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Fessenden v. Reliance Standard Life Insurance Co.

United States District Court, N.D. Indiana, South Bend Division

January 17, 2018




         Some cases turn almost entirely on what the applicable standard of review is. This case is one of them. This is an ERISA case that was transferred to me last year in a district-wide reassignment of cases. Judge Lee, who previously was assigned to the case, held that Reliance Standard Life Insurance Company's decision to deny Donald Fessenden long term disability benefits would be reviewed under the deferential arbitrary and capricious standard, as opposed to deciding the case from scratch - the so-called de novo standard. When that decision was made by Judge Lee, the die was essentially cast.

         There is substantial evidence on both sides of the issue of whether Mr. Fessenden is disabled. Although, after thoroughly reviewing the record, I am inclined to believe that Donald Fessenden is in fact disabled by his medical conditions, oddly, that conclusion is not what dictates the outcome here. Instead, given Judge Lee's earlier ruling, I am limited to a highly deferential standard of review which means Reliance's rejection of Fessenden's claim for benefits will not be overturned unless Fessenden demonstrates that Reliance's decision was “‘downright unreasonable'.” Walton v. National Integrated Group Pension Plan, 587 Fed.Appx. 328, 329 (7th Cir. 2014), quoting Williams v. Aetna Life Ins. Co., 509 F.3d 317, 321-22 (7th Cir. 2007); Edwards v. Briggs & Stratton Retirement Plan, 639 F.3d 355, 360 (7th Cir. 2011), quoting Davis v. Unum Life Ins. Co. of Am., 444 F.3d 569, 576 (7th Cir. 2006). See also Kennedy v. Lilly Extended Disability Plan, 856 F.3d 1136, 1138 (7th Cir. 2017) (Manion, J., dissenting). As long as the “‘plan administrator's decision has rational support in the record, '” I must uphold it. Geiger v. Aetna Life Insurance Company, 845 F.3d 357, 362 (7th Cir. 2017), quoting Edwards, 639 F.3d at 360. Because there is rational support in the record for the decision made by Reliance, I must reluctantly affirm it.

         Let's start with some background information. Donald Fessenden worked for Oracle USA as a Software Engineer Manager until January 2, 2008, when he stopped working due to fatigue and severe chronic migraine headaches. Fessenden applied for and was granted short term disability benefits through an employee welfare benefits plan with Reliance Standard Life Insurance Company. Years later on March 4, 2014, Fessenden made a claim for long term disability benefits. Reliance denied the claim and affirmed that decision in its administrative appeals process. Judge Lee held that the latter decision by Reliance - the decision denying the appeal- was untimely under applicable ERISA regulations. See DE 21 at 8; 29 C.F.R. § 2560.503-1. The delay in denying Fessesen's appeal is important because it can have an effect on the standard of review. I will return to this critical issue in a moment.

         Fessenden filed this lawsuit challenging the denial of long term disability benefits, and both sides now seek summary judgment. Summary judgment is proper “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). In reviewing cross-motions for summary judgment, a court must apply this standard to both motions and view all facts and draw all reasonable inferences in the light most favorable to the party opposing each motion. Tate v. Long Term Disability Plan for Salaried Emps. of Champion Int'l Corp. #506, 545 F.3d 555, 559 (7th Cir. 2008).

         Oracle's disability plan is governed by the Employee Retirement Income Security Act of 1974, commonly called ERISA. With respect to an employee benefit plan governed by ERISA, a plaintiff may bring an action “to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan.” 29 U.S.C. §1132(a)(1)(B). A court considers the denial of benefits de novo unless the plan grants the plan administrator discretionary authority to construe policy terms. Cheney, 831 F.3d at 849, citing Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989). Where the plan grants such authority, the court reviews only for abuse of that discretion- the deferential arbitrary and capricious standard. Fontaine v. Metropolitan Life Ins. Co., 800 F.3d 883, 885 (7th Cir. 2015); Holmstrom v. Metropolitan Life Ins. Co., 615 F.3d 758, 767 n.7 (7th Cir. 2010), citing Raybourne v. Cigna Life Ins. Co. of New York, 576 F.3d 444, 449 (7th Cir. 2009). Most plan administrators seem to have gotten the memo. Almost every ERISA case I have encountered grants discretionary authority to plan administrators.

         Here, the parties engaged in a lengthy dispute before Judge Lee about whether the de novo standard or the more deferential arbitrary and capricious standard of review applies. [DE 21, 29.] After two rounds of briefing, Judge Lee concluded that the plan clearly contains a discretionary clause giving Reliance authority to construe the plan and determine eligibility for benefits. Thus, the case would be governed by the arbitrary and capricious standard of review. [DE 29]. Judge Lee further concluded that although Reliance missed a deadline in making its claim decision, that wasn't enough to mandate a de novo review. [Id.] Reliance was saved by the substantial compliance doctrine. [Id.]

