Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_07-cv-00974/USCOURTS-cand-3_07-cv-00974-2/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 29:1132 E.R.I.S.A.: Employee Benefits

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United States District Court

For the Northern District of California

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

TINA ALVAREZ,

Plaintiff,

 v.

UNUM LIFE INSURANCE COMPANY OF

AMERICA, PRIMED MANAGEMENT

CONSULTING SERVICES, INC. LONG

TERM DISABILITY PLAN,

Defendants. /

No. C 07-00974 WHA

ORDER GRANTING IN PART

AND DENYING IN PART

MOTION FOR SUMMARY

JUDGMENT; CASE

MANAGEMENT ORDER

INTRODUCTION

In this ERISA benefits action, defendants move for summary judgment. This order

finds that plaintiff has demonstrated that triable issues of material fact exist in the

administrative record. For the below-stated reasons, defendants’ motion for summary judgment

is GRANTED IN PART AND DENIED IN PART.

STATEMENT

The essential facts that follow are undisputed. Effective October 1, 1998, defendant

Unum Life Insurance Company of America issued its Policy No. 505663 011 to PriMed

Management Consulting Services, Inc. (AR 43–88). Plaintiff Tina Alvarez was an employee of

PriMed, where she worked as a service-center coordinator from 1992 to 2003 (AR 31).

The Policy insured short-term and long-term disability benefits provided to PriMed

employees by the other defendant in this action, PriMed Management Consulting Services Long

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Term Disability Plan. The policy that the plan chose to purchase from Unum contained the

following relevant provisions (AR 44, 52, 63–64, 65–66, 83) 

• “The policy is delivered in and is governed by the laws of the

governing jurisdiction and to the extent applicable by the Employee

Retirement Income Security Act of 1974 (“ERISA”) and any

amendments.”

• “When making a benefit determination under the policy, Unum has

discretionary authority to determine your eligibility for benefits and

to interpret the terms and provisions of the policy.”

• “We may request that you send proof of continuing disability

indicating that you are under the regular care of a physician. This

proof, provided at your expense, must be received within 45 days of

a request by us.”

• “In some cases, you will be required to give Unum authorization to

obtain additional medical information and to provide non-medical

information as part of your proof of claim, or proof of continuing

disability. Unum will deny your claim, or stop sending you

payments, if appropriate information is not submitted.”

• “HOW MUCH WILL UNUM PAY YOU IF YOU ARE

DISABLED?

We will follow this process to figure your payment:

1. Multiply your monthly earnings by 66.6667%.

2. The maximum monthly benefit is $10,000.

3. Compare the answer from item 1 with the maximum

monthly benefit. The lesser of these two amounts is your

gross disability payment.

4. Subtract from your gross disability payment any deductible

sources of income.

The amount figured in item 4 is your monthly payment.”

• “WHAT ARE DEDUCTIBLE SOURCES OF INCOME?”

 Unum will subtract from your gross disability payment the

following deductible sources of income:

***

(7) The amount that you receive from a third party (after

subtracting attorney’s fees) by judgment, settlement or

otherwise.

 With the exception of retirement payments, Unum will only

subtract deductible sources of income which are payable as

a result of the same disability.”

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• “DISCRETIONARY ACTS

 In exercising its discretionary powers under the Plan, the Plan

Administrator, and any designee (which shall include Unum as a

claims fiduciary) will have the broadest discretion permissible

under ERISA and any other applicable laws, and its decisions will

constitute final review of your claim by the Plan. Benefits under

this Plan will be paid only if the Plan Administrator or its designee

(including Unum), decides in its discretion that the applicant is

entitled to them.”

On June 1, 2001, plaintiff Tina Alvarez, then 36-years old, was involved in a motorcycle

accident indirectly caused by a CalTrans vehicle. As a result of the accident, plaintiff allegedly

suffered and continues to suffer from: (1) a cerebral concussion/vestibular concussion,

post-concussive syndrome, chronic debilitating migraine headaches; (2) menstrual hemorrhagia,

secondarily resulting in infertility; (3) a separated left shoulder, with surgery on December 26,

2001; (4) a left knee injury requiring eventual surgery; and (5) multiple contusions and

abrasions, cervical sprain, chronic myofascial pain syndrome (AR 619, 621–24).

