Martha Kinstler v. First Reliance Standard Life Insurance Company
Docket: 1998
Court: Court of Appeals for the First Circuit; June 15, 1999; Federal Appellate Court
Martha Kinstler filed a lawsuit against First Reliance Standard Life Insurance Company after the insurer denied her long-term disability benefits under an ERISA-governed plan. The United States Court of Appeals for the Second Circuit reviewed the appeal of First Reliance from a September 30, 1997, judgment by the Southern District of New York, which granted Kinstler summary judgment and denied First Reliance's cross-motion. The court applied a de novo standard of review to the case, asserting this standard applies to both the interpretation of benefit plans and factual determinations unless the plan clearly reserves discretion to the administrator. Kinstler, who had been receiving benefits after being deemed totally disabled from injuries sustained in a car accident, had her benefits terminated by First Reliance on December 9, 1994, based on medical evaluations suggesting she could return to her job. The court affirmed the district court's ruling, concluding that Kinstler was entitled to disability benefits as she provided sufficient evidence of her total disability per the policy's definitions and requirements.
Kinstler's job at Project Return was characterized by minimal physical demands, with 75% of her workday spent sitting and 25% standing. The job did not involve lifting, carrying, stooping, kneeling, or climbing. Dr. Scott V. Haig, one of Kinstler's treating physicians, assessed her disability and concluded in an April 1994 letter that she should not engage in activities requiring walking over 50 feet, carrying loads, or climbing. He noted that while Kinstler could perform sedentary work if kept in a comfortable position, her disability restricted her job performance.
An independent evaluation by Dr. Robert J. Roffman in September 1994 indicated that Kinstler was not totally disabled and could work in a capacity that avoided prolonged standing or walking. An October 1994 addendum reaffirmed this assessment, suggesting Kinstler could work an eight-hour day under specific limitations. Conversely, Dr. Paul G. Jones, in a separate evaluation for no-fault insurance, stated that Kinstler could not return to her role as a floor nurse due to her need for a cane and limited knee mobility but could perform sedentary duties.
Based on these evaluations, First Reliance determined Kinstler was no longer totally disabled and terminated her disability benefits, classifying her job as sedentary according to U.S. Department of Labor standards. Kinstler contested this decision, presenting her job description, which indicated a mix of administrative (60%) and clinical (40%) duties, including responding to health crises and the requirement for CPR certification, which necessitated kneeling. Her counsel argued that Kinstler's role at Project Return involved more than sedentary tasks and that her qualifications limited her employment options to smaller facilities. Additionally, Kinstler provided a Social Security award letter confirming her disability benefits starting in December 1993, pending future evaluations by the Social Security Administration.
Thomas Hardy, a vocational specialist at First Reliance, assessed Kinstler's ability to perform her duties as Director of Nursing by analyzing the OASYS JD, which aligns with the Department of Labor's Dictionary of Occupational Titles. Hardy concluded that Kinstler could perform all essential duties outlined and that her occupation fell within the restrictions set by Dr. Roffman. Despite objections regarding Kinstler's ability to perform CPR, Hardy determined it was not an essential duty for the position. Given the policy requirement for total disability from all duties, Kinstler did not qualify as totally disabled.
In a subsequent memorandum, Hardy stated that Kinstler was capable of sedentary work, noting that her position was classified as sedentary according to the Department of Labor standards, which did not recognize the non-sedentary tasks as essential functions. An independent review by Dr. Dane K. Wukich confirmed that Kinstler could perform sedentary work, leading First Reliance to reaffirm its denial of benefits in a letter dated June 14, 1995. Following a complaint filed by Kinstler with the New York State Department of Insurance, First Reliance conducted further reviews but maintained its denial.
Kinstler subsequently filed a complaint in New York State Supreme Court, which was removed to District Court. After stipulating to dismiss state law claims, both parties sought summary judgment on her ERISA claim under 29 U.S.C. 1132(a)(1)(B). On July 16, 1997, Judge Leisure granted summary judgment for Kinstler, ruling that First Reliance's denial of benefits was subject to de novo review due to the absence of discretionary authority in the policy. The court found that, while Kinstler could perform sedentary activities, the determination of her regular occupation being sedentary was pivotal in the case's outcome.
The District Court determined that "regular occupation" should be defined as a role similar in character to the insured's prior job, requiring comparable skills and involving similar duties. However, the Court found that Kinstler's regular occupation included significant non-sedentary responsibilities, contradicting First Reliance's stance that it was solely sedentary. The Court criticized First Reliance's reliance on a database definition of "Director of Nursing," noting that both the Occupational Demands form and the employer's job description indicated the role’s non-sedentary nature. Consequently, the Court ruled that denying benefits was legally incorrect and stated it would have arrived at the same conclusion under a more lenient arbitrary and capricious standard.
Judge Leisure identified the primary dispute as whether Kinstler's "regular occupation," as defined in the policy, was sedentary. This led to two key questions: the definition of "regular occupation" and the material duties of that occupation. The parties agreed that Kinstler's physical limitations prevent her from performing non-sedentary tasks full-time, simplifying the inquiry to just the first two questions.
The standard of review for claims under ERISA was also discussed, referencing the Supreme Court's ruling in Firestone, which established that a de novo standard applies unless the plan grants the administrator discretionary authority to make benefit determinations. If such authority is present, denials are reviewed under the more deferential arbitrary and capricious standard, which requires substantial evidence for decisions and prohibits interpretations inconsistent with the plan's language.
