Niedens v. Continental Casualty Co. ( 2007 )


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  •                                                                          FILED
    United States Court of Appeals
    Tenth Circuit
    December 7, 2007
    UNITED STATES COURT OF APPEALS Elisabeth A. Shumaker
    Clerk of Court
    FOR THE TENTH CIRCUIT
    ANTHONY NIEDENS,
    Plaintiff-Appellant,
    v.                                                  No. 07-3113
    (D.C. No. 05-CV-2176-CM)
    CONTINENTAL CASUALTY                                  (D. Kan.)
    COMPANY, a stock company,
    Defendant-Appellee.
    ORDER AND JUDGMENT *
    Before TACHA, Chief Judge, McCONNELL and GORSUCH, Circuit Judges.
    In this suit under the Employee Retirement Income Security Act of 1974
    (“ERISA”), 
    29 U.S.C. § 1132
    (a), Anthony Niedens challenges the plan
    administrator’s decision to terminate his long-term disability benefits. We have
    jurisdiction under 
    28 U.S.C. § 1291
    , and we affirm.
    *
    After examining the briefs and appellate record, this panel has determined
    unanimously that oral argument would not materially assist the determination of
    this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is
    therefore ordered submitted without oral argument. This order and judgment is
    not binding precedent, except under the doctrines of law of the case, res judicata,
    and collateral estoppel. It may be cited, however, for its persuasive value
    consistent with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
    ***
    Stryker Corporation employed Mr. Niedens as a medical salesperson.
    Among the employment benefits Stryker provided Mr. Niedens was a long-term
    disability plan funded by an insurance policy issued by Continental Casualty
    Company. Under the terms of the policy, Stryker served as the plan
    administrator, though it contracted with Continental, through CNA Group Life
    Assurance Company, to provide administrative services. 1 By its terms, the plan
    expressly provided the plan administrator and other plan fiduciaries with
    “discretionary authority to interpret the terms of the Plan and to determine
    eligibility for and entitlement to benefits in accordance with the Plan.” Jt. App.
    at 219, 237.
    1
    Both the benefits denial letter and the appeal denial letter are on the
    letterhead of The Hartford. Jt. App. at 263, 270. While Mr. Niedens’s
    administrative proceedings were pending, CNA Group Life Assurance Company
    became a subsidiary of The Hartford Financial Services Group, Inc., and CNA’s
    name changed to Hartford Life Group Insurance Company. The Hartford, through
    Hartford Group Life Insurance Company, then provided administrative services
    for the policy.
    In addition to Continental, The Hartford Financial Services Group, Inc.,
    Stryker Corporation, and the plan itself were named as defendants in the district
    court. In August 2006 the district court dismissed the Hartford company, Stryker,
    and the plan as defendants, and thereafter Continental was the only defendant in
    the district court. Continental is also the only appellee in this appeal. No party
    argues that Continental is an incorrect defendant, that the other defendants were
    erroneously dismissed, or that some other party or parties are at fault. For
    convenience, in this order and judgment we will attribute all administrative
    decisions to Continental.
    -2-
    Mr. Niedens ceased working on December 29, 2001, and applied for
    disability benefits due to Crohn’s Disease and associated diarrhea. He reported
    up to 9-10 bowel movements per day and alleged constant abdominal pain.
    Mr. Niedens received short-term disability payments from January to March,
    2002, and long-term disability benefits from March 2002 through March 2004
    based on his inability to perform his own occupation.
    After that time, to be entitled to continued benefits, Mr. Niedens had to
    establish that he was unable to engage in any “gainful occupation.” 
    Id. at 208, 226
    . Any new job had to yield at least 60% of his indexed monthly earnings
    within the first twelve months to be considered a “gainful occupation” under the
    terms of the policy. 
    Id.
     Because Mr. Niedens earned more than $14,000 a month,
    60% of his indexed monthly earnings was approximately $105,000 a year. Based
    on medical reports, surveillance of Mr. Niedens, and a labor market survey
    conducted by a third-party rehabilitation service, Continental determined that
    Mr. Niedens could engage in a gainful occupation and terminated his long-term
    disability benefits effective February 1, 2005.
    The labor market survey indicated that sufficiently high-earning jobs would
    be available to Mr. Niedens given his medical limitations, including his need for
    immediate access to a bathroom. Mr. Niedens argued to Continental that the
    survey was incorrect to the point of being fraudulent and presented statements
    from five persons named in the survey, as well as statements from himself and his
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    counsel, suggesting that the rehabilitation firm never conducted the survey it
    professed to have completed. In response, Continental asked the rehabilitation
    firm to provide its calling log. After reviewing the firm’s calling log and a time
    sheet showing the time the firm expended conducting the survey, Continental
    ultimately concluded that the firm had conducted the labor market survey as
    represented, and refused to disturb its decision denying benefits.
