Gambino v. Arnouk ( 2007 )

Opinions of the United
2007 Decisions States Court of Appeals
for the Third Circuit
4-17-2007
Gambino v. Arnouk
Precedential or Non-Precedential: Non-Precedential
Docket No. 05-5422
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NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 05-5422
ANTHONY GAMBINO; DANIELLE GAMBINO
v.
M.D. MUNZER ARNOUK; LIBERTY LIFE ASSURANCE
COMPANY OF BOSTON
Liberty Life Assurance Company of Boston,
Appellant.
On Appeal from the United States District Court
for the District of New Jersey
(D.C. No. 03-cv-01611)
District Judge: Hon. Faith S. Hochberg
Argued on March 26, 2007
Before: FISHER, JORDAN and ROTH, Circuit Judges
(Opinion filed April 17, 2007 )
Paul R. Rizzo, Esquire (ARGUED)
DiFancesco, Bateman, Coley, Yospin,
Kunzman, Davis & Lehrer
15 Mountain Boulevard
Warren, NJ 07059
Counsel for Appellees Anthony and Danielle Gambino
Robert J. Mormile, Esquire (ARGUED)
Farkas & Donohue, LLC
389 Passaic Avenue
Fairfield, NJ 07004
Counsel for Appellee Arnouk
Patricia A. Smith, Esquire (ARGUED)
Edward T. Groh, Esquire
Ballard, Spahr, Andrews & Ingersoll
Plaza 1000
Suite 500, Main Street
Voorhees, NJ 08043
Counsel for Appellant Liberty Life Assurance
Company of Boston
OPINION
ROTH, Circuit Judge:
Anthony Gambino was denied short-term disability benefits by his insurance provider.
He brought suit to recover benefits due pursuant to 29 U.S.C. § 1132(a)(1)(B). The District
Court awarded Gambino the short-term disability benefits for which he had applied, as well
as an opportunity to apply for long-term disability benefits, which he had never done. For
the reasons set forth below, the judgment of the District Court will be reversed in part and
vacated in part, and remanded for further proceedings consistent with the dictates of this
opinion.
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I. Background
In March 2001, Gambino, a New Jersey resident, was employed as a sales manager
at IKON Office Solutions, Inc. IKON provided its employees with short-term disability
(STD) and long-term disability (LTD) plans. Gambino participated in both plans, which
were in effect in March 2001. In April, 2001, he applied for STD benefits. His claim was
denied, as was his appeal. He never applied for LTD benefits.
A. Disability Policies
Liberty Life Insurance Company of Boston (Liberty) insured and administered the
STD plan, pursuant to a Liberty policy purchased by IKON, and provided claims
administration services for the LTD plan, which was self-funded by IKON. When an IKON
employee applied for STD benefits, Liberty both evaluated the claim and paid the benefits
with its own funds. Liberty’s decisions regarding claims brought under the STD plan were
conclusive and binding.
In contrast, IKON was the sponsor, insurer, and administrator of the LTD plan.
Liberty was responsible for processing LTD claims, but IKON retained the authority to
overrule Liberty’s determinations. Benefits were paid by IKON, not Liberty.
Under both policies, a claimant was required to make the same showing to establish
disability. When Liberty or IKON, as relevant, received proof that a covered person was
disabled due to injury or sickness and required the regular attendance of a physician, Liberty
or IKON would pay the covered person periodic benefits upon conclusion of an elimination
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period during which disability had to be established but no benefits would be paid.
“Disability” was defined under both policies to mean that the covered person had to be
unable to perform all of the material and substantial duties of his or her occupation on an
active employment basis because of an injury or sickness. The proof furnished had to
establish the date on which the disability started, as well as the cause and degree of the
disability. Under the STD policy, Liberty had sole authority to interpret the terms of the
policy, and its decisions regarding the construction of the contract were conclusive and
binding. Under the LTD policy, Liberty’s determinations could be overruled by IKON.
