Penny Grosz-Salomon v. Paul Revere Life Insurance Company, a Provident Company Cross-Appellee
Docket: 99-55812, 99-55960
Court: Court of Appeals for the Ninth Circuit; January 29, 2001; Federal Appellate Court
The case involves Penny Grosz-Salomon, who filed a claim for long-term disability benefits from Paul Revere Life Insurance Company after suffering complications from pregnancy and subsequent health issues, including two herniated disks. Paul Revere initially accepted her claim and began payments of $9,917 per month. However, the company later initiated an investigation into her disability status, which included interviews, an independent medical examination (IME), and a functional capacity evaluation (FCE). The IME concluded she was "temporarily totally disabled," while the FCE suggested she consider returning to a less demanding legal role. The primary legal issue addressed by the Ninth Circuit was whether the district court correctly applied an abuse of discretion standard in reviewing Paul Revere's decision to terminate benefits. The court found that the district court erred by using this standard instead of a de novo review but ultimately upheld the decision in favor of Grosz-Salomon since the error did not negatively impact her outcome. The original policy had undergone amendments, including a change that gave Paul Revere broad authority to interpret the policy, which was not formally authorized by Reznik’s managing partner.
Between 1995 and 1997, Paul Revere conducted covert videotaping of Grosz-Salomon. Upon reviewing the footage, Paul Revere's Associate Medical Director concluded that she did not have an impairment preventing her from performing as a lawyer, while another medical consultant indicated she could work part-time and eventually full-time. Neither doctor examined Grosz-Salomon nor asserted she could function as a full-time trial lawyer. In December 1997, Paul Revere determined that Grosz-Salomon was not disabled under the terms of Reznik's policy and communicated this decision to her, without revealing the reliance on its in-house doctors' opinions. The records of these consultations were not disclosed until after Grosz-Salomon filed suit following Paul Revere's final denial of her claim in August 1998. The district court granted summary judgment in favor of Grosz-Salomon, determining Paul Revere's denial constituted an abuse of discretion, and ordered the reinstatement of her benefits effective January 1, 1998.
In a subsequent motion, the district court acknowledged that it mistakenly applied an abuse of discretion standard instead of the correct de novo review, as clarified by the Ninth Circuit in Kearney v. Standard Insurance Co. However, the court deemed this error harmless, concluding Grosz-Salomon demonstrated that Paul Revere violated the plan’s terms. Paul Revere appealed the decision, while Grosz-Salomon cross-appealed. The review process requires determining which standard of review applies based on the version of the benefit plan governing the claim. The original plan did not grant discretionary authority to Paul Revere for benefits determinations, whereas the revised Benefit Summary did confer such discretion. The legal question remains unresolved regarding which plan governs when a claim is filed under a nondiscretionary policy but is denied under an amended plan. The Southern District of Iowa's case, Blessing v. Deere Co., is cited as a relevant precedent, where the governing plan at the time of the claim was crucial for determining the applicable standard of review.
The court determined that the second plan, specifically the 1988 plan, was applicable in this case. It ruled that an ERISA cause of action based on a denial of benefits accrues when benefits are denied, relying on the precedent set in Podolan v. Aetna Life Insurance Co. In Podolan, benefits were approved in 1982 but terminated in 1993, which was the focal point for the court's analysis. The court emphasized that the administrator's actions in 1993, when the benefits were terminated, were under the 1988 plan, which conferred discretion to the administrator.
The ruling underscored that the relevant inquiry is when the denial occurred, not when the claim was filed or when coverage was triggered. This position aligns with the Tenth Circuit's reasoning in Chiles v. Ceridian Corp., which distinguished between welfare and pension benefits, noting that welfare benefits do not need to vest and can be unilaterally modified by employers unless explicitly stated otherwise.
The Fifth Circuit's ruling in McGann v. H&H Music Co. reinforced this view, demonstrating that changes to welfare benefit plans do not create vested rights unless clearly articulated in the plan. In the present case, Reznik's policy with Paul Revere did not guarantee vested rights, allowing for modifications without employee consent. Consequently, Grosz-Salomon could not invoke the original policy's provisions because her rights were not vested, and the benefits were changed in 1993. The court concluded that since her cause of action arose in December 1997, the revised plan must be used to evaluate the standard of review.
The second Benefit Summary includes a paragraph absent from the original, granting the Paul Revere Life Insurance Company authority as the Claims Administrator to interpret the policy and make claims determinations, with decisions only being overturned if deemed arbitrary and capricious. However, this provision is deemed invalid for two main reasons. First, the insurance policy between Paul Revere and Reznik is fully integrated, stating that all agreements are contained within the policy, which prevents Grosz-Salomon from binding Paul Revere to external documents like the Benefit Summary. Consequently, if Grosz-Salomon cannot invoke the Benefit Summary against Paul Revere, Paul Revere cannot invoke it against Grosz-Salomon.
