Filed: Apr. 27, 2004
Latest Update: Mar. 02, 2020
Summary: Opinions of the United 2004 Decisions States Court of Appeals for the Third Circuit 4-27-2004 Post v. Kidspeace Corp Precedential or Non-Precedential: Non-Precedential Docket No. 02-4328 Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2004 Recommended Citation "Post v. Kidspeace Corp" (2004). 2004 Decisions. Paper 770. http://digitalcommons.law.villanova.edu/thirdcircuit_2004/770 This decision is brought to you for free and open access by the Opinions of
Summary: Opinions of the United 2004 Decisions States Court of Appeals for the Third Circuit 4-27-2004 Post v. Kidspeace Corp Precedential or Non-Precedential: Non-Precedential Docket No. 02-4328 Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2004 Recommended Citation "Post v. Kidspeace Corp" (2004). 2004 Decisions. Paper 770. http://digitalcommons.law.villanova.edu/thirdcircuit_2004/770 This decision is brought to you for free and open access by the Opinions of ..
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Opinions of the United
2004 Decisions States Court of Appeals
for the Third Circuit
4-27-2004
Post v. Kidspeace Corp
Precedential or Non-Precedential: Non-Precedential
Docket No. 02-4328
Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2004
Recommended Citation
"Post v. Kidspeace Corp" (2004). 2004 Decisions. Paper 770.
http://digitalcommons.law.villanova.edu/thirdcircuit_2004/770
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NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
Nos. 02-4328 & 02-4402
DAVID R. POST; CAROL A. POST, Husband and Wife,
Individually and as Parents and Natural Guardians of Kristen M. Post,
Appellants at No. 02-4328
v.
KIDSPEACE CORPORATION,
Appellant at No. 02-4402
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
D.C. Civil Action No. 01-cv-06112
(Honorable Franklin S. Van Antwerpen)
Submitted Pursuant to Third Circuit LAR 34.1(a)
October 29, 2003
Before: SCIRICA, Chief Judge, NYGAARD and AMBRO Circuit Judges
(Filed: April 27, 2004)
OPINION OF THE COURT
SCIRICA, Chief Judge.
This is a cross-appeal from an order of summary judgment approving the
termination of plaintiff’s health care benefits. Although we disagree with the able
District Court on the appropriate standard of review, we agree with its interpretation of
the plan language. But we will vacate and remand to the District Court for further
development of plaintiff’s equitable estoppel claim.
I.
In 1993, plaintiff, Dr. David Post, was employed as a dentist by KidsPeace
Corporation. Thereafter, he and his family participated in the KidsPeace Health Care
Plan. In 1996, Dr. Post developed severe joint problems and was ultimately diagnosed
with irreversible arthritis.
The KidsPeace Health Care Plan provides that termination is one of the five
enumerated ways an employee, the employee’s spouse and their dependents lose health
care benefits. The Plan provides:
Coverage under this Plan for you and your covered dependents will
terminate on the earliest of the following dates:
1. The date of the termination of the Plan, or the date the Plan ceases
for the class of employees to which you belong; or
2. The last date of the month in which you cease to be actively at work
as a full-time employee; or
3. The date an employee or dependent ceases to be eligible for coverage
under the Plan; or
4. The date of entry to the military service of any country or
international organization on a full-time active duty basis other than
scheduled drill or other training not exceeding one month in any
calendar year; and
5. The last day of the month in which an employee is terminated.
2
Cessation of active work shall be deemed termination of employment,
except if an employee is not working because of an approved leave of
absence, temporary layoff, or for illness or injury. Coverage will be
continued during that time until discontinued by the Employer. (emphasis
added).