As the names suggest, the main difference between the two policies (besides the role
of IKON) was the duration of coverage. STD claims were for short-term benefits, up to 26
weeks, with an elimination period of two weeks. LTD claims were for long-term benefits,
with the standard for proving disability heightening after 24 months, and an elimination
period of six months. The difference between the lengths of the elimination periods meant
that a covered person seeking STD benefits had to prove disability within a narrow two-week
window, whereas a covered person seeking LTD benefits could prove disability lasting over
a six-month period.
B. Gambino’s Claim
Gambino left work at IKON on March 9, 2001, after suffering a panic attack. On
April 5, 2001, Gambino contacted Liberty to initiate a claim for STD benefits. Under the
terms of his policy, it was Gambino’s obligation to provide Liberty with proof of his
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disability during the elimination period and the benefit period. Gambino provided Liberty
with the name of only one health care provider — his primary care physician, Dr. Munzel
Arnouk — and by April 16, 2001, Liberty had received no further information regarding the
claim. Liberty repeatedly contacted Dr. Arnouk’s office to seek Gambino’s medical records
but received no response. On April 18, Liberty called Gambino to seek records and faxed
to Dr. Arnouk several forms for him to complete and return with copies of his records.
Liberty reminded Gambino of the terms of his policy and informed him that he had until July
2, 2001, to provide the necessary information. No new information came. On July 3, 2001,
Liberty determined that Gambino’s STD claim should be denied for failure to provide
medical proof of the claimed disability.
On July 9, 2001, Liberty received a short fax from Dr. Arnouk, which consisted of a
certification of physician form, dated June 24, and an undated attending physician’s
statement. These forms contained short diagnostic statements but did not include any
observations about Gambino’s objective symptoms. Dr. Arnouk did not provide any records
of Gambino’s office visits.1 Dr. Arnouk’s submission provided Liberty with a limited
amount of additional information, including a short diagnosis of “severe anxiety reaction
with depression and psychological set back” and an opinion that Gambino was unable to
return to work. These forms also established that Dr. Arnouk was an internist who referred
1
Item 9 of the Attending Physician’s Statement form specifies that the doctor must attach
“[o]ffice notes for the period of treatment” and “[t]est results showing objective findings.”
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Gambino for psychiatric care. Finally, and somewhat confusingly, Dr. Arnouk listed
Gambino’s condition as having started a week before Gambino left work.
Within several days of receiving the forms from Dr. Arnouk, Liberty received a fax
from Dr. Jean Ying-Chang, a psychiatrist at Saint Clare’s Behavioral Health Center, where
Gambino was being treated. She stated that Gambino’s diagnosis was “Social Phobia, Major
Depressive Disorder, r/o Bipolar Disorder” and provided answers to those questions on the
certification of physician form which Dr. Arnouk had left blank. In particular, Dr. Ying-
Chang represented that Gambino was unable to perform work of any kind as of March 27,
2001. Upon receipt of this information from Drs. Arnouk and Ying-Chang, Liberty notified
Gambino that it was reopening his claim.
None of this information included actual copies of medical records, which Liberty
maintains are necessary so that it can independently verify the conclusions drawn by the
treating doctors. Liberty therefore requested copies of the office records necessary to
supplement the information it had already received. Liberty later discovered, though
apparently not until the litigation process, that Dr. Arnouk had kept no records of treating
Gambino and therefore had no office records. Despite Liberty’s repeated requests for office
records, Dr. Arnouk never informed Liberty or Gambino that no office records existed.
Liberty did manage to collect significant additional information about Gambino’s
treatment at Saint Clare’s Behavioral Health Center, including some office records. A brief
notation in the record revealed that after Gambino saw Dr. Arnouk on March 9, 2001, his
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next medical visit was to a Dr. Tintea at St. Clare’s, on March 27, 2001. Liberty never
received any documentation of this visit, though other records from Saint Clare’s indicated
that Dr. Tintea performed an initial intake and prescribed medication. Gambino also saw
M arion Robinson, a clinician who performed a psychiatric evaluation. According to this
evaluation, Gambino had experienced irritability and feelings of depression over the previous
one-and-a-half to two years. The evaluation also provided Liberty with clinical notes
describing Gambino’s condition, which is described as “irritable, constricted, and tense,”
with “notable flight of ideas.” Records also described Gambino’s panic symptoms in detail.
