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June 13, 2001


The opinion of the court was delivered by: Wolin, District Judge.


This matter was opened before the Court upon the complaint of plaintiff Dr. Stephen P. Lasser against defendant Reliance Standard Life Insurance Company ("Reliance") claiming that plaintiff was wrongly denied disability benefits under an insurance policy maintained by his employer. Jurisdiction is established by the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1132. This Court denied summary judgment and made certain other rulings governing the litigation of this matter in an Opinion and Order reported as Lasser v. Reliance Standard Life Ins. Co., 130 F. Supp.2d 616 (N.J., Feb. 8, 2001) (the "February Opinion").

This matter was tried to the Court on April 10, 2001. At trial, the Court heard live testimony relevant to those issues delineated in the February Opinion and certain other issues as discussed below. In addition, the Court has considered the administrative record before the claims adjudicator who denied Dr. Lasser's claim for benefits on behalf of Reliance. This Opinion constitutes the Court's findings of fact and conclusions of law, pursuant to Federal Rule of Civil Procedure 52. For the reasons set forth below, the Court will reverse the denial of benefits by Reliance and enter judgment in favor of plaintiff.


The background of this matter was set forth at length in the Court's February Opinion, familiarity with which is assumed. Pursuant to its policy of insurance, Reliance acts as the insurer/underwriter and claims administrator of the ERISA-governed, employee benefit plan maintained during periods relevant to this matter by Townsquare Orthopedic Associates. Dr. Lasser was an orthopedic surgeon employed by Townsquare Orthopedic, a small, four-doctor practice.

Dr. Lasser has had a heart condition for many years. He has undergone bypass surgery and suffered a myocardial infarction, referred to in this Opinion by the more colloquial "heart attack." The decision to deny Dr. Lasser's application for disability benefits was made by Richard Walsh, Esq., Reliance's Manager of Technical Services. The evidentiary record in this matter consists of written materials used by Mr. Walsh in making his decision and Mr. Walsh's testimony at trial.

As this Court explored at length in its February Opinion, this case presents two discrete fields of inquiry. First, under the Third Circuit's decision in Pinto v. Reliance Standard Ins. Co., 214 F.3d 377 (3d Cir. 2000), this Court must decide whether the insurer's decision to deny benefits was tainted by a conflict of interest. Deciding this question is necessary to determine where on Pinto's "sliding scale" of arbitrary and capricious review this case belongs; the greater the evidence of conflict, the less this Court may defer to the insurer's determination. Second, once the correct standard of review has been determined, the Court must apply it to the claims administrator's decision and decide whether, on the record before him, the administrator was arbitrary or capricious in denying the benefits.

Because of the nature of this action, not all evidence may be considered on all issues. Any evidence properly before the Court may be considered to decide whether Reliance was influenced by a conflict of interest. When it comes to determining whether the denial of benefits was or was not arbitrary and capricious, however, the inquiry must be limited to that evidence before the claims administrator. See generally Lasser, 130 F. Supp.2d at 627-30. The only witness to testify at trial of this matter was Mr. Walsh. Much of his testimony was relevant solely to the conflict-of-interest question and extrinsic to his denial of Dr. Lasser's benefits. Other testimony, however, concerned the extent of Walsh's knowledge when he made the benefits determination and the various internal rules and conventions under which he operated.

Walsh's understanding and these rules and conventions, while not part of the paper record, nonetheless form part of the matrix within which Walsh made the decision affecting Dr. Lasser. Their soundness, vel non, provides important insight into whether and how Walsh may have abused his discretion. Evidence of what Walsh considered and how he considered it is thus part of the "record" in the broader sense. Moreover, Walsh's testimony regarding the basis for the denial of benefits substantially mirrors the arguments of Reliance's counsel, as might be expected given that Walsh is himself an attorney. On this basis, the Court will consider certain of Walsh's trial testimony in relation to the underlying question of whether the denial of benefits was arbitrary and capricious. The Court has been careful, however, to treat only the actual evidentiary record before the claims administrator as dispositive of the ultimate question of whether denial of the benefits was an abuse of discretion under the policy.


1. Determining the Standard of Review

As noted above and as explored extensively elsewhere, Pinto v. Reliance Insurance held that where an insurer of an ERISA plan is also acting as a claims administrator a structural conflict of interest*fn1 exists between the company's duty to administer claims fairly and its obligation to pay those claims from its own coffers. It is established in this case that the Townsquare Orthopedic Associates ERISA plan granted discretion to Reliance to administer benefits. The United States Supreme Court has held that when an ERISA plan grants such discretion to a fiduciary, a denial of benefits may be reviewed in the federal courts only for abuse of that discretion, or under the functionally equivalent arbitrary and capricious standard of review. Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989).

