Alane King, as Conservator and Natural Parent of Amber Lynn Schanus v. Hartford Life and Accident Insurance Company
Docket: 02-3934
Court: Court of Appeals for the Eighth Circuit; July 22, 2005; Federal Appellate Court
The case involves Alane King, acting as conservator for her daughter Amber Lynn Schanus, appealing a decision by Hartford Life and Accident Insurance Company regarding a denied claim for accidental death benefits under an ERISA-governed employee benefit plan. The dispute arose following the motorcycle death of Martin Schanus, who was legally intoxicated at the time of the accident. Hartford denied the claim, arguing that Schanus's death did not qualify as an "accidental bodily injury" under the policy and fell under an exclusion for intentionally self-inflicted injuries.
King filed a lawsuit in Minnesota state court, claiming Hartford's denial was arbitrary and unreasonable. Hartford removed the case to the U.S. District Court for Minnesota, asserting ERISA jurisdiction. In the district court, King introduced new evidence, and despite the usual requirement to rely solely on the evidence available to the administrator, Hartford did not object to this. Both parties subsequently filed cross-motions for summary judgment. The appellate court reversed the district court's summary judgment in favor of Hartford and remanded the case for further consideration by the administrator, indicating that Hartford's denial of the claim warrants additional review.
Hartford defended its decision to deny benefits for Schanus's death by relying on the definition of 'accident' from Wickman v. Northwestern National Insurance Co., which excludes injuries that a reasonable person would consider likely due to intentional conduct. The district court agreed with Hartford, stating that its definition and application of plan terms were not arbitrary and granted summary judgment in Hartford's favor, though it acknowledged the difficulty of the legal standard and encouraged appellate review.
On appeal, a panel of the court reversed the summary judgment, adopting the Wickman standard to assess if Schanus's death was an accidental bodily injury. The panel found that statistical evidence indicated drunk driving deaths were rare and did not meet the Wickman criteria. The court later granted rehearing en banc, ultimately reversing the summary judgment on narrower grounds than the panel, concluding that Hartford's litigation stance was inconsistent with its earlier denial rationale. The decision cannot be upheld, and the case is remanded to the district court for reconsideration under the standard Hartford now advocates.
Additionally, the excerpt outlines that challenges to claims under ERISA are governed by principles that expect a federal common law to develop regarding rights and obligations under ERISA-regulated plans, as intended by Congress.
In Firestone Tire and Rubber Co. v. Bruch, the Supreme Court established that the appropriate standard of review for ERISA claims under 29 U.S.C. 1132(a) is guided by trust law principles. If an ERISA plan does not grant the administrator the power to interpret disputed terms or defer to eligibility determinations, courts will conduct a de novo review of the administrator's decision. In such cases, courts can apply federal common law to interpret plan terms and may allow additional evidence if warranted. Conversely, if a plan grants the administrator discretionary authority, the review shifts to an 'abuse of discretion' standard, meaning the administrator's reasonable interpretations of uncertain terms will not be disturbed by the courts. Several factors, known as the 'Finley factors,' are used to assess the reasonableness of the administrator's interpretation, including consistency with the plan's goals, avoidance of rendering the plan language meaningless, and adherence to ERISA requirements. Ultimately, courts must respect a reasonable interpretation by the administrator, distinguishing this from de novo judicial interpretations.
Reviewing an administrator's decision under an ERISA-regulated plan requires ensuring the decision is supported by substantial evidence, defined as relevant evidence that a reasonable mind might accept as adequate. Courts must evaluate only the evidence available to administrators at the time of their decision, without considering new evidence or post hoc rationales. ERISA mandates that denied claims be accompanied by adequate notice, clearly stating the reasons for denial in a manner understandable to the participant. Administrators must summarize the relevant facts and reasoning behind their decisions, as courts have disallowed later interpretations developed for litigation purposes.
In the case at hand, the benefit plan grants full discretion to the administrator regarding eligibility and interpretation of policy terms. This discretion subjects the administrator's decisions to abuse of discretion review under established legal frameworks. The policy specifies that accidental death benefits are payable if an accidental bodily injury occurs while the insurance is active, leading to a loss within 90 days, although the term "accidental" is not defined in the policy. Notably, the policy excludes benefits for losses resulting from intentionally self-inflicted injuries or suicide, regardless of the individual's mental state.
