The opinion of the court was delivered by: Judge Mattice
This case involves a dispute between a former employee of the Krystal Corporation, Terry Matthews, Krystal's former provider of life insurance, Jefferson Pilot Financial Insurance Company ("Jefferson Pilot"), and Krystal's current provider of life insurance, Sun Life Assurance Company of Canada ("Sun Life"). Terry Matthews brought a claim under § 502(a)(1)(B) of the Employee Retirement Income Security Act of 1974 ("ERISA") against Jefferson Pilot and Sun Life for improper denial of benefits. Shelva Matthews assumed prosecution of this case when Terry Matthews died. [Court Doc. No. 26.]
After the sudden onset of a disabling illness, Matthews attempted to confirm his life insurance coverage first with Sun Life, then with Jefferson Pilot. Both companies denied him coverage and claimed that he should have been covered by the other provider. Matthews seeks to have the Court reverse either Jefferson Pilot's or Sun Life's denial of benefits.
Jefferson Pilot filed a counterclaim against Matthews seeking an equitable determination that, if the Court were to determine that it is responsible for providing life insurance to Matthews, then the life insurance component of its plan be declared null and void based on a material misrepresentation made by or on behalf of Matthews during the administrative review of his claim. [Court Doc. No. 16-2.]
Before the Court are the following motions: (1) Plaintiff's motion for judgment on the pleadings (essentially a motion for judgment on the administrative record) [Court Doc. No. 31]; (2) Jefferson Pilot's cross-motion for judgment as a matter of law (essentially a motion for judgment on the administrative record) [Court Doc. No. 36]; (3) Sun Life's motion to deny relief and to affirm its decision to deny benefit (essentially a motion for judgment on the administrative record) [Court Doc. No. 34]; and (4) Plaintiff's motion for judgment on Defendant Jefferson Pilot's counterclaim, or, in the alternative, to dismiss Jefferson Pilot's counterclaim pursuant to Federal Rule of Civil Procedure 41(b) [Court Doc. No. 48].
Pursuant to 28 U.S.C. § 636(b)(1), the Court referred this matter to United States Magistrate Judge Susan K. Lee for a Report and Recommendation ("R&R") on the above motions. [Court Doc. No. 58] Magistrate Judge Lee entered her R&R on July 24, 2007 recommending that Sun Life be found to have acted arbitrarily and capriciously in denying Matthews benefits under its plan. [Court Doc. No. 59] Both Plaintiff and Sun Life filed timely objections. [Court Doc. Nos. 60 & 61]
For the reasons stated below, the Court ACCEPTS AND ADOPTS, in part, and REJECTS, in part, Magistrate Judge Lee's Report and Recommendations.
The Court must conduct a de novo review of those portions of the R&R to which an objection is made and may accept, reject, or modify, in whole or in part, the Magistrate Judge's findings or recommendations. 28 U.S.C. § 636(b)(1)(C). For those portions of the R&R to which objections have been filed, the Court will directly review the decision-making process underlying the Defendant's denial of benefits.
If the administrator or fiduciary is afforded discretion by the plan, the administrator's decision is reviewed under the arbitrary and capricious standard. Evans v. Unum Provident Corp., 434 F.3d 866, 875 (6th Cir. 2006). Magistrate Judge Lee found that both Defendant's life insurance plans grant discretion to the plan's administrator to interpret the plan's provisions and applied the arbitrary and capricious standard of review in making her recommendations. (R&R at 21.) No party has specifically objected to the use of the arbitrary and capricious standard of review.*fn1 The Court will therefore employ the arbitrary and capricious standard of review when considering the decision-making process underlying each Defendant's denial of benefits.
The report and recommendation outlined the applicable facts at length. The parties have not objected to the fact statement contained in Magistrate Judge Lee's R&R nor have the parties objected to any factual findings in the R&R. The Court therefore ACCEPTS and ADOPTS by reference the entire background section from the R&R. [R&R at 3-13].
The Court notes that this case is difficult both factually and procedurally because the Plaintiff sought coverage from two different insurance companies under the terms of two different insurance plans. The Court must review each company's denial of benefits based only upon the information that was available to each insurance company at the time of its final decision, as evidenced by each company's administrative record submitted to the Court. The Court will refer to Sun Life's administrative record as "Sun Life A.R." and will refer to the Jefferson Pilot administrative record as "Jeff Pilot A.R."
Another complication in this case is that both Defendant insurance companies attempt to point the finger at one another. Each company denied Matthews's claim, in part, because it felt that Matthews should have been covered by the other provider. One of the problems that arises out of the companies' finger-pointing is that, under the legal standard of review imposed upon the Court in this ERISA case, the Court is to afford deference only to the insurance company's interpretation of its own plan. The Court is not directed to afford deference to one insurance company's interpretation of another insurer's plan.
The two plans at issue here do not contain identical or even substantially similar language, and therefore may not be construed in pari materia. Each plan requires a completely separate inquiry into the quantity and quality of work performed by Matthews during his four-month attempt to return to work in 2004. Sun Life determined that Matthews's return to work was not substantial enough to activate his life insurance policy because he never met the "Actively at Work" requirement in its plan. Jefferson Pilot, on the other hand, determined that Matthews's return to work at full salary was too substantial for him to qualify as "totally disabled" as that term is defined in its life insurance plan.