Second, even if the integration clause were not conclusive, Paul Revere could not rely on the new provision in the Benefit Summary, as it was not amended according to the policy's requirements. The policy stipulates that changes must be requested in writing and documented in signed amendments, which did not occur in this case. The amendment related only to the Retirement Security Benefit (RSB), and the new Benefit Summary was created unilaterally by Paul Revere without the Reznik firm's approval. Paul Revere's claim that distributing the new Benefit Summary constituted approval by Reznik is unsupported by legal authority. While employers may be bound by inaccurate summaries relied upon by employees, this does not extend to insurers unilaterally altering plan summaries without adhering to contract provisions. Therefore, the district court should have assessed Paul Revere's decision to deny benefits to Grosz-Salomon through de novo review, as the added discretionary language is invalid.
The court identified that normally it would reverse and remand a case where the district court used the wrong standard of review for a plan administrator's decision to deny benefits. However, in this instance, remanding would be inefficient because the district court had already thoroughly evaluated the evidence and acknowledged its earlier misuse of the abuse of discretion standard. The district court confirmed it would rule favorably for Grosz-Salomon under the de novo standard, rendering remand unnecessary. Consequently, the court affirmed the decision. The district court found that Paul Revere had abused its discretion in terminating Grosz-Salomon's disability benefits and ordered the retroactive reinstatement of those benefits from January 1, 1998, to February 1, 1999. Paul Revere argued that this remedy overstepped its authority as plan administrator and relied on unsupported facts. The court reviewed the equitable order for abuse of discretion and found none. It clarified that retroactive reinstatement is appropriate in ERISA cases where arbitrary conduct by the insurer led to a wrongful denial of benefits. The court distinguished this case from Saffle v. Sierra Pacific Power Company, noting that Paul Revere did not misconstrue the plan but instead reached an incorrect conclusion. Therefore, remand was not warranted, and the retroactive reinstatement was upheld. Additionally, Grosz-Salomon contested the district court's award of pre-judgment interest at 4.91%, seeking a rate of 10%. The court reviews such calculations for abuse of discretion and determined that the evidence presented by Grosz-Salomon, while indicating higher returns for Paul Revere, did not sufficiently demonstrate that the district court's decision was an abuse of discretion.
The district court's award of attorneys' fees to Grosz-Salomon is upheld. Paul Revere's argument that Grosz-Salomon is not a prevailing party is moot due to the court's ruling. The second argument, asserting that the district court erred by not conducting a five-factor analysis as established in Hummell v. S.E. Rykoff Co., is rejected. The court cites its previous decision in Nelson v. EG&G Energy Measurements Group, Inc., which states that if the plaintiff's victory is clear from the district court's order, further discussion of the Hummell factors is unnecessary. The court affirms the lower court's decision without reconsidering its established position.
ERISA allows companies to terminate non-vested and non-accrued benefits, distinguishing between pension and welfare benefit plans, where the latter do not vest or accrue. Courts have confirmed that ERISA does not mandate the vesting of medical benefits once included in a welfare plan. Employees’ rights to health benefits, such as those totaling $1 million, are not vested, enabling employers to reduce benefits significantly, even in adverse situations like illness. Employers retain the unilateral right to amend or terminate ERISA welfare plans unless employees have negotiated for contractually vested rights, which are evaluated based on general contract principles. A modification clause may prevent the vesting of health benefits when an employee qualifies for disability. "Zipper" clauses are designed to eliminate claims based on representations outside the formal contract. A provision in a summary plan description can create new plan terms if it complies with statutory and regulatory requirements. Any ambiguity resulting from poor drafting of the summary should be attributed to the drafter, not the employee. The court's decision to apply a de novo review negated the need to explore Grosz-Salomon's request for additional discovery related to a conflict of interest. The credibility issues raised by presented evidence did not clarify Grosz-Salomon's ability to work full-time as a trial attorney.
The district court determined that all doctors who examined Grosz-Salomon concluded she was totally disabled, while only two doctors who disagreed with this assessment had not examined her. The judgment was officially filed on February 4, 1999. It was noted that in cases where an agency with discretion fails to make adequate findings or provide sufficient reasoning, remand is appropriate rather than resolution at the appellate level. Paul Revere's reliance on a previous case was deemed misplaced because the plan administrator in that case operated under a misunderstanding of the plan's provisions, justifying the remand. The excerpt also clarifies the correct application of the Treasury bill rate for pre-judgment interest as dictated by 28 U.S.C. § 1961(a), specifying that the relevant rate should be based on the auction prior to the judgment date of February 5, 1999, which closed at a rate of 4.58. Although the district court made a minor error regarding the interest rate, Paul Revere did not appeal this aspect, thus the court's decision will not be disturbed.
