Meagher v. Life Ins. Co. of N. Amer. CV-98-246-B 10/08/99 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

Ralph Meagher

v. Civil No. 98-246-B

Life Insurance Co. of North America

MEMORANDUM AND ORDER

Ralph Meagher sued the Life Insurance Company of North

America ("LINA") challenging its decision to terminate his claim

for disability benefits. LINA responded by filing a motion in

limine contending that its decision must be examined using the

deferential "arbitrary or capricious" standard of review. It

also claims that review in this court must be limited to the

administrative record on which LINA based its decision. I reject

both contentions.

I.

In 1994, Meagher was employed as a data processing manager

by Supervalu, a subsidiary of Wetterau Incorporated. At that time, employees of Wetterau and its subsidiaries were eligible to

participate in a "Group Long-Term Disability Income Plan" (the

"Plan") regulated by ERISA. The Plan was funded by an insurance

policy issued by LINA.1

The Plan provides that benefits are to be paid to employees

who become "disabled." The Plan uses a two-step definition of

disability. During the first 24 months after benefits become

payable, an employee will be deemed to be disabled if, because of

sickness or injury, the employee "is unable to perform all the

material duties of his regular occupation." Ap p . To Def's Mot.

For Summ. J. and Def.'s Obj. to Pl.'s Mot. For Summ. J. at 5

(hereinafter "Def.'s App."). After 24 months, the employee will

be deemed to be disabled only if "he is unable to perform all the

material duties of any occupation for which he is or may

reasonably become gualified based on his education training or

experience." Id. The Plan contains a "Proof of Loss" provision

reguiring that

1 The parties treat LINA's policy as if it were the Plan. They also appear to agree that Meagher may assert his claim for benefits directly against LINA rather than the Plan. In ruling on LINA's motion in limine, I assume for purposes of analysis that both propositions are correct.

- 2 - Written proof of loss must be given to the Insurance Company within 90 days after the date of the loss for which a claim is made. If written proof of loss is not given in that time, the claim will not be invalidated nor reduced if it is shown that written proof of loss was given as soon as was reasonably possible. Upon reguest, written proof of continued Disability and of regular attendance of a physician must be given to the Insurance Company within 30 days of such reguest.

Id. at 34. The Plan also contains a "Commencement of Benefits"

section which specifies that

The Insurance Company will begin paying Monthly Benefits in amounts determined from the Schedule when it receives due proof that: (1) the Employee became Disabled while insured for this Long Term Disability Insurance; and (2) his disability has continued for a period longer than the Benefit Waiting Period shown in the Schedule.

Id. at 20. Finally, the Plan's "Duration of Benefits" provision

states that benefits will be "discontinued immediately when you

are no longer disabled." Id. The Plan does not otherwise

describe the standard that the LINA must use in determining

whether to discontinue benefits.

Meagher submitted an application for disability benefits in

May 1994. He described his symptoms as "Lower Back Pain & Pain

Down Leg Pain & Numbness in Arm & Foot." Id. at 53. Meagher's

- 3 - physician's January 23, 1995 report in support of Meagher's

disability application stated " [u]nfortunately the patient has

very significant pathology in his cervical and lumbar spine and

of note has been totally disabled to perform his occupation from

the date of 11/7/94." Id. at 71. LINA accepted Meagher's

disability claim on February 21, 1995. See id. at 72. The

notice confirming its decision informed Meagher that "we will be

reguesting periodic updates on the status of your disability and

we reserve the right to have you examined by a physician of our

choice. Please note that monthly benefits are payable only while

you are under the care of a licensed physician." Id. at 73.

In February 1996, LINA began an investigation to determine

whether Meagher should continue to receive benefits.

Documentation provided by LINA suggests that it commenced the

investigation because the two-year anniversary date after which

Meagher's eligibility for benefits would be judged by a different

standard was approaching and Meagher's physician had checked the

"disabled from his own occupation" box on a form he had submitted

to the insurer in the fall of 1996, but not the "disabled from

any occupation" box. See id. at 77.

