In the
United States Court of Appeals
For the Seventh Circuit

Nos. 00-2043 and 00-4229

Susan E. Hess,

Plaintiff-Appellee,

v.

Hartford Life & Accident
Insurance Company,

Defendant-Appellant.

Appeals from the United States District Court
for the Central District of Illinois.
No. 97 C 2051--Michael P. McCuskey, Judge.

Argued April 10, 2001--Decided December 13, 2001



  Before Coffey, Rovner, and Diane P. Wood,
Circuit Judges.

  Diane P. Wood, Circuit Judge. Susan Hess
worked for Fleet Mortgage Company as a
loan officer until she became disabled in
April 1996. Throughout her tenure at
Fleet, Hess was covered by long-term
disability insurance under a group policy
provided by Hartford Life and
AccidentInsurance. When she became
disabled, Hess filed for benefits under
the Hartford plan. Hartford agreed to
begin paying benefits, but at a level
lower than the amount to which Hess
thought she was entitled. Hess brought
this suit under the Employee Retirement
Income Security Act of 1974, 29 U.S.C.
sec. 1001 et seq., commonly known as
ERISA. The district court, ruling on
stipulated facts, held that Hartford’s
calculation of Hess’s benefits was
arbitrary and capricious and ordered
Hartford to pay benefits at the full rate
Hess sought. We see no error in the
district court’s analysis of the case and
therefore affirm its judgment.

I

  The long-term disability policy that
Hartford sold to Fleet, which governed
Hess’s benefits, provided that a
participant who became disabled while
insured under the plan would be paid a
monthly benefit calculated, in relevant
part, by multiplying the participant’s
"Monthly Rate of Basic Earnings" (MRBE)
at the time of disability by a benefit
percentage, which for Hess was 66.67%.
The term "Monthly Rate of Basic Earnings"
was defined as "your regular monthly pay,
from the Employer, not counting: (1)
commissions; (2) bonuses; (3) overtime
pay; or (4) any other fringe benefit or
extra compensation." Thus, the benefit to
which Hess was entitled depended on what
qualified as her "regular monthly pay" at
the time she became disabled.

  Hess’s compensation as a loan officer at
Fleet was based entirely on commissions.
This might make one think that she had no
MRBE for purposes of the long-term
disability plan, but that is not how
things worked. Instead, prior to 1996,
Fleet paid Hess a biweekly "draw" against
her commissions and then paid her the
remaining commissions in a monthly lump
sum. Her 1995 contract with Fleet stated
that her level of benefits, including
long-term disability benefits, would be
determined according to her "base
compensation," which the contract defined
as the amount of her draw. Hess’s draw
for 1995 amounted to $23,400. Fleet
withheld insurance premiums for the
Hartford policy from Hess’s draw
payments.

  In 1996, Fleet decided to phase out the
draw system for fully-commissioned
employees like Hess. Hess’s 1996 contract
with Fleet stated that the draws would
end as of April 5, 1996. The contract
also stated that benefit levels,
including those for the long-term
disability plan, would be based on Hess’s
"base salary and/or draw." Although the
contract did not define "base salary,"
Fleet stipulated that it calculated that
amount by averaging the employee’s total
commissions over the previous two years.
Using this definition, Hess’s base salary
in 1996 was a little over $45,000. For
reasons unexplained, Fleet did not phase
out the draw on April 5, 1996, as it was
contractually obligated to do; the phase-
out was extended until June 1, 1996. On
that date, Fleet increased the amount of
the insurance premiums it withheld from
Hess’s monthly compensation to reflect
the change from the draw system to the
base salary system of calculating
benefits.

  Hess became disabled on April 19, 1996.
When she filed her claim under the long-
term disability policy in October 1996,
Hartford had on file a document from
Fleet stating that her annual base salary
was $23,400, which was the draw she had
received under her 1995 contract.
Hartford calculated her benefits based on
this amount and awarded her a monthly
benefit of $1,300. Hess objected. She
reasoned that she did not become disabled
until after April 5, which was when her
contract with Fleet stated that Fleet
would phase out her draw and begin basing
her benefits on the average of her total
commissions over the past two years. On
this basis, she appealed the benefits
decision within Hartford.