The KidsPeace Organization Employee Handbook, which Dr. Post received in
1993, contains the following language: “Status of Employment – When Long Term
Disability benefits take effect, employment with KidsPeace will be terminated.” 1
The “Continuation of Coverage” section in the Health Care Plan states: “If you
become ineligible for coverage as the result of a change in your employment status, your
coverage ends the date of termination.” The section continues, “[a] covered spouse of an
employee may elect to continue coverage under the KidsPeace Corporation group plan on
a self-pay basis if they lose group health coverage for any of the following reasons: . . . 4.
the employee (spouse) becomes entitled to Medicare; . . . .”
In 1996, KidsPeace distributed a newsletter to its employees announcing various
changes and enhancements to the Health Care Plan. The newsletter stated: “Health Care
Plan coverage has been extended to provide coverage for the entire length of continuous
disability. (Previously, coverage terminated after weekly disability income ended.).” In
1
We note that long-term disability benefits are separate from benefits under the Health
Care Plan. According to the employee handbook, long-term disability benefits provide
“55% of salary to a maximum of $5,000.00 per month.” JA 182a. Nothing in the sub-
section on long-term disability mentions health care benefits, which are addressed in a
separate sub-section of the handbook.
3
September of 1997, KidsPeace issued to its employees a new Summary Plan Description.
An accompanying memorandum contained the following language: “Disabled Employees
(Effec. 08/96)–on medical leave with full medical benefits until recovery.”
On October 23, 1998, two years after being diagnosed with arthritis and one year
after the Health Care Plan went into effect, Dr. Post went on short-term disability because
of his arthritis. When it became apparent that Dr. Post would not be able to return to
work, KidsPeace informed him that he would become eligible for long-term disability
benefits on April 21, 1999. Additionally, Dr. Post received Social Security Disability
benefits retroactive to April 1, 1999. He was notified by the Social Security
Administration that he would automatically become eligible for Medicare two years after
his social security benefits commenced, on April 1, 2001. During his disability, Deborah
Blaker, Senior Benefits Administrator of KidsPeace, and Dr. Post exchanged a series of
letters regarding the coordination of Medicare benefits and benefits under the KidsPeace
Health Care Plan.
On October 26, 1998, Dr. Post wrote Blaker to inquire: (1) which employee
benefits would continue during his disability; and (2) what procedural responsibilities he
had to fulfill to secure the benefits. In this letter Dr. Post also wrote the following:
“When I spoke with you last week to discuss continuation of benefits during disability,
you informed me that KidsPeace would cover the cost of health insurance of my family
for as long as I remain disabled (unless Medicare benefits become effective).” On March
4
18, 1999, the KidsPeace employee benefit department sent a letter to Dr. Post explaining
that when Dr. Post began to receive long-term disability benefits, his employment with
KidsPeace would be terminated. The letter noted that health care benefits would be
terminated only if: (1) the disability ended; (2) Dr. Post turned 65; or (3) Dr. Post passed
away. The letter did not say that health care benefits would be terminated upon Dr. Post’s
eligibility for long-term disability status or M edicare.
On June 29, 1999, approximately two months after Dr. Post went on long-term
disability, his counsel wrote KidsPeace for clarification of the March 18th letter. On July
28, 1999, Blaker responded, stating that Dr. Post would no longer be eligible for
enrollment in the medical plan when he became eligible for Medicare. The letter also
stated that Dr. Post and his family could continue medical coverage through COBRA.
In recognition of his receipt of Social Security Benefits, and eventual qualification
for Medicare benefits, Dr. Post wrote Blaker the following: “Therefore, I will
automatically become eligible for Medicare on April, 1, 2001. When I qualify for
Medicare benefits, I will most likely opt to continue the KidsPeace health Plan under the
COBRA provision. I would appreciate your forwarding me the appropriate forms for this
conversion.”
Dr. Post became eligible for M edicare on April 1, 2001, at which time his health
care coverage under the KidsPeace Health Care Plan was terminated. On December 6,
2001, Dr. Post filed a claim with the District Court for the Eastern District of
5
Pennsylvania under ERISA, 29 U.S.C. § 1332 et seq., seeking health care coverage under
the KidsPeace Health Care Plan, as it existed prior to the denial of benefits.
