Stephan v. UNUM Life Insurance Company of America

Stephan v. UNUM Life Insurance Company of America

Case No. 10–16840.

Argued and Submitted Dec. 8, 2011. Filed on September 12, 2012 United States Court of Appeals, Ninth Circuit

Stephan v. Unum [9th Cir]

Ramifications of Court Decision:

  • Ninth Circuit Applies ERISA Fiduciary Privilege Exception to Insurer
  • Evaluation of conflict of interest is not limited to administrative record
  • The court held that because Unum was responsible both for evaluating benefits claims and paying them, it operated under a conflict of interest, which “ ‘must be weighed as a factor in determining whether there is an abuse of discretion

Ninth Circuit remands district court decision and also considers the Third Circuit’s holding in Wachtel v. Health Net, Inc., 482 F.3d 225 (3d Cir. 2007).  In the Wachtel case, the issue is whether the fiduciary exception to the attorney-client privilege applies to an insurer making claims decisions in a fiduciary capacity.  The Ninth Circuit, in an opinion, rejects the Third Circuit’s finding that the fiduciary exception does not apply to insured plans.

 

“We agree with the district court that the applicable standard of review is abuse of discretion. The district court also correctly held that because Unum was responsible both for evaluating benefits claims and paying them, it operated under a conflict of interest, which “ ‘must be weighed as a factor in determining whether there is an abuse of discretion’ “ (quoting Metro. Life Ins. Co. v. Glenn, 554 U.S. 105, 113, 128 S.Ct. 2343, 171 L.Ed.2d 299 (2008)). However, in determining what weight ought to be given the conflict, the district court erred in three ways: First, it failed to apply the traditional rules of summary judgment to its analysis of whether and to what extent a conflict of interest impacted Unum’s benefits determination. Second, it incorrectly held that certain internal memoranda between Unum’s claims analyst and its in-house counsel were not discoverable. Finally, it did not take into account substantial evidence that Unum’s conflict of interest “infiltrated the entire decision-making process” and therefore ought to be accorded “significant weight.” Montour v. Hartford Life & Accident Ins. Co., 588 F.3d 623, 634 (9th Cir.2009).

 

III. CONFLICT OF INTEREST

As we have explained, because the Plan grants discretionary authority to Unum, we review Unum’s benefits decision for an abuse of that discretion. See Glenn, 554 U.S. at 111; Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989); Salomaa v. Honda Long Term Disability Plan, 642 F.3d 666, 673 (9th Cir.2011). Under this deferential standard, a plan administrator’s decision “will not be disturbed if reasonable.” Conkright v. Frommert, ––– U.S. ––––, ––––, 130 S.Ct. 1640, 1651, 176 L.Ed.2d 469 (2010) (internal quotation marks omitted); Salomaa, 642 F.3d at 675 (internal quotation marks omitted). This reasonableness standard requires deference to the administrator’s benefits decision unless it is “(1) illogical, (2) implausible, or (3) without support in inferences that may be drawn from the facts in the record.” Salomaa, 642 F.3d at 676 (internal quotation marks omitted).

 

“This abuse of discretion standard, however, is not the end of the story. Instead, the degree of skepticism with which we regard a plan administrator’s decision when determining whether the administrator abused its discretion varies based upon the extent to which the decision appears to have been affected by a conflict of interest. Id.”

In particular, [the district court] should, where relevant, permit the admission of evidence outside the administrative record. Although, for the most part, judicial review of benefits determinations is “limited to the administrative record”—that is, the record upon which the plan administrator relied in making its benefits decision—the evaluation of a conflict of interest is not so limited. Id. Evidence outside the administrative record is “properly considered” in determining the extent to which a conflict of interest affected an administrator’s decision. Id.

mflores

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