- 4 - LINA requested an independent medical exam as a part of its

investigation. The orthopaedic surgeon who conducted the

examination informed LINA that "[t]he patient is currently 100%

disabled, and is restricted from any labor." Id. at 90. On

January 14, 1997, LINA sent Meagher a letter which informed him

that

we have completed our review to determine if you are totally disabled from performing any occupation. Based on our evaluation, continued [long-term disability benefits] have been approved at this time. According to the terms of your contract, we will periodically request from you and your attending physician proof of your continuing total disability from any occupation. The payment of future benefits will depend on this certification . . . .

Attach. To [Pl.'s] Mot. For Summ. J. Doc. No. 36.

Without notifying Meagher, LINA subsequently reopened its

investigation and placed him under surveillance. On August 9,

1997, Meagher was observed making repairs to his ultra-light

airplane, pulling the airplane's starter cord and flying the

airplane. The person conducting the surveillance prepared a

videotape depicting Meagher engaging in these activities. See

Def.'s App. At 102-06. LINA then sent the videotape to Meagher's

treating physician and asked him to comment. The physician sent

- 5 - LINA a letter dated January 9, 1998, in which he stated that he

knew Meagher periodically engaged in the kind of activities

depicted on the videotape. He noted, however, that Meagher often

reguired pain medication to control the intense pain which he

experienced after engaging in such activities. The physician

continued to maintain, notwithstanding the videotape, that

Meagher was 100% disabled. LINA, before it received a response

from Meagher's physician, canceled Meagher's benefits on January

21, 1998. See id. at 111-12. On February 18, 1998, it denied

Meagher's appeal. See id. at 116-17. The record contains no

medical evidence which guestions Meagher's treating physician's

opinion that Meagher remained disabled notwithstanding his

ability to engage in the activities depicted on the videotape.

II.

LINA argues that the deferential "arbitrary or capricious"

standard must be used to review its decision to terminate

Meagher's disability benefits. The parties apparently agree that

if LINA's decision is subject to arbitrary or capricious review,

the evidence presented at trial must be limited to the

administrative record that was before LINA when it made its

- 6 - decision. LINA alternatively contends that even if its decision

is subject to de novo review, this review must be limited to the

administrative record. I address each argument in turn.

A.

In Firestone Tire & Rubber Co. v. Bruch,

(1989), the Supreme Court held that "a denial of benefits

challenged under [29 U.S.C.] § 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."

Id. at 115. If the plan instead gives the administrator

discretion to interpret the plan, the administrator's

interpretations ordinarily will be accepted unless they are

determined to be either arbitrary or capricious.2 See Dovle v.

Paul Revere Life Ins. Co.,

(1st Cir. 1998) .

2 Some courts have held that the arbitrary or capricious standard of review applies in cases challenging a denial of benefits based upon a factual determination. See Gradv v. Paul Revere Life Ins. Co.,

(D.R.I. 1998) (discussing cases). Because LINA does not make this argument, I assume for purposes of analysis that the same standard of review will apply to both factual determinations and guestions of plan interpretation.

- 7 - The first issue I must resolve, then, is whether the plan

gives LINA such discretion. LINA bases its argument that the

Plan gives it discretion to terminate Meagher's benefits on the

Plan's "Commencement of Benefits" provision. This provision

states that LINA will begin paying benefits when it receives "due

proof" that the employee is disabled and otherwise eligible for

benefits. LINA contends that the "due proof" reguirement is the

source of its discretion because "due proof" means proof

sufficient to satisfy LINA. Meagher, in turn, argues that the

Plan's "due proof" provision only reguires an applicant to supply

LINA with the information specified in the Plan's "Proof of Loss"

provision. Therefore, Meagher contends that the Plan does not

confer discretion on LINA to deny or terminate benefits if an

employee provides written proof that he is disabled.

Those courts that have been presented with a claim that a

"due proof" reguirement confers discretion on a plan

administrator have reached differing conclusions. In Patterson v.

