Opinion
Civil No. 99-1512 (DWF/AJB)
May 2, 2001
Gregory J. Reigel, Esq., Reigel Associates, 921 Main Street, Hopkins, Minnesota 55343-5012, on behalf of Plaintiff.
Matthew E. Klein, Esq., Dorsey Whitney, Pillsbury Center South, 220 So. 6th Street, Minneapolis, Minnesota 55402, on behalf of Defendant.
MEMORANDUM OPINION AND ORDER
Introduction
The above-entitled matter was presented to the undersigned District Judge on February 9, 2001, pursuant to Defendant's motion for summary judgment. In the Amended Complaint, Plaintiff alleges that Defendant has violated ERISA, 29 U.S.C. § 1001, et seq., by improperly calculating his disability benefits based upon a monthly wage less than the $6,500 for which he was authorized and upon which paid insurance premiums were based and by including certain monies as offsets to the benefits payable. For the reasons set forth below, Defendant's motion for summary judgment is granted in its entirety, and all of Plaintiffs' claims are dismissed with prejudice.
Background
Plaintiff Raymond T. Kukowski is an employee and the Chief Operating Officer of Midwest Expanded Metal, Inc. (MEM), a Minnesota sub-chapter S corporation. In October 1994, MEM purchased a Group Long Term Disability policy from Defendant Fortis Benefits Insurance Company through insurance broker Rick Thill of CFG Insurance Services, Inc. The policy was negotiated to provide coverage to MEM employees who were also corporate officers, thus providing coverage to Plaintiff Kukowski. The policy provided a benefit of 60% of a participant's pre-disability monthly pay, which would be paid upon the completion of a three-month qualifying period tolled by the onset of disability. From 1994 through the present, MEM has paid insurance premiums on behalf of Plaintiff Kukowski that were based on an authorized salary of $6,500 per month.
A subchapter S corporation is:
a small business corporation with a statutorily limited number of shareholder, which under certain conditions, has elected to have its taxable income taxed to its shareholders at regular income tax rates. I.R.C. § 1361, et seq. Its major significance is the fact that S corporation status usually avoids the corporate income tax, and corporate losses can be claimed by the shareholders.
Black's Law Dictionary 342 (6th ed. 1990).
On December 25, 1995, Mr. Kukowski was injured in a non-work related snowmobile accident in which he suffered a vertebral fracture. Upon his return to work in January 1996, Mr. Kukowski was unable to resume all of his previous duties and was further limited as to the amount of time he could spend working. In late January 1996, Mr. Kukowski filed a benefits claim with Fortis, identifying December 25, 1995, as the disability onset date. In order to properly calculate and maintain Mr. Kukowski's benefits, Fortis requested that MEM provide documentation of his pre- and post-disability monthly pay.
For the first 90 days after the accident, Mr. Kukowski received $6,500 per month pursuant to a salary continuation plan which was intended to benefit a disabled employee during the Fortis qualifying period, i.e. until March 25, 1996. In addition, MEM informed Fortis that Mr. Kukowski's pre-disability salary was also $6,500 per month, and that since the accident, Mr. Kukowski was not receiving income from MEM for work provided despite his presence and activity at the workplace. Thus, Fortis, began providing benefits to Mr. Kukowski in the amount of $3,900 per month (60% of $6,500).
Fortis contends that it repeatedly requested financial updates from Mr. Kukowski so that his benefits could be adjusted if necessary. There is evidence in the record that, on at least two occasions via his monthly benefit statement (May and August 1996), Fortis directly requested information regarding any change in Mr. Kukowski's "income" or "wages" as compensation for work provided to MEM. Fortis contends and Mr. Kukowski does not dispute that no additional financial information was provided pursuant to these requests. The parties also agree that Mr. Kukowski had been working at MEM during the time he was collecting benefits, yet they dispute the nature and extent of the responsibilities he was able to perform.
On July 10, 1998, Fortis canceled Mr. Kukowski's benefits based on its determination that he was no longer "disabled," and Mr. Kukowski appealed this decision on July 23, 1998. On December 10, 1998, after reviewing the results of a job-site analysis and a labor market review, Fortis rescinded its determination that Mr. Kukowski was not disabled. However, Mr. Kukowski's benefits were not automatically reinstated as explained by the facts outlined below.
