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Orlando v. United of Omaha Life Insurance Co.

July 29, 2008


The opinion of the court was delivered by: Magistrate Judge Susan E. Cox


In October 2002, John Orlando ("plaintiff") was hired by West Monroe Partners, LLC ("West Monroe").*fn1 West Monroe offered its employees long-term disability benefits through a voluntary group insurance policy issued by United of Omaha Life Insurance Company ("defendant"). Plaintiff purchased the insurance from defendant and the policy became effective January 1, 2003 (the "Policy"). Plaintiff became disabled in June 2003 and filed a claim for maximum benefits under the Policy. As plan administrator, defendant reviewed the claim and paid less than the full amount of plaintiff's claim. Plaintiff now argues that he did not receive the full amount of benefits he was entitled to under the Policy.

As the Policy is governed by the Employee Retirement Income Security Act ("ERISA"), the first question when reviewing the benefit determination of the plan administrator is what standard of review should be applied. To resolve this issue, the Court permitted the parties to file cross-motions for a declaration of the standard of review. The United States Supreme Court has held that the denial of ERISA benefits is to be reviewed de novo unless the policy gives the administrator the authority to determine eligibility for benefits or to construe the terms of the policy and the participants have notice that such power was given.*fn2 In contrast, if the policy vests discretionary authority in the plan's administrator and the participants have notice that such power was given, a court's review will be deferential and apply the "arbitrary and capricious" standard.*fn3 In this case, there is no dispute that the discretion-granting language existed, but there is a dispute as to whether plaintiff had proper notice that it was included in the Policy. For the reasons outlined below we find there was proper notice; the plaintiff's motion is denied [dkt 97] and the defendant's motion is granted [dkt 93].

I. Background

According to plaintiff's counsel in oral argument, plaintiff purchased coverage from defendant in the fall of 2002 and the Policy became effective January 1, 2003. Defendant both provided the coverage and acted as the plan's administrator. Plaintiff alleges that he became disabled as of June 23, 2003 and was therefore entitled to receive benefits under the Policy. Plaintiff filed a claim for the maximum amount of benefits and defendant denied the full claim, but paid out partial benefits. Here, plaintiff challenges the denial of what he deems to be the full amount he is entitled to under the Policy and seeks an additional $117,440.40 of long-term disability benefits.

Defendant's counsel explained in oral argument that when plaintiff purchased the insurance coverage, and even when the Policy went into effect on January 1, 2003, no written policy document existed. At that time, defendant had yet to finalize or distribute the Policy, which is, according to defendant, customary practice. On March 5, 2003, three months after the Policy went into effect, West Monroe's human resources director, Paulette McKissic ("McKissic"), telephoned defendant and requested a copy of the Policy's contract materials and booklets. The parties employ the terms "Policy Booklet" and "Certificate Booklet" interchangeably to refer to the Policy's ERISA Summary Plan Description ("SPD"). For the purposes of this Order, the Court will hereinafter refer to this document as the SPD. On March 7, 2003, a senior account assistant of defendant's, Donna Carling ("Carling"), informed McKissic, via email, that she would be mailing the master contract materials and printed copies of the SPDs. Carling also attached an electronic copy of the SPD to the email. Then on March 11, 2003, Carling received the policy materials and mailing instructions from the company's contract department. The instructions provided Carling a list of documents that were to be included in the mailing. Defendant claims that on April 1, 2003, Carling mailed the policy materials, which included a single copy of the Policy and multiple copies of the SPD. The documents were supposedly mailed to a location that West Monroe provided as its mailing address on its insurance application.

The Policy is a twelve-page document, physically composed of a number of parts. It contains several pages of general provisions, an addendum, and a number of riders attached at the end. One of the riders attached is entitled, "Authority to Interpret Policy" ("Rider"). The discretion-granting language is contained in this Rider. Defendant used the functional equivalent of the Seventh Circuit's "safe harbor" language when drafting its discretion-granting language.*fn4 The Rider states, in relevant part:

By purchasing the policy, the Policyholder grants United of Omaha Life Insurance Company the discretion and final authority to construe and interpret the policy. This means that United has the authority to decide all questions of eligibility and all questions regarding the amount and payment of any policy benefits within the terms of the policy as interpreted by United. In making any decision, United may rely on the accuracy and completeness of any information furnished by the Policyholder or an insured person. United's interpretation of the policy as to the amount of benefits and eligibility shall be binding and conclusive on all persons.

The SPD, in contrast, is a forty-page document. It contains the certificate of insurance, definitions, employee eligibility, family and medical leave rider, schedule of benefits, description of benefits, vocational rehabilitation provision, procedures on the payment of claims, procedures on the review of claims, appeal rights, and other provisions. The SPD lacks any mention of the plan administrator's discretionary power.

III. Analysis

Defendant refers the Court to the Policy's language in the Rider, which clearly grants discretionary authority. Defendant, therefore, claims the Court should apply the arbitrary and capricious standard. Plaintiff primarily disputes that the discretion-granting language was not included in the SPD that was distributed to West Monroe via both email and postal mail but, instead, was located in the Rider which plaintiff claims neither West Monroe nor he received. Plaintiff further argues that inclusion of the discretion-granting language in such a manner is insufficient to provide the requisite notice and, thus, it should not apply to change the standard of review from de novo to arbitrary and capricious. Plaintiff then argues two additional points to support his position that the discretion-granting language does not apply here: (1) there is no evidence that either plaintiff or West Monroe received the Policy containing the Rider; and (2) there is no evidence that West Monroe conferred discretionary authority on defendant.

Where the effectiveness of discretionary language in an ERISA policy is at issue, courts have consistently found that notice of the plan administrator's powers is crucial since the authority confers the extreme "power to re-define the entire concept of disability, or regularity of physician care, on a case-by-case basis."*fn5 In deciding whether the plan confers discretion to the administrator, a court reviews the language of the plan de novo, as it would review the language of any contract.*fn6 The language of the terms in the plan must give the employee adequate notice that the plan administrator is to make a judgment largely insulated from judicial review by reason of being discretionary.*fn7

A. The Summary Plan Description

Plaintiff argues that the failure of defendant to include mention of the discretionary power of the plan administrator in the SPD is a failure to provide notice. Section 1022(a) of ERISA requires that a "summary plan description of any employee benefit plan shall be furnished to participants and beneficiaries."*fn8 It is undisputed that the SPD was distributed to plaintiff and that it lacks any of the discretion-granting language at issue here. However, the SPD indicates that the coverage described within the document is "subject to the terms and conditions" of the Policy, which include the Rider that ...

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