Havens v. Continental Casualty Co.

Opinions of the United
2006 Decisions States Court of Appeals
for the Third Circuit
6-13-2006
Havens v. Cont Cslty Co
Precedential or Non-Precedential: Non-Precedential
Docket No. 05-3075
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NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 05-3075
WILLIAM HAVENS,
Appellant
v.
CONTINENTAL CASUALTY CO.,
(CNA)
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
D.C. Civil 04-cv-03268
District Judge: The Honorable Juan R. Sanchez
Argued: May 11, 2006
Before: BARRY, SMITH and TASHIMA,* Circuit Judges
(Opinion Filed June 13, 2006)
Donald E. Havens, Esq. (Argued)
8246 West Chester Pike
Upper Darby, PA 19082
Counsel for Appellant
*
The Honorable A. Wallace Tashima, Senior Circuit Judge, United States Court of
Appeals for the Ninth Circuit, sitting by designation.
Michael J. Burns, Esq. (Argued)
Christie, Pabarue, Mortensen & Young
1880 John F. Kennedy Boulevard
10th Floor
Philadelphia, PA 19103
Counsel for Appellee
OPINION
BARRY, Circuit Judge
William Havens’s insurer, the Continental Assurance Company (“Continental”),
denied him long-term disability based on a finding that he was not prevented from
engaging in “any occupation.” Havens brought suit and the District Court found for
Continental. Because we conclude that that determination was incorrect, we will reverse
and remand with instructions to enter judgment for Havens.
I.
Havens worked as a regional property inspector for the Continental Financial
Corporation.1 He suffers from diabetes and a host of related ailments, including problems
with his retinas and bladder. He had his gall bladder removed in 1998 and had surgery in
1987 to remove neurofibromas from his neck. On October 15, 1999, while on a business
1
Continental Assurance Company (the defendant) and Continental Casualty (the name
on the caption of the case) are both members of the same corporate family as Havens’s
employer.
2
trip, he suffered an injury to his back when a bed at a Ramada Inn collapsed beneath him.
Since then, he has had serious pain in his lower back and right leg. He has damage to the
nerve roots between the L4 and S1 vertebrae of his spine, a condition medically known as
radiculopathy and often caused by a violent impact or the reduced blood flow associated
with diabetes.
Havens consulted with numerous doctors, most extensively with Dr. Leon DeMasi
at the Crozer Keystone Health System Centers For Occupational Health. Dr. DeMasi’s
diagnosis was “[d]egenerative joint disease and degenerative disc disease of the
lumbosacral spine with radiculopathy.” Dr. DeMasi indicated an increasingly stringent
set of activity restrictions, ultimately settling on (handwritten portions in bolded italics):
”No bending, squatting, crawling kneeling
Change sitting standing position frequently as needed
No lifting over 10 pounds
Driving permitted Limited Frequent Rest Breaks for 4 hours
Pushing pulling up to 10 pounds
Climbing/walking stairs permitted N Ladders/Roofs
Other Driving - lumbar support
Other doctors at Crozer Keystone who treated Havens included a neurologist, a
rheumatologist, and an endocrinologist. Dr. Richard Dillon, the endocrinologist, did not
believe that Havens’s diabetes was significantly affecting his health, thought that
neurofibroma might be a cause for his back pain, and doubted that the 1999 injury
significantly exacerbated the back pain. He recommended back surgery, though he said
that “most commonly patients with back disorders do well to ignore them and continue on
with their job as best possible and that focusing on the problem may aggravate it.”
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Havens also saw Dr. Andrew Freese, a neurologist, who ordered and evaluated multiple
MRIs of Havens’s lumbar spine, noting injured spinal discs, impingement on nerve roots,
and evident pain.
Dr. Marc Cohen conducted a Functional Capacity Evaluation (“FCE”), on which
Havens scored no higher than “Light” on any of the lifting tasks, and “Medium” on the
carrying task. Dr. Cohen’s cover letter read:
“RELIABILITY AND CONSISTENCY OF EFFORT
. . . Mr. Havens gave a reliable effort . . .
FUNCTIONAL ABILITIES
Mr. Haven’s demonstrated abilities meet specified job demands in
the following categories: High Lift, Mid Lift, Walk, Carry - 10 Lb, Carry 20
-Lb, Carry - 50 Lb, Balance, Kneel, Reach to Front, Handling, Bi-Manual
Handling, Bi-Manual Fingering.
RESTRICTIONS AND MODIFICATIONS
Mr. Havens is unable to meet job demands in the following
categories: Low Lift, Stoop, Climb Stairs, prolong sitting and standing for
longer than 30 minutes at a time.