At Liberty, registered nurse Barbara McGivern and claims administrator Monica Dube
reviewed the file. Nurse McGivern recommended that the claim be denied and expressed her
reasons in internal notes. She expressed some confusion about “what changed” on March
9, 2001, to render Gambino disabled, since his condition was listed by Dr. Arnouk as starting
on March 2, and reports from Saint Clare’s suggested that he had been experiencing
problems of a similar nature for a year and a half. Because Dr. Arnouk provided no office
notes and no rationale for his medical decisions, Nurse McGivern felt that she was unable
to evaluate Gambino’s condition during the month of March (during which the entirety of
the elimination period ran). Moreover, because Dr. Arnouk indicated that he was seeing
Gambino on a weekly basis, Nurse McGivern assumed that a series of office records would
be available. She was unable to determine much of anything regarding Gambino’s
appointment with Dr. Tintea on March 27, 2001, since no records of this visit were in the
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file. Monica Dube agreed with Nurse McGivern that the claim should be denied on the basis
of insufficient medical information.
On August 14, 2001, Liberty issued to Gambino a determination letter in which it
explained that it was denying his claim for STD benefits because he had submitted
insufficient supporting documentation. Liberty explained that, although it had received
documentation relating to Gambino’s treatment at Saint Clare’s, this documentation did not
relate back to start of the elimination period. Liberty also informed Gambino of his rights,
including the right to appeal, under the Employee Retirement Income Security Act (ERISA).
On August 20, 2001, Gambino appealed his claim and assured Liberty that it would receive
all the information it needed as soon as possible.
Liberty allowed Gambino until September 12, 2001, to supply the necessary
information from Dr. Arnouk. The information never arrived. On October 1, 2001, Liberty
informed Gambino that it was maintaining its original decision to deny benefits and closing
his file. The same day, Liberty sent a letter informing IKON that Gambino’s claim for STD
benefits had been denied. On November 9, 2001, IKON contacted Gambino and informed
him that it had learned that his STD claim had been denied retroactive to March 9, 2001, and
that he would be required to return to work on November 19, 2001. Gambino did not return
to IKON and was terminated in December 2001. Gambino never applied for LTD benefits.
C. District Court Review
Gambino and his wife, Danielle, brought suit in the District of New Jersey against
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Liberty, alleging violations of ERISA that caused the loss of both STD and LTD benefits,
and against Dr. Arnouk, claiming that his office’s failure to supply information caused
Liberty to deny Gambino’s claim. Judge Hochberg presided over a bench trial at which she
heard testimony from Gambino and his wife, Dr. Arnouk, and Harriett Michael, the case
manager at Liberty who handled Gambino’s appeal. During theGambinos’ and Dr. Arnouk’s
testimony, counsel for Liberty frequently objected that the witnesses were providing
testimony as to facts that were not in the administrative record, upon which Liberty based its
denial of STD benefits, and which were not otherwise permissibly relevant.
At the conclusion of the bench trial, the District Court dismissed the suit against Dr.
Arnouk, finding inconclusive proof of liability. Gambino v. Liberty Life Assurance
Coompany of Boston, 2005 WL 4839146, at *1 (D.N.J. 2005). The District Court found
Liberty’s denial of Gambino’s STD claim to be “arbitrary and capricious” and awarded
Gambino STD benefits pursuant to 29 U.S.C. § 1132(a)(1)(B), in the amount of $22,749.13.
Id. at *8. The District Court also found that Gambino “could not have been expected to have
applied for” LTD benefits after being denied STD benefits, as it was “entirely foreseeable”
that a denial of STD benefits “would likely cause a beneficiary to assume that an LTD claim
would be futile.” Id. at *9. Because the District Court found that Liberty had violated the
provisions of ERISA by denying Gambino’s STD claim in an arbitrary and capricious
manner, the court determined that Gambino was also entitled to equitable relief with respect
to his request for LTD benefits. Id. As an equitable remedy, the court ordered Liberty,
9
which had the authority to process claims for LTD benefits, to process Gambino’s claim for
LTD benefits as if it had been timely filed and to make a recommendation to IKON
following the usual and customary procedures for evaluating LTD claims. Id. The District
Court did not explain what effect its ruling would have on IKON, a non-party to the suit,
which serves as the insurer for the LTD plan and would be responsible for making any LTD
benefit payments to Gambino.