In pertinent part, the Policy defines "monthly pay" to be:
a monthly average of the disabled person's draw or salary received during the prior full calendar year. If you have been a principal for less than a full calendar year, monthly pay will consist of a monthly average of the draw or salary you received during the time you were a principal. Profits, dividends, or returns of capital will not be included.
In addition, the Policy provides for the adjustment of benefits payable subject to certain additional monies received by a beneficiary as follows:
Offset Amount
If you are eligible for any of the following benefits, the total of all monthly benefits plus the pro-rated amount of any lump sum payments will be subtracted from the Schedule Amount:
Other Sources
If you are eligible to receive any salary, wages, partnership or proprietorship draw, commissions or similar pay from any work you do, we will not consider such income for the 12 consecutive months starting on the day you become entitled to it, as long as the sum of:
• the income described above, • the Schedule Amount, and • benefits from any source described in Other Sources,
is not more that 100% of your monthly pay. If the sum is more than 100% of your monthly pay, we will subtract the amount over 100% from the Schedule Amount when determining your benefit under the policy.
In September, 1998, Fortis requested and reviewed Mr. Kukowski's tax records for the years 1995, 1996, and 1997. Based on this review of the income reported and its interpretation of Policy language, Fortis recalculated Mr. Kukowski's pre-disability "monthly pay" to be $3,611.58, $2,888.42 less than the "monthly pay" Mr. Kukowski represented on his initial benefit claim. Consequently, Fortis believed that Mr. Kukowski had received at least approximately $1,433 in overpayments each month.
In addition, Fortis determined that certain payments that Mr. Kukowski received from MEM during 1996 and 1997 which were reported on the corresponding tax returns should have been considered as payments for work performed. After considering such payments, Fortis recalculated Mr. Kukowski's monthly benefits, determined that he had been overpaid by $88,736.94, and began to apply the newly adjusted monthly payments toward the alleged overpayment. Plaintiff appealed Fortis' decision on December 30, 1998, based on the grounds upon which it rests its argument in the instant case. Plaintiff contends that Fortis should have continued to calculate his monthly benefit based upon his authorized salary of $6,500 because that is the amount upon which MEM based its premium payments. Plaintiff argues that while he was indeed authorized to draw his full monthly salary, he simply chose not to take the full amount in the interest of helping the company to develop. In addition, Plaintiff challenges Fortis' characterization of certain monies received post-disability as being "other similar pay" under the Policy and therefore applicable as income to reduce benefits. Plaintiff maintains that such monies were draws to which he was entitled and would have received as an owner of the company regardless of any work he may have provided to MEM during the relevant time period.
On January 6, 1999, Fortis affirmed its earlier decision stating that "monthly pay" was determined under the policy to be money that was actually received, and it stated its intent to direct its Customer Relations division to calculate and issue a credit based on any "overpaid" premiums. On January 18, 1999, Fortis affirmed its decision with respect to the consideration of certain monies as "similar pay" for work performed for MEM. With respect to the amount that Plaintiff characterizes as a dividend and Defendant characterizes as a draw, Fortis noted that Mr. Kukowski: (1) had not received any such monies pre-disability, (2) appeared to be working full-time post-disability, (3) claimed to be receiving no salary, wages or other income for his post-disability work, and (4) was considered by his co-workers to be integral to the success of the company. With respect to the amount that Plaintiff characterizes as salary continuation benefits and group health and life insurance premiums, but Defendant characterizes as "similar pay," Fortis again noted that (1) salary continuation benefits would only be paid when an employee is not working, yet Mr. Kukowski appeared to be doing so, and (2) insurance premiums would only be paid for an employee who was "an active, full-time employee of the company." Pursuant to both decisions, Fortis invited Mr. Kukowski to submit additional documentation or information and a request for reconsideration. There is no evidence that Plaintiff initiated any further appeals or submitted any additional information other than the filing of the instant action.
