Feibusch v. Sun Life Assurance ( 2006 )


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  •                     FOR PUBLICATION
    UNITED STATES COURT OF APPEALS
    FOR THE NINTH CIRCUIT
    TONI FEIBUSCH,                           
    Plaintiff-Appellant,
    v.
    INTEGRATED DEVICE TECHNOLOGY,                   No. 04-16501
    INC. EMPLOYEE BENEFIT PLAN,
    Defendant,               D.C. No.
    CV-03-00265-SOM
    and                                 OPINION
    SUN LIFE ASSURANCE CO. OF
    CANADA,
    Defendant-Appellee.
    
    Appeal from the United States District Court
    for the District of Hawaii
    Susan Oki Mollway, District Judge, Presiding
    Argued and Submitted
    July 24, 2006—San Francisco, California
    Filed September 7, 2006
    Before: Procter Hug, Jr., Gilbert Stroud Merritt,* and
    Richard A. Paez, Circuit Judges.
    Opinion by Judge Hug
    *The Honorable Gilbert Stroud Merritt, Senior United States Circuit
    Judge for the Sixth Circuit, sitting by designation.
    10895
    FEIBUSCH v. SUN LIFE ASSURANCE        10897
    COUNSEL
    Mark D. DeBofsky, Daley, DeBofsky & Bryant, Chicago, Illi-
    nois; Alan Van Etten & Robert D. Harris, Damon Key Leong
    Kupchak Hastert, Honolulu, Hawaii, for the plaintiff-
    appellant.
    Keith K. Hiraoka, Roeca Louie & Hiraoka, Honolulu, Hawaii;
    Mark E. Schmidtke, Schmidtke Hoeppner Consultants LLP,
    Valparaiso, Illinois, for the defendant-appellee.
    10898           FEIBUSCH v. SUN LIFE ASSURANCE
    OPINION
    HUG, Circuit Judge:
    Toni Feibusch (“Feibusch”) appeals the district court’s
    decision that Sun Life Assurance Co. of Canada (“Sun Life”)
    did not abuse its discretion in terminating her disability bene-
    fits. Feibusch’s principal argument is that the district court
    incorrectly applied abuse of discretion review rather than de
    novo review. Feibusch was denied benefits under policy lan-
    guage that states that proof of a disability claim “must be sat-
    isfactory to Sun Life.”
    We have jurisdiction pursuant to 28 U.S.C. § 1291, and we
    hold that de novo review applies under the policy language at
    issue. We reverse the summary judgment in favor of Sun Life
    and remand for trial proceedings.
    I
    FACTUAL BACKGROUND
    Beginning in 1984, Feibusch was employed by Integrated
    Device Technology, Inc. (“IDT”) as a technical writer and
    administrative assistant. Her job duties included typing,
    answering phones, and creating and maintaining technical
    data sheets. In a typical day, she was required to sit for seven
    to seven and a half hours, stand for one-half to one hour, walk
    for one-half to one hour, and drive for one-quarter hour.
    Although her job was largely sedentary, she was occasionally
    required to bend, stoop, climb, reach above her shoulders,
    kneel, balance, push, and pull. In addition to typing, the job
    required constant movement of both hands, and use of the
    right hand with the computer mouse. Feibusch earned more
    than $50,000 annually.
    Feibusch participated in an IDT-sponsored employee dis-
    ability benefit plan (the “plan”) regulated under the Employee
    FEIBUSCH v. SUN LIFE ASSURANCE           10899
    Retirement Income Security Act (“ERISA”), 29 U.S.C.
    §§ 1101 et seq. Benefits under the plan were partially funded
    by a group long-term disability insurance policy (the “poli-
    cy”) issued and administered by Sun Life.
    Key to this appeal is the language of several Sun Life pol-
    icy provisions. According to the policy, proof of a disability
    claim “must be satisfactory to Sun Life.” An employee is
    “Totally Disabled” if she “because of Injury or Sickness, is
    unable to perform all of the material and substantial duties of
    [her] own occupation.” An employee is “Partially Disabled”
    if she “because of Injury or Sickness is unable to perform all
    of the material and substantial duties of [her] own occupation
    on a fulltime basis,” but is “performing at least one of the
    material and substantial duties of [her] own occupation or
    another occupation on a part-time or full-time basis” and
    “earning less than 80% of [her] Total Monthly earnings due
    to the same injury or Sickness that caused the Total or Partial
    Disability.”