After the death of Martin Schanus, King submitted proof of death and claim forms to Hartford. On December 26, 2000, Hartford granted a death benefit of $42,916.04 to Amber Lynn but denied the claim for an accidental death benefit. The denial was based on toxicology findings indicating that Schanus drove while intoxicated, which Hartford deemed a voluntary exposure to unnecessary danger leading to a self-inflicted fatal injury. Hartford defined "accidental" as an event occurring unexpectedly, but argued that Schanus's intoxication and reckless driving made his injury foreseeable and not accidental under the policy terms.
The policy allowed for appeals against initial claim denials. King appealed the denial on February 21, 2001, asserting that Hartford's decision was unreasonable. Hartford responded on June 14, 2001, reaffirming the denial and stating that Schanus's death was not accidental. The rationale included that a reasonable person would foresee serious injury as a likely outcome of driving intoxicated, concluding that such a death does not qualify as accidental since it was a foreseeable result of Schanus's voluntary actions.
Hartford referenced two cases to support its decision regarding the denial of accidental death benefits. In **Weisenhorn v. Transamerica Occidental Life Insurance Co.**, the court ruled that an insured killed in a drunk driving accident could not recover benefits because the policy excluded losses resulting from felony commission, deeming the death a foreseeable consequence of the insured's actions. Similarly, in **Brewer v. Lincoln National Life Insurance Co.**, the court upheld an insurer's denial of health coverage based on a mental illness exclusion. Hartford's June 2001 decision did not address the reasoning from its December 2000 denial letter or consider the First Circuit's definition of "accidental" from **Wickman**. Hartford asserted a self-inflicted injury exclusion as a defense in its decision letter.
Hartford concluded that Martin Schanus did not experience "accidental bodily injury" because a reasonable person would foresee death or serious injury from intoxicated driving, asserting that such a death is not accidental due to the voluntary act of becoming intoxicated. Typically, when a benefit plan grants discretion to the administrator, the analysis begins by assessing the reasonableness of the administrator's interpretation of uncertain terms. The inquiry into whether it is reasonable to interpret "accidental" as excluding injuries that are foreseeable presents a debatable issue, with some courts supporting Hartford's position. However, if the definition of "accidental bodily injury" is overly narrow, it may conflict with statutory requirements to be understandable to the average participant, potentially undermining the expectations of plan participants who acquire insurance for foreseeable injuries.
Hartford's denial of Amber Lynn's claim for an accidental death benefit is based on a definition of "accidental" that aligns with the First Circuit's Wickman standard, which states that an event is not considered accidental if a reasonable person with similar characteristics to the insured would view the injury as highly likely due to the insured's intentional conduct. Hartford argues that this standard is derived from the Eighth Circuit's Carter Lake decision, which differentiates between "reasonably foreseeable" and "substantial probability" in determining what constitutes an accident.
Hartford contends that its litigation position is consistent with its administrative decision, despite that decision applying a "reasonably foreseeable" standard. The initial denial letter referenced a definition of "accidental" from Black's Law Dictionary but did not assert that the Wickman standard was utilized during the administrative review. The appeal decision did not cite Wickman or any cases applying its rationale, leading to the conclusion that Hartford's reasoning did not meet the higher threshold of "highly likely to occur" as required by Wickman. Thus, the final decision indicates that Hartford excluded events deemed "reasonably foreseeable" from the definition of "accidental," regardless of whether they were seen as "highly likely."
The case involves an administrator's post hoc justification for a denial of benefits that does not align with the original rationale used during the administrative process. Hartford's defense regarding the interpretation of 'accidental' injuries, based on the Wickman standard, is not supported by the administrator's stated reasons for denial. The court emphasizes the lack of clarity on how 'highly likely to occur' was interpreted by the administrator and whether sufficient evidence was presented to meet the Wickman standard.
