United States District Court, E.D. Pennsylvania
July 15, 2004.
FEDERAL EXPRESS CORP.
The opinion of the court was delivered by: STEWART DALZELL, District Judge
After paying disability benefits to Florence Hunter for eight
years, Federal Express Corporation ("FedEx") discontinued those
benefits in December of 2002 because it determined that Hunter
had failed to show that she was still entitled to them. Pursuant
to Section 502 of the Employee Retirement Income Security Act
("ERISA"), 29 U.S.C. § 1132 (2004), Hunter brought this action to
restore her disability benefits. The parties' motions for summary
judgment*fn1 are now before us. Factual Background
A. The Plan
FedEx's Long Term Disability Plan (the "Plan"), see
App.*fn2 279-325, is an employee welfare benefit plan within
the meaning of ERISA, see Stip. ¶ 1, 28 U.S.C. § 1002(1)
(2004). Under the Plan, a covered employee is entitled to long
term disability benefits if she submits "proof" that she "has
incurred a Disability." App. 295. A "Disability" can mean either
an "Occupational Disability"*fn3 or a "Total
Disability,"*fn4 but all disabilities must be "substantiated by significant
objective findings which are defined as signs which are noted on
a test or medical exam and which are considered significant
anatomical, physiological or psychological abnormalities which
can be observed apart from the individual's symptoms." App. 287.
The Plan names FedEx as its Administrator and empowers the
Administrator to "receive, evaluate and process all . . . claims
and . . . allow payment of benefits under the Plan in accordance
with its terms." See App. 285-86, 318. FedEx, however, elected
to outsource the initial evaluation and processing of claims to
Kemper. See App. 464-98. The Plan and the Kemper outsourcing
agreement both recognize that FedEx has "sole and exclusive
discretion" to determine whether it will pay long term disability
benefits to any claimant under the Plan. App. 312; see also
id. at 466, 469. To that end, the Plan explains that "[n]o
Disability Benefit shall be paid . . . unless and until the
Administrator has received . . . information sufficient for the Administrator to determine, in its sole and exclusive
discretion that a Disability exists." App. 312.
If Kemper denies benefits to a claimant, then FedEx's Benefit
Review Committee ("BRC") must "conduct[a] review of denial of
benefits and provid[e] the claimant with written notice of the
decision reached." App. 315. The Plan vests the BRC with the
authority "to interpret the Plan's provisions in accordance with
its terms with respect to all matters properly brought before
it," and its decision is "final, subject only to a determination
by a court of competent jurisdiction that the committee's
decision was arbitrary and capricious." App. 316-17; see also
id. at 319.
When FedEx awards long term disability benefits, those benefits
are deducted "exclusively out of the assets constituting the
Trust Fund."*fn5 App. 310. Every fiscal year, FedEx
contributes to this Trust Fund "in such amounts as are
actuarially determined to be sufficient to fund on a level basis
the benefits provided" under the Plan. Id. FedEx has no
responsibility to make additional contributions to the Trust Fund
if the fund lacks sufficient assets to pay the benefits due under
the Plan. Id. On the other hand, FedEx's contributions to the
Trust Fund are "irrevocabl[e]," and the Trust Fund's assets may
be used only "for the exclusive purpose of providing Disability Benefits to Covered Employees and
for defraying reasonable expenses of administering the Plan."
Even after an employee has begun to receive benefits, she "may
be required, as the Administrator shall determine, to submit
continuing proof of Disability." App. 312. If an employee "fails
to provide information, as requested by, and within the time set
by, the Administrator," her benefits may be terminated. App. 297;
see also id. at 313.
B. Hunter's Condition
Florence Hunter began her career at FedEx on January 9, 1984.
Stip. ¶ 17. She stopped working on July 15, 1994 due to
complications with a pregnancy, App. 46, and she began to receive
short term disability benefits on July 29, 1994, Stip. ¶ 21. On
October 13, 1994, a few days after giving birth to her child,
Hunter experienced a cerebral vascular accident ("CVA") that
is, a left posterior occipital parietal infraparenchymal
hemorrhage. App. 46-47. As a result of the CVA, Hunter
"essentially lost her ability to read as well as most of her
ability to comprehend and utilize information received visually."
App. 47. Apparently recognizing the seriousness of her condition,
FedEx continued to provide a short term disability benefits to
Hunter until her twenty-six weeks of eligibility ended on January
26, 1995. Stip. ¶ 21; App. 516. As soon as her eligibility for short term disability benefits expired, Hunter immediately began
to receive long term disability benefits pursuant to the Plan.
Stip. ¶ 22.
A few weeks later, Hunter applied for disability insurance
benefits under the Social Security Act, 42 U.S.C. § 423 (2004).
App. 48. Apparently to substantiate her Social Security
application, Hunter arranged for Dr. Roderick J. Hafer to conduct
a neuropsychological evaluation on July 1, 1996.
Dr. Hafer observed that on a "subjective measurement" of her
reading ability Hunter could not "sustain a concentrated effort
for more than three or four minutes" and could not "comprehend
the meanings of words or sentences" for more than that length of
time. App. 80. He also noted "[s]ignificant deficits . . . in
both Verbal and Visual memory, with somewhat more difficulty in
the ability to process and retain information when presented
verbally." App. 82. Despite relatively mild impairment in most
areas, Dr. Hafer concluded that the cumulative effect of Hunter's
deficits resulted in "severe cognitive impairment." App. 83.
