C. CLIFFORD SHIRLEY, Jr., Magistrate Judge.
This case is before the undersigned pursuant to 28 U.S.C. § 636, the Rules of this Court, and the referral Order [Doc. 16] of the Chief District Judge.
Now before the Court is Defendant's Motion for Summary Judgment [Doc. 17] and the Plaintiff's Motion for Judgment on the Administrative Record [Doc. 19]. The parties appeared before the Court for for a motion hearing on January 11, 2017. Attorney John Dupree was present on behalf of the Plaintiff, and Attorney Brandon Cate appeared on behalf of the Defendant. For the reasons stated herein, the undersigned will
Plaintiff Kimberly D. Buchanan brought this action against Defendant Sun Life and Health Insurance Company, U.S., alleging that she became totally disabled under the terms of the policy due to complications from a severe medical condition and thus was entitled to benefits thereunder. In her Complaint, the Plaintiff alleges breach of contract and/or fiduciary duty, and she requests specific performance with respect to the terms of the long-term disability policy. The Complaint was originally filed in Knox County Chancery Court but was removed [Doc. 1] on the basis that the action is governed by the Employment Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq.
The facts relevant to the parties' Motions for Judgment are as follows.
GE Group Life Assurance Company issued a Group Insurance Policy ("Policy") to Bella Boutique with an effective date of December 1, 2004. [Doc. 9-5 at 64]. The Policy provides coverage to "all active full-time employees who satisfy the coverage eligibility requirements . . ." [Doc. 9-5 at 65]. In order to qualify as an "active full-time employee," the following criteria must be met:
[Doc. 9-5 at 68]. Further, the Policy defines "Total Disability and Totally Disabled" as follows:
[Doc. 9-5 at 73]. In addition, the Policy explains "Partial Disability and Partially Disabled" as follows:
[Doc 9-5 at 73]. Further, the Policy defines "Basic Monthly Earnings" as
[Doc. 9-5 at 68]. Finally, the Policy provides:
[Doc. 9-5 at 100].
Later, the Policy was amended, to state that "Sun Life and Health Insurance Company (U.S.) as Claims Fiduciary, shall have the sole and exclusive discretion and authority to carry out all actions involving claims procedures explained in the Policy." [Doc. 9-6 at 100].
The Plaintiff completed an application for long-term disability benefits on August 14, 2011. [Doc. 9-4 at 82]. In her application, the Plaintiff explained that she was the owner of Bella Boutique and that her regularly scheduled work week was 6 to 7 days per week and 40 to 60 hours per week. [Doc. 9-4 at 84]. The Plaintiff stated that she had not worked since May 2010. [Doc. 9-4 at 84]. In the job description, the Plaintiff stated, "Being the owner[,] I do everything in the store. Over all employees, billing, sales and the operation of store." [Doc. 9-4 at 85].
By letter dated February 14, 2012, the Defendant denied the Plaintiff's claim. [Doc. 9-6 at 6].
[Doc. 9-6 at 11]. Further, in the letter, the Defendant explained that it spoke to the Plaintiff on January 18, 2012, and that the Defendant advised the Plaintiff at that time that the Policy was an income replacement policy and that if the Plaintiff did not have income to be replaced, there was no claim. [Doc. 9-6 at 11-12]. The Defendant noted that it spoke with the Plaintiff's accountant at the request of the Plaintiff and that the accountant confirmed that all income had been set up as the Plaintiff's husband's income. [Doc. 9-6 at 11-12]. In addition, the letter explained that the accountant faxed a note on January 24, 2012, stating that Bella Boutique was a Schedule C business on the Plaintiff's and her husband's joint federal tax return and that all income was allocated to Plaintiff's husband instead of being allocated 50:50. [Doc. 9-6 at 12]. The Defendant concluded:
[Doc. 9-6 at 12-13]. The Defendant stated that the Plaintiff had 180 days to appeal. [Doc. 9-6 at 13].
The Plaintiff submitted an appeal dated May 24, 2013. [Doc. 9-9 at 96]. Although the Defendant noted that the Plaintiff's appeal was untimely, it decided to consider additional proof relative to active full-time employees and proof of loss. [Doc. 9-9 at 97]. In a letter dated June 12, 2013, the Plaintiff stated that her primary responsibility was to purchase dresses and accessories for the store and that additional duties included bookkeeping and accounting. [Doc. 9-10 at 54]. She explained that bookkeeping involved writing all business checks; paying all vendors invoices in a timely manner and making sure they are correct and if there was a credit against an invoice making sure it is applied; and tracking all market orders, special orders, duplicate invoices and business performances. [Doc. 9-10 at 54]. Further, on June 12, 2013, the Defendant noted that it had "corrected the definition for Long Term Disability coverage to the Partnership, K1 calendar year for Plan 1." [Doc. 9-11 at 31]. The Defendant also noted that it had created a plan 2 with the standard definition of earnings for those employees who were not Partners. [Doc. 9-11 at 31]. Specifically, the Defendant added a definition of "Basic Month Earnings" for partners as follows:
[Doc. 9-12 at 71].
