Sharon Thurber appeals a January 6, 2012 decision by the U.S. District Court for the Western District of New York, which granted Aetna Life Insurance Company's motion for summary judgment regarding the denial of her long-term disability benefits under ERISA. Thurber contends that the district court applied the incorrect standard of review and wrongly upheld Aetna's denial. The Court of Appeals affirms the district court's ruling, determining that Aetna's reservation of discretion justified the use of the arbitrary and capricious standard of review.
In a cross-appeal, Aetna contests the district court's denial of its motion for summary judgment on its counterclaim for equitable restitution of overpaid short-term disability benefits, arguing its plan language allowed for reimbursement under 29 U.S.C. 1132(a)(3). The Court of Appeals finds that Aetna’s claim for overpaid benefits qualifies as equitable relief under ERISA, reversing the lower court's denial of summary judgment on this counterclaim.
In the background, Thurber, who worked as a client services representative for Quest Diagnostics from 1993 until August 15, 2007, was enrolled in Aetna's ERISA disability benefits plan, which provided long-term disability benefits if she became unable to perform her job due to a disabling condition. After suffering significant injuries from a car accident in 2007, she was initially approved for short-term disability benefits due to traumatic arthritis in her knees but later sought long-term benefits after her short-term benefits ended. She disclosed receiving additional income from no-fault insurance during this period.
Aetna's plan allows for a reduction of short- or long-term disability benefits if a beneficiary receives "Other Income Benefits," including no-fault insurance payments, or earns income from part-time work. Aetna is authorized to recover overpayments through various means, including ceasing payments until recovery and pursuing legal action. Thurber's claim for long-term disability benefits was supported by her orthopedist, Dr. Michael T. Grant, who indicated significant limitations in her physical capabilities due to severe post-traumatic arthritis. Despite Dr. Grant's opinion of total disability, Dr. Anthony J. Bianchi later suggested that Thurber could gradually work up to an 8-hour workday. Aetna denied her claim on March 31, 2008, stating the medical evidence did not demonstrate an inability to perform her job. Following her appeal and knee surgery on April 28, 2008, Aetna sought an independent medical review by Dr. Lawrence Blumberg, who incorrectly attributed a medical report to Dr. Grant but concluded Thurber could perform sedentary work. Aetna upheld its denial in late May 2008. Thurber requested reconsideration, submitted additional medical information, and underwent two more independent reviews, which correctly attributed the earlier report to Dr. Bianchi. Both subsequent reviewers found Thurber functionally impaired only after her surgery and during recovery. On December 6, 2008, Aetna reaffirmed its denial. Thurber then filed a complaint in the U.S. District Court for the Western District of New York under ERISA, challenging the denial and Aetna counterclaimed for overpaid benefits totaling $7,213.92.
Aetna successfully obtained summary judgment against Thurber's claim for disability benefits, while its counterclaim was dismissed for lack of subject matter jurisdiction under ERISA, as it was deemed legal rather than equitable. Thurber is appealing the summary judgment granted to Aetna, and Aetna is cross-appealing the dismissal of its counterclaim.
Thurber contends that the district court should have applied a de novo standard of review to her claim because she allegedly did not receive the plan documents that reserve Aetna’s discretion to determine eligibility for long-term disability benefits. However, the applicable standard of review is de novo unless the plan provides the administrator discretionary authority, as established in Firestone Tire & Rubber Co. v. Bruch. If such discretion is reserved, the review becomes arbitrary and capricious, requiring a denial to be unreasonable, unsupported by substantial evidence, or legally erroneous.
Thurber admitted during oral arguments that the plan and Summary Plan Description (SPD) included adequate language reserving discretion to Aetna. She argues, however, that she was not shown evidence that she received these documents and claims that the only document she received, the 'Booklet', lacks clear discretionary language. The plan explicitly grants Aetna discretionary authority related to benefits eligibility, and the SPD affirms Aetna's discretion in determining eligibility and interpreting plan provisions. The Booklet also states that Aetna will certify disability only if it determines the individual is disabled.