Finding the terms of the Plan were too ambiguous to confer discretionary authority
on the Administrator with regard to the decision to terminate Dr. Post’s health care
benefits, the District Court applied a de novo standard of review. But the Court held that
the Plan terms authorized termination of Dr. Post’s medical benefits at the time Dr. Post
went on long-term disability, and granted summary judgment against Dr. Post on his
substantive claim. In reaching its decision, the District Court found no detrimental
reliance based on the March 18, 1999 letter. Both parties appealed. We have jurisdiction
to review the final order of the District Court under 28 U.S.C. § 1291.
II.
Our review of a summary judgment order is de novo. Curley v. Klem, 298 F.3d
271, 276 (3d Cir. 2002). We apply the same test employed by the District Court under
Fed. R. Civ. P. 56(c).
Id. Accordingly, the District Court’s grant of summary judgment
was proper only if it appears “that there is no genuine issue as to any material fact and
that the moving party is entitled to a judgment as a matter of law.” Fed. R. Civ. P. 56(c).
III.
As a threshold matter, we must determine the proper standard of review under
ERISA. We exercise plenary review of the standard applied by the District Court. See
Gritzer v. CBS, Inc., 275 F.3d 291, 295 (3d Cir. 2002).
6
In Firestone Tire & Rubber Co. v. Burch, 489 U.S. 101 (1988), the Supreme Court
stated that “a denial of benefits challenge 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.”
Id. at
115. Additionally, even if the plan at issue grants discretion, where a trustee fails to act
or exercise his or her discretion, de novo review is appropriate.
Gritzer, 275 F.3d at 296.
Where the plan grants discretion, and it is exercised, the proper standard of review is the
more deferential arbitrary and capricious standard.
Id.
The District Court applied the de novo standard to the Administrator’s decision
because: (1) the Health Care Plan was vague and ambiguous regarding the grant of
discretion to the Plan Administrator; and (2) even assuming a grant of discretion, the Plan
Administrator did not make a discretionary determination. We cannot agree.
To determine the proper standard of review, we begin with the language of the
plan. Luby v. Teamsters Health, Welfare & Pension Trust Funds, 944 F.2d 1176, 1180
(3d Cir. 1991). The KidsPeace Health Care Plan contains the following clause:
Administration - The Plan Administrator is KidsPeace Corporation.
. . . The Plan Administrator has the discretionary right to interpret the plan
conditions. Determinations by the Plan Administrator are binding on all
parties.
The District Court found that two distinct meanings could be attributed to “plan
conditions,” thereby making the grant of discretion ambiguous. The court found that plan
7
conditions could refer to the events or medical procedures that must occur before a claim
on the plan is triggered, or they could refer to the plan’s terms that limit liability.
We find these meanings, in essence, identical. Plan conditions setting forth those
“events or medical procedures that must occur before a claim on the plan is triggered” are
sufficiently equivalent to “terms that limit the plan’s liability” to constitute a cognizable
grant of discretion to the Plan Administrator. 2
The District Court also determined that the arbitrary and capricious standard
should not be applied because KidsPeace provided no explanation for the termination of
benefits and, moreover, no discretionary decision was made.3
The correspondence between Blaker or KidsPeace’s Employee Benefits
Department and Dr. Post provided an explanation of the reasons that led to the denial of
2
We note as well that the discretion required to trigger the more deferential arbitrary
and capricious standard of review need not be explicitly stated in the employee welfare
plan or summary plan description, but may be implied from its terms. Marx v. Meridian
Bancorp, Inc., 32 Fed. Appx. 645, 649 (3d Cir. 2002). The statement in the Plan that
“[t]he Plan Administrator has the discretionary right to interpret the plan conditions”
supports the inference that KidsPeace intended to, and in fact did, reserve discretion
under the Plan.