Discussion
1. Standard of Review
Summary judgment is proper if there are no disputed issues of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). The court must view the evidence and the inferences which may be reasonably drawn from the evidence in the light most favorable to the nonmoving party. Enterprise Bank v. Magna Bank of Missouri, 92 F.3d 743, 747 (8th Cir. 1996). However, as the Supreme Court has stated, "summary judgment procedure is properly regarded not as a disfavored procedural shortcut, but rather as an integral part of the Federal Rules as a whole, which are designed to 'secure the just, speedy, and inexpensive determination of every action.'" Fed.R.Civ.P. 1. Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986).
The moving party bears the burden of showing that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. Enterprise Bank, 92 F.3d at 747. The nonmoving party must demonstrate the existence of specific facts in the record which create a genuine issue for trial. Krenik v. County of Le Sueur, 47 F.3d 953, 957 (8th Cir. 1995). A party opposing a properly supported motion for summary judgment may not rest upon mere allegations or denials, but must set forth specific facts showing that there is a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986); Krenik, 47 F.3d at 957.
2. Issues
Under ERISA, a plan beneficiary has a right to judicial review of a plan administrator's benefits determination. 29 U.S.C. § 1132(a)(1)(B). Where a plan provides the administrator with "discretionary authority to determine eligibility for benefits," the standard of judicial review is for abuse of discretion, i.e. whether a decision is arbitrary or capricious. Firestone Tire Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989). If, however, the plan grants discretionary authority to an administrator who is operating under a conflict of interest, "that conflict must be weighed as a factor in determining whether there is an abuse of discretion." Id. (citations omitted). The Eighth Circuit has elaborated on this exception by adopting the "sliding scale approach" which enables a court to consider the nature or degree of conflict and/or any alleged procedural irregularity. Woo v. Deluxe Corp., 144 F.3d 1157, 1160-62 (8th Cir. 1998). Thus, in order to obtain a less deferential review, a plaintiff must first present material probative evidence demonstrating: (1) the existence of a palpable conflict of interest or a serious procedural irregularity; and (2) a serious breach of the plan administrator's fiduciary duty to the plaintiff due to the conflict or irregularity, i.e. "some connection to the substantive decision reached." Woo, 144 F.3d at 1161-62 (citing Buttram v. Central States, S.E. S.W. Areas Health Welfare Fund, 76 F.3d 896, 900, 901 (8th Cir. 1996)).
The reviewing court may then adjust its deference given to the administrator depending upon the seriousness of the conflict or irregularity. Id. at 1161 (citing Chambers v. Family Health Plan Corp., 100 F.3d 818, 825-27 (10th Cir. 1996)).
The parties agree that the benefits plan provides Fortis with discretionary authority and that such decisions as those at issue in the instant case are generally reviewed for abuse of discretion. Defendant maintains that the Court should review the decisions for an abuse of discretion; however, Plaintiff contends that the decisions at issue should be subject to the less deferential standard discussed in Woo. The Court finds that the circumstances do not require a less deferential review, and after reviewing for an abuse of discretion, concludes that Defendant's actions were neither arbitrary nor capricious.
As material evidence of a palpable conflict of interest, Plaintiff points to the fact that Fortis is both the insurer and the administrator of the plan, and thus would receive financial benefit from the denial of plan benefits. In general, the fact that the insurer and the administrator of an insurance plan are the same entity does not automatically create "a palpable conflict of interest," yet essentially establishes a "rebuttable presumption" of conflict. Schatz v. Mutual of Omaha Ins. Co., 220 F.3d 944, 948-49 (8th Cir. 2000) (citing Barnhart v. UNUM Life Ins. Co., 179 F.3d 583, 587-88 (8th Cir. 1999)). However, "[i]ndicia of bias can be negated by ameliorating circumstances, such as equally compelling long-term business concerns that militate against improperly denying benefits despite the dual role." Id. at 948 (quotations and citations omitted). Fortis has articulated that any incentive to obtain a short-term benefit by denying Plaintiff's claims is substantially outweighed by the potential long-term harm it would experience if it routinely denied valid claims. The same argument was accepted by the Eighth Circuit in Farley v. Arkansas Blue Cross Blue Shield, 147 F.3d 774, 777 (8th Cir. 1998). Plaintiff also alleges a procedural irregularity contending that Fortis did not evaluate or audit the MEM financial or tax records, interview MEM's officers or accountant, or enlist assistance of independent tax counsel in response to Plaintiff's appeal of the offset amounts. To bolster its argument on this point, Plaintiff urges the Court to contrast Fortis' response with its review performed upon Plaintiff's first appeal with respect to Mr. Kukowski's qualification as "disabled."