The Social Security Administration's ALJ asked Dr. Milton
Alter, a neurologist, to review Dr. Hafer's report and Hunter's
other medical records. Relying on Dr. Alter's opinion that Hunter
suffered a severe impairment, the ALJ awarded disability
insurance benefits on December 11, 1996. App. 46-48. There is
nothing in the record to suggest that Hunter has not continued to receive Social Security benefits
since late 1996.
In September, 2002, Kemper began to investigate whether Hunter
remained eligible for long term disability benefits. App. 236.
Dr. Jeffrey Perlson, Hunter's primary care physician, reported,
on September 19, 2002, that Hunter could work at a job that did
not require reading. App. 44, 189. When Kemper received Dr.
Perlson's report, it arranged an independent medical examination
("IME") to confirm whether Hunter could in fact return to some
job. See App. 238-42. Dr. Grant T. Liu*fn6 conducted this
IME of Hunter on November 19, 2002. App. 182.
Dr. Liu took Hunter's medical history, reviewed some of her
medical records, and examined her body. Still, he had "no formal
reports of any CAT scans or MRI's or descriptions of her
hospitalizations," and he did not perform a "formal visual field
test." App. 183. Perhaps because of these limitations, Dr. Liu
found "no visual field deficits or acuity deficits" and "no
objective evidence for visual reading problems." Id. Thus, he
concluded that there was "no reason why [Hunter] cannot work a
minimum of twenty-five hours a week at an occupation."*fn7
Id. On November 27, 2002, after receiving Dr. Liu's report, a
Kemper employee telephoned Hunter to inform her that in three
days she would no longer receive long term disability benefits.
App. 242-44. Kemper confirmed the decision to terminate benefits
in a December 6, 2002 letter, explaining that "clinical
documentation . . . d[id] not substantiate an inability to work a
minimum of twenty-five hours per week at any compensable
occupation." App. 68. On December 24, 2002, Hunter's attorney
notified Kemper that she planned to appeal the termination of her
long term disability benefit. App. 70.
Soon after appealing Kemper's decision, Hunter underwent two
important medical tests. First, Dr. Paul Suscavage, an
optometrist, performed an eye examination on December 28, 2002.
Though Dr. Suscavage noted that Hunter had "[g]ood central vision
with current use of spectacles," he also found "marked field
loss" and "stereo vision reduced to 25%." App. 39. The second
examination was an MRI of Hunter's brain that Dr. Ira J.
Braunschweig, a radiologist, performed on December 30, 2002. The
MRI produced "[n]o evidence of acute/subacute infarction,
extra-axial fluid collection or suspicious mass lesion," but it
did reveal "an area of chronic hemorrhagic infarction . . . in
the left occipital lobe." App. 28. For some reason, several months passed
before Hunter's attorney provided these two reports to Kemper.
See App. 20-25.
Soon after her appointments with Dr. Suscavage and Dr.
Braunschweig, Hunter underwent a neuropsychological evaluation.
Over the course of the two-day evaluation in January, 2003, Dr.
Joseph I. Tracy identified her "most significant deficits" as
being in "visual perceptual and visuospatial reasoning." App.
166. Other deficits included "difficulty judging relationships,
reproducing them, reasoning in visuospatial terms and engaging in
rapid visual scanning." Id. Hunter also showed "weak conceptual
rule learning and difficulty with coordinated movements" and
"reduced mental speed and flexibility." Id. Another "area of
deficit [was] memory"; Hunter had "reduced scores in both
visuospatial and verbal memory," including "[m]ost notably . . .
reduced retention for the material over time." Id. Dr. Tracy
considered his findings consistent with those of Dr. Hafer,
except perhaps that Dr. Tracy identified "anterior dysfunction"
that had eluded Dr. Hafer. Id. Based on these findings, Dr.
Tracy "consider[ed] . . . Hunter disabled."*fn8 Id. Dr. Jay Klazmer met with Hunter on January 23, 2003, and he
noted that Hunter continued to "manifest difficulties with
reading, night driving, recurring headaches, memory problems and
word retrieval difficulties." App. 156. After reviewing her
recent MRI and speaking with Dr. Tracy, Dr. Klazmer concluded
that the effects of her CVA continued to "preclude her from
returning to work in her former capacity and will impair her
ability to obtain any type of commensurable employment for which
she was reasonably qualified." App. 157. Apparently believing
that this opinion sufficed to establish Hunter's disability,
Hunter's attorney informed Kemper on March 12, 2003 that it could
consider her appeal. App. 173.
C. Peer Reviews
After receiving the March 12 letter, Kemper forwarded Hunter's
medical records*fn9 to three doctors for "peer review" of
the seriousness of her condition. Kemper asked the doctors to
determine whether the records "reveal[ed] a functional impairment
that would preclude [Hunter] from engaging in any compensable
employment for a minimum of twenty-five hours per
week."*fn10 App. 205, 208, 211. The doctors issued written opinions on this question without
examining Hunter for themselves.
The first peer reviewer, Dr. Gerald Goldberg, a neurologist,
relied heavily on Dr. Liu's relatively positive assessment of
Hunter's condition, but he failed to note that Dr. Liu lacked the
benefit of an MRI and a "formal visual field test" when he
formulated his opinion. See App. 205. Although Dr. Goldberg
recognized that Dr. Klazmer had reviewed an MRI, Dr. Goldberg
simply concluded that the brain damage revealed by the MRI "would
not be a deterrent for working at any occupation," without
explaining why he rejected Dr. Klazmer's opposite conclusion.