3
Without a stated explanation for the denial of benefits, no interpretation exists on
which to confer deference. See Dewitt v. Penn-Del Directory Co., 106 F.3d 514, 520 (3d
Cir. 1997) (stating that arbitrary and capricious review will uphold “a plan interpretation
even if we disagree with it, so long as the administrator’s interpretation is rationally
related to a valid plan purpose and is not contrary to the plain language of the plan.”)
(emphasis added); see also 29 U.S.C. § 1133(1) (requiring that “[i]n accordance with
regulations of the Secretary, every employee benefit plan shall – (1) provide adequate
notice in writing to any participant or beneficiary whose claim for benefits under the plan
has been denied, setting forth the specific reasons for such denial, written in a manner
calculated to be understood by the participant . . .”).
8
benefits. At a minimum, the record contains two letters from KidsPeace to Dr. Post in
which KidsPeace explains that Dr. Post will no longer be eligible for enrollment in the
Health Care Plan when Medicare benefits become effective. JA 219, 220.4
As noted, the District Court determined that the Plan Administrator made no
discretionary decision. The first discretionary decision— that Dr. Post qualified for short-
term disability—was made by the third-party disability insurance carrier. The switch to
long-term disability then occurred either automatically or was made by another third
party. 5 At this point, under the language of the Plan, KidsPeace was authorized to end
benefits. See infra pt. IV. If Dr. Post’s entitlement to benefits under the Plan ended April
30, 1999—the last day of the month in which long-term disability benefits took
effect—then KidsPeace’s decision to continue providing health benefits under the Plan
for an additional twenty-three months until Dr. Post was eligible for Medicare constitutes
discretionary action on the part of KidsPeace.
4
The record also indicates that at some point prior to the letter he wrote on October 26,
1998, Dr. Post had been informed of KidsPeace’s interpretation of the Plan, namely that
under the Plan, KidsPeace was permitted to and would cease paying for Dr. Post’s
benefits at the time he became eligible for Medicare. JA 216.
5
The Handbook states, “when short term disability benefits are exhausted and the
employee can not return to work, ‘long term’ or ‘total disability’ will come into effect.”
JA 181a. Short-term disability can only last 26 weeks. Id. Blaker’s deposition is
somewhat unclear on whether this transition occurs automatically or at the discretion of a
third party. The resolution of this question does not influence our analysis of the standard
of review.
9
Consequently, we will apply an arbitrary and capricious standard, rather than a de
novo standard of review. Under this standard, a court may overturn KidsPeace’s
determination of Dr. Post’s ineligibility for continued benefits only if KidsPeace’s
decision was “clearly not supported by the evidence in the record or the administrator has
failed to comply with the procedures required by the plan. A court is not free to substitute
its judgment for that of the defendants in determining eligibility for plan benefits.”
Smathers v. Multi-Tool, Inc., 298 F.3d 191, 199 (3d Cir. 2002) (quoting Orvosh v.
Program of Group Ins. for Salaried Employees of Volkswagen of Am., Inc.,
222 F.3d 123,
129 (3d Cir. 2000)). “Furthermore, whether a claim decision is arbitrary and capricious
requires a determination whether there was a reasonable basis for [the administrator’s]
decision, based upon the facts as known to the administrator at the time the decision was
made.”
Id. at 199-200 (internal quotations omitted).
IV.
Applying a de novo standard of review to KidsPeace’s denial of Dr. Post’s
benefits, the District Court held that the Plan Administrator properly followed the terms
of the KidsPeace Health Care Plan and the KidsPeace Organization Employee Handbook
in terminating Dr. Post’s health care benefits following his eligibility for Medicare.
Although the terms of the Plan and supporting documents are not entirely clear, we agree
with the District Court that KidsPeace’s decision to end Dr. Post’s benefits when he
became eligible for Medicare is not arbitrary and capricious. Nevertheless, we will
10
remand to the District Court for further development of Dr. Post’s equitable estoppel
claim.