The Court recites the well-known law articulating this standard because it provides a base of reference for what follows. Under the arbitrary and capricious standard, "the district court may overturn a decision of the Plan administrator only if it is `without reason, unsupported by substantial evidence or erroneous as a matter of law.'" Abnathya v. Hoffmann-LaRoche, Inc., 2 F.3d 40, 45 (3d Cir. 1993) (quoting Adamo v. Anchor Hocking Corp., 720 F. Supp. 491, 500 (W.D.Pa. 1989)); accord Mitchell v. Eastman Kodak Co., 113 F.3d 433, 439 (3d Cir. 1997). "A decision is supported by `substantial evidence if there is sufficient evidence for a reasonable person to agree with the decision.'" Courson v. Bert Bell NFL Player Retirement Plan, 214 F.3d 136, 142 (3d Cir. 2000); Daniels v. Anchor Hocking Corp., 758 F. Supp. 326, 331 (W.D.Pa. 1991). Thus, the scope of review is narrow and "`the court is not free to substitute its own judgment for that of the [administrator] in determining eligibility for plan benefits.'" Id. (quoting Lucash v. Strick Corp., 602 F. Supp. 430, 434 (E.D.Pa. 1984), affd, 760 F.2d 259 (3d Cir. 1985)).

The Pinto Court held that "when an insurance company both funds and administers benefits, it is generally acting under a conflict that warrants a heightened form of the arbitrary and capricious standard of review." 214 F.3d at 378. The Court of Appeals left to consideration of the individual case exactly how "heightened" the form of arbitrary and capricious review must be. The lower courts must consider factors suggesting self-interest on the part of the claims administrator. These factors will guide the courts' selection of the appropriate point along the "sliding scale" of more and more intrusive scrutiny of administrators' decision. Id. at 379.

The Court of Appeals acknowledged that it was giving birth to "some form of intermediate scrutiny that has no analogue in this field," 214 F.3d at 392, and questions remain regarding its application. One is whether a threshold increase in the level of scrutiny is required in all cases in which a claims administrator operates under an inherent conflict of interest, or whether Pinto's sliding scale might, in the appropriate case, slide all the way back to fully deferential arbitrary and capricious review. The Court does not refer to those cases in which an insurer's structural conflict problem is directly ameliorated by considerations such as an experience-rated premium relationship with its insured. See 214 F.3d at 388 n. 6. The question is, where does the "sliding scale" start in the archetypal case of an insurer/claims administrator for which every granted claim travels, dollar-for-dollar, to the company's bottom line.

The Eastern District of Pennsylvania has found that Pinto requires heightened arbitrary and capricious review in all cases where an inherent conflict is present. Cimino v. Reliance Standard Life Ins. Co., 2001 WL 253791, *3 (E.D.Pa., March 12, 2001). References in post-Pinto Court of Appeals decisions support that view. Goldstein v. Johnson & Johnson, 251 F.3d 433, 441 (3d Cir. 2001) (heightened arbitrary and capricious review properly applied where design of plan creates conflict of interest or where specific facts exist indicating bias); Orvosh v. Program of Group Ins. for Salaried Employees of Volkswagen of Am., Inc., 222 F.3d 123, 129 n. 7 (3d Cir. 2000) (in Pinto, "we decided that a heightened standard of review applies where the same entity both funds and administers an ERISA plan"). In Oslowski v. Life Ins. Co. of No. Am., 139 F. Supp.2d 668 (W.D.Pa. 2001), the district court found that in the absence of extrinsic evidence of conflict or bias, an administrator in a structural conflict situation was entitled to a "moderate degree of deference."

This being said, it is also clear that the beginning point of Pinto's sliding scale of heightened arbitrary and capricious review lies but a modest distance from the original standard, and that, absent other evidence of bias, the Court should engage in no more than a modicum of additional scrutiny. In February, this Court wrote:

Thus, at trial, the Court will consider all the evidence relevant to the degree of conflict and the resulting location on Pinto's range of heightened arbitrary and capricious review, and the Court will render a plenary determination of those issues at that time. At this stage of the proceeding, the level of intrusiveness with which the Court will review the denial of benefits is still an open question. The facts that emerge may confirm the Court's view as already expressed. These facts may, however, move the Court either further along the scale towards Pinto's "high degree of scepticism" or, assuming the problems already identified are satisfactorily explained, back towards a more deferential standard of review.

130 F. Supp.2d at 626. The Court, it is true, did posit a standard of review it considered appropriate based on the facts then before it. The Court was careful, however, as the quoted passage shows, to make clear that this standard of review was a tentative one.

