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MORRIS v. PAUL REVERE INS. GROUP

November 12, 1997

CALVIN MORRIS, Plaintiff,
v.
PAUL REVERE INSURANCE GROUP, Defendant.



The opinion of the court was delivered by: ORLOFSKY

 ORLOFSKY, District Judge:

 Plaintiff brought this action to recover disability benefits under several insurance policies issued by Defendant. Defendant has moved for partial summary judgment and Plaintiff has cross-moved for partial summary judgment and for leave to file an amended complaint. This Court's jurisdiction has been invoked pursuant to the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1132(e)(1), as well as 28 U.S.C. §§ 1332, 1441.

 The pending motions require resolution of several difficult legal issues arising under the law of ERISA. First, I must determine whether ERISA's "Safe Harbor Provision," 29 C.F.R. § 2510.3-1(j), exempts insurance policies from ERISA where an employee intended to pay the insurance premiums personally, but an accounting error caused his employer to pay the premiums. This appears to be an issue of first impression. I conclude that the employee's intent to pay the insurance premiums personally is irrelevant to the applicability of ERISA's Safe Harbor Provision. Therefore, I hold that the Safe Harbor Provision does not exempt the insurance policies at issue from ERISA's coverage. See infra Part III.A.2.

 Second, I must determine which standard of review to apply to the denial of benefits by an ERISA Claims Administrator under different types of insurance policies. I conclude that the denial of benefits should be reviewed under a heightened "arbitrary and capricious" standard of review where the Claims Administrator exercised considerable discretion under the policy despite operating under a conflict of interest, but that plenary review is appropriate where the policies conferred no such discretion on the Claims Administrator. See infra Part III.B.

 Accordingly, for the reasons set forth below: Defendant's motion for partial summary judgment will be granted in part and denied in part; Plaintiff's motion for summary judgment will be denied; and Plaintiff's motion for leave to amend the complaint will be granted in part and denied in part.

 I. BACKGROUND

 This case arises from a series of insurance policies issued by Defendant, Paul Revere Life Insurance Company ("Paul Revere"). The following facts are not in dispute, except where otherwise noted.

 A. The Insurance Policies

 Plaintiff, Calvin Morris ("Morris"), a chiropractor, was the co-owner of Cherry Hill Chiropractic Center ("CHCC") until he became its sole owner on December 31, 1994. See Plaintiff's Ex. M, Affidavit of Dr. Calvin Morris ("Morris Aff.") at P 7. In March 1984, Paul Revere issued to CHCC a group insurance policy which provided disability insurance coverage for CHCC employees (the "Group Policy"). Mat. Facts at P 1. *fn1" Between March 1986 and May 1989, Paul Revere issued a series of five insurance policies to Morris individually (the "Individual Policies"). See Plaintiff's Exs. C, E, G, I, K; Mat. Facts at PP 8-12. *fn2"

 The Group Policy named Paul Revere as the Claims Administrator for that policy. See Mat. Facts at P 7. According to the Group Policy:

 
[] Paul Revere is the Claims Administrator for benefits contained in the Group Policy. As Claims Administrator, The Paul Revere will make all decisions regarding eligibility for benefits and benefit determinations and will do so in accordance with the terms and conditions of the Group Policy. The Claims Administrator has full, final, complete, conclusive, and exclusive discretion to determine eligibility for coverage and benefits under the Group Policy, to determine the amount of any benefits payable under the Group Policy, and to construe and interpret the terms and conditions of the Group Policy and all related documents. ... Any decision by the Claims Administrator shall be final and binding on all parties and must be upheld in a court of law unless a participant, beneficiary or their party proves that the decision is arbitrary and capricious and there is no rational basis for the decision.

 Id. at P 7. The Individual Policies do not contain similar language.

 B. Funding of the Policies

 CHCC paid the Group Policy's premiums through April 1997. Mat. Facts at P 30. CHCC also paid the premiums for all of the Individual Policies. Id. at PP 32-33. The applications for two of the Individual Policies indicate that Morris would pay the premiums. The applications for two others reflect that CHCC would pay the premiums and the application for the fifth policy reveals that CHCC was to pay the premiums, but that the amount would be included in Morris' taxable income. Plaintiff's Exs. D, F, H, J, L.

 C. Scope of Coverage

 1. The Group Policy

 The Group Policy provides benefits to any "employee" of CHCC in the event of total disability. The Group Policy defines the term "employee" as:

 
any person who works full time for a participant employer. You must be paid by your employer for work done at your employer's usual place of business or some other location which is usual for your particular duties. It cannot be your residence.

 Defendant's Ex. A at 4; see Mat. Facts at P 3. The policy further defines "full time" employment as the "employer's normal work week of at least thirty hours." Mat. Facts at P 4.

 According to the original Group Policy, for an employee to be "totally disabled" means: "(a) that because of injury or sickness, you cannot perform any of the material and substantial duties of your own occupation; (b) you are under the regular care of a doctor; and (c) you do not work at all." Defendant's Ex. A at 2. *fn3" Included with the copy of the Group Policy provided to the Court is a page purporting to amend the original definition of "totally disabled." See Defendant's Ex. A. The amended definition replaces the phrase "any of the material and substantial duties" with "any of the important duties." See Id.

 2. The Individual Policies

 The Individual Policies provide benefits to Morris in the event of a "total disability." Each of the disability policies contains a Rider, effective on the date of the policy, which defines "total disability" as when, "because of injury or sickness: (1) You are unable to perform the important duties of Your regular occupation; and (2) You are under the regular and personal care of a physician." Plaintiff's Exs. C, E, I, K. The business overhead expense policy contains a similar Rider which defines "total disability" as when "because of injury or sickness: (a) You are under the regular and personal care of a Physician; and (b) You are substantially unable to perform the important duties of Your regular occupation." Plaintiff's Ex. G. *fn4"

 D. Morris' Pre-disability Employment

 On his application for benefits, Morris listed the duties of his occupation, "in order of importance:"

 
Duty: CHIROPRACTOR 36 hours [per week]
 
Description: Manual Chiropractic adjustments, examinations, x-rays, consultations, administering therapy, progress notes, interm examinations.
 
Duty: General Office Work 2 hours [per week]
 
Description: Telephone conversations with consulting doctors, reports, diagnosis, hand writing reports for each patient at end of treatments, diagnosis, CPT codes.
 
Duty: Banking/Bookkeeping 1 hour [per week]
 
Description: Daily deposits of office incoming checks, paying bills, buying of office supplies and equipment.
 
Duty: Overseeing of second Chiropractic Office 6 hours [per week]
 
Description: Traveling to/from Camden office 2x weekly - duties are training of chiropractor, manual chiropractic adjustments, examinations, x-rays, therapy, maintance [sic] and equipment of second office. General office notes and bookkeeping.

 Defendant's Ex. D, Exhibit 1 at 4; Mat. Facts at P 16.

 Morris saw patients on an "as needed" basis at CHCC. See Mat. Facts at P 39. The majority of Morris' time in 1994 was spent at Statewide in Camden while another chiropractor, Dr. Wolfe, worked full time at CHCC. See Mat. Facts at PP 35-36. In that year, Morris saw 311 patients ...


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