts regarding what constitutes a structural conflict, but a conflict is recognized when an administrator has a substantial financial incentive to deny beneficiaries' claims. This conflict necessitates a heightened review. Key structural factors to consider include: 1) the sophistication of the parties involved, 2) the information available to the beneficiary, 3) the financial relationship between the employer and administrator, and 4) the financial condition of the administrator. Additionally, courts favor administrators that employ independent evaluation bodies for claims to reduce conflicts of interest. Particular concerns arise when plans are funded on a case-by-case basis or managed by an external insurer, as these arrangements may incentivize claim denials. Concerns arise regarding the financial incentives for administrators to deny claims, as each dollar paid out directly impacts their finances. This issue is exacerbated when an outside insurer, rather than the employer, administers the plan, leading to a diminished employer interest in fair claims payment. The distance from the claims process reduces the employer's accountability for employee dissatisfaction, especially concerning former employees, where claims handling issues are less likely to affect the employer significantly. In financially troubled times, employers may prioritize creditor payments over employee morale. The legal precedent set in Pinto establishes that the mere structural conflict of interest within an insurance company administering a plan warrants heightened scrutiny of claim decisions. Pinto illustrated that the insurer's financial interests create a bias that favors denial of claims. While structural conflicts demand thorough review, a lack of evidence showing procedural bias allows courts to defer to the administrator's reasonable decisions. Procedural factors, as highlighted in Pinto, require examination of how administrators reach decisions to identify any bias. Various procedural irregularities, such as reversing positions without new evidence or selectively interpreting physician reports, may raise concerns about the administrator's neutrality. The court must assess the significance of these irregularities; minor and infrequent issues may not warrant increased scrutiny, as they can be attributed to simple oversight. Serious, numerous, or regular deviations from procedural norms by an ERISA administrator raise concerns about neutrality and can indicate procedural bias, necessitating closer scrutiny of decisions. When an administrator fails to adhere to fiduciary duties, it diminishes the deference typically afforded to them. Evidence indicating both incorrect and biased decisions suggests an outcome driven by anti-claimant bias, warranting reversal. In assessing structural factors, the District Court incorrectly conflated analyses from previous cases, Pinto and Stratton. Pinto established that a non-trivial structural conflict necessitates heightened scrutiny, while Stratton indicated that trivial conflicts do not. In this case, the outside insurer's direct involvement in claims decisions constitutes a substantial conflict, unlike the more removed position in Stratton. Furthermore, the former employee status of Post raises questions about the influence of her dissatisfaction on the insurer's claims handling. Despite some factors mentioned in Pinto not supporting heightened scrutiny, the structural conflict present requires at least a moderate increase in review standards. The examination of procedural irregularities revealed a pattern of Hartford being excessively aggressive in denying benefits, with four identified irregularities, yet the District Court deemed them too minor for significant scrutiny. Notably, Hartford's attempt to offset Post's benefits with Social Security payments, contrary to the Plan's terms, was seen as an error that, while potentially in good faith, reflects a lack of understanding of their own plan, warranting skepticism given Hartford's sophistication in the insurance field. Hartford terminated Post’s benefits primarily due to her alleged refusal to undergo a functional capacity evaluation, although there is evidence suggesting she did not refuse and that Hartford reached this conclusion without a written request. During the appeals process, Hartford agreed to reconsider Post's appeal contingent on her undergoing the evaluation. Critically, Hartford did not provide Post access to Dr. Lynch’s report prior to its final decision, preventing her and her treating physicians from commenting on it. The termination decision heavily relied on Dr. Malievskaia’s report, which was based on a paper review rather than a physical examination. While ERISA does not mandate special weight for treating physicians' opinions, the context of Hartford's decision-making raises concerns, especially given the evidence favoring Post's claim. Hartford's surveillance of Post, although an aggressive tactic permitted by law, continued despite findings showing she did not leave her home, which supported her disability claim. Hartford's characterization of the surveillance results as “unsuccessful” indicates a potential motive to deny her claim. Additionally, Hartford's request for Post's tax returns, while permissible under the Plan to verify income, can be viewed as an aggressive tactic, especially given the short deadline imposed for submission, which predated the IRS due date. This request and