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Northwestern Mutual Life Insurance Co. v. Stein

January 13, 2004

NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, PLAINTIFF/COUNTERDEFENDANT,
v.
HOWARD STEIN, DEFENDANT/COUNTERPLAINTIFF.



The opinion of the court was delivered by: Stengel, J.

OPINION

Northwestern Mutual Life Insurance Company ("Northwestern") filed a declaratory judgment action to compel policyholder Howard Stein to provide information and cooperation in connection with his claim for total disability under a Northwestern disability policy. Mr. Stein asserted several counterclaims, including breach of contract, bad faith, and violations of the Pennsylvania Unfair Trade Practices and Consumer Protection Law. Mr. Stein filed a Motion for Summary Judgment on Northwestern's declaratory action in December 2003, which Judge Weiner denied. Northwestern then filed this Motion for Summary Judgment on Mr. Stein's counterclaims. For the reasons set forth below, I will grant Northwestern's motion.

I. FACTUAL BACKGROUND

Howard Stein purchased a long-term disability income insurance policy (the "Policy") from Northwestern in 1986. The Policy provides for three types of disability benefits: a Proportionate Benefit for Partial Disability, Full Benefit for Total Disability, and Lifetime Benefit for Presumptive Disability. Disability Income Policy, Pl.'s Mem. Supp. Summ. J., Ex. 44. The Proportionate Benefit for Partial Disability is available when the insured is (1) unable "to perform one or more of the principal duties of his occupation" or "spend as much time at this occupation as he did before the disability started" and (2) has "at least a 20% Loss of Earned Income."*fn1 Id. § 1.3.

"For each of the first six months in which a Proportionate Benefit is payable, the Owner may choose to receive 50% of the Full Benefit; or to receive a Benefit based on the Insured's Loss of Earned Income." Id. The Full Benefit for Total Disability is provided under the Policy for sixty months (the "Initial Period") if the insured is "unable to perform the principal duties of his job." Id. § 1.2. The benefit is available even if the insured is able to earn as much or more in a new occupation. Id. After the Initial Period, however, benefits cease if the insured is "gainfully employed in any occupation." Id. In contrast to the Full Benefit for Total Disability, the Lifetime Benefit for Presumptive Disability is available when the insured experiences a "total and irrecoverable loss of ....use of both hands..." Id. § 1.8. Under the presumptive disability clause, an insured receives lifetime benefits even if he is able to work. The insured need not be "under the care of a physician," but the benefit is provided only "for as long as the loss continues." Section 4.6 of the Policy provides that Northwestern, "at its own expense, may have an insured examined as often as reasonably necessary in connection with a claim." Id. § 4.6.

In June 1995, Mr. Stein began experiencing pain and numbness in his shoulder, arm, and hands. He submitted a claim for total disability benefits under § 1.2 in December 1995. See Pl.'s Mem. Supp. Summ. J., Ex. 27. In connection with this claim, he furnished tax returns and W-2 forms for 1993 and 1994. Id. Northwestern determined that Mr. Stein was partially disabled because he was able to perform the "executive/consulting/thinking/analytical/communication aspects of his occupation" and paid 50% of the total benefit from December 1995 to February 13, 1996 when Mr. Stein had arm surgery. See Pl.'s Mem. Supp. Summ. J., Ex. 1. In light of its determination that Mr. Stein was only partially disabled, Northwestern repeatedly asked Mr. Stein for additional financial and tax information to evaluate the amount of his benefit. See, e.g., id.

In May 1996, Northwestern requested that Mr. Stein submit to a forensic accounting.

Pl.'s Mem. Supp. Summ. J., Ex. 1, at 3. The purported rationale underlying this request was that such a procedure would be the most efficient means to obtain information regarding the impact of Mr. Stein's disability on his income. See id. Mr. Stein refused. See, e.g., June 16, 1997 Letter from Howard Stern to James D. Ericson, Pl.'s Mem. Supp. Summ. J., Ex. 28, at 4. There is no provision within the Policy that requires the claimant to submit to a forensic accounting, and Mr. Stein alleges that at the time he purchased the policy, a Northwestern representative told him that a forensic accounting was only required when there were suspicions of fraud. See id. at 5. Northwestern later withdrew this request. See January 13, 1997 Letter from David Gosse to Howard Stein, Pl.'s Mem. Supp. Summ. J., Ex. 3.

In July 1996, Dr. John Shine examined Mr. Stein. He concluded that Mr. Stein "should be able to do at least part time work" and recommended a conservative course of treatment. He did not recommend surgical intervention, because in his opinion, surgery posed a high risk of injury. See Report of Dr. John Shine, Pl.'s Mem. Supp. Summ. J., Ex. 33, at 5.

In August 1996, Northwestern notified Mr. Stein that he would be paid the additional 50% for the December to February period. See January 13, 1997 Letter from David Gosse to Howard Stein, Pl.'s Mem. Supp. Summ. J., Ex. 3, at 1 (describing notification). According to Northwestern, this modification was based on Mr. Stein's representation that he did not work during that time, and was therefore entitled to the full amount of the benefit under section 1.2. Id.

In September 1996, Dr. Brennan, Mr. Stein's treating physician, examined Mr. Stein. He noted that Mr. Stein worked as an attorney and that his job included use of a computer and keyboard. Dr. Brennan concluded that Mr. Stein was precluded from doing this type of work "at this time." He approved of surgery, noting that "forestalling any interventional surgery may render [Mr. Stein] potentially myelopathic." See Brennan Report, Pl.'s Mem. Supp. Summ. J., Ex. 34, at 2.