    Mr. Niedens exhausted his administrative remedies, then sued under
    ERISA. Relying on District of Kansas precedent, the district court allowed
    Continental to supplement the administrative record by introducing an affidavit
    from Cheryl Sauerhoff, appeal team leader for the Hartford Insurance Company,
    to explain how and why Continental decided to terminate Mr. Niedens’s benefits
    and particularly why Continental decided to rely on the labor market survey. The
    district court found that Continental’s decision that Mr. Niedens can work in a
    gainful occupation was not arbitrary and capricious and was supported by
    substantial evidence.
    ***
    On appeal, Mr. Niedens argues that (1) the district court erred in
    supplementing the administrative record with Ms. Sauerhoff’s affidavit, either
    because it was not part of the administrative record or because it was not
    competent evidence, and (2) the termination of benefits was arbitrary and
    capricious and was not supported by substantial evidence, particularly in light of
    -4-
    his challenge to the labor market survey. Because we find that the decision to
    terminate benefits was not arbitrary and capricious and was supported by
    substantial evidence even disregarding Ms. Sauerhoff’s affidavit, we need not
    decide whether the district court erred in supplementing the record in this case or
    whether the affidavit was competent evidence. See Fed. R. Civ. P. 61 (providing
    that an error in admitting evidence is not a ground for disturbing a judgment
    “unless refusal to take such action appears to the court inconsistent with
    substantial justice. The court at every stage of the proceeding must disregard any
    error or defect in the proceeding which does not affect the substantial rights of the
    parties.”); First Am. Kickapoo Operations, L.L.C. v. Multimedia Games, Inc.,
    
    412 F.3d 1166
    , 1172 (10th Cir. 2005) (relying on Rule 61).
    We review the district court’s grant of summary judgment de novo. Fought
    v. UNUM Life Ins. Co. of Am., 
    379 F.3d 997
    , 1002 (10th Cir. 2004) (per curiam).
    Where the ERISA plan, as here, “gives the administrator or fiduciary
    discretionary authority to determine eligibility for benefits or to construe the
    terms of the plan,” our review of the administrator’s decision, like the district
    court’s, is limited to examining whether its action was arbitrary or capricious.
    Firestone Tire & Rubber Co. v. Bruch, 
    489 U.S. 101
    , 115 (1989); Fought, 
    379 F.3d at 1003
    . However, where an administrator operates under a conflict of
    interest, this court applies a “sliding scale approach” that decreases the level of
    -5-
    deference in proportion to the level of conflict. Chambers v. Family Health Plan
    Corp., 
    100 F.3d 818
    , 825-26 (10th Cir. 1996).
    Under this less deferential standard, the plan administrator bears the
    burden of proving the reasonableness of its decision pursuant to this
    court’s traditional arbitrary and capricious standard. In such
    instances, the plan administrator must demonstrate that its
    interpretation of the terms of the plan is reasonable and that its
    application of those terms to the claimant is supported by substantial
    evidence.
    Fought, 
    379 F.3d at 1006
     (citations omitted). “Substantial evidence is of the sort
    that a reasonable mind could accept as sufficient to support a conclusion.
    Substantial evidence means more than a scintilla, of course, yet less than a
    preponderance. The substantiality of the evidence is evaluated against the
    backdrop of the administrative record as a whole.” Adamson v. UNUM Life Ins.
    Co. of Am., 
    455 F.3d 1209
    , 1212 (10th Cir. 2006) (citations omitted).
    As discussed above, Stryker’s benefits plan expressly affords discretion to
    the administrator. But, because it was both the administrator and the insurer of
    the plan, Continental operated under an inherent conflict of interest. See Nance v.
    Sun Life Assur. Co. of Canada, 
    294 F.3d 1263
    , 1269 (10th Cir. 2002). Thus, the
    district court appropriately applied the arbitrary or capricious standard of review.
    Fought, 
    379 F.3d at 1006
    . With respect to the contours of this standard, we have
    explained that
    [w]hen reviewing under the arbitrary and capricious standard, the
    Administrator’s decision need not be the only logical one nor even
    the best one. It need only be sufficiently supported by facts within
    -6-
    [his] knowledge to counter a claim that it was arbitrary or capricious.
    The decision will be upheld unless it is not grounded on any
    reasonable basis. The reviewing court need only assure that the
    administrator’s decision falls somewhere on a continuum of
    reasonableness–even if on the low end.
    Nance, 
    294 F.3d at 1269
     (alteration in original, quotation omitted).