    In early 1999, Feibusch complained of shoulder pain. She
    temporarily stopped working in March 1999. Dr. Arthur Ting,
    Feibusch’s orthopedic surgeon, performed surgery on her
    shoulder in July and September 1999. Feibusch returned to
    work part-time in January 2000. On August 25, 2000, Sun
    Life approved an initial partial disability claim dating from
    March 1, 2000. In September 2000, Feibusch underwent a
    third shoulder surgery with Dr. Ting. In a November 2000
    report, Dr. Ting noted continued improvement in Feibusch’s
    condition and stated that despite pain, she had full range of
    movement in her shoulder and could work part-time if she
    were limited to medium manual activity. Feibusch continued
    to receive partial disability payments from Sun Life until Jan-
    uary 2001.
    In January 2001, however, Feibusch stopped working alto-
    gether and began collecting total disability payments. In
    March 2001, Dr. Ting reported that Feibusch was unable to
    10900           FEIBUSCH v. SUN LIFE ASSURANCE
    return to work. In April 2001, IDT terminated Feibusch’s
    employment because she was unable to work full-time with-
    out restrictions. In July 2001, Dr. Ting found that Feibusch
    had severe limitation of functional capacity and was incapable
    of minimum sedentary activity.
    As part of its claim review, Sun Life required Feibusch to
    submit to an independent medical examination by Dr. Charles
    Borgia. On December 5, 2001, Dr. Borgia stated that Fei-
    busch “could work four hours a day if she took an extra
    strength Tylenol three times a day.” A February 7, 2002 Sun
    Life file memo on Feibusch’s case concluded that Feibusch
    continued to meet the plan’s definition of disability but that
    she should undergo rehabilitation to aid her in returning to full
    or part-time work. On July 24, 2002, Dr. James Sarni
    reviewed Feibusch’s file upon referral from Sun Life and con-
    cluded that she “has a functional capability of her shoulder
    that would allow her to perform her duties as an administra-
    tive assistant.” Dr. Sarni opined that Feibusch could return to
    work on a part-time basis for a few months, and then return
    to full-time work.
    On August 2, 2002, Sun Life determined that Feibusch no
    longer met the policy’s definition of total disability and termi-
    nated her benefits effective July 31, 2002. Sun Life explained
    that “information in our file at this time fails to support [Fei-
    busch’s] continued physical incapacity to perform the duties
    of an administrative assistant.” Feibusch appealed this deci-
    sion through Sun Life’s internal process.
    As part of the appeal process, Steve Moon, a certified work
    capacity evaluator, performed a functional capacity evaluation
    of Feibusch for Sun Life. On October 31, 2002, Moon stated
    that although he believed Feibusch was in pain, she could
    return to work in her former position with certain limitations.
    On November 5, 2002, Feibusch underwent another indepen-
    dent medical examination by Dr. Walter Newman. Dr. New-
    man concluded that although Feibusch was likely to suffer
    FEIBUSCH v. SUN LIFE ASSURANCE           10901
    from “chronic shoulder pain syndrome” she was “capable of
    performing her own occupation as an administrative assistant
    and technical writer.” On December 4, 2002, Sun Life issued
    a final decision denying Feibusch’s appeal.
    II
    PROCEDURAL BACKGROUND
    Feibusch filed an ERISA action against IDT and Sun Life.
    Pursuant to stipulation, IDT was dismissed from the case. The
    parties filed cross-motions for summary judgment. The dis-
    trict court granted Sun Life’s motion for summary judgment,
    denied Feibusch’s motion for summary judgment, and
    directed the entry of judgment in favor of Sun Life. Feibusch
    timely appealed.