In early October 2004, Unum received notice from plaintiff’s counsel that plaintiff had

suffered injury on June 1, 2001. The attorney indicated that plaintiff also had a pending lawsuit

in Alameda County Superior Court, Tina Alvarez v. State of California, Case No. HG 03

098340 (AR 17–18).

Also in October 2004, plaintiff filed a claim for benefits with Unum, which included an

employee’s statement, an employer’s statement from PriMed, and an attending physician’s

statement. The physician’s statement stated that plaintiff had a cognitive disorder secondary to

traumatic brain injury, general anxiety, and depression (AR 29–32).

After an investigation, Unum notified plaintiff’s counsel in October 2005 that it had

approved her claim for benefits. Unum reminded counsel of the policy provision stating that

the amount received from a third party “by judgment, settlement or otherwise” (but subtracting

attorney’s fees) was a “deductible source of income” (AR 828).

In December 2005, plaintiff’s counsel provided Unum with a copy of documents

memorializing the settlement of Alvarez v. State of California. The release stated that the

settlement included a payment of $400,000 to plaintiff and her attorneys, and a payment of

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$350,000 to Metropolitan Life Insurance Company to purchase a structured annuity for

plaintiff’s benefit. Of the $400,000 payment, $82,986.96 went to plaintiff directly (AR 859,

62–63). The settlement documents did not identify whether the settlement was for plaintiff’s

medical care, lost wages, pain and suffering, or combination of those considerations.

By letter dated January 5, 2006, Unum forwarded plaintiff the initial benefit check for

$32,909.09 for the period between March 16, 2003, through December 15, 2005 (AR 892–94). 

On January 19, Unum explained that the lump-sum settlement amount that she had received was

being offset from the beginning of the claim through the maximum possible duration of the

claim (AR 899-900).

In February 2006, Unum contacted plaintiff’s counsel, stating that Unum needed

additional information to determine plaintiff’s continued eligibility for benefits. Unum cited the

policy provision allowing Unum to request confirmation that a claimant continued to be under

physician’s care and to request additional information (AR 908–09). 

Plaintiff’s counsel wrote to Unum in April 2006, objecting to Unum’s offset of the

“entire” amount of plaintiff’s settlement with CalTrans. Plaintiff’s counsel argued that the

California Insurance Code did not allow coordination of benefits with third-party liability

coverage. Counsel also contended that the policy, read as a whole, clearly intended only to

offset for other types of disability or loss-of-income benefits. Counsel proposed that an offset

of 10% of plaintiff’s net recovery under the settlement would be appropriate. Additionally,

counsel objected to Unum’s request for periodic medical updates (AR 946–49).

Plaintiff’s counsel had a phone call with an Unum representative on May 6, 2006. 

Unum sent a letter on May 10, 2006, clarifying the offset calculations. Plaintiff’s counsel

continued to assert that Unum’s offset was improper. Unum responded that it was not offsetting

the portions of the settlement that compensated plaintiff for legal and medical fees, but would

offset the balance of the settlement in accordance with the plan terms. Counsel was also

advised of plaintiff’s right to appeal the determination (AR 974, 979–80, 988, 990–92).

Plaintiff appealed the benefits determination on July 25, 2006. By letter dated August

22, 2006, Unum informed counsel that it had completed an appellate review of the file. Unum

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stated that the $82,929.96 which plaintiff received directly out of the initial $400,000 was

considered deductible income under the terms of the policy (AR 1044–47). In the same letter,

in response to counsel’s argument that plaintiff’s settlement included non-disability-related

claims which should not have been offset, Unum stated (AR 1047):

In summary, the Settlement Agreement is a general release, which

does not specify that 10 percent of the disbursement was for loss

of income. Although we understand that you continue to disagree

with the [amount] of the offset being applied, based on our review

of Ms. Alvarez’s file on appeal, it remains our position that we

are entitled to apply the entire net amount received from her third

party settlement and that the appropriate amount is being

deducted from her gross monthly disability payments.