  The Hartford claims examiner assigned to
Hess’s case looked into the situation and
determined (1) that Hess’s pay had been
based entirely on commissions, (2) that
(in his view) the language of the policy
excluded commissions from the MRBE
calculation, but (3) that Hess had paid
premiums for disability insurance, and
(4) that Fleet intended for Hess to be
covered. The examiner testified that, in
his view, Hartford had three options:
first, it could find that Hess was not
entitled to any benefits because her pay
was based entirely on commissions;
second, it could continue to pay benefits
based on the draw amount notwithstanding
her date of disability; or third, it
could pay Hess benefits based on her
"base salary," which was in turn a
function of her total commissions. The
examiner chose the second option, to
continue paying benefits based on the old
draw amount. Before making this decision,
he spoke with a Fleet representative who
told him that Fleet intended for Hess to
be covered and that it had viewed the
draw amount as Hess’s base pay. The Fleet
representative told the examiner that
Fleet had switched from the draw system
to a system based on total commissions on
June 1, but because this date fell after
Hess became disabled, the examiner
disregarded this information. The
examiner had received a letter from
Hess’s lawyer explaining that, according
to Hess’s contract with Fleet, the key
date for the change-over should have been
April 5, not June 1, and Hess’s payments
should therefore have been based on her
total commissions. Although the letter
made explicit reference to Hess’s
contract with Fleet and quoted the
relevant portions, the examiner did not
read the letter. One consequence of his
omission was that he remained ignorant of
the contents of Hess’s contract. Despite
the fact that the Hartford policy
documents explicitly stated that "[i]f
[Fleet] gives The Hartford any incorrect
information, the relevant facts will be
determined to establish if insurance is
in effect and in what amount," the
examiner made no effort to investigate
the discrepancy between the Fleet
representative’s claim that the switch
from the draw system to the average
commission system occurred on June 1 and
Hess’s claim that it occurred on April 5.

  After Hartford informed her of its
decision, Hess filed this ERISA claim in
the district court seeking benefits based
on her average annual commissions.
Finding that Hartford’s handling of
Hess’s claim was arbitrary and
capricious, the district court ordered
Hartford to pay $50,927.10 in back
benefits and to begin paying Hess’s
monthly benefits at a rate of $2,512.55.
The court also awarded Hess a little over
$40,000 in attorneys’ fees. In this
appeal, Hartford challenges both the
judgment against it and the award of
attorneys’ fees. In addition, Hartford
argues that even if the judgment against
it was correct, the district court erred
in ordering it to pay benefits at the
higher level rather than remanding the
case to Hartford to allow it to
recalculate the benefits.

II

  The parties disagree over the standard
of review that should govern our
decision. The district court entered its
judgment after receiving a stipulation of
the facts that made up the administrative
record from the parties. Hartford urges
that a judgment on stipulated facts is
akin to a summary judgment, and
accordingly that our review of the
district court’s decision should be de
novo. It is true that the facts, to the
extent they are stipulated, will not be
in dispute, but we think that the
procedure the parties followed here is
more akin to a bench trial than to a
summary judgment ruling. See May v.
Evansville-Vanderburgh Sch. Corp., 

, 1115-16 (7th Cir. 1986) (where
parties agree to a judgment on stipulated
facts, "[i]n effect the judge is asked to
decide the case as if there had been a
bench trial in which the evidence was the
depositions and other materials gathered
in pretrial discovery."). The standard of
review that governs is therefore the one
found in Fed. R. Civ. P. 52(a). As we
would after a bench trial, we will review
the district court’s legal conclusions de
novo and review any factual inferences
the district court made from the
stipulated record as well as its
application of the law to the facts for
clear error. See Johnson v. West, 

, 729 (7th Cir. 2000).

  The parties agree that Hartford’s policy
gave Hartford discretion to interpret its
terms. As the district court recognized,
this meant that it was required only to
determine whether Hartford’s conclusion
was arbitrary and capricious. See
Herzberger v. Standard Ins. Co., 

, 329 (7th Cir. 2000). This is, of
course, a deferential standard of review.
Under the arbitrary and capricious
standard, a plan administrator’s decision
should not be overturned as long as (1)
"it is possible to offer a reasoned
explanation, based on the evidence, for a
particular outcome," (2) the decision "is
based on a reasonable explanation of
relevant plan documents," or (3) the
administrator "has based its decision on
a consideration of the relevant factors
that encompass the important aspects of
the problem." Exbom v. Central States,
Southeast and Southwest Areas Health and
Welfare Fund, 

, 1142-43 (7th
Cir. 1990) (citations omitted).
Nevertheless, "[d]eferential review is
not no review," and "deference need not
be abject." Gallo v. Amoco Corp., 

, 922 (7th Cir. 1996). In some
cases, the plain language or structure of
the plan or simple common sense will
require the court to pronounce an
administrator’s determination arbitrary
and capricious. 

with
thedistrict court that this is such a
case.

