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Morgan v. Prudential Insurance Company of America

November 18, 2010

DUANE MORGAN
v.
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA



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

MEMORANDUM OPINION

In this action brought pursuant to the Employee Retirement Income Security Act of 1964 ("ERISA"), Duane Morgan ("Morgan") challenges The Prudential Insurance Company of America's ("Prudential") denial of his claim for long term disability benefits. The factual issue is not whether Morgan is disabled, but what caused his disability. Morgan contends his disability is caused by fibromyalgia. Prudential argues the cause is anxiety and depression. The cause of Morgan's disability is critical because if it is a mental illness, his long term benefits are limited to 24 months.

After a thorough examination of the administrative record and applying a deferential standard of review, we find Prudential's determination that Morgan's disability was the result of anxiety and depression, a condition triggering the plan's 24-month mental illness limitation, is not supported by substantial evidence. Consequently, we conclude that Prudential acted arbitrarily and capriciously when it terminated Morgan's disability benefits. Therefore, judgment will be entered in favor of Morgan and against Prudential.

Background

Morgan was employed by Prudential as a senior life representative. As part of his employment, he was covered under a long term disability plan ("Plan") governed by ERISA.

Morgan stopped working in September 2005 after complaining of chest pain, palpitations, dizziness, sweating, shaking, numbness in his arms, high blood pressure, difficulty sleeping, and diarrhea. Having determined that Morgan was suffering from a major depressive disorder - anxiety and hypertension, Prudential began paying him disability benefits on October 15, 2005. On March 28, 2006, his short term disability benefits were converted to long term benefits.

After paying long term disability benefits for two years, Prudential terminated Morgan's benefits. In its denial letter, Prudential advised Morgan that it determined that the cause of his disability was the "mental health diagnosis of depression and anxiety." Citing the Plan's mental illness limitation, which caps benefits for "mental illnesses" at 24 months, Prudential terminated his long term disability benefits as of March 28, 2008. Under the Plan, a "mental illness" is defined as "[a] psychiatric or psychological condition regardless of cause, including but not limited to... depression [and]... anxiety." Plan, Art. 7.7 (a)(8). A disability due to a mental illness is subject to a "limited pay period of 24 months." Plan, Art. 7.7 (a)(7)(B).

Morgan appealed Prudential's decision, claiming that his disability was due to fibromyalgia, not depression. In support of his appeal, he provided, among other things, a letter from his treating rheumatologist, Dr. Andrew Mermelstein, who confirmed the diagnosis of fibromyalgia.

Relying on a record review by Dr. Paul F. Howard, Prudential denied Morgan's appeal. Prudential concluded that Morgan's disability resulted from depression, not fibromyalgia.

The parties have filed cross-motions for summary judgment. Morgan claims that Prudential's decision was arbitrary and capricious, and seeks reinstatement of his long term benefits. Prudential claims that its decision was supported by substantial evidence in the administrative record. It also asserts a cross claim against Morgan for reimbursement of overpayment of disability benefits.*fn1

ERISA

Standard of Review

The denial of benefits under an ERISA qualified plan is reviewed using a deferential standard. Where the plan administrator has discretion to interpret the plan and to decide whether benefits are payable, the exercise of its fiduciary discretion is judged by an arbitrary and capricious standard. Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 111 (1989). A court may not substitute its judgment for that of the administrator. Vitale v. Latrobe Area Hosp., 420 F.3d 278, 286 (3d Cir. 2005) (quoting Abnathya v. HoffmanLaRoche, Inc., 2 F.3d 40, 45 (3d Cir. 1993)). Accordingly, in deference to the plan administrator, the decision will not be reversed unless it is "without reason, unsupported by substantial evidence or erroneous as a matter of law." Doroshow v. Hartford Life & Accident Ins. Co., 574 F.3d 230, 234 (3d Cir. 2009).

Morgan initially requested that we apply the heightened standard of review used in Pinto v. Reliance Standard Life Ins. Co., 214 F.3d 377 (3d Cir. 2000). At oral argument, he acknowledged that the sliding-scale standard of review has been rejected by the Supreme Court. Metropolitan Life Ins. Co. v. Glenn, 554 U.S. 105 (2008). See Doroshow, 574 F.3d at 233-34; Schwing v. The Lilly Health Plan, 562 F.3d 522, 525 (3d Cir. 2009). A financial conflict arising from the administrator's dual role as evaluator and payor of claims no longer may be used to raise the level of scrutiny. Nevertheless, it remains a factor to consider along with other factors in determining whether there has been an abuse of discretion. Ellis v. Hartford Life and Accident Ins. Co., 594 F. Supp. 2d 564, 567 (E.D. Pa. 2009).

Where an employer funds its benefit plan through a trust with fixed contributions, there is no conflict of interest. See Bluman v. Plan Adm'r and Trustees for CNA's Integrated Disability Program, No. 08-0415, 2010 WL 2483884, at *5 (D. N.J. June 4, 2010) (citing Smathers v. Multi-Tool, Inc./Multi-Platics, Inc. Emp. Health and Welfare Plan, 298 F.3d 191, 198-99 (3d Cir. 2002)). On the other hand, a conflict of interest does arise where trust payments vary depending on the rate at which claims are approved. Id.

Here, the administrative committee, which is appointed and controlled by Prudential, has discretionary authority to interpret the terms of the Plan and to determine eligibility for benefits. The Plan is funded by the Prudential Welfare Benefits Trust ("Trust"). Trust assets may not be used for any purpose "other than for the exclusive benefit" of participants and for the cost of administering the Plan. Trust Agreement, Sec. 2. No part of the principal or income may revert to Prudential. Id.

The fact that the trust assets cannot be used for any purpose other than paying claims and administrative expenses is only one part of the equation. Prudential must fund the trust to maintain its solvency. If the payment of claims and expenses exceeds the contributions and the investment performance of the trust assets, Prudential must increase its contributions. In such circumstances, there could be an incentive to minimize the payment of claims.

During oral argument, Prudential's counsel confirmed that the Trust is funded by Prudential on an "as needed basis." Because contributions to the Trust will vary depending on the number of claims paid, a financial conflict of interest is present. Therefore, we shall consider the conflict as one, but not significant, factor in determining whether there has been an abuse of discretion.

Procedural bias in the review process is another factor to examine. Post v. Hartford Ins., Co., 501 F.3d 154, 164 (3d Cir. 2007). Procedural anomalies that call into question the fairness of the process and suggest arbitrariness include: relying on the opinions of non-treating over treating physicians without reason, Kosiba v. Merck & Co., 384 F.3d 58, 67-68 (3d Cir. 2004); Ricca v. Prudential Ins. Co. of Am., No. 08-257, 2010 WL 3855254 *7 (E.D. Pa. Sept. 30, 2010); failing to follow a plan's notification provisions, Lemaire v. Hartford Life & Acc. Ins. Co., 69 F. App'x 88, 92-93 (3d Cir. 2003); conducting self-serving paper reviews of medical files, Post, 501 F.3d at 166; relying on favorable parts while discarding unfavorable parts in a medical report, id. at 165; denying benefits based on inadequate ...


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