Nally v. Life Insurance Co. of North America

Opinions of the United
2008 Decisions States Court of Appeals
for the Third Circuit
11-10-2008
Nally v. Life Ins Co N Amer
Precedential or Non-Precedential: Non-Precedential
Docket No. 07-4761
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NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 07-4761
VICKY NALLY, Administrator of the Estate of
Dennis Nally; VICKI NALLY, in her own right,
Appellant
v.
LIFE INSURANCE COMPANY OF NORTH AMERICA
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
D.C. Civil No. 2:07-cv-00707
(Magistrate Judge: Honorable L. Felipe Restrepo)
Submitted Under Third Circuit LAR 34.1(a)
October 28, 2008
Before: MCKEE, NYGAARD, and MICHEL,* Circuit Judges.
(Filed: November 10, 2008)
OPINION OF THE COURT
*
The Honorable Paul R. Michel, Chief Judge of the United States Court of Appeals
for the Federal Circuit, sitting by designation.
MICHEL, Chief Circuit Judge.
Vicky Nally appeals from the District Court’s grant of summary judgment in favor
of the Life Insurance Company of North America (“LINA”). We will affirm.
I.
Because we write only for the parties, we will only briefly summarize the facts:
Ms. Nally’s late husband, Dennis Nally, was an insulin-dependent diabetic. One morning
on his way to work, he was involved in a high-speed, single-vehicle automobile accident.
Witnesses described Mr. Nally’s driving before the crash as erratic. The police found no
evidence of mechanical failure, poor driving conditions, or drug use by Mr. Nally.
Mr. Nally suffered severe traumatic injuries in the accident. It took response
personnel approximately forty-five minutes to extricate him from his vehicle. His glucose
was measured around the time he was extracted and found to be 37 mg/dl. Emergency
medical technicians transported Mr. Nally to a hospital, where he died several days later.
Ms. Nally filed a claim with LINA under an accidental death and dismemberment
policy provided to Mr. Nally through his employer. LINA determined that benefits were
not payable because the policy excluded deaths resulting in whole or in part from
“sickness” or “disease” and that Mr. Nally’s accident resulted from hypoglycemia.
Ms. Nally filed suit in the Eastern District of Pennsylvania, challenging LINA’s
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denial of benefits. The district court granted summary judgment in favor of LINA.1 This
appeal followed.
II.
The district court had subject-matter jurisdiction of this civil action arising under
29 U.S.C. § 1132(a)(1)(B) pursuant to 29 U.S.C. § 1132(f). We have jurisdiction over
this appeal from the district court’s final judgment pursuant to 28 U.S.C. § 1291.
A. Standard of review
1. Discretion under the policy
Ms. Nally argues at length for the blanket proposition that courts, rather than
insurance companies, are entrusted with the responsibility of interpreting insurance
contracts. [Blue Br. at 19-22] Although Ms. Nally quotes from Firestone Tire and
Rubber Co. v. Bruch, [Blue Br. at 20] she inexplicably overlooks the holding of that
case: “[A] denial of benefits challenged under § 1132(a)(1)(B) is to be reviewed under a
de novo standard unless the benefit plan gives the administrator or fiduciary discretionary
authority to determine eligibility for benefits or to construe the terms of the plan.” 489
U.S. 101, 115 (1989).
The policy as issue provides that “the Insurance Company shall have the authority,
in its discretion, to interpret the terms of the Plan documents, to decide questions of
1
The district court’s decision is available as Nally v. Life Insurance Corp. of North
America, 43 Empl. Benefits Cas. (BNA) 1712, 2007 WL 4390423, 2007 U.S. Dist.
LEXIS 92211 (E.D. Pa. 2007).