    III
    ANALYSIS
    A.   The Proper Standard of Review of Feibusch’s
    Benefits Denial
    [1] Following Firestone Tire & Rubber Co. v. Bruch, 
    489 U.S. 101
    (1989), we held that district courts must review
    ERISA benefit denial claims de novo unless the discretion to
    grant or deny claims is unambiguously retained by a plan
    administrator or fiduciary. Kearney v. Standard Ins. Co., 
    175 F.3d 1084
    , 1090 (9th Cir. 1999) (en banc). Recently, in Abatie
    v. Alta Health & Life Ins. Co., No. 03-55601, slip op. 9625,
    9636-37 (9th Cir. Aug. 15, 2006) (en banc), we explained:
    When a plan does not confer discretion on the
    administrator to determine eligibility for benefits or
    to construe the terms of the plan, a court must review
    the denial of benefits de novo regardless of whether
    the plan at issue is funded or unfunded and regard-
    10902           FEIBUSCH v. SUN LIFE ASSURANCE
    less of whether the administrator or fiduciary is oper-
    ating under a possible or actual conflict of interest.
    De novo is the default standard of review. If de novo
    review applies, no further preliminary analytical
    steps are required. The court simply proceeds to
    evaluate whether the plan administrator correctly or
    incorrectly denied benefits, without reference to
    whether the administrator operated under a conflict
    of interest.
    But if the plan does confer discretionary authority
    as a matter of contractual agreement, then the stan-
    dard of review shifts to abuse of discretion. We have
    held that, for a plan to alter the standard of review
    from the default of de novo to the more lenient abuse
    of discretion, the plan must unambiguously provide
    discretion to the administrator. The essential first
    step of the analysis, then, is to examine whether the
    terms of the ERISA plan unambiguously grant dis-
    cretion to the administrator.
    (internal quotations and citations omitted, emphasis in origi-
    nal).
    [2] The dispositive policy language in Feibusch’s case is
    that proof of a disability claim “must be satisfactory to Sun
    Life.” This language does not unambiguously provide discre-
    tion to the plan administrator. This conclusion clearly follows
    from our case law. In Sandy v. Reliance Standard Life Ins.
    Co. we stated, “Neither the parties nor the courts should have
    to divine whether discretion is conferred. It either is, in so
    many words, or it isn’t.” 
    222 F.3d 1202
    , 1207 (9th Cir. 2000).
    We subsequently emphasized:
    If an insurance company seeking to sell and adminis-
    ter an ERISA plan wants to have discretion in mak-
    ing claims decisions, it should say so. It is not
    difficult to write, “The plan administrator has discre-
    FEIBUSCH v. SUN LIFE ASSURANCE             10903
    tionary authority to grant or deny benefits under this
    plan.” . . . [I]t is easy enough to confer discretion
    unambiguously if plan sponsors, administrators, or
    fiduciaries want benefits decisions to be reviewed
    for abuse of discretion.
    Ingram v. Martin Marietta Long Term Disability Income
    Plan, 
    244 F.3d 1109
    , 1113-14 (9th Cir. 2001) (internal quota-
    tion omitted).
    [3] In light of these guiding statements, the Sun Life policy
    language does not merit deferential judicial review. Because
    the Sun Life policy does not unambiguously indicate that the
    plan administrator “has authority, power, or discretion to
    determine eligibility or to construe the terms of the Plan, the
    standard of review will be de novo.” 
    Sandy, 222 F.3d at 1207
    .
    This is not to say that “magic words” are required for a plan
    to reserve discretion. See Abatie, slip op. at 9637. Instead, the
    Sun Life policy language simply does not clearly indicate that
    Sun Life has discretion to grant or deny benefits. Indeed, the
    language makes no reference whatsoever to granting or deny-
    ing benefits, and is included under the policy heading “What
    is considered proof of claim?” We construe ERISA policy
    ambiguities in favor of the insured. See Thomas v. Oregon
    Fruit Products Co., 
    228 F.3d 991
    , 994 (9th Cir. 2000).
    [4] In Thomas, we held that the ERISA policy term “[bene-
    ficiary must provide] satisfactory proof of Total Disability to
    us” was insufficient to merit deferential judicial review. 
    Id. We explained
    that one possible interpretation of the term was
    that proof must be “satisfactory to us,” which would “argu-
    ably confer[ ]” discretion on the plan administrator. 
    Id. (emphasis in
    original). Under this reasoning, if language only
    arguably confers discretion, it does not unambiguously confer
    discretion and cannot escape the default of de novo review.