Hartford's denial of benefits despite a favorable Social Security decision further suggest a possible bad faith in their handling of Post's claims. The Court has not definitively ruled on the relevance of Social Security decisions in establishing the standard of review, though other courts have recognized that disagreement with the Social Security Administration (SSA) is a relevant factor, albeit not conclusive. A failure by an ERISA plan administrator to consider the SSA's finding of "total disability" can contribute to a determination that the denial of long-term disability benefits is arbitrary and capricious. In this instance, Hartford's contract did not explicitly require the submission of tax returns, and its threat of forfeiture for failing to provide unrequested information was deemed overly aggressive. The Court acknowledges that while the irregularities in the case may seem minor individually, their cumulative effect necessitates a heightened standard of review. Hartford's explanations for these irregularities, while plausible, do not eliminate the questions raised by the process, warranting a more rigorous review akin to previous cases. Additionally, Hartford's argument that its decision could be consistent with the SSA's determination is weakened by the lack of direct engagement with the SSA's findings by the relevant medical professionals. In conclusion, both structural and procedural factors indicate the need for a more thorough standard of review than what was applied by the District Court. The District Court's application of a slightly heightened review was an error, and it must now conduct a more comprehensive evaluation of both the merits and the decision-making process to ascertain whether Hartford exercised its discretion appropriately. The evidence, while closely contested, could support a finding that Hartford acted improperly given the medical evidence and indications of bias. Only evidence within the administrative record is generally admissible to assess whether a plan administrator's decision was arbitrary and capricious. However, modifications following the Pinto decision permit the inclusion of extrinsic evidence to evaluate the extent of review, particularly concerning potential biases or conflicts, including the plan's funding mechanism. In this case, the supplemental exhibits presented by Post consist solely of medical reports, including those from 1993 to 1996 and summaries prepared in 2005, which were not submitted to Hartford during the administrative process. These reports do not pertain to bias but rather to whether Hartford's decision was correct; thus, they are inadmissible under the precedent established in Mitchell, leading the District Court to correctly exclude them. Regarding the Section 1132(a)(2) claim, the doctrine of res judicata requires a final judgment on the merits from a prior suit involving the same parties and cause of action. The parties agree that the second and third prongs are satisfied, with the dispute centering on whether a final judgment was rendered in the prior case, where the District Court dismissed a claim for failing to state a claim. Such dismissal is deemed a final judgment for res judicata purposes. Additionally, res judicata bars not only previously raised claims but also those that could have been raised. Post has not provided justification for why her claim could not have been brought in 2002. Furthermore, her claim fails to adequately allege a violation of 1132(a)(2) since it seeks individual recovery for Hartford's alleged breach of fiduciary duty, which is not permitted under that section, as it only allows recovery on behalf of the plan. ERISA Section 1132(a)(2) does not permit lawsuits for individual benefits, as established in Life Ins. Co. v. Russell and Hozier v. Midwest Fasteners, Inc. Plaintiffs seeking recovery in their individual capacities cannot pursue claims under Sections 409 or 502(a)(2). The District Court failed to apply a rigorous review standard in light of evidence suggesting structural and procedural bias, leading to the vacating of its summary judgment favoring Hartford on the Section 1132(a)(1)(B) claim, which is remanded for further proceedings. While individuals may recover for breaches of fiduciary duties under Section 1132(a)(3), the plaintiff, Post, only brought claims under 1132(a)(1)(B) and (a)(2). The court upheld the grant of summary judgment on the Section 1132(a)(2) claim due to res judicata. In a dissenting opinion, Circuit Judge Stapleton agrees that Post's claim under ERISA 502(a)(2) is barred by res judicata and emphasizes that a district court's review of an administrator's denial of benefits is confined to the evidence available to the administrator. Stapleton disagrees with the majority's decision to reverse and remand on the Section 502(a)(1)(B) claim, advocating for affirmation of the District Court's judgment. The benefits decision under review was communicated to Post via a letter on October 2, 2003, which detailed the administrator's reasons for denying the continuation of disability benefits, primarily based on an investigation by Dr. Christopher G. Lynch. After examining Post and reviewing ten years of medical records, Dr. Lynch concluded that Post, despite having chronic pain syndrome, was not totally disabled according to the Plan's definitions. The definition of “totally disabled” had evolved after 24 months, requiring Post to be unable to perform any work for