Id. Dr. Goldberg also admitted that he could not comment on the
effect of the deficits that Dr. Tracy's neuropsychological
testing identified. App. 206. Nevertheless, Dr. Goldberg
concluded that "there is nothing [in the evidence that he
reviewed] to suggest that she has a functional impairment that
would preclude the claimant from engaging in any compensable
employment for a minimum of twenty five hours per week." Id.
To address Dr. Goldberg's concerns that a neuropsychologist
evaluate Dr. Tracy's findings, Kemper also solicited a peer
review from Dr. Devon Carpenter. Dr. Carpenter focused
principally on Dr. Hafer's 1996 report and Dr. Tracy's 2003 report, and he concluded that "even though
[Hunter] continues to report the presence of multiple cognitive
complaints, the results of the intellectual and memory assessment
measures do not support the presence of a functional impairment
which would preclude [her] from engaging in any compensable
employment a minimum of 25 hours per week, especially since
cognitive scores typically stabilize or improve following a
stroke, not decline."*fn11 App. 208. Notwithstanding his
prediction that Hunter's cognitive abilities would "stabilize or
improve," Dr. Carpenter did not mention that Dr. Tracy found few
significant differences between Hunter's condition in 2003 and
the condition that Dr. Hafer described in 1996. See App. 166.
Finally, Kemper asked Dr. Russell Superfine, an internist, for
his opinion about the severity of Hunter's impairments.
Recognizing the limitations of his "internal medicine
perspective," Dr. Superfine "deferred to [Kemper's] concurrent
neurology and neuropsychology reviews" for an evaluation of
Hunter's cognitive limitations. App. 212. In his opinion,
however, Hunter's other limitations would not preclude her "from
performing any compensable occupation a minimum of twenty five
hours per week." Id. While considering the peer review reports that Drs. Goldberg,
Carpenter, and Superfine submitted, FedEx noticed that Kemper had
solicited opinions as to whether Hunter could work twenty-five
hours per week when the Plan defined Total Disability to mean an
inability to engage in "substantially gainful activity." See
supra note 4. The BRC decided to defer consideration of
Hunter's appeal "to obtain additional information from Kemper."
App. 5; App. 13 (reporting FedEx's request to "correct the
disability definition in the peer reviews"). On April 24, 2003,
Kemper sent Hunter a letter that was much the same as the
December 6, 2002 letter that had informed her that her long term
disability benefits had been terminated, except that the revised
letter referenced the correct definition of Total Disability.
Compare App. 15-16 (revised letter) with App. 68-69 (original
letter). Kemper also asked Drs. Goldberg, Carpenter, and
Superfine to consider whether the medical records that they
reviewed "reveal[ed] a functional impairment that would preclude
[Hunter] from engaging in any part-time or full-time job." App.
53, 55, 57. All three doctors noted that the new definition of
disability did not change their conclusions that Hunter was not
While Kemper's three doctors formulated their revised opinions,
Hunter's attorney finally submitted the reports prepared by Drs.
Suscavage and Braunschweig. App. 20-25. Kemper appears to have
realized that these newly submitted reports required review, so it submitted them to Dr.
Goldberg and to Dr. Gil Epstein, an ophthalmologist, for their
opinions. In early June of 2003, Drs. Goldberg and Epstein
reviewed the entire medical record that we have discussed so far.
Dr. Goldberg's third opinion, which is dated June 11, 2003,
mentions "some additional data that was presented," App. 60, but
it discusses neither Dr. Suscavage's eye exam*fn12 nor Dr.
Braunschweig's MRI. Rather, Dr. Goldberg again relied on Dr.
Liu's conclusions without recognizing that Dr. Liu did not
perform a "formal visual field test" and Dr. Suscavage did
perform formal tests, both in 1995 and again in 2002. Dr.
Goldberg concluded that "there is still nothing that would
support a functional impairment that would preclude the claimant
from working part time or full time at a particular activity for
which she is reasonably qualified." App. 60.
As an ophthalmologist, Dr. Epstein concentrated on Dr.
Suscavage's reports. He noted that the CVA left Hunter with a
"visual field deficit involving essentially the superior quadrant
of the visual field in both eyes," and that Dr. Suscavage's 2002
examination revealed a "similar quadratic defect in both eyes." App. 62. Moreover, the 2002
examination also showed "diffuse reduction of sensitivity and a
marked change in the visual field, which is not accounted for."
Id. Dr. Epstein noted Dr. Liu's opinion (again, without
recognizing its limitations) and repeated its conclusion that
"there is no objective evidence to substantiate
disability."*fn13 App. 62-63. In the next breath, however,
Dr. Epstein reiterated that "the visual field abnormality has not
been addressed." App. 63.
D. The Appeal
With all of the medical evidence in hand, FedEx's Benefit
Review Committee took up Hunter's appeal on June 25, 2003. See
App. 7-12. The BRC voted unanimously to uphold Kemper's denial of
long term disability benefits beyond November 30, 2002. App. 12.
On behalf of the BRC, William L. Rahner informed Hunter of the
committee's decision in a letter dated July 2, 2003. See App.
Although the BRC claimed to have "reviewed the appeal
information submitted including all medical documentation," see
App. 1, it focused on the peer reviews that its doctors
conducted. When the July 2 letter referred to the
neuropsychological evaluations that Drs. Hafer and Tracy performed, it merely summarized the conclusions about those
evaluations that were contained in the peer reviews without any
indication that the original reports were considered. See App.