The foregoing discussion was necessary for the following reason. Based upon the trial testimony in this matter, the Court finds no evidence of overt bias exhibited by Walsh, the claims administrator. It will be seen below that the Court finds that the denial of benefits was erroneous, and, indeed, so wrong as to require reversal under any standard. It would be redundant to repeat each of these errors here only to discuss them again later in connection with the merits. Suffice it to say that Walsh's testimony has convinced the Court that the specific shortcomings identified in this Court's February Opinion were due to errors of analysis and not bias in favor of his employer. The instances raised by counsel leave Dr. Lasser's allegations of active self-dealing not proven.

As discussed, this leaves the Court at the mild end of the heightened arbitrary and capricious scale, subjecting the benefits decision to only that extra scrutiny required by the structural conflict arising from the insurer acting as its own claims administrator. For lack of a more precise formulation, the Court adopts that of the Western District of Pennsylvania and finds that a "moderate degree of deference" is the proper standard of review.

2. The Merits of the Decision

Each of the issues in play in this case is governed by the Reliance policy. It provides that:

"Totally Disabled" and "Total Disability" mean, with respect to [Physicians and Administrators], that as a result of an injury or Sickness,*fn2 during the Elimination Period and thereafter an insured cannot perform the material duties of his/her regular occupation;
(1) "Partially Disabled" and "Partial Disability" mean that as a result of injury or Sickness an insured is capable of performing the material duties of his/her regular occupation on a part-time basis or some of the material duties on a fulltime basis. An insured who is Partially Disabled with be considered Totally Disabled, except during the Elimination Period;

This is an occupational disability policy, which insures against loss of income due to the inability of insureds to engage in their regular or usual occupations. It is to be distinguished from a general disability policy, which provides benefits only to insureds who cannot engage in any occupation for which they are reasonably suited. Smith v. Equitable Life Assur. Soc. of the United States, 67 F.3d 611, 616 (7th Cir. 1995).

Within the question of the substantive merits of the administrator's decision again lie two, discrete areas of inquiry. First, the parties dispute what activities Dr. Lasser can or cannot do. Second, the parties dispute what activities constitute the "material duties of [Dr. Lasser's] regular occupation." Again, familiarity with many of the details of the record evidence on these points, discussed at some length in the February Opinion, is assumed.

a. The Medical Evidence

Reliance's error in connection with this first issue, what Dr. Lasser is medically capable of doing, falls into four, inter-related categories. The first concerns defendant's persistent reliance on a Dr. Burke, an independent cardiologist who examined Dr. Lasser for Reliance. The second involves the weight placed on the New York Heart Association Functional Class scale, which purports to measure a patient's cardiac health based on the patient's physical capacity. Third, and related to the previous two, is Reliance's treatment of the issue of occupational stress. The last is directed to Reliance's assessment of the connection between risk, in this case risk of a heart attack, and capacity to perform.

The failings of Dr. Burke's analysis of Dr. Lasser's condition were explored in the February Opinion. In summary, Dr. Burke's examination of Dr. Lasser involved a treadmill test and other examination techniques calculated to reveal what Dr. Lasser's physical capacity was at the moment of the examination. Dr. Burke gave it as his professional opinion that "this individual does not demonstrate any cardiovascular disability." Three other reviewing cardiologists and two treating cardiologists provided written opinions which appear in the record of this case. Every other doctor involved came to a substantially different conclusion from Dr. Burke. Regarding the utility of Dr. Burke's treadmill stress test, Dr. Raska wrote that it "is absolutely not the standard of care" and "not known to be accepted as conventional to any clinical cardiologist." Dr. Lubow stated, "The fact that the test was not done in a manner accepted by all cardiologists raises a question about the qualifications of [Dr. Burke] who denied the patient's disability." RSL469.*fn3

Important omissions in Dr. Burke's opinion were identified by the other doctors. Most prominently, by focusing on transient physical capacity, Dr. Burke failed to appreciate the risk to Dr. Lasser posed by occupational stress. Indeed, there is no mention of this issue in Dr. Burke's report. By ignoring the question of occupational stress in relation to Dr. Lasser's cardiac health and what professional duties it is medically reasonable for him to perform, Dr. Burke is at odds with the formidable weight and, indeed, unanimity of the other cardiologists opining on this case.