RECOMMENDATIONS
The patient is restricted from sitting, driving, standing and
ambulation for periods no longer than 30 minutes for each position. The
patients work restriction is limited to a maximum of 4 hours per day.
Testing has demonstrated the patient’s ability to use short bursts of strength,
but an inability to sustain longer periods of physical activity. I would
recommend a reconditioning program to address the patient’s
cardiovascular insufficiency, proprioception and muscular endurance.”
As part of related workers’ compensation litigation, Havens saw Dr. Menachem
Meller for two Independent Medical Evaluations. On the first, Dr. Meller concluded,
“Although[] he does have severe significant disabling problems with regard to his back,
his bladder, his leg, and his neck, none of these things are in any way related to his work
injury.” Dr. Meller signed an Affidavit of Recovery, stating that Havens had “fully
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recovered” from “Lumbar spasm and strain / Right L5 Radiculopathy.” On the second,
Dr. Meller called the “work related injury . . . fully and completely resolved,” and stated,
“If not for his unrelated and pre-existing medical conditions, he would be able to
[perform the tasks associated with his previous job].”
Havens’s family physician, Dr. Brian Boucher, responded to a one-page, three-
question form (a “Functional Assessment Tool”) asking whether Havens was “currently
capable of performing work at this time which is primarily seated in nature, however
allows the flexibility to stand when needed and requires lifting less than 10#?” Dr.
Boucher checked “no” and wrote, “minimal physical activity, no lifting / fully
ambulatory.”
II.
At first, Havens attempted to keep working in his previous job with appropriate
modifications, a solution that proved unsuccessful. The modified option was terminated
on July 28, 2000. Since then, Havens has made multiple attempts to recover for his
injuries and loss of income. His tort suit against Ramada settled. He applied for workers’
compensation; it was granted on August 8, 2000, and the award was upheld on November
28, 2001. He applied for Social Security Disability benefits and was granted them as of
February 2001. Most importantly for our purposes, he applied for disability benefits
under his group disability coverage through Continental. He was approved for short-term
disability benefits on November 1, 2000, based on a disability deemed to have begun on
August 7, 2000. Continental began paying him long-term disability benefits as of August
5
7, 2001.
Under Havens’s long-term disability policy, Continental agreed to pay benefits
equal to two-thirds of a claimant’s pre-disability income if the claimant was “disabled.”
“Disabled” was defined as follows:
“[After the first year of benefits], “Disability” means that Injury or Sickness
causes physical or mental impairment to such a degree of severity that You
are: 1. continuously unable to engage in any occupation for which You are
or become qualified by education or training or experience; and 2 [are not
in fact working].”
“Injury” was defined as “bodily injury caused by an accident which results, directly and
independently of all other causes, in Disability which begins while Your coverage is in
force.” “Sickness” was defined as “sickness or disease causing Disability which begins
while Your coverage is in force.” The required proof of loss under the policy included:
“4. Proof that You are receiving Appropriate and Regular Care for Your
condition from a Doctor . . . .
5. Objective medical findings which support Your Disability. . . .
6. The extent of Your Disability, including restrictions and limitations
which are preventing You from performing Your Regular Occupation.”
The policy also provided, “The Plan Administrator has the discretionary authority to
determine eligibility for benefits and to construe the terms of the Plan.”
On July 30, 2002, a vocational expert at Continental conducted a vocational review
to determine whether Havens was disabled from “any occupation,” as required for
coverage beyond one year. After summarizing medical information from Havens’s file,
she concluded:
“Based on the claimant’s age, work history, education, geographical
6
location and function, claimant is able to perform the following alternative
occupations: Project/Construction Manager, Supervisor-Property Inspection
and Sales- Building Materials. These occupations exist at a gainful wage in
claimant’s geographical location.”
On August 22, 2002, an internal secondary review concluded, “Agree,” without further
explication.
On August 26, 2002, Continental sent Havens a letter denying him long-term
disability benefits. The letter stated:
“Based on your physical restrictions and limitations, you were not
able to perform the physical requirements of your own occupation as a
Commercial Insurance Property Reinspector, however, based on your level
of function with said restrictions, your age and education as well as a labor
market survey, you have the capacity to return to gainful work within the
restrictions provided.
In order to determine other vocational alternatives, which may be
available to you, we referred your file for a vocational review.
Based on your physical limitations as well as taking into account
your age, education, training, and past work experience, we have identified
several jobs, which exist in your geographic area that would be consistent
with the parameters cited above.
These jobs are as follows:
1. Project/Construction Manager
2. Supervisor-Property Inspection
3. Sales-Building Materials
These Occupations would represent a reasonable level of gainful
employment.”