2. The letter did not mention the reports submitted by Drs.
Suscavage, Braunschweig, or Klazmer. On the basis of the peer
reviews, the BRC "found that, beginning on 12/01/02, Ms. Hunter
does not meet the definition of total disability under the terms
of the Plan because the information submitted fails to provide
evidence of a functional impairment that would preclude Ms.
Hunter from engaging in any substantially gainful activity,
part-time or full-time, for which she is reasonably qualified on
the basis of her education, training or experience." App. 2. By
way of further explanation, the letter noted the "requirement of
significant objective findings that a functional impairment
exists . . . was not met in this case." App. 3.
Pursuant to Section 502(a)(1)(B) of ERISA,
29 U.S.C. § 1132(a)(1)(B) (2004), Hunter filed this civil action seeking to
recover long term disability benefits under the Plan. Her
complaint also included a count alleging that FedEx violated
42 Pa. Cons. Stat. § 8371 (2004) by denying her benefits in bad
faith. Both parties have moved for summary judgment, and we turn
now to those motions. Legal Analysis
A. Pennsylvania Bad Faith Statute
"In an action arising under an insurance policy," Pennsylvania
law allows a plaintiff who has proven that "the insurer has acted
in bad faith toward the insured" to recover pre-judgment
interest, punitive damages, court costs, and attorneys' fees.
42 Pa. Cons. Stat. § 8371 (2004). Hunter bases the first count of
her complaint on this statute, but FedEx maintains that it is
entitled to summary judgment on that claim because ERISA preempts
Section 8371. See Def.'s Mem. Supp. Mot. Summ. J. at 8-9.
Indeed, ERISA contains a sweeping preemption clause designed to
"supersede any and all State laws insofar as they may now or
hereafter relate to any employee benefit plan."
29 U.S.C. § 1144(a) (2004). This provision is "deliberately expansive, and
designed to `establish pension plan regulation as exclusively a
federal concern.'" Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41,
46, 107 S.Ct. 1549, 1552 (1987) (quoting Alessi v.
Raybestos-Manhattan, Inc., 451 U.S. 504, 523, 101 S.Ct. 1895,
1906 (1981)). Because of this expansiveness, the Supreme Court
has given "the phrase `relate to' . . . its broad common-sense
meaning, such that a state law `relate[s] to' a benefit plan in
the normal sense of the phrase, if it has a connection with or
reference to such a plan." Metropolitan Life Ins. Co. v.
Massachusetts, 471 U.S. 724, 739, 105 S.Ct. 2380, 2389 (1985)
(some internal quotations and citation omitted). Thus, "a state law may
`relate to' a benefit plan, and thereby be pre-empted, even if
the law is not specifically designed to affect such plans, or the
effect is only indirect." Ingersoll-Rand Co. v. McClendon,
498 U.S. 133, 139, 111 S.Ct. 478, 483 (1990).
Although Section 8371 does not explicitly refer to employee
benefit plans, we presume (for these purposes only) that it "has
a connection with" such a plan. See Metropolitan Life, 471
U.S. at 179, 105 S.Ct. at 2389. After all, if there were no such
connection, Hunter could not have brought her Section 8371 claim
because there would have been no relationship between the Plan
and the statute. Whatever this connection may be, it is enough
for us to presume that Section 8371 "relate[s] to" employee
benefit plans within the meaning of 29 U.S.C. § 1144(a).
Because ERISA's preemption clause encompasses Section 8371, we
must consider whether the statute also falls within ERISA's
saving clause, which exempts "any law of any State which
regulates insurance, banking or securities" from preemption.
29 U.S.C. § 1144(b)(2)(A) (2004). On its face, Section 8371 does not
regulate banking or securities, so we concentrate on whether it
In Kentucky Ass'n of Health Plans v. Miller, 538 U.S. 329,
341-42, 123 S.Ct. 1471, 1479 (2003), the Supreme Court made a
"clean break" with its prior precedent interpreting ERISA's saving clause and announced a refined
two-part test. For a state law to "regulate insurance," and
thus be saved from preemption, it must (1) "be specifically
directed toward entities engaged in insurance"; and (2)
"substantially affect the risk pooling arrangement between the
insurer and the insured." Id. Section 8371's principal effect
is to make insurers liable for punitive damages if they act in
bad faith toward their insureds, so it cannot be doubted that the
measure is specifically directed toward entities engaged in
insurance. See also Gen. Accident Ins. Co. v. Fed. Kemper Ins.
Co., 682 A.2d 819, 822 (Pa. Super. 1996) ("Upon review of
the express language and purpose of section 8371, it appears
clear that the Pennsylvania legislature intended this section to
protect an insured from bad faith denials of coverage."). It is
less clear, however, whether Section 8371 substantially affects
the risk pooling arrangement between the insurer and the insured.
Even if we were to assume that Section 8371 substantially
affected risk pooling, Hunter's claim would have to contend with
ERISA's deemer clause. That clause provides that "[n]either an
employee benefit plan . . ., nor any trust established under such
a plan, shall be deemed to be an insurance company or other
insurer . . . or to be engaged in the business of insurance . . .
for purposes of any law of any State purporting to regulate
insurance companies [or] insurance contracts." 29 U.S.C. § 1144(b)(2)(B).