Hartford also attempts to argue that Martin Schanus’s injuries and death fall under a policy exclusion for losses caused by self-inflicted injuries. While Hartford acknowledges that Schanus did not intend to harm himself, it claims that his alcohol intoxication constitutes an 'intentionally self-inflicted injury' contributing to his death. This argument is rejected as unreasonable, as the exclusion clearly pertains to injuries that are intentionally self-inflicted, not those resulting from unintended actions influenced by intoxication. The court notes that a reasonable interpretation of the exclusion does not encompass instances like Schanus's case, aligning with precedent that distinguishes between self-inflicted injuries and other contributing factors like alcohol consumption.
Hartford's interpretation of "intentionally self-inflicted injury" is deemed unreasonable within the context of its policy, as it conflicts with other policy exclusions, specifically the exclusion related to substance use. If the "intentionally self-inflicted injury" exclusion negated coverage for unintended injuries linked to substance ingestion, it would render the separate exclusion for drug use redundant. Additionally, Hartford's rationale for denying benefits appears inconsistent, as the initial denial referred to the head injury as the self-inflicted injury, not the alcohol intoxication, which was incorrectly categorized as such in subsequent arguments. The appeal's resolution parallels cases where ERISA plan administrators deny claims based on unreasonable interpretations of policy terms. Hartford's reliance on a "highly likely to occur" standard rather than a "reasonably foreseeable" standard suggests it misapplied the definition of "accidental" in denying Amber Lynn's claim for accidental death benefits.
The proper remedy is to remand the case to the plan administrator for reevaluation of the claim under the standard suggested by Hartford. Under ERISA (29 U.S.C. 1132(a)), courts possess a variety of remedial options, including remanding cases to administrators for further consideration, as established in several cases. When an administrator abandons its original reasons for denying benefits during litigation, it is generally preferable to return the case to the administrator instead of conducting a de novo review based on new interpretations presented in court.
In this instance, remanding allows the administrator to consider evidence introduced in the district court regarding whether a reasonable person would perceive the injuries and death of Schanus, resulting from operating a motorcycle while intoxicated, as "highly likely to occur." Consequently, the judgment granting summary judgment in favor of Hartford is reversed, and the claim is instructed to be reevaluated under the Wickman standard asserted by Hartford. The opinion is supported by several Circuit Judges, although one judge concurs only in parts of the opinion.
Additionally, Hartford raised objections to certain exhibits but did not contest the introduction of statistical evidence regarding drunk driving injuries and deaths. The dissent argues that Wickman did not establish a specific definition of accidental injury that requires assessing the likelihood of injury; however, the majority counters that Hartford's references to Wickman support the application of such a standard in this case.
The dissent argues that a court should consider an abandoned rationale for denying benefits, even if the plan administrator does not defend it during litigation. However, the prevailing view is that courts should only evaluate grounds actively presented. If Hartford chooses not to uphold its interpretation that an injury is not "accidental" because it is "reasonably foreseeable," the court should not advocate for the insurer. The claimant is likely to benefit from an administrative review under Hartford’s newly accepted broader interpretation of "accidental injury," rather than facing rejection based on an unasserted rationale. If a plan administrator introduces a new interpretation during litigation, the court may disregard it, but in this case, Hartford has opted not to maintain its initial, stricter interpretation. The court sees no potential for misuse in allowing the administrator to apply its new interpretation to Wickman's case.
Judge Bright, along with Judges Lay and Bye, concurs and acknowledges the need for Hartford to rectify its previous erroneous denial of accidental death benefits to Amber Lynn Schanus, the daughter of an insured individual. The panel previously reversed the denial, emphasizing that the plan administrator lacked crucial statistical evidence regarding drunk driving fatalities presented in the district court. This evidence indicates that such deaths represent a small fraction of arrests for drunk driving. Hartford is required to act fairly and reasonably in deciding whether to pay claims, and with the appropriate information, the administrator can apply the correct standard in this case.
The determination of whether Schanus's injuries and death were highly likely to occur due to his own conduct hinges on the perspective of a reasonable person with similar characteristics to Schanus. The text critiques Hartford's defense of its denial of Schanus's claim, suggesting that the costs incurred in this defense exceed the claim amount. It calls for a rational conclusion based on the facts and applicable law during the remand process. The plan administrator defines "accident" such that an injury is not considered an accident if it was reasonably foreseeable, a definition under scrutiny by dissenting opinions. This definition raises concerns as it could apply broadly, potentially categorizing foreseeable injuries—like those resulting from common risky behaviors—as non-accidents. The contrast between the common law definition, which considers the victim's expectation of avoiding injury, and the plan administrator's definition, which focuses on the expectation of suffering injury, is significant. Examples illustrate that under the plan administrator's criteria, many injuries that are commonly understood as accidents could be excluded from coverage. The critique emphasizes that the essence of accident insurance is to cover injuries resulting from unintentional negligent actions, and the administrator's approach could undermine this fundamental concept.