Continental terminated Havens’s disability benefits as of August 5, 2002, but stated, “In
good faith, we are going to pay your benefits for one month through 9/5/02.”
On October 22, 2002, Havens wrote to Continental requesting reconsideration.
Continental reviewed the letter and its attachments, resulting in a file notation on
November 4, 2002:
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“Based on the information presented, EE has some noted findings in his
lumbar spine area which may cause restricted motion in a manual type job.
However it is unclear why EE would not be able to perform alternative type
work as stated in his termination letter.”
On December 10, 2002, Continental denied relief. This time, the denial letter stated:
“After a comprehensive review of your client’s claim file, we acknowledge
that his test results do show abnormalities that would cause some limitations
in his functional ability. We further acknowledge that your client would not
be able to perform the material and substantial duties of his own occupation
that included heavy lifting, bending, and stooping as previously stated in
CNA’s letter dated 8/2/602. However, the evidence presented revealed that
both Dr. Freese and Meller revealed that your client’s lower extremity
strength and sensation was intact and Dr. Meller noted that your client was
able to move about without signs of discomfort. We also relied on the
expertise of CNA’s vocational assessment that concluded that based on the
evidence presented your client would be able to perform any occupation
and provided a sample of these types of occupations, not all-inclusive, that
were listed in CNA’s previous letter dated 8/26/02. We would like to note
that although the letter dated 8/26/02 indicated that a labor market survey
was performed, this was labor market research and not a formal labor
market survey.”
On July 12, 2004, Havens filed suit in the U.S. District Court for the Eastern
District of Pennsylvania. He alleged wrongful termination of his long-term disability
benefits, wrongful termination of his life insurance, and bad faith. He filed an amended
complaint on November 1, 2004 removing the allegation of bad faith. Both sides’
motions for summary judgment were denied on February 24, 2005. After what the parties
describe as a bench trial, which consisted solely of oral argument on the administrative
record, the District Court made findings of fact and law and entered judgment in favor of
Continental on June 7, 2005. Havens timely filed this appeal.
III.
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This case arose under 29 U.S.C. § 1132(a)(1)(B) of the Employee Retirement
Income Security Act (“ERISA”), which gives a claimant a cause of action to enforce the
terms of a benefits plan. Remedies include both an award of past benefits due and a
declaration of the claimant’s right to future benefits. The District Court had jurisdiction
under 29 U.S.C. § 1132(e)(1). We have appellate jurisdiction under 28 U.S.C. § 1291.
“In an appeal from an ERISA bench trial, we review findings of fact for clear error but
have plenary review over the District Court's conclusions of law.” Vitale v. Latrobe Area
Hosp., 420 F.3d 278, 281 (3d Cir. 2005).
With regard to the standard of review to be applied to the plan administrator’s
decision, “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.”
Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989). Where, as here, the
plan does give the administrator such discretionary authority, we instead review the
administrator’s decision under an arbitrary and capricious standard of review. Id. at 111.
This exception has an exception of its own. “Of course, if a benefit plan gives discretion
to an administrator or fiduciary who is operating under a conflict of interest, that conflict
must be weighed as a ‘facto[r] in determining whether there is an abuse of discretion.’”
Id. at 115 (quoting Restatement (Second) of Trusts § 187, Comment d (1959)).
We explained this “conflict of interest” language in Pinto v. Reliance Standard
Life Ins. Co., 214 F.3d 377 (3d Cir. 2000). There, we held that when an insurer (rather
9
than an employer) both funds and administers a plan, it operates under a conflict of
interest justifying a heightened standard of review. Id. at 390. The exact degree by
which the review is heightened over the baseline of deferential arbitrary and capricious
review is to be evaluated on a sliding scale, “allow[ing] each case to be examined on its
facts.” Id. at 392. Relevant factors include “the sophistication of the parties, the
information available to the parties, and the exact financial arrangement between the
insurer and the company.” Id. Pinto also pointed to “the current status of the fiduciary,”
id., by which it meant concern for whether the fiduciary was operating in an environment
in which incorrect adverse decisions would not come back to haunt it because, for
example, the company was breaking up or laying off many of its employees, disrupting
normal relationships. One further factor to be considered is “demonstrated procedural
irregularity, bias, or unfairness in the review of the claimant's application for benefits.”
Kosiba v. Merck & Co., 384 F.3d 58, 66 (3d Cir. 2004).
