Michaeleen Kosiba Celeslie Epps-Malloy v. Merck & Company Unum Life Insurance Company of America Merck & Co., Long Term Disability Plan for Union Employees Celeslie Epps-Malloy
Docket: 02-2668
Court: Court of Appeals for the Third Circuit; September 13, 2004; Federal Appellate Court
Celeslie Epps-Malloy, a former employee of Merck & Co., participated in the company's ERISA-based Long Term Disability Plan. After receiving long-term disability (LTD) benefits from 1993, her benefits were terminated in 1996 following a review that deemed her not totally disabled. During the appeals process, Merck requested an independent medical examination by Dr. Gautam Dev, whose findings contradicted Epps-Malloy's treating physicians, leading to the denial of her benefits. Epps-Malloy subsequently filed suit under 29 U.S.C. § 1132(a)(1)(B) for benefits she believed were due.
The District Court ruled that the standard of review for the case remained an "arbitrary and capricious" standard, citing the structural arrangement between Merck, the Plan, and UNUM Life Insurance Company as not warranting a departure from this standard. The court upheld the denial of benefits based on Dr. Dev’s report.
On appeal, the court affirmed the District Court's decision regarding the absence of a financial conflict of interest. However, it identified procedural bias due to Merck's intervention in requesting a third medical opinion, which suggested an intent to counter Epps-Malloy's claims. This bias undermined the defendants' entitlement to the traditional deference normally afforded to ERISA fiduciaries. Additionally, the District Court's failure to address Epps-Malloy's fibromyalgia diagnosis required a new trial. Consequently, the appellate court reversed the District Court's judgment and remanded the case for a new trial.
The District Court conducted a bench trial under Fed. R. Civ. P. 52(a) but failed to make necessary findings of fact, leading to a summary of the record rather than an account of the court's findings. Epps-Malloy, employed by Merck as a cook and food-service attendant, suffered a work-related injury in 1991 and was diagnosed with fibromyalgia, chronic pain syndrome, and sarcoidosis. She received short-term disability benefits in October 1992 and was approved for long-term disability (LTD) benefits in October 1993, with periodic medical information requests to verify her continued disability. After applying for Social Security disability benefits, an administrative law judge awarded her benefits in 1994, declaring her permanently disabled.
Epps-Malloy's LTD benefits were part of the Merck & Co. Long Term Disability Plan for Union Employees, governed by ERISA. Merck funded the benefits but did not provide evidence on the specific funding methods. Fiduciary responsibilities are distributed among Merck's Board of Directors, the Management Pension Investment Committee, and Merck itself as the plan administrator. Merck appointed Thomas L. Jacob Associates as the claims administrator initially, later replaced by UNUM.
In May 1996, during a review of her benefits, UNUM requested information from Epps-Malloy's treating physicians. Dr. Panullo's reports were deemed irrelevant as they did not pertain to Epps-Malloy's disabilities. Dr. Williams, her primary physician, documented her conditions and indicated that Epps-Malloy was disabled due to shortness of breath, stating that her prognosis for returning to work was grim, declaring her unable to engage in even light activity.
UNUM notified Epps-Malloy on December 31, 1996, that her benefits were terminated, citing a review of medical documents from Drs. Panullo and Williams which indicated she no longer qualified as "unable to perform any and every duty" of her occupation. The letter emphasized the lack of evidence supporting her medical incapacity and required her to provide objective medical evidence of her disability. Epps-Malloy appealed this decision and submitted new information from her physician, Dr. Fred McQueen, who diagnosed her with fibromyalgia and asserted she was permanently disabled and unable to cope with stress.
In response, UNUM requested an Independent Medical Exam by Dr. Dev, who disagreed with the sarcoidosis diagnosis but did not address the fibromyalgia. UNUM upheld the denial of benefits based on Dr. Dev's findings. Epps-Malloy subsequently filed a suit under 29 U.S.C. § 1132(a)(1)(B) for benefits, while Merck counterclaimed for recovery of Social Security disability benefits she had received, which was settled. The District Court denied summary judgment on Epps-Malloy's claim, leading to a bench trial on the stipulated record. The Court applied an "arbitrary and capricious" standard of review and ultimately found the denial of benefits was not arbitrary, leading to a judgment for the defendants.