To determine whether the Plaintiff satisfied the amended Policy requirements, the Defendant consulted with Jeffrey Bannon, a certified public accountant. [Doc. 9-10 at 9]. In a report dated September 10, 2013, Mr. Bannon noted:
[Doc. 9-10 at 9]. Mr. Bannon opined, "A reasonable equivalent Basic Monthly Earnings definition for a joint Schedule C situation such as this would be to use the insured's 50% portion net income of the joint Schedule C of the calendar year immediately prior to her date of disability. Based on a date of disability of May 11, 2010, Ms. Buchanan's Basic Monthly Earnings would be based on her income from calendar year 2009. Her 50% of the 2009 net income is $76,558. [Doc. 9-10 at 8]. Mr. Bannon calculated her maximum monthly benefit at $3,827.90. [Doc. 9-10 at 8].
Further, Mr. Bannon noted:
[Doc. 9-10 at 9-10]. Moreover, Mr. Bannon discussed whether the Plaintiff would be eligible for partial disability benefits. [Doc. 9-10 at 10]. Mr. Bannon stated that for partial disability purposes, the Plaintiff's monthly earnings should be based on her 50% share of the net income of the business. [Doc. 9-10 at 10]. Mr. Bannon stated that her average monthly earnings in 2010 was $7,349.46 and in 2011, it was $10,893.33. [Doc. 9-10 at 10]. Mr. Bannon concluded, "Both of these amounts exceed [the Plaintiff's] Basic Monthly Earnings as calculated above. Accordingly, she would not have qualified as Partially Disabled in 2010 or 2011 and would not be eligible for benefits." [Doc. 9-10 at 10].
On September 24, 2013, the Defendant affirmed its denial. [Doc. 9-9 at 94]. The Defendant noted that the Plaintiff did not meet the following: (1) active full-time employee in an eligible class leading up to the claimed May 11, 2010 cease work date; (2) totally disabled or partially disabled, as of the claimed May 11, 2010 disability cease work date; and (3) totally or partially disabled throughout the 90-day elimination period, and beyond. [Doc. 9-9 at 94]. The Defendant summarized the procedural history and the definitions contained in the Policy. [Doc. 9-9 at 94-110, Docs. 9-10 at 1-6]. The Defendant noted that the Plaintiff submitted copies of the business bank statements and cancelled checks from June 2009 through June 2013 and that there were approximately 110 to 120 checks clearing the bank each month. [Doc. 9-9 at 98]. The Defendant noted that the canceled checks indicated that the Plaintiff was continually involved in the operation of the business because the vast majority of the 110 to 120 monthly checks were signed by the Plaintiff. [Doc. 9-9 at 98]. The Defendant stated that "[a]t a minimum, this reflects an ongoing financial managerial participation in the business." [Doc. 9-9 at 98]. The Defendant also explained that the Plaintiff did not meet the criteria for partial disability benefits. [Doc. 9-9 at 98]. Further, the Defendant noted that with respect to determining active-full time employee status, the only business and financial document received were Bella Boutique Accounts Payable Check copies signed by the Plaintiff suggesting that she was performing this function. [Doc. 9-10 at 5]. The Defendant also noted that the Plaintiff, her accountant, and her husband had reported the following:
The Defendant concluded that the issues to be addressed included the following:
[Doc. 9-10 at 16].
The Plaintiff appealed the decision on March 3, 2014. [Doc. 9-9 at 85-86]. In support of her appeal, the Plaintiff submitted statements of six witnesses stating that the Plaintiff worked far more than 40 hours per week prior to her last day of work in May 2010. [Doc. 9-9 at 73].
In a letter dated October 1, 2014, the Defendant stated that the claim determination that the Plaintiff was not an Active Full-time Employee prior to her May 11, 2010, claimed date of disability was overturned. [Doc. 9-8 at 55]. The Defendant noted that it had received an 8GB flash drive that included video statements of the Plaintiff, the Plaintiff's husband, and several other witnesses. [Doc. 9-8 at 55]. The Defendant noted that the Plaintiff's report regarding her attendance was consistent with the audio statements with the witnesses. [Doc. 9-8 at 55]. The Defendant, continued, however that two of the statements were made by family members and that two other statements were made by employees that were not working at Bella Boutique on or around the claimed disability date in May 2010. [Doc. 9-8 at 55]. The Defendant noted that it requested additional information, and the Plaintiff provided additional information. [Doc. 9-8 at 55]. The Defendant concluded that based on multiple witnesses who attested to the Plaintiff's work attendance, the Defendant granted the Plaintiff's appeal with respect to its decision that the Plaintiff was not an Active Full-time Employee. [Doc. 9-8 at 55].