In Sahulka v. Lucent Tech. Inc., 206 F.3d 763 (8th Cir. 2000), the Eighth Circuit addressed circumstances similar to those present in the instant case and found that adequate procedure had occurred. In support of its conclusion, the court noted that: (1) the plaintiff had received a letter and documentation from the administrator explaining how to file a claim; (2) the plaintiff was represented by counsel; (3) the plaintiff's counsel filed her appeal and fully explained its grounds; (4) the plaintiff's financial information existed at the time of filing and was known to her; and (5) the plaintiff had ample opportunity to supplement the financial information provided to the administrator in support of her position. Id. at 769. "To the extent that the [administrator] failed to appreciate [plaintiff's] alleged dire financial condition because of error or omissions in the documents that [plaintiff] submitted, the fault lies with [plaintiff], not with the [administrator]. Id.
The Court rejects Plaintiff's contention that Defendant's review was procedurally inadequate. Fortis consulted with in-house tax counsel, provided Mr. Kukowski with a reasoned explanation for its denial of benefits, and provided ample opportunity for Mr. Kukowski to supply financial and tax documents in support of his position. Moreover, Mr. Kukowski was represented by counsel when he filed his appeal. Plaintiff's assertion that Fortis should have done more rings hollow with the Court because Plaintiff has provided no indication of what Fortis or the Court would find if such further investigation were pursued, and he has provided no justification for not having provided such information directly to Defendant in support of his appeal when such documentation was certainly available to him at the time. While it may appear that Fortis' review of Plaintiff's "disability" appeal was more rigorous, the Court declines to impose a standard in retrospect when the facts that Fortis was presented at the time of the second and distinct appeal did not indicate that further review was required.
Again, the Court need not delve into this issue any further given that Plaintiff has provided no evidence of what facts would be determined should a more rigorous investigation have occurred. Even if the Court were to find a procedural irregularity or significant conflict of interest, however, the Court finds no "serious breach" of the plan administrator's fiduciary duty to the Plaintiff. "The evidence offered by the claimant must give rise to serious doubts as to whether the result reached was the product of an arbitrary decision or the plan administrator's whim." Schatz v. Mutual of Omaha Insurance Co., 220 F.3d 944, 948 (8th Cir. 2000) (citing Barnhart, 179 F.3d at 589). To the contrary, the Court finds that Defendant engaged in a sufficiently thorough and reasoned process allowing for Plaintiff's provision of supplemental information to support his position. As the Court outlined above, Defendant evaluated the evidence before it and reached a reasoned conclusion which it then communicated to Plaintiff. Upon Plaintiff's appeal, Defendant reevaluated its determination with the consultation of in-house tax counsel and again communicated its decision to Plaintiff, inviting him to submit documentation to support his position. Plaintiff did not supplement the financial information considered by Fortis, yet now alleges liability because Fortis did not consider certain financial information which was known and available to Plaintiff at the time of appeal and of which no explanation has been provided to explain what information such documents could present.
In addition, the Court also finds that the actual reasoning upon which Defendant based its decisions is neither arbitrary nor based on the whim of the administrator. An administrator's decision that involves the interpretation of plan language should be reviewed for the following factors: (1) whether the interpretation is consistent with the goals of the Plan; (2) whether the interpretation renders any language in the Plan meaningless or internally inconsistent; (3) whether the interpretation conflicts with the substantive or procedural requirements of the ERISA statute; (4) whether the words at issue have been interpreted consistently; and (5) whether the interpretation is contrary to the clear language of the Plan. See Finley v. Special Agents Mut. Ben. Ass'n, Inc., 957 F.2d 617, 621 (8th Cir. 1992) (citing De Nobel v. Vitro Corp., 885 F.2d 1180, 1188 (4th Cir. 1989)). Defendant's decision with respect to the determination of Plaintiff's pre-disability monthly pay is subject to the factors set forth in Finley because it involves Defendant's interpretation of what constitutes "monthly pay" under the plan. The dispute between the parties focuses on whether it was reasonable for Fortis to interpret pre-disability monthly pay to be comprised of income that was actually received, as opposed to that to which an employee was entitled. The Court finds that Defendant's interpretation of "monthly pay" was not arbitrary. Given the plain language of the provision, "draw or salary received," it is entirely reasonable to interpret such a phrase to refer to money actually received rather than the mere possibility of another amount. In addition, such an interpretation is consistent with the plan's goal of providing replacement income during the beneficiary's period of disability. Again, there is no evidence that the parties agreed to a benefit of more income during disability than was received pre-disability.