The KidsPeace Health Care Plan provides that termination is one of the five
enumerated ways an employee, the employee’s spouse and their dependents lose health
care benefits. The KidsPeace Organizational Employee Handbook, which Dr. Post
received, states that employment is terminated when long-term disability benefits take
effect.6 Therefore, it would appear that health benefits could have been terminated on the
last day of April 1999, the month in which Dr. Post went on long-term disability. But
KidsPeace continued benefits for almost two years until Dr. Post became eligible for
Medicare.
The “Continuation of Coverage” section in the Health Care Plan could reasonably
be read to require KidsPeace to continue paying health benefits for Dr. Post’s family
members until Dr. Post became eligible for Medicare. A clause in this section states: “A
covered spouse of an employee may elect to continue coverage under the KidsPeace
Corporation group plan on a self-pay basis if they lose group health coverage for any of
the following reasons: . . . 4. the employee (spouse) becomes entitled to Medicare; . . . .”
Although this clause could be read to imply a conflict with the clause governing
termination of benefits, the continuation of coverage clause indicates that Medicare
6
As noted supra n.1, the record indicates that long-term disability benefits differ from
benefits under the Health Care Plan.
11
entitlement does conclusively end any responsibility of KidsPeace to pay for health
benefits. We note as well, as the District Court did, that the opening sentence of the
continuation of coverage section does not support Dr. Post’s argument that the section
creates a conflict with the termination of benefits section of the Plan. This sentence
provides: “If you become ineligible for coverage as the result of a change in your
employment status, your coverage ends the date of termination.” As noted, eligibility for
long-term benefits terminates employment with KidsPeace.
Dr. Post notes correctly that the KidsPeace Health Care Plan does not explicitly
identify long-term disability status or Medicare eligibility as an event that terminates
benefits. As noted, Dr. Post had been placed on long-term disability status and was
receiving Medicare benefits. Nonetheless, the terms of the Plan and the definition in the
employee handbook demonstrate that the Administrator’s decision to end benefits was not
arbitrary and capricious.
Whatever ambiguity may exist in the KidsPeace Health Plan and its application,
we fail to see how the Plan language supports the extension of health care benefits
beyond Medicare eligibility to the lifetime benefits which Dr. Post seeks. As an example
of the Plan’s ambiguity, Dr. Post argues that the Health Care Plan does not allow a
disability to cause the employee’s termination, citing the following language in the
termination of benefits section of the Plan: “Cessation of active work shall be deemed
termination of employment, except if an employee is not working because of an approved
12
leave of absence, temporary layoff, or for illness or injury. Coverage will be continued
during that time until discontinued by the employer.”
But Dr. Post’s interpretation of this clause to preclude long-term disability status
from constituting termination directly contradicts the definition contained in the
Employee Handbook, which states that long-term disability status terminates
employment. The clause relied on by Dr. Post only delineates those situations that do not
automatically result in termination of employment. It does not bar KidsPeace from
terminating benefits in any of the conditions listed in the Plan. The exception announced
by this language is to the mechanical application of the termination policy, and does not
constitute a complete prohibition against terminating benefits for employees on long-term
disability. As KidsPeace argues in its brief, “[i]f KidsPeace had intended for the Plan to
provide coverage for disabled employees in perpetuity the Plan would have explicitly said
so.” In fact, the last sentence of this clause reads, “[c]overage will be continued during
that time until discontinued by the employer.” Therefore, the Plan specifically grants
KidsPeace the discretion to end benefits for an employee who has ceased active work due
to injury or illness.
KidsPeace’s interpretation of its Plan satisfies the arbitrary and capricious standard
of review.7 Under this standard of review, the Plan Administrator’s decision to extend
7
Dr. Post argues that the District Court erred in failing to interpret ambiguities in the
Plan in accordance with the reasonable expectations of the insured under the principle of
(continued...)
13
benefits past long-term disability, and to terminate benefits at Medicare eligibility, was
reasonable.8
V.
