Appeal from the United States District Court for the District of New Jersey (D.C. Civil Action No. 99-cv-04131) District Judge: Honorable Alfred M. Wolin
Before: SCIRICA,*fn1 Chief Judge, Ambro and
Garth, Circuit Judges
The opinion of the court was delivered by: Ambro, Circuit Judge
Reliance Standard Life Insurance Company argues that the District Court incorrectly held arbitrary and capricious its determination that Stephen Lasser was not disabled within the terms of his disability insurance policy. We conclude that the Court did not err and therefore affirm.
Dr. Stephen Lasser is an orthopedic surgeon who was employed by Townsquare Orthopedic Associates ("Townsquare"), a four-doctor practice group. He sued to obtain disability benefits he alleges Reliance Standard Life Insurance Company ("Reliance") owes him under the disability insurance policy Townsquare purchased from Reliance (the "Policy"). The Policy pays disability benefits when, because of injury, illness or disease, a claimant "is capable of performing the material duties of his/her regular occupation on [only] a part-time basis or [only] some of the material duties on a full-time basis."
Dr. Lasser suffers from coronary artery disease. In 1986, at age 46, he underwent coronary bypass surgery. As later became apparent, the surgery was not correctly performed.*fn2
Although Dr. Lasser did not experience symptoms for the next decade following the 1986 surgery, in 1996 he suffered a myocardial infarction (colloquially, a "heart attack"). Dr. Robert Aldrich, Lasser's treating physician, prescribed a treatment regimen of change of diet, exercise, and drug therapy. Dr. Aldrich also advised Lasser to reduce his stress level, including work-related stress. Accordingly, in September 1996 Dr. Lasser returned to work on a reduced schedule. He decreased his patient load by 50%, he was no longer "on-call" at night or on weekends, and he did not perform emergency surgery. On December 26, 1996, Reliance approved Dr. Lasser's application for long-term disability benefits under the Policy.
However, in December 1997, after a periodic review of Dr. Lasser's condition — and primarily in response to a medical evaluation issued by Dr. William Burke, whom Reliance hired to evaluate Dr. Lasser — Reliance terminated Lasser's benefits on the ground that he was not disabled as defined by the Policy. Dr. Lasser invoked Reliance's administrative appeal procedures, which prompted Reliance to obtain two additional medical opinions — from Drs. Karel Raska and John Field — as well as to commission a labor market survey to determine the material duties of Dr. Lasser's general occupation. Based on these medical opinions and the survey — as well as the fact that Dr. Lasser returned to work at a full-time schedule (including on-call and emergency surgery duties) — in April 1999 Reliance concluded that Dr. Lasser was not disabled from performing the material duties of his occupation and affirmed its earlier denial of benefits.
Dr. Lasser then filed a complaint in the District Court. In a February 8, 2001 opinion, it denied both parties' crossmotions for summary judgment and stated that it would hold a hearing to determine the proper standard of review.*fn3
Lasser v. Reliance Standard Life Ins. Co., 130 F. Supp. 2d 616, 630 (D.N.J. 2001). After holding that hearing and deciding that a moderately heightened arbitrary and capricious standard of review was appropriate, the Court reviewed the record before Reliance. On the basis of its review, it held Reliance's determination of non-disability arbitrary and capricious and that Dr. Lasser was entitled to benefits. Reliance appeals.
The insurance policy at issue is covered by the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001, et seq. Dr. Lasser sued to recover benefits under the Policy, and ERISA preempts state-law claims in this context. Id. § 1132(a). Thus, the District Court had jurisdiction pursuant to 28 U.S.C. § 1331. We exercise appellate jurisdiction under 28 U.S.C. § 1291.