On appeal, the standard of review was assessed. The appellate court noted that it has plenary review over legal conclusions and reviews factual conclusions for clear error. The court determined that the District Court might have applied too deferential a standard in its review, thus not reaching the merits of Epps-Malloy's claim. The focus remained on ensuring the proper standard of judicial review was applied to UNUM's decision regarding her claim.
In Pinto, the court established that when evaluating an ERISA plan fiduciary's discretionary benefit determinations, courts must consider structural conflicts of interest, particularly when a financially interested entity is involved in benefit decisions. A "sliding scale" approach was adopted, requiring courts to assess the nature and extent of these conflicts to adjust their review of discretionary decision-makers' benefits determinations. Factors for consideration include the sophistication of the parties, available information, the financial relationship between the insurer and the company, and the fiduciary's current status. In Pinto, heightened review was deemed appropriate due to the insurer's dual role in making and funding benefits decisions, alongside procedural anomalies suggesting biased decision-making.
Subsequent cases have either stipulated the standard of review or been factually distinct from Pinto, limiting their relevance. The issue of heightened review for employer-controlled plans, where employers both make determinations and pay claims, remains unresolved. Such plans, referred to as "unfunded" or "self-funded," may present greater conflicts due to the employer's direct financial impact when claims are paid. In Skretvedt, the court noted the potential applicability of heightened review for employer-administered unfunded plans but did not decide the issue. In Smathers, the court concluded that an employer's self-administered unfunded plan warranted "somewhat heightened" scrutiny, indicating a need for more thorough review than the standard arbitrary and capricious standard.
The court affirmed that the unfunded, self-administered benefit plan in Stratton v. E.I. DuPont De Nemours & Co. requires a "slightly heightened form of arbitrary and capricious review." It emphasized that the financial relationship between the employer and the benefit plan isn't the sole factor in determining the review standard. In Stratton, while employers may have a financial motive to deny claims, they also risk negative impacts on employee morale and wage demands. However, this concern is diminished when a former employee, like Smathers, seeks benefits, as the employer's incentive to consider morale is lessened after employment ends.
The court pointed out that claims for benefits often arise after individuals leave employment, suggesting that decisions made by the employer regarding these claims may not influence current employees' perceptions or morale. Thus, claims from former employees may be treated similarly to those made to an insurance company. Additionally, heightened review may apply in cases of procedural irregularity, bias, or unfairness in the claims process. The Pinto case highlighted that procedural issues, alongside financial conflicts, contributed to the heightened review. Although no subsequent cases have hinged solely on procedural bias, the court noted that specific evidence of bias or bad faith must be presented to trigger heightened review; otherwise, plans are assessed under the usual arbitrary and capricious standard. Gourley did not provide such evidence of bias against the plan administrator.
The excerpt addresses the standard of review applicable in the case involving Epps-Malloy and Merck's administration of the employee benefits plan. The District Court found that Epps-Malloy failed to provide evidence regarding how Merck funds the Plan, noting that Merck is the plan administrator and ultimately retains authority despite delegating claims administration to UNUM. Epps-Malloy did not rule out the possibility that Merck funds benefits through fixed contributions, which mitigates concerns about a financial conflict of interest, leading to no heightened standard of review based on this aspect. However, Epps-Malloy's former employee status might invoke a heightened review if it were shown that Merck pays benefits from its general operating funds.
Epps-Malloy's argument for heightened review gains traction from procedural bias concerns discussed in a previous case, Pinto. Merck's intervention in Epps-Malloy's appeal, particularly its request for an independent medical examination by Dr. Dev, raises questions about bias. At the time of this request, all supporting evidence, including opinions from two doctors and an SSA determination of total disability, favored Epps-Malloy. The District Court acknowledged that the denial of benefits relied primarily on Dr. Dev's report, supplemented by a nurse’s opinion based on Epps-Malloy's file.