Ultimately, the Court must determine whether, under the terms of each company's plan, each administrator's denial of benefits was arbitrary, capricious, made in bad faith or contrary to the law. As explained below, the Court finds that Sun Life's denial of benefits was based on a reasoned explanation, derived from substantial evidence, and was, therefore, not arbitrary and capricious. The Court finds that Jefferson Pilot's denial of benefits, on the other hand, was contrary to the law and therefore cannot be upheld.
A. Sun Life's Denial of Benefits was not Arbitrary and Capricious
Matthews first sought coverage under Sun Life's life insurance plan after he left Krystal permanently in September of 2004. (Sun Life A.R. at 120.) Sun Life denied his claim, stating that he was not "Actively at Work" on the effective date of coverage. (Sun Life A.R. at 237.) Matthews appealed Sun Life's denial of benefits multiple times and Sun Life continued to deny his life insurance benefits. In its various denials, Sun Life asserted that Matthews: (1) was not in an eligible class (Sun Life A.R. at 115); (2) was covered by Jefferson Pilot's life insurance plan (Sun Life A.R. at 133); and (3) was not Actively at Work. (Sun Life A.R. at 111.)
As more fully explained below, the various reasons given by Sun Life in its denial of benefits relate to two separate aspects of its life insurance plan. Whether Matthews was in an eligible class and whether he was covered by the Jefferson Pilot insurance plan relate to whether Matthews was eligible for coverage under Sun Life's continuity of coverage provision. Whether Matthews was Actively at Work relates to whether Matthews, having been determined to be eligible for coverage, actually became insured under the Sun Life plan. An employee who is eligible for coverage is neither in the same position, nor afforded the same rights, as an employee who is actually insured under an insurance plan.
The Court finds that Sun Life's determination that Matthews was not eligible for coverage under the continuity of coverage provision of its plan was arbitrary and capricious. The Court finds that Sun Life's determination that Matthews was not entitled to benefits because he never satisfied the Actively at Work requirement, on the other hand, was not arbitrary and capricious. Thus, Sun Life's denial of benefits was not arbitrary and capricious.
1. Sun Life's Determination that Matthews Was Not Eligible for Coverage Was Arbitrary and Capricious
The continuity of coverage provision in Sun Life's plan states that an employee "may become insured" if:
1. he was insured under the prior insurer's group Life policy immediately prior to January 1, 2004; and
2. he is not Actively at Work on January 1, 2004; and
3. he is a member of an Eligible Class under this Policy; and
4. premiums for the Employee are paid up to date; and
5. he is not receiving or eligible to receive benefits under the prior insurer's group Life policy.
(Sun Life A.R. at 22.) There is no dispute that: (1) Matthews was covered under Jefferson Pilot's plan immediately prior to January 1, 2004, (2) he was not Actively at Work on January 1, 2004 due to his illness, and (3) his premiums were paid up to the relevant date.
Sun Life determined that Matthews was ineligible for coverage, in part, because it had determined that he was covered or eligible for coverage under the Jefferson Pilot plan.
(Id. at 133.) Magistrate Judge Lee found that this determination was arbitrary and capricious because Sun Life's administrative record did not include a copy of Jefferson Pilot's life insurance policy. (R&R at 35.) Sun Life objects to this finding. (Sun Life Objections at 8.)
ERISA limits the Court's inquiry to the administrative record as it existed when the plan administrator made its final decision. Moon v. UnumProvident Corp., 405 F.3d 373, 378-79 (6th Cir. 2005). If the administrative record does not show that the administrator offered a "reasoned explanation" based on substantial evidence, the decision is arbitrary or capricious. Id. at 379.
The Court agrees with Magistrate Judge Lee's finding in this regard, as set forth in her report and recommendation. Sun Life could not have reasonably evaluated Matthews's potential eligibility for coverage under Jefferson Pilot's plan without a copy of the plan documents. An administrator's decision that lacks a "reasoned explanation" based on the evidence is arbitrary and capricious. Sun Life's determination that Matthews did not meet the fifth requirement for continuity of coverage was therefore arbitrary and capricious.
Sun Life also denied Matthews coverage because it determined that he was not a member of an eligible class. (Sun Life A.R. at 115.) In its review process, Sun Life found that Matthews was not a member of an eligible class because he did not have the capacity to work thirty hours in a week. (Id.)
One of the Eligible Classes in the Sun Life plan was: "Full-Time Director hired on December 10, 1973 scheduled to work at least 30 hours per week." (Sun Life A.R. at 44.) It is undisputed that this class was expressly created for Matthews; he was the only full-time director who was hired on December 10, 1973.
Magistrate Judge Lee found that Sun Life's determination that Matthews was not in an eligible class was arbitrary and capricious because "[n]othing in the definition of Eligible Class as defined in the Sun Life policy . . . states that Matthews had to have the capacity to actually work 30 hours per week, only that Matthews had to be scheduled to work 30 ...