         The guy who said that “close is only good in horseshoes and hand grenades” must not have heard of ERISA and the substantial compliance doctrine. In the murky world of ERISA litigation, being close enough is often considered to be good enough. This is because the substantial compliance doctrine often excuses plan administrators who don't turn square corners in following ERISA regulations.

         But the substantial compliance doctrine doesn't always save the day from administrative foul-ups. The Second Circuit recently held that an insurer can lose the benefit of the deferential standard of review when it fails to comply with regulatory requirements relating to time limits for making claim decisions. Halo v. Yale Health Plan, Director of Benefits & Records Yale Univ., 819 F.3d 42 (2nd Cir. 2016). In other words, the court held that the substantial compliance doctrine may be inapplicable where deadlines are concerned. Id. at 55-58. This position is consistent with Seventh Circuit cases in other areas of the law that hold that a deadline that is blown by even one day is blown nonetheless. See e.g. United States v. Marcelo, 212 F.3d 1005, 1010 (7th Cir. 2000) (a habeas corpus petition that is filed one day too late is untimely and must be dismissed). It is also consistent with Seventh Circuit cases that have looked askance at an expansive use of the substantial compliance doctrine where its application would conflict with a literal requirement of the ERISA statute. Burns v. Orthotek, 657 F.3d 571, 575 (7th Cir. 2011). See also Schneider v. Sentry Long Term Disability Plan, 422 F.3d 621, 627-28 (7th Cir. 2005); but see Edwards v. Briggs and Stratton Retirement Plan, 639 F.3d 355, 361-62 (7th Cir. 2011). So according to the Second Circuit, when an insurer blows a deadline in making a claims decision, it may end up forfeiting the more deferential standard, and lead to district courts reviewing the claims decision under the de novo standard unless it can show that the failure to follow the regulations was inadvertent and harmless. Halo, 819 F.3d at 58.

         Judge Lee was unpersuaded by the Second Circuit opinion in light of earlier Seventh Circuit cases that seem to rely on the substantial compliance doctrine in similar circumstances. DE 29 at 9, citing Halpin, 962 F.2d at 690. In sum, Judge Lee held that Reliance's failure to adhere to the regulations could be overlooked because their compliance was good enough. In other words, because Reliance substantially complied with the regulations governing the timing of its claims decision - remember, they didn't actually comply - the arbitrary and capricious standard governs this case. Whether use of the substantial compliance doctrine is appropriate in this case is not for me to decide. After the case was transferred to me, I have not been asked to reconsider Judge Lee's ruling on this critical question. As a result, I will review Fessenden's claim under the arbitrary and capricious standard. [DE 29 at 10.]

         In order to qualify for long term disability benefits under the plan, Fessenden was required to demonstrate (among other things) that as a result of sickness or injury he was unable to perform the material duties of his regular occupation from January 2, 2008 and for 24 months thereafter. [DE 57-1 at 7, 8, 17.] There are two decisions from Reliance Standard - both in letter form - denying long term disability benefits to Fessenden. [DE 57-4 at 34-44; DE 57-4 at 49-57.] Both the initial denial and its affirmance after appeal acknowledge Fessenden's history of migraine headaches and fatigue. [E.g., id. at 40, 53.] In each decision, Reliance expressed its conclusion that those conditions had not rendered Fessenden unable to “perform the material duties of [his] regular occupation, ” as required to demonstrate disability under the plan. [Id. at 34, 42, 54.]

         Reviewing all the medical history from 2006 to the time of decision, Reliance concluded that Fessenden “retained the ability to perform the material duties of [his] regular occupation” as of January 2, 2008. [DE 57-4 at 36.] That meant Fessenden was not totally disabled as the term was defined in the plan. [Id. at 34.] As noted, the question is not whether I agree with that decision but whether the decision is arbitrary and capricious - meaning does it have rational support in the record. Geiger, 845 F.3d at 362.

         Fessenden claims that he is disabled by chronic fatigue syndrome. Chronic fatigue syndrome is “a complicated disorder characterized by extreme fatigue that can't be explained by any underlying medical condition. The fatigue may worsen with physical or mental activity, but doesn't improve with rest.” Mayo Clinic, Diseases & Conditions, Chronic Fatigue Syndrome, Chronic fatigue syndrome can render a person feeble. Symptoms of the aliment include fatigue, sore throat, unexplained joint and muscle pain, headaches and extreme exhaustion. Id.

         January 2, 2008 is the date on which Fessenden claims his chronic fatigue syndrome became disabling. Fessenden's case is hindered by the lack of a formal diagnosis contemporaneous with that claimed onset date. This problem is exacerbated by the fact that Fessenden made his disability claim in 2014, some six years after he claims he became disabled. Although it appears that Fessenden had many of the symptoms of chronic fatigue syndrome going back over a decade, he was only recently formally diagnosed ...

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