which she was qualified, rather than just her previous occupation. Dr. Lynch's findings indicated inconsistent evidence of physical disability over time. Dr. Lynch's examination of Ms. Post revealed she is alert, cooperative, and in no distress despite reporting total body pain. He assessed her ability to perform sedentary to light work, defined as lifting up to 20 pounds maximum and frequently lifting or carrying objects weighing up to 10 pounds, with the ability to change posture frequently. His physical examination showed no deformities in the upper extremities and normal motor, reflex, and sensory functions. Range of motion in the cervical spine was limited but within acceptable limits, and there were no tenderness or trigger points in the neck and back. While Ms. Post cites opinions from other treating physicians stating she is unable to work and the Social Security Administration’s prior finding of disability in 1998, she does not provide medical records contradicting Dr. Lynch's findings. Notably, Dr. Lynch is the only physician who examined her without a continuing relationship with Hartford and reviewed all her medical history. Additionally, the document addresses Hartford’s conflict of interest, as it acts as both payor and decision-maker regarding benefits. This situation necessitates a heightened arbitrary or capricious standard of review when evaluating denials of benefits under ERISA plans. The need for this heightened standard is emphasized due to the direct financial incentives of insurance companies in maintaining their benefits decisions. Furthermore, procedural anomalies in the decision-making process would further escalate the level of scrutiny required to ensure fiduciary neutrality. The record indicates that Hartford conducted its search regarding the "total disability" issue with fairness and impartiality. Allegations of anomalies are deemed speculative and lack supporting evidence. Hartford's request for Post’s Social Security award was a correctable error, promptly addressed upon notification. The ERISA plan administered by Hartford contains standard provisions with a New Jersey-specific section that excludes Social Security benefits from the definition of "Other Income Benefits," as confirmed by Post's counsel. Hartford acknowledged this error after reviewing the award letter and committed to adjusting its claims management accordingly. Additionally, while Hartford initially misstated that Post had declined a functional capacity evaluation (FCE), it later clarified that a miscommunication occurred, as Empire Medical Management informed them of Post's refusal. Despite this miscommunication, Hartford adjusted its approach to accommodate Post's concerns regarding her symptoms by opting for a less strenuous independent medical evaluation instead of the FCE. The Court also notes Hartford's failure to allow Post to comment on Dr. Lynch's report prior to its October 3, 2003, letter as a second point of contention. The Court acknowledges that there is no explanation in the record regarding Post's concerns, which is consistent with her failure to raise this issue before the District Court or on appeal. Post had ample opportunity to present her case to the administrator, and the relevant provisions of the Plan and ERISA do not grant a right to comment on an independent medical consultant’s report in this context. The majority identifies bad faith in Hartford's decision to terminate Post’s benefits, which heavily relied on Dr. Malievskaia’s report. This report was criticized for not being based on a physical examination and for not supporting Post's claims. Dr. Malievskaia, an Associate Medical Director for the consulting firm Medical Advisory Group, was engaged to assess Post's capabilities after her refusal to undergo further examination. Although her report was submitted on September 20, 2001, it was not used in the October 3, 2003, decision letter under review but was referenced in Hartford’s earlier January 4, 2002, decision, which was influenced by Post's alleged refusal to be examined. This situation complicates any inference of bad faith against Hartford, as they sought additional medical insights based on their understanding of Post’s refusal. Furthermore, the evidence in Post's medical records does not favor her claim for benefits, as she was required to demonstrate that she was completely unable to work due to her disability. Earlier evaluations from doctors, including Dr. Fiore and Dr. Harris, indicated that Post was not disabled and could perform at least sedentary work. Although Post's medical records referred to fibromyalgia and trigger points, the necessary criteria for diagnosis were not met consistently across evaluations. Evidence presented indicates that the claimant had fewer than eleven trigger points, essential for diagnosing fibromyalgia according to case law and medical literature. Dr. Mulford's evaluations from March and November 1995 and 1996 noted various trigger points and muscle spasms, while Dr. Kaufman's assessments in May and October 2000 identified multiple trigger points but not in sufficient locations for a fibromyalgia diagnosis. Despite several treating physicians declaring the claimant completely disabled, the court found the evidence not overwhelmingly supportive, contrasting it with precedents where physicians uniformly backed the claimant's claims. The court also addressed Hartford’s surveillance efforts, which were deemed “unsuccessful” as the claimant was not observed leaving her home. While this description raised questions about Hartford's motives, the court clarified that surveillance is not inherently suspicious and can serve to document disability objectively. The term "unsuccessful" could imply bias only if it suggested that any observation would discredit the claim. The implications of the claimant's potential activities outside her home could either undermine or support her disability claim, depending on the nature of those activities. The use of the term “unsuccessful” implies that Hartford’s surveilleur could not observe Post, as she remained at home, making it impossible to confirm or deny her disability status. Hartford's request for Post's tax returns is not characterized as an "aggressive tactic" but rather a legitimate action under the Plan, which allows for the reduction of benefits based on Post's earned income. The policy explicitly states that all income from employment must be subtracted from benefits. At the time of the request, Post was receiving total disability benefits, asserting that a disabling condition prevented her from working, which makes Hartford’s request for tax returns reasonable and relevant to assessing her claims. Additionally, the Court notes a discrepancy between Hartford’s October 2003 decision and the Social Security Administration’s (SSA) August 1998 ruling, suggesting that this is relevant but not decisive regarding whether Hartford's decision was arbitrary. It is highlighted that the administrative law judge in 1998 lacked the comprehensive record that Hartford had in 2003, and no re-evaluation of Post’s SSA benefits has occurred since then. Previous cases demonstrate that courts apply greater scrutiny to an administrator’s denial of benefits when there is a suspicious disregard for SSA determinations. This scrutiny is warranted when the administrator appears to selectively use SSA findings to favor their decisions, which is not applicable in this instance since Hartford does not have a provision that requires beneficiaries to apply for Social Security benefits. In Wilkerson v. Reliance Standard Life Ins. Co., the court addresses the defendant's demand for a refund of disability benefits from the plaintiff due to offsets by Social Security disability benefits, while simultaneously not considering the continuation of those benefits as evidence of total disability. The court disagrees with the suggestion that these circumstances should alter the standard of review for the case. The decision-maker is identified as having a material conflict of interest; however, there is insufficient evidence indicating a lack of impartiality in the claim processing. The court cites Pinto, establishing that a heightened arbitrary and capricious standard of review applies in cases involving such conflicts, with a "sliding scale" approach that adapts based on the specifics of each case. This approach allows district courts to evaluate the degree of conflict when conducting their review of discretionary benefit determinations, although the arbitrary and capricious standard remains generally deferential. The court clarifies that even under a heightened standard, the review does not require a complete absence of deference. The sliding scale indicates that, regardless of the intensity of the conflict, the administrator's decision must be supported by substantial evidence. If it is more likely than not that the administrator's decision is correct, the decision stands. Ultimately, since there are no grounds to challenge Kemper’s determination under de novo review, a more deferential review is unnecessary. Hartford's structural conflict necessitates a heightened review standard; however, in the absence of evidence indicating procedural bias, the case does not warrant extreme scrutiny. Structural conflicts may require more thorough examination, but without proof of bias affecting the decision, the court defers to an administrator's reasonable conclusions. The case of Post, who experienced a whiplash injury leading to chronic pain complaints over ten years, posed complex challenges for the administrator. Despite extensive treatment, including medications and therapies, Post's condition did not improve, and there was no consensus among her treating physicians regarding the cause of her pain. Some suggested psychological therapies, which Post declined, and others proposed a fibromyalgia diagnosis lacking strong clinical support. Hartford sought further information to validate Post's claims by consulting her physicians and an independent expert, Dr. Lynch. His thorough and impartial report concluded that while Post experienced a pain disorder, she did not meet the plan's definition of total disability. Dr. Lynch's findings aligned with Post's medical records and provided a rational basis for determining her ability to perform sedentary work, with no objective evidence supporting her total disability claim. The administrative record from October 3, 2003, robustly supports Hartford's conclusion that Post was not entitled to continued benefits, and any reviewing court would need to defer to this decision. Therefore, the District Court's summary judgment in favor of Hartford should be affirmed, with no need for remand since the administrative record is sufficient for the merits decision. Additionally, Post does not possess the right to a jury trial regarding the administrator's decision.