The interpretation of "accident insurance" in question restricts coverage to injuries perceived as bizarre or unforeseeable, such as choking or being struck by lightning, effectively excluding injuries resulting from the victim's actions or more common accidents. Such a restrictive definition misleads employees about their benefits, making the insurance policy deceptive and potentially abusive under ERISA standards. The plan administrator's inconsistent application of the "reasonably foreseeable" standard across different cases raises concerns of abuse of discretion. Legal precedents emphasize that an injury is considered an accident unless it is unreasonable for the victim to expect escape from it. The federal common law definition of "accident" requires consideration of the victim's background and circumstances, underlining that expectations of safety must be objectively reasonable.
Hartford, in its litigation, acknowledged that the plan administrator's definition of "accident" excluded reasonably foreseeable injuries but contended that "highly likely" and "reasonably foreseeable" are synonymous, which is incorrect. The standard of "highly likely" offers a broader and more careful definition of "accident," while "reasonably foreseeable" can exclude many accidents, particularly those stemming from the victim's negligence, allowing insurers to deny valid claims. Hartford referenced one published and one unpublished case where courts accepted the "reasonably foreseeable" standard, but these cases employed a less stringent reasonableness review than the one established in Finley. The Seventh Circuit's decision in Cozzie v. Metropolitan Life Ins. Co. exemplified a relaxed standard, requiring only a rational connection between the evidence and the administrator's conclusion, which does not align with Finley's stricter review. Similarly, Cates v. Metropolitan Life Ins. Co. applied a comparable rationality standard that contradicts Finley. The dissenting opinion, by Circuit Judge Gruender, suggests that the district court appropriately granted summary judgment for Hartford, asserting that the plan administrator did not abuse its discretion in denying Amber Lynn Schanus's claim for accidental-death benefits, as her father's motorcycle accident occurred while he was driving under the influence. The dissent critiques the Court's opinion for misinterpreting the issue and for suggesting that Hartford's use of the "reasonably foreseeable" standard constituted an admission of applying an incorrect definition of "accidental."
The Court misinterprets the definition of "accident" established in Wickman v. Northwestern National Insurance Co., 908 F.2d 1077 (1st Cir. 1990), particularly in its analysis of Hartford’s reliance on this case. In Wickman, Paul Wickman fell from a bridge while holding onto a guardrail, leading to his death. His widow's claim for benefits under an ERISA-governed accidental-death insurance policy was denied on the grounds that his death did not meet the policy's definition of an "accident," which requires the event to be unexpected, external, violent, and sudden.
The magistrate judge concluded Wickman's death was not accidental because he "knew or should have known" that serious injury or death was likely from his actions. The current Court’s interpretation erroneously defines the "Wickman test" as excluding injuries deemed likely by a reasonable person, while the original case focused on whether the magistrate judge applied the policy's definition of accident correctly to Wickman's specific circumstances. The First Circuit sought to clarify the concept of accident, emphasizing that the starting point should be the reasonable expectations of the insured at the time of purchasing the policy.
Wickman's court rejected attempts to analyze the issue based on the level of expectation necessary for an act to be considered accidental, instead proposing a two-pronged test: first, determining if the insured expected an injury similar to the one suffered, and second, if that expectation was reasonable. This approach aims to ensure that unrealistic expectations do not undermine the purpose of accident insurance.