In addition, key points were missing from Dr. Burke's analysis, leading other doctors to conclude that Dr. Burke had failed adequately to review the medical record before him. For instance, Dr. Aldrich pointed out that Dr. Burke failed to notice a lack of improvement between thallium stress tests taken in August of 1996 and April of 1997 because Dr. Burke's report did not mention the August 1996 test. RSL464. Dr. Burke stated that he reviewed records of a catheterization performed in October 1996, but Dr. Lubow points out that there was no catheterization on that date, but only one done in July 1996 which revealed important problems with Dr. Lasser's heart, problems not mentioned by Dr. Burke. Both Drs. Lowell and Lubow complained that Dr. Burke missed or ignored medical records indicating that Dr. Lasser's bypass graft had failed and that Dr. Lasser's heart had significant and deteriorating anatomical abnormalities.*fn4 RSL466, RSL469.

Dr. Burke, in a rebuttal letter solicited by Reliance, wrote: "It is not important what an individual's anatomical profile is as long as the risk factor prevention program is maximal and that function as far as can be determined . . . is entirely within normal limits." RSL115. Dr. Burke made this statement in support of his conclusion that the opinions of Drs. Lubow and Aldrich were not "germane" to "the essential question of what is this individual's functional capacity in terms of being able to work." Id.

Here is revealed the flaw in Dr. Burke's approach. Dr. Burke believes that if a patient can, at any given moment, perform at a certain level and if risk factors are minimized as much as possible, then other problems, such as a failed and deteriorating bypass, occupational stress, and other factors pointing to a risk of a catastrophic medical event in the future, are "not important" and indeed, not even "germane" to the question of disability. It is obvious even to the lay person that a person might minimize risk factors for a heart attack and yet still be so sick that engaging in certain activities presents a medically unacceptable danger of future injury or death. This holds true even though, on any given day, that person might engage in such activities with no noticeable ill effect.

As will be seen below, this error has infected Reliance's entire treatment of the case. Yet, even on its own terms, Dr. Burke's reasoning is circular. He qualifies his position of no disability with the proviso, "so long as risk factor prevention is maximal." But the risk factor prevention cited by all five of the other doctors includes reducing Dr. Lasser's occupational stress by eliminating emergency surgery and on-call duties. Dr. Fields opined that, with these restrictions, Dr. Lasser could work forty hours a week, but the other doctors called for both the substantive restrictions on his duties and less than fulltime working hours.*fn5 Dr. Burke's claim that with "maximal" risk prevention Dr. Lasser is not disabled does not respond to the points his colleagues raised and, in fact, strains credulity.

The testimony of Walsh reveals the extent to which Reliance relied upon the New York Heart Association Functional Classification system. This system has four levels of functionality for measuring the capacity for exercise of patients with cardiac disease. Level-four patients are unable to exercise at all without physical discomfort. Level one designates "[p]atients with cardiac disease but with no limitation of physical activity." RSL252. The system also contains a scale of grades A through E denominated "therapeutic classification." Grade-A patients need have no restrictions on physical activity; grade E must be at complete rest.

Dr. Burke rated Dr. Lasser as functional class one and therapeutic class A. Dr. Raska, perhaps the most vehemently critical of Dr. Burke's work, also rated Dr. Lasser as functional class one, but therapeutic class C ("ordinary physical activity should be moderately restricted and . . . more strenuous physical efforts should be discontinued"). RSL252. Dr. Fields, in response to Walsh's question, also rated Dr. Lasser as class one. RSL92. It is clear that Walsh considered the classification of fundamental importance. See Tspt. at 22, 29-30. Indeed, Walsh inquired of Dr. Fields whether stress could be discounted as a risk factor in patients classified as level one. RSL79.

Dr. Fields responded that stress could not be discounted, writing that "In essence, functional class and exercise performance can predict general prognosis but can not predict future cardiac events." RSL93. Dr. Fields went on to emphasize the need to apply such general guidelines of cardiac care to the individual case. Id. Regarding Dr. Lasser's partially successful and aging bypass, Dr. Fields stated "cardiovascular prudence restricts isometric activity, competitive sports, and other acute emotional or physiological stress events from which the patient cannot immediately withdraw." Id.

It is apparent from the text of the New York Heart Association classification form in the record that it does not address the issue of emotional and/or occupational stress. RSL252. The functional classifications are directed solely to the patient's physical exercise capacity. Even the therapeutic classes, which in any event were not mentioned by Walsh, address only whether limiting physical activity is necessary. Nothing in the New York Heart Association classifications provides explicit guidance regarding psychological stress, and Dr. Field's letter rejects the inquiry of Walsh seeking scientific evidence linking a class-one rating to a reduced role of stress as a heart attack risk factor.

Stress regardless of exercise tolerance is a recognized independent risk factor for recurrent coronary artery disease. . . . [T]here are multiple studies in both humans animals and in the laboratory which demonstrate that stress causes flux in the level [of] catecholamines in the circulation which have ...

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