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Baxter v. Sun Life Assurance Co. of Canada

May 20, 2010


The opinion of the court was delivered by: Judge Robert M. Dow, Jr.


For the reasons set forth below, Plaintiff Ted Baxter's motion to compel the deposition of Robert Goodall [15] is granted.

I. Background

On April 21, 2005, Plaintiff Ted Baxter, then a global controller at Citadel Investment Group, LLC ("Citadel"), became disabled due to permanent brain damage following an improperly treated cerebrovascular accident (a stroke). At the time that Plaintiff became disabled, he was insured under a group long term disability ("LTD") insurance policy provided by his employer and insured and underwritten by Defendant Sun Life Assurance Company of Canada. The policy promises to pay benefits based on an employee's past earnings minus any applicable offsets, so long as an employee remains disabled under the terms of the policy. The parties do not dispute that Plaintiff is permanently and totally disabled under the terms of the policy, and that Defendant continuously has paid LTD benefits to Plaintiff since the end of the policy's elimination period. Benefits were initially paid at a net monthly amount of $15,000.

On December 4, 2005, Plaintiff was awarded Social Security Disability Income Benefits ("SSDIB"), which dated back to April 21, 2005. Defendant subsequently offset Plaintiff's monthly LTD benefit amount by the amount of his SSDIB, which was $2,049, reducing Defendant's monthly payout to $12,951. Then, in November 2006, Plaintiff brought suit against Evanston Hospital for medical malpractice relating to the treatment Plaintiff received for the stroke he suffered. In March 2007, Plaintiff and Evanston Hospital settled for approximately $19,000,000. The settlement agreement stated the gross amount of settlement in relation to Plaintiff's bodily injury and did not enumerate a payment for loss of wages. In a letter dated April 18, 2008, Defendant notified Plaintiff that the medical malpractice settlement would offset his monthly LTD benefit amount pursuant to the policy's definition of "Other Income Benefits" -- specifically, the provision which allows an offset against monthly benefits payable for "any amount you receive due to income replacement or lost wages paid to you by compromise, settlement, or other method as a result of a claim for any Other Income Benefit." Prorating the gross settlement amount from the onset date of disability through the claim expiry on November 17, 2028, Defendant reduced Plaintiff's net monthly LTD benefit amount to $1,500. Defendant also claimed that Plaintiff had received an overpayment in the amount of $375,480.

Plaintiff timely appealed, challenging Defendant's offset determination and seeking reinstatement of benefit payments at the full amount of $12,951, but the appeal was unsuccessful. On June 23, 2009, Plaintiff filed the instant suit, and on January 15, 2010, Plaintiff sought to depose Robert Goodall, a Sun Life claims consultant, "in order to better understand the application of the Policy's definition of 'Other Income Benefits' and to determine the consistency of the application of that provision." Mot. to Compel at 3. On February 1, 2010, Defendant declined Plaintiff's request, asserting that discovery is not appropriate in this ERISA case because of the deferential standard of review that Defendant contends the Court must apply in reviewing.

II. Analysis

Plaintiff's claim is governed by the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001, et seq., which was "enacted to promote the interests of employees and their beneficiaries in employee benefit plans, and to protect contractually defined benefits." Black & Decker Disability Plan v. Nord, 538 U.S. 822, 829 (2003) (quoting Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 113 (1989)). The statute permits a person who is denied benefits under an ERISA employee benefit plan to challenge that denial in federal court. Glenn, 128 S.Ct. at 2346; see also 29 U.S.C. § 1132(a)(1)(B). "When reviewing a plan administrator's decision in the ERISA context, the district court has significant discretion to allow or disallow discovery requests." Semien, 436 F.3d at 814. Plaintiff seeks discovery outside of the administrative record into a structural conflict of interest that Defendant has as both the plan administrator (and therefore the decision maker as to whether an employee is eligible for benefits) and the payor of Plaintiff's benefits.