3
eligibility for coverage or benefits under the Plan, and to make any related findings of
fact.” Here, the district court determined this language was, pursuant to Firestone, a grant
of discretion to interpret the plan. [slip op. at 12]
However, the summary plan description (“SPD”) states that “[t]he Tyco Benefits
Review Committee shall have the discretionary authority to determine eligibility for plan
benefits and to construe the terms of the plan, including the making of factual
determinations.” Ms. Nally argues that the difference between the policy and the SPD as
to what entity has authority to interpret the policy (the insurance company versus the Tyco
Benefits Review Committee) means that the SPD controls and LINA therefore lacks
authority to construe the policy. 2
“[W]here a summary plan description conflicts with the plan language, it is the
summary plan description that will control.” Burstein v. Ret. Account Plan for Employees
of Allegheny Health Educ. & Research Found., 334 F.3d 365, 378 (3d Cir. 2003). “If an
SPD conflicts with a plan document, then a court should read the terms of the ‘contract’
to include the terms of a plan document, as superseded and modified by conflicting
language in the SPD.” Id. at 381.
2
Ms. Nally’s argument rests in large part upon her assertion that
Pennsylvania’s reasonable expectations doctrine is applicable. [Blue Br. at 34-40]
However, federal common law—not state law—governs the interpretation of a benefit
plan in an ERISA suit. Feifer v. Prudential Ins. Co. of Am., 306 F.3d 1202, 1210 (2d Cir.
2002); Hooven v. Exxon Mobil Corp., 465 F.3d 566, 572 (3d Cir. 2006) (“Generally,
breach of contract principles, applied as a matter of federal law, govern claims for
benefits due under an ERISA plan.” (quotation marks omitted)).
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The district court determined that because both the policy and the SPD contained
an unambiguous grant of discretion to some entity, the discrepancy between the two as to
which entity had this discretion was not significant in this instance. [Slip op. at 12] The
district court reasoned that the two documents could be read harmoniously as granting the
Tyco Benefits Review Committee discretion (as noted by the SPD) which was
permissibly delegated to LINA (as noted by the policy). [Id.]
We agree with the district court. In Tocker v. Phillip Morris Cos., the Second
Circuit determined that a policy vested discretion in an administrator even though the
SPD given to the plaintiff was completely silent on the issue. 470 F.3d 481, 488-890
(2006). Other circuits have reached the same conclusion. See Fenton v. John Hancock
Mut. Life Ins. Co., 400 F.3d 83, 90 (1st Cir. 2005); Martin v. Blue Cross & Blue Shield of
Va., 115 F.3d 1201, 1205 (4th Cir. 1997); Cagle v. Bruner, 112 F.3d 1510, 1517 (11th
Cir. 1997); Wald v. S.W. Bell Corp. Customcare Med. Plan, 83 F.3d 1002, 1006 (8th Cir.
1996); Atwood v. Newmont Gold Co., 45 F.3d 1317, 1321-22 (9th Cir. 1995), overruled
on other grounds by Abatie v. Alta Health & Life Ins. Co., 458 F.3d 955, 966-67 (9th Cir.
2006) (en banc). Given these holdings from other circuits, it would be anomalous for us
allow the SPD’s statement that the Tyco Benefits Review Committee had discretion to
interpret the policy to invalidate the policy’s grant of discretion to LINA.
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2. Sliding scale
Even if the policy at issue grants an administrator discretion (presumptively
entitling the administrator to review under an arbitrary and capricious standard), court
scrutiny of the administrator’s decision may be heightened if certain structural or
procedural factors are present. Post v. Hartford Ins. Co., 501 F.3d 154, 161 (3d Cir.
2007). “[A] structural conflict arises when the administrator has a non-trivial financial
incentive to act against the interests of the beneficiaries.” Id. at 162. Procedural factors
warranting heightened scrutiny are generally actions of the plan administrator in reaching
the decision at issue that give the court some reason to doubt the administrator’s
neutrality. Id. at 165. Under this sliding-scale method, courts are to “intensify[] the
degree of scrutiny to match the degree of the conflict” based on structural and procedural
factors. Pinto v. Reliance Standard Life Ins. Co., 214 F.3d 377, 379 (3d Cir. 2000).
Before the district court, the parties agreed that LINA’s both funding and
administering the policy constituted a structural conflict warranting some increased
scrutiny. Ms. Nally does not argue that additional structural factors are present in this
case; she does, however, claim that procedural factors in the administrator’s decision
warrant heightened review. [Blue Br. 50]. The district court rejected these arguments.
[slip op. 14-15]. Ms. Nally does not explain how the district court erred on this point; she
merely repeats her arguments to the district court, often verbatim. [Blue Br. 50].