III. Jurisdiction
Liberty timely appealed the order of the District Court. The District Court had subject
matter jurisdiction over this case pursuant to 29 U.S.C. § 1132(e). We have appellate
jurisdiction pursuant to 28 U.S.C. § 1291.
IV. Discussion
A. STD Benefits
When a claims fiduciary has discretionary authority to determine eligibility for
benefits, we employ an arbitrary and capricious standard of review in reviewing a denial by
that fiduciary of a request for benefits under an ERISA-regulated plan. Firestone Tire &
Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989). Under the arbitrary and capricious standard,
we may overturn a fiduciary’s decision “only if it is without reason, unsupported by
substantial evidence or erroneous as a matter of law.” McLeod v. Hartford Life and Acc. Ins.
Co., 372 F.3d 618, 623 (3d Cir. 2004). Where the entity with discretionary authority to
determine eligibility for benefits is also the entity that will be paying the benefits, we
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recognize this structural conflict of interest by employing a “heightened” arbitrary and
capricious standard of review. Pinto v. Reliance Standard Life Ins. Co., 214 F.3d 377, 392.
We have adopted a “sliding scale” approach under which arbitrary and capricious review is
a range, not a point, and our review is more or less probing depending on the degree of
conflict present. Id. at 392-93. Nonetheless, the ultimate burden to establish that the claim
determination was improper remains with the beneficiary. Id. at 392. In determining the
degree of the conflict, we look not only to the ultimate decision, but also to the process by
which the result was achieved. Id. at 393.
The District Court correctly summarized this law, but it did not determine where
within the range of arbitrary and capricious review Gambino’s case fell. Indeed, the District
Court never explicitly discussed Liberty’s degree of conflict. Thus, when it determined that
Liberty’s determination was “arbitrary and capricious,” it did not specify the level of scrutiny
that Liberty had faced. This was error.
The correct standard of review in this case is a deferential one, only slightly
heightened by Liberty’s structural conflict. Liberty made repeated attempts to supplement
Gambino’s file with the medical information it needed. Moreover, once it obtained some
information, it reopened his file. The District Court intimates that evidence of a heightened
conflict might be present because “Liberty seized upon any possible basis to ignore the ample
and strong evidence of psychiatric disability.” 2005 WL 4839146, at *8 n.11. Strict
application of an insurer’s policies, without more, is not evidence of a heightened conflict;
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if lack of sufficient documentation relating to the two-week elimination period is an adequate
basis for denial under the STD policy, then a denial on that basis cannot be evidence of a
heightened conflict.
Moreover, by engaging in de novo factfinding, the District Court committed clear
error which infected its review of the case. In Lasser v. Reliance Standard Life Ins. Co., we
held that “de novo factfinding is improper in reviewing a claims administrator’s decision
under the arbitrary and capricious standard of review.” 344 F.3d 381, 385 n.3 (3d Cir. 2003).
The District Court’s factual findings are a pastiche of evidence drawn from the
administrative record and testimony provided at the bench trial. The District Court relied on
trial testimony to make findings regarding, inter alia, Gambino’s panic attack at work, visit
to Dr. Arnouk, termination from IKON, attempts to work in 2002, and continued psychiatric
care. 2005 WL 4839146, at *5. M ore surprisingly, the District Court found it relevant to
comment upon Gambino’s demeanor at trial, which “showed aberrant agitation and highly
unusual affect.” It is clear that the District Court did not base its decision on the record that
was before Liberty when Liberty denied the claim. Moreover, Gambino had the burden of
establishing disability.2
2
Neither was Liberty obligated to inquire into Gambino’s work-related duties. The
District Court relied on Quinn v. Blue Cross and Blue Shield Ass’n, 161 F.3d 472 (7th Cir.