In this case, few if any of these factors beyond the basic financial conflict of
interest are at work. The normal difference in sophistication between an insurer and a
claimant, present here, does not by itself raise much suspicion. Stratton v. E. I. DuPont
de Nemours & Co., 363 F.3d 250, 254 (3d Cir. 2004). Havens argues that Continental
made its decision on the basis of limited information, but Continental’s case file contains
hundreds of pages of office notes, test results, and opinions from Havens’s doctors.
Numerous Continental employees communicated with Havens and his doctors and closely
evaluated the medical evidence. Similarly, nothing in the record suggests to us that there
10
is anything troubling about the financial relationship between Continental and CNA; the
relationship does not seem to be anything other than a garden-variety third-party-
administered group disability insurance plan. Finally, there is no evidence apparent to us
of procedural irregularity or bias in Continental’s internal decision-making process.
We, therefore, apply only a low to moderate degree of heightened scrutiny, near
the arbitrary and capricious end of the sliding scale. “The routine legal meaning of an
arbitrary and capricious decision is . . . a decision without reason, unsupported by
substantial evidence or erroneous as a matter of law.” Id., at 255 (quoting Pinto, 214 F.3d
at 392). The administrator’s decision should receive “some deference, but this deference
will be lessened to the degree necessary to neutralize any untoward influence resulting
from the conflict.” Id. at 256 (quoting Doe v. Group Hospitalization & Med. Servs., 3
F.3d 80, 87 (4th Cir. 1993)). The burden of proof remains with Havens.
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IV.
The finding that Havens was capable of performing alternate occupations was
arbitrary and capricious. The irreducible logical core of such a finding is that a claimant
has a residual functional capacity that equals or exceeds the functional requirements of a
feasible alternate occupation. These two determinations—the claimant’s capacity and the
occupation’s requirements—must together be detailed enough to make rational
comparison possible. Otherwise, the “finding” that the claimant can perform alternate
occupations consists only of a bald assertion.
Continental made neither determination. As to Haven’s physical capacity,
Continental had before it the opinions of Dr. Cohen, Dr. Boucher, and Dr. DeMasi, all of
whom indicated specific and stringent restrictions on the work Havens could perform. On
any fair reading of their reports, Havens had little ability to lift even very light objects,
required great freedom to shift positions, and could not work more than four hours in a
day. Continental’s letters denying benefits neither adopt these restrictions nor attempt to
identify a less stringent set. The letters were simply silent on the matter. While they
show that Continental had before it substantial medical evidence, they do not connect that
evidence to Haven’s actual physical capacity.
Continental argues that Dr. Meller’s findings, as described in the denial letters,
supported its conclusion that Havens was not disabled. Dr. Meller, however, limited his
opinion to discussing whether Havens was disabled as a result of the October 1999
injury. That question would have been determinative in the workers’ compensation
12
litigation, but it is not the ultimate issue here. Dr. Meller wrote, “If not for his unrelated
and pre-existing medical conditions, he would be able to climb roofs, climb ladders, and
place himself in awkward positions,” (emphasis added) and, “Although [Havens] does
have severe significant disabling problems with regard to his back, his bladder, his leg,
and his neck, none of these things are in any way related to his work injury.” (emphasis
added) His reports cannot be read as finding that Havens was not disabled.
As to the physical requirements of the proposed alternate occupations, the record is
equally silent. Neither denial letter does more than list the names of the occupations. The
letters do not discuss the physical requirements of the occupations, do not describe the
occupations in any way, and do not name any other source that might provide such
information. They do not even explain how Continental’s vocational expert selected
these occupations. The expert’s report simply listed a few general factors considered and
then named the three occupations. Continental may reasonably rely on its vocational
experts to help it identify alternate occupations, but it is not rational to defer to such
experts in the absence of a threshold indication that their conclusions, in the words of
Federal Rule of Evidence 702, are the product of “reliable principles and methods . . .
applied . . . reliably to the facts of the case.”
The absence of a specific determination of a claimant’s capacity or a proposed
occupation’s requirements need not always be problematic. If it were clear, for example,
that the claimant’s disabling restrictions conflicted only with the idiosyncratic
requirements of his own previous occupation, it might be superfluous to spell out the
13
requirements of the named alternate occupations. But where, as here, the claimant’s
disabilities are indisputably substantial, the insurer has done nothing to rule out
extraordinarily rigorous restrictions to be found in the record, and the proposed alternate
occupations consist merely of unexplained job titles, accurate comparison is impossible.
Accordingly, Continental’s denial of benefits was arbitrary and capricious. We hold that,
on the record presented here, Havens is “disabled” from “any occupation,” as those terms
are used in his contract of long-term disability insurance with Continental. We will
reverse the judgment of the District Court and will remand with instructions to enter the
appropriate judgment for Havens.
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