The fact-finder must conduct an objective analysis of the insured’s expectations regarding the likelihood of injury resulting from intentional conduct, as established by the Wickman court. The key inquiry is whether a reasonable person with similar characteristics to the insured would believe that injury was highly likely due to the insured's actions. This objective analysis reflects actual expectations and adds substance to the interpretation of "accident." The Wickman court emphasized the reasonableness of expectations rather than their degree, upholding a magistrate's decision that denied a claim based on the conclusion that the insured should have anticipated serious injury. The First Circuit's application of this analysis did not focus on whether a reasonable person would view death as "substantially" or "highly" likely; instead, it asserted that the insured should have reasonably expected serious injury from dangerous behavior. Hartford has utilized the Wickman framework to argue that the determination of the claim's denial was reasonable but has not definitively adopted the "highly likely to occur" standard as the interpretation of "accidental" in its policy. Hartford contends that the insured’s expectations were unreasonable and requests the court reject a narrow interpretation of the Wickman test. The author disagrees with the court's position that Hartford has relied on a "highly likely to occur" definition and advocates for a review of the claim denial under an abuse of discretion standard, utilizing the relevant case law framework.
Even if the Court agrees that Hartford used an incorrect definition of "accidental" in denying Amber Lynn's claim, the proper action should not be to return the claim to the plan administrator for reevaluation under the proposed Wickman standard. Instead, the Court should assess whether the plan administrator abused its discretion based solely on the original record. This approach aligns with ERISA principles, which aim to prevent claimants from facing unexpected interpretations devised during litigation and to expedite claim resolutions.
The Court's ruling may allow an ERISA defendant to influence the review process by changing its argument during litigation, undermining the Court's role in determining abuse of discretion. The cited cases that support remanding the claim for reevaluation suggest that when a plan administrator has discretion and has exercised it, the Court's responsibility is to review that interpretation for abuse of discretion. If a court finds such abuse, remand may be appropriate to allow the administrator to reconsider the claim in light of the court's findings. However, prior cases illustrate that remand is not always necessary, particularly when a court can directly identify an abuse of discretion without needing to defer to the administrator's subsequent interpretations.
The cases referenced by the Court differ from the current matter as they involved instances where remand was needed due to the plan administrator's failure to provide reasons for their decisions or to interpret the plan. In those cases, the responsibility lay with the plan administrator to develop the administrative record and resolve the claims rather than the court. Notable examples include Shelton v. ContiGroup Cos. Inc., which remanded to the plan administrator after finding an abuse of discretion due to the administrator's neglect of its duty to make disability determinations; Caldwell v. Life Ins. Co. of N. Am., where remand was required because the denial letter lacked specific reasoning; and Schadler, where remand was necessary as the administrator had not exercised discretion regarding plan interpretation. Additionally, Gallo v. Amoco Corp. indicated that if an ERISA claim denial lacked a clear, reasoned basis, the court would remand for further explanation instead of deciding the plaintiff's benefits claim.
In this case, the focus shifts to whether the Hartford plan administrator abused its discretion in denying Amber Lynn's claim. The policy grants the administrator discretionary authority to make eligibility decisions, making the denial subject to an abuse-of-discretion standard, which is deferential and aims to limit court interference with benefits plan administration. Under this standard, a denial will be upheld if it is reasonable.
Two tests are pertinent to evaluating the reasonableness of the administrator's denial: first, applying the five-factor test from Finley v. Special Agents Mutual Benefit Ass'n, Inc. to assess the reasonableness of the interpretation of "accidental"; second, determining if the application of that interpretation to Amber Lynn's circumstances is adequately supported by the evidence on record, as established in Donaho v. FMC Corp. If the administrator provides a reasoned explanation based on the evidence for its decision, it should stand, even if another reasonable outcome could have been reached.
The court upheld the Hartford plan administrator's decision regarding the interpretation of "accidental," finding it reasonable under the deferential standard of review. The administrator consistently defined "accidental" as "unexpected" in the first denial letter and "unforeseen" in the second, terms deemed synonymous by dictionary definitions. The interpretation aligns with the policy's clear language and is supported by the ordinary meanings derived from relevant dictionaries. The court emphasized that the administrator's approach was consistent with established definitions, satisfying the Finley five-factor test and aligning with the goals of the Hartford accidental-death policy, similar to the precedent set in Cozzie v. Metropolitan Life Insurance Co.