In November 2006, Unum wrote to plaintiff’s counsel requesting the names of her

current treaters and a list of her current medications. Counsel responded that Unum’s requests

for medical information were “becoming unreasonable and intolerable” (AR 1096, 1105–06). 

The amended complaint herein asserts claims against both Unum and the plan. First, it

alleges that the policy improperly offset the entire amount of plaintiff’s settlement with the

State of California on her personal injury claim. Second, it alleges that the requests for medical

reports is unreasonable and requests declaratory relief to prohibit further reporting requests. 

Defendants filed the entire administrative record on June 26, 2007. They concurrently filed a

motion for summary judgment on all claims.

ANALYSIS

Under Federal Rule of Civil Procedure 56, summary judgment is proper where the

evidence shows that “there is no genuine issue as to any material fact and that the moving party

is entitled to judgment as a matter of law.” It is not the task of the district court to scour the

record in search of a genuine issue of triable fact. The nonmoving party has the burden of

identifying with reasonable particularity the evidence that precludes summary judgment. 

Keenan v. Allen, 91 F.3d 1275, 1279 (9th Cir. 1996). A genuine dispute as to a material fact

exists if there is sufficient evidence for a reasonable finder of fact to return a verdict for the

nonmoving party. On summary judgment, the “evidence of the non-movant is to be believed,

and all justifiable inferences are to be drawn in his favor.” Anderson v. Liberty Lobby, Inc., 477

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U.S. 242, 248, 255 (1986). Review here will be limited to the administrative record. In the

Ninth Circuit, “a district court should not take additional evidence merely because someone at a

later time comes up with new evidence and in most cases only the evidence that was before the

plan administrator should be considered.” Kearney v. Standard Ins. Co., 175 F.3d 1084, 1091

(9th Cir. 1999) (quotations and alterations omitted).

1. UNUM’S BENEFIT CALCULATION.

A. 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, 109 (1989). If, however, the

plan “does confer discretionary authority as a matter of contractual agreement, then the standard

of review shifts to abuse of discretion.” Abatie v. Alta Health & Life Ins. Co., 458 F.3d 955,

963 (9th Cir. 2006) (en banc).

The plan here fits squarely within the Firestone exception. The plan here states: “When

making a benefit determination under the policy, Unum has discretionary authority to determine

your eligibility for benefits and to interpret the terms and provisions of the policy” (AR 44). 

Because “the words give [Unum] the authority to interpret the plan’s terms and to make final

benefits determinations, discretion is unambiguously vested in [Unum].” Abatie, 458 F.3d at

964. Under Abatie and Firestone, this order holds that the inquiry must be whether Unum

abused its discretion in this case.

Plaintiff cites no case law to rebut this holding. Plaintiff does, however, note a so-called

“California Settlement Agreement” between the California Department of Insurance and Unum

(Req. for Judicial Notice Exh. B). In the California Settlement Agreement, Unum agreed that

any language having the effect of a “discretionary authority provision” would not be applied to

any new policies issued in California after October 3, 2005. Plaintiff also cites to a “Notice to

Withdraw Approval and Order for Information” issued by the Department in February 2004 to

all disability insurers doing business in California (Request for Judicial Notice Exh. A). The

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notice withdrew the Department’s approval of discretionary clauses in disability insurance

policies that “purport to confer on the insurer discretionary authority to determine eligibility for

benefits and to interpret the terms and provisions of the policy.” Plaintiff suggests that this

means that an abuse-of-discretion standard should not apply here because plaintiff requested a

reassessment of her benefits determination on July 25, 2006, after both the California

Settlement Agreement and notice. 

Plaintiff’s argument is unpersuasive. “Virtually every court that has addressed the

California [Department of Insurance’s] Notice and its impact on the standard of review in

ERISA cases has rejected the argument that the Notice entitles plaintiffs to a de novo standard

of review.” Lundquist v. Continental Cas. Co., 394 F. Supp. 2d 1230, 1246 (C.D. Cal. 2005)

(Olguin, J.) (citing cases); see also Moskowite v. Everen Capital Corp., No. C 03 4666 MMC

(MED), 2005 WL 1910941, at *5 (N.D. Cal. Aug. 10, 2005) (Chesney, J.) (“In any event, the

DOI has explained that its notice does not effect policies already sold.”) (quotations omitted). 