  Hartford’s arguments in favor of its
examiner’s decision fall into three broad
categories. First, Hartford points out
that the policy documents exclude
"commissions" from the benefit base and
suggests that, on this basis, it could
have justified denying Hess benefits
entirely. This argument appears to imply
that Hartford’s decision to grant Hess
some benefits in the face of the
exclusion for commissions must therefore
have been fair and reasonable. Second,
Hartford argues that the district court
should not have taken Hess’s contract
with Fleet into consideration, both
because it was not before the examiner
and because it is not a plan document.
Finally, Hartford argues that it made a
reasonable decision in treating June 1,
rather than April 5, as the date on which
Fleet switched Hess’s benefit base from
the draw to her average commissions. We
will consider each of these arguments in
turn.

  We agree with the district court that
Hartford’s argument that it could have
denied Hess benefits entirely because her
compensation was based solely on
commissions ignores both the plain
language of the policy and the intent of
the parties. As the district court noted,
the Hartford policy based an employee’s
benefits on her "regular monthly pay . .
. not counting: (1) commissions; (2)
bonuses; (3) overtime pay; or (4) any
other fringe benefit or extra
compensation." In Hess’s case, her
"regular monthly pay" was determined
based on a formula derived from her
commissions; she received no other form
of compensation. Unless the plan was to
be read as creating a class of employees
who had no regular monthly pay at all,
which was at a minimum not Fleet’s
position, the notion of a regular monthly
pay that was dependent in some sense on
commissions was the only interpretation
consistent with the contract. On this
reading, employees who had both a regular
monthly pay plus extra commissions would
not have been entitled to credit for the
commissions. The district court held that
Hess’s commissions were not this kind of
"extra" compensation, and therefore were
not subject to the exclusion quoted
above. To read the contract as Hartford
urges, so that commissions are excluded
regardless of whether they are "extra"
compensation or are an employee’s only
compensation, renders the word "extra" in
the exclusion superfluous. In addition,
we note that Fleet withheld insurance
premiums from Hess’s pay throughout her
tenure at Fleet, and Hartford concedes
that Fleet intended for fully-
commissioned employees such as Hess to be
covered by the insurance policy. Thus,
Hartford’s argument that it could
reasonably have denied Hess all benefits
is unavailing. (Also, if this was indeed
what the plan meant, Hartford would have
had no business paying Hess even the
amount it was willing to give her; plan
administrators cannot randomly pay
benefits to individuals not entitled to
them.)

  Turning to Hartford’s contention that we
should disregard Hess’s contract with
Fleet, we find Hartford’s arguments on
this point to border on the frivolous.
Hartford is, of course, correct that in
evaluating a plan administrator’s
decision under an arbitrary and
capricious standard of review, we should
consider only the evidence that was
before the administrator when it made its
decision. See Trombetta v. Cragin Fed.
Bank for Sav. Employee Stock Ownership
Plan, 

, 1437 n.1 (7th Cir.
1996). Hartford argues that its examiner
never saw Hess’s contract and that we
therefore may not consider it. That
characterization is not, however, a fully
accurate account of the information
before the examiner. In fact, the
examiner had before him a letter from
Hess’s attorney that made explicit
reference to the contract and even quoted
the relevant portions. The contract
itself apparently had been attached to
the letter at some point, although it had
been removed before the letter reached
the examiner’s desk. Nevertheless, the
examiner had been alerted not only to the
contract’s existence, but also to the
very language on which Hess was relying;
he easily could have obtained a complete
copy through a simple phone call to
Hess’s lawyer or to Fleet. The fact that
the examiner did not bother to read
pertinent evidence actually before him
cannot shield Hartford’s decision from
review. To the contrary, this court has
noted that the fact that an administrator
blatantly disregards an applicant’s
submissions can be evidence of arbitrary
and capricious action. See Perlman v.
Swiss Bank Corp. Comprehensive Disability
Protection Plan, 

, 982 (7th
Cir. 1999) (discussing hypothetical
situation in which "application was
thrown in the trash rather than evaluated
on the merits"). Similarly, we are not
persuaded by Hartford’s argument that the
contract is irrelevant because it is not
a plan document but an independent
agreement between Hess and Fleet, to
which Hartford was not a party. The
policy Hartford sold to Fleet explicitly
based Hess’s benefit level on Hess’s
compensation, and Hess’s contract with
Fleet is the best evidence of what that
compensation was. Far from being
irrelevant, the contract was the most
critical evidence of the benefits to
which Hess was entitled.

