Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_03-cv-04926/USCOURTS-cand-5_03-cv-04926-6/pdf.json

Nature of Suit Code: 791
Nature of Suit: Employee Retirement Income Security Act (ERISA)
Cause of Action: 29:1132 E.R.I.S.A.: Employee Benefits

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ORDER DETERMINING THE STANDARD OF REVIEW —No. C-03-04926 RMW

JAH

E-FILED on 2/27/06

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

ELIZABETH WILKERSON,

Plaintiff,

v.

RIFFAGE.COM DISABILITY INCOME

PROTECTION PROGRAM, and SUN LIFE

ASSURANCE COMPANY OF CANADA,

Defendants.

No. C-03-04926 RMW

ORDER DETERMINING THE STANDARD

OF REVIEW

[Re Docket Nos. 87, 89]

The parties have submitted supplemental briefs for reconsideration of the issue of what

standard of review applies in light of Green v. Sun Life Assurance Co. of Canada, 383 F. Supp. 2d

1224 (C.D. Cal. Aug. 1, 2005). For the reasons below, the court reconsiders its original ruling and

now determines that the policy at issue does not unambiguously grant the insurer discretion and that

the defendant's actions are therefore to be reviewed de novo. 

I. BACKGROUND

Plaintiff Elizabeth Wilkerson filed suit under 29 U.S.C. § 1132, alleging she had been

wrongfully denied benefits under a long-term disability plan. The plan at issue states that "Proof

must be satisfactory to Sun Life." In an October 18, 2004 order, this court determined that the

policy at issue unambiguously granted defendant Sun Life Assurance Company of Canada discretion

Case 5:03-cv-04926-RMW Document 95 Filed 02/27/06 Page 1 of 7
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ORDER DETERMINING THE STANDARD OF REVIEW —No. C-03-04926 RMW

JAH 2

to grant or deny claims. In supplemental briefing on the issue of an actual conflict of interest,

Wilkerson argued that this court should follow Green, which found the same Sun Life policy

language at issue here did not grant Sun Life discretion to grant or deny claims. See Green, 383 F.

Supp. 2d at 1228 ("Sun Life's policy does not make clear whether it reserves discretion, and if it

does, the scope of that discretion."). The court allowed additional briefing on the standard of review

in light of Green.

II. ANALYSIS

A. Plan language

A district court reviews an administrator's denial of benefits de novo unless a plan

unambiguously grants discretion to the administrator to determine eligibility, in which case the

standard of review is abuse of discretion. Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115

(1989); Kearney v. Standard Ins. Co., 175 F.3d 1084, 1088-89 (9th Cir. 1999) (en banc). "The

standard of review depends on whether the plan documents unambiguously say in sum or substance

that the [p]lan [a]dministrator or fiduciary has authority, power, or discretion to determine eligibility

or to construe the terms of the [p]lan." Abatie v. Alta Health & Life Ins. Co., 421 F.3d 1053, 1059 

(9th Cir. 2005) (quotation marks omitted). "Although the plan must effectively grant the

administrator discretion in interpreting the plan or determining eligibility, there is no requirement

that the word 'discretion' be used." Id. Nevertheless,

If an insurance company seeking to sell and administer an ERISA plan wants to have

discretion in making claims decisions, it should say so. It is not difficult to write,

"The plan administrator has discretionary authority to grant or deny benefits under

this plan." When the language of a plan is unambiguous, a company purchasing the

plan, and employees evaluating what their employer has purchased on their behalf,

can clearly understand the scope of the authority the administrator has reserved for

itself.

Ingram v. Martini Marietta LTD Income Plan, 244 F.3d 1109, 1113-14 (9th Cir. 2001).

In Thomas v. Oregon Fruit Products Company, 228 F.3d 991, 994 (9th Cir. 2000), the Ninth

Circuit examined the language of a particular policy. In the course of that examination, the court

stated that 

The Policy establishes that benefits will be paid only upon submission of

"satisfactory proof of Total Disability to us." The only material distinction between

this provision and the provision found to be ambiguous in Kearney is the inclusion of

the words "to us." Reliance, which carries the burden of showing that the Policy is

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ORDER DETERMINING THE STANDARD OF REVIEW —No. C-03-04926 RMW

JAH 3

unambiguous, argues that this additional language resolves the ambiguity in its favor. 

We do not agree. The additional language has the opposite effect because it is

unclear what the phrase "to us" is intended to modify. One possible interpretation is

that the submitted proof must be "satisfactory to us" (Reliance), thereby arguably

conferring discretion on Reliance. Another interpretation, however, is that proof

"satisfactory" (to a reasonable person) must be submitted "to us" (Reliance). Under

the latter interpretation, the Policy does not grant Reliance discretion. We therefore

hold that the Policy does not unambiguously grant Reliance discretion to evaluate

claims as it sees fit. 