The Defendant continued that the matter regarding the Plaintiff's eligibility for Total Disability or Partial Disability benefits required additional review. [Doc. 9-8 at 55]. The Defendant noted that it conducted research regarding the Plaintiff's involvement in the operation of Bella Boutique and that the information obtained included the Plaintiff's posts to Facebook. [Doc. 9-8 at 55]. The Defendant stated that the Plaintiff appeared to be performing marketing/merchandising duties. [Doc. 9-8 at 55]. The Defendant then proceeded to list all the Facebook postings by the Plaintiff. [Doc. 9-8 at 56]. In addition, the Defendant referenced Mr. Bannon's September 11, 2014 letter, and noted the following: (1) the Plaintiff did not incur a loss of earnings in 2010 or 2011 but did incur a loss of earnings in January 2012, and therefore, would not be eligible for Partial Disability benefits until January 2012; (2) the information provided does not support that the Plaintiff was an Active Full-time Employee prior to the date of disability of January 1, 2012, and the Plaintiff's coverage under the Plan would have terminated; and (3) the information would support the Plaintiff's involvement in the business but does not establish that the Plaintiff was performing all of her duties of her job working at least working 30 hours per week [sic]. [Doc. 9-8 at 57]. The Defendant concluded:
[Doc. 9-8 at 58-59].
In a letter dated December 16, 2014, the Plaintiff stated that she had appealed the decision. [Doc. 16 at 1]. The Plaintiff stated that in support of her appeal, she attached several statements from employees addressing the Facebook posts of Bella Boutique. [Doc. 16 at 1]. The Plaintiff also stated that she included statements from herself and her husband. [Doc. 16 at 1]. The Plaintiff submitted that the employees had access to the Facebook page and made the entries, not the Plaintiff. [Doc. 16 at 1]. Subsequently, on December 30, 2014, the Plaintiff sent the Defendant a thumb drive with video statements of the Plaintiff and Plaintiff's husband regarding the Facebook posts. [Doc. 16 at 9].
Later, in a letter dated February 10, 2015, the Defendant stated that the administrative remedy for disability benefits for the years 2010 and 2011 had been exhausted and the administrative record had been closed. [Doc. 16 at 11]. The Defendant noted that the only appeal remedy available to the Plaintiff pertained to eligibility for benefits for a Period of Disability commencing on or after January 1, 2012. [Doc. 16 at 10].
The parties have filed competing dispositive motions. Because the Defendant filed its Motion first, the Court will begin with the Defendant's position.
The Defendant argues that the denial of benefits was not arbitrary and capricious. The Defendant submits that the Plaintiff is not able to satisfy the requirements for either total or partial disability. The Defendant states that after the Plaintiff allegedly stopped working, she continued to sign the vast majority of checks. In addition, the Defendant argues that she continued to market the business, such as writing posts on social media between September 2010 and January 2013. The Defendant asserts that the Plaintiff continued to perform one, if not more, of the substantial and material duties of her occupation. Further, the Defendant argues that the denial of partial disability benefits is not arbitrary and capricious. The Defendant submits that to receive partial disability benefits, the Plaintiff must prove that she was still earnings at least 20% less than her Pre-Disability earnings immediately prior to the onset of Disability and there is a Demonstrated Relationship between the earnings loss and the current disability. The Defendant submits that the Plaintiff's earnings increased in both 2010 and 2011. Finally, the Defendant argues that the Plaintiff was ineligible for coverage under the policy in 2012 because the coverage is only available for active, full time employees and the Plaintiff stopped working full-time in 2010 when she submitted her claim for disability benefits.
The Plaintiff argues that the applicable Policy grants discretionary authority to GE Group Life Assurance Company and that the Defendant made the initial claim determination before it had issued its new certificate of insurance. The Plaintiff argues that because an entity that was not granted discretionary authority made the claim determination in this case, the de novo standard of review applies.
In addition, the Plaintiff submits that the Defendant first denied disability benefits because it asserted that the Plaintiff did not qualify as an Active Full-time Employee as defined by the Policy and that in its second denial, it changed its rationale by asserting that the Plaintiff was not disabled under the Policy because she performed at least one of her material duties. The Plaintiff states that she should have had an opportunity to address the new denial. The Plaintiff argues that she attempted to appeal the decision by sending correspondence of additional proof, but the Defendant refused to consider the additional proof. The Plaintiff asserts that the video and the written statements show that she was not performing material and substantial duties at her employment or at any employment. The Plaintiff submits that she did not receive a full and fair review.
As mentioned above, the Court heard oral arguments on January 11, 2017. Subsequently, the Plaintiff a Supplemental Brief [Doc. 29], and the Defendant responded [Doc. 30]. The Court has considered the additional briefs.