MetLife denied a beneficiary's claim for accidental-death benefits under an ERISA-governed plan, asserting that the employee's death, resulting from a car crash while heavily intoxicated, did not constitute an "accident." MetLife defined "accident" based on reasonable foreseeability, and the Seventh Circuit upheld this interpretation as rational and aligned with the plan's objectives of providing financial support for unexpected deaths. The court emphasized that a plan fiduciary must reserve benefits for circumstances clearly within the policy's terms to maintain the financial integrity of the plan.
Furthermore, the Hartford plan administrator's interpretation of "accidental" as "unexpected" or "unforeseen" was deemed consistent with the policy language, countering the appellant's claim that this interpretation invalidated the express exclusions for suicide or intentional self-harm. Instead, the court noted that the list of exclusions served as illustrative examples of non-accidental deaths. Finally, the Hartford interpretation was found to comply with ERISA's requirements, as the statute does not mandate a specific definition of "accident," allowing for flexibility in plan administrators' interpretations without conflicting with substantive or procedural ERISA standards.
In Ablow v. Canada Life Assurance Co., the court upheld the plan administrator's authority to interpret policy terms, specifically the definition of "accident" as "unexpected" or "unforeseen." The court emphasized that it should not impose its interpretation, adhering to a deferential standard of review rather than a de novo review. The plan administrator's interpretation was deemed reasonable under the Finley five-factor test.
Regarding Amber Lynn's claim, the plan administrator provided a well-reasoned explanation for the denial, noting that a reasonable person would foresee death or serious injury from driving while intoxicated. The court referenced the administrator's focus on the reasonable expectations of an average driver rather than expert statistics on drunk driving incidents. The appellant's argument that Mr. Schanus's expectation of returning home without incident was not patently unreasonable was dismissed, as the evidence she cited was not considered by the plan administrator.
Ultimately, the court found that the administrator did not abuse its discretion in interpreting and applying the policy terms, thus affirming the denial of Amber Lynn's claim for accidental-death benefits.
The administrator's decision to deny benefits is upheld due to a deferential standard of review, which allows such decisions to stand even if a reasonable alternative exists. The Supreme Court's decision in Firestone Tire and Rubber Co. v. Bruch establishes that when an ERISA plan grants discretionary authority to the plan administrator, the decision is subject to an abuse of discretion review. The Wickman case, decided shortly after Firestone, applied a de novo review likely because the policy in question did not include the necessary language for deferential review.
A remand to the plan administrator could benefit the current claimant, but the precedent set may negatively impact future ERISA claimants. An illustration is provided where a claim for accidental-death benefits is denied based on the administrator's interpretation that the death was not an "accidental bodily injury," despite contrary statistical evidence presented by the claimant. If the administrator upholds the denial, the claimant may seek relief through litigation, potentially leading to a strategic shift by the defendant to avoid an adverse judgment. This shift could involve adopting a new standard that might better withstand review, despite the initial abuse of discretion.
Concerns are raised about the potential for plan administrators to manipulate litigation positions to gain tactical advantages, with skepticism about a reviewing court's ability to discern true intent behind such changes. The court's assumption that Hartford is not gaining a tactical advantage by adjusting its interpretation of accidental injury may not hold true, as the plan administrator's application of this interpretation on remand could differ from expectations.
ERISA's intended efficiency in claims processing has been undermined in this case. Five critical factors guide the evaluation of the Hartford plan administrator's interpretation of the insurance policy: (1) consistency with the policy's goals, (2) avoidance of rendering policy language meaningless or inconsistent, (3) compliance with ERISA's substantive and procedural requirements, (4) consistency in interpreting the term "accidental," and (5) alignment with the policy's clear language. The Hartford insurance policy stipulates payment for accidental-death benefits resulting from "accidental bodily injury," but does not define "accidental." The plan administrator referred to Black's Law Dictionary, defining "accidental" as an event occurring by chance or unexpectedly. In denying Amber Lynn's claim, the administrator cited Mr. Schanus's blood alcohol level, asserting that his death was not unexpected due to his reckless behavior while intoxicated. The denial was upheld upon appeal, emphasizing that a reasonable person would foresee death or serious injury as a likely outcome of drunk driving. The policy lists exclusions that prevent coverage for losses linked to various causes, including intoxication. Statistics reveal a significant number of alcohol-related fatalities in 2000, underscoring the known risks of drunk driving, which are widely publicized and understood by the public.