228 F.3d at 994 (citation omitted; emphasis in original). 

The policy at issue here states that "[p]roof must be satisfactory to Sun Life." This court

must therefore consider the import of "arguably" in Thomas. Wilkerson argues that the Ninth

Circuit's statement that "submitted proof must be satisfactory to us" only arguably confers discretion

and, therefor, Sun Life's policy does not unambiguously grant discretion. This was also the basis for

the ruling in Green: "If language only 'arguably' confers discretion, then by definition, it does not

confer discretion 'unambiguously,' the requirement for deferential review." 383 F. Supp. 2d at 1227. 

Sun Life seems to argue that the court in Green did not list the multiple meanings reasonably

attributable to the policy language—as did the court in Thomas—and that Green therefore should

not be relied on for the proposition that "proof must be satisfactory to us" is insufficient language to

give a plan administrator discretion to grant or deny claims. The Ninth Circuit has stated that

"[o]nly by excluding alternative readings as unreasonable could we conclude that the conferral of

discretion is unambiguous." Kearney, 175 F.3d at 1090.

The Ninth's Circuit's use of "arguably" in Thomas is ambiguous. The court could have

meant that "proof must be satisfactory to us" only arguably—and therefore not

unambiguously—grants a plan administrator discretion. On the other hand, the court could have

meant that it did not need to decide—and therefore was not deciding—whether "proof must be

satisfactory to us" was an unambiguous grant of discretion. As this aspect of the decision in Thomas

was not essential to the holding that the language "benefits will be paid only upon submission of

'satisfactory proof of Total Disability to us'" is ambiguous, the better view is that the second

possibility is correct: The Ninth Circuit in Thomas left open the question whether language that

"proof must be satisfactory to us" unambiguously grants discretion.

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ORDER DETERMINING THE STANDARD OF REVIEW —No. C-03-04926 RMW

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In Kearney, the Ninth Circuit, in the course of examining the language of another policy,

stated that:

[T]he phrase "will pay the LTD BENEFIT described in Part 8 upon receipt of

satisfactory written proof that you have become DISABLED" is ambiguous. At least

three interpretations are reasonable.

One reading natural to a lawyer experienced in insurance litigation would be

that "satisfactory written proof" is a variant of the very old phrase "satisfactory proof

of loss." Such phrases have been used in insurance policies for at least a century. 

The phrase traditionally confers discretion on the insurance company to decide

whether the quantum of proof is sufficient, as opposed to whether the loss is covered. 

The word "satisfactory" is traditionally limited by an objective standard, so that the

insurance company is not permitted to reject proof that would be satisfactory to a

reasonable person.

A second reading of "will pay . . . upon receipt of satisfactory written proof

that you have become DISABLED" applies "satisfactory" to whether the proof

establishes a covered disability as well as whether there is enough of it, but construes

the word "satisfactory" as objective rather than subjective. Thus "satisfactory written

proof that you have become disabled" means "proof that would be satisfactory to a

reasonable person that you have become disabled." Though the Sixth Circuit rejected

this reading, Judge Boggs in dissent urged it persuasively. This reading is consistent

with well established common law principles for reading contracts, which are the

principles that we are required, under Firestone, to apply. As a matter of common

law, where a contract contains a condition that the obligor be "satisfied," "an

interpretation is preferred under which the condition occurs if . . . a reasonable person

in the position of the obligor would be satisfied." There is an exception to this

objective construction, where the subject matter can only be subjectively and not

objectively satisfactory (e.g., "if you paint a portrait of my daughter with which I am

entirely satisfied, I'll pay you $5,000 for it"), but satisfactory proof of disability is not

inherently subjective, so the exception does not apply. This objective reading

subjects the obligor to a more stringent test than that his dissatisfaction must be

genuine and in accord with the duty of good faith and fair dealing. Even honest

dissatisfaction will not avoid his obligation, if a reasonable person in his position

would be satisfied.

A third reasonable construction is the one articulated in the dissent, that "will

pay . . . upon receipt of satisfactory written proof that you have become DISABLED"

means that, subject to its fiduciary duty, if the administrator is not satisfied (and has

not abused its discretion in so deciding), then it does not have to pay. The dissent's

position is in accord with Perez, although the phrasing of the clause there was slightly

different. We concede the syntactical reasonableness of the dissent's reading. But the

dissent goes too far, by suggesting that if anything is committed to the administrator's

discretion, then everything is. And the dissent's reading runs contrary to the common

law construction of conditions of "satisfaction." We reject the proposition that the

dissent's is the only reasonable reading.