The court clarifies that the requirement for clear communication of discretion does not imply that all plan participants must receive such notice. Moreover, no legal basis supports the need for actual notice of the discretion reservation. The Supreme Court's ruling in Firestone indicates that the arbitrary and capricious standard is only applicable if the plan grants discretion, without necessitating explicit communication of that reservation to plan members.
Aetna’s plan and Summary Plan Description (SPD) grant Aetna discretion in determining eligibility for disability benefits. The lack of actual notice to Thurber about this discretion does not affect its validity. While there are arguments advocating that critical plan provisions should be clearly communicated to beneficiaries, these do not apply to provisions aimed at a reviewing court post-denial. Consequently, the district court's application of the arbitrary and capricious standard of review was appropriate.
On appeal, Thurber presents several arguments against Aetna's denial of her long-term disability benefits, but only some warrant discussion. The court agrees with the district court's finding that Aetna's eligibility determination was backed by substantial evidence.
Thurber's first argument—that Aetna undervalued her subjective pain complaints—is rejected as the insurer sufficiently considered these complaints but found them unsupported by objective evidence. Aetna noted her reported knee discomfort and referenced Dr. Blumberg’s findings, which indicated Thurber had adequate range of motion for sedentary work.
Thurber also claims a critical mistake in Dr. Blumberg attributing a March 2008 Clinical Letter of Work (CLW) to the wrong doctor. However, the review was based on the substance of the report, and Aetna later confirmed its denial after independent evaluations.
Lastly, Thurber argues that Aetna did not adequately consider the cumulative medical evidence she provided. The court finds that Aetna’s denial letters and evaluations from independent physicians sufficiently addressed the evidence submitted, including the objective medical information regarding her neck and spinal issues. As a result, the court affirms the district court's summary judgment in favor of Aetna.
Thurber’s initial disability claim, supported by documentation from her care providers, primarily addressed knee injuries from a 2007 car accident and a prior 1983 accident. Although her claim might have included other disabling conditions, Aetna's review and final denial letter acknowledged tests on her spine, indicating that Aetna did not overlook this evidence in evaluating her eligibility for benefits. Thurber's arguments suggesting that Aetna's rejection was arbitrary and capricious were found to lack merit, leading to the affirmation of the district court's conclusion that Aetna's eligibility determination was backed by substantial evidence.
Aetna filed a counterclaim under ERISA, seeking the return of overpaid short-term benefits. The district court ruled it lacked subject matter jurisdiction over the counterclaim because Aetna was seeking legal relief rather than equitable relief. However, the appellate court reversed this decision, asserting that Aetna's counterclaim indeed constituted a request for appropriate equitable relief. The discussion references the Supreme Court case Great-West Life & Annuity Insurance Company v. Knudson, which examined whether 29 U.S.C. 1132(a)(3) permits insurers to seek reimbursement through subrogation-like actions under ERISA. In that case, the Supreme Court clarified that the statute only allows for equitable remedies, not legal ones, and noted that the Knudsons had not retained any funds from their settlement as they were placed in a Special Needs Trust.
Great-West sought to enforce a plan provision that imposed personal liability on beneficiaries who failed to reimburse the insurer after receiving third-party settlements. The Supreme Court viewed this as a breach of contract action rather than an equitable one, emphasizing that equitable restitution typically aims to restore specific funds or property rather than impose personal liability. In contrast, in Sereboff v. Mid Atlantic Medical Services, Inc., the insurer aimed to recover a specific, identifiable sum from the Sereboffs after they settled a tort claim related to a car accident. The Court determined that Mid Atlantic's claim was equitable, as it sought a defined share of identifiable funds. The Court referenced the principle from Barnes v. Alexander, establishing that a contract to convey specific property makes the contractor a trustee upon acquiring the title. Consequently, Mid Atlantic could impose a constructive trust or equitable lien on the Sereboffs' third-party recovery. The Court dismissed the Sereboffs' argument that strict tracing rules were necessary for equitable relief, reaffirming that such rules were irrelevant for equitable liens by agreement. The differing outcomes in Knudson and Sereboff stemmed from Great-West's inability to assert an equitable lien on funds held in a separate trust, while Mid Atlantic could claim funds directly in the Sereboffs' possession. Aetna's claim mirrors this equitable nature, seeking recovery of overpayments due to Thurber's simultaneous receipt of no-fault and short-term disability benefits, totaling $7,213.92. However, unlike Sereboff, the funds Aetna seeks are not from third-party income, but rather from overpayments made under the insurance plan.