The agreement and notice only apply prospectively to new policies issued. Here, the policy

became effective on October 1, 1998. As to policies, such as this one, that predated the

agreement and notice, this order finds no ground on which to deviate from other courts’ rulings. 

An abuse-of-discretion standard is appropriate where, as here, the policy was already in

existence at the time of the notice and California Settlement Agreement. Accordingly, none of

the department’s rulings deprived Unum of discretion in this case.

B. Whether Unum Abused its Discretion.

In the Ninth Circuit, ERISA plan administrators “abuse their discretion if they render

decisions without any explanation, or construe provisions of the plan in a way that conflicts

with the plain language of the plan.” Taft v. Equitable Life Assur. Soc., 9 F.3d 1469, 1472 (9th

Cir. 1993). “[A]n administrator also abuses its discretion if it relies on clearly erroneous

findings of fact in making benefit determinations.” Id. at 1473.

“[E]mployers have large leeway to design disability and other welfare plans as they see

fit.” Black & Decker Disability Plan v. Nord, 538 U.S. 822, 833 (2003). The Supreme Court

has held that offset provisions do not violate ERISA and are enforceable by federal law. See

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Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 521–26 (1981). The plan here stated that

the amount received by a claimant “from a third party (after subtracting attorney’s fees) by

judgment, settlement or otherwise” would be deducted from the benefit payment. The provision

went on to provide that “[w]ith the exception of retirement payments, Unum will only subtract

deductible sources of income which are payable as a result of the same disability” (AR 65–66). 

The validity of this aspect of the plan is not disputed.

Plaintiff contends that Unum abused its discretion by offsetting the entire amount (less

attorney’s fees and costs) of her third-party settlement with the State of California from her plan

benefits. This order holds that plaintiff has raised triable issues of material fact as to whether

Unum abused its discretion. Specifically, plaintiff has raised a question whether Unum

improperly discounted the entire annuity she is entitled to receive under the settlement for the

remainder of her life. Under the plan, her benefits expire at age 65. The annuity under the

settlement, however, does not end at age 65. There is a question of material fact regarding

whether Unum abused its discretion when it discounted the entire amount of the settlement’s

annuity payments from her benefits that expire at age 65.

Additionally, plaintiff provided evidence that the settlement compensated plaintiff for

other injuries (in addition to the injuries suffered because of her motorcycle accident) — such

as sterility and hearing loss — which could not be considered the “same disability” under the

plan. Those injuries were not disabling. Her sterility did not even result from the subject

accident. These claims, which made up a portion of her third-party settlement, are outside the

scope of the plan’s coverage. There is a question of material fact whether Unum abused its

discretion when it offset the entire amount plaintiff received under the settlement.

2. REQUIREMENT OF PROOF OF CONTINUING DISABILITY.

Plaintiff also seeks declaratory relief exempting her from the requirement that she

continue to prove her eligibility for benefits. Plaintiff does not allege that she is currently

unable to provide proof of her disability. Rather, her complaint alleges that she “fears that, due

to her disability (and the fact that she will not always have legal counsel to assist her), that she

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will be unable to meet Defendant’s demands, resulting in the loss of her disability benefits”

(Am. Compl. ¶ 28). 

The policy here states that Unum “may request that you send proof of continuing

disability indicating that you are under the regular care of a physician. This proof, provided at

your expense, must be received within 45 days of a request by us” (AR 52). In the complaint,

plaintiff cited neither any contradictory policy provision nor any legal authority that would

permit nullification of the relevant provision. This order finds that plaintiff’s “fears”

themselves are an insufficient basis on which to declare as a matter of law that plaintiff need not

comply with Unum’s requests for information. Indeed, defendants correctly point out that

courts may not apply equitable principles that contradict express policy provisions. See

Davidian v. S. Cal. Meat Cutters Union and Food Employees, 859 F.2d 134, 135–36 (9th Cir.

1988). 

In the opposition to the motion for summary judgment, plaintiff raised a new theory for

the first time. Plaintiff now contends that the plan provisions violate Title III of the Americans

with Disabilities Act. The complaint itself does not include an ADA claim. That threshold

problem aside, however, the ADA is not an adequate ground on which to grant plaintiff the

requested relief.