Where a benefit plan gives the plan administrator discretionary authority to determine eligibility for benefits or to construe the terms of the plan, the administrator's benefit determination is reviewed "under the highly deferential arbitrary and capricious standard of review."
If it is possible to offer a "reasoned explanation" for the decision, based on all the evidence known to the administrator, then the decision is not arbitrary and capricious.
Moreover, the Court is to limit its review to the administrative record.
The parties dispute as to whether the arbitrary and capricious standard of review applies in this case. The Plaintiff argues that the applicable Policy grants discretionary authority to GE Group Life Assurance Company. The Plaintiff states that Defendant Sun Life issued its new certificate of insurance after it made the initial claim determination on February 14, 2012. Thus, the Plaintiff submits that Defendant Sun Life, which was not granted discretionary authority, made the decision and that the de novo standard of review is applicable.
During the hearing, the Defendant argued that GE Group Life Assurance Company issued the original Policy but that the company went through a series of name changes and is now known as Sun Life and Health Insurance Company (U.S.).
The Court finds that the arbitrary and capricious standard applies. A similar argument was raised in
The Defendant, acknowledges, however, that a conflict of interest exists in this case. A conflict of interest will arise when the decision-maker of which claims are covered is also the payor of those claims.
As an initial matter, during the hearing, the Defendant withdrew its argument regarding the social media posts and emphasized that the issue was whether the Plaintiff was still writing checks. In addition, the Plaintiff argued that she was not claiming partial disability. Thus, the primary issue before the Court is whether the Defendant's decision to deny the Plaintiff's claim for total disability was arbitrary and capricious.
The Court finds that the Defendant's decision to deny benefits was not arbitrary and capricious. As explained above, the Defendant originally denied the Plaintiff's claim because her financial documents showed that all income was allocated to her husband—she simply had no reported earnings. Later, however, the Defendant revised the Policy in order to add a definition for "Basic Monthly Earnings" that could be applied to partnerships. In determining whether the Plaintiff met the amended definition, the Defendant sent Plaintiff's financial information to Mr. Bannon, a CPA. Mr. Bannon noted as follows:
[Doc. 9-10 at 9]. Based on this finding, in a letter dated September 24, 2013, the Defendant affirmed the denial of Plaintiff's claim stating that the Plaintiff was not totally disabled. The Defendant explained the definition of "Total Disability," which provides, in relevant part, that the individual is unable to perform all the material and substantial duties of the Regular Occupation. [Doc. 9-10 at 1]. In addition, the Defendant noted that it had previously explained that whether the Plaintiff was totally disabled was an issue that needed to be addressed. The Defendant explained that the Plaintiff submitted copies of checks from June 2009 through June 2013 and that vast majority of the 110 to 120 monthly checks were signed by the Plaintiff. [Doc. 9-9 at 98]. The Defendant noted, "With respect to determining Total Disability versus Partial Disability, the Bella Boutique Accounts Payable Check copies continued beyond the claimed May 11, 2010, Total Disability date, throughout the 90-Day Elimination Period, and up through recent submission suggesting that you continued to perform at least one of the material duties of your Regular or any Occupation on a Full-time or Part-time Basis. [Doc. 9-10 at 5]. The Court finds the Defendant's decision to be reasonable in light of the Plaintiff stating that her job duties included bookkeeping (i.e., writing all business expenses checks, paying all vendors' invoices in a timely manner, and so forth). [Doc. 9-10 at 54].
However, despite the Defendant specifically referencing the check writing and stating that it appeared the Plaintiff was still performing a material duty, the Plaintiff did not address the issue on administrative appeal. The Plaintiff simply did not, and has not, denied Mr. Bannon's statement.
For instance, the Plaintiff submitted to the Court the material that the Defendant did not consider because the appeal process had been exhausted. The Court has reviewed the documents and the statements and finds that the Plaintiff still has not directly answered whether she was still writing checks. In a video statement, when asked by her attorney whether she was signing checks, she replied that she can pick up a pen. When her husband was asked whether the Plaintiff had signed checks from time to time, he states, "Checks that were signed—we had given employees permission. Some were signed by employees." These statements do not deny that the vast majority of the 110 to 120 monthly checks were signed by the Plaintiff, which reflects an ongoing financial participation in the business. Further, at the hearing, the Plaintiff was given multiple opportunities to point to any evidence in the record that explained the check writing. The Plaintiff repeatedly stated that employees were given permission to sign checks. The Court notes, however, that this does not mean that the employees actually did sign checks, nor does it directly answer the question. Accordingly, the Court finds that the Defendant offered a reasoned explanation based on its evidence that the Plaintiff was not totally disabled per the terms of the Policy and the Court recommends that the Plaintiff's Motion be denied.
Accordingly, the undersigned