The standard-of-review inquiry is more involved in this case than in most. The Supreme Court has mandated that courts review under the arbitrary and capricious standard claim denials in ERISA cases if "the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan." Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989). "Under the arbitrary and capricious standard, an administrator's decision will only be overturned if it is without reason, unsupported by substantial evidence or erroneous as a matter of law [and] the court is not free to substitute its own judgment for that of the defendants in determining eligibility for plan benefits." Pinto v. Reliance Standard Life Ins. Co., 214 F.3d 377, 387 (3d Cir. 2000) (internal quotation marks omitted). Here both parties agree that the Policy grants Reliance such authority.
However, if the same entity that determines whether a claimant is disabled must also pay for disability benefits, that entity has a financial incentive to find him or her not disabled. Thus, we have noted that, when the insurer of an ERISA plan also acts as a claims administrator, there is a structural or inherent conflict of interest that mandates a "heightened" arbitrary and capricious standard of review. Id. at 378. In Pinto we employed a "sliding scale" approach in which the level of scrutiny applied to the fiduciary's decision is "a range, not a point." Id. at 392 (quoting Wildbur v. Arco Chem. Co., 974 F.2d 631, 638 (5th Cir. 1992)). It is "more penetrating the greater is the suspicion of partiality, less penetrating the smaller that suspicion is." Id. at 392-93.
The District Court held a hearing on the extent of Reliance's conflict of interest to determine the standard of review. Because the Court found no evidence of conflict other than the inherent structural conflict, it held that the correct standard of review was "at the mild end of the heightened arbitrary and capricious scale," and thus afforded a "moderate degree of deference" to Reliance's determinations. Neither party disputes this conclusion on appeal. However, Reliance argues that the District Court misapplied the standard by not deferring to Reliance's allegedly reasonable conclusions.*fn4
A. Dr. Lasser's Regular Occupation
Under the explicit terms of Dr. Lasser's Policy, he is disabled, inter alia, if as a result of injury, illness or disease he is capable only "of performing the material duties of his/her regular occupation on a part-time basis or some of the material duties on a full-time basis." To determine whether Reliance correctly decided that Dr. Lasser did not qualify for disability benefits, we first determine what is his "regular occupation," as the Policy leaves this term undefined. Reliance argues that "regular occupation" is broad, indeed generic. In initially denying Dr. Lasser benefits in December 1997, Reliance said that "regular occupation is not your job with a specific employer, it is not your job in a particular work environment, nor is it your specialty in a particular occupational field. In evaluating your eligibility for benefits, we must evaluate your inability to perform your own or regular occupation as it is performed in a typical work setting for any employer in the general economy."
We recognize that, if the meaning of "regular occupation" is ambiguous, Reliance's definition is entitled to deference under the applicable arbitrary and capricious standard of review. Skretvedt v. E.I. DuPont de Nemours & Co., 268 F.3d 167, 177 (3d Cir. 2001) (insurer's interpretation of an ambiguous insurance provision is entitled to deference unless it is contrary to the plan's plain language). However, we believe that "regular occupation" is not ambiguous. The Policy states that it protects the insured from inability to "perform the material duties of his/her regular occupation." Both the purpose of disability insurance and the modifier "his/her" before "regular occupation" make clear that "regular occupation" is the usual work that the insured is actually performing immediately before the onset of disability. Applying the text as written, Dr. Lasser's regular occupation was as an orthopedic surgeon responsible for emergency surgery and on-call duties in a relatively small practice group and within a reasonable travel distance from his home in New Jersey.
Even assuming "regular occupation" is susceptible to multiple interpretations and therefore ambiguous, Reliance's definition of the term nonetheless must be reasonable before deference is conferred. See Skretvedt, 268 F.3d at 177 (noting that courts defer to a claims administrator's interpretation if it is not arbitrary or capricious). Yet Reliance's definition is different from that in the caselaw pertaining both to it and disability policies containing the "regular occupation" modifier. See O'Bryhim v. Reliance Standard Life Ins. Co., 188 F.3d 502 (Table), 1999 WL 617891 (4th Cir. 1999) (unpublished per curiam (on arbitrary and capricious review, holding that claimant could not perform material duties of his regular occupation and defining "regular occupation" with reference to specific duties performed for his employer).