The specific provision of the ADA cited by plaintiff states the general rule that “[n]o

individual shall be discriminated against on the basis of disability in the full and equal

enjoyment of the goods, services, facilities, privileges, advantages, or accommodations of any

place of public accommodation by any person who owns, leases (or leases to), or operates a

place of public accommodation.” 42 U.S.C. 12182(a). The Ninth Circuit has unequivocally

held that employee benefit plans are not covered by Title III of the ADA: “A benefit plan

offered by an employer is not a good offered by a place of public accommodation.” Weyer v.

Twentieth Century Fox Film Corp., 198 F.3d 10104, 1115 (9th Cir. 2000). The ADA is not a

ground for providing the declaratory relief plaintiff seeks. Summary judgment must be granted

on this claim.

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3. WHETHER UNUM IS A PROPER PARTY.

Unum contends that the only proper defendant here is the plan because Unum is the

claims administrator and not the plan administrator. See Everhart v. Allmerica Fin. Life Ins.

Co., 275 F.3d 751, 756 (9th Cir. 2001). In Everhart, the Ninth Circuit found “no reason to

depart from the established precedent of this circuit, and of every other circuit that has expressly

considered this issue, that § 1132(a)(1)(B) does not permit suits against a third-party insurer to

recover benefits when the insurer is not functioning as the plan administrator.” Id. at 756. The

court of appeals so held over Judge Reinhardt’s dissenting comment that “[t]o leave an ERISA

beneficiary such as Everhart without a remedy against the very party that has deprived her of

her interest in her late husband’s ERISA plan by refusing to pay the benefits she seeks to

recover would be directly contrary to the stated policy of the statute.” Id. at 761 (Reinhardt, J.,

dissenting).

The plan administrator here was plaintiff’s employer, PriMed Management Consulting

Services. Unum was the claims administrator. The dismissal of Unum is compelled by

Everhart.

CONCLUSION

For the foregoing reasons, defendants’ motion for summary judgment is GRANTED IN

PART AND DENIED IN PART. Plaintiff’s request for judicial notice of the California settlement

agreement and notice is also GRANTED. Additionally, plaintiff’s request for discovery is

GRANTED. 

The FINAL PRETRIAL CONFERENCE shall be at 2:00 P.M. on JANUARY 28, 2008. A

JURY TRIAL shall begin on FEBRUARY 11, 2008, at 7:30 A.M., in Courtroom 9, 19th Floor, 450

Golden Gate Avenue, San Francisco, California, 94102. The trial schedule and time limits shall

be set at the final pretrial conference. Although almost all trials proceed on the date scheduled,

it may be necessary on occasion for a case to trail, meaning the trial may commence a few days

or even a few weeks after the date stated above, due to calendar congestion and the need to give

priority to criminal trials. Counsel and the parties should plan accordingly, including advising

witnesses. 

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Counsel may not stipulate around the foregoing dates without Court approval. While

the Court encourages the parties to engage in settlement discussions, please do not ask for any

extensions on the ground of settlement discussions or on the ground that the parties experienced

delays in scheduling settlement conferences, mediation or ENE. The parties should proceed to

prepare their cases for trial. No continuance (even if stipulated) shall be granted on the ground

of incomplete preparation without competent and detailed declarations setting forth good cause.

To avoid any misunderstanding with respect to the final pretrial conference and trial, the

Court wishes to emphasize that all filings and appearances must be made — on pain of

dismissal, default or other sanction — unless and until a dismissal fully resolving the case is

received. It will not be enough to inform the clerk that a settlement in principle has been

reached or to lodge a partially executed settlement agreement or to lodge a fully executed

agreement (or dismissal) that resolves less than the entire case. Where, however, a

fully-executed settlement agreement clearly and fully disposing of the entire case is lodged

reasonably in advance of the pretrial conference or trial and only a ministerial act remains, the

Court will arrange a telephone conference to work out an alternate procedure pending a formal

dismissal.

IT IS SO ORDERED.

Dated: August 14, 2007. WILLIAM ALSUP

UNITED STATES DISTRICT JUDGE

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