    We also note with approval the Second Circuit’s persuasive
    analysis of similar policy language:
    10904           FEIBUSCH v. SUN LIFE ASSURANCE
    [T]he phrase “proof satisfactory to [the decision-
    maker]” is an inadequate way to convey the idea that
    a plan administrator has discretion. Every plan that
    is administered requires submission of proof that
    will “satisfy” the administrator . . . . [T]he adminis-
    trator’s burden to demonstrate insulation from de
    novo review requires either language stating that the
    award of benefits is within the discretion of the plan
    administrator or language that is plainly the func-
    tional equivalent of such wording . . . . [C]ourts
    should require clear language and decline to search
    in semantic swamps for arguable grants of discre-
    tion.
    Kinstler v. First Reliance Standard Life Ins. Co., 
    181 F.3d 243
    , 252 (2d Cir. 1999).
    [5] Finally, we examine our ERISA cases that have held
    abuse of discretion review to be appropriate. We conclude
    that these cases involve policy provisions that are far clearer
    in conferring discretion in plan administrators than the provi-
    sion at issue in Sun Life’s policy. See Abatie, slip op. at 9637
    (“The responsibility for full and final determinations of eligi-
    bility for benefits; interpretation of terms; determinations of
    claims; and appeals of claims denied in whole or in part . . .
    rests exclusively with [insurer].”); Jordan v. Northrop Grum-
    man Corp. Welfare Benefit Plan, 
    370 F.3d 869
    , 875 (9th Cir.
    2004) (“[Insurer] has the discretion to construe and interpret
    the terms of the Plan and the authority and responsibility to
    make factual determinations.”); Bergt v. Ret. Plan for Pilots
    Employed by MarkAir, Inc., 
    293 F.3d 1139
    , 1142 (9th Cir.
    2002) (Administrator has “power” and “duty” to “interpret the
    plan and to resolve ambiguities, inconsistencies and omis-
    sions” and to “decide on questions concerning the plan and
    the eligibility of any Employee . . .” ); McDaniel v. Chevron
    Corp., 
    203 F.3d 1099
    , 1107 (9th Cir. 2000) (“[Plan Adminis-
    trator has] sole discretion to interpret the terms of the Plan”);
    Friedrich v. Intel Corp., 
    181 F.3d 1105
    , 1110 n.5 (9th Cir.
    FEIBUSCH v. SUN LIFE ASSURANCE             10905
    1999) (“[Insurer] shall have the sole discretion to interpret the
    terms of the Plan and to determine eligibility for benefits.”).
    Because we have concluded that a de novo standard of
    review applies, we need not reach Feibusch’s arguments that
    abuse of discretion review is improper because of 1) an
    improper delegation of discretion from IDT to Sun Life, or 2)
    Sun Life’s conflict of interest in being both the payor and
    administrator of benefits. These issues are only pertinent to an
    abuse of discretion standard of review.
    B.   The District Court’s Interpretation of
    Policy Language
    Feibusch argues that the district court misinterpreted the
    Sun Life policy by ignoring the provision that an employee
    earning $50,000 or more must be able to perform “on a full-
    time basis all of the material and substantial duties” of her job
    before disability benefits may be terminated. Because Dr.
    Ting and some of Sun Life’s evaluators agreed that she was
    incapable of full-time work, Feibusch argues that there was no
    proper ground for her disability benefits to cease.
    Under the plan, the provisions for when disability benefits
    will cease are as follows:
    Total or Partial Disability Benefits will cease on
    the earliest of:
    1.   the date the Employee is no longer Totally or
    Partially Disabled;
    2.   the date the Employee dies;
    3.   the end of the Maximum Benefit Period;
    4.   the date the Employee fails to provide adequate
    employment earnings information or proof of
    10906           FEIBUSCH v. SUN LIFE ASSURANCE
    continuing Total or Partial Disability as
    requested;
    5.   the date the Employee’s current earnings exceed
    80% of his Indexed Total Monthly Earnings;
    All Employees earning $50,000 or more annually
    6.   the date Sun Life determines the Employee is
    able to perform on a full-time basis all of the
    material and substantial duties of his own occu-
    pation, even if the Employee chooses not to
    work.