On November 4, 1996, Dr. Perry Shear, a neurological specialist, examined Mr. Stein. He also recommended surgery. See Shear Report, Pl.'s Mem. Supp. Summ. J., Ex. 35.

In February of 1997, Northwestern learned that Mr. Stein had begun working as an insurance consultant at Community Association Underwriters of America, Inc. See February 21, 1997 Letter from David Gosse to Howard Stein, Pl.'s Mem. Supp. Summ. J., Ex. 4. Northwestern made repeated requests for information about Mr. Stein's employment and income in order to make determinations regarding his continuing eligibility for benefits. See, e.g., id.; March 25, 1997 Letter from Darlene Bruesewitz to Howard Stein, Pl.'s Mem. Supp. Summ. J., Ex. 5. In April 1997, Northwestern reduced Mr. Stein's benefits by 50% due to his failure to provide such information.

In July 1997, Mr. Stein submitted a claim for the Presumptive Lifetime Benefit for Total Disability. He did not withdraw his total disability claim. See Pl.'s Mem. Supp. Summ. J., Aff. of Darlene Bruesewitz, May 10, 2004. Northwestern denied the presumptive disability claim because they did not agree that Mr. Stein had a "total and irrecoverable loss" of the use of both hands. See October 8, 1997 from John Gosse to Howard Stein, Pl.'s Mem. Supp. Summ. J., Ex. 15; November 21, 1997 Letter from John M. Grogan to Howard Stein, Pl.'s Mem. Supp. Summ. J., Ex. 17. This evaluation was based upon Dr. Brennan's records, and the analysis of those records by Northwestern consultant, Dr. Henry Alba. See Gosse Dep., Pl.'s Mem. Opp. Summ. J., Jan. 16, 2004, at 70.

In November of 1997, Northwestern notified Mr. Stein that they had decided to consider him totally disabled. Id. Northwestern again increased Mr. Stein's benefits retroactively to provide full benefits for the period from April to November. Id. No reason for this retroactive payment was given.

The sixty month period for total disability benefits ended in 2000. At that time, Northwestern had paid all the total disability benefits to which Mr. Stein was entitled--$174,036. See Bruesewitz Aff. ¶ 4.

In May 1998, Mr. Stein's physician, Dr. Brennan, sent Northwestern additional information about Mr. Stein's condition. See May 28, 1998 Letter from Dr. Michael J. Brennan to Sharon M. Raymond, Pl.'s Mem. Supp. Summ. J., Ex. 39. In his letter, Dr. Brennan concluded that Mr. Stein was "suffering from severe pain and functional impairment resulting in total disability from his own occupation as well as all other occupations." Id. The information was based on an exam that Dr. Brennan conducted in May of 1997.

Northwestern requested that Mr. Stein submit the following: (1) Request for Disability Benefits Forms on a quarterly basis; (2) Attending Physician Statements, completed by a physician who had treated him within thirty days of the completion of the form, on a semi-annual basis; (3) federal income tax returns on an annual basis; (4) written authorization to obtain medical and employment records on an annual basis; (5) a description of current job duties, hours of work, and rates of pay within thirty days of any change of employer or circumstance of employment; and (6) consent to an evaluative medical exam by a Northwestern-chosen physician at Northwestern's cost on an annual basis. See August 7, 1998 Letter from Dean F. Murtaugh to Howard Stein, Def. Mem. Opp. Summ. J., Ex. 18. Mr. Stein refused.*fn2 See Aug. 29, 1998 Letter from Howard Stein to James D. Ericson, Pl.'s Mem. Supp. Summ. J., Ex. 32.

Northwestern initiated its declaratory judgment action, and Mr. Stein counterclaimed. In his counterclaims, Mr. Stein contends that Northwestern breached the contract by failing to timely and properly administer the claim, acted in bad faith, and violated the Unfair Trade Practices and Consumer Protection Law. Northwestern has moved for summary judgment on these counterclaims.

Following the initiation of this action, Dr. James Hunter examined Mr. Stein at Mr. Stein's request. He noted that Mr. Stein had no useful pinch in his left hand, and that he had approximately a twenty pound grip in his right hand, which "can be sustained as long as he does not move his arm out to the side of his body." See January 29, 2001 Letter from James M. Hunter to Stephen J. Springer, Def.'s Mem. Opp. Summ. J., June 22, 2004, Ex. 3, at 6-8. He found that Mr. Stein's capacity to pinch with his right hand was "about 4 pounds and it can be sustained and it enables [Mr. Stein] to have certain personal activities which are essential in his daily life." Id. at 8. He concluded that Mr. Stein was "totally and permanently disabled from work and from useful functional activity, even minimal use of his hands, except as mentioned above." Id.

Northwestern's independent medical examiner, Dr. Lee Osterman, also examined Mr. Stein in early 2001. Dr. Osterman noted that Mr. Stein had "no significant atrophy," "[h]is grip strength is non-physiologic and consistent with poor effort," and "he absolutely does not have a total loss of use of both hands nor a total or irrecoverable loss of use of both hands." See May 2, 2001 Letter from A. Lee Osterman to Dean Murtagh, Def.'s Mem. Opp. Summ. J., June 22, 2004, Ex. 4, at 9.

At various times in 1999 and 2002, Northwestern conducted video surveillance of Mr. Stein, which shows him driving, closing his car door, grabbing a cup from the roof of his car, opening his mailbox, unlocking his car, thumbing through his mail, and carrying ...


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