Overpayments received by Thurber have been dissipated, yet this does not necessitate classifying Aetna’s claim as a legal one, despite differing Circuit opinions on the matter. The excerpt contrasts various cases: Funk v. CIGNA and Cusson v. Liberty Life Assurance Co. assert that fund dissipation is irrelevant when an equitable lien exists, while Bilyeu v. Morgan Stanley emphasizes the need for fiduciaries to recover from specifically identified funds. Aetna claims a specific portion of the fund related to disability benefits that were overpaid when Thurber received no-fault insurance benefits. The Ninth Circuit's recent ruling states that an insurer’s claim for overpayments does not target a specific fund but a sum within the total benefits paid. However, the requirement of segregation of funds is deemed irrelevant because the ERISA plan notified Thurber of her obligation to reimburse Aetna for amounts received from third-party sources.
Aetna contends that both third-party recoveries and overpayments are identifiable sums for which it can assert an equitable lien. The excerpt critiques the Ninth Circuit's interpretation of "particular fund" as lacking specificity due to being part of a larger fund. Thurber argues that Aetna cannot reclaim overpayments because she has used the no-fault funds, likening Aetna to a general creditor. The Third Circuit's view, which states that an equitable lien attaches to funds upon the beneficiary's receipt, is supported, indicating that dissipation does not negate the insurer's claim. The equitable lien established between Aetna and Thurber remains valid regardless of strict tracing requirements, as Thurber had possession of the overpaid benefits. The fact that she spent these funds does not invalidate Aetna’s rights under the subrogation provision of the ERISA plan.
Aetna claims an equitable lien on overpaid funds received by Thurber, arguing that Thurber's reliance on the Fehn case is incorrect. In Fehn, the plaintiff's overpayment resulted from a mistaken belief that they were entitled to salary-continuation benefits, leading to a legal claim rather than an equitable one. The district court concluded it lacked subject matter jurisdiction over Aetna's counterclaim, partly due to differences in language between Aetna’s Summary Plan Description (SPD) and the plans in Sereboff and Cusson. Aetna’s SPD states that the insurer “may” reduce benefits for other income and “may” require the return of overpayments, which the court interpreted as giving Aetna a discretionary rather than a definitive right to recover funds. The court’s interpretation is viewed as overly formalistic because the essence of Aetna's recovery right remains. The distinction between “may” and “will” in the SPD does not materially affect Aetna’s ability to seek reimbursement; it still possesses the discretion to assert its right to recover. Additionally, Aetna could have reduced benefits had it known Thurber received no-fault insurance while also receiving short-term disability payments. Thus, overpayments due to third-party income make portions of the ERISA benefits unnecessary post-factum.
Aetna had the right to reduce Thurber’s short-term disability benefits and retains the right to recover any overpayments due to its subrogation provision. Aetna's plan clearly indicates that any overpayments belong to Aetna through an equitable lien by agreement. The fact that Thurber possessed the overpayments does not affect Aetna’s entitlement or its ability to seek their return. Although Thurber did not contest this in relation to Aetna’s counterclaim, she acknowledged having received the Booklet that outlined the reduction of benefits. The document notes that the distinction between legal and equitable claims is often subtle, and judicial efficiency favors allowing ERISA insurers to pursue claims in ongoing federal actions rather than separate state court proceedings. Aetna's establishment of an equitable lien by agreement qualifies as a claim for “appropriate equitable relief” under 29 U.S.C. § 1132(a)(3), granting the district court subject matter jurisdiction. Consequently, the district court's dismissal of Aetna's counterclaim is reversed and remanded for judgment in favor of Aetna. The order of the district court is affirmed in part and reversed in part.