By preventing states from applying their general insurance
regulations to employee benefit plans, the deemer clause
"relieves plans from state laws `purporting to regulate
insurance.'" FMC Corp. v. Holliday, 498 U.S. 52, 61,
111 S.Ct. 403, 409 (1990). Thus, even if Section 8371 "regulates insurance"
within the meaning of the saving clause, the deemer clause
prevents plaintiffs from applying it to employee benefit plans.
See also id. ("State laws that directly regulate insurance
are `saved' but do not reach self-funded employee benefit plans
because the plans may not be deemed to be insurance companies
. . . for purposes of such state laws.")
To sum up, Section 8371 regulates insurance. ERISA ordinarily
does not preempt state insurance regulation, but the deemer
clause prevents state laws that regulate insurance generally from
being applied to employee benefit plans in any particular case.
Thus, ERISA preempts Section 8371 insofar as Hunter seeks to
apply it to FedEx's Plan,*fn14 and we shall grant FedEx's motion for summary judgment on Hunter's Section
8371 claim. B. ERISA
Having determined that ERISA preempts Hunter's Section 8371
claim, we must now consider her ERISA claim to "recover benefits
due to [her] under the terms of [her] plan."
29 U.S.C. § 1132(a)(1)(B) (2004). The first issue is what standard of review
to apply to FedEx's decision to terminate her long term
1. Standard of Review
The Supreme Court has held that "a denial of benefits
challenged under § 1132(a)(1)(B) is to be reviewed under a de
novo standard unless 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, 109 S.Ct. 948, 956-57
(1989). In this case, the Plan gives FedEx's BRC the power "to
interpret the Plan's provisions in accordance with its terms with
respect to all matters properly brought before it." App. 316.
This delegation would ordinarily require us to review the
committee's decisions under the deferential "arbitrary and
capricious" standard. See McLeod v. Hartford Life & Accident
Ins. Co., No. 03-1744, 2004 U.S. App. LEXIS 12253, at *10 (3d
Cir. June 22, 2004); see also Abnathya v. Hoffmann-La Roche,
Inc., 2 F.3d 40, 45 (3d Cir. 1993) ("Under the arbitrary and
capricious (or abuse of discretion) standard of review, 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.'").
There are circumstances, however, when a court ought not defer
so readily to a plan administrator, even one to whom a plan
assigns plenary interpretative power. For example, "if a benefit
plan gives discretion to an administrator or fiduciary 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." Firestone, 489 U.S. at 115, 109 S.Ct. at 957
(internal quotations omitted). Our Court of Appeals has
interpreted this language as mandating a form of "heightened
arbitrary and capricious" review when the plan administrator
operates under a conflict of interest. See Pinto v. Reliance
Standard Life Ins. Co., 214 F.3d 377, 387-93 (3d Cir. 2000).
Our scrutiny is heightened that is, our deference to the
administrator diminishes along a "sliding scale . . .,
according different degrees of deference depending on the
apparent seriousness of the conflict." Id. at 391; see also
Doe v. Group Hospitalization & Med. Servs., 3 F.3d 80, 87 (4th
Cir. 1993) ("[T]he fiduciary decision will be entitled to some
deference, but this deference will be lessened to the degree
necessary to neutralize any untoward influence resulting from the
conflict."). In other words, we must "approximately calibrat[e]
the intensity of our review to the intensity of the conflict."
Pinto, 214 F.3d at 393. This task requires us to "look at any and all factors that might
show a bias and use common sense to put anywhere from a pinky to
a thumb on the scale in favor of the administrator's analysis and
decision." Gritzer v. CBS, Inc., 275 F.3d 291, 295 n. 3 (3d
The factors relevant to evaluating the severity of an
administrator's conflict of interest include "(1) the
sophistication of the parties; (2) the information accessible to
the parties; (3) the exact financial arrangement between the
insurer and the company; and (4) the status of the fiduciary, as
the company's financial or structural deterioration might
negatively impact the `presumed desire to maintain employee
satisfaction.'" Stratton v. E.I. DuPont de Nemours & Co.,
363 F.3d 250, 254 (3d Cir. 2004). The first factor weighs in favor of
heightened scrutiny because there is no reason why Hunter would
have had ERISA or claims experience, but FedEx is a large,
successful company with so many claims that it outsourced their
processing to Kemper. On the other hand, the second and fourth
factors do not alter the arbitrary and capricious standard
because there is nothing in the record to suggest that the
parties did not have equal access to information or that FedEx
faced financial difficulties.
Finally, we must consider the severity of the potential
conflict of interest that FedEx created by both funding and
administering the Plan. Although our Court of Appeals has recognized that "a higher standard of review is
required when reviewing benefits denials of insurance companies
paying ERISA benefits out of their own funds," Pinto, 214 F.3d
at 390, FedEx makes "irreovocabl[e]" contributions to its Plan's
trust fund "in such amounts as are actuarially determined to be
sufficient to fund on a level basis the benefits provided" under
the Plan. App. 310, 312. In other words, FedEx's plan is
"funded," and FedEx "incurs no direct expense as a result of the
allowance of benefits, nor does it benefit directly from the
denial or discontinuation of benefits." Abnathya, 2 F.3d at 45
n. 5; see also Mitchell v. Eastman Kodak, 113 F.3d 433, 437
n. 4 (3d Cir. 1997). Unlike the unfunded plans that courts in
this circuit often subject to heightened scrutiny, see, e.g.,
Smathers v. Multi-Tool, Inc., 298 F.3d 191, 198-99 (3d Cir.