1998), to suggest that an insurer’s failure to make such an inquiry is per se arbitrary and
capricious. Quinn supports no such conclusion. In Quinn, the insurer made an affirmative
determination that the beneficiary could perform her duties, even though the insurer did not
know what those duties were. 161 F.3d at 476. The Seventh Circuit found such action by
the insurer to be arbitrary and capricious. Gambino’s case is quite different. Liberty found
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The District Court erred by collecting information which Liberty did not have in the
record before it and by deciding the case on that expanded record. We will therefore vacate
the District Court’s award of STD benefits and remand this case for further proceedings –
i.e., a largely deferential review of the administrative record that was before Liberty when
it made its decision.
B. LTD Benefits
The District Court’s equitable remedy of granting Gambino an opportunity to pursue
his LTD is legally unsupportable. We will reverse the judgment as to that claim. As an
initial matter, IKON retains final authority to determine whether Gambino is entitled to LTD
benefits, and IKON is the party obligated to pay any LTD benefits due. IKON, however, is
not a party to this suit. We therefore approach with skepticism an equitable “remedy” which,
in reality, is likely to remedy nothing.
More importantly, Gambino never filed a claim with Liberty for LTD benefits.
Except in limited circumstances, a federal court will not entertain an ERISA claim unless the
plaintiff has exhausted the remedies available under the plan. Harrow v. Prudential Ins. Co.
of America, 279 F.3d 244, 249 (3d Cir. 2002); Weldon v. Kraft, Inc., 896 F.2d 793, 800 (3d
that Gambino had not provided sufficient evidence to establish disability during the
elimination period. Liberty denied Gambino’s claim because it lacked sufficient medical
evidence regarding his condition. Without knowing the details of Gambino’s condition,
Liberty could not go on to the next step of determining whether that condition rendered him
unable to perform his duties, whatever those duties might have been. Liberty’s lack of
knowledge regarding Gambino’s specific duties was therefore irrelevant.
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Cir. 1990). The exhaustion requirement serves a number of important policy interests,
including helping reduce the number of frivolous lawsuits under ERISA, promoting
consistent treatment of claims, providing a nonadversarial method to settle claims, and
minimizing costs of settlement. Harrow, 279 F.3d at 249. Gambino’s failure to seek LTD
benefits in the first place surely qualifies as a failure to exhaust. Thus, if Gambino is to find
a remedy under ERISA, he must demonstrate that his failure to exhaust falls within an
exception to the exhaustion requirement.
A plaintiff is excused from exhausting his remedies if it would be futile to do so. Id.;
Berger v. Edgewater Steel Co., 911 F.2d 911, 916 (3d Cir. 1990). The law is clear that the
plaintiff must show, by making a “clear and positive showing of futility,” that it would have
been actually futile to pursue the claim. Harrow, 279 F.3d at 249 (citation omitted). In
Harrow, we quoted the Sixth Circuit as holding that “[a] plaintiff must show that it is certain
that his claim will be denied on appeal, not merely that he doubts that an appeal will result
in a different decision.” Fallick v. Nationwide Mut. Ins. Co., 162 F.3d 410, 419 (6th Cir.
1998) (internal quotation marks and citation omitted).
The District Court granted Gambino relief on the ground of futility because it was
“entirely foreseeable” that a denial of STD benefits “would likely cause a beneficiary to
assume that an LTD claim would be futile.” 2005 WL 4839146, at *8. The District Court
found that Liberty had offered no proof of any instance in which an individual who had been
denied STD benefits was nonetheless awarded LTD benefits and that Liberty had never
14
notified Gambino of his right to apply for LTD benefits despite denial of his STD claim. Id.
These findings, however, are not relevant as to whether it would actually have been futile for
Gambino to apply for LTD benefits. The STD and LTD plans contain different elimination
periods. It is possible for a covered person who lacked sufficient medical evidence to
establish disability within a two-week window to nonetheless amass sufficient medical
evidence to establish disability under the longer six-month period. There are a number of
subsequent records of treatment within a six-month period which could have supported an
award of LTD benefits. Thus, Gambino’s failure to apply for LTD benefits should not have
been excused.
V. Conclusion
For the foregoing reasons, the judgment of the District Court will be reversed in part
and vacated in part and the case remanded for further proceedings consistent with this
Opinion.
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