  Having determined that Hess’s 1996
employment contract is properly a part of
the administrative record the district
court was entitled to consider, we must
next decide whether Hartford could
reasonably have determined that Hess’s
benefits as of April 19, 1996, should
have been based only on her 1995 draw
amount. Like the district court, we
cannot read the contract that way. Hess’s
1996 contract clearly states that the
draw system was to be phased out as of
April 5. The contract also specifies that
her benefits, including long-term
disability benefits, would be calculated
based on her "base salary and/or draw."
(We note in passing that the phrase
"and/or" has its critics. Bryan A. Garner
reports in A Dictionary of Modern Legal
Usage 56 (2d ed. 1995), that "and/or has
been vilified for most of its life-- and
rightly so." He goes on to say, however,
that the expression, while "undeniably
clumsy, does have a specific meaning (x
and/or y = x or y or both)." Id.) Here,
this would mean that Hess could have her
benefits calculated on the basis of her
base salary, or her draw, or both. In the
context of Fleet’s transition away from a
draw system, the only reasonable
interpretation of this provision was that
the benefits would be based on the draw
while it was in effect and on the base
salary thereafter. As of April 5, Hess
was thus contractually entitled to a
benefits package based on her base
salary--that is, based on the average of
her previous two years’ commissions. The
fact that Fleet may have breached the
contract (or been slow in implementing
its details) by failing to move from the
draw system to the base salary system
until June 1 does not change the package
of compensation and benefits to which
Hess was contractually entitled. Nor
could the fact that Fleet failed to
inform Hartford about the date the
change-over was to have occurred affect
Hess’s benefit amount. The Hartford
policy states that "[i]f [Fleet] gives
The Hartford any incorrect information,
the relevant facts will be determined" to
establish the correct benefit amount.
Once informed by Hess’s attorney that
Hess believed the information Fleet
provided Hartford was incorrect, it was
incumbent on the examiner to refer to
Hess’s employment contract to determine
her actual regular monthly pay. Had he
done so, he would have seen that Hess
became entitled to the higher level of
benefits on April 5, two weeks before her
disability. The district court therefore
did not err when it concluded that
Hartford’s failure to consider the
contract was arbitrary and capricious.

  Having determined that Hartford’s
calculation of Hess’s benefits was
arbitrary and capricious, the court
ordered Hartford to pay Hess benefits
based on the average of her last two
years’ commissions. Hartford complains
that the district court should not have
ordered it to pay a specific amount but
instead should have remanded the case to
Hartford for reconsideration of the
appropriate benefit. We do not dispute
the fact that such a remand is sometimes
the appropriate step to order. See 

. Remand is unnecessary,
however, when "the case is so clear cut
that it would be unreasonable for the
plan administrator to deny the
application for benefits on any ground."

two levels of benefits
were possible: either Hess was entitled
to benefits based on her draw, or she was
entitled to benefits based on her base
salary, which Fleet calculated by
averaging her previous two years’ commis
sions. Once the district court determined
that the latter benefit level was the
correct one, there was nothing left for
Hartford to calculate. The benefit amount
was clear cut, and the district court
made no error in ordering Hartford to pay
that amount.

  Nor did the district court err in
awarding attorneys’ fees to Hess. ERISA
permits the district court to award a
reasonable attorneys’ fee to either
party, see 29 U.S.C. sec. 1132(g)(1), and
there is a modest presumption that the
prevailing party in an ERISA case is
entitled to a fee. See Bowerman v. Wal-
Mart Stores, Inc., 

, 592 (7th
Cir. 2000). Although we have formulated
the test for when attorneys’ fees should
be awarded under ERISA in various ways,
we have recently noted that the various
formulations boil down to the same
bottom-line question: "Was the losing
party’s position substantially justified
and taken in good faith, or was that
party simply out to harass its opponent?"

We review the district
court’s grant of fees only for abuse of
discretion, see Wyatt v. UNUM Life Ins.
Co. of Am., 

, 548 (7th Cir.
2000), and we find no abuse in this case.
In deciding to award fees, the court
stressed that Hartford’s examiner had
failed to read the letter from Hess’s
lawyer outlining Hess’s arguments for the
higher benefit level and had failed to
consider Hess’s employment contract,
which was the most reliable evidence as
to what her compensation was. Had the
examiner considered this information, the
court believed, this litigation could
have been avoided. As we discussed above,
we share the district court’s view of the
examiner’s lackadaisical approach in this
case, and we find that the court was
within its discretion in awarding fees.
Compare Filipowicz v. American Stores
Benefit Plans Comm., 

, 816
(7th Cir. 1995) (approving award of fees
where plan administrator failed to learn
"what plan documents were actually in ef
fect" at the relevant time).

  The judgment of the district court, both
with respect to liability and fees, is
Affirmed.