2002); Pinto, 214 F.3d at 388-90, funded plans like the one
at the heart of this case present less severe conflicts of
Whatever conflict existed here would have been even further
diminished by FedEx's decision to outsource initial claims
determinations to Kemper, a neutral third-party. See
Stratton, 363 F.3d at 254-55 (explaining that the fourth factor
"counsel[ed] for only a slightly heightened standard" when
administrator outsourced administration of funded plan).
In short, the teachings of Pinto and its progeny, as applied
to the facts of this case, require us to defer to FedEx's decision somewhat less than we might in a situation that
called for the application of the "arbitrary and capricious"
standard. We shall heighten our scrutiny, but only modestly.
2. FedEx's Decision
Arbitrary and capricious review permits us to overturn FedEx's
decision "only if it is clearly not supported by the evidence in
the record or the administrator has failed to comply with the
procedures required by the plan," Orvosh v. Program of Group
Ins. for Salaried Employees of Volkswagen of Am., Inc.,
222 F.3d 123, 129 (3d Cir. 2000) (internal quotations omitted), but we
must temper "any deference we might ordinarily afford" because of
our moderately heightened scrutiny, see Smathers, 298 F.3d at
200. Hunter does not allege that FedEx failed to comply with Plan
procedures, so we shall consider only whether substantial
evidence supports the decision.
At the outset, we emphasize that this case does not involve an
initial denial of benefits. Rather, FedEx terminated Hunter's
benefits after having paid them for nearly eight years. The Plan
clearly gives FedEx the power to terminate benefits when an
employee no longer qualifies as "disabled," see App. 312-13,
but it is worth noting that FedEx considered her "disabled" for
the better part of a decade before it abruptly ceased paying her benefits.*fn15
Moreover, one of Hunter's doctors found her at least as impaired
in early 2003 as she was in 1996. See App. 166.
So why did FedEx stop paying? According to the BRC's July 2,
2003 letter, FedEx denied benefits because Hunter had failed to
provide objective evidence of a functional impairment that would
preclude her from working at a job for which she was qualified.
See App. 2-3. In fact, Hunter submitted three medical reports,
all of which we believe qualify as "objective" evidence under the
Plan's terms. See App. 287. First, Dr. Suscavage's December 28,
2002 report described "marked field loss" and "stereo vision
reduced to 25%." App. 39. Dr. Braunschweig's December 30, 2002
MRI also revealed "an area of chronic hemorrhagic infarction
. . . in the left occipital lobe." App. 28. Finally, Dr. Tracy's
January, 2003, report identified many deficits that collectively
rendered Hunter "disabled." See App. 166.
Perhaps medical experts could debate about whether this
evidence was sufficient to show that Hunter could not work, but
FedEx did not rest its decision on the sufficiency of the
evidence. The BRC based its decision on Hunter's "failure" to
produce any objective evidence at all. Substantial evidence does not support this decision because her
attorney submitted three reports that contained objective
evidence of disability.*fn16
Had FedEx based its denial on an allegedly insufficient amount
of objective evidence, rather than on the utter lack of objective
evidence, its decision would remain problematic. In addition to
the physicians that we have just mentioned, Drs. Hafer, Perlson,
Liu, and Klazmer all examined Hunter, and all of these doctors
except for Dr. Liu, the "independent" medical expert that Kemper
chose found significant perceptual and/or cognitive
Although Dr. Liu found "no reason" why Hunter could not work,
he did not say that she was not disabled. Rather, Dr. Liu only
found "no objective evidence for visual reading problems." He
might have had access to such objective evidence had Kemper given him the results from Dr. Suscavage's
"formal visual field test," Dr. Braunshcweig's MRI, and the
comprehensive two-day neuropsychological evaluation that Dr.
Tracy performed. It is true that Hunter did not provide these
results to Kemper until after Dr. Liu had issued his report, but
Kemper cannot rely so heavily on Dr. Liu's conclusion that Hunter
was not disabled when Dr. Liu himself recognized the limited
scope of his opinion and carefully qualified his conclusions.
Even Kemper's peer reviews do not support its decision as
convincingly as they appear. First, none of the peer reviewers
examined Hunter personally. Although they are certainly entitled
to formulate opinions on the basis of records alone, written
words cannot capture every nuance of direct, physical
examination. A patient's inflection when responding to her
physician's question, like a witness's expression when testifying
before a jury, can shade a doctor's impression in ways that a
brief report, necessarily focused more on bottom-line conclusions
than on shades of meaning, cannot always reflect. Because, all
else being equal, doctors' reports based on personal contact with
a patient are generally more reliable assessments of the
patient's condition than summaries of first-hand reports, FedEx should not have focused so myopically on the peer reviews
when it considered Hunter's appeal.*fn17
Another defect in Kemper's peer review process is that only two
of the peer reviewers, Drs. Goldberg and Epstein, reviewed the
entire record, including the reports prepared by Drs.
Braunshcweig, Suscavage, and Tracy. Kemper should not have relied
on any peer reviewer who did not consider all of the evidence in
the record, and the failure to consider the three pieces of
evidence most helpful to Hunter is especially troubling.