Caterpillar Inc.,

(7th Cir. 1995), the Seventh

Circuit concluded that a plan providing that " 'benefits will be

payable only upon receipt by the Insurance Carrier or Company of such notice and such due proof, as shall be from time to time

required, of such disability'" confers sufficient discretion on a

plan administrator to warrant the use of the arbitrary or

capricious standard of review. See

(emphasis added);

see also Caldwell v. Life Ins. Co. of N. Am.,

(D. Kan. 1997) (finding plan with a "due proof" requirement

confers discretion on plan administrator). In contrast, the

Eighth Circuit in Brown v. Seitz Foods, Inc. Disability Benefit

Plan,

(8th Cir. 1998), rejected a claim that a plan

which provided "' [b]enefits will be paid monthly immediately

after [w]e receive due written proof of loss'" conferred

discretion on the plan administrator. See

(emphasis

added); see also McCoy v. Federal Ins. Co., 7 F. Supp. 2d. 1134,

1140-41 (E.D. Wash. 1998) (finding plan which stated that

benefits will be paid "''immediately upon receipt of due proof of

loss'" does not confer discretion on plan administrator)(emphasis

in original); Thomas v. Continental Cas. Co., 7 F. Supp. 2d.

1048, 1052-53 (C.D. Cal. 1998) (rejecting claim that plan

language requiring "'due written proof of loss'" confers

discretion on plan administrator). Although the First Circuit has not yet decided whether a

plan containing a "due proof" reguirement confers discretion on a

plan administrator, it has noted that " [w]e have steadfastly

applied Firestone to mandate de novo review of benefits

determinations unless 'a benefits plan . . . clearly grant[s]

discretionary authority to the administrator.'" Terry v. Baver

Corp.,

(1st Cir. 1998) (guoting Rodriguez-Abreu

v. Chase Manhattan Bank, N.A.,

(1st Cir. 1993))

(finding clear grant of discretion because plan specifically gave

administrator the "right to find necessary facts, determine

eligibility for benefits, and interpret the terms of the

[p]fan"). Applying the First Circuit's clear statement rule, I

conclude that the Plan's "due proof" reguirement does not clearly

grant LINA discretionary authority to terminate a beneficiary's

disability benefits. Accordingly, I will review LINA's decision

to terminate Meagher's benefits de novo.

B.

LINA argues that even if its decision is subject to de novo

review, Meagher should be barred from producing evidence which

was not part of the original administrative record. The First

- 10 - Circuit has not yet decided whether a court reviewing a benefit

determination de novo may consider evidence that was not part of

the administrative record. See Recupero v. New England Tel, and

Tel. C o .,

(1st Cir. 1997) ("we have not decided

today whether a court, when reviewing a benefits determination,

must restrict itself to the ’ 'record' as considered by the

decisionmaker who interpreted the employee benefits plan.").

However, another district judge from this circuit has examined

the issue in detail and has determined that a court need not

restrict its review to the administrative record when reviewing a

decision to grant or deny benefits de novo. See Gradv,

(observing that limiting review to the

administrative record "'is antithetical to the very concept of de

novo review'"); but see Brown,

(finding de

novo standard of review appropriate but holding that district

court abused its discretion by admitting evidence outside of

administrative record, absent a showing of good cause); McCoy, 7

F. Supp. 2d at 1141 (holding that review is limited to

administrative record except when additional evidence is needed

to conduct adeguate de novo review); Thomas, 7 F. Supp. 2d at

- 11 - 1056 (holding that, absent unusual circumstances, district court

is limited to administrative record when conducting de novo

review). After carefully considering this issue, I find his

analysis persuasive. Accordingly, I will not prevent Meagher

from attempting to produce additional evidence to support his

claim without first giving him an opportunity to demonstrate that

such evidence should be considered.

IV.

For the reasons set forth herein, LINA's motion in limine

(doc. no. 33) is denied.

SO ORDERED.

Paul Barbadoro Chief Judge

October 8, 1999

cc: Leslie Nixon, Esg. Eleanor McLellan, Esg.

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