175 F.3d at 1089-90 (footnote omitted). The second and third interpretations from Kearney are

applicable to the language at issue here. While the third interpretation is probably the most

reasonable interpretation of the subject policy and would grant Sun Life discretion, the second

interpretation is also reasonable and therefore means that the Sun policy does not unambiguously

grant discretion to Sun. If the common law rule interpreting "satisfactory" is used in construing

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1 In Nance, the Tenth Circuit found the language "Proof must be satisfactory to Sun

Life" sufficient to confer discretion upon the plan administrator. 294 F.3d at 1267. The court noted

that the Ninth Circuit might agree because of Helm v. Sun Life Assurance of Canada, Inc., 34 Fed.

Appx. 328, 331 (9th Cir. 2002). See Nance, 294 F.3d at 1268 n.2. While the Tenth Circuit is not

constrained by Ninth Circuit Rule 36-3 (unpublished opinions are not citable), this court is.

ORDER DETERMINING THE STANDARD OF REVIEW —No. C-03-04926 RMW

JAH 5

Sun's policy, "Proof must be satisfactory to Sun Life" arguably means that if a reasonable person in

Sun Life's position would be satisfied, the contractual condition is met. This construction of the

language is further supported by the fact that Sun could easily have drafted language making clear to

the employer and its employees that it had discretion to make coverage decisions. Accordingly, the

court finds that the standard of review is de novo.

This result comports with the determination in Green. In Green, the court considered the

same Sun Life policy language at issue here. 383 F. Supp. 2d at 1226. While the court did not

distinguish Nance v. Sun Life Assurance Company of Canada, 294 F.3d 1263 (10th Cir. 2002),1

 it

did find Sun Life's reliance on Helm to be unpersuasive, recognizing that it was unpublished and

therefore could not be relied upon. Id. at 1228. The Green court, relying almost exclusively on

Ninth Circuit cases (primarily Thomas and Sandy v. Reliance Standard Life Insurance Co., 222 F.3d

1202 (9th Cir. 2000)), ruled that "Sun Life's policy does not make clear whether it reserves

discretion, and if it does, the scope of that discretion." 383 F. Supp. 2d at 1228.

The Seventh Circuit has stated that the phrase "satisfactory to us" does not "convey enough

information" to make it clear that the plan administrator has discretion. Diaz v. Prudential Ins. Co.

of Am., 424 F.3d 635, 639 (2005). The Seventh Circuit recognized that the First, Eighth, and Tenth

Circuits take the opposite view. Id. at 638. In any case, however, the decisions from the Ninth

Circuit suggest that it employs a very stringent test in evaluating whether the insurance company has

unambiguously reserved discretion to determine whether a claim merits payment.

B. Conflict of interest

Ordinarily, where an administrator or fiduciary is given discretion to determine benefits

eligibility, courts must review the decision denying benefits under an abuse of discretion standard. 

Friedrich v. Intel Corp., 181 F.3d 1101, 1109 (9th Cir. 1999). However, even where the plan grants

the administrator or fiduciary discretion, if the claims decision was affected by an actual conflict of

interest, the decision is reviewed de novo. Id. Since the court has determined that a de novo review

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ORDER DETERMINING THE STANDARD OF REVIEW —No. C-03-04926 RMW

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of the decision to deny Wilkerson benefits is required because the plan language does not

unambiguously grant Sun discretion, it is unnecessary to decide whether that denial was affected by

an actual conflict of interest.

III. ORDER

For the foregoing reasons, the court determines that the policy at issue does not

unambiguously grant discretion to Sun Life to grant or deny claims. The applicable standard of

review is therefore de novo.

DATED: 2/27/06 /s/ Ronald M. Whyte

RONALD M. WHYTE

United States District Judge

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ORDER DETERMINING THE STANDARD OF REVIEW —No. C-03-04926 RMW

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Notice of this document has been electronically sent to:

Counsel for Plaintiff:

Ronald Glenn Dean rdean@74erisa.com

Counsel for Defendants:

J. Russell Stedman rstedman@barwol.com

Kathleen Elizabeth Dyer kdyer@barwol.com 

Counsel are responsible for distributing copies of this document to co-counsel that have not

registered for e-filing under the court's CM/ECF program.

Dated: 2/27/06 /s/ JH

Chambers of Judge Whyte

Case 5:03-cv-04926-RMW Document 95 Filed 02/27/06 Page 7 of 7