Even those peer reviewers who did review all of the medical
evidence did not render satisfactory opinions. As an
ophthalmologist, Dr. Epstein focused on Dr. Suscavage's report
and recognized that the 2002 examination revealed "diffuse
reduction of sensitivity and a marked change in the visual field,
which is not accounted for." App. 62. Without noting the Dr. Liu had not performed a "formal visual field
test," Dr. Epstein relied on Dr. Liu's opinion to counter Dr.
Suscavage's findings. In the end, Dr. Epstein concluded that
there was "no objective evidence to substantiate disability,"
App. 62-63, but he immediately qualified that conclusion by
noting that "the visual field abnormality has not been addressed"
and recommended that someone more qualified than he evaluate the
"psychological" evidence. App. 63. Given these heavily qualified
findings, FedEx could not have terminated Hunter's benefits based
on Dr. Epstein's opinion alone.
Dr. Goldberg reached an unqualified conclusion, but only by
ignoring critical evidence. For example, his June 11, 2003
opinion noted that "[s]ome visual field data [from] 1995 . . .
indicate[d] a field defect," but dismissed this data because Dr.
Liu found "nothing to support visual field defects." App. 59.
This statement ignores that Dr. Suscavage collected "visual field
data" in 1995 and in 2002, and both sets of tests revealed field
defects. See App. 32-33 (1995 results), 37-38 (2002 results).
Dr. Goldberg either did not notice that the tests were performed
twice or he consciously ignored the later data to suggest that
there was no current objective evidence of a field defect.
Moreover, Dr. Goldberg failed to recognize that Dr. Liu had not
performed a "formal visual field test," so Dr. Suscavage's
conclusions supported as they were by objective evidence should have received more weight than Dr. Liu's. Despite his
expertise in neurology, Dr. Goldberg did not address Dr.
Braunshcweig's MRI or Dr. Tracy's neuropsychological evaluation,
which were both fully consistent with the Hunter's complaints.
To sum up, FedEx considered Hunter disabled between 1994 and
2002. In late 2002, it terminated her long term disability
benefits allegedly because she had failed provide objective
evidence that she was disabled. The record demonstrates, however,
that Hunter did submit three items of objective evidence to
substantiate her disability claim. Although Kemper arranged for
an IME with Dr. Liu, it did not provide Dr. Liu with all of
Hunter's medical records, and Dr. Liu did not perform a formal
visual field test. Similarly, Kemper failed to provide important
medical evidence to most of the peer reviewers. Only Drs. Epstein
and Goldberg reviewed the entire record, and their conclusions
were troubling. Dr. Epstein recognized that he was unqualified to
assess much of the evidence and he could not explain the
divergent findings of Drs. Liu and Suscavage. Only Dr. Goldberg
claimed to have reviewed all of the evidence and opined that
Hunter was not disabled, but he failed to explain or even
mention most of the contrary objective evidence that Hunter had
submitted. Substantial evidence does not support FedEx's termination of
Hunter's long term disability benefits,*fn18 so that
decision cannot pass muster under our modestly heightened
standard of review. Indeed, FedEx's decision is so flawed that it
could not stand even if we had applied the highly deferential
"arbitrary and capricious" standard. We shall, therefore, grant
Hunter's motion for summary judgment on her ERISA claim.
Having found that FedEx inappropriately denied benefits to
Hunter, we need only craft a suitable remedy. Hunter has
requested that the remedy include past and future benefits,
interest, and reasonable attorney's fees and costs, see Compl.
at 9, and we shall address each of these requests in turn. When a district court grants summary judgment to a plaintiff on
her § 1132(a)(1)(B) claim, it may either award the wrongfully
withheld benefits or remand the case to the administrator for
further development of the record. Generally, courts remand the
case when the record is somehow incomplete or when the
administrator misapplied the terms of the plan. See, e.g.,
Grosz-Salomon v. Paul Revere Life Ins. Co., 237 F.3d 1154, 1163
(9th Cir. 2001) ("[A] plan administrator will not get a second
bite at the apple when its first decision was simply contrary to
the facts."); Levinson v. Reliance Standard Life Ins. Co.,
245 F.3d 1321, 1330 (11th Cir. 2001) ("We do not agree, however, that
a remand to the plan administrator is appropriate in every
case."); Quinn v. Blue Cross & Blue Shield Ass'n, 161 F.3d 472,
476-78 (7th Cir. 1998) (discussing relevant considerations in
awarding retroactive benefits and remanding to administrator);
see also Cook v. Liberty Life Assur. Co., 320 F.3d 11, 23-25
(1st Cir. 2003) (same). Here, the parties have submitted hundreds
of pages of medical records, and FedEx urges that we "may only
consider evidence that was contained in the administrative record
at the time the plan administrator made its final decision."
Def.'s Br. at 5 (emphasis added). Because the record is complete
and FedEx did not misapprehend the terms of the Plan, remand
would serve no purpose here. Thus, we shall direct FedEx to resume paying long term
disability benefits to Hunter as of August 1, 2004. We shall also
enter judgment against FedEx in an amount equal to the total
payments that Hunter should have received between December 1,
2002 and July 31, 2004. At this time, we cannot determine the
precise amount of this lump-sum payment of retroactive benefits,
so we shall require the parties to submit briefing on the
In addition to benefits, Hunter has requested that we award
prejudgment interest. "[A]n ERISA plaintiff who prevails under §
502(a)(1)(B) in seeking an award of benefits may request
prejudgment interest under that section as part of his or her
benefits award," Skretvedt v. E.I. Dupont de Nemours, Nos.