    Mr. Niedens contends that the decision was arbitrary or capricious because
    Continental relied on the labor market survey despite knowing it had never been
    completed as represented. Although Mr. Niedens’s challenge to the survey is
    serious, we cannot say the administrator’s rejection of it was beyond the
    “continuum of reasonableness–even if on the low end.” By way of example, of
    the five affidavits from the persons named in the survey, only two are signed,
    sworn, and notarized; the other three, thus, amount to hearsay that normally
    would be inadmissible. At least one of the two sworn affidavits, moreover,
    contains information which appears to be beyond the personal knowledge of the
    affiant. See Jt. App. at 255. Mr. Niedens’s own affidavit is likewise in
    significant part not based on his personal knowledge. See 
    id.
     at 325-26 ¶¶ 4, 13,
    15-18. And the probative portions of his counsel’s affidavit are also hearsay. See
    id. at 232-35. Meanwhile, the survey Mr. Niedens challenges was not conducted
    by Continental but by a third-party firm with purported expertise in such matters
    and the record contains a detailed phone log and time sheet purporting to
    document many calls made and significant time spent by the firm conducting the
    survey. Given all this, we cannot say the administrator’s decision to credit the
    -7-
    labor survey in the face of Mr. Niedens’s challenge was, if not the only rational
    decision available to it, an arbitrary or capricious act.
    Mr. Niedens also argues that he was denied the full and fair review that
    ERISA requires because the denial letters do not “set out in opinion form the
    rationale supporting [the] decision” so that Mr. Niedens could adequately prepare
    his appeal to the federal courts. Aplt. Br. at 55 (quotation omitted). Particularly,
    he complains that the denial letter did not address his evidence attacking the labor
    market survey, explain what steps Continental had taken in response to his
    materials, or otherwise address his challenge to the reliability of the survey.
    Under ERISA, an employee benefit plan must “provide adequate notice in
    writing to any participant or beneficiary whose claim for benefits under the plan
    has been denied, setting forth the specific reasons for such denial, written in a
    manner calculated to be understood by the participant” and must “afford a
    reasonable opportunity to any participant whose claim for benefits has been
    denied for a full and fair review by the appropriate named fiduciary of the
    decision denying the claim.” 
    29 U.S.C. § 1133
    (1) & (2). This court has stated
    that a “full and fair review” requires “knowing what evidence the decision-maker
    relied upon, having an opportunity to address the accuracy and reliability of the
    evidence, and having the decision-maker consider the evidence presented by both
    parties prior to reaching and rendering his decision.” Sage v. Automation, Inc.
    -8-
    Pension Plan & Trust, 
    845 F.2d 885
    , 893-94 (10th Cir. 1988) (quotation omitted);
    see also 
    29 C.F.R. § 2560.503-1
    (h) (setting forth acceptable review procedures).
    Here, Continental informed Mr. Niedens in its initial denial letter of the
    specific evidence on which it relied. Mr. Niedens was given, and availed himself
    of, the opportunity to challenge that evidence. Further, the record indicates that
    Continental considered Mr. Niedens’s challenge: Continental requested
    additional information from the survey firm and the appeal denial letter
    acknowledges the materials Mr. Niedens submitted. To be sure, the appeal denial
    letter does not explain precisely why it rejected Mr. Niedens’s challenge to the
    labor market survey and it does not include the other information his brief
    identifies as omissions. But while it may be preferable for an administrator to
    provide a claimant with as much information as possible, Mr. Niedens does not
    identify any authority indicating that ERISA’s “full and fair review” requires the
    taking of particular steps in response to a claimant’s challenge or requires a
    detailed explanation thereof in an appeal denial letter. Moreover, we have held
    that substantial, even if not complete, compliance with the requirements of § 1133
    to be sufficient. Sage, 
    845 F.2d at 893, 895
    .
    Finally, Mr. Niedens argues that Continental’s decision to terminate
    benefits is not supported by substantial evidence. However, the medical records
    in this case indicate that Mr. Niedens can work at a sedentary occupation so long
    as he has ready access to a bathroom. The surveillance reports suggest that,
    -9-
    despite his medical condition, Mr. Niedens is able to conduct a great many daily
    activities. And the labor market survey reflects that there are jobs which would
    qualify as a “gainful occupation” under the policy. Continental’s decision to
    terminate long-term disability benefits is, thus, supported by substantial evidence
    – namely, evidence that, even if not unassailable, is of the sort “a reasonable mind
    could accept as sufficient.” Adamson, 
    455 F.3d at 1212
    .
    ***
    The judgment of the district court is affirmed.
    Entered for the Court
    Neil M. Gorsuch
    Circuit Judge
    -10-