    All Employees earning under $50,000 annually
    7.   for the first 24 months of Total Disability or for
    Partial Disability, the date Sun Life determines
    the Employee is able to perform on a full-time
    basis all of the material and substantial duties of
    his own occupation, even if the Employee
    chooses not to work;
    8.   after the first 24 months of Total Disability, the
    date Sun Life determines the Employee is able
    to perform on a full-time basis all of the material
    and substantial duties of any occupation for
    which he is or becomes reasonably qualified for
    by education, training or experience, even if the
    Employee chooses not to work.
    [6] The provisions are oddly structured, with three separate
    headings, including one that applies only to item 6. The dis-
    trict court determined that items 1 and 6 were alternate bases
    for terminating total disability payments. Actually, these pro-
    visions cannot serve as alternate bases because item 1 is
    inconsistent with item 6. Item 1 may be meant to generally
    apply to all employees, but it conflicts with Item 6, which
    FEIBUSCH v. SUN LIFE ASSURANCE                  10907
    applies only to a specific subset of employees that included
    Feibusch — those earning at least $50,000. “Under well-
    settled contract principles, specific provisions control over
    more general terms.” Chan v. Society Expeditions, Inc., 
    123 F.3d 1287
    , 1296 (9th Cir. 1997). Under item 1, total disability
    benefits cease when the employee is no longer totally disabled.1
    Under the plan an employee is totally disabled when she is
    unable to “perform all of the material and substantial duties
    of [her] own occupation.” Item 6 uses the same exact quoted
    words except adding the phrase “on a full-time basis.” Thus,
    if item 1 alone can serve as a basis for terminating benefits,
    item 6 — the only provision specific to employees earning at
    least $50,000 — would serve no purpose whatsoever. “[W]e
    must interpret the contract in a manner that gives full meaning
    and effect to all of the contract’s provisions.” In re Crystal
    Properties, Ltd., 
    268 F.3d 743
    , 748 (9th Cir. 2001). Finally,
    we note that an ERISA policy ambiguity must be interpreted
    in favor of the employee. See Patterson v. Hughes Aircraft
    Co., 
    11 F.3d 948
    , 950 (9th Cir. 1993). Therefore, item 6 gov-
    erns and in order to terminate total disability benefits Sun Life
    must show that Feibusch was able to perform on a full-time
    basis all of the material and substantial duties of her own
    occupation.
    [7] Because the district court did not apply the de novo
    standard of review and did not correctly interpret the plan’s
    provisions for termination of total disability, we reverse the
    grant of summary judgment and remand.
    IV
    PROCEEDINGS ON REMAND
    The district judge’s order stated that if the court conducted
    a trial under a de novo standard “the court would find from
    1
    The parties agree that Feibusch is not eligible for partial disability
    under the plan because she is no longer working.
    10908           FEIBUSCH v. SUN LIFE ASSURANCE
    the overwhelming evidence that Feibusch could work at least
    part-time.” (emphasis added). As we have indicated, that
    would not be the appropriate inquiry, as the question would
    be whether she could work full-time.
    There are significant differences and claims of inaccuracy
    regarding the written statements of the various evaluators in
    the administrative record. In resolving these discrepancies, it
    may be advisable for the court at trial to consider additional
    evidence and perhaps oral testimony as is permitted in ERISA
    cases. See Mongeluzo v. Baxter Travenol Long Term Disabil-
    ity Benefit Plan, 
    46 F.3d 938
    , 943-44 (9th Cir. 1995);
    
    Thomas, 228 F.3d at 997
    (suggesting that admission of addi-
    tional evidence would be helpful on remand when the credi-
    bility of various medical experts is at issue); Quesinberry v.
    Life Ins. Co. of North America, 
    987 F.2d 1017
    , 1025 (4th Cir.
    1993) (holding that district court did not abuse its discretion
    in considering live expert medical testimony at ERISA bench
    trial, when medical issue was complex and when payor on
    policy was also the plan administrator). In resolving any fac-
    tual dispute the court must issue findings of fact and conclu-
    sions of law as required by Rule 52(a) of the Federal Rules
    of Civil Procedure.
    V
    CONCLUSION
    The summary judgment is REVERSED and REMANDED
    for trial consistent with this opinion.