Moreover, there is no evidence that Fortis' interpretation renders any language in the Plan meaningless or internally inconsistent, conflicts with the substantive or procedural requirements of ERISA, or has been applied inconsistently.
The fact that Plaintiff paid premiums based on the higher authorized monthly pay, which he did not receive until post-disability salary continuation payments were made, is not determinative. While Plaintiff alleges that the insurance broker was aware that MEM was paying higher insurance premiums based on an authorized salary figure, there is no indication that Fortis was aware of this arrangement and that it implied or agreed that such premium payments would guarantee a certain benefit payment regardless of income actually received. Instead, the Court finds that the higher premium payments represent a risk that both MEM and Fortis apparently were willing to take, but that, unfortunately for Plaintiff, resulted in an overestimate of the degree to which he needed to be insured.
Plaintiff's argument that Defendant should be equitably estopped from using any monthly pay amount other than $6,500 is without merit. Plaintiff has failed to provide sufficient evidence that "received" is an ambiguous term which has been interpreted by Defendant differently in the past and that Plaintiff now relies upon that prior interpretation to his detriment. See Slice v. Sons of Norway, 34 F.3d 630, 634 (8th Cir. 1994) (setting forth estoppel elements under ERISA).
While the Court does not find it to be determinative in any way, it is of note that Fortis appeared willing to issue a refund to the extent that such premiums resulted in overpayments.
With respect to Defendant's decision of whether certain monies should be applied as offsets to Plaintiff's benefits payable, the Court also finds that the decision was neither arbitrary nor based on Defendant's whim. In evaluating whether a plan administrator's fact-based determination is reasonable, a court should look to whether the decision is supported by substantial evidence. Donaho v. FMC Corp., 74 F.3d 894, 900 (8th Cir. 1996). Substantial evidence has been defined as "such relevant evidence as a reasonable mind might accept as adequate to support a conclusion," and requiring "more than a scintilla but less than a preponderance." Id. (citations omitted).
In reaching its decision, Defendant rejected Plaintiff's characterization of certain income as returns on investment to which he would have received regardless of whether he worked for MEM. While the evidence upon which Defendant relied is indirect, i.e. the change in Plaintiff's characterization and structure of monies received pre- and post-disability despite continued work performance, such evidence is certainly more than a scintilla and Plaintiff has provided no compelling evidence, direct or indirect, to compel a decision otherwise. Accordingly, the Court finds that Defendant relied upon substantial evidence in reaching a reasoned conclusion to adjust Plaintiff's benefits.
For the above reasons, the Court finds that the circumstances do not support application of the sliding scale standard of review set forth in Woo, and thus the Court must review for abuse of discretion. In the course of its review, the court may consider only the evidence that was before the administrator when the benefits determination was made. Farley, 147 F.3d at 777. As the Court has outlined above in its discussion of the second prong of the Woo threshold, the Court finds that there is substantial evidence and a reasonable basis upon which Defendant based its determinations of monthly pay and appropriate offset amounts. Again, Plaintiff's contentions that Defendant would have and should have determined otherwise upon additional review of documents rings hollow with the Court because Plaintiff has yet to provide such documentation or explanation to either the Defendant or the Court. Accordingly, the Court finds no abuse of discretion by Defendant in its decisions relating to Plaintiff's claims.
For the reasons stated, LET IT BE ORDERED THAT:
1. Defendant's Motion for Summary Judgment (Doc. No. 9) is GRANTED; and
2. Plaintiffs' Complaint (Doc. Nos. 1 2) is DISMISSED WITH PREJUDICE.
LET JUDGMENT BE ENTERED ACCORDINGLY.