02-3620 & 02-4283, 2004 U.S. App. LEXIS 11944, at *35 (3d Cir.
June 16, 2004), and we believe that an award of interest is
appropriate here to compensate Hunter fully for FedEx's improper
denial of the funds that she was legally due. Still, we shall
direct the parties to address the issue of the precise rate at
which we should compute prejudgment interest.
Finally, Hunter has requested that we award attorney's fees
under 29 U.S.C. § 1132(g)(1). Under that statute, "the court in
its discretion may allow a reasonable attorney's fee and costs of
action to either party." See also Skretvedt v. E.I. Dupont
De Nemours & Co., 268 F.3d 167, 185 (3d Cir. 2001) (emphasizing
the district court's discretion). When considering requests for attorney's fees and
costs under § 1132(g)(1), we must consider the following factors:
"(1) the offending parties' culpability or bad faith; (2) the
ability of the offending parties to satisfy an award of
attorneys' fees; (3) the deterrent effect of an award of
attorneys' fees against the offending parties; (4) the benefit
conferred on members of the pension plan as a whole; and (5) the
relative merits of the parties' position." McPherson v.
Employees' Pension Plan of Am. Re-Insurance Co., 33 F.3d 253,
254 (3d Cir. 1994). In this case, we treat FedEx as the
"offending party" because its decision to terminate Hunter's
benefits was not supported by substantial evidence.
Turning to the first factor, we cannot find on the basis of
this record that FedEx acted in bad faith, but it is certainly
"culpable" for the claim review procedures that it implemented.
Under these procedures, benefits were terminated before Hunter
had a chance to submit evidence of her continuing disability.
Even after she submitted such evidence, FedEx continued to deny
benefits on the basis of reports submitted by doctors who lacked
access to and/or did not discuss Hunter's evidence. These
procedures surely discourage claimants from hiring an attorney to
represent them before the BRC (because money is often tight
immediately after benefits are cut off) and from appealing to
this Court. Under the circumstances, the possibility of
fee-shifting offers some modest hope to claimants whose benefits were
wrongfully terminated through FedEx's discouraging process. Thus,
the first factor weighs in favor of awarding attorney's fees.
We presume that FedEx, a large, multinational corporation,
could satisfy an award of reasonable attorney's fees here, so its
financial condition cannot weigh against such an award.
The third McPherson factor requires us to consider the
deterrent effect of an award of attorney's fees against FedEx. We
are not so naive as to believe that awarding fees would encourage
FedEx to reform its claims handling procedures. After all, the
attorney's fees in this case are probably inconsequential when
compared to the overall cost of administering the Plan.
Nevertheless, requiring FedEx to reimburse Hunter would at
least at the margin deter FedEx from denying similar claims
without substantial evidence to support its decisions.
With regard to the fourth factor, we find that awarding
attorney's fees would have, at most, only de minimis effects on
the other individuals that the Plan covers. For example, premiums
might increase slightly to offset a fee award that will likely be
relatively small when compared to the total cost of the Plan.
Such inconsequential repercussions weigh neither in favor of nor
against the award. Finally, we must assess the relative merits of the parties'
positions. Although we ultimately sided with Hunter, FedEx's
position was not frivolous, especially given the rather
deferential standard of review to which its decision was
entitled. Thus, the fifth factor weighs only slightly in favor of
an award of attorney's fees.
To summarize, the first factor weighs heavily in favor of
awarding attorney's fees to Hunter. The third and fifth factors
also counsel in favor of an award, but not so much as the first
factor. While the second and fourth factors do not support a fee
award, neither do they suggest that an award would be
inappropriate. Balancing all five McPherson factors, we find
that Hunter is entitled to have FedEx pay her reasonable
attorney's fees and costs. We shall, therefore, order the parties
to submit their views on the reasonableness of the attorney's
fees and costs that she incurred.
FedEx is entitled to summary judgment on the first count of
Hunter's complaint because ERISA preempts Pennsylvania's bad
faith statute. On the second count, however, we shall enter
summary judgment in favor of Hunter because FedEx's decision to
terminate Hunter's long term disability benefits was not
supported by substantial evidence. Thus, we shall order FedEx to resume paying Hunter's
benefits effective August 1, 2004.
After considering the parties' supplemental submissions, we
shall enter final judgment against FedEx in an amount equal to
the total payments that Hunter should have received between
December 1, 2002 and July 31, 2004, plus prejudgment interest and
reasonable attorney's fees and costs.
An appropriate Order follows. ORDER
AND NOW, this 15th day of July, 2004, upon consideration of the
parties' first and second joint stipulations of facts,
plaintiff's motion for summary judgment (docket entry # 16),
defendant's response thereto, defendant's motion for summary
judgment (docket entry # 17), and plaintiff's response thereto,
and in accordance with the accompanying Memorandum, it is hereby
1. Plaintiff's motion for summary judgment is GRANTED IN PART;
2. Defendant's motion for summary judgment is GRANTED IN PART;
3. Defendant shall RESUME paying long term disability benefits
to Hunter effective August 1, 2004;
4. By July 23, 2004, plaintiff shall FILE a Motion for Entry of
Final Judgment that provides the following information: (i) the
value of the benefits that Hunter was denied between December 1,
2002 and July 31, 2004; (ii) the proper monthly rate for
assessing prejudgment interest; and (iii) the amount of
reasonable attorney's fees and costs that Hunter incurred in this
litigation; and 5. By July 30, 2004, defendant shall FILE a response to