The scope of permissible discovery in these cases is affected by the standard of review that the Court applies to the benefits decision. "When review is deferential -- when the plan's decision must be sustained unless arbitrary and capricious -- then review is limited to the administrative record." Krolnik v. Prudential Ins. Co. of Am., 570 F.3d 841, 843 (7th Cir. 2009) (citing Perlman v. Swiss Bank Corp. Comprehensive Disability Prot. Plan, 195 F.3d 975 (7th Cir. 1999)); see also Glenn, 128 S.Ct. at 2348. In this case, the parties disagree as to the applicable standard of review -- Plaintiff claims that the Court should conduct a de novo review, while Defendant maintains that the arbitrary and capricious standard applies. Plaintiff also contends that should the Court determine that the arbitrary and capricious standard of review applies, the Supreme Court's decision in Metropolitan Life Ins. Co. v. Glenn, 128 S.Ct. 2343, 2346 (2008), implicitly permits limited discovery in order for the Court to properly weigh the structural conflict as a factor in its review of Defendant's decision. Defendant counters that Glenn did not change the established Seventh Circuit law in Semien v. Life Ins. Co. of N. Am., 436 F.3d 805, 814 (7th Cir. 2006), regarding the proper scope of discovery in cases in which a court applies the arbitrary and capricious standard and that Plaintiff has not met his burden under the two-prong test established in Semien.

A. Standard of Review

Generally, "[t]he standard of review of a Plan Administrator's decisions regarding benefits depends on whether the Plan Administrator was given the discretion to make those decisions." Vallone v. CNA Fin. Corp., 375 F.3d 623, 629 (7th Cir. 2004). The Supreme Court has held that "a denial of benefits challenged 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." Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989). While the Seventh Circuit has held that "there are no 'magic words' determining the scope of judicial review" in ERISA cases, the court has provided specific guidance to lower courts. Herzberger v. Standard Ins. Co., 205 F.3d 327, 331 (7th Cir. 2000). In Herzberger, the court focused on whether the plan document explicitly states, or at least "implies," the "scope of judicial review of [the administrator's] determination." Id. at 332. In other words, Herzberger held that the critical question is notice: "participants must be able to tell from the plan's language whether the plan is one that reserves discretion for the administrator." See also Diaz v. Prudential Ins. Co. of America, 424 F.3d 635, 637 (7th Cir. 2005). The court drafted the following "safe harbor" language for inclusion in ERISA plans: "Benefits under this plan will be paid only if the plan administrator decides in his discretion that the applicant is entitled to them." Herzberger, 205 F.3d at 331. The court stopped short of making this "safe harbor" language mandatory, stating that in some cases, the nature of the benefits or the conditions upon it will make reasonably clear that the plan administrator is to exercise discretion. Rather, the focus is on whether the plan "contain[s] language that * * * indicates with the requisite if minimum clarity that a discretionary determination is envisaged." Id. (emphasis added). If such notice is clear from the plan language, the appropriate review is the more deferential "arbitrary and capricious" standard. Black v. Long Term Disability Ins., 582 F.3d 738, 744 (7th Cir. 2009).

In the section entitled "Insurer's Authority," the policy states: The Plan Administrator has delegated to Sun Life its right to make all final determinations regarding claims for benefits under the benefit plan insured by this policy. This right includes, but is not limited to, the determination of eligibility for benefits, based upon enrollment information provided by the Policyholder, and the amount of any benefits due, and to construe the terms of this Policy.

Any decision made by Sun Life in the exercise of this right, including review of denials of benefit, is conclusive and binding on all parties. Any court reviewing Sun Life's determinations shall uphold such determination unless the claimant proves Sun Life's determinations are arbitrary and capricious.

While the policy does not contain the explicit safe harbor language espoused by the Seventh Circuit, the plan explicitly "stipulate[s] for deferential review." Herzberger, 205 F.3d at 332. The plan expressly states that any decisions made by Sun Life are "conclusive and binding," and that any judicial review will be subject to the "arbitrary and capricious" standard. In a sense, a stipulation regarding the governing review standard seems more lucid than merely stating that a decision is discretionary, as many participants may not understand how "discretion" would impact a subsequent lawsuit. While it does not employ the "safe harbor" language, the policy at issue here tells ...

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