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Ms. Nally’s main procedural argument is that LINA determined from the outset
that it would deny her claim. Her only evidence in support of this contention is a short
entry in LINA’s internal logs, which reads
01/09/2006 claim for AD&D received in FCO. Death
certificate states that Dennis Naly [sic] diedfrom [sic]
multiple traumatic injuries as the result of an auto accident on
December 8, 2005. Policy states that benefits will not be paid
for loss which results directly or indirectly, in whole or in
part, is [sic] caused by or results sickness [sic], disease or
bodily ior [sic] mental infirmity.
[D 0036] Ms. Nally contends that this entry indicates that LINA decided at the beginning
of the claim review process to determine that Mr. Nally’s accident was a result of a
medical condition and thus excluded under the policy.
The district court correctly rejected this argument. [Slip op. at 14] Ms. Nally lacks
any corroborating evidence, and the passage she relies upon is hardly strong support for
her theory.
Ms. Nally also asserts that LINA’s interactions with a medical consultant, Dr.
Matra Terlecki, is another procedural irregularity warranting heightened review. Ms.
Nally asserts that LINA attempted to cover up Terlecki’s involvement both before and
during this lawsuit, asked her leading questions, and ignored unfavorable findings by
Terlecki.
The district court rejected this group of arguments. It found that, although LINA
did not disclose Terlecki’s name, LINA mentioned “an independent medical review” in a
7
February 28, 2007 letter to Ms. Nally, and that this referred to Terlecki’s review.3
LINA’s questions to Terlecki (such as “What events could result in a reading of ‘34’ and
how long would it take for a person’s levels to drop to that level? Please explain.”) are
not leading. And while Terlecki stated that because of the time lapse between the
accident and Mr. Nally’s first glucose test she could not determine whether he was
hypoglycemic at the time of his accident, she also noted that a blood glucose level of 37
mg/dl was inconsistent with “safely operating a motor vehicle” and would produce
“cognitive impairment.”
The district court correctly found that no procedural factors warranted increasing
its scrutiny of LINA’s decision to deny Ms. Nally’s claim, and was therefore correct to
apply only a moderately-heightened standard of review. See Post, 501 F.3d at 164.
3. Evidence
Ms. Nally complains that in reaching its decision LINA impermissibly relied on
evidence that would not be admissible under either the Federal Rules of Evidence (such
as police reports repeating statements by Ms. Nally and people who witnessed Mr. Nally’s
accident) or Daubert v. Merrell Dow Pharmaceuticals, 509 U.S. 579 (1993), (such as
Terlecki’s report). It is well-established that “[g]enerally, only evidence in the
administrative record is admissible for the purpose of determining whether the plan
3
LINA also points out that Terlecki’s report was produced along with the rest of the
administrative record in the regular course of discovery.
8
administrator’s decision was arbitrary and capricious.” Post, 501 F.3d at 168. Ms. Nally
presents no legal support for her contention that a plan administrator may only consider
evidence that would be admissible in original district court proceedings. Such a
requirement would run counter to the policy behind arbitrary and capricious review of
administrator decisions.
B. LINA’s denial of benefits
After correctly determining the applicable standard of review, the district court
correctly applied it to review LINA’s rejection of Ms. Nally’s claim. As the district court
found, there was evidence consistent with the proposition that Mr. Nally was
hypoglycemic at the time of his accident and that his hypoglycemia caused the accident.
That it may be impossible to prove that Mr. Nally was indeed hypoglycemic at the
moment of his accident does not mean that LINA’s decision does not survive moderately
heightened arbitrary and capricious review. It was not unreasonable for LINA to
conclude on the record before it that Mr. Nally’s accident was a result of his
hypoglycemia and thus not covered by this policy. The district court was correct to grant
of summary judgment in favor of LINA.
III.
Ms. Nally argued that the district court abused its discretion by not awarding her
attorney’s fees pursuant to 29 U.S.C. § 1132(g)(1). Because we have affirmed the district
9
court’s grant of summary judgment in favor of LINA, the district court acted within its
discretion in denying Ms. Nally’s request for fees.
IV.
For the foregoing reasons, we will affirm the judgment of the district court.
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