The plan administrator must demonstrate that the arbitrary and capricious standard of review applies, as the burden of proof lies with the party seeking deferential treatment. The Supreme Court's decision in Firestone does not clarify if the de novo standard applies universally to all issues related to benefit denials or only to plan interpretation. Circuit courts are divided on this matter: the Third, Fourth, and Seventh Circuits apply the de novo standard to all issues arising from ERISA claim denials under section 1132(a)(1)(B), including factual matters. In contrast, the Fifth Circuit restricts the de novo standard to plan interpretation issues, applying the arbitrary and capricious standard to factual disputes. The Ninth Circuit has applied the de novo standard to a factual question without addressing the broader implications. Although the Supreme Court declined to resolve this circuit split regarding the Fifth Circuit's decision, two justices expressed the need for clarification. Firestone suggests support for both sides, as it did not resolve the specific factual question at issue, and trust law implies that trustees have discretion in factual determinations, which may justify the arbitrary and capricious standard. Ultimately, the Third, Fourth, and Seventh Circuits argue for a de novo review based on the Supreme Court's holding that denials of benefits should be reviewed under this standard unless the plan grants specific discretionary authority to the administrator.
The Supreme Court's language in Firestone must be interpreted carefully, indicating that "eligibility for benefits" is distinct from "construing the terms of the plan." Courts have noted that limiting the de novo standard solely to plan interpretation would undermine the significance of this distinction. The Third Circuit highlighted that the de novo standard's limitation pertains to section 1132(a)(1)(B) actions, not to other ERISA provisions, as evidenced by Firestone's statement that it expresses no opinion on the appropriate review standard for other actions. The Third Circuit also pointed out the policy rationale behind applying a deferential standard to government agency decisions, contrasting it with plan administrators who typically lack relevant expertise.
The text indicates a consensus among the Third, Fourth, and Seventh Circuits to adhere to the Supreme Court's language in Firestone, despite its broader application beyond the case's specific issue. Concerns were raised about placing undue burdens on district courts for de novo review in routine fact disputes within section 1132(a)(1)(B) cases, especially since ERISA plans can be drafted to reserve discretionary authority, thus avoiding de novo review.
First Reliance argues that its policy language sufficiently reserves discretionary authority to invoke the arbitrary and capricious standard of review, citing a clause requiring "satisfactory proof of Total Disability." However, Judge Leisure determined this language inadequate to preclude de novo review. The appellate courts remain divided on what constitutes sufficient language to convey discretionary authority. The Sixth Circuit's Perez decision illustrates this divide, with differing opinions on phrases like "satisfactory evidence" and "satisfactory written proof." The Seventh Circuit has found phrases such as "proof, satisfactory to us" adequate, while also accepting less rigorous wording like "such due proof as shall be from time to time required."
In this Circuit, the terms "discretion" and "deference" are not strictly necessary to avoid a de novo standard of review, though their use aids in decision-making. When the arbitrary and capricious standard is deemed applicable, clear policy language indicating discretion is required. Examples include explicit statements of authority in prior cases, such as plan trustees having the power to resolve disputes and using language like "in our judgment" for benefit determinations.
The language in First Reliance’s policy is insufficient to eliminate de novo review due to ambiguity regarding what constitutes "satisfactory proof" of Total Disability. It is unclear if it means proof satisfactory only to First Reliance or simply satisfactory proof in general. The burden lies with the plan administrator to demonstrate the applicability of the arbitrary and capricious standard, and policy ambiguities should be resolved against them.
The term "satisfactory" alone does not adequately convey that a plan administrator has discretion, as all plans require submission of proof deemed satisfactory by the administrator. Clear language indicating discretionary authority is necessary, as courts should not interpret vague terms to infer discretion. Consequently, Judge Leisure’s application of de novo review in interpreting "regular occupation" and assessing its material duties was correct, aligning with the District Court's rulings.
The term "regular occupation" is not explicitly defined in the Policy. In Dawes v. First Unum Life Insurance Co., it was determined that "regular occupation" refers to a job of the same general character as the insured's prior employment, requiring similar skills and duties, but is not limited to the exact position. This definition necessitates evaluating what constitutes a job of the "same general character."
First Reliance referenced the job description for "DIRECTOR, NURSING SERVICE" from the Department of Labor's Dictionary of Occupational Titles. While Kinstler held the title of "Director of Nursing" at Project Return, her "regular occupation" must consider the nature of her workplace, distinguishing between a small health care agency and a large hospital. The District Court found that Kinstler’s position included significant non-sedentary tasks, contrary to duties at a larger institution where such tasks might be more sedentary. Specifically, Kinstler was required to stand for 25% of her workday, perform clinical duties for 40%, respond to medical emergencies, maintain CPR training, and provide direct patient care when necessary.
The evidence confirmed that her duties, while not defining her regular occupation, illustrated the responsibilities of a director of nursing at a similar facility, which included non-sedentary activities. The District Court's decision to award benefits was upheld upon de novo review. The court dismissed an argument from First Reliance regarding Kinstler's ability to perform non-sedentary work, as it had not been presented during earlier proceedings. Additionally, the court found prior policy language insufficient for defining "Totally Disabled." The document concludes with a note emphasizing the importance of clear language in benefit determinations to ensure employees retain the right to effective judicial review.