The District Court raised the issue of equitable estoppel based on KidsPeace’s
erroneous interpretation in its March 18, 1999 letter, and found that no estoppel claim
could be established. The District Court found that equitable estoppel had no application
in this situation because: (1) the letter was corrected within three months; (2) Dr. Post did
not alter his actions in reliance on the erroneous letter; and (3) Dr. Post continued to
receive KidsPeace health care benefits for two years—until April 2001—so that no harm
in fact occurred. Two other non-Plan documents issued by KidsPeace—the 1996
newsletter and 1997 memorandum were not discussed. We will remand for further
7
(...continued)
contra proferentem. See Heasley v. Belden & Blake Corp., 2 F.3d 1249, 1257-58 (3d Cir.
1993). “Under that rule, if, after applying the normal principles of contractual
construction, an insurance contract is fairly susceptible of two different interpretations, . .
. the interpretation that is the most favorable to the insured will be adopted.”
Id. at 1257
(internal quotations omitted). Because KidsPeace’s decision to end benefits at Medicare
eligibility was reasonable, we do not reach this issue.
8
We find as well that the two extrinsic documents pointed to by Dr. Post do not render
KidsPeace’s decision to end benefits at Medicare arbitrary and capricious in light of
language in the Plan and Handbook supporting its decision. This evidence may, however,
be considered in Dr. Post’s claim of detrimental reliance, discussed infra pt. V.
14
development of Dr. Post’s estoppel claim based on these representations made by
KidsPeace.9
An equitable estoppel claim is cognizable under ERISA. 29 U.S.C. § 1132(a)(3).
We have held that this section permits an ERISA beneficiary to recover benefits under an
equitable estoppel theory, upon establishing: (1) a material misrepresentation; (2)
reasonable and detrimental reliance upon the misrepresentation; and (3) extraordinary
circumstances. Smith v. Hartford Ins. Group, 6 F.3d 131, 137 (3d Cir. 1993).
Dr. Post argues that further evidence is required on the question of whether he
detrimentally relied on misrepresentations in KidsPeace documents during the period
between his diagnosis and the time his injury became debilitating. Dr. Post claims that he
relied on misrepresentations by KidsPeace at a time when he could have investigated
other opportunities for insurance under plans which did not end benefits upon M edicare
eligibility. As support for his estoppel claim, Dr. Post points to two documents: A
KidsPeace newsletter from 1996 with the title “Important: Health Care Plan Changes,”
which noted, “Health Care Plan coverage has been extended to provide coverage for the
entire length of continuous disability. (Previously, coverage terminated after weekly
9
KidsPeace argues that Dr. Post failed to raise his estoppel argument in the District
Court, and therefore this argument is waived. See Gass v. Virgin Islands Telephone
Corp., 311 F.3d 237, 246 (3d Cir. 2002). Nonetheless, the District Court clearly
addressed the issue of detrimental reliance in its memorandum opinion. See Mem. Op., at
19 (“Yet, this grave error [March 18, 1999 letter] did not lead to Dr. Post’s reliance to his
detriment that would trigger estoppel as Plantiffs’ allege.”).
15
disability income ended.);” and a September 8, 1997 memorandum accompanying the
Summary Plan Description that highlighted “changes and enhancements” to the Plan,
including the following: “Disabled Employees (effec. 08/96) - on medical leave with full
benefits until recovery.”
Dr. Post claims that KidsPeace should be estopped from discontinuing his
coverage based upon these misrepresentations made before he became totally disabled.
We agree that this matter requires further factual development, and we will therefore
remand this issue to the District Court for further proceedings on the issue of whether Dr.
Post is entitled to benefits under an estoppel theory based on the KidsPeace newsletter
and memorandum.
VI.
For the foregoing reasons we will vacate the grant of summary judgment and
remand for further development of the record and consideration of plaintiff’s equitable
estoppel claim.
16