Even were a court not to limit itself exclusively to the claimant's extant duties, that person's "regular occupation" nonetheless requires "some consideration of the nature of the institution [at which the claimant] was employed." Kinstler v. First Reliance Standard Life Ins. Co., 181 F.3d 243, 253 (2d Cir. 1999). Moreover, Kinstler adopted the reasoning of an earlier district court case, Dawes v. First Unum Life Insurance Co., 851 F. Supp. 118, 122 (S.D.N.Y. 1994), which defined "regular occupation" as "a position of the same general character as the insured's previous job, requiring similar skills and training, and involving comparable duties." Id. at 122. Notably, Dawes was decided before Dr. Lasser applied for disability benefits.
The plain meaning of "regular occupation" is one of which both parties were aware when the Policy began on June 1, 1993. There is no reason to believe that Dr. Lasser was aware of Reliance's different definition until it denied him benefits in December 1997. Because Reliance has shown no intent to "opt out" of this plainly understood term (indeed, it had the opportunity to do so each June when the Policy came up for renewal), it is unreasonable for it to argue it has done so post hoc. Even if we fall back to the interpretation of "regular occupation" imparted by Dawes and Kinstler, it too undermines Reliance's generic understanding. Compare also Gaines v. The Amalgamated Ins. Fund, 753 F.2d 288, 290 n.5. (3d Cir. 1985) (deferring to a plan administrator's construction of an ERISA-governed insurance policy when there was no caselaw interpreting the provision at issue); Epright v. Envtl. Res. Mgt., Inc. Health & Welfare Plan, 81 F.3d 335, 340 (3d Cir. 1996) (holding a plan construction unreasonable when, among other deficiencies, the administrator pointed to no statutory provision to interpret the term and when its definition seemed self-serving).
In this context, it is unreasonable for Reliance to define "regular occupation" differently from its plain meaning or even the somewhat more relaxed understanding of Dawes and Kinstler without explicitly including that different definition in the Policy.*fn5
B. Material Duties of Dr. Lasser's Regular Occupation
Having determined that Dr. Lasser's regular occupation under the Policy was that of an orthopedic surgeon in a four-person practice group in New Jersey, and that it was unreasonable for Reliance post hoc to argue that the Policy's plain language was otherwise, we turn to what Dr. Lasser did in the course of his regular occupation. He saw patients during office hours, performed scheduled surgeries, took night call, and performed emergency surgeries. When he no longer handled night call and emergency surgeries, were they material? The District Court answered yes. 146 F. Supp. 2d at 641.
The Court's conclusion is supported by comparing Dr. Lasser's pre-disability earnings with his post-disability earnings from a reduced schedule. The Townsquare shareholders' agreement requires reduction by one-third of a doctor's salary when he or she no longer takes night call. Moreover, Dr. Lasser's salary was, on average, approximately $26,000 per month when he was performing all duties, but fell to between $4,000 and $6,000 per month immediately before Reliance terminated benefits. During this latter period, however, Dr. Lasser was working less than forty hours per week, as he reduced his patient load by one-third and no longer was operating in the afternoon after seeing patients in the morning. Even assuming he was working twenty hours per week instead of forty (an assumption supported by record evidence), and assuming that he would have made $8,000 to $12,000 per month had he worked forty hours per week ( i.e., double his twentyhour-per-week earnings), it stands out that, by not performing on-call or emergency surgery duties, Dr. Lasser's earnings have declined by over 50%. This substantial earnings decline lays out as little else can the materiality of those activities to his regular occupation.
Looking at the occupation of an orthopedic surgeon generically without reference to Dr. Lasser's particular duties, Reliance commissioned a labor market survey to determine whether performing emergency surgery and being on-call are material duties for an orthopedic surgeon.*fn6
In general, in your experience is it reasonable that an Orthopedic Surgeon can ...