Interpreting Merck's request for the independent examination, it appears that the plan administrator sought evidence counter to the strong medical support for Epps-Malloy's claims, suggesting that Merck may not have acted as a neutral fiduciary. Given the favorable medical record for Epps-Malloy, Merck's actions raise concerns about its impartiality in the claims process.
Merck may have acted in good faith regarding Epps-Malloy's application, believing it to be ambiguous and seeking a third physician's opinion to clarify. Independent medical examinations are standard in claims administration and should not be discouraged. The review of the defendants' benefits determination is currently under consideration, with Epps-Malloy's case hinging on the merits of her claim, particularly Dr. Dev's opinion, balanced against the deference owed to the defendants' decision. A responsible fiduciary should prioritize gathering sufficient information for claims determinations over avoiding requests for additional data to maintain a deferential review standard.
A moderately heightened arbitrary and capricious standard of review is warranted due to procedural bias in Epps-Malloy's appeals process. Although a significantly heightened standard would be appropriate if a financial conflict of interest were present, the current record does not indicate such a conflict. The District Court improperly applied an unmodified arbitrary and capricious standard of review, leading to a remand for a new trial under the correct judicial review standard, as the determination of the defendants' actions is a matter of fact.
Additionally, the District Court's findings on the merits must be set aside, as it failed to adequately consider the denial of long-term disability (LTD) benefits in light of Epps-Malloy's fibromyalgia diagnosis. Despite sarcoidosis being listed, fibromyalgia was a significant factor in her disability and in the granting of Social Security Administration benefits. Dr. Dev's report, while the best counter to Epps-Malloy's claims, did not address the fibromyalgia diagnosis, which is typically managed by a rheumatologist rather than a pulmonologist. The District Court must reassess the defendants' decisions regarding both of Epps-Malloy's claimed conditions on remand.
The court's review of the plan administrator's decisions regarding Epps-Malloy's fibromyalgia claim must rely solely on the evidence available at the time of the decision. If the record lacks sufficient evidence to justify the decision, it should be overturned. The court emphasizes that its evaluation must be based on the plan administrator's record, not on its own determination of Epps-Malloy's disability. The District Court is tasked with assessing whether the defendants' handling of the claim met the heightened standard of arbitrary and capricious review. The earlier decision from the District Court is deemed overly deferential, leading to a reversal and remand for a new trial on the merits. Additionally, it is noted that Michaleen Kosiba, another named plaintiff, settled her case and is not involved in the appeal. The excerpt provides medical context regarding Epps-Malloy's condition, including her history with sarcoidosis and current symptoms, while expressing skepticism about the correlation between her ailments and the incident involving a stack of food service trays. The medical evaluation indicates that her symptoms do not align with her clinical presentation, and there is a possibility of emotional factors influencing her condition.
The patient's impaired cardiac status may require an exercise stress test to clarify diagnostic uncertainties. Current pulmonary function tests and arterial blood gas results suggest a mismatch between her diagnosis and clinical presentation. Discrepancies exist between Dr. Dev and Dr. Williams regarding the initial diagnosis of Epps-Malloy's sarcoidosis, though the significance of this inconsistency remains unclear. The District Court has discretion to allow parties to supplement the record with evidence concerning the Plan's funding mechanism upon remand. While generally, the record for arbitrary-and-capricious review of ERISA benefits denials is limited to what was presented before the plan administrator, courts may consider evidence of potential biases and conflicts of interest when determining the standard of review, including the Plan's funding mechanism. The court's discretion is emphasized in this context. Finally, while the relevance of an SSA finding of total disability in the ERISA benefits context is not assessed, it is acknowledged that the SSA ruling provides some support for Epps-Malloy's ERISA benefits claim.
