Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_04-cv-04164/USCOURTS-cand-4_04-cv-04164-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1332 Diversity-Insurance Contract

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United States District Court

For the Northern District of California

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28 1 Pursuant to Civ. L.R. 7-13, this order may not be cited exceptas provided by Civ.

L. R. 3-4(e).

United States District Court

For the Northern District of California

NOT FOR CITATION

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

METROPOLITAN LIFE INSURANCE

CO.,

Plaintiff, No. C 04-4164 PJH

v. ORDER RE STANDARD OF REVIEW

DIANE T. SIMPSON,

Defendant.

_______________________________/

Before this court is the briefing requested at the March 31, 2005 case management

conference on the applicable standard of review for this case. Having read all papers

submitted and carefully considered the relevant legal authority, the court rules as follows.1

BACKGROUND

Plaintiff MetLife provided insurance coverage for defendant Diane Simpson under the

Federal Long Term Care Insurance Program (“FLTCIP”), which was established by the U.S.

Office of Personnel Management under the Long Term Care Security Act (“LTCSA”), 5 U.S.C.

§ 9001. MetLife denied Simpson’s claim for benefits and rescinded her insurance coverage

because, it alleged, she lied on her application when she stated that she had not been

diagnosed with Alzheimer’s disease or other dementia. 

DISCUSSION

Both parties agree that while the statute provides for district court review of an insurer’s

decision under the FLTCIP, it does not set forth the standard of review to be used by the court

in doing so. The question of the applicable standard of review under the LTCSA does not yet

appear to have been addressed by any federal court. 

Case 4:04-cv-04164-PJH Document 51 Filed 06/15/05 Page 1 of 4
United States District Court

For the Northern District of California

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A. Firestone

In Firestone Tire & Rubber Co. v. Bruch, the U.S. Supreme Court established the

standard of review for ERISA cases by analogizing ERISA to trust law. 489 U.S. 101, 110-

115 (1989) (finding that de novo review applies unless plan explicitly gives fiduciary power to

construe terms of the plan). Firestone principles have also been applied in the context of

analogous non-ERISA contractually-granted benefits. In Oracle Corporation v. Falotti, 319

F.3d 1106, 1114 (9th Cir. 2003), cert. denied, 540 U.S. 875 (2003), for example, the court

upheld an abuse of discretion standard of review in the interpretation of a stock option

agreement by a corporation’s compensation committee, because the stock option agreement

gave the compensation committee full discretion to make determinations of applicability. 

Thus, because the LTCSA creates an a trust-like system similar to ERISA’s, with the

administrators of the FLTCIP in a fiduciary relationship with beneficiaries such as Simpson,

the court finds that it is appropriate to apply Firestone principles to the question presented

here. The MetLife plan vests full discretion in the plan administrators “to interpret the terms,

conditions, and provisions” of the benefit plan. MetLife Opening Br. Exh. A at 16. 

Accordingly, unless some exception applies, the court will review the administrator’s decision

for abuse of discretion. 

B. Conflict of Interest

Simpson argues that even if abuse of discretion review applies, a conflict of interest

exists as to the FTLCIP’s decision sufficient to warrant de novo review. ERISA case law

provides an exception to the usual presumption that abuse of discretion review applies to an

administrator’s decision if plaintiff can show the existence of a sufficient conflict of interest in

the administrator’s decision, in which case the review shall be de novo. To demonstrate a

conflict of interest warranting de novo review, Simpson must show the existence of “probative

evidence, beyond the mere fact of the apparent conflict, tending to show that the fiduciary’s

self-interest caused a breach of the administrator’s fiduciary obligations to the beneficiary.” 

Jordan v. Northrop Grumman Welfare Benefit Plan, 370 F.3d 869, 875-76 (9th Cir. 2004)

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United States District Court

For the Northern District of California

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(citations omitted). 

In support of her claim that a conflict of interest exists here, Simpson argues the fact

that MetLife and the Office of Personnel Management promulgated new regulations

concerning rescission of LTCSA contracts in the midst of her administrative appeal, and that

MetLife prevented her from submitting evidence in support of her claim by filing this lawsuit

before her deadline for submitting evidence in support of her administrative claim had

passed. Simpson claims that both these facts raise significant questions concerning the

legitimacy of MetLife’s decisions in her case, and thus support an argument that MetLife

breached its fiduciary duty to her as a beneficiary. 

MetLife concedes that it indeed promulgated standards of review for policy rescission

only after it began reviewing Simpson’s case. McGuinness Decl. ¶ 4 (noting that new

standards were promulgated in conjunction with the federal Office of Personnel Management

and the Long Term Care Program, as well as the insurers). MetLife also concedes that due to

several miscommunications concerning extensions of time, it was forced to file suit before

Simpson’s administrative claim was fully exhausted and before Simpson had an opportunity to

submit additional information supporting her case. MetLife, however, asserts that no unfair

decision was in fact rendered under the newly promulgated standard of review, that

Simpson’s administrative appeal remains open, and that MetLife is willing to accept any new

evidence that Simpson may wish to offer. Id. ¶ 5. 

The court agrees with Simpson that MetLife’s promulgation of rescission policies

during the course of reviewing her claim, and ostensibly, as a result of deciding to rescind her

policy, suggests self-interested conduct on MetLife’s behalf. Moreover, this court has already

found that MetLife had some obligation to comply with its own procedures particularly where,

as here, it claims that the regulations do not apply. Yet before the deadline agreed to by

MetLife had expired, MetLife filed suit. Notwithstanding MetLife’s explanation for its reasons

for doing so, the filing of the lawsuit appears to this court, as well as to Simpson, as

precipitous.

Case 4:04-cv-04164-PJH Document 51 Filed 06/15/05 Page 3 of 4
United States District Court

For the Northern District of California

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Given these procedural irregularities in Simpson’s administrative appeal, the court

finds that Simpson has adequately demonstrated the possibility of a conflict of interest in

MetLife’s decision-making process. See, e.g., Nord v. Black & Decker Disability Plan, 356

F.3d 1008, 1010 (9th Cir. 2004), cert. denied, 125 S.Ct. 62 (2004) (material, probative

evidence of a conflict of interest includes evidence of “procedural irregularities in the

processing of the beneficiaries’ claims”); see also Friedrich v. Intel Corporation, 181 F.3d

1105, 1110 (9th Cir. 1999) (de novo review appropriate when procedural irregularities by

insurer included, among other factors, poor communication with beneficiary such that

beneficiary was unaware of the status of the administrative appeal). Therefore, the court will

conduct a de novo review of MetLife’s decision. 

Since the court has found that de novo review applies, full discovery in this case is

appropriate as well. In any event, MetLife has already stated that it is willing for the court to

consider the additional documents submitted by Simpson that were not submitted to MetLife

during its initial administrative review. 

This court has previously ruled that it will review MetLife’s rescission claim before

reaching Simpson’s claim for benefits. Thus, discovery at this point is limited to that relating

only to the rescission claim. This order fully adjudicates the matter listed at no. 33 on the

clerk’s docket for this case. 

IT IS SO ORDERED.

Dated: June 15, 2005

______________________________

PHYLLIS J. HAMILTON

United States District Judge

Case 4:04-cv-04164-PJH Document 51 Filed 06/15/05 Page 4 of 4